DEFA14A: Koppers Holdings Seeks Shareholder Approval for Amended Incentive Plan to Attract and Retain Key Employees

Koppers Holdings is requesting shareholder approval for an amended long-term incentive plan, including an increase of 1 million shares, to attract and retain key employees and align compensation with long-term shareholder value.

Summary

• Koppers Holdings is seeking shareholder approval for its Amended and Restated 2020 Long Term Incentive Plan (LTIP).
• The proposal includes an increase of 1,000,000 shares reserved for issuance under the plan.
• The company believes the additional shares are necessary to attract and retain key employees in strategic roles.
• Koppers emphasizes that equity compensation is critical to supporting its business strategy.
• The company highlights its commitment to responsibly managing equity incentive awards and mitigating dilution.
• Stock buybacks have exceeded equity compensation issuances for the past three years, resulting in no net dilution.
• Koppers expects the requested share increase to cover three years of award activity.
• In January 2025, Koppers granted 627,132 shares, including one-time awards to convert short-term cash incentives to long-term incentives.
• Excluding the one-time awards, the aggregate LTI values in 2025 held consistent with prior year.
• Approximately 228,000 shares remain for issuance of LTI awards, which is not adequate for 2026 grants and may require the use of cash.
• The company's 2024 financial performance included consolidated sales of $2.09 billion, net income of $52.4 million, and adjusted EBITDA of $261.6 million.
• Operating cash flow was $119.4 million, marking the sixth consecutive year above $100 million.
• Diluted earnings per share were $2.46, and adjusted earnings per share were $4.11.
• Koppers repurchased approximately 1,027,000 shares in 2024.
• The Board of Directors approved a new $100 million share repurchase program in February 2025.

Sentiment

Score: 7

Explanation: The document is generally positive, highlighting the company's strong financial performance and commitment to managing shareholder dilution. However, the need for additional shares and the competitive environment introduce some uncertainty.

Positives

• The company is focused on attracting and retaining key employees through equity compensation.
• Koppers has a track record of managing shareholder dilution through stock buybacks.
• The company's financial performance in 2024 was strong, with $2.09 billion in sales and $261.6 million in adjusted EBITDA.
• Koppers has demonstrated a commitment to sustainability and corporate responsibility, receiving recognition from Newsweek and USA Today.
• Employee engagement levels are high, which is considered a foundation for a high-performing organization.
• The company has a Zero Harm philosophy to safety, with approximately half of all facilities worldwide performing accident-free in 2024.

Negatives

• The company needs to increase the share reserve for its LTIP, which could dilute shareholder equity if not managed carefully.
• Approximately 228,000 shares remain for issuance of LTI awards, which is not adequate for 2026 grants and may require the use of cash.
• Higher share usage in 2025 is due to a one-time conversion of short-term incentives, although the company expects to return to more typical levels in 2026.

Risks

• Failure to obtain shareholder approval for the amended LTIP could hinder the company's ability to attract and retain key employees.
• Increased share usage could lead to shareholder dilution if not offset by stock buybacks or other measures.
• The company faces an increasingly competitive environment, which could impact future financial performance.
• Approximately 526,000 stock options remain outstanding with a weighted average exercise price of $28.62, over 102,000 options (19% of total options) have an exercise price in excess of $41 per share and expire in the next three years.

Future Outlook

The company expects the requested share increase to cover three years of award activity and anticipates returning to more typical levels of share usage in 2026 after a one-time conversion of short-term incentives in 2025.

Management Comments

• Leroy M. Ball, Chief Executive Officer, states that equity compensation awards attract and retain key employees in strategic roles, which is critical to supporting the business strategy.
• Management is committed to carefully and responsibly managing equity incentive compensation and mitigating dilution through stock repurchases.

Industry Context

The request for additional shares for the LTIP reflects the ongoing competition for talent in the industry and the importance of aligning employee incentives with shareholder value. Many companies in similar industries use equity compensation as a key component of their overall compensation strategy.

Comparison to Industry Standards

• Many companies in the materials and construction industries, such as Vulcan Materials, Martin Marietta Materials, and Eagle Materials, utilize long-term incentive plans with equity-based awards to align executive compensation with shareholder value creation.
• The specific mix of performance-based stock units (PSUs) and time-based restricted stock units (RSUs) varies by company, but a common approach is to emphasize performance-based compensation for senior executives.
• Koppers' approach of using relative total shareholder return (TSR) and cumulative adjusted EBITDA as performance metrics for PSUs is consistent with industry best practices.
• The company's burn rate (share usage as a percentage of outstanding shares) is within a reasonable range compared to peers, but it's important to monitor this metric to ensure responsible equity management.

Stakeholder Impact

• Shareholders: Approval of the LTIP is intended to align management incentives with long-term shareholder value creation.
• Employees: Equity compensation is used to attract, retain, and motivate key employees.
• Customers: The company aims to provide safe and sustainable solutions to enable rail transportation, keep power flowing, and create spaces of enjoyment.

Next Steps

• Shareholder vote on the Amended and Restated 2020 Long Term Incentive Plan at the Annual Meeting on May 8, 2025.
• Continued monitoring of share usage and dilution levels.
• Implementation of the new $100 million share repurchase program.

Key Dates

Keywords

Long Term Incentive Plan, Equity Compensation, Shareholder Approval, Stock Buybacks, Dilution, Employee Retention, Financial Performance, Adjusted EBITDA, Koppers, Shares