UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.      )

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AK STEEL HOLDING CORPORATION

(Name of Registrant as Specified In Its Certificate)

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

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April 11, 2011

 

 

Sincerely,

 

James L. Wainscott

 

AK STEEL HOLDING CORPORATION
9227 Centre Pointe Drive
West Chester, Ohio 45069

 

 

NOTICE OF 2011 ANNUAL MEETING OF STOCKHOLDERS

OF AK STEEL HOLDING CORPORATION (THE “COMPANY”)

 

 

 

By Authorization of the Board of Directors,

       David C. Horn, Secretary

 

West Chester, Ohio

April 11, 2011

 

PROXY STATEMENT

 

TABLE OF CONTENTS

 

AK STEEL HOLDING CORPORATION
9227 Centre Pointe Drive
West Chester, Ohio 45069

 

 

 

This Proxy Statement is being furnished in connection with the solicitation by the Board of Directors of AK Steel Holding Corporation (the “Company”) of proxies to be voted at the Annual Meeting of Stockholders of the Company to be held on May 26, 2011, and at any and all postponements or adjournments thereof.

 

On April 11, 2011, we mailed to stockholders of record a notice containing instructions on how to access our 2011 Proxy Statement and 2010 Annual Report to Stockholders on the Internet and on how to vote online. That notice also contains instructions on how you can receive a paper copy of the Proxy Statement and Annual Report via the United States mail or an electronic copy via e-mail if you prefer either of those alternatives.

 

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING

 

 

 

 

ELECTION OF DIRECTORS

 

In accordance with the Company’s By-laws, the Board of Directors has fixed the number of Directors at ten. Ten incumbent nominees will stand for election at the Annual Meeting. If elected, each nominee will serve as a Director of the Company for a term expiring on the date of the next succeeding Annual Meeting and until his or her successor is duly elected and qualified. If any nominee is unable to serve, or determines prior to his or her election that he or she will be unable to serve, proxies may be voted for another person designated by the Board of Directors. The Company has no reason to believe that any nominee will be unable to serve.

 

Overview

 

The Company is proud to have a diverse, but cohesive, Board of Directors comprised currently of ten distinguished and highly accomplished individuals, all of whom are independent except for Mr. Wainscott, the Company’s President and Chief Executive Officer. Collectively, they bring a wide range of viewpoints and backgrounds to the Board, rooted in a broad base of complementary experience and expertise. They share a record of substantial achievements and extraordinary service in the public sector, private sector business, and charitable endeavors.

 

The Board’s members include several current and former top executives of leading American companies. Having overseen successful companies themselves, these Directors are able to assist the Company’s Management in reaching and implementing key tactical and strategic decisions, leveraging experiences from their combined decades of leadership and experience. In many instances, the companies with whom the Directors are or were formerly executives conduct business in areas that either are related to the Company’s ongoing business or operations (such as the automotive or iron ore business), or else share similar characteristics with the Company’s business or operations (such as operating in the manufacturing sector).

 

The Board also includes several Directors who have served the public in high positions with the federal and state governments. In addition to the substantive expertise achieved in the various public offices, these Directors are able to draw upon their general experience in the government sector when exercising their oversight responsibilities as members of the Company’s Board. As with most large businesses today, the Company deals with several government agencies on a regular basis and, accordingly, receives great dividends from the insights of these Directors.

 

Many of the Company’s Directors also have served and currently serve on other boards of directors, including on some of the world’s top companies, premier academic institutions, and leading charitable organizations. Their experiences on these other boards enhance their base of experience and facilitate their ability to provide strategic oversight and direction to the Company’s Management.

 

As with all boards of directors, the composition of the Company’s Board changes over time, as new Directors replace those whose service to the Company has ended. The Nominating and Governance Committee, comprised entirely of independent Directors, is responsible for identifying, screening and recommending persons for nomination by the Board to serve as a Director. Directors are selected on the basis of, among other things, the following criteria listed in the Company’s Corporate Governance Guidelines:

 

 

One of the explicit criteria listed above for selection as a Director nominee is the diversity of viewpoints, backgrounds and experience the potential nominee will bring to the Board. Thus, the Nominating and Governance Committee specifically considers diversity in discharging its duty to identify, screen and review individuals qualified to serve as Directors of the Company. In addition, pursuant to its Charter, the Committee also annually reviews the size and composition of the Board as a whole, including whether the Board reflects the appropriate balance of skills, experience and other characteristics, including diversity. The Committee does not, however, apply a narrow definition of diversity that would limit it to an individual’s gender, race, ethnic background or other such personal characteristics. Rather, the Committee views diversity as an expansive criteria that encompasses differing backgrounds, perspectives, personal qualities, technical skills, professional experience, expertise, education and other desired qualities. It utilizes this inclusive view in the context of identifying and evaluating nominees whose viewpoints, attributes and experiences, taken as a whole, will complement the existing Board and facilitate its ability to be effective and responsive to the needs of the Company and its stockholders.

 

The Nominating and Governance Committee may solicit input and/or recommendations from other members of the Board and/or independent advisors. After the Committee’s deliberations are completed, it reports its findings and recommendations to the Board. The Board then proposes a slate of nominees to the stockholders for election to the Board at the annual stockholders’ meeting. Between annual stockholders’ meetings, the Board (based on the recommendations of the Nominating and Governance Committee) may elect Directors to serve until the next annual meeting. Using this methodology, the Board nominates the person whom the Board feels is the best available choice to complement the experience and expertise of the existing Directors and to represent the interests of the Company and its stockholders.

 

Set forth below is a description of the particular experience, qualifications, attributes and skills of each Director-nominee that led the Board to conclude that he or she should be nominated to serve as a Director of AK Steel. While each nominee, of course, has many other traits and qualifications to serve as a Director of AK Steel, the descriptions set forth below are intended to articulate the most significant of them and the ones to which the Board gave the most attention in its evaluation of who should be nominated to serve as a Director of AK Steel. As discussed above, however, the Board also gave consideration to the overall composition of the Board and to ensuring that the Board continues to have a broad diversity of viewpoints, backgrounds and experience.

Information Concerning Nominees for Directors

 

 

 

 * Included in this section for Mr. Abdoo, and similarly for all other Directors below, are all directorships at public companies and registered investment companies held currently or at any time since January 1, 2006.

 

 

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE FOREGOING NOMINEES.

 

Committees of the Board of Directors

 

The Board of Directors has four standing committees: an Audit Committee, a Management Development and Compensation Committee, a Nominating and Governance Committee, and a Public and Environmental Issues Committee. In October 2010, the Board created the Ad Hoc Finance Committee. Although its members are presented in the following table, as further discussed below, the Ad Hoc Finance Committee currently is not a standing committee of the Board. The table below shows the current membership for each Board committee.

 

 

 

 

Audit Committee

 

The Audit Committee has five members and met nine times in 2010. The primary purpose of the Audit Committee is to assist the Board of Directors in fulfilling its responsibility to oversee Management’s conduct of the Company’s financial reporting process, including:

 

 

In fulfilling these responsibilities, the Audit Committee selects and appoints the independent registered public accounting firm that will serve as the independent auditor of the Company’s annual financial statements. As a matter of good corporate governance, the Committee seeks ratification by the Company’s stockholders of the appointment of that firm as the Company’s independent registered public accounting firm. The Committee also meets with representatives of that accounting firm to review the plan, scope and results of the annual audit, the Company’s critical accounting policies and estimates and the recommendations of the independent registered public accounting

firm regarding the Company’s internal accounting systems and controls. The report of the Audit Committee is located on page 71.

 

At its March 2011 meeting, the Board of Directors considered a recommendation by the Nominating and Governance Committee to grant a request made by Mr. Michael for approval to serve on a fourth Audit Committee of a publicly-traded company. Upon the recommendation of the Nominating and Governance Committee, and after discussing the matter, the Board determined that Mr. Michael’s simultaneous service on more than three Audit Committees would not impair his ability to serve on the AK Steel Audit Committee and therefore approved his request.

