UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

(RULE 14a-101)

SCHEDULE 14A INFORMATION

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TIMKENSTEEL CORPORATION

 

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Table of Contents

 

Chairman’s letter
Notice of annual meeting
Proxy summary					1
Proposal 1		Election of directors			9
		Nominees for election			11
		Continuing directors			12
Board of Directors information		Audit committee			15
		Audit committee report			15
		Compensation committee			16
		Compensation committee report			17
		Nominating and corporate governance committee			17
		Director compensation			19
Corporate governance		Director independence			21
		Board leadership structure			21
		Risk oversight			22
		Related-party transactions			22
Our commitment to corporate sustainability					24
Beneficial ownership of common stock		Directors and officers ownership			25
		Five percent shareholders			27
		Section 16(a) beneficial ownership reporting compliance			28
Proposal 2		Ratification of appointment of independent auditor			29
Proposal 3		Approval, on an advisory basis, of named executive officer compensation			31
Compensation discussion and analysis		Executive summary			32
		Our compensation philosophy			35
		Determining compensation for 2018			36
		Elements of our executive compensation			38
		Analysis of 2018 compensation			39
		Retirement and other benefits			48
		Other compensation program features			50

Compensation of executive officers		2018 Summary compensation table			52
		2018 Grants of plan-based awards table			54
		Outstanding equity awards at 2018 year-end table			55
		2018 Option exercises and stock vested table			56
		Pension benefits			57
		2018 Nonqualified deferred compensation table			59
		Potential payments upon termination or change in control			60
		CEO pay ratio			64
Annual meeting information		Questions and answers			65
		General information			69
Appendix		Non-GAAP financial measures			A-1

 

Dear shareholders,

TimkenSteel welcomes you to attend its 2019 annual meeting of shareholders, at 10 a.m. local time on May 7, 2019, at our corporate headquarters in Canton, Ohio. We will consider matters that are important to our company and to you, our investors.

For the third consecutive year, TimkenSteel’s earnings continued on an upward trajectory. Net sales, gross profit and sales of our most profitable products continued to climb. We also marked record safety performance in our operations.

Sharp demand changes and unplanned maintenance resulted in some inefficiencies that affected on-time delivery to our customers and, combined with inflation in our supply chain, impacted financial performance for the year. We corrected these issues by year-end, but the impact of production challenges masked some of the positive structural changes we made. However, the strategies that delivered new business at higher margins and a richer product mix have positioned the company well for sustainable performance.

Our pay-for-performance compensation plans operated as intended. Basic profitability and cash metrics limited variable compensation across the organization, beginning with executive compensation paying well-below target. One smaller metric in our annual plan, which incentivized sales of our most profitable products, helped drive behavior that improved product mix and price and offset some of the negative factors we faced in the year. The progress we made laid a strong foundation for 2019 and beyond.

We are clearly driven to innovate, to thrive and to win. We enter 2019 with a focus on sustainable and profitable growth; on efficient use of managed working capital and free cash flow generation; on excellence in customer service, quality and process execution; and on being a safe and rewarding place to work. This is our mission for our future. This is how we’re driving for success at TimkenSteel.

Thank you for your ongoing support. We value your feedback and look forward to continued dialogue.

Sincerely,

 

Tim Timken Chairman, Chief Executive Officer and President

March 20, 2019

Enclosure

 

Notice of annual meeting

of shareholders

 

 

Proxy summary

This summary highlights information contained elsewhere in this proxy statement and contains only a portion of the information you should consider. You should read the entire proxy statement carefully before voting.

Our annual meeting

 

Date and time		Record date		Place		Who can vote
May 7, 2019   10 a.m. Eastern time		March 1, 2019		TimkenSteel Corporation 1835 Dueber Ave., S.W., Canton, Ohio 44706		Shareholders of record of common shares at the close of business on March 1, 2019

 

Item		Proposals		Board vote recommendations		Page #
1		Election of four directors to serve a three-year term expiring at the 2022 annual meeting		FOR each director nominee		9
2		Ratification of the selection of Ernst & Young LLP as the company’s independent auditor for the fiscal year ending December 31, 2019		FOR		29
3		Approval, on an advisory basis, of the compensation of the company’s named executive officers		FOR		31

Director nominees — term to expire in 2022

 

Name

Age

Director since

Principal occupation

Independent

Current committee memberships

Other public  company boards

Audit

Compensation

Nominating and Corporate     Governance

Diane C. Creel

70

2014

Retired Chairman, Chief Executive Officer and President of Ecovation Inc.

●

Chairperson

2

Donald T. Misheff

62

2014

Retired Managing Partner of Ernst & Young

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Chairperson

2

Ronald A. Rice

56

2015

Retired President and Chief Operating Officer of RPM International Inc.

●

●

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0

Marvin A. Riley

44

2018

Chief Operating Officer of EnPro Industries, Inc.

●

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0

 

		2019 PROXY STATEMENT			1

Diverse board skills and composition

Members of TimkenSteel’s Board of Directors possess a broad and diverse mix of executive leadership, strategic, financial, human resources and industry experience and skills that enables them to effectively oversee the management of the business and drive strategy that creates long-term, sustainable shareholder value.

 

 

2				2019 PROXY STATEMENT

Commitment to ethics and corporate governance

TimkenSteel’s Board of Directors is committed to good corporate governance, as it promotes the long-term interests of shareholders, strengthens Board and management accountability and builds public trust in the company. The “Corporate governance” section of this proxy statement describes our governance framework, which includes the following highlights:

 

✓  Lead independent director		✓  Anti-hedging and anti-pledging policies
✓  All directors, other than Mr. Timken, are independent		✓  Comprehensive director and employee code of conduct and ethics and compliance program
✓  Independent Audit, Compensation and Nominating and Corporate Governance Committees		✓ Commitment to sustainability and the community
✓  Annual Board and committee evaluations		✓  Robust share ownership and holding requirements for executive officers and directors
✓  Regular executive sessions of independent directors at both Board and committee meetings		✓  Majority voting policy in uncontested elections of directors
✓  Risk oversight by the full Board of Directors and its committees, under Audit Committee guidance		✓  Related-party transactions approval policy
✓  Two designated financial experts on Board of Directors		✓  Annual review by Board of Directors of succession plans for CEO and key executives

Improving performance

 

Safest year on record				Improved on-time delivery to 90% by year end				Reduced greenhouse gas emissions by 2%
All TimkenSteel manufacturing plants now ISO 14001 environmental management system certified

 

		2019 PROXY STATEMENT			3

 

(1)	Net loss includes a loss from the remeasurement of benefit plans of $79.7M in 2016, $21.8M in 2017 and $43.5M in 2018.

(2)	Adjusted EBITDA is a non-GAAP financial measure. Please see appendix for a reconciliation of this financial measure to the most comparable financial measures.

 

4				2019 PROXY STATEMENT

Aligning pay with performance

Our compensation objectives and philosophy

At TimkenSteel, we believe in rewarding employees, including our named executive officers (NEOs), for helping us achieve our corporate goals, deliver exceptional performance and build shareholder value. In this spirit, our executive compensation program is designed to align our executives’ interests with those of our shareholders; to reward leaders for strong business results; and to attract, retain and motivate the best talent in the industry.

 

Our executive compensation philosophy embodies the following principles:   ✓  Recognizes people are our strongest asset   ✓  Rewards results linked to short- and long-term performance (pay-for-performance)   ✓  Positions pay affordably and competitively in the marketplace   ✓  Drives a focus on increasing shareholder value

 

		Ward J. “Tim” Timken, Jr. Chairman, CEO and President
Frank A. DiPiero Executive Vice President, General Counsel and Secretary		NEOs of TimkenSteel for 2018		Kristopher R. Westbrooks Executive Vice President and Chief Financial Officer
William P. Bryan Executive Vice President, Manufacturing and Supply Chain				Thomas D. Moline, Executive Vice President, Commercial Operations
		Christopher J. Holding Former Executive Vice President and Chief Financial Officer*

 

*	Christopher J. Holding terminated employment with the company on September 23, 2018, and Kristopher R. Westbrooks was appointed as Executive Vice President and Chief Financial Officer effective September 24, 2018.

2018 Target pay mix

 

 

 

		2019 PROXY STATEMENT			5

CEO aggregate compensation

As reflected in the following table, realizable pay for our CEO in the aggregate for the four full years TimkenSteel has been an independent company has been significantly below target, with actual aggregate “realizable” pay at 29 percent of the target pay established by our Compensation Committee. See “Compensation discussion and analysis – Analysis of 2018 compensation – CEO compensation” for additional information.

 

 

 

6				2019 PROXY STATEMENT

Pay and performance at a glance

We pay for performance, and our incentive compensation plans operated as intended across the organization in 2018. Payouts were well-below target as earnings before interest and taxes divided by beginning invested capital (EBIT/BIC) and cash flow results, which comprise the majority of our annual incentive plan opportunity, were impacted by unanticipated operational challenges. At the same time, we had very strong performance on our “key process path sales” — the sales of our most profitable products — which resulted in improved product mix and price and offset some of the unanticipated operational challenges. Overall, performance in 2018 resulted in a payout of 58% of target under the annual incentive plan. Additionally, participants in our long-term incentive plan forfeited the outstanding performance shares scheduled to vest for the 2016-2018 and 2017-2018 performance periods due to cumulative operating cash flow falling below threshold performance for each performance period.

 

2018 Annual incentive plan

2016-2018 Performance shares

2017-2018 Performance shares

EBIT/BIC

Cash flow

Key process   path sales

Cumulative cash flow

Cumulative cash flow

Weighting

60%

15%

25%

Weighting

100%

100%

Performance target

8.4%

$40M

$654M

Performance target

$150M

$65M

Result

4.0%

$(20)M

$725M

Result

$24M

$0.6M

Metric performance

22.7%

0%

178.4%

Metric performance

0%

0%

Payout percentage

13.6%

0%

44.6%

Payout percentage

0%

0%

Total realizable compensation

The actual realizable compensation as compared to target compensation for our NEOs reflects performance that did not meet the targets for 2018, resulting in a payout of 58% of target on our 2018 annual incentive plan and the cancellation of all performance shares scheduled to vest for the 2016-2018 and 2017-2018 performance periods. The NEOs were paid accordingly, except for the CEO. Despite year-over-year improvements in profitability and strong performance in the key process paths metric, the Compensation Committee felt it was appropriate to reduce the CEO’s award by 50% in recognition of the shortfall against expectations in both the profit and cash flow metrics.

 

Named executive officer		Title		2018 Target compensation					2018 Realizable compensation					Percent of   target realizable
Ward J. “Tim” Timken, Jr.		Chairman, CEO and President			$	5,155,352				$	2,830,470					55	%
Kristopher R. Westbrooks*		EVP and Chief Financial Officer			$	294,799				$	199,813					68	%
Frank A. DiPiero		EVP, General Counsel and Secretary			$	1,074,020				$	752,539					70	%
Thomas D. Moline		EVP, Commercial Operations			$	698,023				$	504,302					72	%
William P. Bryan		EVP, Manufacturing and Supply Chain			$	698,023				$	514,678					74	%
Christopher J. Holding^		Former EVP and Chief Financial Officer			$	1,102,224				$	1,658,062					150	%

 

*	Mr. Westbrooks was hired in September 2018, which is reflected in both his target and realizable compensation for the year.

