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The Company celebrated its 150th anniversary in the coatings industry and a strong record of providing innovative coating technologies to customers around the world.

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Net sales were $4,074 million with volume and price up 4.3% versus 2015, offset by unfavorable foreign exchange translation.

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Six acquisitions which closed during 2016, coupled with several in 2015, contributed 2.2% to volume growth.

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Net income attributable to Axalta was $42 million, Adjusted EBITDA was $907 million, a 5% increase over 2015, and EBITDA margins increased a strong 110 basis points.(1)

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Cash from operations increased to $559 million from $410 million in 2015, a 36% increase.

 

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Refinancing transactions in the second half of the year, coupled with several debt pre-payments, will result in an approximate $35 million savings in annual cash interest expense.

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Our Refinish business had an exceptional year with significant business wins among distributors, multi-shop operators and dealer-owned body shops, and important product launches in the mainstream and economy segments.

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The Industrial Coatings business enjoyed strong net sales growth, adding nearly 1,000 new customer accounts and introducing more than 100 new products or line extensions.

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Our Transportation Coatings business coated more than 28 million vehicles, launched products on more than 100 customer paint lines, and introduced new products ranging from color and clear coats to specifically formulated coatings for light weight substrates.

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The Carlyle Group sold its remaining shares of Axalta equity making the Company now entirely independent.

 

(1)

For reconciliation to GAAP, please see “Reconciliation of non-GAAP Financial Measures” beginning on page 41 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on February 28, 2017.

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Board Independence – seven of our eight directors are independent under NYSE listing standards. Our CEO is the only non-independent member of our board of directors. All members of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee are independent.

 

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Independent Directors Meetings – independent directors typically meet in executive sessions following each regularly scheduled Board meeting, without management present.

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Annual Board and Committee Self-Evaluations – each year, the Nominating and Corporate Governance Committee administers self-evaluations of the board of directors and its committees, in addition to conducting an individual director performance evaluation.

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Stock Ownership Guidelines for Directors and Executive Officers – the Company adopted stock ownership guidelines for directors in 2016, which were

increased in 2017, in addition to the stock ownership requirements previously adopted for executive officers in connection with our 2014 initial public offering. Each of the directors and executive officers satisfies the stock ownership guidelines or is within the grace period provided by the stock ownership guidelines to achieve compliance.

 

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Succession Planning – the Company and the board of directors actively engage in developing a pipeline of internal talent to assume key executive positions. Our Compensation Committee has also reviewed an emergency succession management plan in the event that one of our key executives became unable or unwilling to serve.

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EHS&S Committee – in February 2017, the board of directors established a new committee responsible for the Company’s policies, performance, strategy and compliance matters related to the environment, health, safety and sustainability.

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Performance-Based Compensation – the Company relies heavily on performance-based compensation for executive officers, including introducing awards of performance-based restricted stock in 2016 tied to our total shareholder return relative to a peer group of companies, which comprise approximately half of the grant date value of the 2016 long-term equity awards.

 

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Significant At-Risk Pay – 89% of our CEO’s pay and 75% of our other executive officers’ pay was at risk in 2016 (i.e., annual non-equity incentive compensation and discretionary long-term equity incentive awards).

 

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Incentive Compensation Recoupment Policy – the board of directors adopted a policy in 2017 providing that the Compensation Committee may require reimbursement

of incentive compensation awarded to an executive officer if the Company is required to restate its financial results as a result of the executive officer’s misconduct.

 

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Hedging and Pledging Prohibited – the Company’s insider trading policy prohibits our officers, directors and employees from pledging their common shares as collateral and engaging in hedging or short sale transactions in our common shares.

 

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Double-Trigger Vesting Provisions – the Company’s 2014 Incentive Award Plan provides double-trigger vesting provisions for long-term equity awards.

Our board of directors currently consists of eight directors divided into three classes with staggered three-year terms so that the term of one class expires at each annual general meeting of members. Three nominees will be proposed for election as Class III directors at the Annual Meeting. Information regarding our directors’ professional experience and ages (as of March 2, 2017) is set forth below.

 

The persons named in the accompanying proxy will vote to elect the nominees listed below unless authority to vote is withheld. The elected directors will serve until the annual general meeting of members in 2020 or until an earlier resignation or retirement or until their successors are elected and qualify to serve.

All of the nominees are presently serving as directors of the Company. The nominees have agreed to stand for reelection. However, if for any reason any nominee shall not be a candidate for election as a director at the Annual Meeting, it is intended that shares represented by the accompanying proxy will be voted for the election of a substitute nominee designated by our board of directors, or the board of directors may determine to leave the vacancy temporarily unfilled.

Charles W. Shaver

Mr. Shaver, age 58, has been our Chairman of the Board and Chief Executive Officer since February 2013. With over 35 years of leadership roles in the global petrochemical, oil and gas industry, he was most recently the Chief Executive Officer and President of the TPC Group from 2004 to April 2011. Prior to joining Axalta, Mr. Shaver served as an operating executive for Golden Gate Capital and The Carlyle Group. Mr. Shaver also served as Vice President and General Manager for General Chemical, a division of Gentek, from 2001 through 2004 and as a Vice President and General Manager for Arch Chemicals from 1999 through 2001. Mr. Shaver began his career with The Dow Chemical Company serving in a series of operational, engineering and business positions from 1980 through 1996. He has an extensive background of leadership roles in a variety of industry organizations, including serving as Chairman of the American Coatings Association Board of Directors and Executive Committee and serving on the Board of Directors and Executive Committee of the American Chemistry Council, the American Chemistry Council Finance Committee and the National Petrochemical and Refiners Association Board and Executive Committee. Mr. Shaver currently serves as Chairman of the Board of Directors for U.S. Silica, a position he has held since 2012, and formerly served on the Board of Directors of Taminco, Inc. from 2012 through 2014. Mr. Shaver earned his B.S. in Chemical Engineering from Texas A&M University. The board of directors has concluded that Mr. Shaver should serve as a director because he brings extensive experience in the management of public and private companies and the chemical industries as well as a deep knowledge of our operations in his role as our Chief Executive Officer.

 

Mark Garrett

Mr. Garrett, age 54, became a member of our board of directors in June 2016. Mr. Garrett is Chairman of the Executive Board and Chief Executive of Borealis AG, a leading provider of innovative solutions in the fields of polyolefins, base chemicals and fertilizers with headquarters in Vienna, Austria. Mr. Garrett has over 30 years of experience in senior management roles in the chemical sector. After assuming his current position at Borealis, he set the company on a strong trajectory that included driving growth as Vice Chairman at Abu Dhabi Polymers Company Ltd. (Borouge ADP), a leading provider of innovative, value creating plastics solutions, established in a joint venture with Abu Dhabi National Oil Company (ADNOC). Mr. Garrett also is a member of the Board of Directors of Nova Chemicals and Chairman of its Remuneration Committee. Nova is one of world’s leading suppliers of plastics and chemicals. Through collaborative efforts, Borealis, Borouge and Nova have generated substantial value creation for investors. Before assuming his current position at Borealis in 2007, Mr. Garrett was Executive Vice President Water and Paper Treatment and a member of the Executive Committee at Ciba Specialty Chemicals where he started his career and moved into positions of increasing responsibility. Mr. Garrett is a member of the Board of Directors at Umicore, a global materials technology and recycling group, and a member of the Advisory Board of Webster Vienna Private University. Mark Garrett holds a Bachelor of Arts degree in economics from the University of Melbourne in Australia and a Graduate Diploma of Applied Information Systems from the Royal Melbourne Institute of Technology. He holds Australian and Swiss dual nationalities. The board of directors has concluded that Mr. Garrett should serve as a director because he brings extensive experience in the management of multinational public and private companies and has deep knowledge of the chemicals industry as well as European and global markets.

Lori J. Ryerkerk

Ms. Ryerkerk, age 54, became a member of our board of directors in October 2015. Ms. Ryerkerk is Executive Vice President, Global Manufacturing of Royal Dutch Shell (Shell), a role she has held since October 2013. She is responsible for all Shell Refining and Chemical assets globally, both Shell operated and joint ventures, with a total crude oil processing capacity of 3.1 million barrels per day and chemical sales volume of 17 million tonnes per year. From May 2010 until October 2013, Ms. Ryerkerk was Shell’s Regional Vice President, Manufacturing, Europe and Africa. Prior to joining Shell, Ms. Ryerkerk held leadership roles with ExxonMobil Corporation and Hess Corporation. She has lived and worked in the U.S., Asia and Europe. Ms. Ryerkerk received her B.S. in chemical engineering from Iowa State University. The board of directors has concluded that Ms. Ryerkerk should serve as a director because she has significant experience with global manufacturing operations as well as extensive expertise in international business and strategic planning.

