Try our mobile app

Adjusted EPS and Adjusted EBITDA are non-GAAP financial metrics that are reconciled with the most directly comparable GAAP financial metrics in Annex A.

CEO Succession Planning

On September 26, 2022, the Company announced a succession plan by which Mr. Owens would retire from both the Board of Directors of the Company and the position of President and Chief Executive Officer of the Company, effective December 3, 2022. Mr. Owens remained with the Company in a non-executive capacity through December 31, 2022 to assist with the CEO transition. As described in this proxy statement, fiscal year 2022 CEO compensation arrangements are for Mr. Owens.

The Company also announced that Celeste B. Mastin would be appointed President and Chief Executive Officer of the Company, effective December 4, 2022. Ms. Mastin was also elected to the Board, effective December 4, 2022. Ms. Mastin’s appointment as CEO culminates a multi-year process to identify the best candidate to succeed Mr. Owens. Ms. Mastin was hired as the COO effective March 7, 2022 based on her wealth of experience leading complex, global businesses, and her qualifications and abilities to assume the role of CEO.

As President and Chief Executive Officer of the Company for fiscal year 2023, Ms. Mastin will receive an annual base salary of $950,000. Also, she will be entitled to receive a target incentive opportunity of 120% of her base salary with a maximum incentive opportunity of up to 240% of her base salary under the Company’s short-term incentive plan. Ms. Mastin will also receive stock-based incentive awards under the Company’s long-term incentive plan consisting of non-qualified stock options, performance-based restricted stock units and time-based restricted stock units with a total annual value of 375% of her base salary, or $3,562,500. Ms. Mastin will not receive any separate compensation for serving as an executive director of the Company.

Executive Compensation Program (For More Information, see pages 30 - 44)

Our program emphasizes pay for performance using short- and long-term incentive awards as a significant percentage of total compensation. The graphs below show each element of total direct compensation (base salary, short-term incentive, and long-term

PROXY SUMMARY

incentive) as a percentage of total direct compensation for fiscal year 2022 for the CEO and the other NEOs listed in the “Summary Compensation Table”).

Short-term incentive awards are performance-based cash awards granted pursuant to the STIP. Actual results on all STIP metrics are set forth in a table on page 37 of this Proxy Statement. STIP payments can range from 0% to 200% of target. In fiscal year 2022, the achievement of our financial metrics resulted in short-term cash incentive payouts for our CEO, CFO and COO of 113% of target and ranged from 102% to 168% of target for our other NEOs, based in part on the performance of the global business units that they lead. All short-term incentive awards earned for fiscal year 2022 are also shown in the “Non-Equity Incentive Plan Compensation” column of the “Summary Compensation Table” later in this Proxy Statement.

Long-term incentive awards are equity awards granted pursuant to the LTIP. The awards are composed of NQSOs, RSUs and PSUs.   All equity awards granted in fiscal year 2022 are shown in the “Grants of Plan-Based Awards During Fiscal 2022” table later in this Proxy Statement.

See further discussion and detail in the “Compensation Discussion and Analysis” section of this Proxy Statement.

OTHER HIGHLIGHTS OF OUR EXECUTIVE COMPENSATION PROGRAM

Fiscal 2022 Changes to the Executive Compensation Program

In fiscal year 2021, the Compensation Committee decided not to include unvested/unearned PSUs in calculating the CEO’s stock ownership to align with market practice, and in fiscal year 2022, the Committee made the decision to implement this change for all NEOs.  For NEOs other than the CEO, CFO and COO, the stock ownership guideline was decreased from three to two times their base salary in consideration of the new exclusion of unearned/unvested PSUs from the calculation of stock ownership while remaining within competitive market practice. More information on this change can be found under the heading “Stock Ownership” on page 43.

PROXY SUMMARY

Board Composition and Diversity

The Board believes that its membership should reflect a diversity of experience, skills, geography, gender, and ethnicity that can enrich its deliberations. The following pie charts provide information about certain aspects of our Board’s diversity as of January 31, 2023.

Additional information on our policies regarding Board composition and Board diversity may be found under “Proposal 1 – Election of Directors – How can a shareholder suggest a candidate for election to the Board?”

Shareholder Engagement

We regularly engage with our investor base to obtain their input on our governance, sustainability, and compensation programs. We have generally received positive feedback and have planned our programs based in part on such feedback when appropriate.

PROXY SUMMARY

H.B. FULLER COMPANY’S SUSTAINABILITY EFFORTS, HUMAN RIGHTS POLICY,

CORPORATE GIVING AND EMPLOYEE VOLUNTEERISM

At H.B. Fuller, we are committed to creating positive change for all our stakeholders, including customers, employees, shareholders, and communities. We know that our company is best positioned for success when we win the right way, by creating sustainable solutions, taking care of our communities, and planning for the future. Social responsibility is fundamental to who we are as a company and also is a source of competitive advantage. We continually strive to minimize the environmental impact of our operations, while holding safety as a Company value and providing a dynamic and supportive workplace for our employees. We are also committed to basic human rights in our business and across our supply chain, as stated in the H.B. Fuller Human Rights Policy, which can be found in the “Sustainability” section of our corporate website (www.hbfuller.com). We are committed to minimize our ecological footprint and set targets for four key sustainability metrics: energy intensity, greenhouse gas emissions intensity, waste intensity and water withdrawal intensity.  We report annually on our sustainability targets, volunteerism and philanthropy in our Annual Sustainability Report, which may be downloaded from our “Sustainability” section of our corporate website (www.hbfuller.com). This report, our Human Rights Policy and our website are not incorporated by reference in, and are not part of, this Proxy Statement.

PROPOSAL 1—ELECTION OF DIRECTORS

PROPOSAL

The Board of Directors is composed of nine directors divided into three classes. Generally, each year one class of directors stands for election for a three-year term. The term of office for Class III directors, consisting of Daniel L. Florness, Lee R. Mitau, and Teresa J. Rasmussen will expire at the Annual Meeting. Mr. Florness, Mr. Mitau and Ms. Rasmussen are being nominated to serve an additional three-year term of office until the 2026 Annual Meeting and until their successors are duly elected and qualified or until their earlier resignation or removal and each has agreed to serve as a director if elected. Mr. Florness and Mr. Mitau were elected to the Board of Directors by the shareholders. Ms. Rasmussen was recommended by both Mr. Mitau and Mr. Owens, and appointed by the Board of Directors in 2020.  For information on how a shareholder may suggest a person to be a nominee to the Board, see “How can a shareholder suggest a candidate for election to the Board?”

Unless earlier terminated due to retirement or resignation, the term of office for Class I directors, consisting of Thomas W. Handley, Ruth S. Kimmelshue, and Srilata A. Zaheer will expire at the Annual Meeting in 2024, and the term of office for Class II directors, consisting of Michael J. Happe, Charles T. Lauber, and Celeste B. Mastin will expire at the Annual Meeting in 2025.

There were a number of Board successions during fiscal year 2022.  John C. van Roden, Jr. retired effective at the end of his term on April 7, 2022. On September 15, 2022, the Board accepted the resignation of Dante C. Parrini, and on November 29, 2022, the Board elected Mr. Lauber, effective January 23, 2023. Mr. Owens retired from the Company and from the Board of Directors on December 3, 2022. Effective December 4, 2022, Ms. Mastin was elected as CEO and as a member of the Board of Directors.  

If, for any reason, any nominee becomes unable to serve before the election, the persons designated as proxies will vote your shares for a substitute nominee selected by the Board of Directors. Alternatively, the Board, at its option, may reduce the number of directors constituting Class III directors.