 

 

		2019 PROXY STATEMENT			7

^

Mr. Holding terminated employment with the company in September 2018. Realizable compensation for 2018 includes compensation paid to Mr. Holding in accordance with the terms of a severance agreement previously entered into by Mr. Holding and the company. See “Compensation of executive officers – Potential payments upon termination or change in control” for additional information.

Listening to our shareholders

In 2018, shareholders approved the compensation of our NEOs with approximately 80% of votes cast in favor of our “say-on-pay” proposal. Our Compensation Committee considered shareholder feedback and evaluated market data in their annual review of executive compensation plans and made changes to those plans for 2019 that include extending the performance period for certain of our long-term incentive awards from two years to three years and changing CEO target pay. See “Compensation discussion and analysis — Executive summary — 2018 say-on-pay vote and 2019 executive compensation changes” for additional information.

 

 

 

8				2019 PROXY STATEMENT

Proposal 1

Election of directors

The company has 11 members on its Board of Directors. Our Board is divided into three classes for purposes of election, with three-year terms of office ending in successive years.

The Board of Directors has nominated the following individuals for election as directors at the 2019 annual meeting of shareholders, to serve for a term of three years expiring at the 2022 annual meeting of shareholders (or until their respective successors are elected and qualified): Diane C. Creel, Donald T. Misheff, Ronald A. Rice and Marvin A. Riley. Each of the nominees currently serves as a director and has agreed to continue his or her service if elected. Biographical information on each of the nominees and a description of his or her qualifications to serve as a director, as well as similar information about the other directors, is provided in the pages that follow.

If any of the nominees is unable to stand for election, the Board of Directors may designate a substitute. Shares represented by proxies may be voted for the substitute but will not be voted for more than four nominees.

Directors are elected by a plurality of the votes cast. The four nominees receiving the greatest number of votes will be elected.

Pursuant to the majority voting policy of the Board of Directors, any director who receives a greater number of “withhold” votes than votes “for” his or her election in an uncontested election will submit his or her resignation to the Board of Directors promptly after the certification of the election results. The Board of Directors and the Nominating and Corporate Governance Committee will then consider the resignation in light of any factors they consider appropriate, including the director’s qualifications and contributions to the Board of Directors, as well as any reasons given by shareholders regarding why they withheld votes from the director. The Board of Directors is required to determine whether to accept or reject the tendered resignation within 90 days following the election and to promptly disclose its decision, as well as the reasons for rejecting any tendered resignation, if applicable.

Holders of TimkenSteel common shares are entitled to cast one vote for each share held on the record date for up to four nominees for director. A shareholder may not cumulate his or her shares in voting for director nominees. For example, a shareholder who owns 100 TimkenSteel common shares may vote 100 shares for each of four nominees. The shareholder may not, however, vote more than 100 shares for any one nominee, or vote for more than four nominees.

Shares represented by proxy will be voted FOR these nominees unless specified otherwise in the voting instructions.

 

		Your Board of Directors recommends a vote for these nominees

 

		2019 PROXY STATEMENT			9

Our knowledgeable Board of Directors

Members of the TimkenSteel Board of Directors have diverse skills, qualifications and experiences that enable them to effectively oversee the management of the company’s business and affairs. These directors represent the interests of TimkenSteel’s stakeholders and help to drive strategic decisions for the company’s long-term success.

 

CEO or chairperson experience

Finance/ accounting/ capital markets

Human resources/ executive compensation/ labor

Relevant industry/ end market experience

Public company board and corporate governance

Corporate development/ mergers and acquisitions

International operations

Manufacturing and technology

Environmental and safety

Joseph A. Carrabba

●

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Phillip R. Cox

●

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Diane C. Creel

●

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Terry L. Dunlap

●

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Randall H. Edwards

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Donald T. Misheff

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John P. Reilly

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Ronald A. Rice

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Marvin A. Riley

●

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Ward J. “Tim” Timken, Jr.

●

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Randall A. Wotring

●

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●

●

●

●

Biographical information for each of the nominees for election and the other continuing directors with unexpired terms of office is provided on the following pages. All information is as of March 1, 2019, unless otherwise indicated.

 

10				2019 PROXY STATEMENT

 

Nominees for election to serve a three-year term expiring at the 2022 annual meeting of shareholders

 

 

				Diane C. Creel                                 Age: 70   Term: Expires in 2019; director since 2014   Committee: Compensation (Chairperson)   Other public company boards: Ms. Creel has been a director of Allegheny Technologies Incorporated (ATI) since 1996 and EnPro Industries, Inc. since 2009. She was formerly a director of Goodrich Corporation, URS Corporation and The Timken Company.   Business experience: Ms. Creel served as Chairman, Chief Executive Officer and President of Ecovation Inc., a subsidiary of Ecolab Inc., a waste stream technology company using patented technologies, until her retirement in 2008. Prior to Ecovation, Ms. Creel was Chairman, Chief Executive Officer and President of Earth Tech, Inc. from 1992 to 2003.
				Donald T. Misheff                               Age: 62   Term: Expires in 2019; director since 2014   Committee: Audit (Chairperson)   Other public company boards: Mr. Misheff has been a director of FirstEnergy Corp. since 2012 and Trinseo S.A. since 2015.   Business experience: Mr. Misheff was Managing Partner of the northeast Ohio offices of Ernst & Young LLP, a public accounting firm, from 2003 until his retirement in 2011. He began his career at Ernst & Young in 1978 and has more than 30 years of experience in taxation and in performing, reviewing and overseeing financial statement audits for a wide range of public companies and advising those companies on financial and corporate governance issues.
				Ronald A. Rice                                Age: 56   Term: Expires in 2019; director since 2015   Committees: Compensation; Nominating and Corporate Governance   Other public company boards: None   Business experience: Mr. Rice retired in 2018 from his position as President and Chief Operating Officer of RPM International Inc. (a manufacturer of specialty coatings, sealants and building materials and provider of related services for industrial and consumer markets globally), a position he had held since 2008. Previously, Mr. Rice held a variety of increasingly responsible positions with RPM from 1995 to 2008. He began his career with The Wyatt Company, an actuarial consulting firm, known today as Willis Towers Watson, in 1985.

 

 

 

 

 

 

		2019 PROXY STATEMENT			11

				Marvin A. Riley                               Age: 44   Term: Expires in 2019; director since 2018   Committee: Audit   Other public company boards: None   Business experience: Mr. Riley is Chief Operating Officer of EnPro Industries, a leader in sealing products, metal polymer and filament-wound bearings, components and service for reciprocating compressors, diesel and dual-fuel engines and other engineered products for use in critical applications in industries worldwide. Previously, Mr. Riley served in various leadership positions at EnPro, including as President of its Fairbanks Morse division, focused on marine engines and power generation; Vice President of its manufacturing function; Vice President of Americas; and head of global operations for its GGB Bearing Technology division. Prior to joining EnPro, Mr. Riley served in leadership roles at General Motors Corporation, working within the vehicle manufacturing group.
Continuing directors
				Joseph A. Carrabba
				Age: 66   Term: Expires in 2021; director since 2014   Committees: Compensation; Nominating and Corporate Governance   Other public company boards: Mr. Carrabba has been a director of Newmont Mining Corporation since 2007, Aecon Group Inc. since 2013 and Niocorp Developments Ltd. since 2014. Mr. Carrabba formerly was a director of Cliffs Natural Resources, KeyBank Corporation, Lithium X Energy Corp and Fura Gems Inc.   Business experience: Until September 2018, Mr. Carrabba served as the President and Chief Executive Officer of Ram River Coal Corporation, a Canadian company holding a 100% interest in property that contains two well-defined metallurgical coal deposits in Alberta, Canada, a position which he had held since 2017. Until April 2018, Mr. Carrabba also served as Chief Executive Officer and President of Irati Energy Corporation, an oil and gas exploration company focused on southern Brazil oil shale development projects, a position he had held since April 2016. Previously, Mr. Carrabba served as Chairman, Chief Executive Officer and President of Cliffs Natural Resources Inc., an international mining and natural resources company, from 2005 until his retirement in 2013. Prior to joining Cliffs Natural Resources in 2005, Mr. Carrabba served for more than 20 years in a variety of leadership capacities at Rio Tinto, a global mining company, at locations worldwide, including the United States, Asia, Australia, Canada and Europe.
				Phillip R. Cox                               Age: 71   Term: Expires in 2021; director since 2014   Committee: Audit   Other public company boards: Mr. Cox has been a director of Cincinnati Bell since 1993, Touchstone Mutual Funds since 1994 and Diebold Nixdorf since 2005. Mr. Cox formerly was a director of The Timken Company.   Business experience: Mr. Cox has been President and Chief Executive Officer of Cox Financial Corporation, a financial services company that he founded, for more than 45 years.

 

 

12				2019 PROXY STATEMENT

				Terry L. Dunlap                               Age: 59   Term: Expires in 2021; director since 2015   Committee: Audit   Other public company boards: Mr. Dunlap has been a director of Matthews International Corporation since 2015.   Business experience: Mr. Dunlap is the principal at Sweetwater LLC, a consulting and investing business with a focus on manufacturing and technology. Previously, Mr. Dunlap spent 31 years with Allegheny Technologies Incorporated (ATI), a diversified specialty metals producer, where he held numerous positions in sales, marketing, manufacturing, supply chain, logistics and information technology. He served as Executive Vice President of ATI’s flat-rolled products group from 2011 until his retirement in December 2014. He also was President of ATI Allegheny Ludlum from 2002 to 2014 and served on the boards of two ATI joint venture companies.
				Randall H. Edwards                                  Age: 60   Term: Expires in 2020; director since 2015   Committee: Audit   Other public company boards: None   Business experience: Mr. Edwards has been President and Chief Executive Officer of Premier Pipe, LLC, a leader in the supply and management of engineered premium oil country tubular goods, since 2015. Previously, he served as President and Chief Operating Officer of Premier Pipe from 2014 to 2015. From 1999 to 2014, Mr. Edwards held various positions with NOV Grant Prideco, a leading supplier of oil field drill stem components, including President of NOV Grant Prideco from 2008 to 2014. He began his career at Wilson Supply, where he managed oil country tubular goods and the company’s drill pipe product line.
				John P. Reilly                               Age: 75   Term: Expires in 2021; director since 2014   Committees: Audit; Nominating and Corporate Governance (Chairperson)   Other public company boards: Mr. Reilly was formerly a director of The Timken Company, Exide Technologies and Material Sciences Corporation.   Business experience: Mr. Reilly served as Chairman, President and Chief Executive Officer of Figgie International, an international diversified operating company, from 1995 until 1998. He has more than 30 years of experience in the automotive industry, where he served as President and Chief Executive Officer of several automotive suppliers, including Stant Corporation and Tenneco Automotive. He also held leadership positions at Chrysler Corporation and Navistar International and served as President of Brunswick Corporation.