 

At its March 2011 meeting, the Board of Directors determined that all of the members of the Audit Committee are financially literate and that each of Messrs. Gerber and Michael is an “audit committee financial expert,” as that term is defined in Item 407(d)(5) of Regulation S-K under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Audit Committee satisfies the requirements of New York Stock Exchange Rules 303A.06 and 303A.07 and Rule 10A-3 of the Exchange Act and each of its members satisfies the independence, financial literacy and other requirements of those provisions and New York Stock Exchange Rule 303A.02.

 

Management Development and Compensation Committee

 

The Management Development and Compensation Committee has five members and met five times in 2010. The primary purpose of the Management Development and Compensation Committee is to assist the Board in overseeing the Company’s management compensation policies and practices, including:

 

 

At its March 2011 meeting, the Board of Directors determined that all of the members of the Management Development and Compensation Committee are “outside directors” as that term is defined by the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), at Section 162(m) and “non-employee directors” as that term is defined in Rule 16b-3(b)(3) under the Exchange Act. The Management Development and Compensation Committee satisfies the requirements of New York Stock Exchange Rule 303A.05 and each of its members satisfies the independence and other requirements of that rule and New York Stock Exchange Rule 303A.02. For additional information concerning the Management Development and Compensation Committee and its activities, see “Compensation Discussion and Analysis” beginning on page 30.

 

Nominating and Governance Committee

 

The Nominating and Governance Committee has four members and met five times in 2010. The primary purpose of the Nominating and Governance Committee is to assist the Board in:

 

 

 

At its March 2011 meeting, the Board of Directors determined that all of the members of the Nominating and Governance Committee satisfy the independence and other requirements of New York Stock Exchange Rules 303A.02 and 303A.04.

 

In fulfilling its responsibility of identifying, screening and recommending persons for nomination by the Board to serve as a director, the Committee may solicit input and/or recommendations from other members of the Board and/or independent advisors. After the Committee deliberates, it reports its findings and recommendation to the Board. The Board then considers that recommendation and proposes a slate of nominees to the stockholders for election to the Board. In addition to meeting independence requirements, nominees for the Board must not have reached their 72nd birthday at the time of their election. The principal criteria used for the selection of nominees, as well as the focus of the Committee on diversity as part of the selection process, is described more fully above at page 5 under “Overview.”

 

The Nominating and Governance Committee will give appropriate consideration to candidates for Board membership nominated by stockholders in accordance with the Company’s By-laws, or as otherwise recommended, and will evaluate such candidates in the same manner as other candidates identified to the Committee. Any such recommendations may be submitted in writing to the Chairman of the Nominating and Governance Committee, c/o Secretary, AK Steel Holding Corporation, 9227 Centre Pointe Drive, West Chester, Ohio 45069, and should contain all required information and any other supporting material the stockholder considers appropriate. The Committee also will consider whether to nominate any person nominated by a stockholder pursuant to the provisions of the Company’s By-laws relating to stockholder nominations as described below at page 78 in “Stockholder Proposals for the 2012 Annual Meeting and Nominations of Directors.” No such nominee was recommended by any stockholder or stockholder group for election at the 2011 Annual Meeting.

 

Public and Environmental Issues Committee

 

The Public and Environmental Issues Committee has four members and met five times in 2010. The primary purpose of the Public and Environmental Issues Committee is to review on behalf of the Board, and to advise Management with respect to, significant public policy, environmental, legal, health and safety, and trade issues pertinent to the Company and its policies.

 

Ad Hoc Finance Committee

 

The Ad Hoc Finance Committee has three members and met two times in 2010. The Ad Hoc Finance Committee was formed in October 2010 on a temporary, but indefinite, basis to advise and assist the Board with respect to the Company’s policies and practices relating to the management of certain of its financial affairs. The

primary purpose of the Ad Hoc Finance Committee is to advise and assist the Board in fulfilling its oversight responsibilities with respect to:

 

 

Majority Voting

 

The 2011 Annual Meeting will be the Company’s first election of Directors utilizing a “majority vote” standard. Section 7(a) of the Company’s By-laws, which became effective immediately after the conclusion of the 2010 Annual Meeting, provides that each Director in an uncontested election shall be elected by the vote of the majority of votes cast at any meeting for the election of Directors. The By-laws also include a Director resignation procedure consistent with the majority vote standard requiring an incumbent Director who does not receive the requisite affirmative majority of the votes cast for the Director’s re-election to tender his or her resignation to the Board within 30 days. The Board, after considering the recommendation of the Nominating and Governance Committee on the matter, will publicly disclose its decision as to whether to accept the tendered resignation within 90 days after the certification of election results.

 

Director nominees in contested elections will continue to be elected by the vote of a plurality of the votes cast.

 

Attendance at Meetings

 

The Board of Directors met thirteen times in 2010. The Company expects each Director to make a diligent effort to attend all Board meetings and meetings of those committees of which he or she is a member. During 2010, no Director attended fewer than 93% of the aggregate of the total meetings of the Board and those committees of which he or she was a member. The Company does not have a formal written policy regarding Director attendance at the Annual Meeting, although Directors are encouraged to attend. All Directors except one attended the 2010 Annual Meeting in person.

 

Director Stock Ownership Guidelines

 

Under the stock ownership guidelines for non-employee Directors, each such Director is expected to hold at least 25% of the shares of the Company’s common stock issued to that Director pursuant to a restricted stock unit award until at least six months following the Director’s termination of service on the Board. All of the Directors currently are in compliance with the stock ownership guidelines.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires the Company’s Directors and officers, and persons who own beneficially more than ten percent of a registered class of the Company’s equity securities, to file with the Securities and Exchange Commission initial reports of ownership of the equity securities of the Company and reports of changes in that ownership. Exchange Act Rule 16a-3(e) requires officers, Directors and greater-than-ten-percent beneficial owners to furnish the Company with copies of all reports that they file pursuant to Section 16(a).

 

On January 20, 2011, a Form 4 was filed on behalf of Mr. Kirk Reich to report the surrender of restricted shares for tax liability obligations with respect to restricted shares that lapsed on October 19, 2010.

 

On February 4, 2011, an Amended Form 3 was filed on behalf of Mr. Gary Barlow to report performance shares held by him that were inadvertently omitted from his Form 3 filed on September 1, 2010.

 

Other than the reports referenced above, to the Company’s knowledge, based upon a review of the copies of the reports furnished to the Company and written representations from its executive officers and Directors that no other

reports were required, all Section 16(a) filing requirements applicable to the Company’s officers and Directors were complied with during 2010.

 

Board Leadership Structure

 

The Company’s Chief Executive Officer, Mr. James L. Wainscott, currently also serves as the Chairman of its Board of Directors. He has held both roles since first being elected to the position of Chairman in January 2006. In keeping with what the Board views as a best practice for public companies with a combined chief executive and chairperson, since January 2006 the Board also has appointed an independent Director to serve as the Lead Director of the Board. Mr. Robert H. Jenkins has served in that role since it was established in January 2006.

 

While the Board presently believes that combining the Chief Executive Officer and Chairman roles is the best and most efficient leadership structure for the Company, the Board expressly notes in its Corporate Governance Guidelines that it retains the authority to separate these functions if it deems such action appropriate. Indeed, that was the case immediately prior to combining the roles with Mr. Wainscott. From September 2003 until January 2006, Mr. Jenkins was the non-executive Chairman of the Board while Mr. Wainscott served as the Company’s Chief Executive Officer.