PROPOSAL 1—ELECTION OF DIRECTORS

WHO ARE THE NOMINEES?

The following directors are standing for re-election for a three-year term until the 2026 Annual Meeting of Shareholders and until the successors are duly elected and qualified or until their earlier resignation or removal.

Class III (Term Ending in 2023)

PROPOSAL 1—ELECTION OF DIRECTORS

HOW CAN A SHAREHOLDER SUGGEST A CANDIDATE FOR ELECTION TO THE BOARD?

The Corporate Governance and Nominating Committee of the Board reviews and recommends candidates for election to the Board. Generally, current directors or third-party search firms engaged by the Corporate Governance and Nominating Committee identify candidates for consideration by the Committee. No third-party search firm was engaged during fiscal year 2022. The Corporate Governance and Nominating Committee reviews candidates and reports their recommendations to the Board of Directors, including an assessment of a candidate’s judgment, experience, independence and such other factors as the Corporate Governance and Nominating Committee concludes are pertinent considering the Board’s needs. The Board of Directors believes that its membership should reflect a diversity of experience, skills, geography, gender, and ethnicity that can enrich its deliberations. The Board invites each candidate to self-identify diversity characteristics, which may include but are not limited to gender, racial or ethnic background, as well as diverse work experiences, military service, or socio-economic or demographic characteristics. It considers diversity when evaluating director candidates and setting priorities for director searches.

The Committee considers candidates recommended by any shareholder using the same criteria set forth above. Recommendations may be sent to the Corporate Governance and Nominating Committee in care of the Corporate Secretary of H.B. Fuller. No shareholder recommended any candidate during fiscal year 2022. For the Board to consider a candidate for nomination at the 2024 Annual Meeting, shareholders must submit the required information to the Corporate Secretary by the close of business on October 25, 2023.

WHO ARE THE REMAINING DIRECTORS?

The following directors are not standing for re-election at the Annual Meeting and their service will continue until the end of their respective terms.

PROPOSAL 1—ELECTION OF DIRECTORS

Class I (Term Ending in 2024)

PROPOSAL 1—ELECTION OF DIRECTORS

Class II (Term Ending in 2025)

PROPOSAL 1—ELECTION OF DIRECTORS

CORPORATE GOVERNANCE

Corporate Governance Guidelines

The Board, upon recommendation of the Corporate Governance and Nominating Committee, has adopted Corporate Governance Guidelines, which summarize many of the corporate governance principles that the Board follows in governing H.B. Fuller. The guidelines are available for review on our website (www.hbfuller.com) in the “Governance” section of the Investor Relations page.

Director Independence

Pursuant to our Corporate Governance Guidelines and the listing standards of the New York Stock Exchange (“NYSE”), the Board has determined that all Board members, other than Ms. Mastin, are independent. No director is considered independent unless the Board affirmatively determines that such director has no material relationship with H.B. Fuller. In assessing the materiality of any person’s relationship with H.B. Fuller, the Board considers all relevant facts and circumstances, including not only direct relationships between H.B. Fuller and each director but also any relationships between H.B. Fuller and any entity with which a director is affiliated.

The Board reviewed certain transactions between H.B. Fuller and our directors and entities with which they are affiliated and determined that they were made or established in the ordinary course of business and that the directors had no direct or indirect material interest in the transactions. These directors recused themselves from this review and determination as it related to the entities with which they are affiliated. The Board considered customer-supplier transactions between: (i) the Company and Fastenal Company, of which Mr. Florness is the President and Chief Executive Officer, (ii) the Company and Cargill, Incorporated, of which Ms. Kimmelshue is Corporate Senior Vice President, Business Operations & Supply Chain, (iii) the Company and Winnebago Industries, Inc., of which Mr. Happe is the Chief Executive Officer, and (iv) the Company and A.O. Smith Corporation, of which Mr. Lauber is the Executive Vice President and Chief Financial Officer. The Board also reviewed H.B. Fuller’s charitable contributions to, and services provided by, the University of Minnesota and its Carlson School of Management, Dr. Zaheer’s employer. The dollar amounts involved in the transactions fall below the thresholds set by the NYSE for director independence.

Meetings of the Board and the Board’s Committees

Directors are expected to attend the Annual Meeting of Shareholders and all meetings (including virtual meetings) of the Board and each committee on which they serve. During the 2022 fiscal year, the Board held seven meetings. Each of the directors attended greater than 75% of the meetings of the Board and Board committees on which the directors served during the 2022 fiscal year. In addition, all the directors (except Ms. Mastin and Mr. Lauber, who were not directors at the time) attended our Annual Meeting of Shareholders held on April 7, 2022.

What are the roles of the Board’s Committees?

The Board of Directors is responsible for the overall affairs of H.B. Fuller. The Board conducts its business through meetings of the Board and three standing committees: Audit, Compensation, and Corporate Governance and Nominating. The Board has adopted a written charter for each committee. The charters for each of these committees are available for review on our website (www.hbfuller.com) in the “Governance” section of the Investor Relations page. Information regarding the three standing committees is set forth below. When necessary, the Board may also establish ad hoc committees to address specific issues. The members of the committees as of January 31, 2023 are as follows:

CORPORATE GOVERNANCE

AUDIT COMMITTEE

Number of Meetings in fiscal year 2022:  Ten

Functions: The Audit Committee reviews the Company's financial information and disclosures, appoints the independent registered public accounting firm to audit our consolidated financial statements, oversees the audit and the independence and performance of our independent registered public accounting firm, determines and pre-approves the type and scope of all audit, audit-related and non-audit services provided by our independent registered public accounting firm, oversees our internal audit function, reviews the performance of our retirement plans and reviews our annual audited consolidated financial statements, accounting principles and practices and the adequacy of internal controls. In addition, the Audit Committee reviews the Company’s risk management policies, procedures, and controls to assess their adequacy and appropriateness in the context of the Company’s business and operating environment, and review steps that management takes to monitor and mitigate risk exposures. The Committee reviews, on an annual basis, the overall enterprise risk management approach and management’s assessment and mitigation of significant risk factors impacting the Company’s business and operating environment. The Committee also monitors cybersecurity, compliance with legal and regulatory requirements, our Code of Business Conduct and our Policy and Procedures Regarding Transactions with Related Persons.

All the members of the Audit Committee are considered independent as that term is defined by our Corporate Governance Guidelines, the listing standards of the NYSE and the applicable rules and regulations of the SEC. The Board of Directors has also determined that Daniel L. Florness and Thomas W. Handley satisfy the requirements of an audit committee financial expert as such term is defined under the rules and regulations of the SEC. The Audit Committee Report for fiscal year 2022 is included in this Proxy Statement.

COMPENSATION COMMITTEE

Number of Meetings in fiscal year 2022:  Six

Functions: The Compensation Committee establishes overall compensation programs and practices for executives and reviews and approves compensation, including salary, incentive programs, stock-based awards, retirement plans, perquisites and other supplemental benefits, employment agreements, severance agreements, change in control provisions and other executive compensation items for our executive officers. The Compensation Committee monitors the competitiveness, fairness and equity of our retirement plans and administers our stock-based compensation plans and individual awards.

The Compensation Committee annually reviews and approves compensation for our non-employee directors including retainers, equity awards, and other compensation and expense items.

The Compensation Committee may delegate its authority to the Chair of the Compensation Committee to accelerate vesting of outstanding awards. The Committee intends this delegation of authority to be for situations of retirement or termination, and where it is impractical to obtain participation by all Committee members.

All the members of the Compensation Committee are considered independent as that term is defined by our Corporate Governance Guidelines and the listing standards of the NYSE. The Compensation Committee Report for fiscal year 2022 is included in this Proxy Statement.

