Table of Contents

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Filed by the Registrant    ☒

Filed by a party other than the Registrant    ☐

Check the appropriate box:

H.B. Fuller Company

(Name of Registrant as Specified In Its Charter)

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

Payment of Filing Fee (Check the appropriate box):

Dear Shareholder:

Our 2021 Annual Meeting of Shareholders will be held on Thursday, April 8, 2021. This year’s Annual Meeting will once again be a completely virtual meeting, which will be conducted via live webcast. A virtual meeting provides expanded access from any location around the world, improved communication and cost savings for our shareholders and the Company, and helps to safeguard public health during the COVID-19 pandemic.

You can attend the meeting via the Internet at www.virtualshareholdermeeting.com/FUL2021, where you will be able to vote and submit questions electronically prior to and during the meeting. Specific instructions for accessing the meeting are provided in the attached Notice of Annual Meeting of Shareholders. The virtual meeting will begin promptly at 10:00 a.m. Central Time. The Notice of Annual Meeting of Shareholders and the Proxy Statement describe the business to be conducted at the meeting.

We have elected to take advantage of the “notice and access” rules of the Securities and Exchange Commission to furnish most of our shareholders with proxy materials over the Internet. This method of delivery allows us to provide you with the information you need, while reducing printing and delivery expenses.

Your vote on the proposals is important. Whether or not you plan on attending the virtual meeting, we encourage you to vote your shares to make certain that you are represented at the meeting. You may vote via the Internet or by telephone or, if you received a printed copy of the proxy materials, by Internet, telephone or by mailing a proxy or voting instruction card.

	Sincerely,
	James J. Owens
	President and Chief Executive Officer

February 24, 2021

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

	By Order of the Board of Directors
	Timothy J. Keenan
	Vice President, General Counsel and Corporate Secretary

February 24, 2021

TABLE OF CONTENTS 

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PROXY STATEMENT

ANNUAL MEETING OF SHAREHOLDERS

APRIL 8, 2021

The Board of Directors (the "Board") of H.B. Fuller Company ("H.B. Fuller", the "Company" or "we") is soliciting proxies to be used at the Annual Meeting of Shareholders to be held on April 8, 2021, and at any adjournment and reconvening of the meeting. We first made this Proxy Statement and the Annual Report for the fiscal year ended November 28, 2020 available to our shareholders on or about February 24, 2021.

PROXY SUMMARY

Provided below are highlights of some of the information contained in this Proxy Statement. These highlights are only a summary. Please review the complete Proxy Statement and 2020 Annual Report to Shareholders before you vote.

ANNUAL MEETING OF SHAREHOLDERS

PROPOSALS REQUIRING YOUR VOTE

Your vote is important. Whether or not you plan to attend the virtual meeting, we encourage you to vote your shares to make certain that you are represented at the meeting.

2020 PERFORMANCE HIGHLIGHTS

Fiscal 2020 Business Results. During fiscal year 2020, the COVID-19 pandemic had a significant disruptive impact on global economies, supply chains and industrial production, which resulted in reduced demand in some markets, while at the same time driving elevated demand for adhesive solutions for paper products, food and e-commerce packaging, and hygiene and medical goods. We effectively managed our global operations throughout the pandemic, implementing rigorous protocols focused on the health and safety of our employees and ensuring business continuity across our supplier, manufacturing and distribution networks. These actions enabled us to meet our customers’ increased demands for adhesive solutions for essential goods, effectively allocate our resources and manage expenses, and deliver strong financial results, while maintaining a safe workplace for employees. Recognizing the success of the Company and our ability to meet the unexpected challenges of fiscal year 2020, we compensated our NEOs according to the design of our executive compensation programs as adopted at the beginning of the fiscal year. Overall, the compensation provided to our NEOs is aligned with our fiscal year 2020 business results. No adjustments were made for our NEOs and we maintained the metrics and targets that were originally established for our fiscal year 2020 annual and long-term incentive plans.

At the beginning of fiscal year 2020, the Company moved from five to three reporting segments: Hygiene, Health and Consumable Adhesives, Engineering Adhesives and Construction Adhesives, in order to enhance its strategic alignment across end markets, and position the Company to better develop and deliver adhesive solutions around the world.

Net income for the 2020 fiscal year was $124 million, or $2.36 diluted earnings per share (“EPS”), versus net income of $131 million, or $2.52 EPS, in the 2019 fiscal year. Adjusted diluted earnings per share (“AEPS”) in the 2020 fiscal year were $2.84, down 4.1% versus the prior year.

Net revenue for the 2020 fiscal year was $2,790 million, down 3.7% versus the 2019 fiscal year.

Adjusted Earnings Before Interest, Taxes, Debt and Amortization (“Adjusted EBITDA”) for fiscal year 2020 was $407 million, down 5.9% compared with $432 million in the 2019 fiscal year. The Company’s cash flow from operations of $322 million increased 23% year-over-year, and enabled us to pay down a total of $205 million of debt for the year, above our $200 million target.

For the 51st consecutive year, we implemented an increase in the amount of quarterly cash dividends paid to shareholders, with a 2% increase this year.

More information on our 2020 performance can be found on pages 34 -37.  AEPS, Adjusted Net Revenue, and Adjusted EBITDA are non-GAAP financial metrics that are reconciled with the most directly comparable GAAP financial metrics in Annex A.

EXECUTIVE COMPENSATION PROGRAM (for more information, see pages 34 -54)

Our executive compensation program 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. Our program emphasizes pay for performance through the use of 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 incentive) as a percentage of total direct compensation for fiscal 2020 for the Chief Executive Officer (“CEO”) and the other named executive officers listed in the “Summary Compensation Table” the “NEOs”). Long-term incentive awards are composed of non-qualified stock options (“NQSOs”), time-based restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”).

Short-Term Incentive Awards

The short-term incentive plan (“STIP”) aligns executive performance with achievement of annual company strategic goals and objectives and provides cash rewards for meeting or exceeding specific targets.