 

 

Robert M. McLaughlin

Mr. McLaughlin, age 59, became a member of our board of directors in April 2014. Mr. McLaughlin currently serves on the Board of Directors of publicly-traded Beacon Roofing Supply, Inc., the largest distributor of residential and non-residential roofing materials in the United States. In 2016, Mr. McLaughlin retired as the Senior Vice President and Chief Financial Officer of Airgas, Inc. and a member of the company’s Management Committee. Airgas is a leading U.S. supplier of industrial, medical and specialty gases, and hardgoods, such as personal protective equipment, welding equipment and other related products. Prior to assuming that position on October 3, 2006, Mr. McLaughlin served as Vice President and Controller since joining Airgas in 2001. From 1999 to 2001, he served as Vice President of Finance for Asbury Automotive Group. From 1992 to 1999, Mr. McLaughlin was Vice President of Finance and held other senior financial positions at Unisource Worldwide, Inc. He began his career at Ernst & Young in 1979. He was a Certified Public Accountant and earned his Bachelor’s degree in accounting from the University of Dayton. The board of directors has concluded that Mr. McLaughlin should serve as a director because he has significant and diverse business experience and has substantial experience on all aspects of financial management and strategic planning in a public company environment.

Samuel L. Smolik

Mr. Smolik, age 63, became a member of our board of directors in September 2016. Mr. Smolik currently serves on the Board of Directors of Evergreen Industrial Services, a leading provider of environmental and industrial cleaning solutions. In 2017, Mr. Smolik retired as the Senior Vice President – Americas Manufacturing at LyondellBasell Industries, one of the world’s largest plastics, chemical and refining companies. Prior to that assignment, Mr. Smolik was Vice President – Global Health, Safety, Environment and Operational Excellence at the company. From 2005 through 2009, he was Vice President – Global Downstream Health, Safety, Security and Environment at Royal Dutch Shell. Between 1975 and 2004, Mr. Smolik held a number of positions of increasing responsibility at The Dow Chemical Company before attaining his final position as Vice President, Global Environment, Health, Safety and Security. Mr. Smolik is active with the American Fuels & Petrochemical Manufacturers Association and the American Chemistry Council. He is also involved with a number of community, education and other non-profit organizations including The University of Texas at Austin Engineering Advisory Board, the Antwerp International School Foundation where he is President of the Board of Directors, and Ducks Unlimited, the leading wetlands conservation organization in North America. Mr. Smolik received a B.S. in Chemical Engineering from The University of Texas at Austin. The board of directors has concluded that Mr. Smolik should serve as a director because he brings extensive experience in global operations and environment, health and safety matters in the chemicals industry.

Deborah J. Kissire

Ms. Kissire, age 59, became a member of our board of directors in December 2016. Ms. Kissire currently serves on the Boards of Directors and Audit Committees for Cable One, Inc., a leading American cable service provider, and Omnicom Group, Inc., a global marketing and corporate communications holding company based in the U.S. In 2015, she retired as Vice Chair and Regional Managing Partner from Ernst & Young, L.L.P. (EY), where she also served as a member of their Americas Executive Board and Global Practice Group. Ms. Kissire has more than 30 years of experience in the financial sector, and has served in various leadership positions at EY, including Vice Chair and Regional Managing Partner for the East Central and Mid-Atlantic Regions and U.S. Vice Chair of Sales and Business Development. In addition to serving on EY’s Americas Executive Board, she has extensive experience serving on or leading multiple civic boards and executive level committees, where she provided exceptional insight into strategic planning, governance, global branding, and gender inclusiveness. In 2014, Ms. Kissire was inducted into the Washington Business Hall of Fame and has been recognized in the Washington Business Journal’s list of ‘Women Who Mean Business’. She has also been named as one of Washingtonian’s ‘150 Most Powerful People in Washington, D.C.’ and featured multiple times on Washingtonian’s list of the ‘100 Most Powerful Women in Washington, D.C.’ Ms. Kissire is a CPA and earned her BBA, Accounting, from Texas State University (formerly Southwest Texas State University). The board of directors has concluded that Ms. Kissire should serve as a director because she brings extensive experience in the financial oversight of public companies.

Andreas C. Kramvis

Mr. Kramvis, age 64, became a member of our board of directors in July 2014. Mr. Kramvis is currently an Operating Partner with AEA Investors. In 2017, Mr. Kramvis retired as the Vice Chairman of Honeywell International where he focused on critical aspects for the achievement of the company’s Five Year Plan. Prior to that role, Mr. Kramvis served as the President and Chief Executive Officer of Honeywell Performance Materials and Technologies, a global leader in process technology for the oil and gas industries as well as the development and production of high-purity, high-quality performance chemicals and materials. Mr. Kramvis has also served as the President and CEO of Honeywell’s Environmental and Combustion Controls business. Intimately familiar with key markets and economies around the world, Mr. Kramvis has managed companies with global scope across five different industries. Mr. Kramvis is a Director of AptarGroup, a past Chairman of the Society of Chemical Industry and a past Board Member and Executive Committee Member of the American Chemistry Council. He is the author of a book titled “Transforming the Corporation: Running a Business in the 21st Century,” which demonstrates how to systematically transform a business for high performance. Mr. Kramvis is a graduate of Cambridge University, where he studied engineering specializing in electronics and he holds an M.B.A. from Manchester Business School. The board of directors has concluded that Mr. Kramvis should serve as a director because he brings extensive experience regarding the management of public and private companies.

Gregory S. Ledford

Mr. Ledford, age 59, became a member of our board of directors following our acquisition of the performance coatings business of DuPont on February 1, 2013. Mr. Ledford is a Managing Director at The Carlyle Group focused on the industrial and transportation sectors. He joined Carlyle in 1988 and, prior to his appointment as Managing Director, held the positions of Vice President and Principal, responsible for leading Carlyle’s investments in numerous companies. From 1991 to 1997, he was Chairman and CEO of The Reilly Corp., a former Carlyle portfolio company. In addition, he was Director of Capital Leasing for MCI Telecommunications. Mr. Ledford is a member of the board of directors of Greater China Intermodal and ADT Korea. Mr. Ledford is a graduate of the University of Virginia’s McIntire School of Commerce. He received an M.B.A. from Loyola College. The board of directors has concluded that Mr. Ledford should serve as a director because he brings extensive experience regarding the management of public and private companies, and the financial services industry.

 

Our Board believes that strong corporate governance is important to ensure that our business is managed for the long-term benefit of our members. We have adopted a Code of Business Conduct and Ethics that applies to all of our employees and directors, including our executive officers and senior financial and accounting officers. We have also adopted Corporate Governance Guidelines. Copies of the current versions of the Code of Business

Conduct and Ethics and the Corporate Governance Guidelines are available on our website and will also be provided upon request to any person without charge. Requests should be made in writing to our Corporate Secretary at Axalta Coating Systems Ltd., Two Commerce Square, 2001 Market Street, Suite 3600, Philadelphia, PA 19103, or by telephone at (855) 547-1461.

The board of directors does not have a set policy with respect to the separation of the offices of Chairman of the Board and Chief Executive Officer, as the Board believes it is in the best interests of the Company and our members to make that determination based on the position and direction of the Company and the membership of the Board. As part of its annual self-evaluation process, the Board evaluates whether the roles of Chairman of the

Board and Chief Executive Officer should be separate and, if they are to be separate, whether the Chairman of the Board should be selected from the non-employee directors or be an employee of the Company. The Board believes these issues should be considered as part of the Board’s broader oversight and succession planning process. Currently, Mr. Shaver serves as our Chairman and Chief Executive Officer.

While risk management is primarily the responsibility of our management, the Board provides overall risk oversight focusing on the most significant risks facing us. The Board oversees the risk management processes that are implemented by our executives to determine whether these processes are functioning as intended and are consistent with our business and strategy. The Board executes its oversight responsibility for risk management directly and through its committees. The Board’s role in risk oversight has not affected its leadership structure.

 

The Audit Committee is specifically tasked with reviewing with management, our independent auditors and our legal counsel, as appropriate, our compliance with legal and regulatory requirements and any related compliance policies and programs. The Audit Committee is also tasked with reviewing our financial and risk management policies. Members of our management who have responsibility for designing and implementing our risk management processes regularly meet with the Audit Committee, and the Audit Committee is updated on a regular basis on relevant and significant risk areas. The Environment, Health, Safety and Sustainability Committee (the “EHS&S Committee”) is tasked with

overseeing management’s monitoring and enforcement of the Company’s policies to protect the health and safety of employees, contractors, customers, the public and the environment. The Compensation Committee and Nominating and Corporate Governance Committee (the “Nominating Committee”) oversee risks associated with executive compensation and corporate governance matters, respectively.

 

The full Board considers specific risk topics, including risk-related issues pertaining to laws and regulations enforced by the United States and foreign government regulators and risks associated with our business plan, strategies and capital structure. In addition, the Board receives reports from members of our management that include discussions of the risks and exposures involved with their respective areas of responsibility, and the Board is routinely informed of developments that could affect our risk profile or other aspects of our business.

Our Corporate Governance Guidelines require that the Board be comprised of a majority of directors who are “independent” under applicable NYSE rules, and state the Board’s belief that a substantial majority of directors

should be independent. Our Board has determined that all of our directors other than Mr. Shaver are independent under the NYSE listing standards.