CORPORATE GOVERNANCE AND NOMINATING COMMITTEE

Number of Meetings in fiscal year 2022: Five

Functions: The Corporate Governance and Nominating Committee reviews matters of corporate governance, including our organizational structure and succession planning. This Committee evaluates and recommends new director nominees and evaluates each current director prior to nominating such person for re-election. The Corporate Governance and Nominating Committee reviews a director’s continued service if a director’s occupation changes during his or her term. This Committee also evaluates the performance of the Chairman of the Board, the President and Chief Executive Officer, and the directors, and makes recommendations to the Board regarding any shareholder proposals.

The Committee is also responsible for reviewing and assessing the Company’s policies and practices relating to significant issues of corporate social and public concern including environmental, social and governance (ESG) matters and may delegate to other Board committees responsibilities related to certain ESG matters as the Committee deems appropriate.  The Committee oversees the Company’s engagement with and disclosures concerning ESG matters.

CORPORATE GOVERNANCE

The Corporate Governance and Nominating Committee considers shareholder recommendations for potential director nominees. See “How can a shareholder suggest a candidate for election to the Board?”

All the members of the Corporate Governance and Nominating Committee are considered independent as that term is defined by our Corporate Governance Guidelines and the listing standards of the NYSE.

Board’s Role in Oversight of Risk

In General

The Board believes that effective enterprise risk management must be an integral part of Board and Committee deliberations and activities throughout the year. As part of the enterprise risk management, the Board engages in the following activities throughout the fiscal year:

Through these processes, the Board continuously oversees a system to identify, assess and address material risks to the Company on a timely basis. During fiscal year 2022, the Board specifically reviewed the top risks identified during a comprehensive risk assessment process in fiscal year 2020. This review included a review of risk mitigation strategies and included the steps taken since the prior year review to enable the mitigation strategies.

In addition, the Board’s leadership structure, as described below in the section titled “Board Leadership Structure” supports its role in risk oversight. The Company has a separate Chairman of the Board and Chief Executive Officer and has had these roles separated since 2007. If these positions are combined, we will have an independent Presiding Director. We have strong independent directors chairing each of our Board Committees, all of which are involved in risk oversight, and there is open communication between management and the non-employee directors.

Risk Assessment of Compensation Programs

Management conducted a risk assessment of the Company’s policies and programs relating to the compensation of employees, including those that apply to our executive officers. Management discussed the findings of the risk assessment with the Compensation Committee. Based on the assessment, the Company believes that its compensation policies and practices create an appropriate balance between our base salary compensation, short-term incentive compensation and long-term incentive compensation, thereby reducing the possibility of imprudent risk-taking and that its compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company.

Board Leadership Structure

Our Corporate Governance Guidelines provide that the Board of Directors does not require the separation of the offices of Chairman and Chief Executive Officer. Separation of these offices is an issue that is to be addressed as part of the Company’s succession planning. When the Chairman and Chief Executive Officer are separate offices, the Chairman will serve as the Presiding Director. However, when the Chief Executive Officer also holds the position of Chairman, a Presiding Director will be appointed by the Board to

CORPORATE GOVERNANCE

further the achievement of a strong, independent Board with an appropriate balance between the Board and the Chief Executive Officer. In such cases, the Chair of the Corporate Governance and Nominating Committee shall serve as the Presiding Director.

Mr. Mitau has served as our independent Chairman of the Board since December 2006 and, in this capacity, has acted as the Presiding Director at Board of Director meetings and during executive sessions of the non-management directors. Our Board has separated the roles of Chairman of the Board and Chief Executive Officer since 2006, because it promotes independent Board oversight of management, capitalizes on existing Board expertise, and it is an effective allocation of duties as between the Chairman and the CEO. Mr. Mitau serves as the Chairman of the Board of Graco Inc. and has significant public company experience. The Chief Executive Officer, in consultation with the Chairman, establishes the agenda for each Board meeting. At the beginning of each fiscal year, the Chairman also publishes a schedule of topics to be discussed.

Director Elections

With respect to the election of directors, our Board has adopted a so-called “plurality-plus” standard. A plurality voting standard means that the three nominees receiving the most votes will be elected. In accordance with procedures set forth in our Corporate Governance Guidelines, at any shareholder meeting at which directors are subject to an uncontested election (i.e., an election where the only nominees are those recommended by the Board), any nominee for director who receives a greater number of votes “withheld” from his or her election than votes “for” such election shall submit to the Board a letter of resignation for consideration by the Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee shall promptly consider the resignation offer and recommend to the full Board whether to accept it. In considering whether to accept or reject the resignation offer, the Corporate Governance and Nominating Committee will consider all factors deemed relevant by members of the Corporate Governance and Nominating Committee, including, without limitation, (i) the perceived reasons why shareholders withheld votes “for” election from the director, (ii) the length of service and qualifications of the director, (iii) the director’s contributions to the Company, (iv) compliance with listing standards, (v) the purpose and provisions of the Corporate Governance Guidelines, and (vi) the best interests of the Company and its shareholders. To the extent that one or more directors’ resignation is accepted by the Board, the Corporate Governance and Nominating Committee will recommend to the Board whether to fill such vacancy or vacancies or to reduce the size of the Board. Any director who tenders his or her offer to resign from the Board pursuant to this provision shall not participate in the Corporate Governance and Nominating Committee or Board deliberations regarding whether to accept the offer of resignation. The Board will act on the Corporate Governance and Nominating Committee’s recommendation within 90 days following the certification of the shareholder vote by the Inspector of Elections, which action may include, without limitation, acceptance of the offer of resignation, adoption of measures intended to address the perceived issues underlying the vote, or rejection of the resignation offer. Thereafter, the Board will publicly disclose its decision whether to accept the director’s resignation offer.

Board Performance Evaluation

The Board of Directors has a practice of annually reviewing its performance, and the performance of its committees and individual directors. Extensive input is received from each director during these annual performance reviews, as well as during the year, through written evaluation forms and other informal means of communication with the Chairman and other members of the Board.

Code of Business Conduct

We have a Code of Business Conduct applicable to all our directors and employees, including our principal executive officer, principal financial officer, and principal accounting officer. A copy of this Code of Business Conduct is available for review on our website (www.hbfuller.com) in the “Governance” section of the Investor Relations page.

Communications with Directors

Interested parties may contact the Board, any Board committee, the Chairman or any independent director, by communicating through the Corporate Secretary, whose contact information may be found on page 73. The Corporate Secretary reviews all communications, and after ascertaining whether such communications are appropriate to the duties and responsibilities of the Board, will forward such correspondence to the directors for their information and consideration. The Board has requested that the Corporate Secretary not forward the following types of communications to the Board: general solicitations for business or products; job applications or resumes; advertisements, junk mail and surveys; and any other communication that does not relate to the responsibilities of the Board.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Board of Directors has a written policy and procedures for the review, approval, or ratification of transactions with executive officers, directors and nominees for director, any person who is a security holder known to us to be the beneficial owner of more than five percent of any class of our stock, and immediate family members of these parties. In general, the policy provides that certain transactions with these related persons are subject to the review and prior approval of the disinterested members of the Audit Committee. If a transaction with a related party is entered into without the pre-approval of the Audit Committee, it shall not be deemed to be invalid or unenforceable, so long as the transaction is brought to the Audit Committee for ratification as promptly as reasonably practical after it is entered into or brought to the Company’s attention. Management shall make all reasonable efforts to cancel or annul the transactions that are not pre-approved or ratified.

