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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:

WOODWARD, INC.

(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):

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WOODWARD, INC.

NOTICE OF 2020 ANNUAL MEETING OF STOCKHOLDERS

AND PROXY STATEMENT

December 15, 2020

Dear Stockholder:

You are cordially invited to join our Board of Directors and senior leadership for Woodward, Inc.’s Annual Meeting of Stockholders on Wednesday, January 27, 2021 at 8:00 a.m., Mountain Standard Time. Due to the ongoing public health impact of the coronavirus (COVID-19) pandemic and in order to help protect the health and well-being of our stockholders and employees, this year’s Annual Meeting will be a virtual-only meeting. There will be no physical location for in-person attendance at the Annual Meeting.

In order to attend the Annual Meeting, you must register in advance at www.proxydocs.com/WWD. Registration ends on January 25, 2021 at 3:00 pm Mountain Standard Time. Upon completing your registration, you will receive via email further instructions and a unique link that will allow you access to the meeting. Please be sure to follow the instructions found on your Proxy Card and/or Voting Authorization Form, as well as subsequent instructions that will be delivered to you via email.

The global economic effects associated with the COVID-19 pandemic have been unprecedented in their scope and depth. We have been following, and will continue to follow, all recommendations of the CDC and other agencies to maximize the safety and well-being of our members. Throughout this crisis, our unwavering focus has been on striking a balance between doing everything we can to keep our workplace as safe as possible and stabilizing our business during this time of economic disruption. Woodward has faced many challenges over our 150-year history and, as with previous downturns, we believe we have the ability to emerge from this crisis an even stronger company.

Your vote is very important to us and to the continued success of our Company. Please complete and return your proxy card by mail, or vote via telephone or the internet, as soon as possible regardless of whether you plan to attend the virtual meeting. Thank you in advance for your continuing commitment to Woodward.

Sincerely yours,

WOODWARD, INC.

Thomas A. Gendron

Chairman, Board of Directors

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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS 

In light of the public health concerns and restrictions resulting from the COVID-19 pandemic, this year’s Annual Meeting of Stockholders of Woodward, Inc. will be held virtually at the date and time below. There will be no in-person meeting location. At the Annual Meeting, stockholders will be asked to consider and vote upon the matters set forth in this notice.

Date and Time:

Wednesday, January 27, 2021

8:00 a.m., Mountain Standard Time

Place:

To attend and participate in the Annual Meeting:

The Annual Meeting will begin promptly at 8:00 a.m., Mountain Standard Time, on January 27, 2021. You will receive an email containing a link to the Annual meeting one hour prior to the start of the meeting. We encourage you to access the virtual platform prior to the start time to familiarize yourself with the application and ensure that you can hear the streaming audio. You may begin to log into the virtual platform beginning at 7:45 a.m. Mountain Standard Time, on January 27, 2021.

The purpose of our Annual Meeting is to:

Stockholders who owned Woodward, Inc. common stock at the close of business on the record date, November 30, 2020, are entitled to vote at the meeting, or any postponement or adjournment thereof.

This proxy statement and our Annual Report on Form 10-K for the fiscal year ended September 30, 2020, including consolidated financial statements, are available to you at www.proxydocs.com/WWD.

Important Notice of Internet Availability of Proxy Materials

The Securities and Exchange Commission’s “Notice and Access” rule enables us to deliver a Notice of Internet Availability of Proxy Materials to stockholders in lieu of a paper copy of the proxy statement, related materials, and our Annual Report. It contains instructions on how to access our proxy statement and 2020 Annual Report and how to vote online.

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Shares cannot be voted by marking, writing on, and/or returning the Notice of Internet Availability. Any Notices of Internet Availability that are returned will not be counted as votes.

By Order of the Board of Directors,

WOODWARD, INC.

A. Christopher Fawzy

Corporate Secretary

December 15, 2020

YOUR VOTE IS IMPORTANT
Even if you plan to attend the annual meeting (virtually), please date, sign, and return your proxy card in the enclosed envelope, or vote via telephone or the internet as instructed on the proxy card or Notice of Internet Availability, prior to the meeting and as soon as possible. Your prompt response is helpful and your cooperation will be appreciated.

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TABLE OF CONTENTS

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Annual Report on Form 10-K 

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About the Annual Meeting and Voting

Woodward, Inc. (“Woodward” or the “Company”), on behalf of its Board of Directors (the “Board”), is soliciting your proxy to vote at our Annual Meeting of Stockholders to be held virtually on January 27, 2021 (or at any postponement or adjournment of the meeting) (the “Annual Meeting”). This proxy statement summarizes the information you need to know to vote at the meeting.

A Notice of Internet Availability (the "Notice") will be first mailed on or about December 18, 2020 to stockholders of record as of November 30, 2020 (the “Record Date”). These proxy solicitation materials, combined with our Annual Report on Form 10-K for the fiscal year ended September 30, 2020 including our most recent audited financial statements, were first made available on the internet on or about December 15, 2020. Our principal executive offices are located at 1081 Woodward Way, Fort Collins, Colorado 80524, and our telephone number at that location is 970-482-5811. We maintain a website at www.woodward.com. The information on our website is not incorporated by reference into this proxy statement.

Who Can Vote at the Meeting?

Stockholders who owned Woodward common stock at the close of business on the Record Date, November 30, 2020, are entitled to vote at the meeting. As of the Record Date, there were 62,908,038 shares of Woodward common stock outstanding.

Registered Stockholders.  If your shares are registered directly in your name with Woodward’s transfer agent, you are considered the stockholder of record with respect to those shares, and the Notice was provided to you directly by Woodward. As the stockholder of record, you have the right to grant your voting proxy directly to the individuals listed on the proxy card or to vote in person (virtually) at the Annual Meeting.

Street Name Stockholders.  If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in street name and the Notice was forwarded to you by your broker or nominee, who is considered, with respect to those shares, the stockholder of record. As the beneficial owner, you have the right to direct your broker or nominee how to vote your shares. If you request a printed copy of the proxy materials by mail, your broker or nominee will provide a voting instruction card for you to use. Beneficial owners are also invited to attend the Annual Meeting. However, since you are not the stockholder of record, you may not vote your shares in person (virtually) at the Annual Meeting unless you follow your broker's procedures for obtaining a legal proxy.

How many votes do I get per share?

Each share of Woodward common stock that you own entitles you to one vote on each matter to be presented at the Annual Meeting, except for the election of directors, for which you may cumulate your votes. Since three directors are standing for election, you will be entitled to three director votes for each share of stock you own. Of this total, you may choose how many votes you wish to cast for each director. The Board is not soliciting discretionary authority to cumulate votes with respect to the election of directors.

Why did I receive a one-page notice in the mail about the internet availability of proxy materials instead of a full set of printed proxy materials?

Under Securities and Exchange Commission (the "SEC") rules, we are making our proxy materials available via the internet. Instead of mailing printed copies of the proxy materials to all of our stockholders, the SEC rules allow us to send you, our stockholders as of the Record Date, a Notice containing instructions on how to access the proxy materials via the internet and how to request a printed copy by mail if you prefer. Sending you the Notice and using the internet instead of mailing printed proxy materials also saves costs and natural resources.

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About the Annual Meeting and Voting (continued)

How can I get electronic access to the proxy materials?

The Notice provides you with instructions about how to:

If you choose to receive future proxy materials by email, you will receive an email next year with instructions containing a link to those materials and a link to the proxy voting site. If you choose to receive future proxy materials by mail, you will receive a paper copy of those materials, including a form of proxy. Your election to receive proxy materials by mail or email will remain in effect until you notify us that you are terminating your request.

How do I vote?

Registered Stockholders.  Registered stockholders may vote by any of the following methods:

Street Name Stockholders.  If your shares are held by a broker, bank or other nominee, you should have received instructions on how to vote or instruct the broker to vote your shares from your broker, bank or other nominee. Please follow their instructions carefully. Street name stockholders may generally vote by one of the following methods:

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About the Annual Meeting and Voting (continued)

If you properly fill in your proxy card and send it to us in time to vote, or if you vote by internet or telephone before the polls close, your shares will be voted as you have directed. If you sign the proxy card or vote by internet or telephone but do not make specific choices, your shares will be voted in accordance with the Board’s recommendation as follows:

“FOR” the election of each of the Board’s nominees to the Board;

“FOR” the ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm;

“FOR” the advisory resolution regarding the compensation of the Company’s named executive officers;

“FOR” the approval of an amendment to the Amended and Restated Woodward, Inc. 2017 Omnibus Incentive Plan to increase the number of shares reserved for issuance by 1,500,000; and

“AGAINST” the stockholder proposal entitled “Proposal to Increase Diversity of Director Nominees.”

If any other matter is presented at the meeting, your shares will be voted in accordance with the proxyholder’s best judgment. At the time this proxy statement was printed, we were not aware of any additional matters to be acted on at the meeting.

If you hold your shares through a broker, bank or other nominee, please follow the instructions regarding how to vote on the Voting Instruction Form you receive from your broker.

How do I change my vote or revoke my proxy?

You may revoke your proxy by:

If you hold your shares through a broker, bank or other nominee, please follow the instructions regarding changing or revoking your proxy on the Voting Instruction Form you receive from your broker.

If you want to give your written proxy to someone other than the individuals named on the proxy card:

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SUMMARY OF PROPOSALS SUBMITTED FOR VOTE

Proposal 1: Election of Directors

Director Nominees:  At the Annual Meeting, you will be asked to elect to the Board the three nominees for director identified in this proxy statement. Each director will be elected to serve a three-year term and will hold office until the 2023 Annual Meeting held in or about January 2024 and until a successor is elected and qualified.

Vote Required:  Because this is an uncontested election, directors are elected by a majority vote. A nominee for director in an uncontested election will be elected if the votes cast “for” that nominee’s election exceed the votes cast “against” that nominee’s election. Abstentions and broker non-votes will not be considered in the calculation. We have adopted a director resignation policy. Accordingly, each director has submitted an irrevocable resignation contingent upon not receiving a majority of votes in an uncontested election and acceptance of the resignation by the Board.

Proposal 2:  Ratification of the Appointment of Independent Registered Public Accounting Firm

Independent Registered Public Accounting Firm:  At the Annual Meeting, you will be asked to ratify the Audit Committee’s appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2021.

Vote Required:  The affirmative vote of the holders of a majority of shares of Woodward common stock present in person or by proxy and entitled to vote on the matter at the Annual Meeting will be required to ratify the Audit Committee’s appointment of the independent registered public accounting firm. Abstentions will count as a vote “against” the proposal. Broker non-votes will have no effect on the outcome of the vote.

Proposal 3:  Approval of Advisory Resolution Regarding the Compensation of the Named Executive Officers

Compensation of the Company’s Named Executive Officers:  At the Annual Meeting, you will be asked to approve an advisory resolution regarding the compensation of the Company’s named executive officers.

Vote Required: The affirmative vote of the holders of a majority of shares of Woodward common stock present in person or by proxy and entitled to vote on the matter at the Annual Meeting will be required for the approval of the advisory resolution regarding the compensation of the Company’s named executive officers. Abstentions will count as a vote “against” the proposal. Broker non-votes will have no effect on the outcome of the vote.

This proposal 3, commonly referred to as a “say-on-pay” proposal, is not binding on the Board or the Compensation Committee. However, the Board and the Compensation Committee will review and consider the voting results when evaluating our executive compensation program.