 

 

 

		2019 PROXY STATEMENT			13

				Ward J. “Tim” Timken, Jr.                       Age: 51   Term: Expires in 2020; director since 2014   Committees: None   Other public company boards: Mr. Timken has been a director of The Timken Company since 2002.   Business experience: Mr. Timken is Chairman, Chief Executive Officer and President of TimkenSteel Corporation, a role he assumed upon the spinoff of TimkenSteel from The Timken Company in June 2014. Prior to being named to his current role, Mr. Timken served as a director of The Timken Company beginning in 2002 (a position which he still holds) and as chairman of the board of directors of The Timken Company from 2005 until mid-2014. Previously, Mr. Timken was President of The Timken Company’s steel business from 2004 to 2005 and Corporate Vice President of The Timken Company from 2000 to 2003, and he held key leadership positions in The Timken Company’s European and Latin American businesses from 1992 to 2000. Prior to joining The Timken Company, Mr. Timken opened and managed the Washington, D.C., office of McGough & Associates, a Columbus, Ohio-based government affairs consulting firm.
				Randall A. Wotring                          Age: 62   Term: Expires in 2020; director since 2014   Committees: Compensation; Nominating and Corporate Governance   Other public company boards: None   Business experience: Mr. Wotring is Chief Operating Officer of AECOM Technology Corporation, a premier, fully integrated infrastructure and support services firm and the largest engineering design firm in the world, a position he has held since July 2017. He previously served as President, Technical and Operational Services of AECOM from July 2016 until July 2017; as President, Management Services of AECOM from October 2014 until July 2016; and as Corporate Vice President and President of the Federal Services division of URS Corporation from 2004 until October 2014 when URS was acquired by AECOM.

 

 

 

 

 

14				2019 PROXY STATEMENT

Board of directors information

Meetings and committees

The standing committees of the Board of Directors consist of the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee. During the 2018 fiscal year, there were five meetings of the Board of Directors, seven meetings of the Audit Committee, three meetings of the Compensation Committee and four meetings of the Nominating and Corporate Governance Committee. All directors attended 75% or more of the aggregate number of meetings of the Board and its committees on which they served. It is our policy that all members of the Board of Directors should attend the annual meeting of shareholders, and all directors attended the 2018 annual meeting of shareholders. The independent directors met separately in executive session without management present at least quarterly in conjunction with regularly scheduled meetings of the Board in 2018, and intend to meet separately in executive sessions without management present at least quarterly in conjunction with regularly scheduled meetings of the Board of Directors in 2019 and thereafter.

Audit committee

The Audit Committee has oversight responsibility with respect to the company’s independent auditor and the integrity of its financial statements. The Audit Committee is composed of Donald T. Misheff (chairperson), Phillip R. Cox, Terry L. Dunlap, Randall H. Edwards, John P. Reilly and Marvin A. Riley. Our Board of Directors has determined that each member of the Audit Committee is financially literate and independent as defined in the listing standards of the New York Stock Exchange (“NYSE”) and the rules of the Securities and Exchange Commission (“SEC”). Our Board of Directors also has determined that Donald T. Misheff and Terry L. Dunlap each qualifies as an audit committee financial expert.

The Board of Directors has adopted a written Audit Committee charter, which is reviewed and reassessed annually. A current copy of the Audit Committee charter is available on the company’s website at www.timkensteel.com and in print to any shareholder who requests a copy. All requests must be made in writing, addressed to TimkenSteel Corporation, Attn: Secretary, 1835 Dueber Ave. S.W., Canton, Ohio 44706.

Audit committee report

The Audit Committee has reviewed and discussed with management and the company’s independent auditor the audited financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. The Audit Committee also has discussed with our independent auditor the matters required to be discussed pursuant to Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 1301.

The Audit Committee has received and reviewed the written disclosure and the letter from our independent auditor required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the Audit Committee concerning independence, has discussed with our independent auditor such independent auditor’s independence and has considered the compatibility of non-audit services with the auditor’s independence.

Based on the review and discussions referred to above, the Audit Committee recommended to our Board of Directors that the audited financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC.

Donald T. Misheff (Chairperson)

Phillip R. Cox

Terry L. Dunlap

Randall H. Edwards

John P. Reilly

Marvin A. Riley

 

		2019 PROXY STATEMENT			15

Compensation committee

The Compensation Committee establishes and administers our policies, programs and procedures for compensating our senior management and Board of Directors. Members of the Compensation Committee are Diane C. Creel (chairperson), Joseph A. Carrabba, Ronald A. Rice and Randall A. Wotring. Our Board of Directors has determined that all members of the Compensation Committee are independent as defined in the listing standards of the New York Stock Exchange, and that no member of the Compensation Committee has any relationship to the company that is material to his or her ability to be independent from management in connection with the duties of a member of the Compensation Committee. Each member of the committee is also a “non-employee director” for purposes of Section 16 of the Securities Exchange Act of 1934 (the “Exchange Act”).

The Compensation Committee has adopted a written charter, which is reviewed and reassessed annually. A current copy of the Compensation Committee charter is available on the company’s website at www.timkensteel.com and in print to any shareholder who requests a copy. All requests must be made in writing, addressed to TimkenSteel Corporation, Attn: Secretary, 1835 Dueber Ave. S.W., Canton, Ohio 44706.

With the guidance and approval of the Compensation Committee, the company has developed compensation programs for its executive officers, including the CEO and the other executive officers named in the summary compensation table, that are intended to align the interests of our executives, shareholders and communities; reward executives for sustained, strong business and financial results; and enable us to attract, retain and motivate the best talent.

The agenda for meetings of the Compensation Committee is determined by its chairperson with the assistance of the Vice President, Total Rewards and the Executive Vice President, Organizational Advancement and Corporate Relations. The meetings are regularly attended by the Chairman, CEO and President, the Executive Vice President and Chief Financial Officer, the Executive Vice President and General Counsel, the Executive Vice President, Organizational Advancement and Corporate Relations and the Vice President, Total Rewards. The Compensation Committee meets in executive session at each of its meetings, and the chairperson reports the committee’s actions regarding compensation of executive officers to the full Board of Directors. Our human resources department supports the Compensation Committee in its duties and may be delegated certain administrative duties in connection with the company’s compensation programs.

The Compensation Committee has the sole authority to retain and terminate compensation consultants to assist in the evaluation of director and executive officer compensation and the sole authority to approve the fees and other retention terms of any compensation consultants. The committee has selected Meridian Compensation Partners, LLC, an independent executive compensation consultant, to serve as its compensation consultant. The Compensation Committee has engaged Meridian to analyze our executive compensation structure and plan designs, to assess whether the compensation program is competitive and supports the Compensation Committee’s goal to align the interests of executive officers with those of shareholders and, from time to time, to review the total compensation of directors. Meridian also provides market data directly to the Compensation Committee, which the committee references when determining compensation for executive officers. Additional information regarding the committee’s engagement of Meridian, including a discussion of the committee’s assessment of the independence of Meridian, is available in the “Compensation discussion and analysis” (“CD&A”) section of this proxy statement under the caption “Determining compensation for 2018 — Role of the compensation consultant.”

The Compensation Committee also plays an active role in our executive officer succession planning process by meeting regularly with senior management to ensure an effective succession process is in place and to discuss potential successors for executive officers.

 

16				2019 PROXY STATEMENT

Compensation committee interlocks and insider participation

No member of the Compensation Committee is, or was during fiscal 2018, an officer or employee of the company or was formerly an officer or employee of the company. Further, during fiscal 2018, no member of the Compensation Committee had a relationship that is required to be disclosed under SEC rules regarding related-party transactions. Finally, no executive officer of the company serves or served on the compensation committee or board of directors of any company where any member of the Compensation Committee of the TimkenSteel Corporation Board of Directors is, or was during fiscal 2018, an executive officer.

Compensation committee report

The Compensation Committee has reviewed and discussed with our management the CD&A for the year ended December 31, 2018. Following and based on that review and discussion, the Compensation Committee recommended to our Board of Directors, and our Board approved, the inclusion of the CD&A in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, and its inclusion in this proxy statement for filing with the SEC.

Diane C. Creel (Chairperson)

Joseph A. Carrabba

Ronald A. Rice

Randall A. Wotring

Nominating and corporate governance committee

The Nominating and Corporate Governance Committee is responsible for, among other things, evaluating new director candidates and incumbent directors and recommending directors to serve as members of our Board’s standing committees. Members of the Nominating and Corporate Governance Committee are John P. Reilly (chairperson), Joseph A. Carrabba, Ronald A. Rice and Randall A. Wotring. Our Board of Directors has determined that all members of the Nominating and Corporate Governance Committee are independent as defined in the listing standards of the New York Stock Exchange.

Director candidates recommended by our shareholders will be considered in accordance with the criteria outlined below. In order for a shareholder to submit a recommendation, the shareholder must deliver a communication by registered mail or in person to the Nominating and Corporate Governance Committee, c/o TimkenSteel Corporation, Attn: Secretary, 1835 Dueber Ave. S.W., Canton, Ohio 44706. Such communication should include the proposed candidate’s qualifications, any relationship between the shareholder and the proposed candidate, and any other information that the shareholder would consider useful for the Nominating and Corporate Governance Committee to consider in evaluating such candidate.

A shareholder who wishes to nominate a person for election as a director must provide written notice to the company’s secretary in accordance with the procedures specified in Article I, Sections 13 and 14 of our Code of Regulations. In general, to be timely, the written notice must be received by our secretary at our principal executive offices not less than 90 nor more than 120 days prior to the first anniversary of the date on which the company held the preceding year’s annual meeting of shareholders. If the date of the annual meeting of shareholders is scheduled for a date more than 30 days prior to or more than 30 days after the first anniversary of the preceding year’s annual meeting of shareholders, then a shareholder’s notice must be delivered to our secretary at our principal executive offices not later than the close of business on the later of the 90th day prior to the annual meeting of shareholders or the 10th day following the day on which public announcement of the date of the annual meeting of shareholders is first made. The notice must provide certain information required by the Code of Regulations, including but not

 

		2019 PROXY STATEMENT			17

limited to (a) biographical and share ownership information of the shareholder (and certain affiliates), (b) descriptions of any material interests of the shareholder (and certain affiliates) in the nomination and any arrangements between the shareholder (and certain affiliates) and another person or entity with respect to the nomination, (c) biographical and employment information of each nominee, and (d) a brief description of any arrangement or understanding between each individual proposed as a nominee and any other person pursuant to which the individual was selected as a nominee.