All executive officers and directors of H.B. Fuller are informed in writing on an annual basis of these policies and procedures. The Audit Committee may use any process and review any information that it determines is reasonable to determine if a transaction is fair and reasonable and on terms no less favorable to H.B. Fuller than could be obtained in a comparable arm’s length transaction with a third party unrelated to H.B. Fuller.

In addition, on an annual basis, each of our directors and executive officers completes a questionnaire and discloses information regarding entities with which they and their immediate family members are affiliated. Any person nominated for election as a director must complete a questionnaire no later than the date he or she becomes a member of the Board of Directors. Any person who becomes an executive officer must complete a questionnaire as soon as reasonably practicable thereafter.

Our Audit Committee annually reviews all transactions and relationships including any disclosed in the director and officer questionnaires and approves or ratifies, as applicable, any transactions with related persons. The Board of Directors makes a formal determination regarding each director’s independence.

During fiscal year 2022, we had transactions, arrangements, and relationships with entities with which some of our related persons, specifically certain of our directors, are affiliated. However, in accordance with the procedures in the Company’s policy, the Audit Committee determined that those related persons had no direct or indirect material interest in those transactions, arrangements, and relationships.

DIRECTOR COMPENSATION

The form and amount of compensation for each non-employee director is typically determined and reviewed annually by the Compensation Committee. Such compensation reflects the practices of boards in our peer group and is comprised of cash and Common Stock (or its equivalents). It is our practice to generally align to the market median/50th percentile among our peer companies.

2022 REVIEW OF DIRECTOR COMPENSATION

The Compensation Committee uses an independent compensation consultant to provide ongoing advice and information regarding design and implementation of the Company’s non-employee director compensation programs as requested by the Compensation Committee. See further discussion regarding the Compensation Committee’s independent consultant under the heading “Independent Compensation Consultant” in the “Compensation Discussion and Analysis” section in this Proxy Statement. The Compensation Committee periodically conducts an in-depth market review, including board retainers, committee chair retainers and annual stock-based awards.

During fiscal 2022, the Committee reviewed general market practices for Board of Director compensation as presented by our independent compensation consultant.  The Committee approved the compensation for the Board of Directors consistent with the previous year as set forth in the table below.  

CASH FEES

The retainers paid to our non-employee directors are set forth in the table below. Non-employee directors may elect to defer their retainers into deferred phantom stock units or other deferred investments. If the director elects to defer their cash retainers into phantom stock units, the number of phantom stock units received equals the cash retainer divided by the closing price of a share of the Company common stock on the payment date, plus the Company’s 10% matching contribution as described below under “Directors’ Deferred Compensation Plan”. Our President and Chief Executive Officer does not receive separate compensation for serving as a director or for attendance at any Board meeting.  

EQUITY AWARDS

In addition to the board and chair retainers described above, the Board believes it is important that each director have an economic stake in our common stock. As a result, the Compensation Committee typically makes an annual grant of deferred phantom stock units to each non-employee director, which pays out in shares of common stock under the terms of the DDCP, and pursuant to elections made by each director. This plan is described below.

On June 30, 2022, the Compensation Committee made an award in the amount of $135,000 to each non-employee director.  This award was consistent with the award made in fiscal 2021. This amount was divided by the fair market value of the common stock on the date of grant to determine the number of deferred phantom stock units awarded under the DDCP. These deferred phantom stock units are not subject to forfeiture.

DIRECTOR COMPENSATION

In addition, each non-employee director typically receives a one-time grant of restricted stock units upon his or her initial election to the Board. These RSU awards are granted under our 2020 Incentive Plan, which is described below. In general, these awards vest three years from the date of grant subject to continued service during that period. These RSU awards vest in full upon death or disability and forfeit upon resignation prior to a vesting date.

DIRECTORS’ DEFERRED COMPENSATION PLAN

Under the DDCP, non-employee directors may elect to defer all or a percentage of their Board and chair retainers into several investments. Deferred amounts are credited with gains and losses based on the performance of certain mutual funds or the common stock as elected by the director prior to deferring any retainers. Non-employee directors who elect to defer their retainers into phantom stock units will eventually be paid out in shares of common stock. Phantom stock units are credited with dividend equivalents equal to the number of dividends, if any, paid on an equal number of shares of the common stock. The dividend equivalents are converted into additional phantom stock units based on the fair market value of common stock on the dividend payment date. If a participant elects to defer retainers into the common stock account in this plan, we make a 10% matching contribution of additional phantom stock units to the amount invested in common stock by the non-employee director. The phantom stock units credited to the non-employee directors’ accounts do not have voting rights. In addition, the Compensation Committee may make discretionary contributions to a participant’s H.B. Fuller common stock account under this plan. As described above, during fiscal year 2022, the Compensation Committee exercised this discretion and awarded each non-employee director 2,242.15 deferred phantom stock units having a grant date fair value of $135,000 under this plan.

Any amounts deferred under this plan are paid in shares of common stock or cash (depending on the election made by the non-employee director) at the earliest to occur of:

2020 INCENTIVE PLAN

Under the 2020 Incentive Plan, we may issue to non-employee directors restricted stock, restricted stock units, options, stock appreciation rights, performance awards or other stock-based awards. In addition, shares of H.B. Fuller common stock are issued under this plan to satisfy any requirements under the DDCP.

PHYSICAL EXAMINATIONS

Non-employee directors are reimbursed for a preventative/diagnostic annual physical examination and local travel expenses. These amounts are shown in the “All Other Compensation” column of the “Director Compensation Table” in this Proxy Statement.

MATCHING GIFTS TO EDUCATIONAL, ARTS AND CULTURAL ORGANIZATIONS

Under this program, we match a non-employee director’s contribution (up to $1,000) to eligible educational, arts and cultural institutions. These amounts are shown in the “All Other Compensation” column of the “Director Compensation Table” in this Proxy Statement.

DIRECTOR COMPENSATION

DIRECTOR COMPENSATION TABLE – FISCAL YEAR 2022

The aggregate number of deferred phantom stock units and restricted stock units held by each non-employee director as of December 3, 2022 were as follows:

No non-employee director held any stock options as of December 3, 2022. Mr. Happe, Ms. Rasmussen and Ms. Zaheer held RSUs as of fiscal 2022 year end. As of December 3, 2022, Mr. Happe and Ms. Rasmussen both held 1,328 RSUs and Ms. Zaheer held 1,311 RSUs.

DIRECTOR COMPENSATION

STOCK OWNERSHIP GUIDELINES

We have goals for stock ownership for all non-employee directors. Our goal for non-employee director stock ownership is five times the annual Board retainer within five years of becoming a director. A review of director stock ownership was conducted using June 30, 2022 stock values. At the time of this review, all non-employee directors have met or exceeded this goal or are on track to meet this goal within five years of being elected as a director.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table shows how many shares of common stock each director and NEO beneficially owned as of January 28, 2023. The table also shows the beneficial ownership of common stock by all directors and executive officers of H.B. Fuller as a group. In general, “beneficial ownership” includes those shares of common stock which a director or executive officer has the power to vote or invest, as well as stock options that are exercisable currently or within 60 days and common stock underlying phantom stock units, RSUs and PSUs that may be acquired, in certain circumstances, within 60 days. The detail of beneficial ownership is set forth in the following table. In addition, the table shows all shareholders known to us to be the beneficial owners of more than 5% of the outstanding shares of common stock.

Unless otherwise noted, the shareholders listed in the table have sole voting and investment power with respect to the shares of common stock owned by them, and the shares beneficially owned by our directors and executive officers are not subject to any pledge.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Excludes shares of common stock subject to phantom stock units credited to the accounts of directors who participate in the DDCP, described under the heading “Director Compensation” that may not be acquired within 60 days. The number of units credited to each director participating in this plan that are excluded from the table is as follows:

None of the phantom stock units are entitled to vote at the meeting.