For fiscal year 2020, the Compensation Committee approved the following changes to the design of the STIP for the NEOs:

The Company’s fiscal year 2020 performance against STIP metrics is summarized below:

AEPS, Adjusted Net Revenue and Adjusted EBITDA are non-GAAP financial metrics that are reconciled with the most directly comparable GAAP financial metrics in Annex A. See “STIP Peformance Metrics” for information on the use of non-GAAP numbers in our STIP program.

Long-Term Incentive Awards

Our long-term incentive plan (“LTIP”) is equity-based and used to attract, retain and reward high caliber executive talent and to encourage long-term strategic decision making that is aligned with shareholder interests. We grant the following awards, which are periodically benchmarked against market data. These awards tie a significant portion of NEO total direct compensation to shareholder value creation, which is measured by share price performance.

See further discussion and detail in the “Compensation Discussion and Analysis” section of this Proxy Statement. ROIC is a non-GAAP financial metric that is reconciled with the most directly comparable GAAP financial metric in Annex A. Discussion of the use of ROIC as a metric can be found in the “LTIP Performance Metrics” section of this Proxy Statement.

Other Highlights of Our Executive Compensation Program

Fiscal 2021 Changes to Executive Compensation Program

Effective for LTIP awards granted in January 2021, PSUs that vest based on ROIC performance will move from three-year ratable vesting to three-year cliff vesting. The ROIC metric for these PSUs will not change. However, the metric target is a three-year average of annual ROIC, versus individual annual ROIC targets. This change better aligns the PSU grant vesting with the focus of ROIC performance over the three-year performance period of the award, incentivizes long-term strategic thinking and behavior, and enhances the focus on retention. In addition, the PSU grant for the CEO that vests over three years only if the Company achieves at least a threshold level of AEPS, Adjusted Net Revenue or Adjusted EBITDA in the first year of the grant, has been revised to be time-based RSUs. This change was made to increase the long-term orientation of the CEO’s compensation and to be consistent with the time-based RSU grants received by the other NEOs.

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 tables provide information about certain aspects of our Board’s diversity as of January 31, 2021.

0-4 years: 4	5-9 years: 2	10+ years: 5

Additional information on our policies with regard to Board composition and Board diversity may be found in the “Corporate Governance” section of this Proxy Statement.

Shareholder Engagement

We have periodically proactively reached out to many of our long-term shareholders to obtain their input on our governance, sustainability and compensation programs.  We have generally received positive feedback and have made adjustments in our programs based in part on such feedback when appropriate.

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 of our stakeholders – 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 is also a source of competitive advantage. We continually strive to minimize the environmental impact of our operations, while holding safety as a top priority 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 sated in the H.B. Fuller Human Rights Policy, which can be found in the “Corporate Responsibility” section of our corporate website (hbfuller.com). We set performance targets for Sustainability, Volunteerism and Philanthropy, and we report on our progress annually, which may be downloaded from the “Corporate Responsibility” section of our corporate website (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.

QUESTIONS AND ANSWERS ABOUT THE MEETING

What is the purpose of the meeting?

At our Annual Meeting, shareholders will act upon the matters disclosed in the Notice of Annual Meeting of Shareholders that accompanies this Proxy Statement. These matters include the election of three directors, a non-binding advisory vote to approve the compensation of our named executive officers as disclosed in this Proxy Statement (the “Say on Pay Proposal”), the ratification of the appointment of our independent registered public accounting firm and the approval of amendments contained in an amendment and restatement of the H.B. Fuller Company 2020 Master Incentive Plan.

How can I attend the virtual meeting and vote my shares during the meeting?

If you are a shareholder of record, you may attend the meeting and vote your shares electronically during the virtual meeting by visiting www.virtualshareholdermeeting.com/FUL2021. You will need the 16-digit control number that is printed in the box marked by the arrow on your Notice Regarding the Availability of Proxy Materials to enter the Annual Meeting. We recommend that you log in at least 15 minutes before the meeting to ensure that you are logged in when the meeting starts. However, even if you currently plan to attend the virtual meeting, we recommend that you submit your proxy ahead of time so that your vote will be counted if, for whatever reason, you later decide to not attend the virtual meeting.

If you have difficulty logging into the Annual Meeting, please contact technical support at 844-986-0822 (in the U.S.) and at 303-562-9302 (International calls). The virtual meeting website will also present an option for you to attend the Annual Meeting as a guest without logging in, but guests will not be able to vote during the Annual Meeting.

If you hold your shares of Common Stock in street name, you may vote your shares electronically during the virtual meeting only if you obtain a signed proxy from your broker, bank, trustee or other nominee giving you the right to vote such shares during the meeting.

If you are a participant in the H.B. Fuller Company 401(k) and Retirement Plan (the “401(k) Plan”) or the H.B. Fuller Canada Retirement & Savings Plan (“CRS Plan”), you may submit a proxy vote as described above, but you may not vote your 401(k) Plan shares in those plans during the virtual meeting.

How will management respond to questions during the virtual meeting?  

The Company has held its Annual Meeting of Shareholders as a virtual meeting webcast via the Internet since 2016. While our Annual Meeting is just one of the forums where we engage with shareholders, it is an important one. The Board believes that holding the Annual Meeting in a virtual format provides the opportunity for participation by a broader group of shareholders, while reducing the costs and environmental impact associated with planning, holding and arranging logistics for an in-person meeting and helps to safeguard public health during the COVID-19 pandemic. We welcome your suggestions on how we can improve our virtual meeting and make it more effective and efficient.

Management will respond to questions from shareholders in the same way as it would if the Company held an in-person meeting. Shareholders who wish to submit a question to the Company for the meeting may do so in advance at www.proxyvote.com and live during the meeting at www.virtualshareholdermeeting.com/FUL2021. You will need the 16-digit control number that is printed in the box marked by the arrow on your Notice Regarding the Availability of Proxy Materials to enter the Annual Meeting. We recommend that you log in at least 15 minutes before the meeting to ensure that you are logged in when the meeting starts.