Proposal 4:  Approval of an Amendment to the Woodward Omnibus Incentive Plan

Amendment to the Woodward Omnibus Incentive Plan:  At the 2016 Annual Meeting, stockholders of the Company approved the Woodward, Inc. 2017 Omnibus Incentive Plan, as further amended and restated at the 2017 Annual Meeting and further amended at the 2018 Annual Meeting and the 2019 Annual Meeting (as amended, the “Woodward Omnibus Incentive Plan” or the “Omnibus Incentive Plan”). At the 2020 Annual Meeting, you will be asked to approve an amendment to the Woodward Omnibus Incentive Plan to increase in the number of shares reserved for issuance thereunder by 1,500,000.

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SUMMARY OF PROPOSALS SUBMITTED FOR VOTE (continued)

Vote Required:  The affirmative vote of a majority of the votes cast on Proposal 4 at the Annual Meeting will be required for the approval of the amendments to the Omnibus Incentive Plan. With respect to Proposal 4, abstentions will have the effect of a vote “against” the proposal. Broker non-votes will have no effect on the outcome of the vote.

Proposal 5:  Stockholder Proposal Entitled “Increase Diversity of Director Nominees”:

Stockholder Proposal Entitled “Increase Diversity of Director Nominees”:  We have received a proposal from two stockholders of the Company requesting that the Board adopt a policy that would require that the initial list of candidates from which new director nominees are chosen by the Nominating and Governance Committee include (but need not be limited to) non-management employees.

Vote Required:  This stockholder proposal requires the affirmative vote of a majority of the voting power of the shares of our common stock present virtually or by proxy at the Annual Meeting and entitled to vote thereon. With respect to Proposal 5, abstentions will have the effect of a vote against this proposal, and broker non-votes will have no effect.

Quorum

A quorum of stockholders is necessary to hold a valid meeting. The presence, in person or by proxy, at the Annual Meeting of holders of shares representing a majority of the votes of the common stock entitled to vote constitutes a quorum. Abstentions and broker non-votes are counted as present for establishing a quorum. A broker non-vote occurs when a stockholder does not provide voting instructions to his or her broker or nominee and the broker or nominee does not have discretionary authority to vote on the matter, as further described below under “Voting of Shares Held in Street Name by Your Broker.”

Abstentions

Abstentions are counted as present for establishing a quorum. For all proposals in this proxy statement, except for the election of directors, abstentions have the same effect as votes against the matter.

Voting of Shares Held in Street Name by Your Broker

If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in street name and these proxy materials are being forwarded to you by your broker or nominee who is considered, with respect to those shares, the stockholder of record. As the beneficial owner, you have the right to direct your broker how to vote your shares. You are also invited to attend the Annual Meeting and vote your shares in person (virtually). In order to vote your shares in person (virtually), you must provide us with a legal proxy from your broker and follow the other instructions provided on the voting instruction card.

Brokerage firms have authority to vote customers’ shares for which they have not received voting instructions on certain “routine” matters, such as ratification of the auditors. If you do not provide voting instructions, your brokerage firm may either vote your shares on routine matters or leave your shares unvoted. On the other hand, absent instructions from customers, a brokerage firm cannot vote customers’ shares on non-routine matters, such as the election of directors, the advisory resolution regarding the compensation of our named executive officers, and the approval of the amendment to the Omnibus Incentive Plan to increase the number of shares reserved for issuance thereunder. The shares for which instructions are not given and therefore, remain unvoted, are referred

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SUMMARY OF PROPOSALS SUBMITTED FOR VOTE (continued)

to as “broker non-votes.” For the purposes of this Annual Meeting, the only routine matter is the Ratification of the Appointment of our Independent Registered Public Accounting Firm. Consequently, if you do not give your brokerage firm specific instructions, your shares will not be voted on the other, non-routine, matters and will not be counted in determining the number of shares necessary for approval, although they will count for purposes of determining whether a quorum exists. We encourage you to provide instructions to your brokerage firm. This ensures your shares will be voted at the meeting.

Board of Directors

Woodward’s certificate of incorporation provides for the Board to be divided into three classes, designated Class I, Class II and Class III, with directors in each class serving a three-year term. Woodward’s certificate of incorporation further provides that the Board must consist of no less than six directors. The exact number of directors serving on the Board, and the exact number of directors in each class, is determined from time to time by resolution of the Board. If the number of directors changes, any increase or decrease must be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible. The Company’s Bylaws and Director Guidelines provide that directors are elected by a majority of the votes cast and we have a corresponding resignation policy for uncontested director elections. Contested elections are determined by a plurality vote.

James R. Rulseh retired from the Board as of November 19, 2020, after the Board’s last meeting of calendar year 2020, due to health reasons. Mr. Rulseh’s contributions to the Company, including his advice and counsel to management, have been invaluable. We would like to take this opportunity to thank Mr. Rulseh for his dedication, leadership and vision throughout his 19 years of service as a member of the Board of Directors, and we wish him and his family the very best.

Following Mr. Rulseh’s retirement, the Board consists of eight directors, with three Class I directors, three Class II directors, and two Class III directors. Each director nominee identified in this proxy statement as standing for election at the 2020 Annual Meeting of Stockholders has been nominated by the Board at the recommendation of the Nominating and Governance Committee to hold office for a three-year term expiring in January 2024, or when a successor is elected and qualified. Thomas A. Gendron, Daniel G. Korte and Ronald M. Sega are incumbents. Directors identified in this proxy statement who are not standing for election at this meeting will continue in office for the remainder of their respective terms, subject to the Company’s policies. If a nominee becomes unavailable for election and the Nominating & Governance Committee elects to propose another nominee, proxy holders will vote the proxies for such nominee to fill the vacancy.

We identify below certain biographical information of each of our directors and the director nominees for election, including his or her principal occupation, public company directorships currently held or held during the past five years and other business affiliations. We also describe the specific experience, qualifications, attributes and skills of each director and director nominee that led the Board to conclude he or she should serve as a member of the Board.

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Board of Directors (continued)

PROPOSAL 1 — ELECTION OF DIRECTORS

Directors Standing for Election at This Meeting for Terms Expiring in 2024:

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Board of Directors (continued)

Your Board unanimously recommends a vote “FOR” each of the nominees presented in Proposal 1.

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Board of Directors (continued)

Directors Remaining in Office Until 2022:

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Board of Directors (continued)

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Board of Directors (continued)

Directors Remaining in Office Until 2023:

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Board of Directors (continued)

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GOVERNANCE

Governance Documents

Woodward’s policies and practices reflect corporate governance initiatives that are compliant with the listing requirements of the NASDAQ Stock Market (“NASDAQ”), SEC rules and regulations, and the applicable corporate governance requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). We maintain a corporate governance page on our website at http://www.woodward.com/about/corporate-governance. Included on this site are the following documents adopted by our Board:

Charters for our Audit Committee, Compensation Committee, Executive Committee, and Nominating and Governance Committee can also be found on our corporate governance page, as well as a link to EthicsPoint, our third-party help-line reporting system provider.

Sustainability

Woodward’s mission is to set the global standard in energy control solutions for the aerospace and industrial markets and promote sustainable solutions by optimizing energy use through improved efficiency and lower emissions. Woodward’s continuous commitment to sustainability and corporate social responsibility extends to several aspects of our business, including:

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GOVERNANCE (continued)

Woodward’s sustainability report outlines our present and future commitment to sustainability. Our sustainability report is available on our website and can be accessed at http://www.woodward.com/en/about/social-responsibility.

Independent Directors

The Board, during its annual review of the independence of its members, has determined that each member of the Board, other than Mr. Gendron, is independent under the criteria established by current NASDAQ listing requirements for independent directors. In addition, the Board has determined that each member of the Audit Committee and each member of the Compensation Committee meets the additional independence criteria required for audit committee and compensation committee members, as applicable, established by SEC rules and regulations and NASDAQ listing requirements.

Board Leadership Structure

Mr. Gendron serves as our Chairman of the Board and Chief Executive Officer (“CEO”). Because one individual serves as both Chairman and CEO, the Board appoints an independent director to serve as “Lead Director.” Our Lead Director is Mr. Cohn, who was appointed to that position by the Board in 2017. The Board believes the combined Chairman/CEO position, together with an independent Lead Director, has certain advantages over other board leadership structures and best meets the Company’s current needs. Mr. Gendron’s leadership as Chairman and CEO provides our Board with detailed and in-depth knowledge of the Company’s strategy, markets, operations and financial condition, and enhances our ability to communicate a clear and consistent strategy to our stockholders, employees and business partners. This leadership structure differentiates the oversight role of the Lead Director and other independent directors from the oversight role of the Chairman/CEO and other management, enabling the Board and the Chairman/CEO to have greater clarity and focus on their respective leadership roles.

Our Board has adopted a Lead Director charter that provides a clear and formal delineation of the duties and responsibilities of the Lead Director. The charter provides that the Lead Director will serve a maximum term of five years in such capacity. The Lead Director chairs, among other duties, separate sessions of the independent directors following regularly scheduled Board meetings. Topics discussed at the sessions of the independent directors are at discretion of such directors, and generally include among other things, a review of our CEO’s performance. The Lead Director thereafter meets with the CEO to review items discussed at the sessions of the independent directors and to provide feedback from the Board with regard to his overall performance as CEO. The Lead Director then reports to the independent directors regarding each such feedback meeting with the CEO. Additionally, the Lead Director (together with the Chairperson of the Compensation Committee) presents to the CEO his annual performance review as conducted by the Compensation Committee with input from the independent directors. The Lead Director also leads a review and discussion regarding the results of the Board’s annual self-evaluation, discussed below. The Lead Director also communicates with the CEO on a regular basis to discuss any other Board matters or concerns, and acts as a liaison in that regard between the independent members of the Board and the CEO, without inhibiting direct communication between them.  

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BOARD Leadership Structure (continued)

The Board is responsible for, among other things, overseeing the management of the business and affairs of the Company; selecting and recommending to stockholders appropriate candidates for election to the Board; reviewing and, where appropriate, approving the business plans, major strategies and financial objectives of the Company; evaluating Board processes and performance and the overall effectiveness of the Board; evaluating the performance of the Company and of senior management; requiring, approving and overseeing the implementation of the Company’s succession plans; reviewing compliance with applicable laws and regulations and adopting and overseeing policies of corporate conduct to assure compliance with applicable laws and regulations, a corporate culture that reflects the Company’s values, and maintenance of necessary accounting, financial and other controls.

The Board understands there is no single “one-size fits all” approach to providing Board leadership in the competitive and changing environment in which we operate. The optimal Board leadership structure may vary as circumstances warrant. At present, the Board believes its current structure effectively maintains independent oversight and management. Consistent with our Director Guidelines, the Board reviews and considers whether the positions of Chairman and CEO should be combined or separated as part of a regular review of the effectiveness of the Company’s governance structure.

Board Meetings and Committees

The Board met eleven times in fiscal year 2020, including multiple special meetings of the Board in connection with the previously contemplated merger with Hexcel Corporation (which was terminated in April 2020). All directors attended at least 75 percent of the aggregate of the total meetings of the Board and all committees on which they served, with the exception of Mr. Rulseh who was unable to attend certain meetings due to health reasons. Directors are encouraged, but are not required, to attend annual meetings of stockholders. The Company’s last annual meeting of stockholders was attended by all but one of our directors.

