LDL Lydall Inc

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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

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Definitive Proxy Statement

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Definitive Additional Materials

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Soliciting Material under §240.14a-12

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LYDALL, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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No fee required.

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Fee paid previously with preliminary materials.

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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

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Date Filed:

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Lydall, Inc.
One Colonial Road
Manchester, CT 06042

 

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“FOR” the proposal to ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent auditor for fiscal year 2021.

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How do I vote before or at the Annual Meeting?

With respect to each of the proposals scheduled for a vote, you may vote “FOR” or “AGAINST” or abstain from voting.

If you hold your shares in your own name, you may vote as follows:

How do I vote if my broker holds my shares in “street name”?

If you hold your shares beneficially in street name, you may vote by submitting voting instructions to your broker, bank or other nominee. For directions on how to vote shares held beneficially in street name, please refer to the voting instructions provided by your broker, bank or other nominee.

How can I attend the virtual meeting and vote my shares during the Annual Meeting?

If you are a shareholder of record, you may attend the meeting and vote your shares electronically during the virtual Annual Meeting by visiting www.virtualshareholdermeeting.com/LDL2021. You will need the 16-digit control number that is printed in the box marked by the arrow on your Notice Regarding the Availability of Proxy Materials to enter the Annual Meeting. We recommend that you log in at least 15 minutes before the meeting to ensure that you are logged in when the meeting starts. However, even if you currently plan to attend the virtual meeting, we recommend that you submit your proxy ahead of time so that your vote will be counted if, for whatever reason, you later decide to not attend the virtual meeting. If you hold your shares in street name, in order to vote during the Annual Meeting, you must request a proxy from your broker, bank or other nominee.

If you have difficulty logging into the Annual Meeting, please contact technical support at 844-986-0822 (in the U.S.) and at 303-562-9302 (International calls). The virtual meeting website will also present an option for you to attend the Annual Meeting as a guest without logging in, but guests will not be able to vote during the Annual Meeting.

How can I submit a question at the Annual Meeting?

Stockholders may submit questions while attending the Annual Meeting. As part of the Annual Meeting, we will hold a live question and answer session during which we intend to answer questions submitted during the Annual Meeting that are pertinent to the Company and the items of business at the Annual Meeting, as time permits. Stockholders may submit questions during the Annual Meeting by visiting www.virtualshareholdermeeting.com/​LDL2021 and logging in with the 16-digit control number found on the Notice, proxy card or voting instructions that accompanied these proxy materials and by clicking on the “Q&A” button.

How will management respond to questions during the virtual meeting?

This will be the second year that the Company has held its Annual Meeting as a virtual meeting webcast via the Internet. While our Annual Meeting is just one of the forums where we engage with shareholders, it is an important

 

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one. The Board believes that holding the Annual Meeting in a virtual format provides the opportunity for participation by a broader group of shareholders, while reducing the costs and environmental impact associated with planning, holding and arranging logistics for an in-person meeting and helps to safeguard public health during the COVID-19 pandemic. We welcome your suggestions on how we can improve our virtual meeting and make it more effective and efficient.

Management will respond to questions from shareholders in the same way as it would if the Company held an in-person meeting. Shareholders who wish to submit a question to the Company for the meeting may do so in advance at www.proxyvote.com and live during the meeting at www.virtualshareholdermeeting.com/LDL2021. You will need the 16-digit control number that is printed in the box marked by the arrow on your Notice Regarding the Availability of Proxy Materials to enter the Annual Meeting. We recommend that you log in at least 15 minutes before the meeting to ensure that you are logged in when the meeting starts.

What should I do if I receive more than one set of proxy materials?

You may receive more than one set of these proxy materials, including multiple copies of this Proxy Statement and multiple proxy cards or voting instruction forms. For example, if you hold your shares in more than one brokerage account, you may receive a separate voting instruction form for each brokerage account in which you hold shares. If you are a stockholder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction form that you receive to ensure that all your shares are voted.

How many votes do I have?

Each share of Common Stock that you own as of the close of business on the Record Date entitles you to one vote on each nominee and on each other matter voted upon at the Annual Meeting.

May I change my vote?

Yes, if you own shares in your own name, you may change your vote or revoke your proxy at any time before the vote at the Annual Meeting by executing a valid proxy bearing a later date and delivering it to us prior to the Annual Meeting at Lydall, Inc., One Colonial Road, Manchester, Connecticut 06042, Attn: Secretary. You may withdraw your vote at the Annual Meeting and vote virtually during the live webcast assessable at www.virtualshareholdermeeting.com/LDL2021. You may also revoke your vote without voting by sending written notice of revocation to our Secretary at the above address. However, if you are a beneficial owner whose shares are held of record by a broker, bank or other nominee, you must contact your broker, bank or other nominee to change your vote.

How are my shares voted if I submit a proxy but do not specify how I want to vote?

If you submit a properly executed and signed proxy card and return it without indicating how you would like to vote your shares, the persons named in the proxy card (or, if applicable, their substitutes) will vote your shares as the Board recommends, which is:

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“FOR” the election of each of the nominees for Director named in this Proxy Statement;

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“FOR” the proposal to approve, on an advisory basis, the compensation of the Company’s Named Executive Officers; and

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“FOR” the proposal to ratify the appointment of PricewaterhouseCoopers LLC as our independent auditor for fiscal year 2021.

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What is a broker non-vote?

If you are a beneficial owner whose shares are held of record by a broker, bank or other nominee, you must instruct the broker, bank or other nominee how to vote your shares. If you do not provide voting instructions, your shares will not be voted on any proposal on which the broker, bank or other nominee does not have discretionary authority to vote. This is called a “broker non-vote.” In particular, brokers will not be able to vote on those matters for which specific authorization is required under the rules of the New York Stock Exchange (“NYSE”). If you are a

 

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beneficial owner whose shares are held of record by a broker, your broker has discretionary voting authority under NYSE rules to vote your shares on the proposal to ratify the appointment of PricewaterhouseCoopers LLP even if the broker does not receive voting instructions from you. However, your broker does not have discretionary authority under NYSE rules to vote on the election of directors, or the advisory vote on executive compensation without instructions from you, and in the absence of instructions from you, a broker non-vote will occur and your shares will not be voted on these matters.

Your vote is important, and we strongly encourage you to vote your shares by following the instructions provided on the voting instruction form. Please return your voting instructions to your broker, bank or other nominee and contact the person responsible for your account to ensure that your shares are voted on your behalf.

What vote is required to elect directors?

Under the majority vote standard contained in our Bylaws, a nominee shall be elected as a Director if the votes cast “FOR” such nominee’s election exceed the votes cast “AGAINST” such nominee’s election (with “abstentions” and “broker non-votes” not counted as a vote “for” or “against” such nominee’s election). This majority vote standard will apply to the election of directors at the 2021 Annual Meeting.

In contested elections (defined below), Directors would instead be elected by a plurality of the votes cast by stockholders entitled to vote at the Annual Meeting as described above. A “contested election” is any meeting on the election of directors for which a stockholder has properly nominated a person for election to the Board in compliance with the advance notice requirements and such nomination has not been timely withdrawn by such stockholder.

What happens in an uncontested election if an incumbent director does not receive a majority of the votes cast on his or her election?

Our Corporate Governance Guidelines address the situation where, in an uncontested election, an incumbent Director nominee does not receive more votes “FOR” than “AGAINST” his or her election. As a condition to being nominated by the Board of Directors for re-election as a director, each incumbent director must deliver to the Board of Directors an irrevocable resignation from the Board of Directors that will become effective if, and only if, both (1) the election is an uncontested election (i.e., one in which the number of nominees does not exceed the number of Directors to be elected), and such nominee does not receive more votes cast “for” than “against” such nominees’ election and (2) the Board of Directors determines to accept such resignation in accordance with this policy.

