DEFA14A: Fox Factory Holding Corp. Urges Stockholders to Approve Executive Compensation Plan Despite ISS Recommendation Against

Fox Factory Holding Corp. is urging its stockholders to vote in favor of its executive compensation plan (Say-on-Pay Proposal) at the upcoming 2025 Annual Meeting, despite a recommendation against it from Institutional Shareholder Services (ISS).

Summary

• Fox Factory Holding Corp. is seeking stockholder approval for its executive compensation plan at the 2025 Annual Meeting.
• The board of directors unanimously recommends voting FOR the Say-on-Pay Proposal.
• Proxy advisory firm Glass Lewis recommends voting FOR the proposal, while ISS recommends voting against it.
• ISS cites pay-performance alignment concerns, while Fox Factory argues its executive pay is strongly aligned with performance.
• The company highlights its history of aligning pay with performance, supported by high stockholder approval in previous years.
• In 2024, stockholders voted in support of the Say-on-Pay Proposal by approximately 95%.
• The Compensation Committee held management accountable to performance targets, resulting in no payouts for performance-based cash bonuses or 2022-2024 PSUs.
• The CEO's aggregate three-year Target TDC Opportunity was $21.4 million and three-year Realizable Pay, valued as of the end of fiscal 2024 was $7.9 million, a decline of $13.5 million (or down 63%).
• The company emphasizes that a majority of officers' target pay is at-risk and tied to financial results.
• Recent pay design actions include PSU awards with annual financial goals and one-time Revenue Growth Outperformance Awards.
• The 2025 annual incentive plan includes an option for executives to receive half in cash and half in two-year PSUs.
• The company disagrees with ISS's assessment, arguing that ISS uses SCT total pay which is not intended to be used for comparing pay to performance.
• The company states that CEO pay outcomes, as reflected by CAP, are aligned with the stockholder experience.
• For 2024, CEO SCT-pay was $7.5 million, and CAP was $0.3 million.
• The company included forward directional disclosure regarding 2025 incentive goals, which are set significantly higher than 2024 financial results.

Sentiment

Score: 6

Explanation: The document presents a mixed sentiment. While the company strongly defends its executive compensation plan and highlights positive aspects, the negative recommendation from ISS and the failure to meet certain performance targets create a degree of uncertainty.

Positives

• Stockholders have historically supported the Say-on-Pay Proposal with an average approval of 94% over the last five years.
• Glass Lewis recommends voting FOR the Say-on-Pay Proposal.
• The Compensation Committee held management accountable to performance targets, resulting in no payouts when targets were not met.
• The company emphasizes that a majority of officers' target pay is at-risk and tied to financial results.
• The company has implemented recent pay design actions to better align pay with performance, including PSU awards with annual financial goals.
• The company included forward directional disclosure regarding 2025 incentive goals, which are set significantly higher than 2024 financial results.
• The company states that CEO pay outcomes, as reflected by CAP, are aligned with the stockholder experience.

Negatives

• ISS recommends voting against the Say-on-Pay Proposal, citing pay-performance alignment concerns.
• No payouts were made for the 2024 performance-based cash bonus or the 2022-2024 PSUs due to not meeting performance targets.
• The CEO's aggregate three-year Target TDC Opportunity was $21.4 million and three-year Realizable Pay, valued as of the end of fiscal 2024 was $7.9 million, a decline of $13.5 million (or down 63%).
• The CEO's 2024 SCT total pay was $7.5 million, while Realizable Pay was $2.6 million, a decline of $4.9 million (or down 65%).
• The revenue growth outperformance goal was deemed improbable to be achieved.

Risks

• Negative recommendation from ISS could influence stockholder votes against the Say-on-Pay Proposal.
• Failure to meet performance targets could lead to continued lack of incentive payouts and potential dissatisfaction among executives.
• Challenging business and industry conditions could impact the company's ability to achieve its financial goals and align pay with performance.
• The company's disagreement with ISS's assessment of pay-performance alignment could lead to further scrutiny of its executive compensation practices.

Future Outlook

The company included forward directional disclosure regarding 2025 incentive goals, which are set significantly higher than 2024 financial results. The higher 2025 target incentive goals apply to all the annual incentive and PSU award opportunities.

Management Comments

• The Board of Directors of the Company unanimously recommends that our stockholders vote FOR the Say-on-Pay Proposal.
• We are available to answer any questions as you finalize your vote.
• We find it contradictory for ISS to criticize these incentive designs that, in fact, demonstrate the ongoing pay-performance sensitivity and stockholder alignment of the officer pay program during challenging business and industry conditions.
• We appreciate your historical support of our executive compensation program and ask that you vote FOR the Say on Pay Proposal.

Industry Context

The document highlights the differing opinions of proxy advisory firms (ISS and Glass Lewis) on executive compensation, a common occurrence in the industry. It also mentions that the use of three one-year goals, with earned shares vesting after completion of the three-year period, reflects an approach used by hundreds of other companies during times of heightened business and industry uncertainty.

Comparison to Industry Standards

• The document mentions that the company determines the number of shares to grant based on the market-based target award value and stock price at grant, which is consistent with typical market practice for public companies of comparable size.
• The company also notes that the use of three one-year goals for PSU awards is an approach used by hundreds of other companies during times of heightened business and industry uncertainty.
• The document references a Pay Peer Group, suggesting the company benchmarks its executive compensation against similar companies in its industry.

Stakeholder Impact

• The outcome of the Say-on-Pay vote will directly impact the company's relationship with its shareholders.
• Executive compensation decisions can impact employee morale and retention.
• The company's financial performance and stock price can impact investors and other stakeholders.

Next Steps

• Stockholders are encouraged to vote on the Say-on-Pay Proposal at the 2025 Annual Meeting.
• The company will discuss the 2025 special design feature in detail in next year's proxy filing.

Key Dates

Keywords

executive compensation, say-on-pay, proxy statement, ISS, Glass Lewis, performance-based pay, stockholder vote, PSUs, incentive plan, CEO compensation, pay-performance alignment, compensation committee