DELINQUENT SECTION 16(a) REPORTS

Section 16(a) of the Exchange Act requires the Company’s directors, executive officers and any beneficial owners of more than ten percent of our common stock to file initial reports of ownership and reports of changes in ownership of H.B. Fuller’s securities with the SEC. These reports are available for review on our website (www.hbfuller.com) in the “Financials” section of the Investor Relations page. We review these reports on the SEC’s website. Based solely on a review of these reports and written representations from the directors and executive officers, we believe that all directors and executive officers complied with all Section 16(a) filing requirements on a timely basis, except that, Heather A. Campe and James J. East each had one delinquent filing, each covering one transaction due to administrative oversight.

AUDIT COMMITTEE REPORT

Pursuant to its charter, the Audit Committee of the Board of Directors is responsible for the appointment, compensation, and oversight of the work of our independent registered public accounting firm. In the exercise of that authority, we, the members of the Audit Committee, determined to engage Ernst & Young LLP to serve as H.B. Fuller’s independent registered public accounting firm for the year ending December 3, 2022.

Management is responsible for the financial reporting process, accounting principles, and internal controls and procedures designed to assure compliance with accounting standards and applicable law and regulation. Management represented to us that H.B. Fuller’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America.

Ernst & Young LLP, as H.B. Fuller’s independent registered public accounting firm for fiscal year 2022, was responsible for performing an independent audit of the consolidated financial statements and the company’s internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States) and issuing reports.

We have reviewed and discussed the audited consolidated financial statements with management and Ernst & Young LLP. We have also discussed with Ernst & Young LLP the matters required to be discussed pursuant to applicable requirements of the Public Company Accounting Oversight Board and the SEC, and they have discussed with us their independence and provided to us the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence.

Based upon our review and discussions referred to above, we recommended to the Board of Directors that the audited consolidated financial statements be included in H.B. Fuller’s Annual Report on Form 10-K for the fiscal year ended December 3, 2022 filed with the SEC.

Audit Committee of the Board of Directors of H.B. Fuller Company

FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The following table presents fees for professional services provided by Ernst & Young LLP for fiscal year 2022 and fiscal year 2021 for the audit, audit-related, and tax services rendered to us and our affiliates.

Audit Fees: Audit fees includes fees and expenses billed and to be billed for (i) the audit of the consolidated financial statements included in our annual report on Form 10-K, (ii) the audit of the effectiveness of our internal control over financial reporting, (iii) reviews of the interim consolidated financial information included in our quarterly reports on Form 10-Q, (iv) statutory audits of certain international subsidiaries, and (v) consultations concerning financial accounting and reporting. Audit fees also include fees for reviews of documents filed with the SEC.

Audit-Related Fees:  Audit-related fees include fees and expenses for services related to registration statements.

Tax Fees: Tax Fees includes fees and expenses for U.S. federal, state and international tax planning and tax compliance services.

The Audit Committee is responsible for appointing, setting compensation for and overseeing our independent registered public accounting firm’s work.  The Audit Committee has established a policy requiring its pre-approval of all audit and permissible non-audit services provided by our independent registered public accounting firm, and it pre-approved all audit, audit-related, and tax services provided to us that are described above. The policy provides for the general pre-approval of specific types of services, gives detailed guidance to management as to the specific services that are eligible for general pre-approval and establishes requirements for annual pre-approval levels and subsequent specific pre-approval requests.  The policy requires specific pre-approval of all other permitted services.  For both types of pre-approval, the Audit Committee considers whether such services are consistent with the rules of the SEC on auditor independence.  The Audit Committee’s charter delegates to its chair the authority to address any requests for pre-approval of services between Audit Committee meetings, and the chair must report any pre-approval decisions to the Audit Committee at its next scheduled meeting.  The policy prohibits the Audit Committee from delegating to management the Audit Committee’s responsibility to pre-approve any permitted services.

Requests for pre-approval for services that are eligible for general pre-approval must be submitted to our Vice President, Controller and Principal Accounting Officer and be detailed as to the services to be provided and the estimated total cost.  The Vice President, Controller and Principal Accounting Officer then determines whether the services requested fall within the detailed guidance of the Audit Committee in the policy as to the services eligible for general pre-approval.  Our independent registered public accounting firm and management must report to the Audit Committee on a timely basis regarding the services provided by the independent public accounting firm in accordance with general pre-approval.

We have a policy of avoiding the engagement of our independent registered public accounting firm except for audit, audit-related and tax planning, and compliance services. All the services provided by our independent registered public accounting firm in fiscal years 2022 and 2021 were pre-approved by the Audit Committee under its pre-approval procedures.

PROPOSAL 2—RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee has appointed Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 2, 2023. While we are not required to do so, H.B. Fuller is submitting the appointment of Ernst & Young LLP for ratification to ascertain the views of our shareholders. If shareholders do not ratify the Audit Committee’s appointment of Ernst & Young LLP as our independent registered public accounting firm, the Audit Committee intends to reconsider that appointment. However, the Audit Committee retains sole responsibility for appointing or terminating our independent registered public accounting firm.

Representatives of EY will be present at the Annual Meeting and will have the opportunity to make a statement if they desire to do so and to respond to appropriate questions from shareholders.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Executive Summary

This Compensation Discussion and Analysis describes our executive compensation program, including its underlying philosophy, policies, and practices; significant executive compensation developments during the fiscal year; and the determinations made on material elements of compensation awarded to each of our NEOs for fiscal year 2022:

This discussion and analysis focuses on fiscal 2022 compensation actions disclosed in the following compensation tables and accompanying footnotes and narrative. We discuss compensation actions taken during other fiscal years to the extent they enhance the understanding of our executive compensation program for fiscal year 2022.

Elements of Executive Compensation. We use base salary, a short-term incentive plan with cash awards (“STIP”) and a long-term incentive plan with equity grants (“LTIP”), as well as benefits, to attract and motivate our executive officers to achieve results that increase shareholder value. We generally align with the market median for base salary, short-term incentive target values, and long-term incentive target values, which comprise total direct compensation, and we review these elements each year. The emphasis on short-term and long-term incentive compensation reflects our pay-for-performance philosophy. See "Key Elements of Executive Compensation Program" on page 35.

Fiscal Year 2022 Business Results.

We are proud of the financial results we delivered in fiscal 2022, which include:

for the 53rd consecutive year, we implemented an increase in the amount of quarterly cash dividends paid to shareholders, with a 13% increase this year.

Highlights of our business performance by segment include the following:

EXECUTIVE COMPENSATION

Adjusted EPS and Adjusted EBITDA are defined in footnotes 3 and 5 on page 38.  These metrics are non-GAAP financial metrics that are reconciled with the most directly comparable GAAP financial metrics in Annex A.

STIP Performance Metrics. For our short-term incentive plan, we measure our success primarily by the Company-wide financial metrics which are aligned with our long-term strategic plan. These metrics consist of Adjusted Net Revenue, Adjusted EBITDA, and Adjusted EPS. Adjusted Net Revenue is a measure of global sales generation, Adjusted EBITDA is a measure of operational effectiveness and profitability, and Adjusted EPS is an overall measurement of profitability and the effectiveness of the following growth strategies:

The STIP targets for Adjusted EPS, Adjusted Net Revenue and Adjusted EBITDA are consistent with the Company’s strategic financial targets.

STIP Performance and Compensation Outcomes.