The Nominating and Corporate Governance Committee has utilized and expects to utilize a variety of sources to identify possible director candidates, including professional associations and Board member recommendations. In recommending candidates, the Nominating and Corporate Governance Committee considers the qualifications of candidates such as business experience and other attributes and skills, including high standards of integrity and ethical behavior, which qualify the candidate to serve as a director of the company in light of the company’s business and structure. The Nominating and Corporate Governance Committee also may consider such other elements as it deems appropriate, consistent with the factors in the company’s Corporate Governance Guidelines, including whether the candidate enhances the diversity of the Board. Such diversity includes professional background and capabilities, knowledge of specific industries and geographic experience, as well as the more traditional diversity concepts of race, gender and national origin. The Nominating and Corporate Governance Committee also is responsible for reviewing the qualifications of, and making recommendations to the Board of Directors regarding, director nominations submitted by our shareholders. The committee will consider all potential candidates in the same manner regardless of the source of recommendation.

The Nominating and Corporate Governance Committee will periodically review the appropriate size of the Board and plans for director succession. In the event vacancies are anticipated or arise, the committee will consider potential director candidates. As part of this process, the committee will assess the skills and attributes of our Board as a whole and of each individual director and evaluate whether prospective candidates possess complementary and supplementary skills and attributes that would strengthen our Board.

The Nominating and Corporate Governance Committee has adopted a written charter, which is reviewed and reassessed annually. A current copy of the Nominating and Corporate Governance Committee charter is available on the company’s website at www.timkensteel.com and in print to any shareholder who requests a copy. All requests must be made in writing, addressed to TimkenSteel Corporation, Attn: Secretary, 1835 Dueber Ave. S.W., Canton, Ohio 44706.

 

18				2019 PROXY STATEMENT

Director compensation

The compensation program under which non-employee directors were compensated for their services as directors during 2018 is summarized below. As noted previously, this program is reviewed periodically by the Board to ensure that director compensation remains appropriate and competitive.

Cash compensation

Each non-employee director is paid an annual cash retainer for services as a director. For 2018, the annual cash retainer paid to each non-employee director was $65,000. An additional annual fee of $20,000 was paid to the lead director. In addition to the annual retainer, for 2018 the following annual fees were paid for service on a standing committee of our Board of Directors:

 

Committee		Chairperson fee					Member fee
Audit			$	30,000				$	15,000
Compensation			$	17,500				$	7,500
Nominating and Corporate Governance			$	17,500				$	7,500

Any director also employed by the company (currently, only Mr. Timken) is not paid any additional compensation for serving as a director.

Stock compensation

Each non-employee director serving at the time of our annual meeting of shareholders will receive a grant of our common shares following the meeting. The common shares are granted as deferred shares that vest on the first anniversary of the grant date, provided the director continues to serve as a non-employee director on that date. For 2018, the approximate target value of the grant was $120,000. A non-employee director who is first elected to the Board after the date of the annual meeting will receive a grant of common shares at the time of his or her election to the Board, the value of which may be prorated to reflect the portion of the year during which such director will serve on the Board.

The company requires that the common shares granted to a non-employee director be held for as long as the director remains on the TimkenSteel Board. In addition, the Compensation Committee of the Board of Directors has adopted stock ownership guidelines that require non-employee directors to own common shares with a value equal to five times the director’s annual cash retainer. The company considers all shares owned by the director, plus unvested deferred shares, in determining whether the director has met the ownership guidelines. As of March 1, 2019, each of the directors, with the exception of Mr. Riley who joined the Board in August 2018, had achieved at least 90% of his or her ownership requirement.

Compensation deferral

Any non-employee director may elect to defer the receipt of all or a specified portion of his or her cash and/or stock compensation in accordance with the provisions of the Amended and Restated TimkenSteel Corporation Director Deferred Compensation Plan. Pursuant to the plan, cash fees can be deferred and paid at a future date requested by the director. The amount will be adjusted based on investment crediting options, which include interest earned quarterly at a rate based on the prime rate plus one percent or the total shareholder return of our common shares, with amounts paid either in a lump sum or in installments in cash. Stock compensation can be deferred to a future date and paid either in a lump sum or installments and is payable in shares plus an amount representing dividend equivalents during the deferral period.

 

		2019 PROXY STATEMENT			19

2018 Director compensation table

The following table provides details of non-employee director compensation in 2018:

 

Name(1)		Fees earned or paid in cash					Stock awards(2)(3)					Total
Joseph A. Carrabba			$	80,000				$	119,202				$	199,202
Phillip R. Cox			$	87,500				$	119,202				$	206,702
Diane C. Creel			$	90,000				$	119,202				$	209,202
Terry L. Dunlap			$	87,500				$	119,202				$	206,702
Randall H. Edwards			$	87,500				$	119,202				$	206,702
Donald T. Misheff			$	102,500				$	119,202				$	221,702
John P. Reilly			$	117,500				$	119,202				$	236,702
Ronald A. Rice			$	87,500				$	119,202				$	206,702
Marvin A. Riley			$	36,250				$	119,570				$	155,820
Randall A. Wotring			$	87,500				$	119,202				$	206,702

 

(1)	Ward J. “Tim” Timken, Jr., Chairman, Chief Executive Officer and President, is not included in this table as he is an employee of the company and received no additional compensation for his services as a director.

(2)

The amount shown for each director, other than Marvin A. Riley, is the grant date fair value of 7,155 deferred shares awarded on May 3, 2018, as computed in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 718. With respect to Mr. Riley, the amount shown is the grant date fair value of 8,715 deferred shares awarded on August 9, 2018, the date he joined the Board, as computed in accordance with FASB ASC Topic 718. These awards have a one-year vesting period.

(3)	As of December 31, 2018, each director other than Mr. Riley held 7,155 unvested deferred shares, which are scheduled to vest on May 3, 2019. Mr. Riley held 8,715 unvested deferred shares, which are scheduled to vest on August 9, 2019. No director had any outstanding company stock options.

Changes to director compensation in 2019

Beginning in 2019, the Board has determined to eliminate annual fees for service as a member of a committee of the Board of Directors. At the same time, the annual cash retainer for services as a director will be increased from $65,000 to $80,000. This change in compensation structure is expected to reduce overall directors’ compensation slightly and is not expected to result in an increase in compensation for any individual director in 2019. Further, this change is designed to ensure directors serve on the committees to which their contributions will be most meaningful without regard to considerations related to director compensation, and also is intended to eliminate any perception that service on one committee is more valuable than service on other committees of the Board.

 

20				2019 PROXY STATEMENT

Corporate governance

Corporate governance guidelines

The Board of Directors has adopted the TimkenSteel Corporation Corporate Governance Guidelines. These guidelines outline the responsibilities of the Board of Directors, director selection criteria and procedures, board composition criteria and various policies and procedures designed to ensure effective and responsive governance. The TimkenSteel Corporation Corporate Governance Guidelines are reviewed annually by the Nominating and Corporate Governance Committee and are available on our website at www.timkensteel.com and in print to any shareholder who requests a copy. All requests must be made in writing, addressed to TimkenSteel Corporation, Attn: Secretary, 1835 Dueber Ave. S.W., Canton, Ohio 44706.

Code of Conduct

Each of our employees and directors is required to comply with the TimkenSteel Corporation Code of Conduct, a code of business conduct and ethics adopted by the company. Ethics and integrity, defined by the principles of honesty, fairness, respect and responsibility, are core values of the company. The TimkenSteel Corporation Code of Conduct sets forth policies covering a broad range of subjects, including antitrust and competition, corruption and bribery, conflicts of interest, inside information, accurate financial records, harassment, environmental health and safety and intellectual property, among other matters, and requires strict adherence to laws and regulations applicable to the company’s business. Any waiver of the Code of Conduct for executive officers or directors may be made only by the Board of Directors or its Nominating and Corporate Governance Committee and will be disclosed promptly in accordance with applicable law and rules of the New York Stock Exchange. The TimkenSteel Corporation Code of Conduct is reviewed periodically by the Nominating and Corporate Governance Committee and is available on our website at www.timkensteel.com and in print to any shareholder who requests a copy. All requests must be made in writing, addressed to TimkenSteel Corporation, Attn: Secretary, 1835 Dueber Ave. S.W., Canton, Ohio 44706.

Director independence

The Board of Directors has adopted the independence standards of the New York Stock Exchange listing requirements for determining the independence of directors. After consideration of all relevant facts and circumstances, including each individual’s commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships with the company, the Board has determined that the following directors meet those independence standards and that each of these individuals is independent and free of any material relationships with the company other than as established through his or her service as a director of the company: Joseph A. Carrabba, Phillip R. Cox, Diane C. Creel, Terry L. Dunlap, Randall H. Edwards, Donald T. Misheff, John P. Reilly, Ronald A. Rice, Marvin A. Riley and Randall A. Wotring.

Board leadership structure

Our Board of Directors is led by chairman Ward J. “Tim” Timken, Jr. and our lead director is John P. Reilly.

The chairman oversees the planning of the annual Board of Directors’ calendar and, in consultation with the other directors, schedules and sets the agenda for meetings of the Board of Directors and leads the discussions at such meetings. In addition, the chairman provides guidance and oversight to other members of management, helps with the formulation and implementation of our strategic plans and acts as the Board of Directors’ liaison to the rest of management. In this capacity, the chairman is actively engaged on significant matters affecting TimkenSteel. The chairman also leads our annual meetings of shareholders and performs such other functions and responsibilities as requested by the Board of Directors from time to time.

 

		2019 PROXY STATEMENT			21

The lead director’s duties include: (a) developing agendas for, and presiding over, the executive sessions of the independent directors; (b) reporting the results of the executive sessions to the CEO and chairman; (c) providing feedback as required to the other directors on the issues discussed with the CEO and chairman; (d) serving as a liaison between the independent directors and the chairman and CEO; (e) presiding at all meetings of the Board at which the chairman is not present; (f) approving information sent to the Board; (g) approving agendas for Board meetings; (h) approving Board meeting schedules to ensure that there is sufficient time for discussion of all agenda items; (i) calling meetings of the independent directors; and (j) ensuring that he or she is available for consultation and direct communications with major shareholders as appropriate.

Risk oversight

The Board of Directors, in close coordination with its standing committees, oversees the company’s management of risk, including the company’s processes for identifying, reporting and mitigating risks. The Audit Committee reviews and discusses the guidelines, policies and processes by which the CEO and senior management of the company assess and manage risks and discusses the company’s major financial risk exposures and the steps management has taken to monitor and control these exposures. Where the Board of Directors, directly or through another committee of the Board, has processes in place to manage non-financial risks, the Audit Committee will review such risk management processes in a general manner. The Board believes that this approach, supported by our senior leadership structure, provides appropriate checks and balances against undue risk-taking.