The Corporate Governance Committee will make a recommendation to the Board of Directors as to whether to accept or reject such resignation, or whether other action should be taken. The Board of Directors will act on such resignation, taking into account the Corporate Governance Committee’s recommendation, and publicly disclose its decision regarding such resignation and the rationale behind the decision within ninety (90) days from the date of the certification of the election results. The Corporate Governance Committee in making its recommendation, and the Board of Directors in making its decision, may each consider any factors or other information that it considers appropriate and relevant and may act in their sole and absolute discretion. A Director whose resignation is being considered in accordance with this policy shall not participate in the consideration of such resignation by either the Corporate Governance Committee or the Board of Directors.

If an incumbent Director’s resignation is not accepted by the Board, such Director will continue to serve until the next Annual Meeting and until his or her successor is duly elected and qualified, or his or her earlier resignation or removal. If a Director’s resignation is accepted by the Board, then the Board, in its sole discretion, may fill the resulting vacancy or otherwise take action pursuant to the applicable provisions of the Company’s Bylaws and the Company’s Restated Certificate of Incorporation in effect at such time.

What vote is required to approve, on an advisory basis, the compensation of the Company’s Named Executive Officers?

This matter is being submitted to enable stockholders to approve, on an advisory basis, the compensation of the Company’s Named Executive Officers. In order to be approved on an advisory basis, this proposal must receive the affirmative vote of a majority of the shares present or represented at the Annual Meeting and entitled to vote and voting on the matter. Brokers are not entitled to vote on this proposal in the absence of voting instructions from the beneficial owner. Abstentions and broker non-votes are not considered to have been voted on this matter and have the practical

 

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effect of reducing the number of affirmative votes required to achieve a majority for the matter by reducing the total number of shares from which the majority is calculated. This proposal is an advisory vote and the result will not be binding on the Board or the Company.

What vote is required to ratify the appointment of PricewaterhouseCoopers LLC as Lydall’s independent auditor for the fiscal year ending December 31, 2021?

Under the Company’s Bylaws, the affirmative vote of a majority of the shares present or represented at the Annual Meeting and entitled to vote and voting on the matter will constitute the stockholders’ approval. Because this proposal is considered a discretionary item for which a broker will have discretionary voting power, if you do not give instructions with respect to this proposal, there will be no broker non-votes with respect to this proposal. Abstentions are not considered to have been voted on this matter and have the practical effect of reducing the number of affirmative votes required to achieve a majority for the matter by reducing the total number of shares from which the majority is calculated.

Who will count the votes?

Votes will be counted by one or more inspectors of election appointed by the Board.

Who pays for the solicitation of proxies?

We will pay for the entire cost of soliciting proxies. We will also reimburse brokerage firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners. In addition, our Directors and employees may solicit proxies in person, by telephone, via the Internet, or by other means of communication. Directors and employees will not be paid any additional compensation for soliciting proxies.

How can I find out the results of the voting at the Annual Meeting?

We will announce preliminary results at the Annual Meeting. We will report final results in a filing with the Securities and Exchange Commission (“SEC”) on a Current Report on Form 8-K or as part of a Quarterly Report on Form 10-Q, in either case within four business days after the Annual Meeting.

What is “householding” and how does it work?

The SEC’s “householding” rules permit us to deliver only one set of proxy materials to stockholders who share an address unless otherwise requested. This procedure reduces printing and mailing costs. If you share an address with another stockholder and have received only one set of proxy materials, you may request a separate copy of these materials at no cost to you by writing to Lydall, Inc., One Colonial Road, Manchester, Connecticut 06042, Attn: Secretary, or by calling us at (860) 646-1233. Alternatively, if you are currently receiving multiple copies of the proxy materials at the same address and wish to receive a single copy in the future, you may contact us by calling or writing to us at the telephone number or address given above.

If you are a beneficial owner (i.e., your shares are held in the name of a broker, bank or other nominee), the broker, bank or other nominee may deliver only one copy of the notices of stockholder meetings and related proxy statements to stockholders who have the same address unless the broker, bank or other nominee has received contrary instructions from one or more of the stockholders. If you wish to receive a separate copy of the notices of stockholder meetings and proxy statements, now or in the future, you may contact us at the address or telephone number above and we will promptly deliver a separate copy. Beneficial owners sharing an address, who are currently receiving multiple copies of the notice of stockholder meetings and proxy statements and wish to receive a single copy in the future, should contact their broker, bank or other nominee to request that only a single copy be delivered to all stockholders at the shared address in the future.

 

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The outcome of this advisory vote does not overrule any decision by the Company or the Board (or any committees thereof), create or imply any changes to the fiduciary duties of the Company or the Board (or any committees thereof), or create or imply any additional fiduciary duties for the Company or the Board (or any committees thereof).

THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THE COMPENSATION PAID TO THE COMPANY’S NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT PURSUANT TO THE COMPENSATION DISCLOSURE RULES OF THE SECURITIES AND EXCHANGE COMMISSION.

 

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established to comply with the SEC rules that require audit committee pre-approval of audit and non-audit services. On an ongoing basis, management communicates specific projects and categories of services for which advance approval of the Audit Review Committee is required. The Audit Review Committee reviews these requests and advises management and the independent auditor if the Audit Review Committee pre-approves the engagement of the independent auditor for such projects and services. On a periodic basis, the independent auditor reports to the Audit Review Committee the actual spending for such projects and services as compared with the approved amounts. The Audit Review Committee may delegate the ability to pre-approve audit and permitted non-audit services to a sub-committee or the Chair of the Audit Review Committee, provided that any such pre-approvals are reported at the next Audit Review Committee meeting.

The Audit Review Committee has considered whether the services provided by PwC, other than audit services, are compatible with maintaining that firm’s independence and has concluded that PwC is independent.

 

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CORPORATE GOVERNANCE

General

Pursuant to the Delaware General Corporation Law and the Company’s Bylaws, the Company’s business, property and affairs are managed by or under the direction of the Board. Members of the Board oversee the Company’s business through, among other things, discussions with the Chief Executive Officer and other officers, by requesting and reviewing materials relating to the Company’s business, and by participating in meetings of the Board and its committees.

The Company is committed to good corporate governance practices and has adopted Corporate Governance Guidelines to provide a framework for the effective governance of the Company. The Corporate Governance Committee periodically reviews the Corporate Governance Guidelines and recommends changes, as appropriate, to the Board for approval.

The Board has three standing committees to assist the Board in executing its responsibilities: the Audit Review Committee, the Compensation Committee and the Corporate Governance Committee. In accordance with NYSE rules, each Committee is comprised solely of non-employee, independent Directors, within the meaning of the applicable NYSE rules. The Board has adopted a charter for each of the three standing committees, and the Company has a Code of Ethics and Business Conduct (the “Code”) applicable to all Directors, officers and employees. Links to the Corporate Governance Guidelines, each Committee’s charters and the Code can be found on Lydall’s website at www.lydall.com. All materials available at www.lydall.com are also available to stockholders in print without charge, upon written request to Lydall, Inc., One Colonial Road, Manchester, CT 06042, Attention: Secretary.

Committees

The table below shows current membership and indicates the chairperson (*) for each of the standing Board committees.

The Audit Review Committee assists the Board in fulfilling its responsibility to oversee the integrity of the Company’s financial reporting process. The duties and responsibilities of the Audit Review Committee include: overseeing the performance of the Company’s systems of internal accounting and financial controls; overseeing the Company’s internal audit function; reviewing and determining the outside auditor’s qualifications and independence; reviewing the Company’s process for monitoring compliance with applicable legal, regulatory and ethics programs; overseeing the procedures for employee complaints and concerns regarding questionable accounting or auditing matters; overseeing the annual independent audit of the Company’s financial statements; and preparing the Audit Review Committee Report required by the SEC to be included in the Company’s proxy statement.

The Audit Review Committee meets periodically with management to consider the adequacy of the Company’s internal controls and its financial reporting process, and reviews pending or threatened legal proceedings involving the Company and other material contingent liabilities. It also discusses these matters with the Company’s internal auditors, independent auditor, and appropriate Company financial and legal personnel. The Audit Review Committee reviews and approves the Company’s financial statements and discusses them with management and the independent auditors before those financial statements are publicly released or filed with the SEC.