Adjusted EPS, Adjusted Net Revenue, and Adjusted EBITDA are non-GAAP financial metrics that are defined on page 38 and reconciled with the most directly comparable GAAP financial metrics in Annex A.

LTIP Performance and Compensation Outcomes.

Long-term incentive awards are equity awards granted pursuant to the LTIP. The awards are comprised of NQSOs, RSUs and PSUs.

EXECUTIVE COMPENSATION

ROIC is a non-GAAP financial metric that is reconciled with the most directly comparable GAAP financial metric in Annex A.

Executive Compensation Best Practices. The Company’s compensation program features the following:  

Philosophy

The philosophy of our executive compensation program is to provide a competitive compensation package that rewards executive officers for sustained financial and operating performance that creates long-term value for our shareholders. We have designed and implemented our compensation programs for our executive officers to meet three principal goals:

To meet these goals, the Company has established the following guidelines:

We strive to keep the target value of each individual element of compensation at or near the market median/50th percentile, thereby maintaining target total compensation at or near the market median/50th percentile, while allowing deviations based on role, tenure and other individual-specific considerations.    

EXECUTIVE COMPENSATION

Use of Competitive Market Data

The Compensation Committee uses several surveys and peer group data points when it reviews executive compensation as described below.

General Survey Data. This year, we reviewed peer proxy data for 19 companies with a revenue range of $1.325 billion - $11.656 billion based on our fiscal year 2021 revenue and expectations for fiscal year 2022 revenue. The Compensation Committee also used published survey data from the following sources to analyze the appropriate level of compensation for our U.S.-based NEOs:

The Company participates in both surveys. The Aon Radford database includes 4,097 companies and is titled "2022 AON Global Compensation Database”.  This database is a global database and covers non-executive jobs as well.  The Willis Towers Watson survey includes 931 companies and is titled "Willis Towers Watson 2021 General Industry Executive Survey Report – Compensation Data U.S.”

Peer Group Data. Our peer group used to inform 2022 target compensation consisted of comparable, publicly-traded companies with revenues between $1.325 billion - $11.656 billion (for the most recent fiscal year):

During fiscal 2022, Ferro Corporation was acquired by Prince International Corporation and was therefore removed from our peer group.

Use of Market Data in Fiscal 2022. When analyzing compensation paid to our NEOs, the Compensation Committee uses specific data that matches revenue and job responsibilities from the published sources named above, based on availability, by position. For fiscal year 2022, the above-referenced data used by the Compensation Committee to review total compensation (base salary, STIP and LTIP) for our executive officers showed that our total compensation, was generally in line with the market data matched according to revenue and job responsibilities.

In addition, for the NEOs, management and the Compensation Committee supplements the data sources above with peer group data, as a reference point for compensation design considerations. This data is derived from the most recent Proxy Statement available for each peer company.

The Compensation Committee uses this data because it is considered reliable market information. When we refer to competitive market data in the rest of this Compensation Discussion and Analysis, unless otherwise noted, we are referring to the “General Survey Data” and the “Peer Group Data” discussed above.

Compensation Process

The Compensation Committee reviews and approves all elements of compensation for our CEO, considering the Board of Directors’ review and assessment of the performance of the CEO as well as competitive market data and information from our human resources personnel and the Compensation Committee’s independent compensation consultant. The Compensation Committee also reviews and

EXECUTIVE COMPENSATION

approves all elements of compensation for our other executive officers using the sources noted above and considering the recommendations of the CEO.

In determining the elements of the executive compensation program, the Compensation Committee selects performance measures that will motivate executives to enhance our performance, such as our earnings and revenue growth, and operating segment specific operational and financial performance. Other considerations include furthering our business objectives, fulfilling corporate responsibilities (including equity among executive officer positions and affordability), maintaining competitive practices and trends, and observing legal requirements. In deciding on the type and amount of compensation for each executive officer, the Compensation Committee focuses on both the current pay and the opportunity for future increases in pay and combines the compensation elements for each executive officer in a manner that optimizes the executive officer’s incentive to contribute to the Company's success.

The Compensation Committee on occasion meets with the CEO and/or certain other executive officers to obtain recommendations with respect to our compensation program, practices and packages for executive officers and directors. The Compensation Committee considers, but is not bound to and does not always accept, management’s recommendations with respect to executive compensation. The CEO typically attends the Compensation Committee’s meetings, except when their compensation package is discussed. In addition, the Compensation Committee also holds executive sessions not attended by any members of management, including the CEO.

Independent Compensation Consultant

The Compensation Committee may use outside compensation consultants to provide compensation advice, competitive survey data and other reference market information related to trends and competitive practices in executive compensation. The Compensation Committee engages Willis Towers Watson US LLC (“WTW”) to provide ongoing advice and information regarding design and implementation of the Company’s executive compensation programs as requested by the Compensation Committee. In addition, from time to time, management receives information from the independent compensation consultant in preparation for Compensation Committee meetings.

In fiscal year 2022, the Company paid WTW for services as noted below.

WTW also provides broker services for insurance in Brazil but receives no direct payment from the Company.

All non-executive and board related services performed by WTW, along with their affiliated companies, were approved by management and performed at the direction of management in the ordinary course of business. In assessing the independence of WTW, the Compensation Committee considered the factors contained in the applicable SEC and NYSE rules, including the amount and nature of the additional consulting work provided to the Company by WTW and concluded that no conflict of interest exists that would prevent WTW from independently advising the Committee.

A representative of the independent compensation consultant generally attends Compensation Committee meetings to serve as a resource for the Compensation Committee. To encourage independent review and discussion of executive compensation matters, the Compensation Committee and its chair may request meetings with the independent compensation consultant in executive session without management present.

The Role of Shareholder Say on Pay Votes. The Company provides its shareholders with the opportunity to cast an annual advisory vote (a “Say on Pay Proposal”). At the Company’s Annual Meeting of Shareholders held in April 2022, 82% of the votes cast on the Say on Pay Proposal were voted in favor of the proposal. While shareholders have endorsed the Company’s executive compensation program, the Compensation Committee continually evaluates the program to ensure that it is designed to provide a competitive compensation package that rewards executive officers for sustained financial and operating performance that creates long-term value for our shareholders. The Compensation Committee will continue to consider the outcome of the Company’s Say on Pay Proposal votes in connection with its evaluation of the Company’s executive compensation program.

EXECUTIVE COMPENSATION

Key Elements of the Executive Compensation Program

Fiscal 2022 Base Salaries

In General. In January of each year, the Compensation Committee reviews and considers the annual performance of the CEO and the other NEOs. The effective date of annual merit increases is February 1st. In the fourth quarter, with the assistance of the compensation consultant, the Compensation Committee reviews the overall compensation (base salary, STIP, LTIP and high-level review of benefits and perquisites) of all the executive officers for market competitiveness.

EXECUTIVE COMPENSATION

The amount of annual base salary and year-over-year increase for each of the NEOs in fiscal year 2022 are set forth in the following table.

Analysis of Fiscal 2022 Base Salaries and Incentive Targets. Mr. Owen’s short-term incentive target remained at 120% of base salary and his long-term incentive target increased to 425% of base salary. No other changes were made to Mr. Owens’ compensation in fiscal year 2022.

Mr. Corkrean’s short-term incentive target remained at 75% of base salary and his long-term incentive target remained at $1,000,000. Mr. Corkrean received a merit increase of 3.57% after a review of his performance. Mr. Corkrean’s base salary is in the third quartile of the salary range for his position.

In her role as Executive Vice President and Chief Operating Officer, Ms. Mastin’s short-term incentive target was 75% of base salary and her long-term incentive target was $1,000,000. Ms. Mastin was not eligible for a merit increase in fiscal 2022 based on her hire date of March 7, 2022. Ms. Mastin’s base salary was in the third quartile of the salary range for her position.