The Board has the following standing committees: Audit Committee; Compensation Committee; Nominating and Governance Committee; and Executive Committee. All actions by committees are reported to the Board at the next regularly scheduled meeting. As part of its ongoing corporate governance review, the Board reviews its assignment of committee memberships annually. Mr. Rulseh served as the Chair of our Nominating and Governance Committee for all of fiscal year 2020, and he continued to serve in that capacity until his retirement from the Board on November 19, 2020. At its November 2020 meeting, the Board made the following committee rotations, effective as of December 1, 2020: (i) Messrs. Cohn and Donovan were appointed as members of the Audit Committee and removed as members of the Nominating and Governance Committee and the Compensation Committee, (ii) Mr. Korte was appointed as Chairperson of the Compensation Committee, replacing Ms. Petrovich as Chairperson, appointed as a member of the Nominating and Governance Committee, and removed as a member of the Audit Committee, and (iii) Ms. Drake was appointed as Chairperson of the Nominating and Governance Committee, replacing Mr. Rulseh as Chairperson, appointed as a member of the Compensation Committee, and removed as a member of the Audit Committee. No other changes were made to the committee assignments as reported in last year’s proxy statement.

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Board Meetings and Committees (continued)

The following table reflects the committee memberships as of the filing date of this proxy statement:

Audit Committee

The Audit Committee oversees and monitors the Company’s accounting and financial reporting processes, including the quality of internal controls over those processes and audits of the Company’s financial statements and internal controls over financial reporting. The Audit Committee also retains, oversees, and evaluates the Company’s independent registered public accounting firm, and is involved in the selection of the lead audit partner. The Audit Committee also reviews and approves the selection and tenure of the Company’s internal audit lead, and periodically assesses the quality of internal audit activity. The Audit Committee also assists the Board with monitoring compliance with laws, regulations and the Company’s Code of Business Conduct and Ethics. The Audit Committee is also responsible for reviewing the Company’s financial reporting risk exposure and the Company’s risk assessment and risk management processes. In addition, the Audit Committee oversees compliance of the Company’s financial statements with applicable rules and regulations and recommends to the Board, based on reviews and discussion with management and the Company’s independent registered public accounting firm, that the audited financial statements of the Company be included in the Company’s Annual Report on Form 10-K. The Audit Committee operates under a charter that more fully describes the responsibilities of the Audit Committee. The Audit Committee reviews its charter at least annually and recommends to the Board such revisions as it deems necessary or appropriate.  

The Audit Committee charter can be found on our website at http://www.woodward.com/about/corporate-governance.

Consistent with SEC rules and regulations and NASDAQ’s listing standards, and in accordance with the Audit Committee charter, all members of the Audit Committee are independent directors and meet all enhanced independence requirements for Audit Committee members. The Board of Directors determined that Messrs. Sengstack and Donovan are audit committee financial experts, within the meaning of Item 407(d) of Regulation S-K under the Securities Act of 1933, as amended, and have experience resulting in “financial sophistication” as defined under NASDAQ listing requirements.

The Audit Committee held six meetings in fiscal year 2020.

Compensation Committee

The Compensation Committee discharges the responsibilities of the Board relating to compensation of the Company’s Chief Executive Officer and other executive officers, and conducts an annual performance review of the Chief Executive Officer with input from the independent members of the Board. The Compensation Committee reviews and approves the compensation of all of our executive officers. The Compensation Committee has oversight responsibility for the Company’s (i) annual short-term incentive compensation under the Woodward Variable Incentive Plan (the “WVIP”), (ii) long-term incentive program, which includes a both a cash component

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Board Meetings and Committees (continued)

(Woodward’s Cash Long-Term Incentive Plan (the “Cash LTI”)) and an equity component, and (iii) Omnibus Incentive Plan. Except as described under the “Delegation of Authority” section, the Compensation Committee determines and takes all action, including granting of all incentives and/or equity compensation to eligible recipients, in accordance with the terms of the Omnibus Incentive Plan, and serves as administrator and oversees compliance with the terms of the plan. The Compensation Committee reviews performance against targets for both the annual incentive compensation plan and the long-term incentive compensation plan. In addition, the Compensation Committee produces the annual report required by SEC rules, and recommends to the Board the inclusion of the Compensation Discussion and Analysis (“CD&A”) in the Company’s Annual Report on Form 10-K and its proxy statement.

The Compensation Committee charter can be found on our website at http://www.woodward.com/about/corporate-governance.

Consistent with NASDAQ’s listing requirements, and in accordance with the Compensation Committee charter, all members of the Compensation Committee are independent directors and meet the heightened standards for independence of Compensation Committee members under the NASDAQ listing rules. The Compensation Committee charter provides that the Compensation Committee may, after reviewing certain specified independence criteria, retain or obtain the advice of compensation advisers. The Compensation Committee charter also provides that the Compensation Committee is responsible for the appointment, compensation and oversight of the work of any such compensation advisers, and that the Company will provide for appropriate funding for payment of reasonable compensation to any compensation advisers retained by the Compensation Committee.

The Compensation Committee held nine meetings in fiscal year 2020, including certain special meetings in connection with the previously contemplated merger with Hexcel Corporation.  

In making its decisions and completing its annual review of our executive compensation program, the Compensation Committee routinely examines a variety of factors which typically include the following (among others):

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Board Meetings and Committees (continued)

Delegation of Authority

The Compensation Committee charter provides authority to the Compensation Committee to delegate its role and responsibilities to subcommittees entirely made up of Compensation Committee members. The Compensation Committee has delegated, to a subcommittee comprised of the Compensation Committee Chairperson and one other Compensation Committee member, the authority to review and approve the grant of options, restricted stock units and/or restricted stock to officers and other employees of the Company, members of the Board, or consultants of the Company in the interval between regularly scheduled meetings of the Compensation Committee, subject to the pool for awards as identified and approved by the Compensation Committee in advance on an annual basis (such grants, “interim grants”). Additionally, the Board has (i) delegated to the Chief Executive Officer limited authority to make certain interim grants, and (ii) delegated to the Compensation Committee all of the Board’s rights to impose restrictions on such authority of the Chief Executive Officer. The Chief Executive Officer is not permitted to make grants to any member of the Board, any Section 16 officer, or any other elected officer of the Company. The Chief Executive Officer is authorized to make grants of not more than 15,000 nonqualified stock options or 5,000 shares of Restricted Stock Units or Restricted Stock Awards to any individual during any fiscal year. The Compensation Committee delegated to the Chairman of the Compensation Committee the authority to approve any and all option exercises when the optionee seeks to pay for the cost of the option and/or the taxes associated with the transaction with stock previously owned and held by the optionee for at least six months. The Chairman of the Compensation Committee is authorized to further delegate these responsibilities to any other member of the Compensation Committee.  

Risk Assessment

The Compensation Committee regularly reviews the Company’s compensation policies and practices, and believes they are robust and effective. The Company also conducted a review of its compensation plans and related risk to the Company. The Company and the Compensation Committee, with the input of Aon, the Board’s independent compensation consultant, have concluded that any risks arising from the Company’s employee compensation policies and practices are not reasonably likely to have a material adverse effect on the Company.  

Nominating and Governance Committee

The Nominating and Governance Committee recommends qualified individuals to fill any vacancies on the Board, develops and administers the Director Guidelines and the Company’s guidelines for corporate governance, reviews and reassesses the Company’s programs and policies related to its codes of conduct, oversees an annual Board self-evaluation, establishes other governance related policies and guidelines, such as stock ownership guidelines for officers and directors, and addresses other governance related matters. In addition, the Nominating and Governance Committee periodically evaluates the compensation and benefits of the Company’s non-employee members of the Board and recommends any changes to the Board for approval.

The Nominating and Governance Committee charter can be found on our website at http://www.woodward.com/about/corporate-governance.

In accordance with NASDAQ listing requirements and the Nominating and Governance Committee’s charter, all members of the Nominating and Governance Committee are independent directors.  

The Nominating and Governance Committee held six meetings in fiscal year 2020.  

Executive Committee

The Executive Committee exercises all the powers and authority of the Board in the management of the business when the Board is not in session, and when, in the opinion of the Chairman of the Board, a particular matter should not be postponed until the next regularly scheduled Board meeting. The Executive Committee has been delegated non-exclusive authority to declare cash dividends. The Executive Committee may not authorize certain

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major corporate actions such as amending the certificate of incorporation, amending the bylaws, adopting an agreement of merger or consolidation, or recommending the sale, lease, or exchange of substantially all of the assets of the Company.  

The Executive Committee charter can be found on our website at http://www.woodward.com/about/corporate-governance.

The Executive Committee held no meetings in fiscal year 2020.  

Director Nomination Process

The Nominating and Governance Committee considers candidates for Board membership as recommended by directors, management, or stockholders. The Nominating and Governance Committee uses the same criteria to evaluate all candidates for Board membership, whether recommended by directors, management, or stockholders. As it deems necessary, the Nominating and Governance Committee may engage consultants or third-party search firms to assist in identifying and evaluating potential nominees. The Nominating and Governance Committee engaged a third-party consultant in fiscal year 2020 to assist in identifying and evaluating director candidates.

The Nominating and Governance Committee recommends qualified director candidates for nomination by the Board based on the skills and characteristics that the Board seeks in its members as well as consideration of the diversity of the Board as a whole. This review includes an assessment of, among other things, a candidate’s knowledge, education, experience, cultural background, including ethnicity, gender and age, and skills in areas critical to understanding the Company and its business, with a commitment to enhancing shareholder value. The Nominating and Governance Committee seeks candidates with the highest professional and personal ethics and values, that are aligned with the philosophy and concepts as expressed in the Company’s Constitution, and who will operate in accordance with the Company’s Code of Business Conduct and Ethics. The Nominating and Governance Committee also assesses a candidate’s ability to make independent analytical inquiries, and willingness to devote adequate time to Board duties.  

Director nominees should possess the following experience, qualifications, attributes and skills:

Prospective directors should be committed to representing the long-term interests of the stockholders. A potential director must exhibit an inquisitive and objective perspective, an ability to think strategically, an ability to identify practical problems, and an ability to assess alternative courses of action that contribute to the long-term success of the business. Director candidates must have industry expertise and/or commit to understanding the Company’s industry as a basis to address strategic and operational issues of importance to the Company. Directors are also expected to commit substantial time and energy to the Board and should ensure that other existing and future time commitments do not materially interfere with their service as a director. Unless otherwise approved in advance by the Nominating and Governance Committee, non-employee directors shall limit their board service to a maximum of four other public companies, and employee directors shall limit their board service to a maximum of one other public company.

The Nominating and Governance Committee considers other relevant factors, as it deems appropriate, including the current composition of the Board and the need for expertise on various Board committees. Every effort is made to complement and supplement skills within the Board and strengthen identified areas of need. The Nominating and Governance Committee considers the ability of candidates to meet independence and other requirements of the SEC, NASDAQ, or other regulatory bodies exercising authority over the Company.  

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The Nominating and Governance Committee’s process for evaluating potential director candidates normally requires one or more members of the Nominating and Governance Committee, and others as appropriate, to interview prospective nominees in person or by telephone. Upon identification of a qualified candidate, the Nominating and Governance Committee will recommend a candidate for consideration by the full Board.

Director Retirement Policy

Under the Director Guidelines, no individual will be nominated by the Board for re-election if such individual will achieve the age of 70 as of the annual stockholder meeting date of such re-election, unless the Board determines in its sole discretion that circumstances exist that would support any such nomination.  