Related-party transactions approval policy

As noted, our directors and employees, including our executive officers, are subject to the TimkenSteel Corporation Code of Conduct, which requires employees and directors to act in the best interests of the company and to avoid actual or potential conflicts of interest. To fulfill this duty, employees and directors must avoid situations in which their actions or loyalties are, or may appear to be, divided. While not every situation can be identified in a written policy, our Code of Conduct specifically prohibits the following situations:

 

•

holding a significant financial interest or directorship in any of our customers, competitors or suppliers;

 

•

entering into personal transactions with our customers or suppliers on terms other than those generally available to the public or our company’s employees;

 

•

investing in customers, suppliers or competitors that are not publicly traded;

 

•

making or receiving a loan or credit from any of the company’s customers, competitors or suppliers or from a director, officer or employee of a customer, competitor or supplier, other than in the ordinary course of our company’s business;

 

•

giving or receiving gifts, gratuities or entertainment except to the extent they are customary, of nominal value and not intended to influence a business decision;

 

•

taking personal advantage of corporate opportunities that the company might be interested in pursuing;

 

•

using the company’s assets for personal gain;

 

•

using the company’s property other than in connection with our business; and

 

•

conducting business with or supervising family members or friends.

Pursuant to the Code of Conduct, employees’ requests for waivers of the Code of Conduct, including but not limited to waivers of any potential or actual conflict of interest, must be submitted to and approved by the General Counsel. Any requested waivers of the Code of Conduct for directors or executive officers can be made only by the Board of Directors or the Nominating and Corporate Governance Committee of the Board. Any of these waivers for

 

22				2019 PROXY STATEMENT

directors or executive officers will be disclosed promptly in accordance with applicable law and the rules of the New York Stock Exchange. There were no requests for, or grants of, waivers of the Code of Conduct for any of our executive officers or directors in 2018.

The Nominating and Corporate Governance Committee also is responsible for reviewing and, if appropriate, approving or ratifying any related-party transaction required to be disclosed under Item 404(a) of Regulation S-K of the Securities Act of 1933. In this regard, during 2018, the company purchased approximately $3,273,488 in products from, and sold approximately $18,356,437 in products to, various companies affiliated with Ellwood Group, Inc. (“Ellwood”). As of the date of this proxy statement and throughout 2018, Ellwood owned more than 5% of the company’s outstanding common shares and therefore constituted a “related party” for purposes of Item 404(a). The purchases and sales between the company and affiliates of Ellwood were made in the ordinary course of business and on an arms-length basis and have been approved by the Nominating and Corporate Governance Committee.

 

		2019 PROXY STATEMENT			23

Our commitment to corporate sustainability

At TimkenSteel, operating responsibly and sustainably is as important to us as making the world’s cleanest steel.

 

 

Guided by our core values of ethics and integrity, quality, innovation and independence, we focus on creating long-term shareholder value by employing sustainable practices throughout the company. TimkenSteel’s commitment to operating responsibly helps us create and maintain a safe and healthy workplace, look after our environmental resources and develop sustainable technologies and business practices that contribute to economic growth and prosperity.   Serving as the foundation of our sustainability program are business ethics and stakeholder engagement. We are committed to operating in accordance with the highest standards of ethics and integrity, and maintaining robust compliance programs. In addition, we believe that communicating regularly and transparently with stakeholders and responding to feedback is key to our overall success.

Built on those foundations are social and cultural leadership, environmental stewardship and economic impact pillars comprised of the following nine areas in which we are focusing our sustainability efforts:

 

•

safety and health

 

•

total wellbeing

 

•

community impact

 

•

resource conservation

 

•

sound environmental management

 

•

continuous improvement in environmental practices

 

•

shareholder value

 

•

corporate governance

 

•

risk management

Corporate Sustainability Committee

Formed in 2018, our cross-functional Corporate Sustainability Committee meets, at minimum, on a quarterly basis and oversees our corporate responsibility objectives and regularly monitors our progress toward achieving them. Progress reports are provided to TimkenSteel’s leadership team semi-annually and to the Board of Directors on an annual basis.

TimkenSteel’s Corporate Sustainability Policy and more information on our corporate sustainability program can be found at www.timkensteel.com/corporatesustainability. Please note, however, that information contained on the website is not incorporated by reference in this proxy statement or considered to be a part of this document.

 

24				2019 PROXY STATEMENT

Beneficial ownership of common stock

The following table shows, as of March 1, 2019, the beneficial ownership of our common shares by each director, nominee for director and NEO, and by all directors, nominees for director and executive officers as a group.

 

Name		Number of shares of common stock beneficially  owned(1)(2)					Percent of class(3)
Joseph A. Carrabba				29,636					*
Phillip R. Cox				35,666					*
Diane C. Creel				28,841					*
Terry L. Dunlap				22,495					*
Randall H. Edwards				23,680					*
Donald T. Misheff				23,432					*
John P. Reilly				40,273					*
Ronald A. Rice				41,293					*
Marvin A. Riley				0					*
Randall A. Wotring				41,411					*
Ward J. “Tim” Timken, Jr.(4)				3,417,170					7.5	%
William P. Bryan				41,537					*
Frank A. DiPiero				67,679					*
Thomas D. Moline				56,850					*
Kristopher R. Westbrooks				0					*
Christopher J. Holding				128,667					*
All directors, nominees for director and executive officers as a group(2)(4) (16 Individuals)				3,998,630					8.7	%

 

*	Percent of class is less than 1%.

(1)

Except as otherwise indicated below, for the purposes of this table beneficial ownership of our common shares is based on the sole or shared power to vote or direct the voting or to dispose or direct the disposition of our common shares. Beneficial ownership as determined in this manner does not necessarily bear on the economic incidents of ownership of our common shares. None of the shares owned by directors, nominees or the named executive officers has been pledged as security.

 

		2019 PROXY STATEMENT			25

(2)	The following table provides additional details regarding beneficial ownership of our common shares:

 

Name		Outstanding options(a)					Deferred common shares(b)
Joseph A. Carrabba				0					29,636
Phillip R. Cox				0					3,466
Diane C. Creel				0					0
Terry L. Dunlap				0					0
Randall H. Edwards				0					0
Donald T. Misheff				0					22,832
John P. Reilly				0					3,401
Ronald A. Rice				0					0
Marvin A. Riley				0					0
Randall A. Wotring				0					29,851
Ward J. “Tim” Timken, Jr.				723,120					0
William P. Bryan				27,245					0
Frank A. DiPiero				52,320					0
Thomas D. Moline				33,175					0
Kristopher R. Westbrooks				0					0
Christopher J. Holding				106,860					0

 

(a)

Includes shares that the individual named in the table has the right to acquire on or before May 1, 2019, through the exercise of stock options pursuant to the TimkenSteel Corporation Amended and Restated 2014 Equity and Incentive Compensation Plan. Including those listed, all directors, nominees for director, and executive officers as a group have the right to acquire 942,720 shares on or before May 1, 2019, through the exercise of stock options pursuant to the TimkenSteel Corporation Amended and Restated 2014 Equity and Incentive Compensation Plan. These shares have been treated as outstanding for the purpose of calculating the percentage of the class beneficially owned by such individual or group, but not for the purpose of calculating the percentage of the class owned by any other person.

(b)

Acquired through deferrals of directors’ cash or equity compensation; these shares will not be issued until a later date under the TimkenSteel Corporation Director Deferred Compensation Plan.

 

(3)	Calculated using 44,764,545 shares as the number of common shares outstanding.

(4)

Includes 293,047 shares over which Mr. Timken exercises sole voting and investment authority, 2,401,003 shares with respect to which Mr. Timken shares voting and investment discretion, and 723,120 shares which Mr. Timken has the right to acquire as discussed above. Of the shares reported, Mr. Timken disclaims beneficial ownership of 2,357,899 shares, including 1,405 shares held by his spouse, 3,000 shares held by the Ward J. Timken Trust FBO Grandchildren, and 2,353,494 shares held by The Timken Foundation of Canton.

 

26				2019 PROXY STATEMENT

The following table provides information known to us about each beneficial owner of more than 5% of our common shares as of March 1, 2019, unless otherwise indicated below.

 

Beneficial owner		Amount					Percent of class(8)
BlackRock Inc.(1) 55 East 52nd Street New York, NY 10022				5,890,211					13.2	%
Timken family(2)				4,891,491					10.9	%
Ellwood Group, Inc.(3) 1105 N. Market Street P.O. Box 8985, Suite 1300 Wilmington, DE 19810				4,285,026					9.6	%
The Vanguard Group Inc.(4) 100 Vanguard Blvd. Malvern, PA 19355				3,818,341					8.5	%
Dimensional Fund Advisors LP(5) Building One 6300 Bee Cave Road Austin, TX 78746				3,725,367					8.3	%
Luminus Management, LLC(6) 1700 Broadway, 26th Floor New York, NY 10019				3,562,927					8.0	%
GAMCO Investors, Inc.(7) One Corporate Center Rye, NY 10580				2,743,339					6.1	%

 

(1)

Pursuant to a Schedule 13G/A filed with the SEC on January 31, 2019, BlackRock Inc. reported it is the beneficial owner of, and has sole dispositive power over, 5,890,211 of our common shares, with respect to which it has sole voting power over 5,787,694 shares and shared voting power over no shares.

(2)

Members of the Timken family, including Ward J. “Tim” Timken, Jr., have in the aggregate sole or shared voting and dispositive power with respect to 4,891,491 of our common shares, which includes 723,120 shares that Ward J. “Tim” Timken, Jr. has the right to acquire on or before May 1, 2019. The Timken Foundation of Canton (the “Foundation”), 200 Market Avenue North, Suite 210, Canton, Ohio 44702, holds 2,353,494 of these shares, representing 5.3% of our outstanding common shares. Ward J. Timken, Joy A. Timken, Ward J. “Tim” Timken, Jr., William R. Timken, Jr. and Mark Scheffler are trustees of the Foundation and share the voting and investment power with respect to such shares. There are no voting agreements or other arrangements among the members of the Timken family or the Foundation and its trustees regarding the 4,891,491 common shares and, accordingly, the members of the Timken family are not a “group” for purposes of Rule 13d-3 under the Exchange Act with respect to such shares. Accordingly, each member of the Timken family disclaims beneficial ownership of any of the company’s common shares as to which such member does not have sole or shared voting or investment power.

(3)	Pursuant to a Schedule 13D/A filed with the SEC on January 5, 2016, the Ellwood Group, Inc. and its wholly-owned subsidiary, Ellwood Group Investment Corp., reported it is the beneficial owner of, and has sole voting and dispositive power with respect to, 4,285,026 of our common shares.

 

		2019 PROXY STATEMENT			27

(4)

Pursuant to a Schedule 13G/A filed with the SEC on February 12, 2019, The Vanguard Group Inc. reported it is the beneficial owner of 3,818,341 of our common shares, with respect to which it has sole voting power over 40,119 shares, shared voting power over 3,035 shares, sole dispositive power over 3,780,321 shares and shared dispositive power over 38,020 shares.