Mr. Cai’s short-term incentive target remained at 65% of base salary and his long-term incentive target increased from $600,000 to $650,000 in fiscal year 2022 based on a review of market data for his position. Mr. Cai received a merit increase of 4.67% after a review of his performance. Mr. Cai’s base salary is in the third quartile of the salary range for his position.

Ms. Campe’s short-term incentive target is 52% of base salary and her long-term incentive target is $529,000. Ms. Campe received a merit increase of 2.80% after a review of her performance. Ms. Campe’s base salary is in the third quartile of the salary range for her position.

For fiscal year 2022, all merit increases for the NEOs who were eligible for merit increases fell within the Company’s general merit increase guidelines for our general employee population. The range of merit increases provided to NEOs was 0% to 5.16%.

Fiscal 2022 Short-Term Incentive Compensation

In General. Each year, the Compensation Committee establishes the annual cash incentive target opportunities as a percentage of base salary. Under the STIP, the Compensation Committee may also consider extraordinary circumstances that may positively or negatively impact the achievement of the performance objectives.

For fiscal year 2022, based on market data, the annual cash incentive target opportunity for our executive officers ranged from 52% to 120% of base salary at a target level of performance. Potential payouts range from 0% to 200% of the target award based on

EXECUTIVE COMPENSATION

attainment of segment operating and/or Company-wide financial goals. The threshold level of performance for the annual cash incentive was set at 80% of each financial target, except the Adjusted Net Revenue metrics had a threshold level of 90% of target, meaning that financial performance must meet or exceed these thresholds for executive officers to earn at least 50% of the target incentive. Higher payouts are possible if performance is above target levels. For example, at the superior level of performance (110% of target for Adjusted Net Revenue and 120% of target for all other metrics), payout is 200% of target.

The Compensation Committee, in its discretion, has the right at any time to enhance, diminish or terminate all or any portion of any compensation plan or program, on a collective or individual basis for the NEOs. 

Analysis of Fiscal 2022 Short-Term Incentive Awards. The Compensation Committee approved the STIP metrics because they were representative of our financial results and were key financial measures that are linked to our long-term strategic plan. In establishing the goals for these metrics for fiscal year 2022, we considered our prior year results, economic conditions, and expected business opportunities. At the beginning of fiscal year 2022, we believed the targets were challenging but achievable.

For fiscal year 2022, the goals for threshold, target and superior level of performance, the weighting of the metrics, and the actual performance were as set forth below. These amounts are shown on a non-GAAP basis due to adjustments which are allowed under the STIP as set forth in a footnote in the table below. Actual amounts paid to each NEO are set forth in the “Summary Compensation Table’’ later in this Proxy Statement.

EXECUTIVE COMPENSATION

The following chart shows the percentage increase in fiscal year 2022 performance targets over fiscal year 2021 actual results for each metric used to determine the short-term incentive payouts:

Fiscal 2022 Long-Term Incentive Compensation

In General. For all NEOs, the fiscal year 2022 LTIP design included a mix of equity grants consisting of 50% NQSOs, 25% RSUs and 25% PSUs.

Stock Options. The NQSOs are focused on enhancing employee retention and typically vest in three equal installments on each anniversary date of the grant date if the optionee continues to be employed by the Company. Vested stock options provide a benefit to an executive officer only if the market value of the stock increases over the term of the option and if the executive officer remains employed with the Company, or once employee becomes retirement eligible. Retirement eligibility is defined as 55 years of age and 10 years of service. If a NEO is retirement eligible, stock options immediately vest upon retirement. However, if a NEO does not remain employed for 180 days from the grant date, the award is forfeited regardless of retirement eligibility. Stock options are granted for a 10-year term. Stock options are granted with an exercise price equal to the fair market value of our common stock on the date of grant.

Stock Units. Stock units provide a benefit to an employee only if the employee remains employed until the award vests or once the employee becomes retirement eligible. Dividends are accrued on stock units during the period prior to vesting and are subject to the same vesting requirements, with payment in the form of additional shares once vesting has occurred. Stock units do not have voting rights. In addition, if the market value of the stock increases over the grant date price of the award, the employee further benefits from that appreciation in value. We grant two kinds of stock units.

EXECUTIVE COMPENSATION

If a NEO is retirement eligible, RSUs and PSUs continue to vest pursuant to the terms of the award. However, if a NEO does not remain employed for 180 days from the grant date, the award is forfeited regardless of retirement eligibility.

Fiscal 2022 Long-Term Incentive Awards. The value of an individual’s target award is established to generally correlate with the market median/50th percentile for the applicable position and grade level. The CEO recommends to the Compensation Committee the value of stock options, RSUs and PSUs to be granted to each executive officer. The Compensation Committee retains full authority to accept, modify or reject these recommendations and to increase or decrease the value of the award. The Compensation Committee also reviews total Company performance and the CEO’s individual performance to determine the award for the CEO. The number of options is determined based on a Black-Scholes valuation, and a 30-day share price average is applied. To determine the number of stock units to be awarded, a 30-day share price average is applied.

The Compensation Committee reviews and approves long-term incentives for our CEO and the other executive officers in January of each year. This long-term incentive grant date in January aligns with the annual individual performance review process and allows the grants to occur during the open trading period (after our fiscal year-end annual earnings release) for our common stock as provided under Company policy. We do not allow backdating of options, nor do we have a program, plan, or practice to time stock option grants to executive officers in coordination with the release of material non-public information.

The approximate values for each NEO’s fiscal year 2022 long-term incentive award are set forth in the table below.

Analysis of Fiscal 2020 -2022 Long-Term Incentive Awards. PSUs granted in fiscal year 2020 have annual ROIC goals.  Fiscal year 2022 ROIC performance and related vesting of PSUs are set forth below.

Fiscal year 2022 ROIC¹ Performance Goals and Achievement

NOPAT (Net operating profit after tax)

(Short-Term Debt + Long-Term Debt + Total Equity - Cash)

EXECUTIVE COMPENSATION

PSUs granted in fiscal years 2021 and 2022 have three-year ROIC goals, for a performance period covering fiscal years 2021-2023 and 2022-2024 respectively. At time of grant, we believed the targets were challenging but achievable. We consider the related target for the ROIC metric to be confidential commercial information the disclosure of which would result in competitive harm to us.

For the fiscal year 2021 and 2022 grants, if performance during the three-year performance period is less than threshold (target ROIC less 2%), no shares will be earned. If the threshold level is achieved, the PSUs will vest at 50%. If the target level is achieved, the PSUs will vest at 100%. If the superior level (target ROIC plus 4%) is achieved, the PSUs will vest at 200%. Performance between threshold and target and target and superior will be calculated on a straight-line basis.

ROIC is a non-GAAP financial metric that is reconciled with the most directly comparable GAAP financial metric in Annex A.

Fiscal year 2022 RSU and PSU awards are set forth in the “Grants of Plan-Based Awards During Fiscal Year 2022” table in this Proxy Statement.

EXECUTIVE COMPENSATION

Other Executive Benefits and Perquisites

In General. We provide the following perquisites and benefits to our executive officers:

EXECUTIVE COMPENSATION

Analysis of Fiscal 2022 Executive Benefits and Perquisites. We provide perquisites to our executive officers to generally reflect competitiveness at the market median/50th percentile.