We intend that the virtual meeting format provide shareholders a level of participation and transparency as close as possible to the traditional in-person meeting format, and we take the following steps to ensure such an experience:

●  providing shareholders with the ability to submit appropriate questions in advance of the meeting to ensure thoughtful responses from management and the Board;

●   providing shareholders with the ability to submit appropriate questions real-time, limiting questions to one per shareholder unless time otherwise permits;

●   answering as many questions as possible in the time allotted for the meeting (the question and answer session will be limited to 15 minutes), without discrimination, as long as the questions are submitted in accordance with the meeting rules of conduct (for example, the Company does not intend to answer questions that are irrelevant to the business of the Company or to the business of the Annual Meeting);

●   if there are appropriate questions that we cannot answer during the meeting, we will post the questions and answers thereto on hbfuller.com in the Investor Relations area of our website; and

●   offering separate engagement opportunities with shareholders on appropriate matters of governance or other relevant topics as outlined under the “Communications with Directors” section on page 24 in this Proxy Statement.

How does the Board recommend that I vote?

The Board of Directors recommends a vote “FOR” each of the nominees for director, “FOR” the Say on Pay Proposal, “FOR” the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending November 27, 2021 and “FOR” the approval of the amendment and restatement of the H.B. Fuller Company 2020 Master Incentive Plan to increase shares and adopt certain other amendments.

Who is entitled to vote at the meeting?

If you were a shareholder of record at the close of business on February 10, 2021, you are entitled to vote at the meeting.

As of the record date, 52,091,995 shares of common stock of the Company ("Common Stock") were outstanding and eligible to vote.

What is the difference between a shareholder of record and a street name holder?

If your shares are registered directly in your name, you are considered the “shareholder of record” with respect to those shares.

If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of those shares, and your shares are held in street name. If you are a “street name holder” you will receive a voting instruction card, which appears very similar to a proxy card. Please complete that card as directed in order to ensure your shares are voted at the meeting.

What are the voting rights of the shareholders?

Holders of Common Stock are entitled to one vote per share. Therefore, a total of 52,091,995 votes are entitled to be cast at the meeting. There is no cumulative voting for the election of directors.

How many shares must be present to hold the meeting?

A quorum is necessary to hold the meeting and conduct business. The presence of shareholders who can direct the voting of at least a majority of the outstanding shares of Common Stock as of the record date is considered a quorum. A shareholder is counted as present at the meeting if the shareholder is present at the virtual meeting and votes at the meeting or the shareholder has properly submitted a proxy by mail, telephone or Internet.

How do I vote my shares?

You may give a proxy to be voted at the meeting either:

If you hold shares beneficially in street name, you may also vote by proxy over the Internet or by telephone by following the instructions provided in the Notice of Internet Availability of Proxy Materials or, if you received printed proxy materials, you may also vote by Internet, mail or telephone by following the instructions provided in the voting instruction card provided to you by your broker, bank, trustee or nominee.

The telephone and Internet voting procedures have been set up for your convenience. The procedures have been designed to authenticate your identity, to allow you to give voting instructions, and to confirm that those instructions have been recorded properly. You may also vote at the virtual meeting as described in “Can I vote my shares during the virtual meeting?” below.

If you hold any shares of Common Stock in the 401(k) Plan or the CRS Plan, you are being provided access to the same proxy materials as any other shareholder of record. However, your proxy vote will serve as voting instructions to the plan trustee. The shares held in the 401(k) Plan and the CRS Plan will be voted by the applicable plan trustee.

What does it mean if I receive more than one Notice of Internet Availability of Proxy Materials, proxy card or voting instruction card?

It means you hold shares of Common Stock in more than one account. To ensure that all of your shares are voted, sign and return each proxy card or voting instruction card or, if you vote by telephone or via the Internet, vote once for each proxy card, voting instruction card or Notice of Internet Availability of Proxy Materials you receive.

What vote is required for the proposals to be approved?

Each director is elected by a plurality of the votes cast, meaning that the three nominees receiving the most votes will be elected. However, in an uncontested election, if a nominee for director receives a greater number of votes “WITHHELD’ from his or her election than votes “FOR” such election, the director shall submit to the Board a letter of resignation for consideration. See the heading “Director Elections” in the “Corporate Governance” section of this Proxy Statement for more information. With respect to the Say On Pay Proposal, the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm, and the approval of the amendment and restatement of the H.B. Fuller Company 2020 Master Incentive Plan, the affirmative vote of a majority of the shares of Common Stock represented and entitled to vote on each proposal is required, provided that the total number of shares of Common Stock that vote in favor of the proposal represents more than 25% of the shares outstanding on the record date.

How are votes counted?

Shareholders may either vote “FOR” or “WITHHOLD” authority to vote for each nominee for election to the Board. Shareholders may vote “FOR,” “AGAINST” or “ABSTAIN” on the Say on Pay Proposal, the ratification of the appointment of Ernst & Young LLP and the approval of the amendment and restatement of the H.B. Fuller Company 2020 Master Incentive Plan.

If you vote ABSTAIN or WITHHOLD, your shares will be counted as present at the meeting for the purposes of determining a quorum. If you ABSTAIN from voting on any proposal, your abstention has the same effect as a vote against that proposal. If you WITHHOLD authority to vote for one or more of the nominees for director, this withholding of authority to vote will have no effect on the election of any director from whom votes are withheld.

If you hold your shares in street name and do not provide voting instructions to your broker or nominee, your shares will be considered to be “broker non-votes” and will not be voted on any proposal on which your broker or nominee does not have discretionary authority to vote under the rules of the New York Stock Exchange (“NYSE”). Shares that constitute broker non-votes will be present at the meeting for the purpose of determining a quorum, but are not considered entitled to vote on the proposal in question. Your broker or nominee has discretionary authority to vote your shares on the ratification of Ernst & Young as our independent registered public accounting firm even if your broker or nominee does not receive voting instructions from you. Your broker or nominee may not vote your shares on the election of directors, the Say on Pay Proposal or the approval of the amendment and restatement of the H.B. Fuller Company 2020 Master Incentive Plan unless it receives voting instructions from you. Broker non-votes will generally have no effect in determining whether any proposals to be voted on at the meeting are approved.

What if I do not specify how I want my shares voted?