(5)

Pursuant to a Schedule 13G/A filed with the SEC on February 8, 2019, Dimensional Fund Advisors LP reported it is the beneficial owner of, and has sole dispositive power over, 3,725,367 of our common shares, with respect to which it has sole voting power over 3,545,496 shares and shared voting power over no shares. Dimensional Fund Advisors LP disclaims beneficial ownership of the shares reported in the Schedule 13G as all such shares are owned by investment companies and other commingled funds, group trusts and separate accounts for which Dimensional Fund Advisors provides investment advice or serves as investment manager or sub-adviser.

(6)	Pursuant to a Schedule 13G/A filed with the SEC on February 15, 2019, Luminus Management, LLC reported, on behalf of itself and its affiliates, it is the beneficial owner of, and has shared voting and dispositive power with respect to, 3,562,927 of our common shares.

(7)

Pursuant to a Schedule 13D filed with the SEC on May 14, 2019, GAMCO Investors, Inc. reported it, through various affiliated entities including Gabelli Funds, LLC, GAMCO Asset Management Inc., Teton Advisors, Inc. and Gabelli & Company Investment Advisers, Inc., is the beneficial owner of, and has sole dispositive power over, 2,743,339 of our common shares, with respect to which it has sole voting power over 2,573,339 shares and shared voting power over no shares.

(8)	Calculated using 44,764,545 shares as the number of common shares outstanding.

Section 16(a) beneficial ownership reporting compliance

Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who own more than 10% of our common shares, to file reports of ownership and changes in ownership with the SEC and the New York Stock Exchange, and to provide us with copies of such reports. We are required to disclose any failure by any of the above-mentioned persons to file timely Section 16 reports. Based solely upon our review of reports furnished to us, or written representations that no forms were required to be filed, we are not aware of any instances of noncompliance, or late compliance, with Section 16 filings during the year ended December 31, 2018, by our executive officers, directors or 10% shareholders.

 

28				2019 PROXY STATEMENT

Proposal 2

Ratification of appointment of independent auditor

Appointment of independent auditor for 2019

The Audit Committee of the Board of Directors has selected Ernst & Young LLP, an independent registered public accounting firm, to perform the audit of the company’s financial statements and our internal control over financial reporting for the 2019 fiscal year. Ernst & Young has served as our independent auditor since 2012.

The selection of Ernst & Young as our independent auditor is not required to be submitted to a vote of our shareholders for ratification. The Board of Directors believes, however, that obtaining shareholder ratification is a sound governance practice. If our shareholders fail to vote in favor of the selection of Ernst & Young, the Audit Committee will reconsider whether to retain Ernst & Young and may retain that firm or another firm without re-submitting the matter to our shareholders. Even if the shareholders ratify this appointment, the Audit Committee may, in its discretion, direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the company’s best interest.

Representatives of Ernst & Young are expected to be present at the 2019 annual meeting of shareholders. They will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions.

Ratification of the appointment of Ernst & Young as the company’s independent auditor for the 2019 fiscal year requires the affirmative vote of a majority of the votes cast on the proposal.

Shares represented by proxy will be voted FOR this proposal unless you specify otherwise in your voting instructions.

 

		Your Board of Directors recommends a vote for the ratification of the selection of Ernst & Young LLP as the independent auditor for the 2019 fiscal year.

 

		2019 PROXY STATEMENT			29

Services of independent auditor for 2018

Set forth below are the aggregate fees billed by Ernst & Young for professional services rendered to the company for the fiscal years ended December 31, 2017 and 2018:

 

		2018				2017
Audit fees(a)			$1,096,300				$1,134,015
Audit-related fees			0				0
Tax fees			0				0
All other fees			0				0
Total fees			$1,096,300				$1,134,015

 

(a)	Audit Fees consist of fees for professional services rendered for the audit of our annual consolidated financial statements, including, for 2017 and 2018, statutory audits of $22,000 and $23,300, respectively.

Audit committee pre-approval policies and procedures

The Audit Committee annually approves the scope of services and fees payable for the year-end audit and statutory audits to be performed by the independent auditor for the next fiscal year. In addition, the Audit Committee has adopted a pre-approval policy pursuant to which the committee annually approves certain audit, audit-related and tax services which may be provided by the independent auditor, along with the associated fees for such services, during the upcoming fiscal year. Other than services pre-approved in connection with the annual engagement of the independent auditor or pursuant to the pre-approval policy, all services to be provided by the independent auditor must be pre-approved by the Audit Committee. Requests for pre-approval must contain sufficient detail to ensure the Audit Committee knows precisely what services it is being asked to pre-approve so that it can make a well-reasoned assessment of the impact of the service on the auditor’s independence. With certain specified limitations, the Audit Committee has delegated its pre-approval authority to its chairperson, who must report any pre-approval decisions to the full Audit Committee at its next scheduled meeting. All of the services described above were approved by the Audit Committee in accordance with the foregoing policies and procedures.

 

30				2019 PROXY STATEMENT

Proposal 3

Approval, on an advisory basis,

of named executive officer compensation

At the 2018 annual meeting of shareholders, the advisory vote to approve the compensation of the company’s named executive officers passed with approximately 80% of the votes cast in favor of the company’s “say-on-pay” proposal. Our Compensation Committee sought to understand our shareholders’ observation, evaluated market data and made changes to our executive compensation plans for 2019, including certain changes to long-term incentives and a change to CEO target pay. Please see “Executive summary – 2018 say-on-pay vote and 2019 executive compensation changes” in the CD&A for additional information.

We believe the compensation programs for our named executive officers:

 

•

align the interests of our executives with those of our shareholders;

 

•

reward executives for sustained, strong business and financial results; and

 

•

enable us to attract, retain and motivate the best talent.

As required under the Dodd-Frank Wall Street Reform and Consumer Protection Act and Section 14A of the Exchange Act, we are asking you to approve, on an advisory (non-binding) basis, the following resolution at our 2019 annual meeting of shareholders:

RESOLVED, that the compensation of the named executive officers as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the compensation discussion and analysis, the compensation tables and any related material disclosed in this proxy statement, is hereby APPROVED.

We encourage you to carefully review the compensation discussion and analysis, the compensation tables, and related disclosures included in this proxy statement. The Board recommends that shareholders indicate their support for the compensation of the company’s named executive officers as described in this proxy statement by voting “FOR” approval of this proposal at the annual meeting.

As an advisory vote, this resolution is not binding. Nonetheless, the Compensation Committee, which is responsible for designing and administering our executive compensation program, values the opinions expressed by our shareholders with respect to this proposal. The Compensation Committee will consider the affirmative vote of a majority of the votes cast on this proposal as approval of the compensation paid to the company’s executive officers. If there are a significant number of negative votes, the Compensation Committee will seek to understand and consider the concerns that influenced such votes in making future decisions about executive compensation programs.

Shares represented by proxy will be voted FOR this proposal unless you specify otherwise in your voting instructions.

 

		Your Board of Directors recommends a vote for advisory approval of the compensation of our named executive officers.

 

		2019 PROXY STATEMENT			31

Compensation discussion and analysis

This Compensation Discussion and Analysis (“CD&A”) provides an overview of our executive compensation philosophy and practices, and the factors considered by the Compensation Committee in granting and delivering executive compensation for 2018.

This CD&A focuses on the following individuals, whom we have determined to be the named executive officers (“NEOs”) of TimkenSteel for 2018.

 

		Ward J. “Tim” Timken, Jr. Chairman, CEO and President
Frank A. DiPiero Executive Vice President, General Counsel and Secretary		NEOs of TimkenSteel for 2018		Kristopher R. Westbrooks Executive Vice President and Chief Financial Officer
William P. Bryan Executive Vice President, Manufacturing and Supply Chain				Thomas D. Moline Executive Vice President, Commercial Operations
		Christopher J. Holding Former Executive Vice President and Chief Financial Officer*

 

*	Christopher J. Holding terminated employment with the company on September 23, 2018, and Kristopher R. Westbrooks was appointed as Executive Vice President and Chief Financial Officer effective September 24, 2018.

Executive summary

Our 2018 business performance

For the third consecutive year, TimkenSteel’s earnings continued to improve. Net sales, gross profit and sales of our most profitable products continued to climb. We also marked record safety performance in our operations.

Sharp demand changes and unplanned maintenance, however, resulted in some inefficiencies that affected delivery and, combined with inflation in our supply chain, impacted financial performance for the year. We corrected these issues by year end, but the impact of production challenges masked some of the positive structural changes we made. However, the strategies that delivered new business at higher margins and a richer product mix have positioned the company well for sustainable performance.

Our pay-for-performance compensation plans operated as intended. Basic profitability and cash metrics limited variable compensation across the organization, beginning with executive compensation paying well below target. One smaller metric in our annual plan, which incentivized sales of our most profitable products, helped drive behavior that improved product mix and price and offset some of the negative factors we faced in the year. The progress we made laid a strong foundation for 2019 and beyond.

 

 

32				2019 PROXY STATEMENT

2018   Net sales $1.61B   Net loss $(31.7M)(1)   Adjusted EBITDA(2) $105.4M				as   compared   to				2017   Net sales $1.33B   Net loss $(43.8M)(1)   Adjusted EBITDA(2) $69.2M

 

(1)	Net loss includes a loss from the remeasurement of benefit plans of $21.8M in 2017 and $43.5M in 2018.

(2)	Adjusted EBITDA is a non-GAAP financial measure. Please see appendix for a reconciliation of this financial measure to the most comparable GAAP financial measure.

The improvement over the prior year was driven primarily from greater volume, improved margins and a richer sales mix of products. We drove these results with a clear strategy to gain share and better price in our most differentiated product lines and were aided in that effort by favorable market conditions in key markets and U.S. government trade actions. While these favorable factors laid the foundation for sustainable performance, they did not entirely offset unanticipated inflation and operating challenges, which impacted our financial performance.

Pay for performance

At TimkenSteel, we believe in rewarding employees, including our NEOs, for helping us achieve our corporate goals, deliver exceptional performance and build shareholder value. In this spirit, we designed our executive compensation program to:

 

Objectives

✓  Align the interests of our executives and shareholders   ✓  Reward executives for strong business and financial results   ✓   Attract, retain and motivate the best talent

The compensation of our NEOs during 2018 reflects our financial results and demonstrates that our compensation plans pay for performance as intended.

 

•

The metrics established for our annual performance award plan (APA plan) for 2018 were percentage of earnings before interest and taxes to beginning invested capital (EBIT/BIC), cash flow and sales of the company’s most profitable products or, as we call them, “key process path sales.”

 

•

Payouts awarded to our executives under the APA plan for 2018 were below target levels. This payout reflected performance that improved significantly in 2018 but was still below expectations, driven primarily by unanticipated operational challenges that negatively impacted profitability.

 

•

Additionally, despite year-over-year improvements in profitability, the CEO’s award was reduced by 50% in recognition of the shortfall against plan in both the EBIT/BIC and cash flow metrics.