 

In determining in 2006, and annually since then, that the Company and its stockholders would be best served with Mr. Wainscott leading the Board as it oversees the strategic direction, business and other affairs of the Company, the Board has considered many factors. Chief among the factors relied upon by the Board in determining that this leadership structure is appropriate are the following:

 

 

In making the determination concerning the Board’s leadership structure, the Board considered the impact of the structure on its risk oversight role. The Board concluded that its role with respect to risk oversight is fully consistent with, and supported by, a leadership structure that includes a combined Chairman of the Board and Chief Executive Officer for the same reasons articulated above that the Board relied upon in selecting that leadership structure. In addition, there are policies and practices in place at the Company to ensure effective and independent Board oversight of Management and Mr. Wainscott’s role as Chairman of the Board, including that (i) all members of the Board other than Mr. Wainscott are independent Directors; (ii) each of the Board’s committees is chaired by and comprised entirely of independent Directors; (iii) the Board, upon the recommendation of its Management Development and Compensation Committee, annually establishes goals and objectives for Mr. Wainscott and reviews his performance; (iv) the Management Development and Compensation Committee annually determines

his compensation package; (v) the independent Directors meet in “executive session” without Mr. Wainscott or any other member of Management, typically at least once at each regularly scheduled Board meeting; (vi) the Board retains the authority to separate the roles of Chief Executive Officer and Chairman at its discretion in the future if it determines that the combination of the two is no longer in the best interests of the Board, the Company, or its stockholders; and (vii) the appointment and role of an independent Lead Director of the Board.

 

As noted above, the Board also believes that when the roles of Chief Executive Officer and Chairman are combined, it is appropriate to appoint an independent Lead Director. The Lead Director is responsible for presiding over meetings at which the Chair is not present, including when the Board meets in “executive session,” for coordinating the activities of the other independent Directors, and for performing the duties specified in the Company’s Corporate Governance Guidelines. Specifically, from time to time the Lead Director’s duties may include serving as a liaison between the Chair and/or members of Management and the independent Directors, collaborating with the Chair to schedule Board meetings and structure the agendas for such meetings, availing himself to direct communications from and with the Company’s stockholders, and such other duties as the Board assigns.

 

Communication with the Board of Directors

 

Stockholders and interested parties may send communications to the Chairman of the Board, to the Lead Director, or to any one or more of the other Directors by addressing such correspondence to the name(s) of any specific Director(s), or to the “Board of Directors” as a whole, and mailing it to: Secretary, c/o AK Steel Holding Corporation, 9227 Centre Pointe Drive, West Chester, Ohio 45069.

 

Board Independence

 

In accordance with the requirements of the New York Stock Exchange (“NYSE”), the Board has adopted a policy that at least a majority of its members shall be “independent,” as determined under applicable law and regulations, including without limitation Section 303A of the NYSE Listed Company Manual. The Company’s Corporate Governance Guidelines includes categorical standards for determining the independence of all non-employee Directors. Those standards are set forth in guidelines attached as Exhibit A to the Company’s Corporate Governance Guidelines, which are available on the Company’s website at www.aksteel.com. A Director who meets all of the categorical standards set forth in the Corporate Governance Guidelines shall be presumed to satisfy the NYSE’s definition of “independence” and thus be “independent” within the purview of the Board’s policy on Director independence.

 

At their respective March 2011 meetings, the Nominating and Governance Committee and the Board of Directors reviewed the independence of all current non-employee Directors. In advance of these meetings, each incumbent Director was asked to provide the Board with detailed information regarding his or her business and other relationships with the Company and its affiliates, and with executive officers and their affiliates, to enable the Board to evaluate his or her independence.

 

Upon the recommendation of the Nominating and Governance Committee, and after considering all relevant facts and circumstances with the assistance of legal counsel, the Board has affirmatively determined that none of the current incumbent Directors, except for Mr. Wainscott, has a material relationship with the Company (either directly or as a partner, stockholder or officer of an organization that has a relationship with the Company) and all such incumbent Directors other than Mr. Wainscott meet the categorical standards of independence set forth in the Company’s Corporate Governance Guidelines and therefore are “independent” as that term is used and defined in Section 303A of the NYSE Listed Company Manual and in Rule 10A-3 under the Exchange Act. The Board further determined that each of the incumbent Directors other than Mr. Wainscott is an “Outside Director” as that term is used in Section 162(m) of the Internal Revenue Code and the associated Treasury Regulations, 26 CFR § 1.162-27 et seq., and is a “Non-Employee Director,” as defined in Rule 16b-3(b)(3) promulgated under the Exchange Act.

 

Directors have an affirmative ongoing obligation to inform the Board of any material changes that might impact the foregoing determinations by the Board. This obligation includes all business relationships between the Director and/or an immediate family member, on the one hand, and the Company and/or its affiliates and/or executive officers, on the other.

Board Oversight of Risk

 

As an integral part of its oversight function, the Board oversees the material risks facing the Company, both with respect to the relative probability and magnitude of the risks and also with respect to Management’s strategies to mitigate those risks. The Board engages in its risk oversight role in a variety of different ways.

 

The Board as a whole typically discusses and addresses the key strategic risks facing the Company. Specific strategic risks facing the Company are addressed at Board meetings, both as they relate to particular projects or other topics being considered by the Board and in their own right as a separate agenda topic. In addition, at least once annually, the Board has a session devoted exclusively to strategic planning, including identifying and addressing the Company’s principal strategic risks.

 

In addition, the Board delegates responsibility for oversight of specific risk categories to its Committees. Generally, each Committee has responsibility to identify and address risks which are associated with the purpose of and responsibilities delegated to that Committee. For example, the Audit Committee oversees risks related to financial reporting, liquidity, and pension and benefit plan matters; the Nominating and Governance Committee manages risks related to board composition, director independence, governance, and corporate compliance and reporting obligations; the Management Development and Compensation Committee deals with risks related to senior Management development and succession planning, Management compensation, and employment benefits and policies; and the Public and Environmental Issues Committee handles risks with respect to health and safety issues, public policy, international trade and reputational risks. In addition, since its formation in October 2010, the Ad Hoc Finance Committee has contributed to the oversight of the Company’s exposure to short- and long-term financial risk, including risks relating to the Company’s capital structure, liquidity and cash needs. Each Committee Chair reports to the full Board with respect to any significant risks which the Committee has discussed. Depending upon the nature and severity of the risk, the Committee may simply report to the Board with respect to that risk or it may make recommendations to the Board which then are discussed and acted upon by the Board as a whole. For those risks that cross several disciplines or which could have impacts across various stakeholder groups, multiple Committees may review the relevant aspects of the risk in the committee setting prior to a discussion at the full Board session.

 

The Board’s oversight of risk is enhanced by the detailed information it receives as a result of the Company’s Total Enterprise Risk Management (“TERM”) program. The Company commenced the TERM program several years ago as a tool for identifying the key risks to the Company and conveying them to the Board in a prompt, logical and efficient manner. The TERM assessment is performed quarterly and involves evaluation of the key risks that the Company currently faces or is likely to encounter in the near- and medium-term. During the quarterly TERM assessment each manager who is responsible for a significant area of the Company’s business will review and, to the extent necessary, update or supplement a list of key risks affecting his or her respective business area. As part of that process, the manager evaluates each risk according to its likelihood of occurrence in the succeeding twelve months and, assuming that the development or event at risk occurs, its most probable consequence on the Company’s financial condition, operations, industry or reputation. The most significant risk items identified in each quarterly report are discussed with the Audit Committee of the Board. In addition, a complete copy of the full TERM report is distributed to and discussed by the full Board, typically in the Board’s regularly scheduled first quarter meeting.

 

The Board’s consideration of risk is not limited to discussions during Board and Committee meetings. Rather, the Board communicates with senior Management as a group, or individually, concerning the Company’s most significant risks whenever it deems such communications to be appropriate. In addition, each Director has complete access to all Company employees to the extent he or she may have questions concerning a particular risk.

 

Risk Assessment with respect to Compensation Policies and Practices

 

At its January and March 2011 meetings, the Management Development and Compensation Committee (the “Committee”) reviewed the various design elements of the Company’s compensation program to determine whether any of its aspects encourage excessive or inappropriate risk-taking. The scope of this review included aspects of executive compensation, as well as consideration of the items of the Company’s compensation policies and

practices that affect all employees. In general, the process used by the Committee to complete its risk evaluation was as follows:

 

 

The result of the Committee’s evaluation was a conclusion that the Company’s compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company. More specifically, the Committee concluded that the Company’s compensation program is designed to encourage employees to take actions and pursue strategies that support the best interests of the Company and its stockholders, without promoting excessive or inappropriate risk.