If you do not specify on your returned proxy card or voting instruction card (or when giving your proxy by telephone or via the Internet) how you want to vote your shares, we will vote them:

Can I change my vote?

Yes. If you are a shareholder of record, you may change your vote and revoke your proxy at any time before it is voted at the virtual meeting in any of the following ways:

If you are a street name holder, please consult your broker, bank, trustee or nominee for instructions on how to change your vote.

Who pays for the cost of proxy preparation and solicitation?

We pay for the cost of proxy preparation and solicitation, including the charges and expenses of brokerage firms or other nominees for forwarding proxy materials to beneficial owners of shares held in street name. We have engaged The Proxy Advisory Group, LLC to assist in the solicitation of proxies and provide related advice and informational support, for a services fee and the reimbursement of customary disbursements which are not expected to exceed $16,000 in total.

We are soliciting proxies primarily by mail. In addition, proxies may be solicited by telephone or facsimile, or personally by our directors, officers and regular employees. These individuals will receive no compensation (other than their regular salaries) for these services.

Why did I receive a notice in the mail regarding the Internet availability of proxy materials instead of a full set of paper copies?

In accordance with rules adopted by the Securities and Exchange Commission (the “SEC”), we may furnish proxy materials to our shareholders by providing access to these documents on the Internet instead of mailing printed copies. In general, you will not receive printed copies of the materials unless you request them. Instead, we mailed you the Notice of Internet Availability of Proxy Materials (unless you have previously consented to electronic delivery or already requested to receive paper copies), which instructs you as to how you may access and review all of the proxy materials on the Internet. The Notice of Internet Availability of Proxy Materials explains how to submit your proxy over the Internet or by telephone. If you would like to receive a paper copy or e-mail copy of the proxy materials, please follow the instructions provided in the Notice of Internet Availability of Proxy Materials.

Are the proxy and related materials available electronically?

Yes. Our Proxy Statement and 2020 Annual Report, including our Annual Report on Form 10-K, are available at www.proxyvote.com.

Will any other business be considered at the meeting?

Our Bylaws provide that a shareholder may present a proposal at the Annual Meeting that is not included in this Proxy Statement only if proper written notice was received by us. No shareholder has given the timely notice required by our Bylaws in order to present a proposal at the Annual Meeting. The Board does not intend to present any other matters for a vote at the Annual Meeting. If you wish to present a proposal at the 2022 Annual Meeting, please see “How can a shareholder present a proposal at the 2022 Annual Meeting?” As of the date of this Proxy Statement, we do not know of any other business to be presented for consideration at the Annual Meeting.

How can a shareholder present a proposal at the 2022 Annual Meeting?

In order for a shareholder proposal to be considered for inclusion in our Proxy Statement for the 2022 Annual Meeting, the written proposal must be received at our principal executive offices by the close of business on October 27, 2021. The proposal must comply with SEC rules regarding the inclusion of shareholder proposals in company-sponsored proxy materials and with the requirements set forth in our Bylaws. Please contact our Corporate Secretary for a copy of such rules and for a description of the steps outlined in our Bylaws that must be taken to present such a proposal.

If a shareholder wishes to present a proposal or to nominate a director at the 2022 Annual Meeting that would not be included in our Proxy Statement for such meeting, the shareholder must provide notice to us no later than the close of business on January 10, 2022 and no earlier than the close of business on December 9, 2021. The proposal must comply with the requirements set forth in our Bylaws. Please contact the Corporate Secretary for a description of the steps to be taken to present such a proposal or to nominate a director.

How can a shareholder get a copy of the Company’s 2020 Annual Report on Form 10-K?

If you receive a printed copy of the proxy materials in the mail, our 2020 Annual Report, including our Annual Report on Form 10-K for the year ended November 28, 2020, accompanies this Proxy Statement. The 2020 Annual Report, including our Annual Report on Form 10-K, is also available via the internet in the “Financial” section of our Investor Relations page of our website (www.hbfuller.com). If requested, we will provide you a paper copy of the 2020 Annual Report, including our Annual Report on Form 10-K without charge. We will also provide you with copies of any exhibits to the Form 10-K, upon written request and upon payment of a fee covering our reasonable expenses in furnishing the exhibits. You can request a paper copy of the 2020 Annual Report, or paper copies of exhibits to the Form 10-K by writing to the Corporate Secretary, H.B. Fuller Company, 1200 Willow Lake Boulevard, P.O. Box 64683, St. Paul, Minnesota 55164-0683.

How do I contact the Corporate Secretary?

The Corporate Secretary is Timothy J. Keenan. The mailing address is the Office of the Corporate Secretary, P.O. Box 64683, St. Paul, Minnesota 55164-0683.

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 27, 2021. 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 transfer, 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.

Excludes shares of Common Stock subject to phantom stock units credited to the accounts of directors who participate in the Directors’ Deferred Compensation Plan, 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 Securities Exchange Act of 1934 (the “Exchange Act”) requires the Company’s directors and executive officers 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 “Financial” section of the Investor Relations page. Directors and executive officers are required to furnish us with copies of these reports. 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 for fiscal year 2020, except that, due to administrative error, James Owens was one day late in filing a Form 4 reporting an open-market sale on June 26, 2020.

PROPOSAL 1—ELECTION OF DIRECTORS

Proposal

The Board of Directors is currently composed of eleven directors and is 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 I directors, consisting of Thomas W. Handley, Maria Teresa Hilado, Ruth S. Kimmelshue and R. William Van Sant will expire at the Annual Meeting. Thomas W. Handley, Maria Teresa Hilado and Ruth S. Kimmelshue are being nominated to serve an additional three-year term of office until the 2024 Annual Meeting and until their successors are duly elected and qualified or upon their earlier resignation or removal. Mr. Van Sant will retire following the Annual Meeting. Thomas W. Handley, Maria Teresa Hilado and Ruth S. Kimmelshue each have agreed to serve as a director if elected. Following the Annual Meeting, the Board of Directors will be comprised of ten directors. 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 II directors, consisting of Michael J. Happe, James J. Owens, Dante C. Parrini and John C. van Roden, Jr., will expire at the Annual Meeting in 2022, and 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 in 2023.