 

•

This below-target annual incentive payment to each NEO followed several years of below-target annual incentive payments. Since 2015, our executives have received, in the aggregate, annual incentive payments equal to 28% of target, reflecting the company’s performance and the many challenges during that time.

 

•

Performance share cycles for 2016-2018 and 2017-2018 performance periods fell below threshold cumulative cash flow requirements and did not vest. This follows the forfeiture of the 2015-2017 performance share grant, which also did not vest, as the threshold performance requirements were not met.

 

•

As a result, our NEOs’ aggregate realizable compensation for 2018, as in prior years, was lower than established target compensation.

 

		2019 PROXY STATEMENT			33

2018 say-on-pay vote and 2019 executive compensation changes

In 2018, shareholders approved the compensation of our NEOs with approximately 80% of votes cast in favor of our “say-on-pay” proposal. Our Compensation Committee considered shareholder feedback and evaluated market data in their annual review of executive compensation plans and made changes to those plans for 2019 that included:

 

•

an adjustment to CEO target pay; and

 

•

the addition of a one-year holding period to our two-year long-term incentive performance share cycle which creates a three-year plan subject to share price impact.

The CEO’s realizable pay over the past four years has been 29% of target. While the Compensation Committee recognized that the pay-for-performance structure of the compensation plan is working effectively in terms of realizable pay, they took into account feedback from our shareholders and conducted further analysis as part of their annual review. As a result, the committee concluded that CEO target pay should be reduced to better align with market data. As such, the committee reduced the CEO’s long-term incentive opportunity, resulting in a 10% decrease in total target direct compensation. The Compensation Committee believes the new target continues to recognize the unique experience of the CEO while better aligning with market practices.

In 2017, the Compensation Committee adjusted the performance share cycle for all participants in the long-term incentive plan from three-years to two-years to address the difficulty in setting long-range targets given the cyclical nature of customer demand and TimkenSteel’s limited history as a standalone company. While the committee remains concerned about the ability to effectively establish long-range targets, in considering feedback received from our shareholders, the committee determined to change the design of the company’s performance shares. Beginning in 2019, performance shares will be awarded for a three-year cycle, with performance metrics measured over a two-year period and a holding period applied in the third year to allow for share price to impact the final award.

Executive compensation highlights

 

 

34				2019 PROXY STATEMENT

Our compensation philosophy

We believe in rewarding employees, including our NEOs, for helping us achieve our corporate goals, deliver exceptional performance and build shareholder value. In this spirit, we designed our executive compensation program to align our executives’ interests with those of our shareholders, to reward leaders for strong business results, and to attract, retain and motivate the best talent in the industry.

 

Our executive compensation philosophy embodies the following principles:   ✓  Recognizes people are our strongest asset   ✓  Rewards results linked to short- and long-term performance (pay-for-performance)   ✓  Positions pay affordably and competitively in the marketplace   ✓  Drives a focus on increasing shareholder value

Rewarding performance

 

TimkenSteel’s success depends largely on the contributions by motivated, focused and energized people working together to achieve our strategic objectives. This understanding shapes our approach to providing a competitive total rewards package to our CEO and the other NEOs.   As noted above, pay for performance is one of the four principles of our executive compensation philosophy. To ensure we are adhering to this principle, we regularly evaluate our incentive compensation plans to ensure that the opportunities and metrics drive desired business results, including for 2018:   •  EBIT/BIC;   •  Cash flow;   •  Key process path sales;   •  Average return on invested capital; and   •  Base sales.   Performance-based pay comprised 83% of the target total direct compensation for Mr. Timken and between 57% and 70% of the target total direct compensation for the other NEOs. Our Compensation Committee uses a comprehensive process to assess company performance. We believe our metrics focus management on the appropriate objectives for creating both short- and long-term shareholder value.		The company’s approach to rewarding performance   Annual incentive   •  Reward achievement of short-term corporate and individual performance goals   Restricted stock units and stock options   •  Reward long-term value creation   •  Reinforce ownership in the company   •  Support retention of executives   Performance shares   •  Reward achievement of long-term financial results that drive value creation   •  Link compensation to building long-term shareholder value   •  Reinforce ownership in the company   •  Support executive retention

 

		2019 PROXY STATEMENT			35

Determining compensation for 2018

Role of the Compensation Committee: Deciding on compensation

 

The Compensation Committee determines the appropriate level of compensation for all executive officers, including the CEO and other NEOs. The committee reviews all compensation components and determines whether each individual’s total compensation is reasonable and consistent with the company’s compensation philosophy. In making this determination, the committee may consider:		The Compensation Committee considers whether the company’s compensation programs encourage unnecessary or excessive risk-taking and has determined that they do not.

 

•

With respect to all NEOs other than the CEO, the CEO’s recommendations;

 

•

Market data provided by the committee’s external compensation consultant; and

 

•

Additional factors such as the executive’s operating responsibilities, experience level, retention risk, tenure and performance in the position.

In light of these considerations, the Compensation Committee may make adjustments to a particular element of an executive’s compensation. The committee then approves, with any modifications it deems appropriate, base salary ranges, target annual performance award opportunities and long-term incentive opportunities and grants for the company’s NEOs. With respect to the CEO, once the committee has determined the compensation package for the CEO, it is then presented to the independent members of the Board of Directors for approval during executive session.

The amount of past compensation realized or potentially realizable does not directly impact the level at which current and long-term pay opportunities are set, although the Compensation Committee does consider this information in its deliberations.

Role of the CEO and management: Providing compensation recommendations

The CEO, working with human resources leadership and the compensation consultant, prepares compensation recommendations for the NEOs (other than the CEO) and presents them to the Compensation Committee. These recommendations are based on:

 

•

The CEO’s personal review of the other NEOs’ performance, job responsibilities and importance to the company’s overall business strategy, as well as

 

•

The company’s compensation philosophy.

In preparing compensation recommendations for the NEOs, the CEO and human resources leadership together consider market data for the key elements of NEO compensation and evaluate the total compensation package in relation to the target established for the position, taking into account the scope of responsibilities for the particular position. The CEO, human resources leadership and compensation consultant also evaluate total direct compensation (base salary, annual incentives and long-term incentive grants) in relation to total compensation of comparable positions derived from general market data as well as internal equity considerations.

Although these recommendations are given significant weight, the committee retains full discretion when determining compensation.

 

36				2019 PROXY STATEMENT

Role of the compensation consultant: Advising the Compensation Committee

The Compensation Committee retains the authority to approve and monitor all compensation and benefit programs (other than broad-based welfare benefit programs). The committee engages the services of a compensation consultant to add rigor in the review process and to provide insight into market trends. The consultant analyzes the company’s executive compensation structure and plan designs and assesses whether the compensation program is competitive and supports the goal of aligning the interests of NEOs with those of shareholders. The consultant also provides market data directly to the Compensation Committee, for reference when determining compensation for NEOs, as well as assessing compensation for the Board of Directors.

The Compensation Committee uses Meridian Compensation Partners, LLC as its compensation consultant.

In 2018, Meridian’s primary areas of assistance were:

 

•

Gathering information related to current trends and practices in Board of Directors and executive compensation;

 

•

Reviewing information developed by management for the Compensation Committee and providing its input to the committee;

 

•

Attending and participating in meetings with the Compensation Committee, as well as briefings with the committee chairperson and management between regularly scheduled meetings; and

 

•

Reviewing with management and the Compensation Committee materials to be used in the company’s proxy statement.

While the consultant reports directly to the Compensation Committee, the committee has authorized the consultant to interact with company management, as needed, on the committee’s behalf.

The Compensation Committee has the sole authority to approve the independent compensation consultant’s fees and terms of the engagement. Thus, the committee annually reviews its relationship with its consultant — including services provided, quality of services and associated fees — to ensure executive compensation consulting independence.

 

		2019 PROXY STATEMENT			37

Elements of our executive compensation program

Our executive compensation program is designed to align the interests of our executives with those of our shareholders and to encourage the personal and collective growth of our executives through improved company performance. The company uses a balance of short- and long-term incentives as well as cash and non-cash compensation to meet its executive compensation program objectives. The company’s incentive compensation programs for executives are designed to link compensation with the full spectrum of our short- and long-term business goals. Our executive compensation program for 2018 consists of the following elements:

 

		Compensation element		Link to program objectives
		Base salary		Provides a stable source of income and is a standard element in executive compensation packages.
		Annual incentive		Encourages executives to focus on specific corporate performance goals. Target incentive opportunity is set as a percentage of base salary and awards are earned after threshold performance levels are met. Metrics for 2018 include:   •  EBIT/BIC   •  Cash flow   •  Key process path sales of our most profitable products
		Nonqualified stock options		Helps ensure executive pay is directly linked to value created for shareholders. Four-year vesting promotes retention, and NEOs holding nonqualified stock options will receive greater value if the stock price rises.
		Performance shares		Links executive compensation to building long-term shareholder value, balances short-term operating focus, and aligns executive management’s long-term financial interests with those of our shareholders, as value is linked to the stock price. Shares awarded in 2018 vest at the end of a two-year performance period based on attainment of specific goals: •  Base sales •  Return on invested capital
		Restricted stock units		Rewards long-term shareholder value creation. Three-year cliff vesting promotes retention and enhances executive stock ownership.
		Retirement and savings		Helps attract and retain executive talent. NEOs receive retirement benefits through several plans: •  Qualified and nonqualified defined contribution plans •  Qualified and nonqualified defined benefit plans •  Deferred compensation plan
		Other benefits		Helps attract and retain executive talent. NEOs participate in the benefit plans available to salaried employees including medical and dental benefits and life, accidental death and disability insurance. Perquisites are limited in amount and are not grossed up for taxes, and the Compensation Committee limits eligibility and use.
		Severance and change in control agreements		Helps ensure NEOs remain focused on creating sustainable performance. Agreements protect the company and the NEOs from risks by providing: •  Economic stability •  Death or disability payments •  Payments and benefits in the event of a change in control

 

38				2019 PROXY STATEMENT

Analysis of 2018 compensation

The following factors guided the compensation decisions for 2018:

 

•

Executive compensation program objectives and philosophy;

 

•

Expected and actual financial performance;

 

•

Recommendations of the Chairman, CEO and President for the other NEOs;

 

•

Assessment of risk associated with our compensation plans, including avoiding unnecessary or excessive risk-taking;

 

•

Advice of an independent compensation consultant; and

 

•

Market pay practices as reflected in external executive compensation data, studies and trends.

Guidelines for base salaries, annual incentives and long-term incentive grants are initially based on the 50th percentile of the general industry data for comparable roles. While the company also reviews compensation practices within the steel and related industries, this data is not the primary consideration for pay guidelines.

The company may provide target compensation above or below the 50^th percentile for a particular position, based on internal factors such as the executive’s operating responsibilities, experience level, retention risk, tenure and performance in the position.