In conjunction with the annual review of the executive compensation program, the Compensation Committee typically reviews executive officer benefits and perquisites for market prevalence. In fiscal year 2022, the Compensation Committee decided to review benefits and perquisites on an “every other year” basis since the market data does not typically change materially on annual basis.  Since a more detailed review was completed in fiscal 2021, no review of benefits and perquisites was done in fiscal 2022. The Compensation Committee made no changes in fiscal 2022.   

All benefits and perquisites paid to our NEOs are disclosed in the “Summary Compensation Table” under the “Other Compensation” column and the footnotes thereto.

Severance, Change-In-Control and Other Employment-Related Agreements

In General. H.B. Fuller does not have employment agreements with any of the NEOs that provide for a specified term of employment. The Company has executive severance agreements discussed under the heading “Severance” and change in control agreements discussed under the heading “Change-in-Control Agreements.”

Severance. The executive severance agreements provide for payment of the following severance benefits if the eligible executive officer’s employment is terminated involuntarily by the Company without cause (as defined in the agreement) or voluntarily by the executive officer for good reason (as defined in the agreement):

Except as indicated above with respect to the CEO, the same form of agreement was provided to all NEOs.

Change-in-Control Agreements. All NEOs have entered into change-in-control agreements with H.B. Fuller. The change-in-control agreement is intended to ensure the executive officer remains focused on activities related to a change-in-control that could be in the best interest of the Company and its shareholders, and that the executive officer is not distracted by compensation implications because of a change-in-control. Additionally, change-in-control agreements assist in the retention of executive officers at a time when their departure might be detrimental to the Company and shareholders. The agreements are a critical and effective tool to attract and retain executives and provide for payments under certain circumstances following a change-in-control of the Company. Another purpose of providing change-in-control agreements is to provide financial security to the executive officer in the event the executive officer’s employment is terminated in connection with a change-in-control.

The change-in-control agreements contain a “double trigger” for receipt of change-in-control payments. This means that there must be a change in control of the Company and a termination of employment (or a material change to the NEO's terms of employment, such as demotion, reduction in compensation or required relocation) during the covered period for the provisions to apply and benefits to be paid. The Compensation Committee believes that a “double trigger” is more appropriate than a “single trigger,” because a double trigger prevents the unnecessary payment of benefits to an executive officer if the change in control does not result in the executive officer’s termination of employment or a material change in the terms of the executive officer’s employment.

For change-in-control agreements entered into prior to mid-fiscal year 2018 (for Mr. Owens, Mr. Corkrean, Mr. Cai, and Ms. Campe), the arrangements were structured to ensure that executives receive the full intended benefits of these arrangements if a transaction should take place. Our approach was to provide our executives with arrangements that include a modified tax gross-up. These arrangements eliminated de minimis or inefficient gross-up payments, only providing tax gross-up in cases of significant imbalance. For change-in-control agreements entered into starting in mid-fiscal year 2018 (for Ms. Mastin), the Company does not include a tax gross-up provision. The Company instead references a best of net provision whereby the individual is responsible for any excise tax, or the benefit is reduced to not trigger an excise tax. The Company would calculate both scenario estimates and the individual would receive the provision with the highest after-tax benefit estimate.

EXECUTIVE COMPENSATION

An explanation of any payments to be made under the change-in-control agreements is found under the heading “Involuntary (Not for Cause) Termination or Good Reason Termination after a Change-in-Control” in the section of this Proxy Statement titled “Potential Payments Upon Termination or Change-In-Control.”

Executive Compensation Policies

Stock Ownership. Goals and levels of executive stock ownership are reviewed annually by the Compensation Committee. An executive officer’s stock ownership includes common stock directly held by the executive officer and common stock held in our 401(k) Plan, RSUs, and phantom stock units held in the Key Employee Deferred Compensation Plan. NQSOs, unvested/unearned PSUs and PSOs are not counted toward stock ownership goals. In fiscal year 2021, the Committee decided not to include unvested/unearned PSUs in calculating the CEO’s stock ownership to align with market practice, and in fiscal year 2022, the Committee made the decision to implement this change for all NEOs.

The guideline for the CEO is ownership of at least five times his base salary in common stock, and the guideline for the CFO and COO is ownership of at least three times their base salary. For the other NEOs, the guideline was decreased from three to two times their base salary in consideration of the new exclusion of unearned/unvested PSUs from the calculation of stock ownership, while maintaining a multiple that is competitive with market practice.  The guideline provides that an executive should strive to reach and then maintain the applicable stock ownership goal within five years of appointment to a new job grade. For the fiscal year 2022 review of stock ownership, all NEOs who had been in their job grade for at least five years had met the applicable stock ownership goal. If after five years in a job grade, a NEO has not met the stock ownership goal, the NEO must retain 100% of all after-tax profit shares from any exercise, vesting or payout of equity awards until the stock ownership guideline is met, unless a hardship exception is granted.

Tax Considerations. Section 162(m) of the U.S. Internal Revenue Code ("Section 162(m)") imposes a $1,000,000 annual deduction limit on compensation payable to certain current and former named executive officers. The Compensation Committee intends to pay competitive compensation consistent with our philosophy to attract, retain and motivate executive officers to manage our business in the best interests of the Company and our shareholders. The Compensation Committee, therefore, may choose to provide non-deductible compensation to our executive officers if it deems such compensation to be in the best interests of H.B. Fuller and our shareholders.

Various programs, including our benefit plans that provide for deferrals of compensation are subject to Section 409A of the Internal Revenue Code. We have reviewed such plans for compliance with Section 409A and believe that they comply.

Prohibition on Hedging and Pledging.  Our insider trading policy prohibits hedging transactions in Company securities by all employees and directors. Hedging transactions include, for example, prepaid variable contracts, equity swaps, “costless collars” and other transactions that are designed to hedge or offset any decrease in the market value of Company securities. Additionally, our insider trading policy prohibits pledging transactions by directors and executive officers.

Clawbacks. Our clawback policy generally allows the Compensation Committee to recoup incentive-based compensation from any current or former executive officer or key manager if (i) the payment was predicated on achieving certain financial results that were subsequently the subject of a restatement of Company financial statements due to the material non-compliance with any financial reporting requirements or (ii) the Compensation Committee determines that the executive officer or key manager engaged in intentional misconduct in performing his or her duties. In such a case, the Compensation Committee may require the executive officer or key manager to reimburse the Company for all or a portion of any incentive-based compensation paid within the three-year period prior to the date that the Company is required to prepare the restatement or the executive officer’s or key manager’s intentional misconduct occurred. In light of recent SEC rulemaking regarding clawbacks, we will review our policy and make any necessary changes once the related NYSE listing standards have been finalized.  

Non-GAAP Financial Measures

The "Compensation Discussion and Analysis" section of this Proxy Statement contains non-GAAP financial measures, including Adjusted EPS, Adjusted Net Revenue, Adjusted EBITDA and ROIC measured on a company-wide basis and certain financial measures for individual operating segments. See "Reconciliation of Non-GAAP Financial Information" in Annex A to this Proxy Statement for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measure.

EXECUTIVE COMPENSATION

COMPENSATION COMMITTEE REPORT

The Compensation Committee of the Board of Directors has reviewed and discussed with H.B. Fuller management the Compensation Discussion and Analysis. Based on this review and discussion with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and in the Annual Report on Form 10-K for the year ended December 3, 2022.

Compensation Committee of the Board of Directors of H.B. Fuller Company

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table shows the cash and non-cash compensation for the last three fiscal years awarded to or earned by our NEOs, which include individuals who served as Chief Executive Officer and Chief Financial Officer during fiscal year 2022 and three other most highly compensated executive officers who either were serving as executive officers at the end of fiscal year 2022 or served as an executive officer during fiscal year 2022.