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 I directors. Ms Rasmussen was appointed as a Class III director effective November 20, 2020, and Mr. Happe was appointed as a Class II director effective January 20, 2021.

The Board of Directors recommends a vote FOR election of each of the nominees.

Who are the nominees?

The following directors are standing for re-election for a three-year term until the 2024 Annual Meeting of Shareholders and until the successors are duly elected and qualified or upon their earlier resignation or removal.

Class I (Term Ending in 2021)

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 2020. 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 in light of 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 2020. For the Board to consider a candidate for nomination at the 2022 Annual Meeting, shareholders must submit the required information to the Corporate Secretary by the close of business on October 27, 2021.

 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 provided the following information about themselves as of January 31, 2021.

Class II (Term Ending in 2022)

Class III (Term Ending in 2023)

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.

Code of Business Conduct

We have a Code of Business Conduct applicable to all of 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 13. 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.

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 Mr. Owens, 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. Mr. Florness, Mr. Happe and Ms. Kimmelshue 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 and (iii) the Company and Winnebago Industries, Inc., of which Mr. Happe is the Chief Executive Officer. In addition, the dollar amounts involved in the transactions with Fastenal, Cargill and Winnebago 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 teleconference meetings) of the Board and each committee on which they serve. During the 2020 fiscal year, the Board held five 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 2020 fiscal year. In addition, all the directors (except Mr. Happe and Ms. Rasmussen, who were not directors at the time of the Annual Meeting) attended our Annual Meeting of Shareholders held on April 2, 2020.

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.

Audit Committee

Number of Meetings in fiscal year 2020:  Nine

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 and procedures to assess their adequacy and appropriateness in the context of the Company’s business and operating environment. This Committee also monitors compliance with legal and regulatory requirements, our Code of Business Conduct and our Policy and Procedures Regarding Transactions with Related Persons.

All of 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 John C. van Roden, Jr., 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 2020 is included in this Proxy Statement.

Compensation Committee

Number of Meetings in fiscal year 2020:  Five

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, fees, stock-based 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 of 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 2020 is included in this Proxy Statement.

Corporate Governance and Nominating Committee

Number of Meetings in fiscal year 2020:  Four

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 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 of 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 oversees a system to identify, assess and address material risks to the Company on a timely basis. During fiscal year 2020, the Board specifically reviewed risks relating to the impact of the COVID-19 pandemic. The Board reviewed a business continuity plan that was enhanced through learnings during the COVID-19 pandemic and the Company’s efforts to ensure the safety of employees while leveraging our global business unit structure to better understand and react to our customer’s needs and to improve speed of decision-making and execution.

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 presently has a separate Chairman of the Board and Chief Executive Officer. When those positions are combined, we 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 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. 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. In addition, Mr. Van Sant has served as Vice Chairman of the Board since fiscal 2011 and in this role he provides special assistance, oversight and guidance to the Chairman of the Board in performing the duties of the Chairman, and he provides counsel to the Chief Executive Officer. Since Mr. Van Sant will be retiring from the Board after the Annual Meeting, the Board will consider the future of the Vice Chair role in the course of its succession planning.

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 course of the year, through written evaluation forms and other informal means of communication with the Chairman, Vice Chairman and other members 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, approval and/or ratification of the disinterested members of the Audit Committee. If ratification of a transaction is not forthcoming, management must make all reasonable efforts to cancel or annul that transaction. If a transaction with a related party is entered into without the pre-approval of the Audit Committee, it shall not be deemed to violate these policies and procedures, or 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. 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 in order 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 2020, 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 determined and reviewed at least annually by the Compensation Committee. Such compensation reflects the practices of boards of similar public companies and is comprised of cash and Common Stock (or its equivalents). Similar to our executive compensation policy, the practice of generally aligning to the market median/50^th percentile also applies to our non-employee director compensation.

2020 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 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. During fiscal 2018 and fiscal 2019, the Company conducted an in-depth market review, including annual board retainers, committee chair retainers and annual stock-based awards. The findings indicated that H.B. Fuller’s non-employee director compensation program was generally aligned to market practice. Due to economic conditions during fiscal 2020, the Compensation Committee determined that no non-employee director compensation program changes would be made during fiscal 2020 and therefore, no market review was conducted.

Cash Fees

The fees paid to our non-employee directors are set forth in the table below. Non-employee directors may elect to defer their fees into deferred phantom stock units or other deferred investments. If the director elects to defer their cash fees 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. Mr. Owens, our President and Chief Executive Officer, does not receive separate compensation for serving as a director or for attendance at any meeting.

The following fees are paid to our non-employee directors:

Expense Reimbursement

We also reimburse each director for any out-of-pocket expenses related to attendance at any meeting or arising from other H.B. Fuller business.

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 H.B. Fuller Company Directors’ Deferred Compensation Plan (“DDCP”) and pursuant to elections made by each director. This plan is described below.

On July 8, 2020, the Compensation Committee made a discretionary award in the amount of $115,000 to each non-employee director. 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.

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 restricted stock unit awards are granted under our H.B. Fuller Company 2020 Master 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.

Directors’ Deferred Compensation Plan

Under this plan, 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 fees. 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 amount 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 director. The phantom stock units credited to the 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 2020, the Compensation Committee exercised this discretion and awarded each non-employee director 2,654.05 deferred phantom stock units having a grant date fair value of $115,000 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 director) at the earliest to occur of:

H.B. Fuller Company 2020 Master Incentive Plan

Under the H.B. Fuller Company 2020 Master Incentive Plan (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 Program 

Under this program, we match a non-employee director’s contributions (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 Table – Fiscal Year 2020

No non-employee director held any stock options as of November 28, 2020. Only Mr. Florness held RSUs as of fiscal 2020 year end. As of November 28, 2020, Mr. Florness held 1,344 RSUs.

Stock Ownership Guidelines

We have goals for stock ownership by all non-employee directors. Our goal for 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, 2020 stock values. At the time of this review, all directors have met or exceeded this goal or are on track to meet this goal within five years of being elected as a director.