The Nominating Committee will consider director nominees recommended by our members. A member who wishes to recommend a director candidate for consideration by the Nominating Committee should send the recommendation to our Corporate Secretary at Axalta Coating Systems Ltd., Two Commerce Square, 2001 Market Street, Suite 3600, Philadelphia, PA 19103, who will then forward it to the Nominating Committee. The recommendation must include a description of the candidate’s qualifications for board service, including all of the information that would be required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the Securities and Exchange Commission (the “Commission”) (as amended from time to time), the candidate’s written consent to be considered for

nomination and to serve if nominated and elected, and addresses and telephone numbers for contacting the member and the candidate for more information. A member who wishes to nominate an individual as a candidate for election, rather than recommend the individual to the Nominating Committee as a nominee, must comply with the notice procedures set forth in our Amended and Restated Bye-Laws (“Bye-Laws”). See “MEMBER PROPOSALS FOR THE COMPANY’S 2018 ANNUAL GENERAL MEETING OF MEMBERS” for more information on these procedures.

 

The Nominating Committee will consider and evaluate persons recommended by the members in the same manner as it considers and evaluates other potential directors.

The Nominating Committee is responsible for reviewing the qualifications of potential director candidates and recommending to the board of directors those candidates to be nominated for election to the board of directors. Our Corporate Governance Guidelines, which are available on our website as described above, set forth criteria that the Nominating Committee will consider when evaluating a director candidate for membership on the board of directors. These criteria are as follows: professional experience; education; skill; diversity; differences of viewpoint; and other individual qualities and attributes that will positively contribute to the Board. The Nominating Committee does not assign specific weights to particular criteria and no particular criterion is a prerequisite for any prospective nominee. Our Nominating Committee also considers the mix of backgrounds and qualifications of the directors in order

to ensure that the board of directors has the necessary experience, knowledge and abilities to perform its responsibilities effectively and to consider the value of diversity on the board of directors. While diversity and variety of experiences and viewpoints represented on the Board should always be considered, the Board believes that a director nominee should not be chosen nor excluded solely or largely because of race, religion, national origin, sex, sexual orientation or disability. As Axalta has only been a stand-alone company since February 2013, none of our directors has a tenure longer than approximately four years. However, over time the Nominating Committee will consider Board tenure and refreshment as additional relevant criteria in its identification, consideration and recommendation of director candidates.

Our Board currently consists of eight directors, with Mr. Shaver serving as Chairman of the Board.

 

The number of directors on our Board may be modified from time to time by our board of directors in accordance with our Bye-Laws. Our Board is divided into three classes whose directors serve three-year terms expiring in successive years. Directors hold office until their successors have been duly elected and qualified or until the earliest of their respective death, resignation or removal.

 

At each annual general meeting, the successors to the directors whose terms will then expire will be elected to serve from the time of election and qualification until the third annual general meeting following such election.

Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors.

 

When considering whether our directors and nominees have the experience, qualifications, attributes or skills, taken as a whole, to enable the board of directors to satisfy its oversight responsibilities effectively in light of our business and structure, the board of directors focused primarily on each person’s background and experience as reflected in the information discussed in each of the directors’ individual biographies set forth in “Proposal No. 1: Election of Directors.” We believe that our directors provide an appropriate diversity of experience and skills relevant to the size and nature of our business.

We have a process for onboarding and orienting new directors and for supplying continuous education to our Board members. As part of our director orientation program, new directors participate in one-on-one introductory meetings with Axalta’s business and functional leaders and are given presentations by members of senior management on the Company’s strategic plans, financial statements and key issues, policies and practices, as well as the Company’s

governance and compliance policies and procedures. We provide our directors quarterly corporate governance updates via our legal department. In addition, we identify and pay for our directors to attend continuing education programs on corporate governance, compliance and other critical issues associated with a director’s service on a public company board, as well as site visits to our facilities around the world.

The board of directors provides a process for members and other interested parties to send communications to the Board or any of the directors. Members and other interested parties may send written communications to the Board, or any of the individual directors, c/o the Corporate Secretary of the Company at Axalta Coating

Systems Ltd., Two Commerce Square, 2001 Market Street, Suite 3600, Philadelphia, PA 19103. All communications will be compiled by the Corporate Secretary of the Company and submitted to the Board or the individual directors, as applicable, on a periodic basis.

Directors are expected to spend the time needed and to meet as frequently as necessary to properly discharge their responsibilities. The Board meets on a regularly scheduled basis during the year to review significant developments affecting us and to act on matters requiring Board approval. It also holds special meetings when an important matter requires Board action between scheduled meetings. Members of senior management regularly attend meetings of the Board and its committees to report on and discuss their areas of responsibility. Directors are expected to attend Board meetings and meetings of committees on which they serve. In addition, all directors are invited, but

not required, to attend our annual general meeting of members. All of our current directors attended the annual general meeting of members held in May 2016 other than Mr. Garrett, Mr. Smolik and Ms. Kissire, who were not appointed to the Board until after the meeting: June 2016, September 2016 and December 2016, respectively.

 

In general, the Board reserves time during each regularly scheduled meeting to allow the non-employee Board members and the independent directors to each meet in executive sessions. During these executive sessions, the participants choose among themselves who will preside over the discussion.

In 2016, the Board met five times and also held three informational working sessions. All directors with the exception of Mr. Garrett attended 75% or more of the meetings of the Board and committees on which they served. Mr. Garrett, who was appointed to our Board and Audit Committee in June 2016, attended 67% of the aggregate number of Board and Audit Committee

meetings held during the period for which he has been a director. During his recruitment to the Board, Mr. Garrett informed the Company of the scheduling conflicts that resulted in his absences, and we do not believe any such scheduling conflicts exist for our 2017 Board and committee meetings.

Each of our Board and our Audit, Compensation, Nominating and EHS&S Committees conducts an annual evaluation to determine whether it has complied with its responsibilities under its charter and applicable laws or regulations and whether it is functioning effectively. The committee self-evaluations consider whether and how well each committee has performed the responsibilities listed in its charter. The Board evaluations consider the committee self-evaluations, as well as the Board’s composition and organization,

the quality of Board participation and process, and the quality of the Board’s meeting agendas and materials. In addition, each director annually participates in a one-on-one meeting with our General Counsel to discuss the Board’s operations, their individual performance, the performance of other directors and areas of potential improvement. Our Nominating Committee has established these procedures and periodically reviews and, as appropriate, updates them.

Our board of directors directs the management of our business and affairs as provided by Bermuda law and conducts its business through its meetings and its five standing committees: the Audit Committee; Compensation Committee; Nominating Committee; EHS&S Committee and Executive Committee. In addition, from time to time, other committees may be established under the Board’s direction when necessary or advisable to address specific issues.

Each of the committees operates under a charter that was approved by our board of directors. A copy of each of the charters for the Audit, Compensation, Nominating and EHS&S Committees is available on our website at www.axaltacoatingsystems.com.

The Audit Committee is responsible for, among its other duties and responsibilities, assisting the board of directors in overseeing our accounting and financial reporting processes and other internal control processes, the audits and integrity of our financial statements, our compliance with legal and regulatory requirements, the qualifications and independence of our independent registered public accounting firm, our Code of Business Conduct and Ethics, and the performance of our internal audit function and independent registered public accounting firm. Our Audit Committee is directly responsible for the appointment, compensation, retention and oversight of our independent registered public accounting firm. Mr. McLaughlin was appointed as the Chairman of the Audit Committee in April 2014. The

 

board of directors has determined that Mr. McLaughlin is an “audit committee financial expert” as such term is defined under the applicable regulations of the Commission and has the requisite accounting or related financial management expertise and financial sophistication under the applicable rules and regulations of the NYSE. The board of directors has also determined that Messrs. McLaughlin and Garrett and Ms. Ryerkerk are independent under Rule 10A-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the NYSE listing standards, for purposes of the Audit Committee. All members of the Audit Committee are able to read and understand fundamental financial statements, are familiar with finance and accounting practices and principles and are financially literate.

The Compensation Committee is responsible for, among its other duties and responsibilities, reviewing and approving the compensation philosophy for our Chief Executive Officer, reviewing and approving all forms of compensation and benefits to be provided to our other executive officers and reviewing and overseeing the administration of our equity incentive plans. The Compensation Committee’s processes for fulfilling its responsibilities and duties with respect to executive compensation and the role of executive officers and management in the compensation process

are each described under the heading “Compensation, Discussion and Analysis — Determination of Executive Compensation” in this Proxy Statement. Membership on the Compensation Committee changed in 2016, with the resignations of the Carlyle-designated directors formerly serving on the committee and their replacement with Mr. Kramvis, Ms. Kissire and Mr. McLaughlin. The board of directors has determined that Mr. Kramvis, Ms. Kissire and Mr. McLaughlin are independent under the NYSE listing standards for purposes of the Compensation Committee.

The Nominating Committee is responsible for, among its other duties and responsibilities, identifying and recommending director candidates for election to our board of directors and reviewing the composition of the board of directors and its committees. The Nominating Committee also reviews the Company’s Corporate Governance Guidelines and makes recommendations

to the Board regarding governance matters, as well as oversees the annual self-evaluations of the Board. The board of directors has determined that Ms. Kissire, Mr. Ledford and Ms. Ryerkerk are independent under the NYSE listing standards for purposes of the Nominating Committee.

The EHS&S Committee is responsible for, among its other duties and responsibilities, the oversight and review of the Company’s policies, performance, strategy and

compliance matters related to the environment, health, safety and sustainability. The EHS&S Committee was formed in February 2017.