 

The design elements of the Company’s program (which are described in detail in the Compensation Discussion and Analysis section of this Proxy Statement beginning at page 30) do not include unusual or problematic compensatory schemes that have been linked to excessive risk-taking in the financial or other industries. Furthermore, the design elements of the Company’s compensation program which directly tie compensatory rewards to the Company’s performance include various counter-balances designed to offset potential excessive or inappropriate risk-taking. For example, there is a balance between the fixed components of the program and the performance-based components. Similarly, with respect to the performance-based components, there is a balance between annual and longer-term incentives. Thus, the overall program is not too heavily weighted towards incentive compensation, in general, or short-term incentive compensation, in particular. The financial incentives are not based simply upon revenue. Rather, they are tied to performance metrics such as net income and EBITDA which more closely align the interests of Management with the interests of the Company’s stockholders. The performance metrics for incentive payments are established annually and reflect goals that are a stretch, but not so high that they require performance outside of what the Committee believes is reasonable for the Company. There are caps on how much performance-based compensation may be earned in a particular performance period and the Board of Directors has adopted a policy for clawback of performance-based compensation that was paid out as a result of fraudulent or illegal conduct on the part of the employee who received it. In addition, the Committee maintains an ongoing dialogue with the Company’s Management to track progress on performance-based goals in order to foresee and avoid any excessive or inappropriate risk-taking that may otherwise be driven by a desire to maximize performance-based compensation.

 

Related Person Transactions

 

All related person transactions, as such transactions are defined by Item 404(a) of Regulation S-K under the Exchange Act, must be reviewed and approved or ratified by the Board (or a committee of the Board to whom such responsibility is delegated by the Board) for the purpose of determining whether such transactions are in, or not inconsistent with, the best interests of the Company and its stockholders.

 

Based on information submitted to the Company by Directors and executive officers (on an annual basis) and nominees (prior to their election or appointment to the extent practicable), the Company develops a list of related persons, which it distributes to individuals in the Company who might reasonably be expected to have responsibility for a transaction or proposed transaction between the Company and a related person. Directors and executive officers are expected to timely update the information they submit to the Company in the event of relevant changes or developments.

 

The recipients of the list must provide prior notice to the Company’s General Counsel of any plans or intentions for anyone within their respective business units, departments or areas of responsibility to enter into any agreement by or on behalf of the Company with a related person. If the General Counsel determines that the

proposed transaction is a related person transaction, the transaction will be submitted to the Nominating and Governance Committee for its consideration and approval at its next meeting.

 

The Nominating and Governance Committee considers all available and relevant facts and circumstances in determining whether to approve a related person transaction submitted for its review, including, if applicable:

 

 

The Nominating and Governance Committee approves only those related person transactions that it determines are in, or are not inconsistent with, the best interests of the Company and its stockholders.

 

In the event that the Company enters into a legally binding related person transaction before approval by the Nominating and Governance Committee, then the Nominating and Governance Committee will review the transaction at its next meeting unless it is subject to an exemption. The Nominating and Governance Committee will determine whether to ratify a related person transaction by applying the same procedures and standards that it would have used to determine whether to approve a related person transaction. In the event that the Nominating and Governance Committee determines that it would not be appropriate to ratify the transaction, the Nominating and Governance Committee will identify the options available to the Company, including but not limited to rescission, amendment or termination of the related person transaction.

 

Since the beginning of its 2010 fiscal year, the Company participated in a series of transactions of immaterial size which collectively constituted a related person transaction as defined by Item 404(a) of Regulation S-K under the Exchange Act. These transactions involved routine machine maintenance and repair services provided by Whitt Machine Inc., a company whose sole-owner is Mr. Dean Whitt, the father-in-law of Mr. Kirk Reich, the Company’s Vice President, Specialty Steel Operations. In consideration for these services, the Company paid a total of approximately $600,000 to Whitt Machine in 2010. The transactions were performed under the Company’s standard terms and conditions at competitive prices. The Nominating and Governance Committee reviewed the facts and circumstances relevant to these transactions and, in accordance with the Company’s Related Person Transaction Policy and Item 404(a) of Regulation S-K, determined that they were in, or not inconsistent with, the best interests of the Company and its stockholders. The Nominating and Governance Committee then ratified the transactions pursuant to the Company’s Related Person Transaction Policy.

 

Documents Available on the Company’s Website

 

The charters of the Audit, Management Development and Compensation, Nominating and Governance and Public and Environmental Issues Committees, as well as the Company’s Corporate Governance Guidelines, Code of Business Conduct and Ethics for AK Steel Directors, Officers and Employees and Code of Ethics for Principal Officers of AK Steel, are posted on the Company’s website at www.aksteel.com.

 

On July 22, 2010, in consultation with the committee’s outside advisor, the Board of Directors, upon the recommendation of the Nominating and Governance Committee, approved certain changes to the compensation program for non-employee Directors. The Board approved a $15,000 increase to the cash component of the annual Board retainer fee, from $45,000 to $60,000, and a $10,000 increase in the restricted stock unit (“RSUs”) component of the annual Board retainer fee, from $80,000 to $90,000. These changes were effective as of July 1, 2010. The Director Compensation Table and its accompanying footnotes, which follow, set forth the Directors’ respective 2010 compensation in detail.

 

As a result of these compensation program changes, each non-employee Director now receives at least sixty percent of his or her total annual retainer for service on the Board in the form of equity (i.e., RSUs). The balance is paid in cash or, at the Director’s option, in the form of additional RSUs. Annual retainers for service as a committee chair and attendance fees are paid in cash or, at the Director’s option, in the form of additional RSUs. RSUs vest immediately upon grant, but are not settled (i.e., paid out) until one year after the date of the grant, unless deferred settlement is elected. As set forth in the Company’s Stock Incentive Plan, Directors may elect to defer the settlement of their RSUs until six months following the date their service on the Board has ended. If a Director elects the deferral option, he or she also may elect to take distribution of the shares upon settlement in a single distribution or in annual installments not to exceed 15 years. Prior to settlement, the holder of an RSU is entitled to receive the value of all dividends and other distributions paid or made on the Company’s common stock in the form of additional RSUs, but does not otherwise have any of the rights of a stockholder, including the right to vote the shares underlying the RSUs.

 

Each non-employee Director who chairs a committee of the Board of Directors receives an additional annual retainer. The annual retainer for the chair of the Audit Committee is $15,000. The annual retainer for the chair of the Management Development and Compensation Committee is $12,500. The annual retainer for the chair of the Nominating and Governance Committee is $10,000. Effective January 1, 2011, the annual retainer for the chair of the Public Environmental Issues Committee was increased from $5,000 to $10,000. The annual retainer for the chair of the Ad Hoc Finance Committee is $5,000. In addition, the Company pays non-employee Directors $2,000 for each meeting that they attend of the Board and of a committee on which they serve as a member. Mr. Jenkins also is paid an annual cash retainer fee in the amount of $60,000 for his service as Lead Director of the Board of Directors. The Company reimburses all Directors for the expenses they incur in attending meetings.

 

Director compensation is paid quarterly. Annual retainers are paid prospectively; attendance fees are paid retrospectively. RSUs are issued quarterly at the time the cash compensation is paid and are settled one-for-one (i.e., one RSU equals one share of Company common stock) on the settlement date.

 

Under the Director Deferred Compensation Plan, each year a Director may elect to defer any portion of his or her annual retainer or other director fees that are not paid in the form of RSUs. There are no preferential or above-market earnings in the Director Deferred Compensation Plan, and the Company does not make any contributions under the plan.

 

An employee of the Company who serves as a Director receives no additional compensation for such service. Mr. Wainscott currently is the sole employee who also serves on the Board of Directors.