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 executive officers (the “NEOs”) for fiscal year 2020:

This discussion and analysis focuses on the information contained in the following compensation tables and accompanying footnotes and narrative for fiscal year 2020. We discuss compensation actions taken during other fiscal years to the extent they enhance the understanding of our executive compensation program for fiscal year 2020.

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 and long-term incentive, 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 42.

Fiscal Year 2020 Business Results. During fiscal year 2020, the COVID-19 pandemic had a significant disruptive impact on global economies, supply chains and industrial production, which resulted in reduced demands in some markets, while at the same time driving elevated demand for adhesive solutions for paper products, food and e-commerce packaging, and hygiene and medical goods. We effectively managed our global operations throughout the pandemic, implementing rigorous protocols focused on the health and safety of our employees and ensuring business continuity across our supplier, manufacturing and distribution networks. These actions enabled us to meet our customers’ increased demands for adhesive solutions for essential goods, effectively allocate our resources and manage expenses, and deliver strong financial results, while maintaining a safe workplace for employees. Recognizing the success of the Company and our ability to meet the unexpected challenges of fiscal year 2020, we compensated our NEOs according to the design of our executive compensation programs as adopted at the beginning of the fiscal year. Overall, the compensation provided to our NEOs is aligned with our fiscal year 2020 business results. No adjustments were made for our NEOs and we maintained the metrics and targets that were originally established for our fiscal year 2020 annual and long-term incentive plans.

At the beginning of fiscal year 2020, the Company moved from five to three reporting segments: Hygiene, Health and Consumable Adhesives, Engineering Adhesives and Construction Adhesives, in order to enhance its strategic alignment across end markets, and position the Company to better develop and deliver adhesive solutions around the world.

Net income for the 2020 fiscal year was $124 million, or $2.36 diluted earnings per share (“EPS”), versus net income of $131 million, or $2.52 EPS, in the 2019 fiscal year. Adjusted diluted earnings per share (“AEPS”) in the 2020 fiscal year were $2.84, down 4.1% versus the prior year.

Net revenue for the 2020 fiscal year was $2,790 million, down 3.7% versus the 2019 fiscal year.

Adjusted Earnings Before Interest, Taxes, Debt and Amortization (“Adjusted EBITDA”) for fiscal year 2020 was $407 million, down 5.9% compared with $432 million in the 2019 fiscal year. The Company’s cash flow from operations of $322 million increased 23% year-over-year, and enabled us to pay down a total of $205 million of debt for the year, above our $200 million target.

For the 51st consecutive year, we implemented an increase in the amount of quarterly cash dividends paid to shareholders, with a 2% increase this year.

More information on our fiscal year 2020 performance can be found on pages 34 - 37. AEPS, Adjusted Net Revenue and Adjusted EBITDA are defined in footnotes 4, 5 and 6 on page 47.  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 strategic plan. These metrics consist of Adjusted Net Revenue, Adjusted EBITDA, and AEPS. For fiscal year 2020 we replaced Adjusted Operating Income with Adjusted EBITDA to better align how we evaluate the Company’s operating performance. Adjusted EBITDA is a measure of operational effectiveness and profitability, and AEPS is an overall measurement of profitability and the effectiveness of the following growth strategies:

AEPS, Adjusted Net Revenue and Adjusted EBITDA are non-GAAP measures. A definition of these measures is found on page 47, and a full reconciliation of these items is found in Annex A of this Proxy Statement.

The annual, short-term incentive plan targets for AEPS, Adjusted Net Revenue and Adjusted EBITDA are consistent with the Company’s strategic financial targets.

STIP Performance and Compensation Outcomes.

AEPS, Adjusted Net Revenue, and Adjusted EBITDA are non-GAAP financial metrics that are defined on page 47 and reconciled with the most directly comparable GAAP financial metrics in Annex A.

LTIP Performance Metrics. For our LTIP, we use ROIC as the performance metric for PSUs, which account for 25% of the equity awards granted to our NEOs, including our CEO. ROIC is a common metric for LTIPs and it is a key measure for assessing how much profit a company is generating for every dollar that is invested, providing a clear picture of how efficiently a company is using the capital that has been invested in it to generate income. Further, the CEO’s PSUs which account for 25% of his equity awards vest if at least a threshold level of AEPS, Adjusted Net Revenue or Adjusted EBITDA is met. We use these metrics in the STIP and the LTIP because they are key financial metrics for both our annual and long-term strategic plans.

LTIP Performance and Compensation Outcomes.

The fiscal year 2020 ROIC target of 7.8% is lower than in previous years due to fiscal year 2019 results being negatively impacted by foreign currency and the impact of the divestiture of the surfactants and thickeners business. Therefore, the fiscal year 2020 ROIC target was established based on a lower baseline.

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 best practices, such as:

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 the following guidelines:

We strive to keep the target value of each individual element of compensation at or near the market median/50^th percentile, thereby maintaining target total compensation at or near the market median/50^th percentile.

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 survey data for companies with a revenue range of $1-6 billion based on our fiscal year 2019 revenue and expectations for fiscal year 2020 revenue. The Compensation Committee used published survey data from the following sources to analyze the appropriate level of compensation for our U.S.-based NEOs:

    ●  AON Hewitt ($2.5 – 4.99 billion revenue categories for corporate positions (excluding the CEO) and relevant revenue categories for non-corporate positions (other U.S.-based NEOs))

   ●  Willis Towers Watson ($1-6 billion revenue category for corporate positions (CEO, COO and CFO) and relevant revenue categories for non-corporate positions (other U.S.-based  NEOs))

The Company participates in both surveys. The Aon Hewitt survey includes 450 companies and is titled "AON Hewitt U.S. Total Compensation Measurement™ (TCM™) Total Compensation Industry – Executive and Senior Management – 2019”, and the Willis Towers Watson survey includes 811 companies and is titled "Willis Towers Watson 2019 CDB General Industry Executive Compensation Survey Report – U.S.”

Peer Group Data. Our peer group consists of comparable, publicly-traded companies with revenues between $1.018 - $7.070 billion (for the most recent fiscal year):

From fiscal year 2019 to 2020, there were no changes to our peer group, except that PolyOne Corporation changed its name to Avient Corporation.