The Company actively engages in succession planning in order to ensure that it has a sufficient pipeline of internal executive talent. The board of directors and its committees regularly review succession plans for the Chief Executive Officer and other members of senior management, including plans for emergency scenarios. The Board and its committees also regularly assess the

staffing of the Company’s key leadership positions to identify and develop employees for such positions. In addition, the Company holds an annual leadership development program to recognize the Company’s emerging leaders from around the globe and to connect them with peers and senior executives of the Company.

In order to ensure meaningful share ownership in Axalta by the Company’s directors and officers, the Company has adopted minimum share ownership requirements. More information is set forth under the heading “Stock

Ownership Guidelines” in the Director Compensation and Compensation Discussion and Analysis sections of this Proxy Statement.

The board of directors has adopted a policy regarding the recapture of compensation paid to executive officers in the event of a restatement of the Company’s financial results. More information is set forth under the heading

“Incentive Compensation Recoupment Policy” in the Compensation Discussion and Analysis section of this Proxy Statement.

During the year ended December 31, 2016, our Compensation Committee consisted of Messrs. Kramvis (Chair) and Ledford and Ms. Kissire, and our former directors Orlando Bustos and Martin Sumner prior to their respective resignations from the Board in connection with Carlyle’s sales of our common shares. None of the members of our Compensation Committee is currently or was during the year ended December 31, 2016 one of our officers or employees. Messrs. Sumner and Ledford are employed by Carlyle. Carlyle is party to our principal

stockholders agreement. See “Certain Relationships and Related Party Transactions — Carlyle.” During the year ended December 31, 2016, none of our executive officers served as a member of the board of directors (or similar governing body) or compensation committee, or other committee serving an equivalent function, of any entity that has one or more executive officers who serve as members of our board of directors or our Compensation Committee.

Our Board has adopted a written policy for the evaluation, approval, disapproval and monitoring of transactions involving us and “related persons.” For the purposes of the policy, “related persons” will include our executive officers, directors and director nominees or their immediate family members, or members owning five percent or more of our outstanding common shares and their immediate family members.

 

The policy covers any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we were or are to be a participant, the amount involved exceeds $100,000 and a related person had or will have a direct or indirect material interest. Pursuant to this policy, our management will present to our Audit Committee

each proposed related person transaction, including all relevant facts and circumstances relating thereto. Our Audit Committee will then:

 

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review the relevant facts and circumstances of each related person transaction, including the financial terms of such transaction, the benefits to us, the availability of other sources for comparable products or services, whether the transaction is on terms no less favorable to us than those that could be obtained in arm’s-length dealings with an unrelated third party or employees generally and the extent of the related person’s interest in the transaction; and

 

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take into account the impact on the independence of any independent director and the actual or apparent conflicts of interest.

All related person transactions may only be consummated if our Audit Committee has approved or ratified each such transaction in accordance with the guidelines set forth in the policy. Certain types of transactions have been pre-approved by our Audit Committee under the policy. These pre-approved transactions include:

 

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The purchase of the Company’s products on an arm’s length basis in the ordinary course of business and on terms and conditions generally available to other similarly situated customers;

 

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Resolution of warranty claims and associated activities relating to the Company’s products, provided such claims and activities are administered on an arm’s length basis in the ordinary course of business and consistent with the administration of the claims of other similarly situated customers;

 

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Any related person transaction within the scope of a related person’s ordinary business duties to the Company or the Company’s ordinary course of business when the interest of the related person arises solely from the ownership of a class of equity securities of the Company and all holders of such class of equity securities of the Company will receive the same benefit on a pro rata basis;

 

●

Receipt of compensation and benefits (subject to necessary Compensation Committee approvals) by an executive officer or director of the Company if the compensation is required to be reported in the Company’s proxy statement pursuant to Item 402 of Regulation S-K or to an executive officer of the Company, if such compensation would have been required to be reported under Item 402 of Regulation S-K as compensation earned for services to the Company if the executive was a “named executive officer” in the proxy statement and such compensation has been approved, or recommended to our Board for approval, by our Compensation Committee;

●

The Company’s payment or reimbursement of a related person’s expenses incurred in performing his or her Company-related responsibilities in accordance with the Company’s policies and procedures;

 

●

Any related person transaction in which the related person’s interest arises only: (i) from the related person’s position as a director of another corporation or organization that is a party to the related person transaction; (ii) from the direct or indirect ownership by the related person and all other related persons, in the aggregate, of less than a ten percent equity interest in another person (other than a partnership) which is a party to the related person transaction; or (iii) from both such position and ownership;

 

●

Any related person transaction in which the related person’s interest arises only from the related person’s position as a limited partner in a partnership in which the related person and all other related persons have an interest of less than ten percent and the person is not a general partner of and does not have another position in the partnership; and

 

●

Any related person transaction in which the related person is providing investment advisory, investment management, participant record-keeping, securities brokerage, clearing services or any similar services as part of an employee benefit plan or similar plan offered by the Company to its executive officers, directors or employees where (i) the related person was not a related person at the time the Company first engaged the related person for such services; (ii) the related person became a related person solely through the acquisition of five percent or more of the Company’s common shares; and (iii) the related person is eligible to, and does, report share holdings on Schedule 13G.

 

No director may participate in the approval of a related person transaction for which he or she, or his or her immediate family member, is a party to the transaction.

We have entered into indemnification agreements with each of our directors and certain of our officers. These indemnification agreements provide the directors and officers with contractual rights to indemnification and

expense advancement that are, in some cases, broader than the specific indemnification provisions contained under Bermuda law.

In connection with our acquisition of the performance coatings business from E.I. du Pont de Nemours and Company (“DuPont”) on February 1, 2013 and the subsequent consummation of our November 12, 2014 initial public offering (“IPO”), we entered into a principal stockholders agreement with The Carlyle Group L.P. (“Carlyle”). Pursuant to the principal stockholders agreement, Carlyle previously had the right to designate up to five of our board members subject to maintaining certain ownership thresholds. Mr. Ledford was designated

by Carlyle as were our former directors, Wesley Bieligk, Gregor Böhm, Orlando Bustos and Martin Sumner, each of whom resigned from our Board in 2016. Following the sale by Carlyle of 41,621,996 Axalta common shares in August 2016, representing all of Carlyle’s remaining ownership interest in Axalta, Carlyle no longer has the right to designate any of our directors, and these positions have been, or will be, filled in accordance with our Bye-Laws.

Directors employed by Carlyle or us receive no compensation for serving on our board of directors or its committees. Pursuant to our director compensation program, we pay each of our other directors, whom we refer to as our non-employee directors, $75,000 per year in cash for service on our board of directors, payable quarterly in arrears. Our non-employee directors are also eligible to receive awards under our equity incentive plans to the same extent as other service providers. In addition, each non-employee director who chairs a committee is paid an additional $10,000 per year except the Chair of the Audit Committee who is paid an additional $20,000 per year, each fee paid quarterly in arrears.

 

Messrs. Bustos, Garrett, Kramvis, McLaughlin and Smolik, Ms. Kissire and Ms. Ryerkerk were our only non-employee directors in 2016. The directors employed by Carlyle or us serving on our Board in 2016: Messrs. Shaver;

Bieligk; Böhm; Ledford and Sumner, did not receive any additional compensation for service as a director. Mr. Bustos, a Carlyle designee, was not employed by Carlyle and therefore was eligible to and did receive compensation as a non-employee director.

 

Messrs. Bustos, Garrett, Kramvis, McLaughlin and Smolik and Ms. Ryerkerk each received a restricted stock unit (RSU) award in 2016 in the amounts set forth below. The RSU awards were granted as part of our annual compensation program for service on our Board. The RSUs granted in 2016 and prior years vest in equal annual installments over three years beginning on the date of grant. Beginning in 2017, RSUs granted to directors under our annual compensation program will vest 100% on the first anniversary of the date of grant.

 

For the year ended December 31, 2016, we provided the compensation set out in the table below to our directors.

Our Compensation Committee adopted stock ownership guidelines for all non-employee directors in November 2016, which were increased in February 2017. The updated guidelines require that, within five years after first appointment to the Board, each of our non-employee

directors must directly or indirectly own an amount of our common shares equal to five times the director’s annual cash stipend for Board service, or $375,000.

The Audit Committee has appointed the firm of PricewaterhouseCoopers LLP (“PwC”) as the Company’s independent registered public accounting firm and auditor to examine the books of account and other records of the Company and its consolidated subsidiaries for the 2017 fiscal year. The board of directors is asking the members to approve this action and to delegate authority to the board of directors, acting through the Audit Committee, to fix the terms and remuneration thereof.

 

Representatives of PwC are expected to be present at the Annual Meeting and will be afforded the opportunity

to make a statement and will be available to respond to appropriate questions that may come before the Annual Meeting.

 

In the event that the members fail to approve the appointment of PwC as the Company’s independent registered public accounting firm and auditor, the Audit Committee will consider the member vote in determining whether to retain the services of PwC in connection with the 2017 audit.

The following table shows the aggregate fees for professional services provided by PwC and its affiliates for the audits of the Company’s consolidated financial statements for the years ended December 31, 2016 and 2015, and other services rendered during the years ended December 31, 2016 and 2015:

		2016				2015
Fee Category		($000s)				($000s)
Audit Fees		$	5,293			$	5,565
Audit-Related Fees			407				20
Tax Fees			4,852				10,727
All Other Fees			7				7
TOTAL		$	10,559			$	16,319

Tax Fees consist of the fees and expenses for tax planning, advisory and compliance services. Compliance fees consist of the aggregate fees billed for professional services rendered for tax return preparation and related compliance documentation. The following table details the associated tax fees for 2016 and 2015.