Policy with Respect to Change in Professional Responsibilities

Directors whose professional responsibilities change significantly from those they had when they were elected to the Board or who are involved in other circumstances that may negatively impact the Board or the Company should volunteer to resign from the Board. Such persons should not necessarily leave the Board. There should, however, be an opportunity for the Board through the Nominating and Governance Committee to review the continued appropriateness of Board membership under the circumstances.

Stockholder Recommendations for Directors

Stockholders wishing to suggest a candidate for Board membership should write our Corporate Secretary at 1081 Woodward Way, Fort Collins, Colorado 80524, and provide certain information to the Company as follows:

In connection with its evaluation, the Nominating and Governance Committee may request additional information from the candidate or the recommending stockholder. The Nominating and Governance Committee has discretion to decide which individuals to recommend for nomination as directors. In order to give the Nominating and Governance Committee sufficient time to evaluate a recommended candidate, the recommendation must be received by our Corporate Secretary not later than the 120^th calendar day before the one year anniversary of the date our proxy statement was mailed to stockholders in connection with the previous year’s Annual Meeting of stockholders. No candidates for director nominations were submitted for consideration or recommended to the Nominating and Governance Committee by any stockholder in connection with the election of directors at this Annual Meeting.

Board Composition and Diversity

The Board meets periodically with the Nominating and Governance Committee to review Board composition for diversity of knowledge, experience, cultural background, ethnicity, gender, and age which, when taken together, enables the Board to ensure that board members possess the skills, perspectives and expertise necessary to

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effectively oversee the Company’s business. In this regard, the Nominating and Governance Committee considers, for each incumbent director and potential nominee, the various factors described in the below table. The Nominating and Governance Committee reviews the assessment and its recommendations with the Board.  

The Nominating and Governance Committee is committed to exercising best practices of corporate governance and recognizes the importance of a Board that contains diverse experience at policy-making levels in business, public service, education, and technology, as well as other relevant knowledge that contributes to the Company’s global activities. The Board believes that diversity is an important component of Board membership, and is guided by the Company’s Bylaws, Director Guidelines, and Constitution, which requires the Board to adhere to the philosophy and concepts, including respect for the dignity, value and equality of all of our employees (who we refer to as members).

Board diversity, leadership and experience qualifications for our independent directors are summarized in the table below:

*Including year appointed

Board and Board Committees Self-Evaluation Process

Board and committee evaluations play a critical role in ensuring the effective functioning of our Board and Board committees. Our Board annually evaluates the performance of the Board and its committees. Generally, as part of the Board’s self-assessment process, directors are provided with detailed questionnaires and then participate in a guided, one-on-one interview-based or a group discussion-based evaluation designed to offer a thoughtful and substantive reflection on the Board’s performance. The questionnaires and interviews consider various topics related to Board composition, structure, effectiveness and responsibilities, as well as the overall mix of director skills, experience and backgrounds. As set forth in its charter, the Nominating and Governance Committee oversees the Board and committee evaluation process. The Nominating and Governance Committee periodically reviews the form of questionnaire and the self-evaluation process, considers whether changes are recommended, and reports the results to the Board. For fiscal year 2020, the Board modified its typical process based on the previously contemplated merger with Hexcel Corporation. Specifically, the Nominating and Governance

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Committee delegated authority to specified members thereof to interview each director individually as part of the Board self-evaluation process. The interviews focused on certain criteria deemed critical for the then contemplated combined entity.

Stockholder Communications With the Board of Directors

Stockholders may send communications to the Board by submitting a letter addressed to: Woodward, Inc., Attn: Corporate Secretary, 1081 Woodward Way, Fort Collins, Colorado 80524. The Board has instructed the Corporate Secretary to forward such communications to the Lead Director. The Board has also instructed the Corporate Secretary to review such correspondence and, at the Corporate Secretary’s discretion, not to forward correspondence which is deemed of a commercial or frivolous nature or inappropriate for Board consideration. The Corporate Secretary may also forward the stockholder communication within the Company to the Chief Executive Officer and President or to another executive officer to facilitate an appropriate response.

The Corporate Secretary maintains a log of all communications from stockholders and the disposition of such communications, which the directors review at least annually.

Risk Oversight

The Board is responsible for overseeing management’s identification and mitigation of Company risks, including but not limited to risks associated with our strategic plan, capital structure, development activities, compliance with government regulations, and other significant inherent risks such as cybersecurity. The Board has the ultimate oversight responsibility for risk management processes, with various committees of the Board composed entirely of independent directors overseeing certain aspects of such risk management. While the Board and its various committees have oversight responsibilities for risk management processes, management has responsibility for the day-to-day aspects of risk management. The Board and its committees receive regular reports on risk management from Company management and independent auditors.

The Audit Committee is responsible for risks relating to the Company's financial statements, financial reporting processes, the evaluation of the effectiveness of internal control over financial reporting, and the Company’s compliance with its financial and ethics policies.

The Compensation Committee is responsible for monitoring risks associated with the design and administration of the Company's compensation programs and equity compensation plans, and performs the annual performance review of the CEO and ensures the independence of the compensation consultant.  

The Nominating and Governance Committee oversees risks relating to the Company's corporate governance processes, compliance with the SEC and NASDAQ rules and regulations, and other state and federal laws and regulations relating to corporate governance, and reviews and reassesses the adequacy of the Company’s Code of Business Conduct and Ethics.

The Board and its committees have direct and independent access to management. We believe this division of risk management responsibilities is the most effective approach for addressing the risks that Woodward faces. The existing Board leadership structure encourages communication between the independent directors and management, including those as a result of discussions between the Lead Director and the Chairman of the Board and Chief Executive Officer. By fostering increased communication, we believe that the current Board leadership structure leads to the identification and implementation of effective risk management strategies.

Contemplated Merger with Hexcel Corporation

As part of Woodward’s ongoing consideration and evaluation of our long-term prospects and strategies, the Board and management regularly consider various strategic options potentially available to us, all with the goal of enhancing value for our stockholders. On January 12, 2020, we announced that we had entered into an agreement and plan of merger (the “Merger Agreement”) with Hexcel Corporation (“Hexcel”) and Genesis Merger Sub, Inc., a wholly owned subsidiary of Woodward (“Merger Sub”), which provided that, upon the terms and subject to the

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conditions set forth therein, Merger Sub would merge with and into Hexcel, with Hexcel surviving the merger as a wholly owned subsidiary of Woodward (the “Merger”). Subsequently, on April 5, 2020, in response to the increasing impact on both the aerospace and industrial sectors, and global markets broadly, resulting from the health crisis caused by the COVID-19 pandemic, the Boards of Directors of both companies mutually agreed to terminate the Merger Agreement with no liability to either company. The Board is confident that this was the right decision for our customers, our shareholders, and our members as it has allowed us, and will continue to allow us, to dedicate our focus and resources toward ensuring Woodward remains strong and closely connected with our customers and supply chain during this unprecedented time.

Related Person Transaction Policies and Procedures

The Board adopted the Company’s Related Person Transaction Policies and Procedures (our “RPT Policy”), which provides that the Audit Committee will review and approve Interested Transactions (as described below). Our RPT Policy delegates the authority to act with respect to Interested Transactions that are valued below a stated threshold to the Chair of the Audit Committee.

Our RPT Policy defines an “Interested Transaction” with reference to transactions described in Item 404 of Regulation S-K promulgated by the SEC, which generally means a transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness) or any series of similar transactions, arrangements or relationships or any material amendments or modifications thereto in which the Company (including any of its subsidiaries) was, is, or will be a participant and the amount involved exceeds $120,000, and in which any Related Person had, has, or will have a direct or indirect interest.

“Related Person” also is defined in our RPT Policy with respect to the definitions contained in Item 404 of Regulation S-K. Generally, “Related Persons” consist of any director or executive officer of the Company, any nominee for director, any holder of five percent or more of the Company’s common stock, or any immediate family member of any such persons. “Immediate family member” means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of any such person, and any person (other than a tenant or employee) sharing the household of such person. It may also include entities with which any of such persons have a relationship.

The approval procedures in our RPT Policy state that the Audit Committee will take into account, among other factors it deems appropriate, whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances. In addition, our RPT Policy states that, in connection with the approval or ratification of an Interested Transaction involving an outside director or nominee for director, the Audit Committee should consider whether such transaction would compromise such director’s status as: (1) an independent director under NASDAQ’s independence standards, (2) an “outside director” under Section 162(m) of the Internal Revenue Code (the “Code”) to the extent appropriate or a “non-employee director” under Rule 16b-3 under the Exchange Act, if such non-employee director serves on the Compensation Committee of the Board, or (3) an independent director under Rule 10A-3 of the Exchange Act, if such non-employee director serves on the Audit Committee of the Board. Our RPT Policy also identifies certain transactions that are deemed to be pre-approved, including transactions involving competitive bids, regulated transactions, and employee transactions. No director participates in any discussion for approval of a related party transaction for which he or she is an interested party other than is necessary to provide relevant information to the Audit Committee.  

Woodward is not currently engaged in any Interested Transactions, and there are no known proposed Interested Transactions, that would require disclosure under the RPT Policy.

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Compensation Committee Interlocks and Insider Participation

Ms. Petrovich and Messrs. Rulseh, Cohn, and Donovan served as members of the Compensation Committee during fiscal year 2020. The Compensation Committee members have no interlocking relationships required to be disclosed under SEC rules and no Committee member had any relationship required to be disclosed pursuant to Item 404 of Regulation S-K.

Non-Employee Director Compensation

During fiscal year 2019, the Board adopted an Outside Director Compensation Policy, the current version of which is filed with the SEC in the Company’s Annual Report on Form 10-K for the year ended September 30, 2020. This policy sets forth the types and amounts of compensation that we pay to our non-employee directors. Directors who are also Woodward employees do not receive additional compensation for their services as directors.  

Fiscal year 2020 compensation for our non-employee directors was established concurrently with the adoption of, and in conformance with, the Outside Director Compensation Policy. However, on April 3, 2020, the Board approved a temporary reduction of the directors’ annual base retainers by 25% as part of a broader cash conservation effort to mitigate the impact of the COVID-19 pandemic on the Company. In September 2020, the Board reinstated the directors’ full base retainers for fiscal year 2021.

Periodic Evaluation of Outside Director Compensation Policy

Pursuant to the Outside Director Compensation Policy and in accordance with previous practice, the Nominating and Governance Committee evaluates the market competitiveness of the Company’s director compensation program on a periodic basis, typically every two years. The last such evaluation occurred in September 2019, and the next evaluation is expected to occur in September 2021.

Cash Compensation

Non-employee directors are paid an annual cash retainer, in addition to certain annual cash retainers for any memberships and/or chair positions on various Board committees or as Lead Director. Annual, Lead Director and committee membership retainers are paid in four equal quarterly installments. Directors do not receive additional compensation for individual Board or Committee meetings attended.  

The Outside Director Compensation Policy established cash compensation for non-employee directors at the following levels in fiscal year 2020:

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Equity Compensation

Equity compensation (in the form of stock options) is awarded to non-employee directors annually, based on a “targeted delivered value.” Non-employee directors appointed to the Board during a fiscal year may also be eligible for an initial equity grant upon their appointment to the Board. For fiscal year 2020, in conformance with the Outside Director Compensation Policy and as approved by the Board, the targeted delivered value was $135,000. The number of stock options awarded to each director is determined based on the targeted delivered value, divided by the Black-Scholes value of each stock option as calculated by the Company’s independent compensation consultant for such awards as close to the grant date as practicable. The exercise price of the stock option awards is determined on the effective grant date and is equal to the closing price of the Company’s stock as quoted on NASDAQ on that day.