Use of Market Data in Fiscal 2020. When analyzing compensation paid to our NEOs, the Compensation Committee uses specific data that matches revenue and job responsibilities from the published surveys named above, based on availability, by position. For fiscal year 2020, the above-referenced survey data used by the Compensation Committee to review total compensation (base salary, short-term incentive compensation and long-term incentive compensation) 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 survey data 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 survey data and peer group data because these sources of data are 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, taking into account 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 approves all elements of compensation for our other executive officers using the sources noted above and taking into account the recommendations of the CEO.

In determining the particular elements of the executive compensation program, the Compensation Committee selects elements that will motivate executives to enhance our performance, such as our earnings and revenue growth, and business-unit-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 his 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 2020, 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 additional 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 on executive compensation (a “Say on Pay Proposal”). At the Company’s Annual Meeting of Shareholders held in April 2020, over 80% 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 made changes to the long-term incentive plan moving to a three-year cliff vesting for PSUs, as described under the heading “Fiscal 2021 Changes to the Executive Compensation Program.” The Compensation Committee will continue to take into account the outcome of the Company’s Say on Pay Proposal votes.

Key Elements of the Executive Compensation Program

 Fiscal 2020 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 1^st. In April, the Compensation Committee reviews the overall compensation (base salary, short-term incentive, long-term incentive and high-level review of benefits and perquisites) of all of the executive officers (excluding the CEO) for market competitiveness.

The amount of annual base salary and year-over-year increase for each of the NEOs in fiscal year 2020 are set forth in the following table.

Analysis of Fiscal 2020 Base Salaries and Incentive Targets. Based on the competitive market data review, the Compensation Committee approved changing Mr. Owens’ short-term incentive target from 110% of base salary to 120% of base salary and the long-term incentive target from 350% of base salary to 400% of base salary. Mr. Owens received a 5.0% merit increase after a review of his performance and the competitive market data. Mr. Owens’ base salary is in the fourth quartile of the CEO salary range.

Mr. Corkrean’s short-term incentive target remained at 75% of base salary, and his long-term incentive target increased from $750,000 to $1,000,000 based on a 2019 review of market data for the CFO position. Mr. Corkrean received a merit increase of 3.81% after a review of his performance. Mr. Corkrean’s base salary is in the second quartile of the salary range for his position.

Mr. Clark’s short-term incentive target is 75% of base salary, and his long-term incentive target is $1,000,000. Mr. Clark received a merit increase of 3.81% after a review of his performance. Mr. Clark’s base salary is in the second quartile of the salary range for his position.

Mr. Tometich’s short-term incentive target remained at 65% of base salary and his long-term incentive target is $600,000. Due to Mr. Tometich’s start date of August 27, 2019, he was not eligible for a merit increase during fiscal year 2020. Mr. Tometich’s base salary is in the third quartile of the salary range for his position. In connection with his hiring during fiscal year 2019, Mr. Tometich also received a long-term incentive grant in January 2020 with a value of $300,000 (consisting of 50% non-qualified stock options and 50% restricted stock units), vesting 50% in 2021 and 50% in 2022 based on continued employment.

Mr. Cai’s short-term incentive target remained at 65% of base salary and his long-term incentive target increased from $500,000 to $529,000 in fiscal year 2020 based on a review of market data for his position. Due to his performance, Mr. Cai received a long-term incentive award valued at $600,000 and his base salary increased by 5%. Mr. Cai’s base salary is in the third quartile of the salary range for his position.

For fiscal year 2020, all merit increases for the NEOs (except for Mr. Tometich, who was not eligible for a merit increase in fiscal year 2020 based on his hire date) 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%.

Fiscal 2020 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 short-term incentive plan, the Compensation Committee may also consider extraordinary circumstances that may positively or negatively impact the achievement of the total Company performance objectives.

For fiscal year 2020, based on market data, the annual cash incentive target opportunity for our executive officers ranged from 65% to 120% of base salary at a target level of performance. Potential payouts range from 0% to 200% of the target award based on 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 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 net revenue and 120% of target for all other metrics), payout is 200% of target.

For fiscal year 2020, the Compensation Committee of the Company approved the following changes to the design of the STIP for the NEOs:

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 2020 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 linked to our long-term strategic plan. In establishing the goals for these metrics for fiscal year 2020, we considered our prior year results, economic conditions and expected business opportunities. At the beginning of fiscal year 2020, the targets were challenging but achievable, and they became even more challenging with the onset of the global COVID-19 pandemic.

For fiscal year 2020, 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, which differs from the reported GAAP results discussed under the section entitled “Fiscal 2020 Business Results”, due to adjustments which are allowed under the short-term incentive plan as set forth in a footnote in the table below.

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The following chart shows the percentage increase in fiscal year 2020 performance targets over fiscal year 2019 actual results for each measure used to determine the short-term incentive payouts:

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Fiscal 2020 Long-Term Incentive Compensation

In General. For all NEOs except the CEO, the fiscal year 2020 long-term incentive plan design included grants with a mix of 50% NQSOs, 25% RSUs and 25% PSUs, based on the grant date fair market value of common stock. Instead of RSUs, the CEO received PSUs, in a mix of 50% NQSOs and 50% PSUs.

Stock Options. The NQSOs typically vest in three equal installments on each anniversary date of the grant date, as long as the optionee continues to be employed by the Company, which enhances retention. 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 an NEO is retirement eligible, stock options immediately vest upon retirement. For awards granted in fiscal year 2019 and later, if an 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.

Restricted Stock Units. Restricted 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 restricted 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. Restricted 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 restricted stock units.

If an NEO is retirement eligible, RSUs and PSUs continue to vest pursuant to the terms of the award. For awards granted in fiscal year 2019 and later, if an NEO does not remain employed for 180 days from the grant date, the award is forfeited regardless of retirement eligibility.

Fiscal 2020 Long-Term Incentive Awards. The value of an individual’s target award is established to generally correlate with the market median/50^th 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 restricted 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 target values for each named executive officer’s long-term incentive award are set forth in the table below. It is the general practice of the Compensation Committee to make awards to executive officers in a range of 80% to 120% of the target value below.