 

The following table sets forth the total compensation paid to non-employee Directors during the fiscal year ended December 31, 2010:

 

 

 

 

Directors and Executive Officers

 

The table below provides stock ownership information as of March 28, 2011 with respect to the beneficial ownership of the Company’s common stock by: (i) each Named Executive Officer listed in the Summary Compensation Table beginning on page 54, (ii) each current Director and each nominee for election as a Director, and (iii) all current Directors and executive officers of the Company as a group:

 

 

 

 

Other Beneficial Owners

 

The table below provides information with respect to each person known by the Company as of March 28, 2011 to own beneficially more than 5% of the outstanding common stock of the Company:

 

 

 

 

Equity Compensation Plan Information

 

The table below provides information, as of December 31, 2010, with respect to compensation plans under which equity securities of the Company are authorized for issuance. All such plans have been approved by security holders.

 

 

 

Management Development and Compensation Committee

 

The Management Development and Compensation Committee (the “Committee”) is directly responsible for determining the compensation of the Company’s Executive Officers. It also is responsible for establishing, and periodically reviewing, the Company’s executive compensation philosophy and policies.

 

Compensation Philosophy

 

The Committee’s compensation philosophy is that a compensation program should strengthen the commonality of interests between Management and the Company’s stockholders, while at the same time enabling the Company to attract, motivate and retain executives of high caliber and ability who will drive the Company’s success. Consistent with the objective of strengthening the commonality of interests between Management and the Company’s stockholders, the Committee believes that a significant portion of the overall compensation package for each of the Company’s Executive Officers should include components that link the executive’s compensation to the Company’s performance, including performance-based vesting provisions for a portion of the equity incentives awarded to each Executive Officer. The Committee further believes that a well-designed executive compensation program includes both annual and long-term performance incentives. While annual incentive awards are an important factor in motivating executives for the short-term, the Committee believes that long-term incentives reduce the impact of volatility in business conditions on the performance-related components of the executive compensation program and also establish a stronger link between the executives’ earnings opportunity and the long-term financial performance and growth of the Company.

 

Executive Compensation Program Elements

 

The key elements of the Company’s executive compensation program for its Executive Officers are:

 

 

Overview of Pay-for-Performance Components of Executive Compensation Program

 

As discussed in more detail immediately below, the Company’s executive compensation program contains both annual and long-term performance-based compensation components. The annual performance-based compensation is predicated not only on the Company’s financial performance, but also on its performance with respect to safety and quality — two hallmarks of the Company’s historical success and critical components of the Company’s strategy to distinguish itself from its competition. The long-term performance-based compensation is tied to the Company’s three-year performance with respect to earnings before interest, taxes, depreciation and amortization (“EBITDA”), total stockholder return during that period relative to the total stockholder return during that same period of the companies in the Standard & Poor’s 400 Midcap Index, and the compounded annual growth rate of the Company’s stock price. These performance metrics are intended to implement the philosophy set out

above, including in particular, establishing a strong link between Management compensation and the performance of the Company.

 

Application of Key Pay-for-Performance Components to 2010 Executive Compensation

 

The application of the key pay-for-performance components of the Company’s executive compensation program on the 2010 compensation of the Company’s Named Executive Officers (also referred to as its “NEOs”) illustrates the strong link between executive compensation and the performance of the Company. Those components and their application to the 2010 executive compensation program are summarized below.

 

 

In 2010, the Company had the best year in its history with respect to quality and exceeded its target level goal for quality performance by a significant margin. Due largely, however, to the lingering effects of the recession and a dramatic increase in iron ore prices, the Company did not meet the threshold goal for financial performance in 2010. For a detailed discussion of the Company’s 2010 financial performance, see the Management Discussion and Analysis in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. Accordingly, no annual incentive award was paid for 2010 with respect to either the financial or quality component of the Annual Incentive Plan. With respect to safety, the Company’s performance in 2010 was more than nine times better than the reported domestic steel industry average, but because the Company holds itself to a higher standard, participants in the Company’s Annual Incentive Plan (including the NEOs) earned only a portion of the potential safety component of a performance award under the plan. The dollar value of that award to each Named Executive Officer for 2010 is set forth in the Summary Compensation Table for 2010 at page 54 of this Proxy Statement.

 

 

For awards under the Long-Term Plan that would be reflected in the 2010 compensation of the Named Executive Officers, the three-year performance period began January 1, 2008. The Company’s EBITDA performance in 2008 was among its best ever. In the fall of 2008, however, the worst recession in the country’s history since the Great Depression began and, though conditions have improved in recent months, its effects continued throughout 2010. As a consequence, although the Company’s EBITDA performance for 2008 was a Company record, it was not strong enough to overcome the weaker results in 2009 and 2010. Consequently, the Company’s cumulative EBITDA for the three-year period ending December 31, 2010, was below the threshold level established by the Committee. Accordingly, no performance award was paid to the participants in the Long-Term Plan for the three-year period which ended December 31, 2010 and there is

no long-term award to the NEOs reflected for 2010 in the Summary Compensation Table for 2010 at page 54 of this Proxy Statement.

 

 

For a performance share award under the Stock Plan at the end of 2010 that would be reflected in the 2010 compensation of the Named Executive Officers, the three-year performance period began January 1, 2008. For that performance period, the Company’s stock performance with respect to the Total-Stockholder-Return and Growth-Rate metrics did not meet the threshold performance levels. Accordingly, no shares of the Company’s common stock were issued with respect to the performance awards granted in January 2008 for the three-year period which ended December 31, 2010.

 

Application of Other Key Compensation Components to 2010 Executive Compensation

 

While the three programs described above represent the most direct links between pay and performance, they are not the only such links included in the Company’s executive compensation program. Other key components of the Company’s compensation program that link pay to performance are summarized below.

 

 

 

Key Company Policies which Help Link Executive Compensation to Performance

 

The Company also has adopted a variety of policies that are intended to support the strong link between executive compensation and Company performance and thereby more closely align the interests of Management with the interests of the Company’s stockholders. Key examples of such policies include the following:

 

 

Historical Perspective on Pay-for-Performance Components of Executive Compensation

 

As indicated by the above summary, the Committee believes that a good executive compensation program links the compensation of the executive to the Company’s performance. By doing so, the executive has an effective incentive to improve the performance of the Company and the commonality of interests between Management and the Company’s stockholders is strengthened. The Committee strongly believes that the Company’s executive compensation program successfully achieves that link. The payouts since 2008 under the key pay-for-performance components of the Company’s executive compensation program illustrate this link.

 

The year 2008 was a record year for the Company with respect to its financial performance, including record EBITDA. These financial results led to a nearly maximum payout under the terms of the Company’s Annual Incentive Plan and, in light of two strong prior years of EBITDA performance, a maximum payout under the Company’s Long-Term Plan. Despite the Company’s strong financial performance, however, the start of the global recession in the fall of 2008 had a negative impact on the Company’s business and its stock price in the final 20 trading days of December 2008 (which is the period used for measuring the stock price for purposes of determining performance share awards under the Stock Plan). As a result, the NEOs received a payout of only 50% of the maximum shares available to them under their performance share awards for the three-year period ending in 2008.

 

The year 2009 fell squarely within the global recession and the Company’s financial performance reflected that circumstance. The Company reported a net loss of $74.6 million and it failed to achieve even the threshold goal for net income established by the Committee under the Annual Incentive Plan. The Company’s quality and safety performance remained strong, however. In fact, the Company had its best year ever from a safety perspective and exceeded its target performance goals with respect to both safety and quality. As discussed above, however, the quality component is not paid under the Annual Incentive Plan unless the financial threshold goal is exceeded. See discussion of the Annual Incentive Plan under Application of Key Pay-for-Performance Components to 2010 Executive Compensation. As a result, the participants in the Company’s Annual Incentive Plan received only the safety component of the performance award for 2009. With respect to the Long-Term Plan, the participants fared better, principally because the Long-Term Plan reflects not just a single year’s EBITDA performance, but a three-year period of cumulative EBITDA performance. As a result, the participants in the Long-Term Plan received the maximum payout under the Long-Term Plan for the three-year performance period which ended in 2009. With respect to performance shares, the Company’s stock price improved in 2009 on both a direct (Growth Rate) and relative (Total Stockholder Return) basis from the base price at the start of the three-year performance period. As a result, the Named Executive Officers received a payout of 89% of the maximum shares available to them under their performance share awards for the three-year period ending in 2009.