Based on the targeted delivered value of $135,000 and the Black-Scholes value of each option as determined by the independent compensation consultant, the Compensation Committee approved the grant of 4,200 stock options to non-employee directors at an exercise price of $104.77, which was the closing price of Woodward common stock as quoted on NASDAQ on the date of grant (October 1, 2019, the first day of the Company’s fiscal year 2020). Non-employee director stock option grants vest over four years at the rate of 25% per year.

Our Omnibus Incentive Plan and the Outside Director Compensation Policy provide that non-employee directors may not receive equity awards exceeding a targeted delivered value, as determined on the grant date, of $300,000 in any fiscal year (or $450,000 in any fiscal year in which the director is initially appointed).

Executive Benefit Plan

Our directors are eligible to participate in a non-qualified deferred compensation plan, the Woodward Executive Benefit Plan (“EBP”). Under the EBP, our directors are able to defer up to 100% of their earned cash compensation, including retainer fees, and any fees for participation as a committee member, committee chairman, or Lead Director.

Total Non-Employee Director Compensation for Fiscal Year 2020

The following table shows the compensation earned by non-employee members of the Board during the fiscal year ended September 30, 2020:

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Option awards outstanding as of September 30, 2020 are as follows:

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Stock Ownership of Management

Directors and Named Executive Officers

The following table shows how much Woodward common stock was beneficially owned, as of November 27, 2020, by each director, each named executive officer of the Company, and all directors and executive officers as a group:

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STOCK OWNERSHIP OF MANAGEMENT (continued)

Table to footnote (2) above:

Section 16(a) Beneficial Ownership Reporting Compliance

Based upon a review of our records, all reports required to be filed pursuant to Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) were filed on a timely basis, with the exception of a Form 4 filed by the Company on behalf of Ms. Petrovich related to a transaction for the purchase of Company stock.

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Persons Owning More Than Five Percent of Woodward Stock

The following table shows how many shares of Woodward common stock were owned by each person known to us to own more than five percent of our common stock as of November 27, 2020:

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Compensation Discussion and Analysis

The following Compensation Discussion and Analysis (“CD&A”) provides an overview of our compensation philosophy, strategy, objectives and structure for fiscal year 2020. This section is intended to be read in conjunction with the tables that immediately follow, which provide further historical compensation information for the NEOs.

For fiscal year 2020, our NEOs were:

Executive Summary

Overview of Compensation Objectives

Our executive compensation program is intended to (1) provide a competitive total compensation program that enables us to attract, retain, and motivate a high-performance executive management team, and (2) link the total compensation program payouts to Company and stockholder interests. We believe that proper administration of this program should result in a compensation program that is aligned with, and motivates improvement in, our fundamental financial performance and supports the long-term interests of the Company and its stockholders.

Our executive compensation program is intended to align compensation to the overall financial performance of the Company and is structured as a total compensation package comprised of the following elements:

In addition, the executive compensation program for NEOs includes health and welfare benefits, a deferred compensation program, defined contribution plans, change in control agreements, and other ancillary benefits.

Fiscal 2020 Business Highlights

On November 19, 2020, we reported our financial results for fiscal year 2020, which included the following:

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Compensation Discussion and Analysis (continued)

Fiscal year 2020 marked one of the most volatile periods in the global macro-economic landscape. We acted swiftly to focus on diligent cash management and liquidity and to align our cost structure to the current COVID-19 environment, which significantly impacted both our Aerospace and Industrial business segments. Our Aerospace segment was impacted by the decline in global passenger traffic, partially offset by a strong defense market. Our Industrial segment was impacted by a sharp decline in oil prices as well as the pandemic. The COVID-19 headwinds are enduring, and we have driven and will continue to focus on operational excellence, prudently managing cash and liquidity, and executing on our strategy, to emerge as a leaner and stronger company.

COVID-19 Responsive Actions

In response to the economic challenges resulting from the COVID-19 pandemic, the Company engaged in several initiatives designed to mitigate the impact of the COVID-19 pandemic on the Company and to position the Company for longer-term growth while preserving our financial strength through this period of global uncertainty. On April 3, 2020, as part of the broader effort to address the near-term economic challenges brought on by the pandemic, the Compensation Committee approved an immediate reduction of Company officers’ salaries and its non-employee directors’ annual base retainers. Specifically, the CEO’s salary and non-employee directors’ annual base retainers were reduced by 25%, and all other officers’ salaries were reduced by 10%. In September 2020, the Compensation Committee reinstated the officers’ and non-employee directors’ full pay for fiscal year 2021.

Additionally, on April 3, 2020, the Compensation Committee proactively eliminated any payments under the WVIP in fiscal year 2020 for all employees. Similarly, in September 2020, in the continued interest of maintaining cash and liquidity throughout the COVID-19 pandemic, the Compensation Committee determined that a WVIP payout in 2021 was unlikely and thus the Compensation Committee did not establish specific metrics and criteria under the WVIP for fiscal year 2021. The Compensation Committee did, however, renew the overarching annual performance incentive plan, which continues to specify performance goals related to net earnings similar to such goals as described below in Annual Short-Term Incentive Compensation.

In further response to the challenges resulting from the COVID-19 pandemic, the Company implemented workforce management actions through a combination of a hiring freeze, layoffs and furloughs, reduced work week hours, reduced all non-essential costs, implemented a Company-wide wage freeze, increased focus on reducing working capital, and limited capital expenditures to business-critical items.

Leadership Transitions

On January 6, 2020, the Company announced that Mr. Weber, who had previously announced his intention to retire on January 3, 2020, would postpone his retirement and continue to serve in his capacity as Vice Chairman and an officer of the Company. Mr. Weber served in that role until April 2020, primarily assisting the Company with the proposed merger with and integration of Hexcel Corporation.

Then, on April 13, 2020, shortly after the mutual termination of the merger agreement with Hexcel, the Company announced that as part of its actions in response to the ongoing global economic challenges and uncertainties attributable to the COVID-19 pandemic and the resulting impact on the broader macroeconomic environment and its business, Mr. Weber would return to the role of Vice Chairman, Chief Financial Officer, effective as of April 13, 2020, succeeding Mr. Thayer who departed the Company upon Mr. Weber’s return to his prior role.  

On December 4, 2019, Mr. Patel, previously the Business Unit President of Fuel Systems and Controls, was appointed as President, Aerospace Aftermarket and Hydraulic Systems. No changes were made to his compensation in fiscal year 2020 as a direct result of his appointment into his new position. The Compensation Committee established the 2020 WVIP metrics prior to Mr. Patel’s appointment in his new position. As such, Mr. Patel’s fiscal year 2020 WVIP target was calculated using the performance metrics established for the Fuel Systems and Controls business unit. Separately, prior to his appointment in his new position, Mr. Patel’s target Cash LTI award opportunity was reduced from 35% of his base salary to 25% of his base salary, effective as of the beginning of the fiscal year 2020-2022 Cash LTI cycle.

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Compensation Discussion and Analysis (continued)

In April 2020, Mr. Preiss, who previously served as the Business Unit President of Engine & Turbine Controls, was appointed as President, Engine Systems, in connection with a reorganization of the Company’s Industrial business segment. No changes were made to Mr. Preiss’ compensation in fiscal year 2020 as a direct result of the reorganization. As payments under the WVIP for fiscal year 2020 had been proactively eliminated at the time of the reorganization, the Compensation Committee determined to make no changes to the WVIP plan design or metrics in connection with the reorganization. At the time it was established, Mr. Preiss’ fiscal year 2020 WVIP target had been calculated using the performance metrics for the Engine & Turbine Controls business unit. Separately, prior to his appointment in his new position, Mr. Preiss’ target Cash LTI award opportunity was reduced from 35% of his base salary to 25% of his base salary, effective as of the beginning of the fiscal year 2020-2022 Cash LTI cycle.

Executive Compensation Mix

For our NEOs, we believe it is important that a significant portion of total compensation be tied to incentives that can fluctuate, up or down, based on our financial and operational performance to align with stockholder interests. With respect to variable compensation, the Compensation Committee places a balanced emphasis on both short-term (i.e., the WVIP) and long-term Company performance (i.e., Cash LTI and equity compensation); however, the majority of target variable compensation for our NEOs relates to long-term objectives.  

In analyzing the pay mix and various elements of compensation for each NEO, the Compensation Committee annually considers competitive market data, internal equity (the relative compensation among the Company’s NEOs), and the other individual factors described below in Compensation Philosophy and Strategy. These include the nature and scope of the individual’s role at Woodward, the individual’s performance, knowledge, skills, abilities, potential, and overall contribution to the Company and impact to shareholder value.  

The charts below reflect the target mix pay between fixed and variable compensation components based on target compensation for our NEOs during fiscal year 2020, which reflects our pay-for-performance philosophy:

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Compensation Philosophy and Strategy

Our compensation philosophy and strategy is to align executive compensation with Company performance and stockholder interests to establish total compensation (base salary, annual short-term cash incentives, and long-term incentives) for each NEO that is competitive with total compensation for executives in comparable positions at companies in our peer comparator group. Our compensation approach reflects multiple factors such as (i) the individual’s performance, knowledge, skills, abilities and potential, (ii) significant contributions to the Company and impact to shareholder value, and (iii) our ability to achieve our goals to attract and retain industry leading talent.

Our philosophy places a strong focus on pay-for-performance, with an emphasis on variable compensation, and in particular, long-term incentive compensation that directly ties to Company performance. Our variable compensation plans (annual short-term incentives and long-term incentives), which for fiscal year 2020 represented between 68% and 84% of our NEOs’ target total compensation opportunities, are designed so that the payout opportunity is directly linked to the achievement of pre-determined financial performance metrics, with upside opportunity for exceeding the predetermined goals. Our variable compensation plans also include equity-based compensation to align NEO and stockholder interests. With the variable incentive components of our executive compensation program, we strive to align the interests of the NEOs with the interests of our stockholders in different ways by focusing on both short-term and long-term performance goals, by promoting ownership of the Company, and by linking reward outcomes to our financial performance. As a result of Woodward’s total compensation approach, which includes base pay and variable pay (annual incentive compensation and long-term incentive compensation), the actual performance of the Company significantly influences the total compensation received by our NEOs.

Consideration of Stockholder Say on Pay Vote

In January 2020, our stockholders voted on an advisory resolution regarding the compensation of our named executive officers, which was approved by 93.7% of the votes cast on the proposal (the “say on pay proposal”). The Compensation Committee determined that the favorable vote demonstrated strong stockholder support for Woodward’s overall executive compensation approach and the related actions described in its 2019 proxy statement, and further determined that current practices and processes did not require any significant modifications to achieve the desired results or to address any stockholder concerns. The Compensation Committee will continue to consider the outcome of these advisory votes and feedback from our stockholders when evaluating future executive compensation arrangements.

Role of Management

In order to design compensation programs that are aligned with appropriate Company performance goals and strategic direction, the Compensation Committee works closely with management, including the Chief Executive Officer, the Corporate Vice President, Human Resources, and the Corporate Vice President, General Counsel & Corporate Secretary. Specifically, management facilitates the alignment process by:

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All decisions regarding executive compensation are ultimately made by the Compensation Committee.