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In addition to his long-term incentive award, Mr. Tometich received a new hire grant of 50% NQSOs and 50% RSUs with a grant date fair value of approximately $300,000. The NQSOs and RSUs vested 50% on January 24, 2021 and 50% will vest on January 24, 2022, subject to continued employment. Mr. Tometich’s grant was given to both attract Mr. Tometich to the Company and to help offset the loss of awards at his previous employer.

All grants are set forth in the “Grants of Plan-Based Awards During Fiscal 2020” table later in this Proxy Statement.

Analysis of Fiscal 2018 -2020 Long-Term Incentive Awards. Fiscal year 2020 ROIC performance and related vesting of PSUs are set forth below.

The fiscal year 2020 ROIC target of 7.8% is lower than in previous years due to fiscal year 2019 results being negatively impacted by foreign currency and the impact of the divestiture of the surfactants and thickeners business. Therefore, the fiscal year 2020 ROIC target was established based on a lower baseline.

For all grants, if performance in a year 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.

25% of the CEO’s equity awards are PSUs vesting in three equal installments only if one or more of the performance measures in the CEO’s short-term incentive plan (AEPS, Adjusted Net Revenue or Adjusted EBITDA) are achieved at the threshold level for fiscal year 2020 as determined by the Compensation Committee. For the January 2020 grant of PSUs, the threshold level was met for each of these measures as of January 24, 2021. Therefore, these PSUs will vest according to the three-year vesting schedule. There is no higher level of payout for these PSUs if target or superior performance is achieved for any of the measures.

Fiscal year 2020 RSU and PSU awards are set forth in the “Grants of Plan-Based Awards During Fiscal Year 2020” table in this Proxy Statement.

Fiscal 2017 Performance-Based NQSO Award. In October 2017, the Compensation Committee approved a one-time performance-based NQSO award to NEOs to provide incentive for the successful integration of the Royal Adhesives acquisition. These performance-based NQSOs would have vested on January 31, 2021 if the Company had achieved Adjusted EBITDA at a certain threshold level for fiscal year 2020. The threshold performance level was not achieved. Therefore, none of these NQSOs vested.

Other Executive Benefits and Perquisites

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

Analysis of Fiscal 2020 Executive Benefits and Perquisites. We provide perquisites to our executive officers to generally reflect competitiveness at the market median/50^th percentile.

In conjunction with the annual review of executive officer total compensation, the Compensation Committee typically reviews executive officer benefits and perquisites for market prevalence. However, due to the pandemic, the Compensation Committee determined that only a limited review of benefits and perquisites would be made. The Compensation Committee reviewed findings on the executive long-term disability program and reviewed prior year market data related to the other programs. The Compensation Committee determined not to make any changes to these programs due to general market competitiveness.

All 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 agreements are a critical and effective tool to attract and retain executives. These agreements provide for payments under certain circumstances following a change-in-control of the Company. The Compensation Committee believes that one of the purposes 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 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 as a result of a change-in-control. The Compensation Committee also believes that 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 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 in the event that 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 and Mr. Cai), the arrangements were structured to ensure that executives receive the full intended benefits of these arrangements in the event that 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 Mr. Clark and Mr. Tometich), 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 so as 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.

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 Made Upon Termination or Change-In-Control.”

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, restricted stock, restricted stock units (time-based and performance-based), and phantom stock units held in the Key Employee Deferred Compensation Plan.

The guideline for the CEO is ownership of at least five times his base salary in Common Stock, and the guideline for the other NEOs is ownership of at least three times their base salary. 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 2020 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, an 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.

Prior to the Tax Cuts and Jobs Act (the “Act”), Section 162(m) permitted a deduction for compensation in excess of $1,000,000 paid to a covered executive if specified requirements related to our performance were met and shareholder approval was obtained. The Act eliminated the exception to the deduction limit for qualified performance-based compensation (and broadened the application of the deduction limit to certain current and former executive officers who previously were exempt from such limit). However, the Act also included a transition provision which exempts from the above changes made to performance-based compensation payable under a written binding agreement that was in effect on November 2, 2017, if such agreement is not subsequently materially amended. As a result of the transition rule, certain performance-based awards that were outstanding as of November 2, 2017 but which may vest and pay out in future tax years may be fully deductible if they qualify for transition relief.

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 are in compliance.

Fiscal 2021 Changes to Executive Compensation Program

Effective for LTIP awards granted in January 2021, PSUs that vest based on ROIC performance will move from three-year ratable vesting to three-year cliff vesting. The ROIC metric for these PSUs will not change. However, the metric target is a three-year average of annual ROIC, versus individual annual ROIC targets. This change better aligns the PSU grant vesting with the focus of ROIC performance over the three-year performance period of the award, incentivizes long-term strategic thinking and behavior, and enhances the focus on retention. In addition, the PSU grant for the CEO that vests over three years only if the Company achieves at least a threshold level of AEPS, Adjusted Net Revenue or Adjusted EBITDA in the first year of the grant, has been revised to be time-based RSUs. This change was made to increase the long-term orientation of the CEO’s compensation and to be consistent with the time-based RSU grants received by the other NEOs.

Non-GAAP Financial Measures

The "Compensation Discussion and Analysis" section of this Proxy Statement contains non-GAAP financial measures, including AEPS, Adjusted Net Revenue, Adjusted EBITDA and ROIC measured on a company-wide basis and certain financial measures for individual business 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.

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 November 28, 2020.

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

Summary Compensation Table

The following table shows the cash and non-cash compensation for the last three fiscal years awarded to or earned by individuals who served as Chief Executive Officer and Chief Financial Officer during fiscal year 2020 and three other most highly compensated executive officers.

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Grants of Plan-Based Awards During Fiscal 2020

The following table summarizes the grants of plan-based awards in fiscal year 2020 for each of the named executive officers in the “Summary Compensation Table”. For more information on the terms of these awards, see “Fiscal 2020 Short-Term Incentive Compensation” and “Fiscal 2020 Long-Term Incentive Compensation” in the “Compensation Discussion and Analysis”.