 

As previously noted, the Company’s 2010 financial performance improved over 2009, though not by as much as the Company had expected. The Company again failed to achieve the threshold level goal established under the Annual Incentive Plan for net income. Once again, however, the Company’s quality and safety performance was very strong. This time, it was with respect to quality that the Company had a record year and the Company exceeded its target performance goals. With respect to safety, the performance still was industry leading, though not quite as good as had been hoped. As a result, the participants in the Annual Incentive Plan again only received a partial payout with respect to the safety component of the Annual Incentive Plan and no payouts with respect to the quality and financial components. In addition, no payouts were made for the performance periods ending in 2010 under the Long-Term Plan or with respect to the NEO’s performance share awards.

 

Set forth below is a chart which summarizes the pay-for-performance payouts of the Company by year in 2008, 2009 and 2010 as a percentage of the maximum potential award for each year.

 

 

It is worth noting that, while the strong performance of the prior two years resulted in a payout in 2009 under the terms of the Long-Term Plan despite 2009 not being a strong year financially for the Company, the reverse is likely to be true in 2011. It will take a very strong EBITDA performance in 2011 to overcome the comparatively

weak EBITDA performance which occurred in 2009 and 2010. But, that is precisely how the Long-Term Plan is intended to work. That is, it is intended to reflect the Company’s performance over a three-year period, not just for the year in which payment is made.

 

* * *

 

The summary above was intended to provide an overview of the Company’s executive compensation program, with a particular focus on its pay-for-performance components. Set forth below is a more-detailed description of the total program.

 

 

Who has the direct responsibility for determining executive compensation?

 

Management Development and Compensation Committee

 

The Committee has the direct responsibility for determining the compensation of the Company’s Executive Officers. When the Committee deems it appropriate, it may, at its discretion, seek ratification of its determinations by the Board. The Committee also is responsible for establishing, and periodically reviewing, the Company’s executive compensation philosophy and policies and, as appropriate, will recommend changes in such philosophy and policies to the Board.

 

Committee Membership and Meetings

 

The Committee is comprised entirely of Directors who are not current or former employees or officers of the Company and who have been determined by the Board of Directors to meet the independence standards of the Securities and Exchange Commission (“SEC”) and the New York Stock Exchange. Each member of the Committee is also an “outside” Director for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). There currently are five members of the Committee. They are Richard A. Abdoo, John S. Brinzo, Dr. Bonnie G. Hill, Robert H. Jenkins and Ralph S. Michael, III. Mr. Abdoo is the Chair of the Committee. The Committee has five regularly-scheduled meetings each year and holds other meetings as necessary. Agendas for the meetings generally are developed based upon the Committee’s responsibilities under its Charter and collectively are intended to ensure that the Committee satisfies all of those responsibilities, with such additions to the agendas as Mr. Abdoo determines are appropriate in consultation with other members of the Committee and with Mr. Wainscott, Mr. Zizzo and/or Mr. Horn. Members of Management, typically including Messrs. Wainscott, Horn and Zizzo, ordinarily are present at the start of each meeting, but the Committee typically also meets in executive session without any members of Management present prior to the conclusion of each meeting. As appropriate, the Committee’s consultant for executive compensation matters also attends meetings, in person or telephonically, including a portion of the executive sessions.

 

Committee Charter and Responsibilities

 

The general function of the Committee is to oversee the Company’s Management compensation policies and program and its policies and programs with respect to succession planning and the development of senior Management personnel. The Committee operates under a written charter reviewed and approved by the full Board of Directors of the Company. The Committee’s Charter describes its specific responsibilities and is available at www.aksteel.com.

 

Committee Support and Use of Executive Compensation Consultant

 

In discharging its responsibilities, the Committee is empowered to inquire into any matter that it considers appropriate to carry out its responsibilities, with access to all books, records, facilities and personnel of the Company. The Committee has the power to retain outside counsel and compensation consultants or other advisors to assist it in carrying out its responsibilities. The Company is required to, and does, provide adequate resources to support the Committee’s activities, including compensation of the Committee’s counsel, consultants and other advisors. The Committee has the sole authority to retain, compensate, direct, oversee and terminate such counsel, compensation consultants, and other advisors hired to assist the Committee and all such advisors are ultimately

accountable to the Committee. The Committee may form, and delegate any of its responsibilities to, a subcommittee so long as the subcommittee is solely comprised of one or more members of the Committee.

 

The Committee typically engages an independent executive compensation consultant who reports directly to the Committee. In connection with the 2010 executive compensation program, the Committee retained Frederic W. Cook & Co., Inc. (“Frederic W. Cook & Co.”) as its independent consultant for executive compensation matters. More specifically, Mr. Claude Johnston and Ms. Silvana Nuzzo provided executive compensation consulting services in 2010 to the Committee on behalf of Frederic W. Cook & Co. As appropriate, the consultant also works with Management on behalf of the Committee, in particular the Company’s Vice President, Human Resources, and its Secretary, to develop internal compensation data and to implement compensation policies, plans and programs. The executive compensation consultant also works with Mr. Wainscott to assist him in developing his recommendations to the Committee for non-CEO Executive Officer compensation packages. The consultant provides analytical assistance and data to the Committee with respect to the design, implementation and evaluation of the Company’s compensation program for Executive Officers. This includes providing assistance to the Committee in identifying similarly-situated companies to be included in a peer group to be used to develop competitive data. That data is used in the determination annually of base salary, annual and long-term incentives, and equity grants. The consultant also periodically compiles survey data from that peer group and, if appropriate, other companies. The consultant further assists the Committee in developing, evaluating and administering incentive plans, agreements addressing post-termination benefits, and other ongoing compensation-related arrangements or benefits. On request, the consultant also provides consulting services to the Board with respect to Director compensation matters. Except as described above, the consultant does not provide any other services to the Company. The Committee annually assesses the performance and independence of its compensation consultant.

 

Executive Officers and Named Executive Officers

 

For purposes of this discussion, the term “Executive Officers,” when capitalized, refers to the following in reference to 2010:

 

James L. Wainscott — Chairman of the Board of Directors, President and Chief Executive Officer

 

David C. Horn — Executive Vice President, General Counsel and Secretary

 

John F. Kaloski — Executive Vice President and Operating Officer

 

Albert E. Ferrara, Jr. — Senior Vice President, Finance and Chief Financial Officer

 

Gary T. Barlow — Vice President, Sales and Customer Service (eff. September 1, 2010)

 

Keith J. Howell — Vice President, Carbon Steel Operations (eff. June 1, 2010)

 

Alan H. McCoy — Vice President, Government and Public Relations

 

Roger K. Newport — Vice President, Business Planning & Development (eff. June 1, 2010)

 

Kirk W. Reich — Vice President, Specialty Steel Operations (eff. June 1, 2010)

 

Lawrence F. Zizzo, Jr. — Vice President, Human Resources

 

Douglas W. Gant — Former Vice President, Sales and Customer Service (retired eff. August 31, 2010)

 

For purposes of this discussion and the compensation tables included in the Proxy Statement, the term “Named Executive Officers” or “NEOs”, when capitalized, refers to the following with respect to 2010: James L. Wainscott, David C. Horn, John F. Kaloski, Albert E. Ferrara, Jr., Lawrence F. Zizzo, Jr. and Douglas W. Gant. Mr. Gant retired from the Company effective August 31, 2010, but meets the criteria under SEC rules applicable to former executive officers for inclusion as a Named Executive Officer in 2010.

 

What is the Company’s compensation philosophy?

 

The Company’s compensation philosophy, as determined by the Committee and approved by the Board, is that a compensation program should strengthen the commonality of interests between Management and the Company’s

stockholders, while at the same time enabling the Company to attract, motivate and retain executives of high caliber and ability who will drive the Company’s success. Consistent with the objective of strengthening the commonality of interests between Management and the Company’s stockholders, the Committee believes that a significant portion of the overall compensation package for each of the Company’s Executive Officers should include components that link the executive’s compensation to the Company’s performance, including performance-based vesting provisions for a portion of the equity incentives awarded to each Executive Officer.