		2016				2015
		($000s)				($000s)
IPO Planning (non-recurring)		$	—			$	542
Operational Restructuring (non-recurring)			3,719				5,781
Tax Planning and Advisory Services			691				3,788
Tax Compliance			442				616
TOTAL		$	4,852			$	10,727

In engaging PwC on these matters, management and the Audit Committee considered PwC’s expertise in domestic and international corporate taxation as well as their institutional knowledge of our operations. As such, we determined that the engagement of PwC would ensure efficient and quality advice that is pertinent to our business and consistent with our overall business strategy. Following the IPO, management and the Audit Committee also ensured that they sought competitive

bids from multiple service providers for certain tax services. The Audit Committee also discussed and determined that PwC’s performance of the tax services would not impair its independence. Nonetheless, our Audit Committee has instructed PwC and management that, absent extenuating circumstances, PwC’s audit, audit-related and compliance fees should comprise a majority of its overall fees.

The Audit Committee is responsible for selecting the independent registered public accounting firm to be employed by us to audit our financial statements, subject to approval by our members of such appointment. The Audit Committee also assumes responsibility for the retention, compensation, oversight and termination of any independent auditor employed by us.

 

The Audit Committee has adopted policies and procedures for pre-approving all audit and non-audit services provided by the Company’s independent registered public accounting firm prior to the engagement of the independent registered public accounting firm with respect to such services.

Under these policies and procedures, proposed services may be pre-approved on a periodic basis or individual engagements may be separately approved by the Audit Committee prior to the services being performed. However, the authority to pre-approve up to $250,000 per engagement has been delegated to the Audit Committee Chair to accommodate time sensitive service proposals. In each case, the Audit Committee considers whether the provision of such services would impair the independent registered public accounting firm’s independence. All audit services, audit-related services, tax services and other services provided by PwC for 2016 and 2015 were pre-approved by the Audit Committee.

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the “Dodd-Frank Act,” the Commission enacted requirements for the Company to present to its members a separate resolution, subject to an advisory (non-binding) vote, to approve the compensation of its named executive officers. This proposal is commonly referred to as a “Say on Pay” proposal. This proposal is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies and practices described in this Proxy Statement. As required by these rules, the board of directors invites you to review carefully the Compensation Discussion and Analysis beginning on page 26 and the tabular and other disclosures on compensation under Executive Compensation beginning on page 39, and to cast an advisory vote on the Company’s executive compensation programs through the following resolution:

 

“Resolved, that the members approve, on an advisory basis, the compensation of the Company’s named executive officers, including the Company’s compensation practices and principles and their implementation, as discussed and disclosed in the Compensation Discussion and Analysis, the compensation tables, and any narrative

executive compensation disclosure contained in the Company’s Proxy Statement for the 2017 Annual General Meeting of Members.”

 

As discussed in the Compensation Discussion and Analysis, the board of directors believes that the Company’s long-term success depends in large measure on the talents of our employees. The Company’s compensation system plays a significant role in our ability to attract, retain and motivate the highest quality workforce. The board of directors believes that its current compensation program directly links executive compensation to performance, aligning the interests of the Company’s executive officers with those of its members.

 

Pursuant to the Dodd-Frank Act, this vote is advisory and will not be binding on the Company. While the vote does not bind the board of directors to any particular action, the board of directors values the input of the members, and will take into account the outcome of this vote in considering future compensation arrangements.

 

Although this vote is advisory in nature and does not impose any action or requirement on the Company or the Compensation Committee of the board of directors, the Company strongly encourages all members to vote on this matter.

Charles W. Shaver

Mr. Shaver has been our Chairman of the Board and Chief Executive Officer since February 2013. With over 35 years of leadership roles in the global petrochemical, oil and gas industry, he was most recently the Chief Executive Officer and President of the TPC Group from 2004 to April 2011. Prior to joining Axalta, Mr. Shaver served as an operating executive for Golden Gate Capital and The Carlyle Group. Mr. Shaver also served as Vice President and General Manager for General Chemical, a division of Gentek, from 2001 through 2004 and as a Vice President and General Manager for Arch Chemicals from 1999 through 2001. Mr. Shaver began his career with The Dow Chemical Company serving in a series of operational, engineering and business positions from 1980 through 1996. He has an extensive background of leadership roles in a variety of industry organizations, including serving as Chairman of the American Coatings Association Board of Directors and Executive Committee and serving on the Board of Directors and Executive Committee of the American Chemistry Council, the American Chemistry Council Finance Committee and the National Petrochemical and Refiners Association Board and Executive Committee. Mr. Shaver currently serves as Chairman of the Board of Directors for U.S. Silica, a position he has held since 2012, and formerly served on the Board of Directors of Taminco, Inc. from 2012 through 2014. Mr. Shaver earned his B.S. in Chemical Engineering from Texas A&M University.

Robert W. Bryant

Mr. Bryant became our Executive Vice President and Chief Financial Officer in February 2013. Previously, Mr. Bryant served as the Senior Vice President and Chief Financial Officer of Roll Global LLC. Before joining Roll Global in 2007, he was the Executive Vice President of Strategy, New Business Development, and Information Technology at Grupo Industrial Saltillo, S.A.B. de C.V. Prior to joining Grupo Industrial Saltillo in 2004, Mr. Bryant was President of Bryant & Company, which he founded in 2001. Prior positions included serving as Managing Principal with Texas Pacific Group’s Newbridge Latin America, L.P., a Senior Associate with Booz Allen & Hamilton Inc. and an Assistant Investment Officer with the International Finance Corporation (IFC). Mr. Bryant began his career at Credit Suisse First Boston. Mr. Bryant graduated summa cum laude and Phi Beta Kappa with a B.A. in Economics from the University of Florida and received his M.B.A. from the Harvard Business School.

Steven R. Markevich

Mr. Markevich has served as our Executive Vice President and President, Transportation Coatings and Greater China since September 30, 2015. Prior to that Mr. Markevich served as our Senior Vice President and President, Transportation from July 2015 until September 30, 2015, and Senior Vice President and President, OEM from June 2013 until July 2015. Previously, Mr. Markevich was Chief Executive Officer of GKN Driveline from October 2012 to June 2013. Prior to that role, from July 2010 to October 2012, he was President, GKN Sinter Metals, responsible for global operations. From October 2007 to July 2010, Mr. Markevich was President, North American Operations for GKN Sinter Metals, and began his tenure with GKN in 2007 as Vice President, Sales & Marketing. At Siegel-Robert Automotive, he led the company’s commercial strategy, sales, account and program management initiatives. While at Guardian Automotive, Mr. Markevich served in numerous leadership roles and was responsible for all senior level customer relationships. His career began at Deloitte & Touche consulting and the National Steel Corporation. Mr. Markevich holds a finance degree from the University of Michigan’s Ross School of Business and is a Certified Public Accountant as well as being certified in Production & Inventory Management (CPIM). He has completed the Global Senior Leadership Program at UCLA and holds memberships in the Society of Automotive Engineers (SAE), Original Equipment Suppliers Association (OESA) and American Powder Metallurgy Institute International (APMI).

 

Michael A. Cash

Mr. Cash became our Senior Vice President and President, Industrial Coatings in August 2013. Prior to joining Axalta, Mr. Cash was Managing Director, Powder Coatings — Asia Pacific Region at AkzoNobel Coatings from 2011 to 2013 and previously in charge of AkzoNobel’s powder business throughout the Americas from 2005 to 2011. Mr. Cash also held a number of positions at The Sherwin-Williams Company including Vice President, Automotive International, Vice President of Automotive Marketing and Vice President and Chief Financial Officer of its joint venture with Herberts GmbH, which was then a Hoechst company. Earlier in his career, Mr. Cash was Vice President and Chief Financial Officer of Carstar Automotive, a U.S. autobody repair franchise. Mr. Cash received his B.A. in Business Administration from Miami University (Ohio).

Joseph F. McDougall

Mr. McDougall became our Senior Vice President and Chief Human Resources Officer in May 2013, and assumed responsibility for Corporate Affairs in 2014 and Global Branding in 2016. From 2008 through May 2013, Mr. McDougall was Vice President, Human Resources, Communications and Six Sigma for Honeywell Performance Materials and Technologies. He served in a number of positions in Honeywell prior to this most recent position including Vice President, Human Resources for its Air Transport Division from 2007-2008, Director of Human Resources for Honeywell Corporate from 2004-2007, and Director of Compensation, Benefits and HRIS for Honeywell’s Specialty Materials Group from 2003-2004. Prior to joining Honeywell, Mr. McDougall served in human resources leadership roles at the Goodson Newspaper Group and Robert Wood Johnson University Hospital at Hamilton. He started his career as a human resources and benefits consultant. Mr. McDougall holds a B.A. from Rider University and graduated Beta Gamma Sigma with an M.B.A. from The Pennsylvania State University.