The Company’s Corporate Vice President, Human Resources, works with the Compensation Committee Chair to establish the agenda for Compensation Committee meetings. At the Compensation Committee’s request, the Chief Executive Officer regularly attends the meetings and provides background information regarding the Company’s strategic objectives, evaluation of the performance of the executive officers, and compensation recommendations as to executive officers other than himself. The Compensation Committee may also seek input from the Corporate Vice President, General Counsel & Corporate Secretary, as necessary and appropriate, to carry out its duties. The Corporate Vice President, Human Resources, provides input on executive compensation structure, performance assessment process and data, potential promotions, talent management and succession planning, and compensation associated with promotions. No employee is present during the discussion of his or her compensation.

Role of the Compensation Consultant

In making its determinations with respect to executive compensation, the Compensation Committee generally engages the services of an independent compensation consultant. In fiscal year 2020, the Compensation Committee retained the services of Aon’s Rewards Solutions practice to assist with its review of the total compensation packages of the NEOs.

The Compensation Committee retains Aon primarily to provide guidance for the executive compensation decision-making process. Annually, Aon provides the Compensation Committee with an analysis comparing the compensation for the NEOs to our compensation philosophy and to the data of our peer comparator group for base salary, target short-term incentives, target total cash, target long-term incentives (cash and equity), and target total compensation. In carrying out its assignment, the consultant may interact with members of management, including but not limited to the Chief Executive Officer, the Corporate Vice President, Human Resources, the Corporate Vice President, General Counsel & Corporate Secretary, Vice President & Corporate Controller, and the Director, Global Total Rewards.

In addition to their services with respect to compensation for the NEOs, Aon acts as a global compensation and benefits consultant for the Company and provides total compensation data for the Company’s key leadership group. Management also utilizes Aon’s benefits index and compensation and benefits survey data to benchmark compensation and benefits for the Company’s non-NEOs.

The decision to use Aon for advice and services not related to executive compensation was made by management. While neither the Compensation Committee nor the Board pre-approves these non-executive compensation services, the Compensation Committee annually reviews Aon's internal guidelines and practices designed to guard against conflicts and ensure the objectivity of advice in connection with the Compensation Committee’s review of the six compensation consultant conflicts of interest factors described below.

For fiscal year 2020, the Company paid Aon $599,406 for advice and services provided to the Compensation Committee and the Company. Of this amount, $393,644 was paid as a result of the work Aon performed for the Compensation Committee related to executive compensation advice and services, $116,804 was paid as a result of the work Aon performed for the Company that was not related to executive compensation, including international benchmarking data and services, and other health, welfare and retirement plan consulting services, and $88,958 was paid as a result of the work Aon performed for the Company in connection with the previously contemplated merger with Hexcel, including executive compensation advice and services and broad compensation benchmarking data applicable to non-executive employees.

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Compensation Discussion and Analysis (continued)

During fiscal year 2020, in accordance with SEC rules and regulations and NASDAQ listing requirements, the Compensation Committee considered various factors relating to compensation consultant independence, including the following six factors established by the SEC:

As a result of the interactions with the Compensation Committee and management, the Company believes Aon has a well-developed understanding of our business, and is well positioned to provide objective guidance on compensation and benefit plans that are aligned with and reinforce our strategies and goals, and has determined that Aon is independent and free from any conflict of interest.

Competitive Comparisons

Our executive compensation program is benchmarked to be competitive with our peer comparator group. On an annual basis, companies in our peer comparator group are reviewed, changed if appropriate, and approved by the Compensation Committee. The companies included in our peer comparator group are selected based on a combination of multiple comparative factors, including competitors for business and/or talent, markets and industries served, revenues, profits, market capitalization, global and publicly-traded holding structure, level of operational complexity, and manufacturing profile.

Based on its annual review, the Compensation Committee determined it was appropriate to make changes to the companies comprising the peer comparator group for fiscal year 2020 pay and performance comparisons. Specifically, Rockwell Collins, Esterline Technologies, Actuant Corporation and Triumph Group were removed from the peer comparator group. Rockwell Collins and Esterline Technologies were removed because both were acquired and are no longer publicly-traded. Actuant Corporation and Triumph Group were removed because they each no longer fit within the revenue and market capitalization range used by the Compensation Committee to select peer group companies. Sensata Technologies Holding plc, IDEX Corporation and Aerojet Rocketdyne Holdings were added to the peer comparator group for fiscal year 2020 because they (i) are in similar industries as the Company, (ii) fit within the revenue and market capitalization ranges used to identify other peers, (iii) emphasize engineering and technology, and (iv) serve the aerospace and defense and/or other industrial markets.

Compensation data from our peer comparator group identified in the table below was reviewed as part of the Compensation Committee’s process of determining target total compensation opportunities for each NEO for fiscal year 2020. We also reference this data across each component of compensation for our NEOs, including base salary, annual short-term incentive compensation, and long-term incentive compensation. At the time the peer group below was approved by the Compensation Committee, the peer group was comprised of companies that had revenues ranging from 0.5x to 1.8x the Company’s projected fiscal year 2019 revenues, with median revenues equal to 1.0x the Company’s projected fiscal year 2019 revenues. Based on Aon’s recommendation, the Compensation Committee determined this to be an appropriate range. Industry and revenues serve as the primary evaluation criteria because we believe they are the best indicators of the scope, operations, and complexity of an organization, as well as the duties and responsibilities of the NEO positions being compared. Operating income and market capitalization are also evaluated as secondary metrics to validate the appropriateness of peers and ensure the peer companies have similar valuation, profitability, and/or growth profiles as Woodward.

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Compensation Discussion and Analysis (continued)

In fiscal year 2020, the Compensation Committee continued to use the same approach to competitive data to assess the NEOs’ compensation levels as that which was used in prior years. Accordingly, the Compensation Committee used raw competitive data (as compared to size adjusted data) to establish the competitive market for pay levels due to the increased transparency of raw data for the Compensation Committee and executives, and because it lessens potential volatility in pay levels that can be attributable to small changes in executives’ revenue responsibilities.  

Compensation Decisions Compared to Market Data

When determining total compensation opportunities for our executives, we consider many factors, including:

In making compensation decisions and determinations, the Compensation Committee, in consultation with Aon and management, matches the NEOs with similarly positioned executives at companies in the peer comparator group, which we refer to as the benchmark position. These matches facilitate pay comparisons based on functional matches, job duties, responsibilities, level of impact, and organizational level.

When analyzing market data from our peer group, Aon presents data to the Compensation Committee at the 25^th, 50^th and 75^th percentiles for reference points. However, we do not target any percentile or percentile range as a specific objective for the compensation we pay. Rather, our compensation decisions are based on the full consideration of all of the above mentioned elements that provide input into our deliberations and inform our decisions. As a result of evaluating compensation based on the criteria described above, total target compensation for our NEOs may in certain circumstances be above or below the reference points of the peer comparator group provided by Aon.

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Compensation Discussion and Analysis (continued)

Elements of Compensation

Base Salary

Base salary is an important compensation component we must pay to remain competitive in our industry and the marketplace in general. The Compensation Committee generally sets base salary and annual adjustments at levels considered appropriate for comparable NEO positions at companies in our peer comparator group. Base salaries are reviewed and approved by the Compensation Committee on an annual basis in September of each year (the last quarter of our fiscal year) and become effective January 1^st of the following year, which is a consistent practice for all employees of the Company as part of our Leading Performance Management Process.  

Base salaries for the NEOs are assessed and set using a blend of quantitative and qualitative factors. Quantitative data in our peer comparator group is considered in determining our NEOs’ base salaries, and is presented to the Compensation Committee by Aon. We also consider qualitative performance data and factors to determine an NEO’s base salary, including an individual NEO’s performance, experience, responsibilities, management, leadership skills, and salary increase progression. For additional information, see the market data comparisons under the caption “Compensation Decisions Compared to Market Data.”  

As noted above in “COVID-19 Responsive Actions”, on April 3, 2020, as part of a broader effort to navigate through the financial impacts of the pandemic, the Compensation Committee approved an immediate reduction of company officers’ salaries. The CEO’s salary was reduced by 25% and all other officers’ salaries were reduced by 10%. In September 2020, the Compensation Committee reinstated the officers’ full salaries for fiscal year 2021.

Base salary is found in the Summary Compensation Table in the Salary column.  

Annual Short-Term Incentive Compensation

Annual short-term incentive compensation is a key component of the total compensation package. The Omnibus Incentive Plan, which sets forth the material terms of any awards intended to qualify as performance-based compensation, permits the grant of annual cash-based incentive awards to eligible participants. These awards are generally provided pursuant to the WVIP under the authority provided in the Omnibus Incentive Plan. However, as noted above in “COVID-19 Responsive Actions”, the Compensation Committee proactively eliminated any payments under the WVIP for fiscal 2020 for all employees as part of a broader effort in response to the economic challenges presented by the COVID-19 pandemic. Thus, the remainder of this section will set forth the Company’s short-term incentive compensation philosophy generally, and will describe the specific metrics and criteria that were established by the Compensation Committee for the fiscal year 2020 WVIP prior to the onset of the COVID-19 pandemic.

Management and non-management employees participate in the WVIP to enhance organizational alignment, line of sight, and engagement toward the achievement of Company goals and objectives. The WVIP measures our internal annual financial and operational performance against pre-determined metrics. The WVIP is designed to provide short-term incentive compensation that is competitive with compensation offerings in our peer comparator group and to align compensation with financial performance drivers that are intended to benefit stockholders.

As with other components of variable compensation, quantitative data in our peer comparator group is considered in determining our NEOs’ annual short-term incentive compensation opportunity, and is presented to the Compensation Committee by Aon. We also consider other qualitative performance data and factors as described above. Based on these quantitative and qualitative factors, in September 2019, the Compensation Committee determined that the fiscal year 2020 annual incentive award opportunities for the NEOs would remain unchanged relative to the prior year, as their annual incentive award opportunities were aligned with competitive levels. For additional information, see the market data comparisons under the caption “Compensation Philosophy and Strategy — Compensation Decisions Compared to Market Data.”

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Compensation Discussion and Analysis (continued)

In fiscal year 2015, Company management finalized the Company’s strategic plan for the next five years, which the Company refers to as “Woodward 150”, as 2020 marks the 150^th anniversary of the Company’s establishment. Similar to prior years, to help ensure that the Company’s fiscal year 2020 short-term incentive plan was aligned with the key focus areas that support Woodward 150, Company management worked with Aon to assess the performance metrics comprising the WVIP, and where appropriate, to identify other potential performance metrics for consideration that would support Woodward 150 and drive continued performance. Based on the outcome of that assessment, management of the Company identified and recommended to the Compensation Committee for its consideration certain modifications to the design of the WVIP for fiscal year 2020, including changes in certain performance metrics. At the September and November 2019 meetings of the Compensation Committee, the Committee determined that it would be appropriate to make the proposed changes to the fiscal 2020 WVIP to further align it with remaining objectives and targets under Woodward 150. Specifically, the Compensation Committee:

The Compensation Committee believes that the fiscal year 2020 WVIP was (i) designed to continue to drive the successful execution of Woodward 150, (ii) appropriately motivate performance in key areas of the business that are critical to the Company’s long-term strategy and stockholder value creation, including operational excellence, (iii) align pay and performance, and (iv) enhance visibility for participants.

For fiscal year 2020, actual Company achievement of the overarching performance goal of net earnings determined each NEO’s maximum possible WVIP incentive payout up to a maximum WVIP payout of 1.0% of net earnings for Mr. Gendron, 0.5% of net earnings for Messrs. Weber, Thayer and Cromwell, and 0.33% of net earnings for Messrs. Patel and Preiss. Setting maximum WVIP incentive payouts in this manner motivates achievement of net earnings, which strongly ties to stockholder value creation.