The Audit Review Committee meets regularly in private session with the independent auditor, has the sole authority to retain and dismiss the independent auditor, pre-approves audit and non-audit services, and periodically reviews the independent auditor’s performance and independence from management. The independent auditor has unrestricted access to, and reports directly to, the Audit Review Committee.

 

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The Audit Review Committee also reviews and approves the Company’s decision to enter into all swaps transactions, has adopted and reviews annually the policy relating to the Company’s use of the non-financial end-user exception (“Swaps Policy”) and reports to the Board annually on the Company’s compliance with the Swaps Policy.

Audit Committee Financial Expert — The Board has determined that each member of the Audit Review Committee is “financially literate” within the meaning of the NYSE rules and that four of the members of the Committee are “audit committee financial experts” as that term is defined under Item 407(d)(5)(ii) of Regulation S-K.

The Compensation Committee has responsibility for the Company’s compensation of management, incentive plans and programs. The duties and responsibilities of the Compensation Committee include: making recommendations to the Board regarding the Company’s incentive and equity-based compensation plans and non-CEO compensation policy; reviewing and approving the Company’s goals and objectives relevant to compensation (such as the goal of attracting and retaining highly qualified individuals and motivating individual performance leading to increased stockholder value); determining and approving the Chief Executive Officer’s annual compensation, including incentive awards; reviewing the Company’s Compensation Discussion and Analysis (“CD&A”) with management and, based upon such review, considering whether it will recommend to the Board that the CD&A be included in the Company’s proxy statement; preparing the Compensation Committee Report for inclusion in the annual proxy statement; approving all grants of stock awards pursuant to the Company’s stock incentive compensation plans; approving all employment agreements and compensation arrangements for the CEO, the Named Executive Officers and other direct reports of the CEO; reviewing whether risks associated with the Company’s compensation policies and practices are reasonably likely to have a material adverse effect on the Company; overseeing matters related to human capital; reviewing the form and amount of compensation for non-management Directors and recommending changes to the Board; and retaining or obtaining advice from compensation advisors after taking into consideration certain independence factors related to said compensation advisors.

The Corporate Governance Committee has responsibility for developing Board membership and overseeing corporate governance of the Company. The Corporate Governance Committee is responsible for: identifying individuals who are qualified to become Board members consistent with criteria approved by the Board; selecting and recommending to the Board the Director nominees for the next Annual Meeting; making recommendations to the Board as to the membership and chairperson of each standing committee; developing and recommending to the Board a set of corporate governance guidelines applicable to the Company designed to provide for effective and efficient governance of the Company; overseeing the evaluation of the Board; providing guidance on matters relating to corporate governance; and oversight of social and environmental matters.

Other duties and responsibilities of the Corporate Governance Committee include: assessing whether an incumbent director nominee who does not receive more votes “for” than “against” his or her election in an uncontested election should continue to serve as a director; reviewing annually the relationships between directors, the Company and members of management and recommending to the Board whether each director qualifies as “independent”; periodically reviewing the Board’s leadership structure to assess whether it is appropriate given the specific characteristics or circumstances of the Company; overseeing the development of a succession plan for the Chief Executive Officer; evaluating the Chief Executive Officer’s performance annually and overseeing the evaluation of the Company’s executive officers; and reviewing and approving all director and officer indemnification and insurance arrangements.

Nomination Process

The Corporate Governance Committee is responsible for identifying individuals who are qualified to be Directors, consistent with criteria approved by the Board, and selecting and recommending to the Board the Director nominees for each Annual Meeting. The Corporate Governance Committee evaluates the skills and expertise needed by the Board and the skills and expertise that are possessed by current Board members. The Corporate Governance Committee seeks persons of the highest ethical standards and proven integrity, and with demonstrated ability and sound judgment, to serve as members of the Board.

When considering candidates for Director, the Corporate Governance Committee takes into account a number of factors, including the following criteria approved by the Board: (i) whether the candidate is independent under the NYSE rules, the rules and regulations under the Exchange Act and the independence standards adopted by the Board; (ii) whether the candidate has skills and expertise needed by the Board; (iii) whether the candidate has demonstrated ability, sound judgment and good decision-making skills; (iv) whether the candidate has prior experience as a corporate

 

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Director; (v) whether the candidate has prior public company experience; (vi) whether the candidate has prior experience in global manufacturing companies; and (vii) the extent to which the candidate has other time commitments and obligations that might interfere with his or her duties and responsibilities as a Director. All members of the Audit Review Committee must meet the additional standards for independence applicable to members of an audit committee under Section 10A(m) of the Exchange Act and the NYSE rules and must satisfy the financial literacy requirements of the NYSE rules. At least one member of the Audit Review Committee must be an “audit committee financial expert,” as defined under rules promulgated by the SEC. All members of the Compensation Committee must meet the additional standards for independence applicable to members of a compensation committee under the NYSE rules.

Not all Directors need to fulfill all criteria; rather, the Corporate Governance Committee seeks candidates whose skills balance or complement the skills of other Board members.

The Board regularly evaluates the conditions under which other time commitments and obligations of director nominees might interfere with his or her duties and responsibilities as a Director. In 2019, the Board revised the Corporate Governance Guidelines to provide that no Director may sit on more than three (previously four) boards of publicly traded companies in addition to the board of the company by which he or she is employed.

The Corporate Governance Committee has not adopted a written policy with regard to the consideration of diversity when evaluating candidates for Director, but does require a diverse slate candidates when engaging a firm to conduct a search. Further, in practice, the Corporate Governance Committee considers diversity of viewpoint, professional experience, education and skill in assessing candidates for the Board to ensure breadth of experience, knowledge and abilities within the Board. The Corporate Governance Committee does not assign specific weights to particular criteria that the Corporate Governance Committee reviews and no particular criterion is a prerequisite for the consideration of any prospective nominee.

When seeking candidates for Director, the Corporate Governance Committee may solicit suggestions from incumbent Directors, management or others. From time to time, the Corporate Governance Committee may also employ a search firm to identify appropriate candidates and perform screening interviews and reference checks for candidates who are then interviewed by the Corporate Governance Committee and presented to the Board, if appropriate. In fiscal year 2020, the Corporate Governance Committee employed a leading national search firm to assist it in identifying qualified candidates to serve as independent members of the Board, and the Board has nominated Katherine C. Harper and Paul W. Graves, both of whom were identified through such engagement, as nominees to stand for election at the Annual Meeting.

Unless otherwise requested by the Corporate Governance Committee, a Director shall offer not to stand for re-election at any annual meeting that follows his or her seventieth birthday. In addition, a Director shall tender his or her resignation following any change in the Director’s employment status or principal position, or any other significant change in his or her personal circumstances. The Board may ask the Director not to resign, or may defer acceptance of the resignation.

Nominations by Stockholders

The Corporate Governance Committee will consider in accordance with the criteria described above written proposals from stockholders for nominees for Director, provided such proposals meet the requirements set forth in the Company’s Bylaws. For a description of the procedures a stockholder must follow to nominate a person for election to the Board, please see “Stockholder Proposals and Director Nominations” below.

Leadership Structure

The Board, upon the recommendation of the Corporate Governance Committee, has determined that the roles of the Chair of the Board and the Chief Executive Officer should remain separated. Accordingly, the Board has appointed Marc T. Giles, an independent director within the meaning of NYSE rules, as the Chair of the Board. The Company has had a non-management, independent Chair since 1998. The Board and the Corporate Governance Committee believe this leadership structure continues to be appropriate for the Company at the present time because the bifurcated leadership structure:

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enhances the independent oversight of the Company and the Board’s leadership role in fulfilling its oversight responsibilities;

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frees the Chief Executive Officer to focus on Company operations instead of Board administration;

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provides the Chief Executive Officer with an experienced sounding board;

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enhances the independent and objective assessment of risk by the Board; and

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provides an independent spokesperson for the Company.

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Independence Determination

The Board has concluded that David G. Bills, Kathleen Burdett (who is not standing for reelection), James J. Cannon, Matthew T. Farrell (who is not standing for reelection), Marc T. Giles, Suzanne Hammett, and S. Carl Soderstrom, Jr. (who is not standing for reelection), all of whom are the current non-employee Directors, are “independent” for purposes of the applicable NYSE rules, that the members of the Audit Review Committee are also “independent” for purposes of Section 10A(m)(3) of the Exchange Act and that the members of the Compensation Committee are also “independent” under the enhanced independence rules of the NYSE for compensation committee members. Additionally, each of Katherine C. Harper and Paul W. Graves, both of whom are being nominated for election as a Director of the Company for the first time, are “independent.” The Board based its independence determinations in part on a review of the responses of the Directors (and new director nominees) to questions regarding employment and compensation history, affiliations, family and other relationships (which responses indicated that no relationships or transactions exist), together with an examination of those companies with whom the Company transacts business. Although the Board maintains categorical standards to assist in determining whether non-employee Directors are independent, given the absence of any relationships or transactions between non-employee Directors and the Company, the categorical standards were not used in connection with the Board’s determinations. The categorical standards are set forth in the Company’s Corporate Governance Guidelines (available on www.lydall.com).

Compensation Committee Interlocks and Insider Participation

During fiscal year 2020, the Compensation Committee consisted of David G. Bills, Kathleen Burdett, James J. Cannon, Matthew T. Farrell, and Suzanne Hammett. As discussed above, all members of the Compensation Committee are independent Directors under the enhanced independence rules of the NYSE for compensation committee members. No executive officer of the Company has served as a director or a member of a compensation committee of another company where any director or member of the Compensation Committee of the Company is an executive officer.

Risk Oversight

The Board oversees the Company’s risk management processes directly and through its committees. Management has adopted an ongoing risk management process that it uses to identify and assess Company risks. Periodically, management advises the Board and the appropriate Board committee(s) of the following:

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risks identified;

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management’s assessment of those risks at the business unit and corporate levels;

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its plans for the management of those identified risks or the mitigation of their effects; and

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the results of the implementation of those plans.

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The Board fulfills its oversight role by discussing with management the policies and practices utilized by management in assessing and managing risks and providing input on those policies and practices, through:

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Board oversight of the business and strategic risks of the Company;

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Audit Review Committee oversight of financial reporting, as well as significant operational, compliance, environmental, social, strategic and cybersecurity risks, and the steps management has taken to monitor and manage such exposures to be within the Company’s risk tolerance; and

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Compensation Committee oversight of risks associated with the Company’s compensation policies and practices, including variable cash compensation, equity compensation and change in control arrangements.

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In addition, the Board may request regular reports directly from personnel of the Company responsible for oversight of particular risks within the Company. This process enables the Board and its committees to coordinate and

 

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supervise risk oversight, particularly with respect to risks that are overseen by different committees of the Board and different personnel within the Company.

The Company provides detailed risk factors impacting its business in its Annual Reports on Form 10-K and its Quarterly Reports on Form 10-Q filed with the SEC.

Related Party Transactions

The Board is committed to upholding the highest legal and ethical conduct in fulfilling its responsibilities and recognizes that related party transactions can present a heightened risk of potential or actual conflicts of interest. Accordingly, as a general matter, the Company prefers to avoid related party transactions.

The Company follows a written policy for the review and prior approval by the Corporate Controller’s Department of all related party transactions. The policy includes a detailed process which requires a thorough review and documentation of any potential related party transactions before consummation. In addition, annually, the General Counsel obtains responses of the Directors and executive officers to questions as to whether a family member of a Director or executive officer is employed by the Company and whether a Director or executive officer has any other relationship with the Company. The Company compiles a list of those companies reported (if any) and compares it against the record of companies with whom the Company transacts business, noting the dollar amount of transactions with such companies, if any. The Company then provides a report to the members of the Audit Review Committee, which reviews the information.

The Company did not engage in any related party transactions requiring disclosure during fiscal year 2020 and none are currently proposed.

Board Attendance

During fiscal year 2020, the Board held ten meetings; the Audit Review Committee held six meetings; the Compensation Committee held six meetings; and the Corporate Governance Committee held eight meetings. Each of the Directors attended at least 75% of the aggregate number of meetings of the Board and of each of the Board committees of which he or she was a member during fiscal year 2020. The Board’s practice is to meet in executive session without members of management present at every regularly scheduled Board and Committee meeting and at special meetings as circumstances warrant. These sessions are presided over by the Chair of the Board or committee chairperson, as applicable.

A Board meeting is scheduled in conjunction with the Company’s Annual Meeting, and in accordance with the Corporate Governance Guidelines, all of the Director nominees are expected to attend the Annual Meeting. All Directors who were then serving attended last year’s Annual Meeting, except William D. Gurley who was not standing for re-election.

Communications With Directors

Stockholders of Lydall and other parties may contact the Chair of the Board by email at: chairman@lydall.com and, if interested in communicating with the Board or any Director, may write to them at the following address:

Lydall, Inc.
One Colonial Road
Manchester, CT 06042
Attn: Secretary

Communications are distributed to the Board, or to any individual Director, as appropriate, depending on the facts and circumstances outlined in the communication. In that regard, the Board has requested that certain items that are unrelated to the duties and responsibilities of the Board should be excluded, such as product inquiries and complaints, new product suggestions, resumes and other forms of job inquiries, surveys, and business solicitations or advertisements. In addition, material that is unduly hostile, threatening, illegal or similarly unsuitable will be excluded, with the provision that any communication that is filtered out must be made available to any non-management Director upon request.

 

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Additional Disclosures

In accordance with NYSE rules, in the event that any member of the Audit Review Committee simultaneously serves on the audit committees of more than three public companies (including the Company), the Board will assess whether such simultaneous service impairs the ability of such member to effectively serve as a member of the Audit Review Committee, and the Company will disclose such assessment either on or through the Company’s website or in its annual proxy statement or Annual Report on Form 10-K filed with the SEC. No member of the Company’s Audit Review Committee currently serves on the audit committees of more than three public companies.

In addition, the Company will disclose, either on or through the Company’s website or in its annual proxy statement or Annual Report on Form 10-K filed with the SEC, any contributions by the Company to a tax exempt organization in which any non-management or independent Director serves as an executive officer if, within the preceding three years, contributions in any single fiscal year exceeded the greater of  $1 million or 2% of such tax exempt organization’s consolidated gross revenues. No such contributions have been made by the Company to any such tax exempt organization.

 

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COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion and Analysis section discusses the compensation policies and programs for our Chief Executive Officer, Chief Financial Officer and our three next most highly paid executive officers during fiscal year 2020, as determined under the rules of the SEC. We refer to this group as our “Named Executive Officers” or “NEOs,” who were, as of December 31, 2020:

•

Sara A. Greenstein, President and Chief Executive Officer (who joined the Company in November 2019);

​

•

Randall B. Gonzales, Executive Vice President, Chief Financial Officer & Treasurer (who joined the Company in March 2018);

​

•

Chad A. McDaniel, Executive Vice President, General Counsel and Chief Administrative Officer (who joined the Company in May 2013);

​

•

Ashish P. Diwanji, President, Lydall Performance Materials business unit (a role into which he was appointed in June 2020, but joined the Company in April 2020 in the role of Senior Vice President, Innovation and Chief Technology Officer);

​

•

David D. Glenn, President, Lydall Thermal Acoustical Solutions business unit (a role into which he was appointed in December 2020, but joined the Company in November 2010); and

​

•

Joseph A. Abbruzzi, former President, Lydall Thermal Acoustical Solutions business unit (whose employment ended in September 2020).

​

Overview — Executive Summary

The goal of the Company’s executive pay program is to align the interests of executives and stockholders and create long-term value for the Company’s stockholders. To this end, the 2020 compensation of the NEOs primarily consisted of four basic components, three of which were tied to performance against financial metrics and/or the market price of the Company’s stock:

•

Base salary based on competitive benchmarking, individual performance and individual responsibilities;

​

•

Annual cash bonuses based on the Company’s performance against financial goals pre-established yearly, such metrics being operating income and working capital as a % of sales;

​

•

Performance-based restricted stock awards (“PSAs”) based on the Company achieving specified levels of 3-year rTSR during a three-year performance period; and

​

•

Stock options vesting over four-years and providing future value only when the share price increases.

​

Our executive compensation structure is designed to achieve the Company’s short-term and long-term financial and operational objectives and to align the interests of stockholders and executives. In that respect, the actual 2020 compensation of the NEOs reflects the philosophy of making a substantial portion of each executive’s compensation variable depending on the Company’s performance.

 

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The following chart illustrates this philosophy by looking at the compensation of Ms. Greenstein for 2020.

The CEO compensation pay mix is calculated based on the following compensation components for Ms. Greenstein: (1) 2020 base salary of  $750,000; (2) 2020 Cash Bonus target under the Company’s AIP program at a target of 100% of Base Salary (or $750,000); and (3) 2020 long-term equity incentive with a target value of  $1,700,000, said grants made on November 20, 2019 and split between stock options (value at time of grant being $750,000) and performance-based restricted stock award (value at time of grant being $950,000). Note that the chart above excludes the one-time award of time-based restricted stock of  $1,050,000 made on November 20, 2019 as part of a one-time inducement award for Ms. Greenstein, upon her hire.

Key Compensation Decisions

The following highlights the key decisions made by the Compensation Committee related to 2020 compensation for the NEOs:

•

Increased the base salaries of NEOs, where appropriate, as detailed below under the “Base Salary” section;

​

•

Awarded cash payouts under the Company’s annual incentive performance program (the “AIP Program”) based on the Company’s and the applicable business units’ consolidated performance metrics for 2020, as follows:

​

•

at 100% of target to the current NEOs employed at corporate headquarters (Ms. Greenstein and Messrs. Gonzales and McDaniel) and at the Lydall Thermal Acoustical Solutions business unit (Mr. Glenn); and

​

•

at 165% of target to the current NEO employed at the Lydall Performance Material business unit, which is prorated for the period of time at which he was at that business unit plus an additional $50,000 in recognition of his promotion, as well as his significant contributions, leadership and performance in 2020 that has positioned the Company well for 2021 and beyond (Mr. Diwanji).

​

•

Granted long-term incentive opportunities through PSAs (50%) and stock options (50%); and

​

•

Throughout the year, the Committee continued to evaluate the impact the COVID-19 pandemic was having on the financial performance of the Company; and, except for an adjustment related to the Performance Material goodwill impairment charge in the first quarter of 2020, no other adjustments specific to the pandemic were made to any financial performance target metric or to the actual financial results that would impact the compensation of the NEOs.

​

The performance-based restricted stock awards (three-year) granted on December 8, 2017 with vesting tied to achievement of the required year-end 2020 threshold level of earnings per share from continuing operations did not vest since earnings per share, after approved adjustments, were ($3.36), compared to a threshold payout of  $3.20.

 

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At the request of the Compensation Committee, management conducted its annual assessment of the risk profile of the Company’s compensation programs in February 2021. As a result of this review, the Compensation Committee believes that the Company’s compensation policies do not encourage excessive and unnecessary risk-taking, and that the level of risk that these policies and practices do encourage is not reasonably likely to have a material adverse effect on the Company.

Compensation Objectives

Create Incentives that Motivate Performance

The key elements of executive compensation that depend on the Company’s financial and operating performance include:

•

annual cash incentive award payouts that are tied to achievement of financial performance targets, with opportunities for more compensation should actual results exceed targets; and

​

•

long-term incentive awards that are made in the form of  (i) performance-based stock awards, which are contingent upon the Company achieving specific financial targets; and (ii) stock options, which only have value if the stock price increases after the date of grant.

​

Align Management and Stockholder Interests

The Compensation Committee provides compensation and adopts policies designed to align the interests of executives with those of the stockholders. These include:

•

granting executives compensation opportunities in the form of equity awards, so that the actual compensatory value of an award is directly connected to the Company’s stock price;

​

•

making cash and equity awards contingent upon the Company achieving financial measures that correlate with long-term stockholder value such as income from operations, working capital and total shareholder returns compared to peers;

​

•

share retention guidelines that require executives to acquire and hold an amount of stock equal to a multiple of their annual base salaries;

​

•

provisions relating to the clawback or recoupment of compensation in equity-based compensation programs and in cash bonus plans; and

​

•

policies prohibiting the hedging and pledging of the Company’s stock.

​

Attract, Motivate and Retain Executives

The Committee strives to attract, motivate and retain executive officers by:

•

offering competitive base salaries;

​

•

tying annual cash bonuses to short-term performance goals;

​

•

linking PSAs to long-term performance goals relative to market and continued employment; and

​

•

granting stock options that require stock price appreciation to provide value and continued employment to vest.

​

Implementing Compensation Objectives

Overseeing Executive Compensation Programs

The Compensation Committee has been appointed by the Board to oversee matters relating to executive compensation. Reporting to the Board, the Committee has overall responsibility for the Company’s compensation and incentive plans and programs. The Committee may form, and delegate authority to, subcommittees when appropriate. If the Committee delegates any function to one or more members of the Committee for any purpose, those members shall report any action taken to the full Committee at its next meeting. For a more detailed description of the

 

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Committee’s responsibilities and its composition, please see the discussion under the heading “Corporate Governance — Committees” in this Proxy Statement.

Determining Compensation

The Compensation Committee determines and approves the Chief Executive Officer’s compensation and approves the compensation for each of the other NEOs based upon the recommendations of the Chief Executive Officer. From time-to-time, the Committee engages independent compensation consultants to provide market and competitive information to assist it in understanding the competitive landscape for all of the NEOs and in developing compensation programs for them.

In determining compensation for the NEOs for fiscal year 2020, including the grant of stock options and PSAs in February 2020, the Committee considered the following:

•

competitive pay practices (as informed by the Company’s experiences in recruiting new executive officers, and the Meridian analysis described below);

​

•

the executive’s individual performance, responsibilities, and experiences (as informed by the Board’s independent evaluations and by the input received from the CEO with respect to each of the other executive officers);

​

•

the Company’s performance and financial condition;

​

•

the results of the Say-on-Pay vote held at the annual meeting of stockholders; and

​

•

external market and economic conditions; however, no adjustments specific to the COVID-19 pandemic were made to any financial performance target metric or to the actual financial results that would impact the compensation of the NEOs.

​

In addition, the Committee reviews compensation data (which summarize current and historical compensation of each NEO) and an accumulated wealth analysis (which summarizes the long-term equity-based compensation accumulated by each NEO over the past five years). The Committee also evaluates each individual’s total compensation compared with other executives within the organization.

The Committee does not assign specific weights to any of these factors described above and, ultimately, the Committee’s compensation decisions are subjectively reached based on the Committee’s business judgment.

Periodically throughout the year, the Committee discusses the philosophy for overall compensation, reviews and discusses adequacy and appropriateness of the structure of compensation, considers whether to modify compensation and the relative mix of compensation elements and, on occasion, makes changes to compensation that it deems appropriate.

Role of Management

The Chief Executive Officer assists the Committee with respect to the compensation packages for the other NEOs. This assistance includes making recommendations regarding salary and incentive compensation levels based on management’s review of performance, achievement of goals and objectives, and competitive market information. Executive officers do not play a role in their own compensation determinations or that of others (except that the Chief Executive Officer is directly involved, with the support of senior leaders in the Human Resources Department, in the compensation determinations of other executive officers), except to discuss their own respective individual performance with the Chief Executive Officer. The final approval of compensation for the executive officers is performed in private session, with no executive officer (including the CEO) attending. No executive officer is involved in determining Director compensation.

Role of Consultants

The Committee considers information and advice obtained from compensation consultants in determining the compensation packages for the NEOs and all directors who are not employees of Lydall (the “Non-Employee Directors”). The Committee directly retained Semler Brossy Consulting Group LLC (“Semler Brossy”) in 2020, and Meridian Compensation Partners LLC (“Meridian”) in 2019 and years prior. The Committee has determined that no

 

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conflicts of interest exist between the Company, on the one hand, and Semler Brossy and Meridian, on the other hand, based on SEC Rule 10C-1(b)(4) and the corresponding NYSE independence factors regarding compensation advisor independence.

Starting in November 2020, the Committee commissioned and received an Executive Compensation Analysis report from Semler Brossy (the “2020 Analysis”). Among other factors, inputs from the 2020 Analysis were considered for setting NEO compensation for 2021. For the 2020 Analysis, Semler Brossy used data from proxy filings published by a group of 25 peer companies deemed comparable to Lydall from a competitive compensation standpoint, the 2020 Aon Hewitt TCM survey (“Aon Hewitt”) and the 2020 Willis Towers Watson General Industry Executive Compensation survey (“Willis Towers Watson”). The Aon Hewitt data used for the 2020 analysis was based on companies with revenue between $500 million and $2.5 billion. The Willis Towers Watson data was based on companies with revenue between $500 million and $3.0 billion for Corporate positions, and was regressed to reflect business units of Lydall’s size at the time for Business Unit positions.

The peer company group used by Semler Brossy in the 2020 Analysis consists of the following diversified group of industrial companies, which provided a broad view of compensation practices in the market.

In September 2018, the Committee commissioned and received an Executive Compensation Analysis report from Meridian (the “2018 Analysis”). Among other factors, the 2018 Analysis was considered for setting NEO compensation for 2019 and 2020. For the 2018 Analysis, Meridian used data from Aon Hewitt TCM survey and the Willis Towers Watson CDB General Industry Executive Compensation Survey (“Willis Towers Watson”) from the respective years. The Aon Hewitt data used for 2016 Analysis was based on companies with revenue between $200 million and $1.5 billion. The Aon Hewitt data used for 2018 analysis was based on companies with revenue between $500 million and $2.0 billion for Corporate positions and comparable revenue sizes for the Business Unit positions. The Willis Towers Watson data was regressed to reflect companies and business units of Lydall’s size at the time.

The 2020 Analysis and the 2018 Analysis described above were used by the Committee to supplement its general understanding of current compensation practices. The Committee uses its informed judgment in determining allocation between long-term and annual compensation, between cash and non-cash compensation, among different forms of non-cash compensation, or among different forms of long-term awards.

Elements of Compensation

As noted above, the 2020 compensation for the NEOs consisted of base salary, eligibility for an annual cash performance bonus under the AIP Program, long-term equity incentive awards and other compensation, including benefits and perquisites. Each element of compensation is explained below.

Base Salary

Adjustments were made to increase the base salaries of the NEOs for 2020 ranging from, initially 0.0% to 11.1%, with an in-year promotion-related aggregate annual adjustment of 30.8%, as shown in more detail in the table below. In making these adjustments, the Committee took into consideration the factors described above under “Determining Compensation.”

Except as otherwise noted, all adjustments to NEO base salaries were approved by the Committee at a regularly scheduled meeting of the Committee held on February 14, 2020 and were effective as of March 31, 2020.

 

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The base salaries of the NEOs and the percentage increases for 2020 were as follows:

(1)

Ms. Greenstein’s annual base salary was effective as of November 18, 2019.

​

(2)

Mr. Diwanji’s annual base salary was effective as of April 24, 2020, his start date.

​

(3)

Mr. Glenn’s annual 2020 base salary was increased by 9.7%, as part of his annual increase, and subsequently by an additional 19.2% effective as of September 30, 2020, as part of his interim and then final promotion.

​

(4)

Mr. Abbruzzi’s employment terminated on September 29, 2020.

​

 

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Annual Incentive Performance Program (“AIP Program”)

The Company’s AIP Program, determination of eligibility and amount of the cash performance bonus payable to each of the NEOs is described below:

 

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The Target Bonus Percentage, Target Bonus Amount, Combined AIP Bonus Payout Factor and Final AIP Payout amount for each of the NEOs for 2020 are shown in the following table:

(1)

Mr. Abbruzzi’s employment terminated on September 29, 2020.

​

The Performance Metrics selected by the Committee for 2020 and as defined in the AIP Program are:

The Performance Metric Targets, actual performance results and AIP Bonus Payout Factor for 2020, each on a consolidated basis, are shown in the following table:

(1)

All Performance Metric Targets and actual performance with respect to those targets are subject to adjustment by the Committee, in its discretion, if the Committee determines it is necessary or appropriate to adjust for the effects of extraordinary items, unusual or non-recurring events, changes in accounting principles, realized investment gains or losses, discontinued operations, acquisitions, divestitures, material restructuring or impairment charges and other similar items. Except for an adjustment related to the Performance Material goodwill impairment charge in the first quarter of 2020, no other adjustments specific to the COVID-19 pandemic were made to any Performance Metric or to the Actual Performance Results that would impact the AIP Bonus Payout Factor of the NEOs. The Company is not disclosing the targets for its business units because these targets represent confidential, commercially sensitive information. Of the eight (8) business unit and consolidated Performance Metric Targets established in the plan for 2020, five (5) were achieved above target, and three (3) were below threshold.

​

(2)

For Ms. Greenstein and Messrs. Gonzales and McDaniel (NEOs employed at corporate headquarters), 100% of the AIP Program bonus payout is based on consolidated Company performance. For the NEOs employed at the Business Units, Mr. Glenn (Thermal Acoustical Solutions) and Mr. Diwanji (Performance Materials), 80% of the AIP Program bonus payout is based on performance of their respective business units against selected Performance Metrics and the remaining 20% is based on consolidated Company performance.

​

 

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The 2020 AIP Performance Metrics, their relative weights and the performance and payout ranges, each on a consolidated basis, are shown in the following table:

(1)

There will not be any payout for performance below Threshold. Maximum payout is limited to 200% of Target. Payout is determined on a linear basis for performance achievement between Threshold and Target and then between Target and Maximum.

​

Long-Term Equity Incentive Awards

The Committee believes that executives and other employees who are in a position to make a substantial contribution to the long-term success of the Company and to build stockholder value should have a significant equity stake in the Company. The Company uses equity grants to focus on the retention of executive officers and to enhance the alignment of the interests of executive officers with the goals of improving Company profitability and advancing stockholder interests over the long term.

Grants Made as Part of 2020 Compensation

The Company awarded stock options and PSAs to the NEOs in February 2020 as part of their 2020 compensation. The Committee approved the following equity awards for the NEOs as part of their 2020 compensation package. The amounts of awards were subjectively determined by the Committee based on the factors described above under “Determining Compensation.”

•

Time-Based Stock Option Awards — The stock options vest in equal annual increments of twenty-five (25%) percent commencing on the first anniversary of the date of grant, assuming continued employment by the recipient on each of the vesting dates.

​

•

Performance-Based Restricted Stock Awards — The Committee approved the annual award of PSAs to the NEOs on February 13, 2020 (except for Ms. Greenstein, who received her annual award of PSAs in November 2019) that will vest upon certification by the Committee that the Company has achieved 3-year rTSR during the performance period from January 2020 through December 2022. The performance and payout range for the PSAs is shown below:

​

Company’s rTSR percentile rank vs. S&P 600 Industrials Index

To the extent the Company’s three-year rTSR percentile rank versus the S&P 600 Industrials Index is at or higher than the 25th percentile, the PSAs will vest immediately upon such certification by the Committee.

 

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The following table is a summary of the long-term incentive awards made to the NEOs on the dates indicated as part of their 2020 compensation:

​

(1)

The grant dates for the stock option awards were the following: (a) February 13, 2020, for those options granted to Messrs. Gonzales, McDaniel, Glenn and Abbruzzi; and (b) April 24, 2020 for those options granted to Mr. Diwanji. The exercise price of the stock option awards is equal to the fair market value of the Company’s stock on the date the options were granted.

​

(2)

The grant dates for the PSAs and RSAs were the following: (a) February 13, 2020, for those PSAs granted to Messrs. Gonzales, McDaniel, Glenn and Abbruzzi; and (b) April 24, 2020 for those PSAs and RSAs granted to Mr. Diwanji. The amounts in these columns represent the grant date fair value determined in accordance with FASB Accounting Standards Codification Topic 718, Compensation — Stock Compensation (ASC 718).

​

(3)

Ms. Greenstein received equity grants in November 2019 as part of her hiring; and such awards were intended to include her compensation for 2020 but was disclosed in the 2020 Proxy Statement as required by SEC rules.

​

(4)

Mr. Abbruzzi’s employment terminated on September 29, 2020.

​

The Company does not have a program, plan or practice to select equity grant dates in connection with the release of favorable or negative news. With respect to 2020 compensation, stock option grants were made and PSAs were awarded to the NEOs at a meeting of the Compensation Committee in February 2020 (except for Mr. Diwanji, who received grants and awards in connection with his start date in April 2020).

Payouts of Prior Awards

The 2020 earnings per share (“EPS”) target for the PSAs granted in 2017 was set at $4.00 by the Committee. On February 18, 2021, the Committee determined that the 2020 EPS performance was below the threshold level of  $3.20, as actual EPS, after approved adjusments, for 2020 was ($3.36). Accordingly, none of the PSAs awarded to the NEOs that were based on the 2020 EPS target vested.

Adjustment or Recovery of Awards

The Company has included provisions relating to the clawback or recoupment of compensation in several of its plans.

Awards under the Lydall, Inc. Amended and Restated 2012 Stock Incentive Plan (the “2012 Stock Plan”) are subject to the forfeiture and recoupment provisions of the 2012 Stock Plan, which provides that if the Plan Administrator (as defined in the 2012 Stock Plan) determines in good faith that a participant has engaged in fraudulent conduct relating to the Company, then such participant’s outstanding awards shall be forfeited and, with respect to the year in which such fraudulent conduct occurred, the participant will be required to reimburse the Company for the economic value that was realized by such participant that was based on or resulted from such fraudulent conduct. In addition, any award shall be subject to recoupment as required by the applicable provisions of any law (including the clawback provisions added by the Dodd-Frank Act), government regulation or stock exchange listing requirement (and any policy adopted by the Company pursuant to any such law, government regulation or stock exchange listing requirement).

The AIP Program provides that cash bonus payments are subject to recoupment if the Committee determines that a participating employee committed wrongdoing that contributed to a material misstatement, intentional or gross misconduct, a breach of a fiduciary duty to the Company or its stockholders, or fraud. In addition, at its discretion, the Committee may require a participating employee to disgorge and repay any bonus received based upon financial

 

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statements that are later restated, other than restatements due solely to facts external to the Company, such as a change in accounting principles or a retroactive change in law. Cash bonus payments also may be recouped in accordance with the applicable provisions of any law, regulation, stock exchange listing requirement or Company policy.

Other Compensation

Severance and Change in Control Agreements — Each of the NEOs have entered into agreements with the Company that provide for payment under specified conditions after a change in control of the Company or upon the executive’s termination under certain circumstances, as described under “Executive Compensation — Potential Payments Upon Termination or Change-In-Control.” In exchange for and immediately prior to the receipt of the termination benefits provided for under these agreements, the NEOs are required to execute and deliver a general release of all claims in favor of the Company. As a general practice, the Company enters into change of control agreements with key members of management to ensure that they are incentivized to act in the best interests of the Company’s stockholders in the event of a prospective or actual change in control and to enhance executive retention.

401(k) Defined Contribution Plan — The Company provides a tax-qualified defined contribution retirement plan to eligible non-union and union employees, including NEOs, in the form of a 401(k) savings plan. For non-union participants, the Lydall 401(k) Plan provides that the Company make a matching contribution based on participant salary deferrals to the 401(k) plan, subject to IRS limits. The compensation eligible for the matching contribution includes any cash bonuses, but excludes the value of any equity compensation. In 2020, the Company provided matching contributions to the 401(k) plan for the NEOs at the rates of 100% of the first 3% of salary deferral by a participant, plus 50% of the next 2% of salary deferral by a participant.

Health & Welfare Plans — The Company offers a health care plan that provides medical, dental, prescription drug, and vision coverage to its employees, including the NEOs. The Company also makes an annual employer contribution of  $500 (employee coverage) or $1,000 (family coverage), to the health savings account of employees enrolled in a high deductible health plan, including the NEOs. Fitness reimbursement up to $500 is also offered to all employees, including NEOs.

Perquisites — The Company primarily provides perquisites to NEOs for relocation expenses, tax gross-ups for relocation expenses, car allowances (including gas usage), and on occasion, tax assistance and other minimal expense reimbursements that are ancillary to a business purpose. Perquisites awarded to the NEOs in 2020 are disclosed in the “All Other Compensation” column of the Summary Compensation Table.

All NEOs are currently covered under or otherwise eligible to participate in an Executive Life Program and an Executive Disability Insurance Program. The programs provide for life insurance benefits at four times base salary for the Chief Executive Officer and three times base salary for the other NEOs, and annual executive disability proceeds at a target level of 100% of an NEOs base salary, in each case up to applicable insurance limits (including individual insurability). The full amount of the premiums paid by the Company for these benefits is reflected in the “All Other Compensation” column of the Summary Compensation Table below. If a NEO died or became disabled on December 31, 2020, the NEO would have been eligible for the benefits set forth in the table below:

(1)

The Company’s group Long-Term Disability program provides 60% replacement income to a monthly maximum of  $10,000 for all employees, including NEOs. The Executive Disability Insurance Program is designed to provide replacement income to bring a NEO up to 100% of base salary. Accordingly, amounts shown in this column reflect only the portion covered under the Executive Disability Insurance Program.

​

 

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Fiscal 2021 Executive Compensation Components

At the Company’s annual meeting of stockholders held in April 2020, 85% of the votes cast on the Say-on-Pay proposal were voted in favor of the proposal. The Compensation Committee believes this affirms stockholders’ support of the Company’s approach to executive compensation, and maintained this general approach in 2021. The Compensation Committee will continue to consider the annual vote results for the Company’s Say-on-Pay proposals when making future compensation decisions for the NEOs.

The 2021 compensation for the NEOs consists of elements explained in the “Overview — Executive Summary” section above. Compensation for 2021 was subjectively determined based on the factors described above under “Determining Compensation.”

Adjustments were made to increase the base salaries of the NEOs for 2021 ranging from 0.0% to 12.1% based on the factors discussed under the section “Determining Compensation” above. The 2021 base salaries of the NEOs, effective on or about March 30, 2021, are as follows:

The 2021 AIP Target Bonus Percentages of the NEOs are shown above. On February 21, 2021, the Compensation Committee modified the AIP Program for 2021 as follows:

•

Replaced Operating Income with adjusted EBITDA as one of the two performance metrics for 2021, and applied a seventy-five (75%) percent weight;

​

•

Retained Working Capital as a % of Sales as the other performance metrics for 2021, with a twenty-five (25%) percent weight; and

​

•

For the NEOs employed at the Business Units, modified the relative weighting of consolidated corporate metrics and business unit-level metrics from 20% consolidated / 80% business unit to 75% consolidated / 25% business unit, to emphasize the importance of consolidated performance and drive collaboration throughout the Company.