 

Michael F. Finn

Mr. Finn became our Senior Vice President and General Counsel as well as Chief Compliance Officer in April 2013, and assumed responsibility for Crisis Management and Government Relations in April 2016. Mr. Finn also is Axalta’s Corporate Secretary. From 2009 through April 2013, Mr. Finn was Vice President and General Counsel of General Dynamics’ Advanced Information Systems subsidiary. Before that, he was Vice President, General Counsel and Director of Ethics and Export Compliance at General Dynamics United Kingdom. From 2002 to 2005, Mr. Finn served as Senior Counsel for General Dynamics Corporation. Between 1999 and 2002 he was General Counsel and Vice President at Sideware Inc. and Associate General Counsel and Senior Director of Business Affairs at Teligent Inc. Prior to those roles, Mr. Finn worked in several positions, most notably as an Associate at Willkie, Farr & Gallagher and as an Attorney at the Office of the General Counsel at the FCC. Mr. Finn graduated from Indiana University with honors with a degree in Finance and graduated cum laude from New York University’s School of Law.

This Compensation Discussion and Analysis provides an overview and analysis of: (i) the elements of our compensation program for our named executive officers identified below; (ii) the material compensation decisions made under that program and reflected in the executive compensation tables that follow this Compensation Discussion and Analysis; and (iii) the material factors considered in making those decisions. As a company dedicated to a pay-for-performance culture, we intend to provide our named executive officers with compensation that is significantly performance-based.

Our executive compensation program is designed to: align executive pay with our performance on both short- and long-term bases; link executive pay to specific, measurable results intended to create value for our members; and utilize compensation as a tool to assist us in attracting and retaining the high-caliber executives that we believe are critical to our long-term success. Compensation for our named executive officers consists primarily of the elements, and their corresponding objectives, identified in the following table.

To serve the foregoing objectives, our overall compensation program is generally designed to be adaptive rather than purely formulaic. Our Compensation Committee has primary authority to determine and approve compensation decisions with respect to our named executive officers (“NEOs”). For 2016, compensation for our NEOs reflected their individual contributions to Axalta’s performance.

 

For the year ended December 31, 2016, our NEOs are:

 

●	Charles W. Shaver, Chairman and Chief Executive Officer;

 

●	Robert W. Bryant, Executive Vice President and Chief Financial Officer;

 

●	Steven R. Markevich, Executive Vice President and President, Transportation Coatings and Greater China;

●	Michael A. Cash, Senior Vice President and President, Industrial Coatings;

 

●	Joseph F. McDougall, Senior Vice President, Global Branding, Corporate Affairs and Chief Human Resources Officer; and

 

●	Michael F. Finn, Senior Vice President, General Counsel, Chief Compliance Officer, Government Relations and Corporate Secretary.

 

Our compensation decisions for the NEOs in 2016 are discussed below in relation to each of the above-described elements of our compensation program. The below discussion is intended to be read in conjunction with the executive compensation tables and related disclosures that follow this Compensation Discussion and Analysis.

 

We provide our members with the opportunity to cast an annual advisory vote on our executive compensation program for our NEOs (referred to as a “Say on Pay” proposal). At our annual general meeting of members in May 2016, 67% of the votes cast on the “Say on Pay” proposal were voted in favor of the compensation paid to our NEOs. Following this vote, we met with a number of significant members, holding an aggregate of approximately 57% of our outstanding common shares, to discuss this outcome. Based on those discussions, our Compensation Committee concluded that support for our 2016 “Say on Pay” proposal dropped from the prior year largely as a result of one-time equity awards granted to our NEOs in May 2015 which were time-based in terms of vesting (i.e., they did not contain performance metrics for vesting).

 

Our Compensation Committee approved these awards in response to Carlyle’s sale of shares in April 2015 which resulted in Carlyle’s ownership level dropping below

50%. In turn, this constituted an Axalta “Liquidity Event” under our NEOs’ equity award agreements which were negotiated and executed at the time of their hiring, well prior to our IPO. As a result, all of our NEOs vested in 100% of their outstanding equity awards and thus had no unvested equity interests in the Company. In response, our Compensation Committee determined that the one-time equity awards were necessary and in our best interest in order to retain key personnel and to ensure seamless, ongoing business operations. We believe these one-time grants were successful because the Company has retained all of our NEOs since the liquidity event. We also believe the issues raised by our members in our 2016 “Say on Pay” proposal about these grants resulted from a unique set of circumstances (i.e. Carlyle’s equity sale) which we do not expect to reoccur. Furthermore, we have since established annual equity grant practices which include the introduction of performance-based equity awards as a significant component of our annual equity

 

grants. In addition – although not raised as a concern by our members – as part of our continuing efforts to improve our compensation practices, our Board in 2017 also adopted an Incentive Compensation Recoupment Policy to enable the Company to require reimbursement of incentive compensation paid to executive officers in the event of a financial restatement resulting from the 

officer’s misconduct. Our Compensation Committee will continue to consider the outcome of our members’ votes on “Say on Pay” proposals when making future decisions on our compensation programs for NEOs. Our Compensation Committee continually reassesses the competitiveness of our pay programs and their appropriateness in supporting our business strategy.

Our overall compensation program is structured to attract, motivate and retain highly qualified executives by paying them competitively, consistent with our success and their contribution to that success. We believe compensation should be structured to ensure that a portion of an executive’s compensation opportunity will be related to factors that directly and indirectly influence shareholder value. Accordingly, we set goals designed to link each NEO’s compensation to our performance and the NEO’s own performance. Consistent with our performance-based philosophy, in 2016, our NEOs earned variable ABP awards based on our financial and operational performance and we also implemented a new component of our long-term incentive plan based on our total shareholder return (“TSR”) over a three-year performance period, as described in more detail below 

under “Long-Term Incentive Awards – Performance Based Awards.” This performance-based compensation is intended to align our NEOs’ interests with our long-term performance and the interests of our members.

 

Total compensation for our NEOs has been allocated between cash and equity compensation, taking into consideration the balance between providing short-term incentives and long-term investment in our financial performance, to align the interests of management with the interests of our members. The variable ABP awards and the equity awards, including the new performance stock awards, are designed to ensure that total compensation reflects our overall success or failure and to motivate the NEOs to meet appropriate performance measures tied to maximizing total shareholder returns.

The Compensation Committee is provided with the primary authority to determine and approve the compensation paid to our NEOs. The Compensation Committee is charged with, among other things, reviewing compensation policies and practices to ensure: (1) adherence to our compensation philosophies; and (2) that the total compensation paid to our NEOs is fair, reasonable and competitive, taking into account our position within our industry, including our comparative

performance, and our NEOs’ level of expertise and experience in their respective positions. In furtherance of the considerations described above, the Compensation Committee is primarily responsible for: (i) determining any future adjustments to base salary and target ABP levels (representing the non-equity incentive compensation that may be awarded expressed as a percentage of base salary or as a dollar amount for the year); (ii) assessing the performance of the Chief

 

Executive Officer and other NEOs for each applicable performance period; and (iii) determining the awards to be paid to our Chief Executive Officer and other NEOs under the ABP for each year. To aid the Compensation Committee in making its determinations, the Chief Executive Officer provides recommendations to the Compensation Committee regarding the compensation of all NEOs, excluding himself. The Compensation Committee annually reviews the performance and compensation of our senior executive management team. The Compensation Committee also has the right to engage experts to provide independent advice on matters related to executive compensation. For that purpose, the Compensation Committee engaged Exequity, LLP (“Exequity”) in 2016.

 

In determining compensation levels for our NEOs, the Compensation Committee considers each NEO’s particular position and responsibility and relies upon the judgment and industry experience of the members of the Compensation Committee, including their knowledge of competitive compensation levels in our industry. In connection with the 2016 executive compensation 

review process, Exequity provided the Compensation Committee with a comprehensive report that included publicly available compensation data relating to our Chemical Industry Peer Group, as described below. In general, we believe that target total compensation levels should be comparable to the median target total compensation opportunities for executive officers in similar positions and with similar responsibilities in our marketplace, and variable compensation opportunities should be calibrated such that actual compensation realized would be in excess of peer median benchmarks when Company and individual performance were strong, and would be below peer median benchmarks when Company and individual performance were not strong.

 

The Chemical Industry Peer Group broadly reflects the companies with which we compete for talent, business and investment capital based on the scope of our operations, as measured by revenue and market capitalization. The list of companies included in the Chemical Industry Peer Group for which management and the Compensation Committee reviewed compensation data in 2016 is set forth below.

Revenues in 2015 for the Chemical Industry Peer Group ranged from $1.745 billion to $15.369 billion, with median 2015 revenues of approximately $3.378 billion, as compared to the Company’s 2015 revenues of approximately $4.113 billion (the 60^th percentile relative to the Chemical Industry Peer Group). Meanwhile, market capitalization for the companies in the Chemical Industry 

Peer Group as of the end of the quarter prior to the time management and the Compensation Committee reviewed compensation data ranged from $2.066 billion to $27.523 billion, with a median of $6.890 billion, as compared to the Company’s then-current market capitalization of $6.760 billion (the 48^th percentile relative to the Chemical Industry Peer Group).

To directly align the interests of our NEOs with us and our members, our Compensation Committee has adopted stock ownership and holding guidelines. The guidelines require that, within five years after our IPO, the Chief Executive Officer must directly or indirectly own an amount of our common shares equal to five times the Chief Executive Officer’s base salary, and the Chief Executive Officer’s executive and senior vice president

direct reports must directly or indirectly own an amount of our common shares equal to two times their respective base salaries. If an executive is out of compliance with the ownership requirement, he or she must retain 50% of our common shares acquired upon stock option exercises and 75% of our common shares issued upon the vesting of restricted stock, restricted stock unit and performance stock grants, in each case net of applicable taxes until

 

the executive satisfies the ownership requirement. The Compensation Committee will annually review each NEO’s compliance with the stock ownership and holding

guidelines based on the NEO’s current base salary and the price of our common shares as of the end of the prior year.

In February 2017, the board of directors adopted an Incentive Compensation Recoupment Policy which provides, among other things, that, in the event the Company must restate its financial results to correct an accounting error due to material noncompliance with any financial reporting requirement under applicable securities laws within three years after the first issuance of such results, the Company, at the direction of the 

Compensation Committee, will seek to recover any incentive compensation (cash or equity-based) from any executive officer whose intentional misconduct caused or contributed to the need for the restatement if a lower award would have been made based upon such restated results. The Compensation Committee will determine in its discretion the amount it will seek to recover.

We set base salaries for our NEOs generally at a level we deem necessary to attract and retain individuals with superior talent. Each year, the Compensation Committee will determine base salary adjustments, if any, after evaluating the job responsibilities and demonstrated proficiency of the NEOs as assessed by the Compensation Committee, and, for NEOs other than the Chief Executive Officer, in conjunction with recommendations to be made by the Chief Executive Officer. Based on the Compensation 

Committee’s review of the job responsibilities and proficiency of each NEO as discussed above under “Determination of Executive Compensation,” in February 2016, the Compensation Committee set base salaries effective April 4, 2016 for all executive officers in relation to the market rate for comparable positions. Each NEOs’ respective base salary increase is set forth in the table below.

We structure our compensation programs to reward NEOs based on our performance and the individual executive’s relative contribution to that performance. This allows NEOs to receive ABP awards in the event certain specified corporate performance measures are achieved. The annual ABP pool is determined by the Compensation Committee based upon a pre-established formula with reference to the extent of achievement of corporate-level and business-level performance goals established annually by the Compensation Committee. 

The ABP is designed to reward NEOs for contributions made to help us meet our annual performance goals. The amount actually received by the NEOs will depend on our performance and the NEOs’ individual performance during the year. The Compensation Committee may make discretionary adjustments to the formulaic ABP awards to reflect its subjective determination of an individual’s impact and contribution to overall corporate or business performance, as discussed below.

 

Under the terms of the ABP, the NEOs’ formulaic ABP awards are based on a percentage of their base salaries and currently range from 60% to 100% for target-level performance achievement. Maximum formulaic ABP awards are set at 200% of target payout.

 

Once the extent of achievement of corporate and business ABP performance targets and the formulaic ABP calculations have been determined, the Compensation Committee may adjust the amount of ABP awards paid upward or downward based upon its overall assessment of each NEO’s performance, business impact, contributions, leadership and attainment of individual

objectives established periodically throughout the year, as well as other related factors. In addition, ABP funding amounts may be adjusted by the Compensation Committee to account for unusual events such as significant foreign currency exchange rate fluctuations, extraordinary transactions, asset dispositions and purchases, and mergers and acquisitions if, and to the extent, the Compensation Committee does not consider the effect of such events indicative of our performance. The following chart sets forth the formulaic ABP awards for threshold, target-level and maximum ABP awards for our NEOs:

For the year ended December 31, 2016, ABP performance goals were based upon Adjusted EBITDA (as defined below), Adjusted Free Cash Flow (as defined below), Constant Currency Net Sales (as defined below) and individual performance metrics. For this purpose, “Adjusted EBITDA” was defined as our consolidated earnings before interest expense or income, income tax expense or income, depreciation, amortization and other adjustments as defined in the credit agreement governing our senior secured credit facilities. “Adjusted Free Cash Flow” was defined as cash flows from operations less cash flows from investing activities adjusted for certain items which the Company believed due to discrete events should not be contemplated in our incentive compensation targets. “Constant Currency Net Sales” was defined as net sales assuming consistent currency translation rates as those assumed in our 2016 budgeting process. Individual performance is generally based on personal contributions, as described in more detail below. 

For each performance year, the Compensation Committee assigns a target, threshold and maximum value to each performance metric. ABP award amounts for performance between the threshold and maximum levels are determined at the beginning of the applicable performance period and depend on the level of achievement for each metric relative to its assigned performance target, in accordance with a predetermined payout matrix. The minimum ABP award under the payout matrix is payable only upon achievement of the threshold performance goals for each performance metric. For the year ended December 31, 2016 and previous years, the minimum achievement threshold for each performance metric was 50% (i.e., >50% of Adjusted EBITDA, >50% of Adjusted Free Cash Flow and >50% of Constant Currency Net Sales). The maximum ABP award under the payout matrix (i.e., 200% of the target ABP award) is payable only upon achievement of maximum-level performance goals for each performance metric (i.e., 133% of Adjusted EBITDA, 133% of Adjusted Free Cash Flow and 133% of Constant Currency Net Sales). ABP award amounts increase linearly with a 2:1 slope between threshold and target-level performance and linearly with a 3:1 slope between target and maximum-level performance.

 

For the individual performance component of the ABP, the Compensation Committee provides each NEO with an ABP individual performance factor reflecting the Compensation Committee’s assessment of each NEO’s performance, business impact, contributions and leadership, among other factors. For 2016, the Compensation Committee considered the following key achievements in determining the ABP individual performance component for each of our NEOs:

 

●

Mr. Shaver’s individual performance factor reflected his role in leading the Company to record results again in 2016. During the year, the Company met its financial goals while overcoming significant market volatility. Mr. Shaver led the Company to complete six acquisitions across the globe allowing for growth in existing industries and expansion in new market segments. In addition, Mr. Shaver oversaw the transformation of the Board as Carlyle exited its investment in Axalta. He recruited a diverse and skilled group of directors who bring broad reaching expertise across the industrial market. Finally, Mr. Shaver remained the driving force behind the Company’s growth and productivity initiative, the Axalta Way, which realized an additional $60 million of a multiyear journey to $200 million.

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Mr. Bryant’s individual performance factor reflected his leadership of the global finance and information technology organizations. In 2016, Mr. Bryant took responsibility for the information technology group bringing his prior experience in this function to use. Mr. Bryant’s finance leadership included two additional secondary offerings of approximately 70

million shares of common stock held by Carlyle, and the refinancing of Company debt on four separate occasions which resulted in favorably reducing the Company’s ongoing interest obligations, extending maturities and improving benefits in terms. In addition, Mr. Bryant led the effort for several long-term investors to add or increase their position in Axalta and was instrumental in presenting the Company to the public markets as Carlyle completed its exit. In 2016 Mr. Bryant also co-led the Axalta Way initiative with Messrs. Shaver and McDougall, focusing on the Company’s growth and productivity.

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Mr. Markevich’s individual performance factor reflects his overall leadership of the global Transportation Coatings business and the Greater China region. In 2016, Mr. Markevich also took responsibility for a Company-wide complexity reduction project focused on raw materials, Company products and manufacturing. Mr. Markevich’s areas of responsibility had record profitability while facing uncertain markets in several geographies. The Transportation Coatings business faced a downturn in the Commercial Vehicle segment in the United States, while the Light Vehicle segment continued to see a decline in Brazil. Mr. Markevich’s data driven approach allowed for the business to identify challenges while seizing opportunities across all markets. Mr. Markevich also led the Transportation Coatings business to acquire the interior plastic coatings division of United Paints which brings automotive interior coatings to the Axalta product portfolio.

 

 

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Mr. Cash’s individual performance factor reflects his leadership of the global Industrial Coatings business. In 2016, Mr. Cash led the organization to develop a robust pipeline of acquisition targets including our purchase of Dura Coat, a technology leader in the coil coating segment. While the Industrial Coatings business continues to face market headwinds in functional coatings related to the oil and gas industry, Mr. Cash has invested in growth areas such as Coil and refocused his team on accelerated growth of the Electrical Insulation Coatings segment in the China market. Mr. Cash has personally recruited industry experts to lead key segments within his business. Mr. Cash also introduced advanced sales training across the business portfolio, which increased the effectiveness of the Industrial Coatings sales force globally. His 2016 performance has built a strong foundation and roadmap for the Industrial Coatings business.

 

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Mr. McDougall’s individual performance factor reflects his leadership of the global human resources, medical services and corporate affairs functions. In addition, Mr. McDougall assumed responsibility for the Company’s branding initiatives in 2016. Mr. McDougall’s human resources efforts have built a robust talent management process used globally to ensure the recruitment, development and succession of individuals at Axalta. In partnership

 

 

with Mr. Shaver, Mr. McDougall was instrumental in the recruitment of new directors for the Board. In corporate affairs, the Company launched a redesigned website, had a record number of press releases relating to products and technology and broadened the scope of our corporate social responsibility programs. 2016 also saw the issuance of Axalta’s most recent Sustainability Report. Mr. McDougall oversaw new customer focused partnerships with Daytona International Speedway and the Philadelphia Eagles. Finally, along with Messrs. Shaver and Bryant, Mr. McDougall led the Axalta Way initiative.