At the time the overarching and specific performance metrics were set, the Compensation Committee expected that each NEO’s actual fiscal year 2020 WVIP payout would be lower than the maximum payment permitted upon achievement of the overarching performance goals. In particular, the specific performance metrics were intended to guide the Compensation Committee’s use of negative discretion to determine WVIP payout amounts that were less than the maximum available based on the overarching performance goals. As discussed above in COVID-19 Responsive Actions, the Compensation Committee, based on the Board’s elimination of the WVIP for fiscal year 2020, used negative discretion under this overarching plan to reduce the WVIP incentive payout to zero for all NEOs.

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Compensation Discussion and Analysis (continued)

The specific performance metrics and their relative weight that were initially established by the Compensation Committee for fiscal year 2020 are outlined below. The metrics were designed using financial metrics as well as other performance metrics by business unit.

For fiscal year 2020, the Compensation Committee used a similar approach to establishing the threshold and maximum Adjusted EPS objective as that which was used in prior years. For fiscal 2020, the threshold Adjusted EPS performance goal was set at 90% of the target goal and the maximum performance goal was set at 110% of target. The Compensation Committee determined that this approach continues to incentivize stretch levels of performance, balances pay and performance, represents a reasonable range of financial performance, and is in line with peer group practices.

With respect to the approach used by the Compensation Committee to establish the threshold, target, and maximum performance goals for the other specific performance metrics, the Committee considered multiple factors that included, but were not limited to, historical performance, budgeted performance for fiscal 2020, and targeted levels of performance or improvement over multiple years. All of these metrics were established at a level that focuses on key business success factors that drive performance and challenge our management to achieve higher operational performance. Such targets were considered challenging, yet attainable, to achieve at the time they were set.

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Compensation Discussion and Analysis (continued)

For purposes of WVIP metrics applicable to all employees, including NEOs, for fiscal year 2020, the Compensation Committee established performance targets based on adjusted earnings per share and certain cash flow measures. “Adjusted EPS”, “Adjusted Free Cash Flow” and “Adjusted Modified Free Cash Flow” mean, respectively, (i) the Company’s reported diluted earnings per share, (ii) the Company’s reported cash from operations less capital expenditures, and (iii) a business unit’s operating earnings after bonus plus change in working capital (but without regard to accounts payable) less capital expenditures, and in each case (i), (ii) and (iii) calculated without consideration to unusual non-operational income, gains, expenses or losses totaling in excess of 3% of the Company’s net earnings for the fiscal year, including but not limited to any such items that are related to or associated with any:

Nonetheless, if at the end of the performance period, the Compensation Committee believes that the achievement of the specific performance metrics under the WVIP plan is not reflective of the Company’s expected level of financial, operating or other performance, the Compensation Committee may in its discretion modify the amount of any WVIP payout to be made under the plan, but not above the maximum WVIP incentives available based on achievement of the overarching net earnings goal.

Because payments under the WVIP for fiscal year 2020 were proactively eliminated prior to the end of the performance period, we are not reporting actual performance under specific financial performance measurements. Nonetheless, we believe the WVIP plan design and the performance targets provide insight into our compensation philosophy with respect to annual short-term incentive compensation and have therefore included the following table, which reflects the financial metrics and the target, threshold and maximum performance established prior to the emergence of the COVID-19 pandemic for our NEOs for 2020:

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Compensation Discussion and Analysis (continued)

The 2020 WVIP target payout for each NEO under the WVIP, which again was established prior to the proactive elimination of the WVIP for 2020, is detailed in the following table:

Long-Term Incentive Compensation

The LTI Plan is a key component of the total compensation package. The Omnibus Incentive Plan authorizes the grant of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, cash-based awards, and other stock-based awards.  

We generally issue two forms of awards under the LTI Plan – equity grants (typically in the form of stock options) and cash. We have determined that these two award forms are most appropriate for our NEOs due to their performance orientation and alignment with shareholder interests, as measured by stock price and financial performance, over the long-term. More specifically, we believe that stock options are aligned with shareholder interests because the awards do not convey value to recipients unless there is shareholder value creation after the date of grant. To balance long-term incentives based strictly on share price growth and to drive financial performance, we also grant cash awards under the Cash LTI Plan that are based on Woodward’s 3-year relative financial performance. Specifically, the Cash LTI plan is based on two key financial metrics: Return on Capital and Net Earnings Per Share Growth, each of which is measured relative to companies of comparable size. In tandem, stock options and the Cash LTI Plan incent long-term financial performance that support the Company’s stock price.

These awards are intended to offer competitive incentive opportunities to our executives and to align their interests with increasing shareholder value. The aggregate target value of these awards equals the sum of the total delivered value of the stock options (as determined using the Black-Scholes methodology) plus the target cash award opportunity, and represents the total long-term incentive compensation opportunity for each NEO. As with short-term incentive compensation, quantitative data in our peer comparator group is considered in determining

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Compensation Discussion and Analysis (continued)

our NEOs’ long-term incentive compensation, and is presented to the Compensation Committee by Aon as discussed in “Compensation Decisions Compared to Market Data” above. We also consider other qualitative performance data and factors, including an individual NEO’s performance, knowledge, skills, abilities, significant contributions to the Company and shareholder value, and internal equity when establishing an award opportunity. The Committee holistically evaluates all of the factors noted above. For additional information, see the market data comparisons under the captions “Compensation Philosophy and Strategy” and “Compensation Decisions Compared to Market Data.”  

At its regularly scheduled September meeting, the Compensation Committee approves a target delivered value for the stock option awards. The target value of each of the stock option awards is approved individually at this meeting. One business day before the effective grant date of the award (such effective grant date generally being the first business day of the fiscal year), the Compensation Committee establishes the specific number of individual and aggregate awards based on the target delivered value and using a Black-Scholes value calculated using the closing price on NASDAQ of the Company’s stock on the day prior to such approval meeting. The exercise price of the stock option awards is also determined on the effective grant date and is not less than (and is typically equal to) the closing price as quoted on The NASDAQ Global Select Market on that day. For fiscal year 2020, the Compensation Committee approved the grant of stock options on September 30, 2019 at an exercise price of $104.77, which was the closing price of Woodward common stock as quoted on NASDAQ on the effective grant date (October 1, 2019). Each option tranche granted to our NEOs in fiscal year 2020 vests over four years at the rate of 25% per year.  

With respect to the Cash LTI, the Compensation Committee generally establishes a three-year performance period and compares the Company’s performance to that of the companies comprising the S&P Mid Cap 400 Index. The Compensation Committee generally establishes the Cash LTI award metrics for a three-year performance cycle in the first quarter of the first fiscal year of the performance cycle. For each NEO, the Compensation Committee also establishes a target Cash LTI, which is a percentage of the NEO’s base salary at the beginning of the three-year performance cycle. The 2020-2022 performance period cycle was established in November 2019. The performance metrics for purposes of the Cash LTI for the multi-year cycles were determined by the Compensation Committee to be:

The performance metrics were selected because they are key measures to the long-term success of the Company’s business and aligned with shareholder value creation. Because the metrics are equally important to the Company, the performance metrics are weighted equally.

For the purposes of measuring relative performance, “return on capital” is defined as net income, adjusted for accounting changes and after-tax interest expense, divided by the sum of total debt, stockholder’s equity, and any non-controlling interest. EPS for this purpose is measured as net income, adjusted for accounting changes, if any, divided by fully diluted common shares outstanding. EPS during the performance cycle is compared to a baseline EPS to calculate the growth in diluted EPS during such cycle. There are currently three open cycles: 2018-2020 (basis is reported EPS of $3.16 for fiscal year ended 2017), 2019-2021 (basis is reported EPS of $2.82 for fiscal year ended 2018), and 2020-2022 (basis is reported EPS of $4.02 for fiscal year ended 2019).

For purposes of developing the performance metrics for determining the payout under the Cash LTI, the Compensation Committee has approved a relative measure methodology that compares our performance to the companies in the S&P Mid Cap 400 Index, an external index. We believe that, for the Cash LTI, the S&P Mid Cap 400 Index relative measure methodology is an appropriate comparison of our performance against a larger and broader population of companies, which is representative of investment options available to the market. The Cash LTI performance metrics and corresponding payouts are based on our ranking within the S&P Mid Cap 400 Index for all performance cycles that are currently outstanding, and are as follows:

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Compensation Discussion and Analysis (continued)

The above payout formula applies to each measure weighted equally. If performance is below the 50t^h percentile, no award will be earned or paid as it relates to that measure. Award amounts are interpolated for performance results between the above percentiles. Performance at the 60^th percentile is necessary to earn a payout of 100% of target as it relates to that measure. We believe having a target payout at the 60^th percentile sets a higher standard and is consistent with plan designs of other high performing companies in our peer group. The maximum award that can be earned for performance at or above the 75^th percentile is 200% of target as it relates to that measure.

The reward targets established for each NEO are articulated as a percentage of base salary. These targets reflect the Compensation Committee’s desire to establish a meaningful incentive linked to longer term financial performance of the Company that fits within our overall compensation philosophy and strategy.

For the 2018-2020 Cash LTI cycle, targets and actual payouts are detailed in the following table:

.

Payouts for the 2018-2020 cycle were based on the following performance levels:

These performance levels resulted in awards that aggregate to 120.6% of target for each NEO for the 2018-2020 cycle. The amounts paid under the Cash LTI ending in fiscal year 2020 can be found above and in the Summary Compensation Table under Non-Equity Incentive Plan Compensation.

Separation Agreement and Release with Mr. Thayer

In connection with his departure from the Company, Mr. Thayer entered into a Separation Agreement and Release (the “Separation Agreement”) with the Company pursuant to which Mr. Thayer received a cash severance of $575,000, paid in a lump sum. Mr. Thayer also received retirement treatment under the Company's Cash LTI plan with a deemed retirement date of September 30, 2020 and resulting payments, if any, based on the achievement of previously established targets for each of the three open Cash LTI performance cycles and prorated pursuant to the Separation Agreement at 58.33% for the cycle ending 2020, 58.33% for cycle ending 2021, and 33% for cycle ending 2022.  

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Compensation Discussion and Analysis (continued)

In addition, all stock options previously granted to Mr. Thayer, other than the award granted in October 2019, were modified to provide for continued vesting post-termination based on the original vesting schedule and an extension of the exercise period for the remaining ten-year term of the options. The options granted to Mr. Thayer in October 2019 lapsed immediately on the termination of his employment with the Company.

Further, the Company provided relocation benefits to relocate Mr. Thayer’s residence from Fort Collins, Colorado back to Baltimore, Maryland, including the purchase of Mr. Thayer’s real property in Fort Collins as well as the purchase of personal property acquired for his Fort Collins residence, in each case at his original purchase price. Additionally, the Company provided Mr. Thayer a one-time payment of $37,000, approximating the pre-tax costs of (and in lieu of providing) continued healthcare benefits for a twelve month period.

The severance benefits were conditioned upon Mr. Thayer executing a twelve month non-competition provision and a full release of claims against the Company, as well as non-disparagement and non-solicitation provisions, which he did. These provisions were deemed important to limit employee and/or customer attrition to competitors. The value of the severance benefits is set forth below in “Separation Arrangements with Mr. Thayer”.