 

The Committee believes that a well-designed executive compensation program includes both annual and long-term performance incentives. While annual incentive awards are an important factor in motivating executives for the short-term, the Committee believes that long-term incentives reduce the impact of volatility in business conditions on the performance-related components of the executive compensation program and also establish a stronger link between the executives’ earnings opportunity and the long-term financial performance and growth of the Company.

 

The Committee further believes that the Company’s compensation program should be designed to reward superior performance and to provide financial consequences for below-market performance. Consistent with that design objective, and the goal of attracting, motivating and retaining executives of high caliber and ability who will drive the Company’s success, the Committee attempts to establish a fair and reasonable compensation package for each Executive Officer that reflects not only the relative performance of the Company against its peers, but also is competitive relative to the Executive Officer’s peers, both inside and outside the Company. The percentage of total compensation that is performance-based generally will increase with the level of seniority and/or responsibility of the executive. There is no set formula or policy, however, with respect to the allocation between performance-based and non-performance based compensation. Nor is there any set formula or policy with respect to the allocation between cash and non-cash compensation.

 

Does the Committee review the Company’s executive compensation program periodically to determine if it still effectively implements the Company’s compensation philosophy?

 

Each year the Committee reviews the effectiveness and competitiveness of the Company’s executive compensation program with the assistance of an independent executive compensation consultant. If the Committee decides that changes to the compensation program are appropriate, they are recommended to the full Board for approval. Periodically, the Committee undertakes a more extensive “deep dive” review of not only the terms of the executive compensation program, but also its underlying philosophy. The Committee undertook such a “deep dive” review in 2009 and recommended several changes in the program to the full Board. As a result of such recommendations, changes relating to certain of the Company’s executive compensation plans, agreements and policies were approved by the full Board at its meeting held on October 22, 2009. These changes impacted to varying degrees the compensation of the NEOs in 2010. In addition, an understanding of the changes also is important to an understanding of how the 2008 and 2009 compensation data included in the compensation tables compares to the 2010 data. The principal changes approved by the Board in October 2009 included the following:

 

 

 

What specific policies does the Company have which impact executive compensation?

 

Compensation Clawback Policy

 

As noted above, in October 2009 the Board adopted a compensation clawback policy which provides that in certain circumstances the Company may recoup (or, if not yet paid, seek the forfeiture of) performance-based compensation from Covered Officers, including the Named Executive Officers. The Board adopted the clawback policy with the intent of reinforcing and enhancing a culture that promotes honest and ethical business conduct on behalf of the Company.

 

Stockholder Approval of Severance Agreements with Senior Executives

 

The Board has a policy concerning stockholder approval of certain severance agreements with the Company’s senior executives, including its Named Executive Officers. That policy provides that the Board should seek stockholder approval or ratification of severance agreements with the Company’s senior executives entered into on or after May 13, 2003 (the date the policy was adopted) if such agreements require payment of benefits attributable to severance in an amount exceeding 2.99 times the sum of the senior executive’s annual base salary plus annual and long-term incentive bonuses payable for the then-current calendar year. For purposes of this policy, the term “severance agreement” means an employment agreement, retirement agreement or change-in-control agreement which contains a provision for payment of benefits upon severance of employment with the Company, as well as renewals, modifications or extensions of such agreements. The term “senior executive” means the Chief Executive Officer, President, principal financial officer, principal accounting officer and any elected Vice President of the Company. The term “benefits” means lump-sum cash payments (including cash payments in lieu of medical benefits and excluding gross-up payments to cover excise taxes) and the estimated present value of future periodic cash payments to be paid to a senior executive in excess of what he or she otherwise would be entitled to receive under the terms of any qualified or non-qualified Company pension or employee benefit plan.

 

Stock Ownership Guidelines for Executive Officers

 

The Board also has a policy concerning stock ownership guidelines for Executive Officers. The principal objective of the policy is to enhance the linkage between the interests of stockholders and Management through a minimum level of stock ownership. The policy establishes a “target ownership” guideline for the Company’s common stock for each Executive Officer. The guideline typically is expressed as a number of shares equal in market value to a multiple of the Executive Officer’s annual base salary. The target ownership guideline set for each Executive Officer varies in amount based upon that person’s relative level of seniority and responsibility. Among the NEOs, the target ownership guideline for Mr. Wainscott is a number of shares equal in market value to three times his annual base salary at the time the guidelines were established. The ratio for Messrs. Horn and Kaloski is two times their then-annual base salary. For Mr. Ferrara the ratio is one and one-half times his then-annual base salary and for Mr. Zizzo the ratio is one times his base salary. Mr. Gant’s ratio was one times his base salary. Once

established, an Executive Officer’s target ownership guideline does not re-adjust automatically as a result of changes in his or her base salary or changes in the price of the Company’s stock. However, the Committee may, from time to time, reevaluate and revise a particular Executive Officer’s target ownership guideline in light of such changes. The Committee last did that in October 2010. For purposes of the policy, stock “ownership” includes (i) shares of Company stock held directly by an Executive Officer, (ii) shares of Company stock held by an Executive Officer’s family member living in the same household, and (iii) shares of Company restricted stock held directly by an Executive Officer, whether or not yet vested. “Ownership” does not include options, whether vested or unvested, to purchase stock. Executive Officers are expected to attain the minimum level of target ownership within a period of three years from the effective date of the policy or from the date he or she is first elected as an Executive Officer, whichever is later. Currently, each of the Named Executive Officers is in compliance with the stock ownership policy.

 

What is the Committee’s general process for determining executive compensation?

 

Timing of Compensation Determination

 

Although the Committee receives and considers data, reports, and other information throughout the year in the course of performing its responsibility to oversee the Company’s executive compensation policies and practices, the Committee typically determines the annual compensation package for each of the Executive Officers, including equity grants and participation in any annual or long-term incentive programs, at its January meeting each year. The performance goals for incentive awards generally are established at the Committee’s January meeting, but with respect to some components, may not be established until the Committee’s March meeting.

 

Use of Competitive Data in the Compensation Determination Process

 

The Committee engages an independent executive compensation consultant to provide assistance to the Committee in determining appropriate annual compensation packages. The Committee directs that consultant to develop competitive compensation data based upon publicly available information from a peer group of the Company, as well as general industry surveys for similarly-sized companies. (See the discussion below for a list of who is in this peer group and the criteria used to establish it.) The Committee relies upon and considers this data as a factor in its determination, but it does not have a policy or practice of utilizing a particular compensation percentile as a benchmark for purposes of determining initial or subsequent salary levels. Rather it uses this competitive data principally in two respects. First, it provides one measure for assessing the reasonableness of any compensation package the Committee is considering for an Executive Officer. Second, it assists the Committee in implementing its goal of retaining executives of high caliber by enabling the Committee to better understand what competitors or other potential employers may pay to attract away an existing Executive Officer and what the Company must pay to attract to the Company a candidate for an Executive Officer position.

 

Peer Companies

 

The competitive data used by the Committee include compensation data from a peer group of industrial companies with sales, size and scope reasonably comparable to those of the Company, as well as other large publicly-owned, United States-based companies in the steel industry. Among other factors, the members of this peer group are selected because the Company directly or indirectly competes with them for employees, business, capital and/or investors, whether as a result of its status as an industry competitor or as a manufacturing company with a similar range of market capitalization, geographic location, manner of operations, and/or other relevant characteristics. Until October 2010, that peer group consisted of the following companies:

 

The Committee periodically reviews this peer group to evaluate whether it remains reasonable and appropriate. The Committee engaged in such a review in 2010 with the assistance of its executive compensation consultant. At the Committee’s October 2010 meeting, the Committee’s executive compensation consultant presented a report in which it recommended several changes to the Company’s then-existing peer group. The recommended changes consisted of the addition of four new companies: Cliffs Natural Resources Inc., Reliance Steel & Aluminum Co., Schnitzer Steel Industries, Inc. and Steel Dynamics, Inc. At its October 2010 meeting, the Committee approved those recommended changes. As a result, as of October 2010, the Company’s peer group consists of the following companies:

 

 

Use of Tally Sheets

 

The Committee utilizes tally sheets to review the amounts payable under each element of an NEO’s compensation, as well as the aggregate value of such compensation, in the event of a circumstance which would trigger payment of post-termination compensation. These tally sheets are prepared by the Company’s executive compensation consultant, with the assistance of the Company’s independent outside actuary. The Committee also uses tally sheets as a measure for assessing the reasonableness of the compensation packages approved by the Committee for an Executive Officer, including the NEOs. This assessment of reasonableness includes a comparison of the compensation packages of each Executive Officer for internal equity between and among the Executive Officers, as well as a comparison of the compensation packages of each Executive Officer to relevant executive positions in the Company’s peer group.

 

Management Role in the Compensation Process

 

After consulting with the Committee’s executive compensation consultant, Mr. Wainscott makes recommendations to the Committee with respect to the annual compensation packages for all of the Executive Officers other than himself. The Committee discusses those recommendations with Mr. Wainscott and the Committee’s executive compensation consultant before making the determination of the non-CEO executive compensation packages in accordance with the process described generally above and more specifically below with respect to 2010.

 

Other than Mr. Wainscott, the only member of Management who provides a recommendation to the Committee with respect to any aspect of the annual executive compensation program is Mr. Zizzo in his capacity as Vice President, Human Resources. Mr. Zizzo makes a recommendation to the Committee each year with respect to the goals to be used for purposes of determining performance awards in the next performance cycle under the Company’s Annual Incentive Plan and Long-Term Plan. This includes goals for safety, quality and net income for performance under the Annual Incentive Plan and cumulative EBITDA for performance under the Long-Term Plan. Mr. Zizzo’s recommendation with respect to such goals principally takes into consideration the Company’s performance against the goals of the prior performance cycle, consultation with Mr. Wainscott and other Management personnel concerning the anticipated performance of the Company in the next performance cycle with respect to those goals, an evaluation of what would be a realistic, but appropriately demanding, performance level for each specific goal, and consultation with the Committee’s independent executive compensation consultant. Mr. Zizzo further evaluates and makes recommendations to the Committee with respect to the design and implementation of the various incentive plans, retirement plans, and other ongoing compensation-related arrangements and benefits for the Executive Officers.

What was the specific process for determining the 2010 executive compensation program?

 

Timing of Compensation Determination

 

The 2010 base salary and equity compensation determinations for each of the Company’s Executive Officers were made originally at the Committee’s January 2010 meeting in accordance with the general process for determining executive compensation outlined above. However, in May 2010, the Board elected three new executive officers of the Company: Messrs. Howell, Newport and Reich. Their compensation was determined by the Committee at its May 2010 meeting. Also in May 2010, three existing Executive Officers received promotions: Messrs. Ferrara, Horn and Kaloski. The Committee made adjustments to their executive compensation at that time to reflect their promotions. Lastly, in August 2010, Mr. Gant retired from the Company and Mr. Barlow was elected to succeed him effective September 1, 2010 as Vice President — Sales and Customer Service. The Committee determined Mr. Barlow’s executive compensation at a meeting in August 2010.

 

Key Factors Considered by the Committee during the 2010 Compensation Process

 

Non-CEO Executive Compensation

 

As part of its normal deliberative process, the Committee principally considered the following factors in establishing 2010 base salaries and target performance award opportunities of, and determining awards of restricted stock, performance shares and stock options to, individual Executive Officers, including the NEOs:

 

 

The Committee also met with Mr. Wainscott as CEO and President of the Company with respect to each of the other Executive Officers, including the other NEOs. Mr. Wainscott provided his evaluation of the NEOs’ performance for the Committee’s consideration in its determination of their respective compensation packages. Mr. Wainscott also made a recommendation to the Committee for its consideration with respect to what he believed would be an appropriate compensation package for each Executive Officer (other than himself), including each of the other NEOs.

CEO Executive Compensation

 

The Committee generally followed the same compensation process and considered the same factors described above with respect to Mr. Wainscott (except that he did not make any recommendations with respect to his own compensation). However, the Committee also employed additional procedures in connection with its determination of Mr. Wainscott’s compensation. These additional procedures included conducting and considering an annual performance evaluation of Mr. Wainscott as the CEO and President of the Company. More specifically, in connection with the determination of Mr. Wainscott’s 2010 compensation package, the Committee evaluated his 2009 performance as CEO and President of the Company. For that purpose, the Committee approved prior to its January 2010 meeting a written performance evaluation form to be completed by all members of the Board. Mr. Wainscott completed a self-evaluation using the same evaluation form. All of these completed forms were returned to Mr. Abdoo, as the Chairman of the Committee, and he then summarized and presented them to the full Board. In addition, each year Mr. Wainscott prepares a list of proposed annual goals and objectives for himself and the Company and provides that list to the Committee. Mr. Wainscott prepared such a list for 2009 and the Committee had approved his proposed 2009 goals and objectives at its January 2009 meeting. The Board considered that approved list of 2009 goals and objectives in connection with its January 2010 evaluation of Mr. Wainscott’s 2009 performance. Those goals and objectives addressed the following subjects: improving the Company’s financial performance, enhancing customer service, progress on major strategic initiatives (including with respect to raw materials), management development and succession planning, enhancing the Company’s cash and liquidity, successful completion of certain capital investments, successful completion of certain labor negotiations, improving certain fundamental operating measures, enhancing stockholder value, and certain personal development goals.

 

Committee Conclusion and Action with respect to 2010 Compensation Packages

 

After following its stated compensation process, and discussing the factors set forth above, the Committee concluded that the 2010 compensation packages under consideration for each of the Company’s then-existing Executive Officers, including the NEOs, were consistent with the Company’s compensation philosophy and were reasonable, competitive and appropriate, both individually and taken as a whole. The Committee’s conclusion with respect to these compensation packages, though based in part on subjective factors and reference to each individual’s compensation package in recent prior years, was primarily founded upon the Committee’s recognition of the high level of performance by each Executive Officer, including each NEO, and the Committee’s confidence that the compensation packages provide proper incentive for these Executive Officers to remain employed by the Company and to continue to focus on serving the best interests of the Company and its stockholders in the coming years. The Committee further concluded that these packages reflected then-current conditions at the Company and in the industry, and would provide adequate and appropriate incentives to the Executive Officers to stay with the Company and to work diligently and effectively to improve its performance, not only in 2010 but for a longer term.

 

The Committee therefore approved the compensation packages for 2010 that are reflected in the Summary Compensation Table beginning on page 54 of this Proxy Statement. Further detail on the decisions with regard to each key component is provided in the following section. The Committee then reported its action to the Board and recommended that the Board ratify the compensation packages approved by the Committee. After consideration and discussion by the Board as a whole, the Board ratified those packages.

 

What action did the Committee take in 2010 with regard to the key elements of the Company’s executive compensation program and what were the principal reasons for that action?

 

The key elements of the Company’s executive compensation program are:

 

 

Each of these elements is addressed in more detail separately below in the context of the 2010 executive compensation program.

 

Base Salary

 

The salary level for an NEO is assigned initially based upon experience, expertise, job responsibilities and competitive data, including a review of the salary levels for comparable positions at other similarly-situated major corporations as disclosed in competitive data presented by Frederic W. Cook & Co. As noted above, the individual performance of each NEO other than Mr. Wainscott is reviewed by the Committee with Mr. Wainscott. Mr. Wainscott’s individual performance is reviewed by the Committee based upon a written evaluation by the Board of Mr. Wainscott’s performance against various goals and objectives. The Committee also reviews the base salary levels of the NEOs for internal consistency and equity relative to each other. The principal factors in determining whether to increase, maintain, or decrease an annual base salary for an NEO are individual performance, Company performance, changes in job responsibility, and competitive market compensation data and trends. The Committee does not rely on any specific formula, nor does it assign specific weights to the various factors used in determining base salaries. Strong individual performance and strong Company performance would generally result in above-market increases. