-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WMi1nTN0WIfLhqJXD5sH1OgHYJXxuWotTGSRe86ydib/B2zBbYkSxBhOMADgc8wl TEbmZf6mGM/qn8DcAYMfDA== 0000950152-98-001889.txt : 19980312 0000950152-98-001889.hdr.sgml : 19980312 ACCESSION NUMBER: 0000950152-98-001889 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980422 FILED AS OF DATE: 19980311 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHERWIN WILLIAMS CO CENTRAL INDEX KEY: 0000089800 STANDARD INDUSTRIAL CLASSIFICATION: PAINTS, VARNISHES, LACQUERS, ENAMELS & ALLIED PRODUCTS [2851] IRS NUMBER: 340526850 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 001-04851 FILM NUMBER: 98563572 BUSINESS ADDRESS: STREET 1: 101 PROSPECT AVE NW CITY: CLEVELAND STATE: OH ZIP: 44115 BUSINESS PHONE: 2165662200 DEF 14A 1 THE SHERWIN-WILLIAMS COMPANY--DEFINITIVE PROXY 1 ================================================================================ SCHEDULE 14A (RULE 14a) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
THE SHERWIN-WILLIAMS COMPANY (NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) STEPHEN J. PERISUTTI THE SHERWIN-WILLIAMS COMPANY 101 PROSPECT AVENUE, N.W. CLEVELAND, OHIO 44115 (216) 566-2543 (NAME OF PERSON(S) FILING PROXY STATEMENT) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: -------- (2) Aggregate number of securities to which transaction applies: ----------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): ------------- (4) Proposed maximum aggregate value of transaction: ----------------------- (5) Total fee paid: -------------------------------------------------------- [ ] Fee paid previously with preliminary materials. [ ] 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. (1) Amount Previously Paid: ------------------------------------------------ (2) Form, Schedule or Registration Statement No.: -------------------------- (3) Filing Party: ---------------------------------------------------------- (4) Date Filed: ------------------------------------------------------------ ================================================================================ 2 Sherwin-Williams Logo THE SHERWIN-WILLIAMS COMPANY ------------------ NOTICE OF ANNUAL MEETING OF SHAREHOLDERS To Be Held April 22, 1998 ------------------ The Annual Meeting of Shareholders of THE SHERWIN-WILLIAMS COMPANY will be held in the Auditorium, Room 927, Midland Building, 101 Prospect Avenue, N.W., Cleveland, Ohio on Wednesday, April 22, 1998 at 10:00 A.M., local time, for the following purposes: 1. To fix the number of Directors of the Company at eleven and to elect eleven Directors to hold office until the next Annual Meeting of Shareholders and until their successors are elected; and 2. To transact such other business as may properly come before the Annual Meeting. Holders of Common Stock of record at the close of business on March 2, 1998 are the only shareholders entitled to notice of and to vote at the Annual Meeting. L. E. STELLATO Secretary 101 Prospect Avenue, N.W. Cleveland, Ohio 44115-1075 March 11, 1998 YOU CAN HELP AVOID THE NECESSITY AND EXPENSE OF SENDING A FOLLOW-UP LETTER BY THE PROMPT COMPLETION AND RETURN OF THE ENCLOSED PROXY/VOTING INSTRUCTION CARD WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING OF SHAREHOLDERS. FOR YOUR CONVENIENCE, THERE IS ENCLOSED A SELF-ADDRESSED ENVELOPE REQUIRING NO POSTAGE IF MAILED IN THE UNITED STATES. 3 THE SHERWIN-WILLIAMS COMPANY 101 PROSPECT AVENUE, N.W. CLEVELAND, OHIO 44115-1075 PROXY STATEMENT March 11, 1998 PRELIMINARY The enclosed proxy is requested by the Board of Directors in connection with the Annual Meeting of Shareholders to be held April 22, 1998 for the purpose of considering and acting upon the matters specified in the foregoing Notice of Annual Meeting of Shareholders. The mailing date of this Proxy Statement is on or about March 11, 1998. The Board of Directors is not aware of matters other than those specified in the foregoing Notice of Annual Meeting of Shareholders that will be brought before the Annual Meeting for action. However, if any such matters should be brought before the Annual Meeting, it is intended that the persons appointed as proxies may vote or act thereon according to their judgment. References contained in this Proxy Statement to certain numbers and values of shares of the Company's Common Stock have been restated to reflect the effect of the two-for-one stock split distributed to shareholders on March 28, 1997. ANNUAL REPORT The Company's Annual Report to Shareholders for the year ended December 31, 1997 is enclosed with this Proxy Statement. Additional financial and other reports may be submitted at the Annual Meeting but it is not intended that any action will be taken with respect thereto. VOTING PROCEDURES Record holders of the Company's Common Stock at the close of business on the record date, March 2, 1998, may vote at the Annual Meeting. At the close of business on the record date, 173,368,144 shares of Common Stock were outstanding. The enclosed proxy/voting instruction card includes the number of shares which you are entitled to vote as a record holder. In addition, if you are a participant in the Company's Stock Ownership and Automatic Dividend Reinvestment Plan or the Company's Employee Stock Purchase and Savings Plan, the enclosed proxy/voting instruction card also serves as voting instructions for the number of shares which you are entitled to direct the vote under each Plan. If any of your accounts are not registered in the same manner, you may have received separate cards. Please sign, date and return all cards to ensure all your shares are voted. You may have all accounts registered in the same manner by contacting our transfer agent, The Bank of New York, at (800) 432-0140. Record holders are entitled to cast one vote for each share of Common Stock owned. The proposal to fix the number of Directors at eleven requires the affirmative vote of the holders of a majority of the shares represented at the Annual Meeting and entitled to vote on such proposal, with the nominees receiving the greatest number of votes being elected. All other proposals and other business as may properly come before the Annual Meeting require the affirmative vote of a majority of the votes cast, except as otherwise provided by statute or the Company's Amended Articles of Incorporation or Regulations. 1 4 Proxy cards marked as withholding authority or abstaining (including proxy cards containing broker non-votes) will be treated as present for purposes of determining a quorum for the Annual Meeting. Proxy cards marked as withholding authority will also be treated as represented and entitled to vote on any applicable proposal. With regard to the election of nominees for Director, shares not voted for a nominee (whether by a withheld vote, a broker non-vote or otherwise) will not be counted in such nominee's favor. You are urged to specify your vote by marking the appropriate boxes on your proxy/voting instruction card. If you properly sign, date and return your card, your shares will be voted in accordance with your instructions, if indicated. If you sign, date and return your card without specifying your vote, your shares will be voted in favor of fixing the number of Directors at eleven and electing the eleven nominees for Directors and in the proxy holder's discretion upon such other business as may properly come before the Annual Meeting. If you do not timely return a properly signed and dated card, the proxy holders cannot vote your shares (or, in the case the Employee Stock Purchase and Savings Plan, your shares will be voted in the same proportion as the trustee votes those shares for which it receives proper instructions). Any unallocated shares held in the Employee Stock Purchase and Savings Plan also will be voted by the trustee in the same proportion as the trustee votes those shares for which it receives proper instructions. You may revoke your proxy at any time before a vote is taken or the authority granted is exercised. To revoke your proxy, you may file a written revocation with the Company's Vice President, General Counsel and Secretary or you may sign a proxy bearing a later date. You may also revoke your proxy by voting in person at the Annual Meeting. ELECTION OF DIRECTORS (PROPOSAL 1) At the Annual Meeting, the number of Directors of the Company is to be fixed at eleven, and eleven Directors are to be elected to hold office until the next Annual Meeting of Shareholders and until their successors are elected. The nominees are listed below. Should any nominee decline or be unable to accept such nomination or be unable to serve as a Director, an event which management does not now expect, the Board of Directors reserves the right in its discretion to substitute another person as a nominee or to reduce the number of nominees. In such event, the proxy holders may vote in their discretion for any substitute nominee proposed by the Board of Directors unless you indicate otherwise. All of the nominees are currently Directors of the Company and were elected as Directors by the shareholders at the 1997 Annual Meeting. The following is information regarding each nominee at December 31, 1997: JAMES M. BIGGAR has served as Chairman and Chief Executive Officer of Glencairn Corporation (real estate development) since July 1991. Mr. Biggar is 69 years old and has served as a Director of the Company since July 1987. Mr. Biggar is also a Director of Bridgestreet Accomodations, Inc., Donley's Corporation, ESSEF Corporation and Norse Dairy Systems, and is a Trustee of The Cleveland Clinic Foundation and Kent State University. JOHN G. BREEN has served as Chairman and Chief Executive Officer of the Company since June 1986. Mr. Breen is 63 years old and has served as a Director of the Company since April 1979. Mr. Breen is also a Director of National City Corporation, Mead Corporation, Parker-Hannifin Corporation and The Goodyear Tire and Rubber Company. Mr. Breen is a Trustee of Catholic Charities Corporation, the Cleveland Opera, John Carroll University, the Musical Arts Association (The Cleveland Orchestra) and University Hospitals of Cleveland, and is a Member of the Visiting Committee of Case Western Reserve University School of Medicine. DUANE E. COLLINS has served as President and Chief Executive Officer of Parker-Hannifin Corporation (manufacturer of motion control products) since July 1993 prior to which he served as Vice Chairman of the Board of Directors of Parker-Hannifin commencing June 1992. Mr. Collins is 61 years old and has served as a Director of the Company since January 1996. Mr. Collins is also a 2 5 Director of Parker-Hannifin, National City Bank and the Greater Cleveland Growth Association, is a Trustee of the Cleveland YMCA and University Hospitals Health System (Cleveland), and is a Member of the Visiting Committee of Case Western Reserve University Weatherhead School of Management. THOMAS A. COMMES has served as President and Chief Operating Officer of the Company since June 1986. Mr. Commes is 55 years old and has served as a Director of the Company since April 1980. Mr. Commes is also a Director of KeyCorp, and is a Trustee of The Cleveland Clinic Foundation and Vocational Guidance Services (Cleveland). DANIEL E. EVANS has served as Chairman, Chief Executive Officer and Secretary of Bob Evans Farms, Inc. (food products and restaurants) since 1971. Mr. Evans is 61 years old and has served as a Director of the Company since April 1990. Mr. Evans is also a Director of Evans Enterprises, Inc., Motorists Mutual Insurance Company and National City Corporation. ROBERT W. MAHONEY has served as Chairman and Chief Executive Officer of Diebold, Incorporated (manufacturer of financial self-service transaction systems and security products) since April 1988. Mr. Mahoney also served as President of Diebold from July 1993 to November 1996. Mr. Mahoney is 61 years old and has served as a Director of the Company since January 1995. Mr. Mahoney is also a Director of The Timken Company, and is a Trustee of Mount Union College, Ohio Foundation of Independent Colleges, the Professional Football Hall of Fame and Canton (Ohio) Junior Achievement. Mr. Mahoney is a Member of the Stark (County, Ohio) Development Board and the Chamber of Commerce Leadership Canton (Ohio) Advisory Board. WILLIAM G. MITCHELL, prior to his retirement in May 1987, served as Vice Chairman of Centel Corporation (independent telephone and electric properties) since May 1986. Mr. Mitchell is 67 years old and has served as a Director of the Company since April 1979. Mr. Mitchell is also a Director of Interlake Corporation, The Northern Trust Company, Northern Trust Corporation and Peoples Energy Corporation. A. MALACHI MIXON, III has served as Chief Executive Officer of Invacare Corporation (manufacturer and distributor of home health care products) since January 1980 and has served as Chairman of Invacare since September 1983. Mr. Mixon also served as President of Invacare from January 1980 to November 1996. Mr. Mixon is 57 years old and has served as a Director of the Company since April 1993. Mr. Mixon is also a Director of The Lamson and Sessions Co. and NCS HealthCare, Inc., and is a Trustee of The Cleveland Clinic Foundation, Cleveland Institute of Music and Case Western Reserve University. CURTIS E. MOLL has served as Chairman and Chief Executive Officer of MTD Products, Inc. (manufacturer of outdoor power equipment and of tools, dies and stampings for the automotive industry) since October 1980. Mr. Moll is 58 years old and has served as a Director of the Company since January 1997. Mr. Moll is also a Director of The Standard Products Company, Shiloh Industries, Inc. and United Screw and Bolt Corporation, and is a Trustee of Baldwin-Wallace College. HELEN O. PETRAUSKAS has served as Vice President -- Environmental and Safety Engineering of Ford Motor Company (automobile manufacturing) since March 1983. Mrs. Petrauskas is 53 years old and has served as a Director of the Company since July 1993. Mrs. Petrauskas is also a Director of MCN Energy Group, Inc., and is a Member of the Board of Governors of Argonne National Laboratory, a Member of the Advisory Board -- Center for Risk Analysis, Harvard School of Public Health and a Member of the Board of Directors of the Wildlife Habitat Council. RICHARD K. SMUCKER has served as President of The J.M. Smucker Company (makers of food products) since January 1987. Mr. Smucker is 49 years old and has served as a Director of the Company since September 1991. Mr. Smucker is also a Director of The J.M. Smucker Company, International Multifoods Corporation and Wm. Wrigley Jr. Company, and is a Trustee of the Musical Arts Association (The Cleveland Orchestra). 3 6 COMPENSATION OF DIRECTORS Each Director who is not an employee of the Company receives an annual retainer of $30,000, earned and payable monthly. In addition, each such Director receives $1,750 for each meeting of the Board of Directors or Committee of the Board of Directors that he or she attends, or $2,000 for each meeting of a Committee of the Board of Directors that he or she chairs. Officers of the Company who also serve as Directors do not receive any compensation specifically for services as a member of the Board of Directors or any Committee. Directors are permitted to defer all or a portion of their fees under The Sherwin-Williams Company Director Deferred Fee Plan. Deferred fees may be invested in either a Common Stock account, a shadow stock account or an interest bearing cash account. In addition, Directors who are not employees of the Company may receive stock options and restricted stock under The Sherwin-Williams Company 1997 Stock Plan for Nonemployee Directors. This plan was approved by the shareholders at the 1997 Annual Meeting. During 1997, each nonemployee Director received a grant of 2,000 options at an exercise price equal to the fair market value of the Company's Common Stock on the date of grant. One third of the options become exercisable on each of the first, second and third anniversary dates of the date of grant. No shares of restricted stock were awarded to any nonemployee Director during 1997. CORPORATE OFFICERS OF THE COMPANY The following table sets forth the names and ages of the current Corporate Officers, the positions and offices with the Company held by them at February 28, 1998 and the date when each was first elected or appointed a Corporate Officer.
DATE WHEN FIRST ELECTED NAME AGE PRESENT POSITION OR APPOINTED ---- --- ---------------- ------------- John G. Breen 63 Chairman and Chief Executive Officer, January 1979 Director Thomas A. Commes 55 President and Chief Operating Officer, March 1979 Director Larry J. Pitorak 51 Senior Vice President -- Finance, Treasurer June 1978 and Chief Financial Officer John L. Ault 52 Vice President -- Corporate Controller January 1987 Cynthia D. Brogan 46 Vice President and Assistant Treasurer July 1996 Mark J. Dvoroznak 39 Vice President -- Corporate Audit & Loss September 1997 Prevention Jane L. Haag 43 Vice President -- Information Services March 1996 Thomas E. Hopkins 40 Vice President -- Human Resources August 1997 Conway G. Ivy 56 Vice President -- Corporate Planning and March 1979 Development James J. Sgambellone 40 Vice President -- Taxes and Assistant July 1991 Secretary Louis E. Stellato 47 Vice President, General Counsel and December 1989 Secretary Richard M. Weaver 43 Vice President -- Administration May 1996
The following is a brief account of each Corporate Officer's business experience with the Company during the last five years: Mr. Breen has served as Chairman and Chief Executive Officer since June 1986 and has served as a Director since April 1979. Mr. Commes has served as President and Chief Operating Officer since June 1986 and has served as a Director since April 1980. Mr. Pitorak has served as Senior Vice President -- Finance, Treasurer and Chief Financial Officer since April 1992. 4 7 Mr. Ault has served as Vice President -- Corporate Controller since January 1987. Ms. Brogan has served as Vice President and Assistant Treasurer since July 1996 prior to which she served as Director, Treasury Services commencing January 1990. Mr. Dvoroznak has served as Vice President -- Corporate Audit & Loss Prevention since September 1997 prior to which he served as Director of Accounting, Paint Stores Group commencing December 1991. Ms. Haag has served as Vice President -- Information Services since September 1996 prior to which she served as Vice President -- Corporate Audit & Loss Prevention commencing March 1996. From October 1994 to March 1996, Ms. Haag served as Corporate Director -- Internal Audit & Loss Prevention prior to which she served as Corporate Director -- Internal Audit commencing August 1988. Mr. Hopkins has served as Vice President -- Human Resources since August 1997 prior to which he served as Vice President -- Human Resources, Paint Stores Group commencing February 1996. From November 1989 to February 1996, Mr. Hopkins served as Director of Human Resources, Paint Stores Group. Mr. Ivy has served as Vice President -- Corporate Planning and Development since April 1992. Mr. Sgambellone has served as Vice President -- Taxes and Assistant Secretary since April 1996 prior to which he served as Assistant Secretary and Corporate Director of Taxes commencing July 1991. Mr. Stellato has served as Vice President, General Counsel and Secretary since July 1991. Mr. Weaver has served as Vice President -- Administration since May 1996 prior to which he served as President & General Manager of the Landmark Office Towers Division (Corporate Administration) commencing November 1989. There are no family relationships between any of the persons named. OPERATING MANAGERS OF THE COMPANY The following table sets forth the names and ages of the current Operating Managers, the positions and offices with the Company held by them at February 28, 1998 and the date when each was first appointed an Operating Manager.
DATE WHEN FIRST NAME AGE PRESENT POSITION APPOINTED ---- --- ---------------- --------- William P. Antonace 43 President & General Manager, January 1996 Transportation Services Division Christopher M. Connor 41 President, Paint Stores Group June 1986 Michael A. Galasso 50 President & General Manager, Automotive June 1997 Division Blair P. LaCour 51 President & General Manager, Mid Western October 1989 Division, Paint Stores Group Steven J. Oberfeld 45 President & General Manager, South Western September 1992 Division, Paint Stores Group James E. Renshaw 50 President & General Manager, Eastern June 1986 Division, Paint Stores Group Salvatore V. Sanzone 62 President & General Manager, South- April 1994 eastern Division, Paint Stores Group Joseph M. Scaminace 44 President & General Manager, May 1985 Coatings Division
5 8
DATE WHEN FIRST NAME AGE PRESENT POSITION APPOINTED ---- --- ---------------- --------- Richard M. Wilson 45 President & General Manager, Diversified June 1987 Brands Division
The following is a brief account of each Operating Manager's business experience with the Company during the last five years: Mr. Antonace has served as President & General Manager, Transportation Services Division since January 1996 prior to which he served as Vice President & Director -- Operations, Coatings Division commencing March 1993. From July 1992 to March 1993, Mr. Antonace served as Director -- Materials Management, Coatings Division. Mr. Connor has served as President, Paint Stores Group since August 1997 prior to which he served as President & General Manager, Diversified Brands Division commencing April 1994. From September 1992 to April 1994, Mr. Connor served as Senior Vice President -- Marketing, Paint Stores Group. Mr. Galasso has served as President & General Manager, Automotive Division since June 1997 prior to which he served as Vice President & Director -- Operations, Automotive Division commencing May 1992. Mr. LaCour has served as President & General Manager, Mid Western Division, Paint Stores Group since September 1992. Mr. Oberfeld has served as President & General Manager, South Western Division, Paint Stores Group since September 1992. Mr. Renshaw has served as President & General Manager, Eastern Division, Paint Stores Group since June 1986. Mr. Sanzone has served as President & General Manager, Southeastern Division, Paint Stores Group since April 1994 prior to which he served as Vice President of Sales, Eastern Division, Paint Stores Group commencing August 1990. Mr. Scaminace has served as President & General Manager, Coatings Division since June 1997 prior to which he served as President & General Manager, Automotive Division commencing April 1994. From September 1985 to April 1994, Mr. Scaminace served as President & General Manager, Diversified Brands Division. Mr. Wilson has served as President & General Manager, Diversified Brands Division since August 1997 prior to which he served as Senior Vice President -- Marketing, Paint Stores Group commencing April 1994. From June 1987 to April 1994, Mr. Wilson served as President & General Manager, Southeastern Division, Paint Stores Group. There are no family relationships between any of the persons named. 6 9 COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE REPORT ON EXECUTIVE COMPENSATION Management Compensation Program. The Company's Management Compensation Program ("Program") is administered by the Compensation and Management Development Committee ("Committee") of the Board of Directors. The Committee is composed of five outside Directors and reports to the Board of Directors on all compensation matters regarding certain members of the Company's management, including the Executive Officers. The Executive Officers are identified in the Company's 1997 Annual Report to Shareholders. The Program is designed to enable the Company to attract, motivate and retain key executives and to establish and maintain a performance and achievement-oriented environment. The Program provides for (a) competitive base salary levels which reflect, in part, individual performance, (b) additional annual incentive compensation based on the achievement of financial and other performance goals, and (c) long-term stock-based incentive opportunities. The Program consists of both cash and equity-based compensation. The annual base salary, annual incentive opportunities and long-term incentive opportunities are intended to be competitive with market base salary and incentive compensation opportunities. The Committee utilizes data from various commercially available executive compensation surveys in order to identify, on an annual basis, the base salary and incentive opportunities available at manufacturing companies with comparable sales. The Committee believes that these companies are likely competitors of the Company for executive talent. These companies may include some of the companies comprising the peer group identified in the performance graphs if such companies participated in one or more of the compensation surveys. For the various components of compensation, the Committee uses the median compensation paid to executive officers holding equivalent positions or having similar responsibilities in manufacturing companies with comparable sales. The amount of compensation paid to the Executive Officers is not based upon the cumulative total return on the Company's Common Stock as reflected in either of the performance graphs. Base Salary. Annual cash compensation consists, in part, of a base salary. With regard to base salary, a salary range for each Executive Officer is approved on the basis of such person's position and level of responsibility by using the compensation surveys, with the median market base salary approximating the midpoint of the range. Once a range is formulated, salary levels are based upon the Executive Officer's performance and, to a lesser extent, tenure in the particular position. With regard to performance, the Executive Officer's performance for the prior year is reviewed based on performance criteria (both quantitative and qualitative) which vary by Executive Officer and which usually relate to the particular business unit or function for which such person has responsibility. The base salary of each Executive Officer is reviewed and approved annually. Annual Incentive Compensation. Annual cash compensation also consists of the opportunity to earn additional compensation under The Sherwin-Williams Company Management Incentive Plan ("Incentive Plan"). All of the Executive Officers participate in the Incentive Plan. In approving the amount of annual incentive compensation to be paid to any of the Executive Officers under the Incentive Plan, great emphasis is placed on establishing incentive opportunities which are directly linked with Company performance and the maximization of shareholder value. The Committee establishes a threshold goal of increased Company earnings, and 75% of this earnings increase must be met before incentive compensation is paid to the Executive Officers, subject to the Committee's discretion to make adjustments for non-recurring or unusual items or to award individual performance. Accordingly, this earnings goal requires that the Company improve its earnings performance before incentive compensation is paid (except as provided in the foregoing sentence). During the fiscal year ended December 31, 1997, the Company's earnings exceeded the earnings goal established for 1997. Annual incentive compensation awarded to an Executive Officer is also determined by using the median incentive compensation (identified from the compensation surveys), which is generally equivalent to the amount an Executive Officer could receive under the Incentive Plan if 100% of all of the Company and individual goals are attained. Under the Incentive Plan, annual bonus awards for the 7 10 Executive Officers range from zero, if less than 75% of the stated goals are reached, to between 35% and 60% of the Executive Officer's base salary (depending upon the Executive Officer's position) if 100% of the stated goals are attained. In the event the Company and an Executive Officer exceed 100% of the stated goals, incentive compensation can be awarded up to an aggregate maximum amount of 60% to 95% of the Executive Officer's base salary (depending upon position). Consequently, incentive compensation paid to an Executive Officer in any year may exceed the median incentive compensation determined by the compensation surveys. Decisions on annual incentive compensation awarded to an Executive Officer are based upon financial performance goals, such as after-tax net income and the return on stockholders' equity, for each Incentive Plan year, and the accomplishment by the Executive Officer of individual performance goals (both quantitative and qualitative), which vary by Executive Officer and which usually relate to the particular business unit or function for which such person has responsibility. The financial performance goals are generally weighted more heavily. Long-term Incentive Compensation. Long-term incentive compensation may be awarded to any one or all of the Executive Officers under The Sherwin-Williams Company 1994 Stock Plan ("1994 Stock Plan"). All of the Executive Officers participate in the 1994 Stock Plan. Under the 1994 Stock Plan, the Committee may grant stock options to the Executive Officers based on competitive market practices. Competitive market practices are determined by the various compensation surveys mentioned above, and the Committee grants stock options based upon the median market value of the underlying stock relating to stock options that comparable companies have been granting to their executive officers. The specific number of stock options granted to an Executive Officer is based upon the Executive Officer's position and level of responsibility. In addition, during 1997 the Committee granted a greater number of stock options to certain Executive Officers as compared to grants during prior years in part to provide such Executive Officers with additional incentive to successfully integrate the Company's various acquisitions that it has completed over the past few years. The option exercise price is equal to the fair market value of the Company's Common Stock on the date options are granted. Stock options granted typically vest at the rate of one-third per year for three years (beginning one year from the date of grant) and expire ten years from the date of grant. Awards of restricted stock under the 1994 Stock Plan, which are subject to a "substantial risk of forfeiture", may be granted to the Executive Officers. The granting of restricted stock is determined in the same manner that the granting of stock options is determined. If granted, restricted stock is issued with certain performance and time restrictions. The number of shares of restricted stock which may actually vest at the end of the restriction period is dependent upon the Company's relative return on average shareholder equity versus a group of peer companies. With regard to outstanding shares of restricted stock granted prior to December 31, 1996, the companies that comprise this group of peer companies are the same companies that comprise the peer group identified in the performance graphs (except for one company for which sufficient financial data is not available to calculate cumulative total return). For shares of restricted stock granted after December 31, 1996, the restricted stock peer group also does not include three companies which have been acquired by other companies and one company which has filed for bankruptcy. Depending on the Company's performance at the end of the restriction period, from 0% to 100% of the restricted stock may vest. The restriction period is typically four years from the date of grant of the restricted stock. The amount of outstanding stock options and shares of restricted stock generally is not considered by the Committee in making awards of stock options and restricted stock. Chief Executive Officer's Compensation. The Committee determined Mr. Breen's compensation for the fiscal year ended December 31, 1997 based on a number of factors and criteria. Mr. Breen's base salary range was determined using the median base salary of chief executive officers for manufacturing companies having comparable sales as the Company. Mr. Breen's base salary within his range was established based upon a review by the Committee of Mr. Breen's 1996 performance (which was measured, in part, by the Company's 1996 performance) and his tenure with the Company. For 1997, the average salary increase given generally to salaried employees of the Company was 4.0%, and the range of potential increases was 0% to 8.5%. Mr. Breen received a base salary increase of 8.0% in January 1997, bringing his base salary to $891,020. Mr. Breen's increase was based primarily upon the Committee's 8 11 evaluation of Mr. Breen's 1996 performance relating to the financial and other performance measures set forth in the next paragraph and his tenure with the Company. In addition, in 1997 Mr. Breen earned a bonus of $740,000 as annual incentive compensation under the Incentive Plan. The amount of this bonus was based primarily upon the Company's achievement of 1997 financial performance goals relating to after-tax net income, return on stockholders' equity, return on sales, cash flow, working capital as a percent of sales and post-acquisition operating results relating to the Company's acquisitions of Pratt & Lambert United, Inc. and Thompson Minwax Holding Corp. Mr. Breen's achievement of certain other 1997 goals relating to management succession planning and acquisition strategies were also factors, but were weighted less heavily. In January 1997, Mr. Breen was awarded 150,000 stock options and 40,000 shares of restricted stock under the 1994 Stock Plan. In determining the number of stock options and shares of restricted stock awarded to Mr. Breen, the Committee also identified the median market value of the underlying shares relating to stock options and of shares of restricted stock which comparable companies granted to their chief executive officers. In addition, during 1997 the Committee granted a greater number of stock options to certain Executive Officers, including Mr. Breen, as compared to grants during prior years in part to provide such Executive Officers with additional incentive to successfully integrate the Company's various acquisitions that it has completed over the past few years. The amount of outstanding stock options and shares of restricted stock generally is not considered by the Committee in making awards of stock options and restricted stock. Policy on Deductibility of Compensation. Section 162(m) of the Internal Revenue Code generally provides that certain compensation in excess of $1 million per year paid to a company's chief executive officer and any of its four other highest paid executive officers is not deductible to a company unless the compensation qualifies for an exception. This deduction limit generally applies only to compensation that could otherwise be deducted by a company in a taxable year. For 1997, the Committee does not expect that Section 162(m) will limit the Company's deductibility of compensation paid to any of such executive officers. Section 162(m) provides an exception to the deductibility limit for performance-based compensation if certain procedural requirements, including shareholder approval of the material terms of the performance goal, are satisfied. The Committee believes that grants of options, stock appreciation rights and restricted stock under the 1994 Stock Plan qualify for full deductibility under Section 162(m). Compensation paid under the Incentive Plan does not qualify for the exemption for performance-based compensation. At this time, based upon the Company's current compensation structure, the Committee believes it is in the best interests of the Company and its shareholders for the Committee to retain flexibility in awarding incentive compensation under the Incentive Plan which does not qualify for the exemption for performance-based compensation. The Committee will continue to review and evaluate, as necessary, the impact of Section 162(m) on the Company's compensation programs. COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE W.G. Mitchell, Chairman J.M. Biggar D.E. Collins R.W. Mahoney A.M. Mixon, III 9 12 PERFORMANCE GRAPHS The following graphs compare the cumulative total shareholder return on the Company's Common Stock with the cumulative total return of the companies listed on the Standard & Poor's 500 Stock Index and a peer group of companies selected on a line-of-business basis. The "Peer Group" is comprised of the following companies: Akzo Nobel nv, Armstrong World Industries, Inc., BASF Corporation, Ferro Corporation, H.B. Fuller Company, Genuine Parts Company, Grow Group, Inc.*, Guardsman Products, Inc.*, Hechinger Company, The Home Depot, Inc., Imperial Chemicals Industries PLC, Lilly Industries, Inc., Lowe's Companies, Inc., Masco Corporation, Morton International, Inc., Newell Co., PPG Industries, Inc., Pratt & Lambert United, Inc.*, RPM, Inc., Standard Brands Paint Company*, The Stanley Works, USG Corporation and The Valspar Corporation. An asterisk indicates that the company is included in the performance graphs through the last day it was publicly traded. COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG THE SHERWIN-WILLIAMS COMPANY, S&P 500 INDEX AND THE PEER GROUP
MEASUREMENT PERIOD SHERWIN- (FISCAL YEAR COVERED) WILLIAMS S&P 500 PEER GROUP 1992 $100 $100 $100 1993 119 110 120 1994 113 112 123 1995 140 153 139 1996 195 189 171 1997 196 252 239
Assumes $100 invested on December 31, 1992 in the Common Stock of The Sherwin-Williams Company, S&P 500 Index and the Peer Group, including reinvestment of dividends, through the fiscal year ended December 31, 1997. 10 13 COMPARISON OF TEN YEAR CUMULATIVE TOTAL RETURN AMONG THE SHERWIN-WILLIAMS COMPANY, S&P 500 INDEX AND THE PEER GROUP
MEASUREMENT PERIOD SHERWIN- (FISCAL YEAR COVERED) WILLIAMS S&P 500 PEER GROUP 1987 $100 $100 $100 1988 107 117 111 1989 148 154 125 1990 164 149 115 1991 239 194 172 1992 278 209 191 1993 330 230 228 1994 313 233 235 1995 389 321 264 1996 543 394 326 1997 546 526 456
Assumes $100 invested on December 31, 1987 in the Common Stock of The Sherwin-Williams Company, S&P 500 Index and the Peer Group, including reinvestment of dividends, through the fiscal year ended December 31, 1997. 11 14 SUMMARY COMPENSATION TABLE
LONG TERM ANNUAL COMPENSATION COMPENSATION AWARDS ----------------------------- ----------------------- RESTRICTED SECURITIES STOCK UNDERLYING ALL OTHER NAME AND AWARD(S) OPTIONS/ COMPEN- PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)(1,2) SARS (#) SATION($)(3) ------------------ ---- ---------- --------- ---------- ---------- ------------ J. G. Breen 1997 905,616 740,000 1,107,500 150,000 294,399 Chairman and Chief 1996 825,006 715,000 -0- 74,000 262,573 Executive Officer 1995 793,052 585,000 667,500 88,000 134,701 T. A. Commes 1997 578,158 490,000 609,125 100,000 177,991 President and Chief 1996 536,000 480,000 -0- 38,000 179,505 Operating Officer 1995 514,900 390,000 367,125 46,000 131,732 L. J. Pitorak 1997 319,764 260,000 276,875 50,000 74,309 Senior Vice President 1996 287,852 255,000 -0- 20,000 70,750 -- Finance, Treasurer 1995 272,840 210,000 166,875 22,000 63,818 and Chief Financial Officer J. M. Scaminace 1997 299,480 235,000 276,875 50,000 73,065 President & General 1996 251,340 228,000 -0- 14,000 74,204 Manager, Coatings Division 1995 242,163 115,000 166,875 16,000 54,453 C. M. Connor 1997 274,085 250,000 276,875 50,000 66,566 President, Paint Stores 1996 236,100 205,000 -0- 14,000 68,218 Group 1995 224,480 105,000 166,875 16,000 49,418
- --------------- (1) The value of restricted stock indicated in the table is equal to the number of shares of restricted stock multiplied by the closing price of the Company's Common Stock on the date of grant. At December 31, 1997, the number and value of shares of restricted stock held by Messrs. Breen, Commes, Pitorak, Scaminace and Connor are 80,000 shares with a value of $2,220,000, 44,000 shares with a value of $1,221,000, 20,000 shares with a value of $555,000, 20,000 shares with a value of $555,000 and 20,000 shares with a value of $555,000, respectively. The values indicated are not necessarily indicative of the actual values which may be realized by the named Executive Officers. (2) Dividends are paid on all restricted stock at the same rate as paid on the Company's Common Stock. (3) The amounts disclosed in this column for 1997 include: (a) Company contributions in the amount of $7,500 for each of Messrs. Commes, Pitorak, Scaminace and Connor under the Company's Pension Investment Plan, a defined contribution plan (Mr. Breen does not participate in such plan); (b) Company contributions in the amounts of $38,800, $17,393, $10,817 and $9,555 for Messrs. Commes, Pitorak, Scaminace and Connor, respectively, under the Company's Pension Investment Plan Equalization Program, a defined contribution plan (Mr. Breen does not participate in such plan); (c) Company contributions in the amount of $7,040 for each of Messrs. Breen, Commes, Pitorak, Scaminace and Connor under the Company's Employee Stock Purchase and Savings Plan, a defined contribution plan; (d) Company contributions in the amounts of $112,850, $71,480, $17,883, $27,834 and $25,009 for Messrs. Breen, Commes, Pitorak, Scaminace and Connor, respectively, under the Company's Deferred Compensation Savings Plan, a defined contribution plan; (e) the dollar value of compensatory split-dollar life insurance benefits in the amounts of $88,673, $49,928, $21,962, $17,807 and $15,649 for Messrs. Breen, Commes, Pitorak, Scaminace and Connor, respectively, under the Company's Executive Life Insurance Plan; (f) the dollar value of additional compensatory split-dollar life insurance benefits in the amount of $82,135 for Mr. Breen (such policy was purchased by the Company in 1996 and replaces Mr. Breen's benefits accruing under the Company's Retirement Equalization Program after January 1, 1996; see "Pension Plan"); and (g) payments by the Company in the amounts of $3,701, $3,243, $2,531, $2,067 and $1,813 for Messrs. Breen, Commes, Pitorak, Scaminace and Connor, respectively, related to premiums under the Company's Executive Disability Income Plan. 12 15 OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS -------------------------------------------------- PERCENT OF NUMBER OF TOTAL SECURITIES OPTIONS/ POTENTIAL REALIZABLE VALUE UNDERLYING SARS AT ASSUMED ANNUAL RATES OPTIONS/ GRANTED TO OF STOCK PRICE APPRECIATION SARS EMPLOYEES EXERCISE OR FOR OPTION TERM(4) GRANTED IN FISCAL BASE PRICE EXPIRATION ---------------------------- (#)(1,2) YEAR ($/SH)(3) DATE 5% ($) 10% ($) NAME ---------- ---------- ----------- ---------- ------------- ------------- ---- J. G. Breen 150,000 8.6780 27.75 1/28/07 2,617,774 6,633,953 T. A. Commes 100,000 5.7854 27.75 1/28/07 1,745,183 4,422,635 L. J. Pitorak 50,000 2.8927 27.75 1/28/07 872,591 2,211,318 J. M. Scaminace 24,000 1.3885 27.75 1/28/07 418,844 1,061,432 26,000 1.5042 32.2813 7/15/07 527,840 1,337,650 C. M. Connor 24,000 1.3885 27.75 1/28/07 418,844 1,061,432 26,000 1.5042 28.3438 10/16/07 463,457 1,174,491 Value realizable for all shareholders(5) N/A N/A N/A N/A 3,004,305,646 7,613,500,376 Value realizable for the named Executive Officers as a % of value realizable for all shareholders N/A N/A N/A N/A 0.235% 0.235%
- --------------- (1) Generally, one-third of the options granted are exercisable on each of the first, second and third anniversary dates of the grant. (2) All options granted become immediately exercisable, in full, upon (a) a filing pursuant to any federal or state law in connection with any tender offer for shares of the Company's Common Stock (other than a tender offer by the Company), or (b) the signing of any agreement for the merger of the Company into, or the Company's consolidation with, another corporation or for the sale of substantially all of the assets of the Company to another corporation; which tender offer, merger, consolidation or sale, if consummated, would, in the opinion of the Board of Directors of the Company, likely result in a change in control of the Company. In the event any such tender offer, merger, consolidation or sale is abandoned or, in the opinion of the Board of Directors, is not likely to be consummated, the Board of Directors may nullify the effect of the immediately preceding sentence and reinstate the provisions providing for accrual in installments, without prejudice to any exercise of options that may have occurred prior to such nullification. (3) The exercise price is equal to the fair market value of the Company's Common Stock on the date of grant. (4) The amounts disclosed in these columns, which reflect appreciation of the Company's Common Stock price at 5% and 10% annual rates over the ten year terms of the options as requested by the Securities and Exchange Commission, are not intended to be a forecast of the Company's Common Stock price and are not necessarily indicative of the actual values which may be realized by the named Executive Officers or the shareholders. These assumed rates of 5% and 10% would result in the Company's Common Stock price increasing from $27.75 per share to approximately $45.20 per share and $71.98 per share, respectively. (5) The amounts disclosed reflect appreciation of the Company's Common Stock price at 5% and 10% annual rates over a ten year period for all shareholders of the Company based on the total number of shares of Common Stock outstanding on January 29, 1997 (the date on which most of the options set forth in this table were granted) and assuming a per share price of $27.75 (the exercise price of such options). 13 16 AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE- SHARES UNDERLYING UNEXERCISED MONEY OPTIONS/SARS AT FY- ACQUIRED ON OPTIONS/SARS AT FY-END (#) END ($)(2) EXERCISE VALUE --------------------------- ----------------------------- NAME (#) REALIZED ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- --------------- ----------- ------------- ------------ -------------- J. G. Breen 75,334 976,072 -0- 228,668 -0- 656,883 T. A. Commes -0- -0- 40,000 140,668 384,960 340,322 L. J. Pitorak 20,000 246,649 -0- 70,668 -0- 170,948 J. M. Scaminace 39,600 921,674 50,732 64,668 575,225 121,886 C. M. Connor 10,000 165,000 29,332 64,668 303,175 121,886
- --------------- (1) The value realized on the exercise of options is based on the difference between the exercise price and the fair market value of the Company's Common Stock on the date of exercise. (2) The value of unexercised in-the-money options is based on the difference between the exercise price and the fair market value of the Company's Common Stock on December 31, 1997. PENSION PLAN The Sherwin-Williams Company Salaried Employees' Retirement Plan ("Pension Plan") provides pension benefits for certain salaried employees hired on or before December 31, 1983. The Pension Plan requires five years of service for a participant to become fully vested if the participant has at least one hour of service on or after January 1, 1989 and ten years of service for all other participants. A participant may also become fully vested in the event the participant's employment is terminated (in specified situations) after a Change in Control (as defined in the Pension Plan) of the Company. Normal monthly pensions equal one-twelfth of one percent of the Average Annual Earnings (as defined in the Pension Plan) times the number of years of credited service up to a maximum of forty years, less an offset of $42.50 (or such lesser amount as may be required under the Internal Revenue Code). At December 31, 1997, the maximum annual benefit under the provisions of the Pension Plan is $130,000 due to limitations imposed by ERISA and the Internal Revenue Code. Mr. Breen is the only Executive Officer named in the Summary Compensation Table who participates in the Pension Plan and he is fully vested. The Company has established a Retirement Equalization Program to provide eligible employees with the benefits they would have received under the Pension Plan but for the maximum limitations imposed by ERISA and the Internal Revenue Code. The Retirement Equalization Program authorizes the Company, at its discretion, to enter into appropriate agreements with employees who are, or may become, eligible to participate. The benefits under the Retirement Equalization Program will be paid either from one or more grantor trusts established by the Company and funded from the Company's general funds or by the Company directly from the Company's general funds. Mr. Breen also participates in the Retirement Equalization Program. The following table sets forth the estimated aggregate annual normal benefits payable under the Pension Plan and the Retirement Equalization Program commencing at age 65 in the form of a single life annuity. 14 17 PENSION PLAN TABLE
YEARS OF SERVICE ---------------------------------- REMUNERATION 15 20 25 30 - ------------ ------- ------- ------- ------- 1,000,000 149,490 199,490 249,490 299,490 1,100,000 164,490 219,490 274,490 329,490 1,200,000 179,490 239,490 299,490 359,490 1,300,000 194,490 259,490 324,490 389,490 1,400,000 209,490 279,490 349,490 419,490 1,500,000 224,490 299,490 374,490 449,490 1,600,000 239,490 319,490 399,490 479,490 1,700,000 254,490 339,490 424,490 509,490 1,800,000 269,490 359,490 449,490 539,490
Pensions are based upon average annual earnings (salary and bonus) for the highest five consecutive years out of the last ten years of employment with the Company. For Mr. Breen this average amount equaled $1,446,072 at December 31, 1997. Mr. Breen was credited with nineteen years of service under the Pension Plan at December 31, 1997. Pensions may be adjusted for a surviving spouse's pension or other options under the Pension Plan. Pensions are not subject to any other deduction for social security or any other offset amounts. In addition, pursuant to a provision of Mr. Breen's employment contract, the Company will pay to Mr. Breen, upon retirement, supplemental pension benefits so that his total pension benefits will not be less than the amount of benefits he would have received under the Gould Inc. Salaried Retirement Plan if Mr. Breen had continued to be employed by Gould Inc. (Mr. Breen's previous employer) until his retirement and had received compensation in the amount and form paid to him by the Company. The following table sets forth the estimated aggregate annual supplemental benefits payable to Mr. Breen, under this provision of his employment contract, commencing at age 65 in the form of a single life annuity. The total amount of benefits payable to Mr. Breen will be equal to the amount determined in accordance with the Pension Plan Table set forth above, plus the amount determined in accordance with the table set forth below, minus $48,722 (which is the value of the benefits waived by Mr. Breen as described below).
YEARS OF SERVICE ---------------------------------- REMUNERATION 15 20 25 30 - ------------ ------- ------- ------- ------- $1,000,000 278,987 228,987 178,987 128,987 1,100,000 308,987 253,987 198,987 143,987 1,200,000 338,987 278,987 218,987 158,987 1,300,000 368,987 303,987 238,987 173,987 1,400,000 398,987 328,987 258,987 188,987 1,500,000 428,987 353,987 278,987 203,987 1,600,000 458,987 378,987 298,987 218,987 1,700,000 488,987 403,987 318,987 233,987 1,800,000 518,987 428,987 338,987 248,987
These supplemental pension benefits are based upon the average annual salary and bonus paid to Mr. Breen for the highest five years out of the last fifteen years of employment with the Company. For Mr. Breen, this average amount equaled $1,446,072 at December 31, 1997. Mr. Breen was credited with nineteen years of service at December 31, 1997 for purposes of determining these supplemental pension benefits. These benefits reflect the applicable deduction for social security. In connection with the Company's purchase of an additional split-dollar life insurance policy for Mr. Breen in 1996 (as mentioned in Footnote 3 of the Summary Compensation Table), Mr. Breen agreed to waive all future benefits accruing under the Retirement Equalization Program after January 1, 1996. 15 18 At December 31, 1997, the value of such benefits (valued in the form of a single life annuity) was $48,722. EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS Employment Contracts. Messrs. Breen and Commes have employment contracts with the Company. In addition to their basic compensation, incentive compensation, and participation in the employee benefit plans and the 1994 Stock Plan, each is entitled to receive, in the event the Company terminates his employment for any reason, except in the event termination is the result of a change of control of the Company, an amount equal to one and one-half times his annual salary and any bonus paid or payable to him for the preceding year. In the event the termination of employment is the result of a change of control of the Company, Mr. Breen is entitled to receive, at the time of his termination of employment, a cash amount equal to two times his annual assured compensation, and Mr. Commes is entitled to receive a cash amount equal to his annual assured compensation. Annual assured compensation is defined as the sum of (i) twenty-six times the executive's highest regular bi-weekly salary in effect within the three year period preceding termination, plus (ii) the greater of the highest bonus paid or payable within the three year period preceding termination or the bonus such executive would have received for the year of termination had the executive reached 100% of any stated goals (as explained in the Compensation and Management Development Committee Report on Executive Compensation). Assuming a termination date of February 28, 1998 as a result of a change of control, the cash amounts payable under such contracts would have been approximately $3,404,604 and $1,064,990 for Messrs. Breen and Commes, respectively. Amounts received under the employment contracts due to a termination of employment resulting from a change of control of the Company will be offset against the amounts payable under the severance pay agreements described below. Severance Pay Agreements. To ensure continuity and the continued dedication of key executives during any period of uncertainty caused by the possible threat of a takeover, the Company has entered into severance pay agreements with certain key executives, including each of the Executive Officers named in the Summary Compensation Table. In the event there is a Change of Control (as that term is defined in the agreements) of the Company and the employment of the executive terminates under certain conditions described in the agreements at any time during the two year period following a Change of Control, the executive will receive an agreed upon amount of severance pay. In the event the executive has an employment contract with the Company providing for the payment of severance pay at the time of termination of employment, the amounts payable under such employment contract will be offset against amounts payable under the severance pay agreement. For Messrs. Breen and Commes, the severance pay agreements provide that upon termination, whether voluntary or involuntary, unless the termination is because of death or by the Company for Cause (as such term is defined in the agreements), the executive will receive, in addition to accrued salary, bonus and vacation pay: (a) a lump sum cash amount equal to four times the sum of (i) twenty-six times the executive's highest regular bi-weekly compensation in effect within the three year period preceding termination, plus (ii) the greater of the highest bonus received by the executive within the three year period preceding termination or the bonus such executive would have received for the year of termination had the executive reached 100% of any stated goals (as explained in the Compensation and Management Development Committee Report on Executive Compensation); (b) continued participation in the Company's employee welfare benefit plans and other benefit arrangements for a period of four years following termination; and (c) special retirement benefits so that the total retirement benefits received will be equal to the retirement benefits which would have been received had such executive's employment with the Company continued during the four year period following termination. The executive will also receive an additional payment equal to the amount of any excise tax imposed on the executive by Section 4999 of the Internal Revenue Code and any taxes, interest or penalties incurred with respect thereto. Assuming a termination date of February 28, 1998, the lump sum cash amounts payable under the foregoing provisions of the severance pay agreements (including any amount relating 16 19 to the excise tax described above) would have been approximately $10,985,284 and $6,513,152 for Messrs. Breen and Commes, respectively. For Messrs. Pitorak, Scaminace and Connor, the severance pay agreements provide that upon termination for any reason (including the executive's right to terminate his employment with the Company for any reason during the thirty day period immediately following the first anniversary date of a Change of Control) other than death, Disability, by the Company for Cause or by the executive for other than Good Reason (as such terms are defined in the agreements), the executive will receive, in addition to accrued salary, bonus and vacation pay: (a) a lump sum cash amount equal to three times the sum of (i) twenty-six times the executive's highest regular bi-weekly compensation in effect within the three year period preceding termination, plus (ii) the greater of the highest bonus received by the executive within the three year period preceding termination or the bonus such executive would have received for the year of termination had the executive reached 100% of any stated goals (as explained in the Compensation and Management Development Committee Report on Executive Compensation); (b) continued participation in the Company's employee welfare benefit plans and other benefit arrangements for a period of three years following termination; and (c) special retirement benefits so that the total retirement benefits received will be equal to the retirement benefits which would have been received had such executive's employment with the Company continued during the three year period following termination. The executive will also receive an additional payment equal to the amount of any excise tax imposed on the executive by Section 4999 of the Internal Revenue Code and any taxes, interest or penalties incurred with respect thereto. Assuming a termination date of February 28, 1998, the lump sum cash amounts payable under the foregoing provisions of the severance pay agreements (including any amount relating to the excise tax described above) would have been approximately $1,785,186, $1,755,373 and $2,812,196 for Messrs. Pitorak, Scaminace and Connor, respectively. The salary and other benefits provided by the severance pay agreements will be payable either from an escrow fund established by the Company with a national banking institution or from the Company's general funds. The Company has agreed to indemnify such executives for any legal expense incurred in the enforcement of their rights under the severance pay agreements. Estate Protection Plan Trust. In connection with the Company's purchase of the additional split-dollar life insurance policy for Mr. Breen in 1996, the Company established a "rabbi trust" for the benefit of Mr. Breen. Upon a "Change in Control" or a "Potential Change in Control" of the Company (as such terms are defined in the trust), the Company is required to fund the trust in an amount equal to the Company's entire interest in the cash value of the life insurance policy, plus an amount sufficient to pay future premiums for the policy. INDEPENDENT ACCOUNTANTS The Board of Directors has appointed Ernst & Young LLP to examine the consolidated financial statements and other records of the Company for the fiscal year ending December 31, 1998. Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting and will have an opportunity to make a statement if they wish and to respond to appropriate shareholders' questions. MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors held five meetings during the fiscal year ended December 31, 1997. During 1997, each Director attended at least 75% of the meetings of the Board of Directors and committees on which he or she served, except for Mr. Collins who attended 60%. The Board of Directors has established, among other committees, an Audit Committee, a Board Composition Committee and a Compensation and Management Development Committee. The functions and members of these Committees are as follows: 17 20 Audit. The Audit Committee has the responsibility of reviewing the adequacy of the Company's financial controls and the quality and integrity of its financial reports. In addition, the Audit Committee recommends to the Board of Directors independent public accountants to audit the books, records and accounts of the Company for the ensuing fiscal year. The Committee reviews all reports and recommendations of the independent public accountants with respect to matters within their area of responsibility and reports to the Board of Directors on the scope and depth of the audit. The Committee also makes inquiries into the Company's internal audit functions and procedures. The Audit Committee met twice during 1997 and is currently composed of five outside Directors: D. E. Evans, W. G. Mitchell, C. E. Moll, H. O. Petrauskas and R. K. Smucker. Board Composition. The Board Composition Committee develops plans for the composition and size of the Board of Directors. Matters considered by this Committee include the ratio of inside to outside Directors, as well as the skills and disciplines desired as represented by individual Directors. The Committee also is charged with the responsibility to conduct searches for individual members, interview prospective candidates and make selections and recommendations to the Board of Directors. The Committee has not undertaken to consider nominees recommended by shareholders but has and will continue to employ professional search firms to assist it in identifying potential members of the Board of Directors with the desired skills and disciplines. The Board Composition Committee met once in 1997 and is currently composed of three outside Directors: J. M. Biggar, D. E. Collins and W. G. Mitchell. Compensation and Management Development. The Compensation and Management Development Committee establishes general policies on an annual basis for changes in compensation for all key employees of the Company. In addition, the Committee sets the compensation for certain officers and key employees. The Committee administers the Company's Management Incentive Plan, Executive Life Insurance Plan, Executive Disability Income Plan, Deferred Compensation Savings Plan, Key Management Deferred Compensation Plan, Retirement Equalization Program, Pension Investment Plan Equalization Program and 1994 Stock Plan and recommends to the Board of Directors for approval other types of incentive compensation and similar plans. The Compensation and Management Development Committee met three times during 1997 and is currently composed of five outside Directors: J. M. Biggar, D. E. Collins, R. W. Mahoney, W. G. Mitchell and A. M. Mixon, III. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The following outside Directors served on the Compensation and Management Development Committee of the Board of Directors of the Company during 1997: J. M. Biggar, D. E. Collins, R. W. Mahoney, W. G. Mitchell and A. M. Mixon, III. Mr. Breen, Chairman and Chief Executive Officer of the Company, serves on the Compensation and Management Development Committee of the Board of Directors of Parker-Hannifin Corporation, of which Mr. Collins is President and Chief Executive Officer. 18 21 SECURITY OWNERSHIP OF MANAGEMENT The following table sets forth, as to each Director and nominee, each Executive Officer named in the Summary Compensation Table and all Directors and Executive Officers as a group, information regarding the amount and nature of shares of Common Stock beneficially owned and the amount of shadow stock units owned at December 31, 1997. All of the Directors and Executive Officers have sole voting and investment power over the shares of Common Stock listed, except as otherwise provided below.
AMOUNT AND NATURE PERCENT OF AMOUNT OF OF COMMON STOCK COMMON STOCK SHADOW STOCK NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1),(2),(3) BENEFICIALLY OWNED UNITS OWNED(4) - ------------------------ ----------------------------- ------------------ ------------ J. M. Biggar 18,800 * 0 J. G. Breen 920,109 * 130,486 D. E. Collins 3,000 * 2,655 T. A. Commes 486,871 * 53,756 C. M. Connor 105,612 * 7,387 D. E. Evans 400 * 0 R. W. Mahoney 4,400 * 0 W. G. Mitchell 7,764 * 0 A. M. Mixon, III 10,000 * 8,231 C. E. Moll(5) 3,136 * 0 H. O. Petrauskas 2,693 * 225 L. J. Pitorak 81,605 * 15,255 J. M. Scaminace 116,121 * 11,308 R. K. Smucker 2,683 * 0 All Directors and 2,466,335 1.4264% 278,035 Executive Officers as a Group
- --------------- *Represents beneficial ownership of less than 1% of the total number of shares of Common Stock outstanding. 1 The amounts listed include shares of Common Stock held under plans offered by the Company for which the Directors and Executive Officers have the right to direct the vote, including the following number of shares under the Employee Stock Purchase and Savings Plan: Mr. Breen, 383,114; Mr. Commes, 186,969; Mr. Pitorak, 14,348; Mr. Scaminace, 23,475; Mr. Connor, 34,422; and all Executive Officers as a group, 872,137. 2 The amounts listed include the following number of shares of Common Stock owned by immediate family members of the Directors and Executive Officers, for which each such person disclaims beneficial ownership: Mr. Biggar, 1,600, Mr. Moll, 340, and all Directors and Executive Officers as a group, 25,992. The amounts listed also include shares of Common Stock over which the Directors and Executive Officers share voting and investment power with immediate family members. 3 The amounts listed include the following number of shares of Common Stock for which the Executive Officers have the right to acquire beneficial ownership, within sixty days from December 31, 1997, through the exercise of stock options: Mr. Breen, 104,000; Mr. Commes, 101,334; Mr. Pitorak, 30,666; Mr. Scaminace, 68,732; Mr. Connor, 47,332; and all Executive Officers as a group, 682,860. 4 Shadow stock units are owned by outside Directors under the Company's Director Deferred Fee Plan, whereby outside Directors may defer payment of all or a portion of their directors' fees into a shadow stock account. Shadow stock units are owned by Executive Officers under the Company's Deferred Compensation Savings Plan and Key Management Deferred Compensation Savings Plan, whereby eligible employees may defer payment of a portion of such employee's compensation into a shadow stock account. The value of shadow stock units fluctuates according to the market value of Common Stock. Directors and Executive Officers have no voting rights associated with shadow stock units, and such ownership does not result in any beneficial ownership of Common Stock. 5 Includes 2,000 shares owned by the MTD Products, Inc. pension fund, of which Mr. Moll is a trustee. 19 22 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The following table sets forth, as to each beneficial owner of more than five percent of the Company's Common Stock, information regarding shares of Common Stock owned by each at December 31, 1997.
AMOUNT AND NATURE OF PERCENT OF NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS ------------------------ -------------------- ---------- The Sherwin-Williams Company Employee Stock Purchase and Savings Plan 25,560,734(1) 14.78 101 Prospect Avenue, N.W. Cleveland, Ohio 44115 FMR Corp. 11,164,363(2) 6.46 82 Devonshire Street Boston, MA 02109
- --------------- 1 Shares owned pursuant to The Sherwin-Williams Company Employee Stock Purchase and Savings Plan are voted by the trustee in accordance with written instructions of plan participants. If no instructions are received by the trustee, the trustee votes such shares (along with any unallocated shares held in the plan) in the same proportion as it votes those shares for which it receives proper instructions. 2 Of the shares listed, Fidelity Management & Research Company ("Fidelity"), a wholly-owned subsidiary of FMR Corp., beneficially owns 10,376,020 (6.00%) shares as a result of acting as an investment adviser to various investment companies. Of the total shares listed, FMR Corp. has sole voting power over 542,543 shares and sole dispositive power over all shares, but has no shared voting or shared dispositive power. Edward C. Johnson, III (the Chairman of FMR Corp.) and Fidelity also each have sole dispositive power over the shares owned by Fidelity, but neither has sole voting power over such shares; such power resides with the Boards of Trustees of the Fidelity funds. Mr. Johnson, III, Abigail P. Johnson, certain members of the Johnson Family, and trusts for their benefit may be deemed to be a controlling group with respect to FMR Corp. This information is based upon FMR Corp.'s Schedule 13G, dated February 14, 1998. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires the Company's Directors and Executive Officers, and persons owning more than ten percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership of such equity securities with the Securities and Exchange Commission and the New York Stock Exchange. To the Company's knowledge, based solely on the information furnished to the Company and written representations by such persons, all of the Company's Directors and Executive Officers complied with their respective filing requirements under Section 16(a) for 1997, except that Mr. Biggar recently discovered that he inadvertently failed to file three Forms 4 reporting three purchases of a total of 1,500 shares of Common Stock (on a pre-split basis) in 1994. Upon discovery, Mr. Biggar promptly filed a Form 4 reporting the transactions. RELATED TRANSACTIONS During 1997, the Company and its subsidiaries purchased products and services from, and sold products and services to, corporations of which certain of the Company's nonemployee Directors and/or nominees for Director are officers. These transactions were in the ordinary course of the Company's business and were at competitive terms and prices. The Company does not consider these transactions to be material to the Company's business or to such other companies' businesses. 20 23 EXPENSE AND METHOD OF PROXY SOLICITATION The enclosed proxy is solicited by the Board of Directors and the entire cost of solicitation will be paid by the Company. In addition to the solicitation of proxies by use of the mails, officers and other employees of the Company may solicit the return of proxies. Kissel-Blake, Inc., New York, N.Y., has also been retained to aid in the solicitation of proxies, for which it will receive a fee estimated at $14,000. Proxies will be solicited by personal interview, mail, telephone and telegraph. DATE FOR RECEIPT OF SHAREHOLDER PROPOSALS Shareholder proposals must be received at the Company's headquarters, 101 Prospect Avenue, N.W., Cleveland, Ohio 44115-1075, Attention: Vice President, General Counsel and Secretary, on or before November 11, 1998 in order to be included in the proxy material relating to the 1999 Annual Meeting of Shareholders. In order to remove any question as to the date on which a proposal was received by the Company, it is suggested that proposals be submitted by Certified Mail-Return Receipt Requested. ANNUAL REPORT ON FORM 10-K THE COMPANY WILL PROVIDE TO EACH SHAREHOLDER WHO IS SOLICITED TO VOTE AT THE 1998 ANNUAL MEETING OF SHAREHOLDERS, UPON THE WRITTEN REQUEST OF SUCH PERSON AND WITHOUT CHARGE, A COPY OF THE COMPANY'S 1997 ANNUAL REPORT ON FORM 10-K. PLEASE DIRECT REQUESTS TO THE COMPANY'S HEADQUARTERS, 101 PROSPECT AVENUE, N.W., CLEVELAND, OHIO 44115-1075, ATTENTION: INVESTOR RELATIONS. 21 24 ANNUAL MEETING OF SHAREHOLDERS OF THE SHERWIN-WILLIAMS COMPANY Wednesday, April 22, 1998 Auditorium Midland Building, Room 927 101 Prospect Avenue, N.W. Cleveland, Ohio AGENDA ------ - Fix the number of Directors at eleven and elect eleven Directors to hold office until the next Annual Meeting of Shareholders and until their successors are elected. - Transact such other business as may properly come before the Annual Meeting. - -------------------------------------------------------------------------------- YOUR VOTE IS IMPORTANT! Whether or not you plan to attend the Annual Meeting, please complete, sign and return the attached proxy/voting instruction card in the enclosed envelope. Your prompt return of the card will help avoid additional solicitation costs. Returning your completed card will not prevent you from voting in person at the Annual Meeting if you wish to do so. - -------------------------------------------------------------------------------- [SHERWIN THE SHERWIN-WILLIAMS COMPANY WILLIAMS PROXY/VOTING INSTRUCTION CARD LOGO] ANNUAL MEETING OF SHAREHOLDERS - APRIL 22, 1998 The undersigned hereby authorizes J.G. BREEN and T.A. COMMES, and each of them individually, with power of substitution, to vote and otherwise represent all of the shares of Common Stock of The Sherwin-Williams Company (the "Company"), which the undersigned is entitled to vote as a recordholder, at the Annual Meeting of Shareholders of the Company to be held on Wednesday, April 22, 1998, and any adjournment(s) thereof, as indicated on the reverse side, and, in their discretion, on all other matters as may properly come before the Annual Meeting. This card also provides voting instructions for shares of Common Stock, if any, held for the account of the undersigned by The Bank of New York, as agent of the Company's Stock Ownership and Automatic Dividend Reinvestment Plan, and by Fidelity Management Trust Company, as trustee of the Company's Employee Stock Purchase and Savings Plan. THIS PROXY/VOTING INSTRUCTION CARD IS SOLICITED JOINTLY BY THE BOARD OF DIRECTORS OF THE COMPANY, THE BANK OF NEW YORK (WITH RESPECT TO COMMON STOCK HELD UNDER THE DIVIDEND REINVESTMENT PLAN) AND FIDELITY (WITH RESPECT TO COMMON STOCK HELD UNDER THE STOCK PURCHASE AND SAVINGS PLAN). YOU ARE ENCOURAGED TO SPECIFY YOUR VOTE BY COMPLETING THE REVERSE SIDE OF THIS CARD. WHEN PROPERLY SIGNED, YOUR SHARES WILL BE VOTED IN ACCORDANCE WITH YOUR INSTRUCTIONS, IF INDICATED. IF YOU SIGN, DATE AND RETURN THIS CARD WITHOUT SPECIFYING YOUR VOTE, YOUR SHARES WILL BE VOTED FOR PROPOSAL 1 AND IN THE PROXY HOLDER'S DISCRETION UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING. IF YOU DO NOT TIMELY RETURN THIS CARD, THE PROXY HOLDERS CAN NOT VOTE YOUR SHARES (OR, IN THE CASE OF THE STOCK PURCHASE AND SAVINGS PLAN, IF YOU DO NOT RETURN THIS CARD BY THE CLOSE OF BUSINESS ON APRIL 16, 1998, YOUR SHARES WILL BE VOTED IN THE SAME PROPORTION AS FIDELITY VOTES THOSE SHARES FOR WHICH IT RECEIVES PROPER INSTRUCTIONS). (Continued and to be dated and signed on reverse side.) THE SHERWIN WILLIAMS COMPANY P.O. BOX 11069 NEW YORK, N.Y. 10203-0069 25 DETACH PROXY CARD HERE
[ ] (THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 1.) 1. Election of Directors FOR the 11 nominees WITHHOLD AUTHORITY to vote for the *EXCEPTIONS listed below 11 nominees listed below.
Nominees: J.M. BIGGAR, J.G. BREEN, D.E. COLLINS, T.A. COMMES, D.E. EVANS, R.W. MAHONEY, W.G. MITCHELL, A.M. MIXON, III, C.E. MOLL, H.O. PETRAUSKAS, R.K. SMUCKER (INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME ON THE LINE BELOW). *Exceptions_____________________________________________________________________ 2. In their discretion, the proxies are authorized to consider and vote upon such other business as may properly come before the Annual Meeting or any adjournment thereof. Change of Address and or Comments Mark Here Please sign exactly as your name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee, guardian or in other representative capacity, please give your full title. Dated:________________________________, 1998 ____________________________________________ Signature ____________________________________________ Signature VOTES MUST BE INDICATED (X) IN BLACK OR BLUE INK. Sign, Date and Return this Card Promptly Using the Enclosed Envelope. -----END PRIVACY-ENHANCED MESSAGE-----