8-K: Knowles Corporation Grants CEO Jeffrey Niew Performance-Based Equity Award

Knowles Corporation's CEO, Jeffrey S. Niew, receives a performance-based restricted stock unit (PSU) award tied to revenue and adjusted EPS goals over a three-year performance period, potentially reaching up to 400% of the target 81,788 PSUs.

Summary

• Knowles Corporation granted CEO Jeffrey S. Niew a performance-based equity award of performance share units (PSUs) on February 18, 2025.
• The award is designed to incentivize the achievement of the company's strategic plans and is subject to both timeand performance-based vesting requirements.
• The target number of PSUs is 81,788, representing a grant date fair value of $1.5 million, with potential achievement ranging from 0% to 400% of this target.
• The initial performance period spans three years, from January 1, 2025, to December 31, 2027.
• If no PSUs are earned during the initial period, an extended performance period of up to eight quarters may apply, with a 10% reduction in payout for each elapsed quarter.
• Achievement of the PSUs is contingent upon meeting specific revenue and adjusted EPS targets.
• For 100% of the target shares, the company must achieve $800 million in revenue and an adjusted EPS of $1.50.
• The percentage payout increases to 200% if the company's revenue reaches $1 billion, with a straight-line interpolation for values in between.
• In the event of an acquisition, 50% of the acquired company's revenue at the time of acquisition will be added to the revenue goals.
• A multiplier of up to 2.0 will be applied to the payout if the adjusted EPS reaches $2.00, with a straight-line interpolation for values in between.
• The maximum payout is capped at 400% of the target PSU amount.
• If performance metrics are met at or above the target level by December 31, 2026, Mr. Niew will earn Interim Earned PSUs, which serve as a minimum payout.
• In the event of a Change of Control, Mr. Niew will receive 90% of the target shares if the company's adjusted EPS is $1.35 and revenue for the trailing 12 months is 90% of the target revenue value.
• The award will automatically terminate if Mr. Niew's employment terminates or if he ceases to be CEO before the end of the performance period.

Sentiment

Score: 7

Explanation: The document is generally positive, outlining a performance-based incentive plan for the CEO. The plan is well-structured and aligns management's interests with shareholder value. However, the plan is contingent on achieving specific performance targets, and there are risks associated with not meeting those targets.

Positives

• The performance-based equity award aligns the CEO's interests with the company's strategic goals.
• The potential for a 400% payout provides a strong incentive for exceeding performance targets.
• The inclusion of an Interim Earned PSUs provision ensures a minimum payout if performance is strong in the first two years.
• The Change of Control provisions provide clarity and potential reward in the event of a company sale.

Negatives

• The award is entirely contingent on performance, with no guaranteed payout if targets are not met.
• The extended performance period includes a 10% payout reduction per quarter, potentially diminishing the award's value.
• The award terminates if Mr. Niew's employment ends or if he ceases to be CEO before the end of the performance period, potentially forfeiting any unvested PSUs.

Risks

• The company may not achieve the revenue and adjusted EPS targets required to earn the PSUs.
• Economic conditions or industry trends could negatively impact the company's performance.
• A Change of Control may not occur, or the conditions for payout in the event of a Change of Control may not be met.
• Mr. Niew's employment could terminate before the end of the performance period, resulting in forfeiture of the award.

Future Outlook

The award is designed to incentivize the CEO to achieve specific revenue and adjusted EPS targets over the next three years, with potential for significant payout if performance goals are exceeded. The extended performance period provides an opportunity to earn PSUs even if initial targets are not met, albeit with a reduced payout.

Industry Context

Performance-based equity awards are a common practice in executive compensation, aligning management's interests with shareholder value creation. The specific metrics and targets used in this award reflect Knowles Corporation's strategic priorities and growth objectives.

Comparison to Industry Standards

• Comparing Knowles' CEO compensation structure to similar technology companies reveals a common emphasis on performance-based equity.
• Companies like Analog Devices and Texas Instruments also utilize PSUs tied to revenue and EPS growth.
• The specific targets and payout ranges are tailored to Knowles' unique circumstances and growth trajectory, but the overall structure aligns with industry best practices.

Stakeholder Impact

• Shareholders: The performance-based award is designed to align the CEO's interests with shareholder value creation.
• Employees: The award may motivate employees to work towards achieving the company's strategic goals.
• Customers: Successful execution of the company's strategic plans could lead to improved products and services for customers.

Next Steps

• The Compensation Committee will monitor the company's performance against the revenue and adjusted EPS targets.
• The Committee will certify whether and to what extent the performance metrics have been met at the end of the initial and any extended performance periods.
• If the performance metrics are satisfied, the company will issue shares of common stock to Mr. Niew based on the number of earned PSUs.

Key Dates