 

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Mr. Finn’s individual performance factor reflects his leadership of the global legal and compliance functions. Mr. Finn led the legal process of the three common share offerings by Carlyle and the Company’s four debt refinancing transactions. Mr. Finn also took on new responsibility in 2016 as he assumed leadership for the Company’s crisis action planning processes. Mr. Finn led his compliance organization to complete a global risk assessment and over 75 training sessions. He was instrumental in the onboarding of new directors as Carlyle transitioned from ownership in 2016. Finally, Mr. Finn managed the Company’s first annual general meeting of members as a broadly held public company.

Our NEOs are eligible to receive long-term equity incentive awards pursuant to our long-term incentive programs as in effect from time to time. In 2016, our NEOs received long-term incentive awards under our 2014 Incentive Award Plan. In 2016, we introduced performance-based equity awards as a component of our annual equity grants, as described in more detail below. The balanced portfolio of stock options, restricted

stock awards and performance stock awards granted in 2016 is designed to motivate and retain our executives by providing an opportunity for them to share in the value of increases in our common shares, as well as the opportunity to immediately enhance their ownership in Company stock. All equity types are each subject to a risk of forfeiture should the executive’s employment terminate prior to the vesting date.

Generally, stock options granted under our equity incentive plan have vesting schedules that are designed to encourage an optionee’s continued employment and exercise prices that are designed to reward an optionee for our performance. Stock options granted in 2016 expire ten years from the date of the grant and vest in three substantially equal annual installments on each of the first three anniversaries of the grant date,

subject to the executive’s continued employment on each applicable vesting date and accelerated vesting under certain terminations of employment following a change in control as described below under the section “Severance Arrangements.” The number of the stock options awarded to our NEOs during the years ended December 31, 2016, 2015 and 2014 is listed below.

The annual restricted stock awards (RSAs) granted to our NEOs in 2016 vest in three substantially equal annual installments on each of the first three anniversaries of the grant date, subject to the executive’s continued employment on each applicable vesting date and accelerated vesting under certain terminations of

employment following a change in control as described below under the section “Severance Arrangements.” The number of RSAs granted to our NEOs during the years ended December 31, 2016, 2015 and 2014 is listed below.

In 2016, we introduced performance stock awards (PSAs) and performance share units (PSUs) as an additional component of our annual long-term incentive award program. In 2016, PSAs for our NEOs comprised approximately half of the grant date fair value of their annual long-term incentive awards, with stock options

and RSAs each comprising 25% of the grant date fair value of their annual long-term incentive awards. PSAs granted in 2016 may be earned over a performance period ranging from January 1, 2016 through December 31, 2018 based on the Company’s TSR in relation to a pre-determined set of peer companies (listed below), which

includes 16 of the companies in our Chemical Industry Peer Group along with four other companies so there is a group large enough to enable meaningful and credible differentiation in performance. The Company’s relative performance will be determined as of December 31,

2018, and the actual number of shares awarded will be adjusted to between zero and 200% of the target award. Earned awards, if any, will vest on the third anniversary of the grant date (February 2019).

We maintain a defined contribution plan (the “401(k) Plan”) that is tax-qualified under Section 401(a) of the Internal Revenue Code of 1986 (the “Code”). The 401(k) Plan permits our eligible employees to defer receipt of portions of their eligible compensation, subject to certain limitations imposed by the Code. Employees may make pre-tax contributions, Roth contributions, catch-up contributions and after-tax contributions to the 401(k) Plan. The 401(k) Plan provides matching contributions in an amount equal to 100% of each participant’s

pre-tax contributions and/or Roth contributions up to a maximum of 4% of the participant’s annual eligible compensation, subject to certain other limits, and a discretionary company contribution of up to 2% of the participant’s annual eligible compensation. Participants are 100% vested in all contributions, including company contributions. The 401(k) Plan is offered on a nondiscriminatory basis to all of our salaried employees, including the NEOs.

In addition to the 401(k) Plan, in 2016 we maintained two nonqualified deferred compensation plans for a select group of highly compensated, senior management employees, including NEOs.

The Axalta Coating Systems, LLC Retirement Savings Restoration Plan (the “Restoration Plan”), which is now frozen to new participants, permitted participants to defer their base compensation in excess of the Code compensation limits (up to a maximum of 6%). The

Restoration Plan provides matching contributions to Restoration Plan participants in an amount equal to 100% of the participant’s contributions. In addition, the Restoration Plan provides a nonelective contribution equal to 3% of the participant’s compensation that is in excess of the annual limit under section 401(a)(17) of the Code. A participant’s elective deferrals are always 100% fully vested. Company matching contributions and nonelective contributions vest after three years of service with the Company.

The Axalta Coating Systems, LLC Nonqualified Deferred Compensation Plan became effective June 1, 2014. Members of our senior management team, including our NEOs, are eligible to defer base salary and future bonus in excess of the annual limits under the Code to this plan, provided that these individuals first maximize their elective deferrals to the 401(k) Plan. This plan provides for a discretionary matching contribution, a discretionary nonelective contribution and a true discretionary contribution by the Company.

 

The discretionary matching contribution amount, if granted, will generally be equivalent to the employer match that the participant would have received under the 401(k) Plan, if not for the annual contribution limits of the Code. The Board or its designee shall determine the maximum allowable matching contribution, as a percentage of compensation, annually. The discretionary

 

nonelective contribution, if granted, may be equivalent to the employer nonelective contribution that participant would have received under the 401(k) Plan if not for the annual contribution limits of the Code. Any discretionary contribution amount, if granted, may be any amount determined by the Compensation Committee and is not subject to further limitations. For 2016, the necessary performance criteria were met for funding the discretionary nonelective company contribution and a payout was approved by the Compensation Committee for the first quarter of 2017.

 

The Compensation Committee believes that matching and Company contributions assist us in attracting and retaining talented employees and executives. The 401(k) Plan and the nonqualified deferred compensation plans provide an opportunity for participants to save money for retirement and to achieve financial security.

The Company entered into Executive Restrictive Covenant and Severance Agreements (collectively, the “Agreements”) with each of our NEOs in 2015. The Agreements replaced the individual employment agreements entered into between the Company and each NEO at the time of hire prior to the Company’s IPO and standardized the various terms and conditions among the NEOs, including the restrictive covenants and severance practices for the NEOs. In particular, the Agreements tie the length of the NEO’s non-competition and non-solicitation periods to the amount of severance benefit he is entitled to receive.

 

The restrictive covenants in the Agreements, among other things, prohibit the executives from competing with the Company for a period of 12–24 months following the termination of the executive’s employment or soliciting the Company’s customers or employees for a period of 18–24 months following termination. In addition, the Agreements contain non-disparagement, confidentiality and assignment of inventions provisions for the benefit of the Company.

 

The Agreements provide that, upon the termination of the executive’s employment without cause or the resignation of employment by the executive for good reason (each a “Qualifying Termination”), the executive generally will be entitled to receive, subject to the executive signing and not revoking a general release of claims and compliance with the restrictive covenants, (i) severance payments equal to the greater of (x) one to two times the sum of the executive’s annual base salary and average bonus for the prior two years and (y) 1.6 to four times the executive’s annual base salary, payable in installments over a period of 12–24 months; (ii) to the extent unpaid as of the termination date, an amount of cash equal to any bonus amount earned by the executive for the year prior to the year of termination and paid at the same time annual bonuses are generally paid to the Company’s executives; and (iii) a lump sum payment equal to the COBRA premium required to continue group medical, dental and vision coverage for a period of 12–24 months after the termination date. The following table sets forth the severance payment multiple, severance period and COBRA payment multiple applicable to each NEO in connection with a Qualifying Termination pursuant to the NEOs’ individual Agreements:

If a Qualifying Termination occurs within two years after a change in control of the Company, the Agreements provide that the executive will be entitled to receive, subject to the executive signing and not revoking a general release of claims and compliance with the restrictive covenants, in lieu of the amounts above, (i) a lump sum severance payment equal to two to three times the executive’s annual base salary; (ii) a lump sum severance payment equal to two to three times the executive’s target annual bonus amount; (iii) to the extent unpaid as of the termination date, an amount of cash equal to any bonus amount earned by the executive for the year prior to the year of termination and paid at

 

the same time annual bonuses are generally paid to the Company’s executives; (iv) a lump sum payment equal to the COBRA premium required to continue group medical, dental and vision coverage for a period of 24-36 months after the termination date; and (v) accelerated vesting of all unvested equity or equity-based awards, provided that, unless a provision more favorable to the executive is included in an applicable award agreement, any such awards that are subject to performance-based vesting conditions will only be payable subject to the attainment of the performance measures for the applicable performance period as provided under the terms of the applicable award agreement.

We provide our NEOs with certain relatively low-cost, personal benefits and perquisites, which we do not consider to be a significant component of executive compensation but which are an important factor in attracting and retaining talented executives. Our NEOs are eligible under the same plans as all other employees for medical, dental, vision and short-term disability insurance, and may participate to the same extent as all

 

other employees in our tuition reimbursement program. We also provide the following additional perquisites to our NEOs and certain other senior management personnel: executive physical, umbrella liability insurance, global travel insurance and parking benefits. The value of personal benefits and perquisites we provided to each of our NEOs is set forth below in our Summary Compensation Table.