​

On February 21, 2021, the Compensation Committee approved the following equity awards for the NEOs as part of their 2021 compensation package. The amounts of awards were subjectively determined by the Committee based on the factors described above under “Determining Compensation”:

•

Time-Based Restricted Stock Awards (“RSAs”) — the RSAs vest in equal annual increments over a three year period commencing on the first anniversary of the date of grant, assuming continued employment by the recipient on each of the vesting dates; and

​

•

Performance-Based Restricted Stock Awards (“PSAs”) — the vesting of PSAs will be determined upon certification by the Committee that the Company has achieved (a) a specified level of 3-year rTSR during the performance period from January 2021 through December 2023; and (b) a prescribed average “Return on Invested Capital” ​(or “ROIC”). The performance and payout range for the 2021 PSAs is shown below:

​

 

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To the extent the Company’s rTSR percentile rank versus the S&P 600 Industrials Index is at or higher than the 25th percentile and/or the average ROIC over the performance period is at or higher than “threshold” ​(as prescribed by the Committee), the PSAs will proportionately vest immediately upon such certification by the Committee. The Average ROIC is determined by taking the average of each fiscal year within the performance period, of the Company’s after-tax Earnings Before Interest, Tax and Amortization (“EBITA”), divided by the Average Invested Capital, based on a predetermined effective tax rate and non-GAAP adjustments approved, from time-to-time, by the Company’s Audit Review Committee and such other adjustments as determined by the Compensation Committee.

The following is a summary of the equity awards that were granted to the NEOs on February 22, 2021 as part of their 2021 compensation:

 

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(1)

The amounts in these columns represent the grant date fair value determined in accordance with FASB ASC 718.

​

Stock Ownership; Prohibitions on Hedging and Pledging

The Board has developed and implemented stock ownership guidelines that cover Non-Employee Directors and certain senior executive officers, including the NEOs. The stock ownership guidelines are designed to link the personal financial interests of the covered individuals to the Company’s success and better align their interests with the interests of the Company’s stockholders.

The Stock Ownership guideline for the Non-Employee Directors and the NEOs are as follows:

The Company’s Corporate Governance Guidelines establish share ownership guidelines for Non-Employee Directors (the “Non-Employee Director Ownership Guidelines”). Under the Non-Employee Director Ownership Guidelines, each of the Company’s Non-Employee Directors should acquire and hold shares of the Company’s Common Stock having a fair market value (determined as set forth below) equal to the Minimum Stock Ownership Amount shown in the table above. For purposes of determining whether a Non-Employee Director’s stock ownership amount satisfies the applicable Minimum Stock Ownership Amount for such Non-Employee Director, the fair market value of the Company’s Common Stock shall be the average closing price of the Company’s Common Stock over the 365-day period, as reported by the New York Stock Exchange. The Minimum Stock Ownership Amount is recalibrated every three (3) years based on the then current annual stock retainer of the Non-Employee Directors and the average closing stock price of the Company’s Common Stock over the preceding 365-day period. The last recalibration was on January 1, 2020. The Minimum Stock Ownership Amount should be achieved within the later of: (i) five years from the date of the original adoption of the Guidelines (which was February 23, 2006); (ii) five years from the date a person is first elected a Non-Employee Director of the Company (unless a waiver is granted by the Compensation Committee) or, (iii) as to any increased stock ownership level resulting from an increase in the annual stock retainer, five years from the date of such increase. Currently, all of the Company’s Non-Employee Directors own or are on track to own, a sufficient number of the Company’s shares to meet the applicable Minimum Stock Ownership Amount established by the Non-Employee Director Ownership Guidelines.

Under the Company’s Stock Ownership Guidelines for Senior Executive Officers (the “Officer Ownership Guidelines”), the targeted stock ownership amount for each covered individual will be determined as of the later of January 1, 2014 or the date such individual first becomes subject to the Officer Ownership Guidelines (the “Date of Determination”) and will be based on the individual’s annual base salary in effect as of such date. For purposes of determining whether a covered individual’s stock ownership amount satisfied the Officer Ownership Guidelines, the fair market value of the Company’s Common Stock will be equal to the average closing price of the Company’s Common Stock over the 365-day period immediately preceding the Date of Determination. The deadline to achieve compliance with the Officer Ownership Guidelines is the later of December 31, 2014 or the date which is five (5) years after each individual was appointed to the executive officer position. The targeted stock ownership amount for each individual is recalibrated every three (3) years based on the then current base salary of each officer and the average closing price of the Company’s Common Stock over the preceding 365-day period. The last recalibration was on January 1, 2020. Once achieved, ownership of the applicable targeted amount of stock must be maintained for as long as an individual is covered by the Officer Ownership Guidelines. Currently, the Chief Executive Officer and the remaining NEOs own or are on track to own, a sufficient number of the Company’s shares to meet the applicable stock ownership levels established by the Officer Ownership Guidelines.

Qualifying ownership interests for purposes of the Officer Ownership Guidelines include:

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shares owned outright by the individual, or by members of his or her immediate family residing in the same household, whether held individually or jointly, including shares held in any qualified retirement accounts;

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•

shares held in trust for the benefit of the individual or his or her immediate family, or by a family limited partnership or other similar arrangement;

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•

RSAs (whether or not vested); and

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•

PSAs only to the extent that such shares are determined based upon certification by the Compensation Committee that the relevant performance objective has been satisfied.

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The Company’s Securities Law Compliance policy has long prohibited all employees, including the Executive Officers, and Directors from (a) engaging in hedging activities involving Lydall securities; and (b) entering into margin loans involving Lydall securities or otherwise pledging Lydall securities. None of the Company’s Directors or NEOs has any Lydall securities pledged or involved in margin loans, nor did they throughout all of 2020.

Tax Deductibility of Compensation

Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, generally disallows a tax deduction to public companies for compensation in excess of  $1 million paid in any one year to each of certain of the company’s current and former executive officers. Historically, compensation that qualified under Section 162(m) as performance-based compensation was exempt from the deduction limitation. The Compensation Committee reviews the potential effect of Section 162(m) periodically and uses its judgment to authorize compensation payments that may be subject to the limit when the Compensation Committee believes such payments are appropriate and in the best interests of the Company and its stockholders.

Compensation Committee Report on Executive Compensation

The Compensation Committee (the “Committee”) is composed of Independent Directors, as defined under applicable NYSE rules, Rule 16b-3 of the Exchange Act and Section 162(m) of the Code. The Committee was appointed by the Board and chartered to oversee and approve the compensation and incentive programs of Lydall executive officers and Directors and to review all other incentive programs of the Company. The Committee has reviewed and discussed the Compensation Discussion and Analysis with management and, based on such review and discussion, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

David G. Bills
Kathleen Burdett
Matthew T. Farrell
James J. Cannon
Suzanne Hammett, Chair

 

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(1)

Ms. Greenstein joined the Company as the President & Chief Executive Officer on November 18, 2019. Ms. Greenstein’s sign-on bonus in 2019 was paid out in two equal installments in December 2019 and January 2020.

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(2)

Mr. Gonzales joined the Company as the Chief Financial Officer on March 11, 2018.

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(3)

Mr. Diwanji joined the Company as the Senior Vice President, Innovation and Chief Technology Officer on April 24, 2020 and was appointed President, Performance Materials on June 5, 2020.

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(4)

Mr. Glenn was appointed President, Thermal Acoustical Solutions on an interim basis in September 2020 and permanently in December 2020.

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(5)

Includes (a) sign-on bonuses paid to Ms. Greenstein in 2019 and Mr. Gonzales in 2018, (b) a promotion-related and performance bonus payment of  $50,000 paid to Mr. Diwanji in light of his significant contributions, leadership and performance in 2020; and (c) a promotion-related bonus paid to Mr. Glenn in 2020.

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(6)

The amounts reflect the aggregate grant date fair value (at target level for PSAs) computed in accordance with FASB ASC Topic 718. Assumptions used in the calculation of these amounts are included in Note 13, Equity Compensation Plans, in the Notes to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

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(7)

Assumptions used in the calculation of these amounts are included in Note 13, Equity Compensation Plans, in the Notes to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

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(8)

The amounts in Column (g) reflect amounts payable under the Company’s AIP Program, which are in the form of an annual cash bonus. Please refer to the “Annual Incentive Performance Program” of the Compensation Discussion and Analysis for additional information related to the AIP Program.

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(9)

Except for Personal Gas Usage, which reflects the amount of imputed income to the NEO, and Relocation, which reflects the amount of taxes payable by the NEO on reimbursed relocation expenses, the amounts shown in Column (i) for 2020 are valued on the basis of the aggregate incremental cost to the Company, and are comprised of the following:

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