The company establishes compensation levels in this way for two reasons:

 

•

First, this approach sets fair and reasonable pay levels needed to attract and retain qualified executives; and

 

•

Second, it requires excellent individual performance and company performance for pay that is higher than that indicated in the general industry data for comparable roles.

CEO compensation

In setting Mr. Timken’s target pay for 2018, the Compensation Committee reviewed market data for similar positions, considered the total compensation package for the CEO in relation to the target established for the position, and took into account the CEO’s unique experience and scope of responsibilities. The committee established target total direct compensation (base salary, target annual incentives and target long-term incentive grants) for the CEO between the 50^th and 75^th percentile based on general industry compensation survey data.

2018 CEO target pay mix

 

 

		2019 PROXY STATEMENT			39

The following exhibit shows the components of total compensation awarded to Mr. Timken for 2015 through 2018 (the four years since TimkenSteel became an independent company) on a targeted basis and based on the realizable value as of December 31, 2018. The realizable value of these awards reflects our 2018 year-end share price of $8.74. The CEO’s realizable pay over four years is 29% of target compensation, which reflects the company’s performance challenges during this period and demonstrates that our compensation plans pay for performance and align our CEO’s interests with those of our shareholders, as intended.

 

 

Target compensation definitions		Realizable/actual compensation definitions
•   Base salary represents the yearly guaranteed fixed amount of cash compensation for 2015 through 2018.   •   Annual incentive represents the aggregate target annual performance award opportunities for 2015 through 2018.		•   Base salary represents the yearly guaranteed fixed amount of cash compensation paid in 2015 through 2018.   •   Annual incentive represents annual performance award payouts for the 2015 through 2018 plan years.
•   Long-term incentive represents aggregate grant date fair value of stock option awards and performance share awards for 2015 through 2018.		•   Long-term incentives include the in-the-money value of nonqualified stock options and performance shares assuming target performance for the 2018 performance share grant. All long-term incentives are based on a share price of $8.74 at the end of 2018. Performance shares granted in 2015, 2016 and 2017 have been cancelled due to failure to achieve performance requirements.

 

40				2019 PROXY STATEMENT

Base salary

Base salaries for NEOs are intended to be competitive and reflect the scope of their responsibilities, the length of their experience performing those responsibilities and their performance. The Compensation Committee initially determines base salary ranges for NEOs using external surveys of salary practices for positions with similar levels of responsibility. The committee also reviews base salaries for the NEOs annually in light of each officer’s performance, experience, leadership, current salary and position in the salary range.

All NEOs’ salaries, with the exception of Mr. Westbrooks who joined the company in September 2018, were increased at the market rate for executives in 2018.

2018 Base salary decisions

 

		Base salary (annualized)
		2017 Salary					2018 Salary					Percent change
Ward J. “Tim” Timken, Jr.			$	865,200				$	891,156					3%
Kristopher R. Westbrooks				N/A				$	391,850					N/A
Frank A. DiPiero			$	371,319				$	382,459					3%
Thomas D. Moline			$	281,700				$	290,151					3%
William P. Bryan			$	281,700				$	290,151					3%
Christopher J. Holding*			$	378,525				$	389,881					3%

 

*	Mr. Holding terminated employment with the company effective September 23, 2018. For actual salary paid to Mr. Holding during 2018, please see “Compensation of executive officers – 2018 Summary compensation table.”

 

		2019 PROXY STATEMENT			41

Annual incentive

The company’s annual incentive provides the NEOs the opportunity to earn awards based on achieving corporate performance goals established in advance by the Compensation Committee. It is intended to focus the NEOs on specific performance goals in the current year. For the NEOs, the annual incentive is delivered through the APA plan.

 

The Compensation Committee determined target award opportunity levels for the NEOs based on external surveys of practices for positions with similar levels of responsibility. The actual awards could be higher or lower than the target opportunity based on the results for each performance measure, consideration of individual performance and the extent to which the committee uses discretion to adjust the awards. Performance measures factor the award between zero and 200% and individual performance further indexes the award by a factor ranging from 70% to 130%, providing an absolute range from zero to 260% of the target award.		Linking pay to performance   The Compensation Committee established EBIT/BIC as the primary performance measure under the annual incentive plan because it believes this measure is closely correlated with the creation of shareholder value.

 

		Annual incentive
		Target opportunity as a percent of base salary
Ward J. “Tim” Timken, Jr.				120	%
Kristopher R. Westbrooks				70	%
Frank A. DiPiero				60	%
Thomas D. Moline				50	%
William P. Bryan				50	%
Christopher J. Holding*				70	%

 

*	Mr. Holding terminated employment with the company effective September 23, 2018. For actual annual incentives paid to Mr. Holding during 2018, please see “Compensation of executive officers – 2018 Summary compensation table.”

 

42				2019 PROXY STATEMENT

2018 Annual performance award decisions

Payouts under the APA plan are determined by the following factors:

 

•

Earnings measured by EBIT/BIC;

 

•

Cash flow;

 

•

Key process path sales; and

 

•

Individual performance.

The Compensation Committee introduced key process path sales as a new metric for the APA plan in 2018 to drive sales of the company’s most profitable products.

The following charts show performance targets, actual performance levels and payouts earned for each metric in the 2018 APA plan:

 

 

*	Dollars in millions. Payout percentage is expressed as the percent of target opportunity.

For the APA plan, actual performance on the EBIT/BIC measure of 4.0% was above the threshold performance requirement, achieving 22.7% of the performance target. Cash flow of $(20) million was below the threshold performance requirement, and key process path sales of $724 million achieved 178.4% of the performance target. Overall, performance against the metrics established for the 2018 APA plan resulted in a 58% payout.

For the 2018 APA plan, the EBIT/BIC metric was defined as EBIT/BIC excluding mark-to-market remeasurement gains or losses; the effect of changes in tax law, accounting principles or other laws or provisions affecting reported results; and the effects of any recapitalization, restructuring, reorganization, merger, acquisition, divestiture,

 

		2019 PROXY STATEMENT			43

consolidation, spin-off, split-up, combination, liquidation, facility shutdown, dissolution, sale of assets, stock or debt refinancing, impairment, goodwill or other similar transaction. The cash flow metric was defined as net cash flow for the year ended December 31, 2018 excluding cash provided or used by financing activity; mark-to-market remeasurement gains or losses; changes in applicable accounting principles, tax laws or regulations; Board approved capital investments incremental to the annual plan; and the effects of any recapitalization, restructuring, reorganization, merger, acquisition, divestiture, consolidation, spin-off, split-up, combination, liquidation, facility shutdown, dissolution, sale of assets, stock or debt refinancing, impairment, goodwill or other similar transaction. The key process path sales metric was defined as base sales of our most profitable products. Base sales is net sales excluding raw material surcharges.

 

		2018 Annual incentive payouts
		Target opportunity as a percent of base salary					2018 Award
Ward “Tim” J. Timken, Jr.*				120	%			$	309,870
Kristopher R. Westbrooks				70	%			$	44,992
Frank A. DiPiero				60	%			$	138,307
Thomas D. Moline				50	%			$	87,438
William P. Bryan				50	%			$	92,483
Christopher J. Holding^				70	%			$	80,583

 

*	As discussed previously, the committee determined to reduce Mr. Timken’s APA payout by 50% in light of the company’s performance on the EBIT/BIC and cash flow metrics.

^	The amount paid to Mr. Holding was based on eligible cash earnings through September 23, 2018, the date of termination of his employment.

For information about annual incentive opportunities awarded to each of the NEOs in 2018, see the “2018 Grants of plan-based awards table.”

Long-term incentives

In 2018, consistent with prior years, three different types of long-term incentive grants were used for the NEOs:

 

•

Nonqualified stock options, which vest 25% per year over four years and are intended to provide value to the holder only if shareholders receive additional value (in the form of share price appreciation) after the date of grant;

 

•

Restricted stock units, which cliff-vest at the end of a three-year period and have a value that changes based on changes in the company’s stock price; and

 

•

Performance shares, which are performance-based restricted stock units designed to reward executives for attainment of specified two-year corporate performance goals and the value of which is linked to the share price.

For the CEO, the long-term incentive mix was 100% performance-based, reflecting the Compensation Committee’s belief that his incentive compensation should be linked entirely to achieving specific performance criteria and share price appreciation. For the other NEOs, the Compensation Committee approved a mix of performance shares, stock options and restricted stock units to address retention while keeping the majority of the NEO’s long-term incentives performance-based.

 

44				2019 PROXY STATEMENT

		Long-term incentive mix
		Performance-based										Time-based
		Performance shares					Stock options					Restricted stock units
Chief executive officer				55%					45%					0%
Other NEOs				25%					30%					45%

In total, the Compensation Committee believes these grants provide a balanced emphasis on shareholder value creation and retention of executive management over the course of a full business cycle. These grants also serve to balance the short-term operating focus of the company and align executive management’s long-term financial interests with those of the company’s shareholders.

The value of the entire long-term incentive grant is linked directly to the price of our common stock. For nonqualified stock options, the recipient recognizes value only to the extent the stock price rises above the market price of the stock at the time the option is granted. For restricted stock units, value rises or falls depending on stock price performance. For performance shares, the value is tied to both the company’s stock price and the achievement of financial objectives.

The size of the long-term incentive grants and the allocation of grant value among the long-term incentive grant types are based on a combination of market practice, internal equity considerations and the relative importance of the objectives underlying each of the grant types.

2018 Long-term incentive decisions

 

		Long-term incentives
		Target grant opportunity*					Number of stock options					Value of stock options					Number of restricted stock units					Value of restricted stock units					Number of performance shares					Value of performance shares (at target)					Total value of award
Ward J. “Tim” Timken, Jr.				400	%				202,200				$	1,508,412					0				$	0	**				115,000				$	1,905,550				$	3,413,962
Kristopher R. Westbrooks^				135	%				7,040				$	45,619					7,400				$	106,116					0				$	0				$	151,735
Frank A. DiPiero				120	%				19,500				$	145,470					13,600				$	225,352					7,600				$	125,932				$	496,754
Thomas D. Moline				85	%				11,100				$	82,806					7,700				$	127,589					4,300				$	71,251				$	281,646
William P. Bryan				85	%				11,100				$	82,806					7,700				$	127,589					4,300				$	71,251				$	281,646
Christopher J. Holding				135	%				26,200				$	195,452					18,300				$	303,231					10,200				$	169,014				$	667,697

 

*	As a percentage of base salary midpoint.

**	As mentioned previously, Mr. Timken’s long-term incentive awards were 100% performance based, which is why he did not receive a grant of time-vested restricted stock units.

^	Mr. Westbrooks received a grant of nonqualified stock options and restricted stock units on September 24, 2018, in connection with his appointment as Executive Vice President and Chief Financial Officer.

The target value for each grant is converted to a number of options or shares based on a calculated average stock price over a defined period prior to the grant. The Compensation Committee used the average price over the five trading days immediately preceding the grant date in determining the number of shares granted in 2018.

 

		2019 PROXY STATEMENT			45