Merger-Related Considerations

If the previously contemplated Merger with Hexcel had not been terminated, the Merger would have resulted in an effective modification to the equity award agreements of Messrs. Cromwell, Patel, Preiss and Thayer, as well as that of certain other of our officers (but not including Messrs. Gendron or Weber) and employees who held Woodward equity awards immediately prior to the effective time of the Merger (the “Effective Time”). Specifically, on January 11, 2020, the Woodward Board approved an amendment to certain Woodward equity awards that would be outstanding on January 12, 2020, and through the time as of immediately before the Effective Time to provide that if on or within 24 months following the Effective Time, the award holder’s employment was terminated without “cause” or the award holder terminated employment for “good reason”, such equity awards would become fully vested (the “Double-Trigger Vesting”). The Double-Trigger Vesting would have applied to such awards held by certain Woodward employees as of immediately before the Effective Time, including awards held by Messrs. Cromwell, Patel, Preiss and Thayer. However, the Double-Trigger Vesting would have excluded any such award that as of immediately before the Effective Time was held by Mr. Gendron and by any other employee who qualified for post-termination continued vesting pursuant to its terms, including Mr. Weber. The Double-Trigger Vesting became inapplicable to all eligible employees, including Messrs. Cromwell, Patel, Preiss and Thayer, upon the termination of the Merger. The Merger was terminated prior to the occurrence of any Double-Trigger Vesting. The Merger termination had no impact on the compensation of our NEOs in fiscal year 2020, other than nullifying any effect of a Double-Trigger Vesting.

Other Compensation Programs

The NEOs are eligible to participate in the same health, welfare, and retirement benefits as all of our U.S. employee membership. These benefits include a group health insurance program; life insurance, inclusive of employee life, additional buy-up employee life, optional spouse life, and optional child life; Accidental Death & Dismemberment insurance; Short-Term Disability; Long-Term Disability; Woodward Retirement Savings Plan, inclusive of employee contributions and Company contributions (100% match on the first 3% of employee contributions, 50% on the next 3% of employee contributions, maxing at 4.5%); Woodward Stock Plan (Company contribution of 5% of eligible wages); and Retirement Income Plan (Company contribution of 1.5% of eligible wages, and 0.1% for each year of additional service). The Retirement Income Plan was closed to new participants as of September 30, 2003, with prior participants grandfathered.

Our NEOs are also eligible to participate in a deferred compensation plan, the EBP. The EBP is also available to other key members of management and to members of the Board. Employee participants are able to defer up to 50% of base salary, and up to 100% of any incentive (WVIP and/or Cash LTI) payments.

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Compensation Discussion and Analysis (continued)

All of our tax-qualified plans are subject to applicable limitations set by the Internal Revenue Service (“IRS”). Supplemental contributions to the EBP (as more fully described below) are made for the Retirement Savings Plan, the Woodward Stock Plan, and the grandfathered Retirement Income Plan and are solely to restore for IRS limitations.

The benefits described in this section are paid to remain competitive in the marketplace. Amounts relating to certain of these benefits may be found in the “All Other Compensation” column of the Summary Compensation Table.

Post-Employment Compensation and Employment Contracts

The Company’s NEOs are not employed under general employment contracts and are employees at will.  

Severance benefits are intended to ease the consequences of an unexpected termination of employment. These benefits are also designed to prevent our senior executives from seeking employment with our competitors after termination or soliciting our employees or customers during a period after termination of employment.  

We have entered into change in control agreements with each of the NEOs in order to help align actions and behaviors with, and in the best interests of, our stockholders in the event of a proposed or actual change of control transaction, to retain these executives through a change of control transaction and to enable them to remain focused on running the business to ensure a smooth transition. The change in control benefits are designed to preserve productivity, avoid disruption, and prevent attrition in the event we are involved in a change in control transaction.  

The change in control severance program also motivates executives to pursue transactions that are in our stockholders’ best interests notwithstanding the potential negative impact of the transaction on their future employment. While cognizant of their terms, the Compensation Committee does not view the change in control agreements as an element of current compensation, and such arrangements do not necessarily affect the Compensation Committee’s annual compensation decisions.

For a further description of the change in control agreements, see the information under the caption “Executive Compensation — Potential Payments Upon Termination or Change in Control — Change in Control and Restrictive Covenant Agreements Post-Employment Provisions.”

Impact of Accounting and Tax Issues on Executive Compensation

In setting each individual executive’s compensation levels, we do not explicitly consider accounting and tax issues. We do, however, analyze the overall expense arising from aggregate executive compensation levels and awards and the components of our pay programs.

As one of the factors in our evaluation of compensation matters, we have considered the anticipated tax treatment to the Company and to the executive officers of various payments and benefits. Section 162(m) of the Code generally places a limit of $1,000,000 on the amount of compensation that we may deduct in any one year with respect to our CEO, CFO, the other executive officers listed in the Summary Compensation Table in this proxy statement and certain former executive officers. The Company and the Compensation Committee have considered and will continue to consider various approaches regarding the deductibility of compensation payments to the extent reasonably practicable and to the extent consistent with our other compensation goals.

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Compensation Discussion and Analysis (continued)

Stock Ownership Guidelines

The Board has established stock ownership guidelines for the Company’s non-employee directors and its officers to align their interests and objectives with those of our stockholders. The below table reflects minimum ownership value for the Company’s non-employee directors and its officers as a multiple of their respective annual base retainers or salaries, as applicable. Accumulation of the amount of stock required under the ownership guidelines is expected within 60 months of the date of such person’s appointment or election.

Shares held as owner of record or in a brokerage account, shares held in the Woodward Retirement Savings Plan, and unfunded deferred amounts denominated in Woodward Stock in the EBP, all qualify towards the ownership guidelines. Unexercised and vested “in-the-money” stock options will also qualify towards up to a maximum of 50% of the ownership requirements. The Compensation Committee may in its discretion relieve any person of such obligations on a case-by-case basis, taking into consideration special circumstances such as retirement or health of the individual. As of the date of this proxy statement filing, all directors and officers were in compliance with the ownership guidelines taking into account applicable accumulation periods following their appointment.

Hedging and Pledging Policy

Under our written policies, no directors or employees (including officers) of the Company are permitted to purchase our stock on margin, or to short sell, buy or sell puts or calls, or to engage in any other transaction related to Woodward securities that hedge or offset, or are designed to hedge or offset any decrease in the market value of Woodward securities, whether such securities are granted to such employee or director by the Company as part of compensation, or held by the employee or director. In addition, directors and employees of the Company are not permitted to pledge Woodward stock under any circumstances.    

Clawback Policy

In 2016, the Compensation Committee approved a Clawback Policy, which the Board believes exceeds or meets the forthcoming requirements pursuant to the Dodd-Frank Act. The Clawback Policy provides for the recovery by the Company, from any current or former executive officer who was employed by the Company during the three-year look back period (“Covered Person”), of any incentive-based compensation that was determined, in whole or in part, on the achievement of any financial or operating result of the Company, that was awarded erroneously to the Covered Person due to material noncompliance with any financial reporting requirement under the securities laws. A copy of the Clawback Policy can be found on our website at http://ir.woodward.com/governance.

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Compensation Committee Report

Notwithstanding anything to the contrary set forth in any of the Company’s previous or future filings under the Securities Act of 1933, or the Exchange Act, that might incorporate this proxy statement, in whole or in part, the following Woodward, Inc. Compensation Committee Report on Compensation Discussion and Analysis shall not be deemed to be “soliciting material” or “filed” with the SEC or incorporated by reference into any such previous or future filings.

The Compensation Committee is charged with certain responsibilities relating to compensation of the Company’s executive officers. The Compensation Committee evaluates and approves all compensation of executive officers, including base salaries, short-term and long-term incentive compensation, and any perquisite programs of the Company. Compensation Committee determinations are presented to the Board.

The Compensation Committee also fulfills its duties with respect to the Compensation Discussion and Analysis and Compensation Committee Report portions of the proxy statement, as described in the Compensation Committee’s charter.

The Compensation Discussion and Analysis was prepared by management of the Company. The Company is responsible for the Compensation Discussion and Analysis and for the disclosure controls relating to executive compensation. The Compensation Discussion and Analysis is not a report or disclosure of the Compensation Committee.

The Compensation Committee met with management of the Company and the Compensation Committee’s outside consultant to review and discuss the Compensation Discussion and Analysis.

The Compensation Committee of the Board of Directors of the Company has reviewed and discussed the Compensation Discussion and Analysis included in this proxy statement and the 2020 Annual Report on Form 10-K with the management of the Company. Based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and the Company’s 2020 Annual Report on Form 10-K, and the Board approved that recommendation.

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Executive Compensation

Summary Compensation Table

The following tables set forth compensation information for the NEOs for services rendered in all capacities to the Company and its subsidiaries in fiscal year 2020.

Note:  The Stock Awards, Change in Pension Value and Non-Qualified Deferred Compensation Earnings columns have been omitted from this table because they are not applicable.

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Executive Compensation (continued)

Table to footnote (4) above:

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Executive Compensation (continued)

Grants of Plan-Based Awards for Fiscal Year 2020 ending September 30, 2020

The following table provides additional information with respect to stock-based awards granted in fiscal year 2020, the value of which was provided in the Option Awards column of the Summary Compensation Table, and the potential range of payouts associated with the WVIP and Cash LTI for fiscal year 2020:

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Executive Compensation (continued)

Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table

Stock option awards consist of non-qualified options issued for a 10-year term. Each option tranche granted to NEOs in fiscal year 2020 vests over four years at the rate of 25% per year, generally subject to continued service through the vesting date. The exercise price represents the Woodward closing price as reported on NASDAQ on the effective date of the award. If employment is terminated (other than for reasons as described below), the options granted will be cancelled unless exercised within three months following the date of termination or the term of the option whichever is earlier. For stock option awards granted on or after October 1, 2013, upon a termination of employment due to retirement, options will not accelerate and will continue to vest and be exercisable in accordance with the schedule established at the grant date. For the foregoing purposes, our directors are eligible for retirement upon attaining age 55, and the NEOs are eligible for retirement upon (i) attaining age 55 with at least ten years of service with us, (ii) attaining age 65 with no minimum years of service, or (iii) attaining two years of service if such NEO was first hired at or after the age of 55 (such person who was first hired at or after the age of 55, a “Late Career Hire”). None of our NEOs in 2020 are Late Career Hires. Dividend equivalents are not paid on unexercised stock option awards.

The WVIP and the Cash LTI are presented in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table because each is a cash-based performance award. The actual amounts of the awards under the Cash LTI listed in the Non-Equity Incentive Plan Compensation column were paid in November 2020, and no payments were made under the WVIP. The awards under both plans as set forth in the Grants of Plan-Based Awards Table are based on Threshold/Target/Maximum percentages applied to base wages as of the beginning of the fiscal year. Generally, if employment is terminated, the employee must have had full-time employee status at the end of the fiscal year, in the case of the WVIP, or at the end of the last fiscal year of the multi-year period, in the case of the Cash LTI, to receive a payout under both plans. If the termination is due to retirement, the payouts under both plans will be prorated. In either event, the payouts under both plans will typically be based on actual goal performance. Please see “Compensation Discussion and Analysis” for additional information relating to these provisions, including performance criteria relating to these plans.

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Executive Compensation (continued)

Outstanding Equity Awards at Fiscal Year End (September 30, 2020)

The following table provides information regarding the outstanding equity awards held by each of the NEOs as of September 30, 2020: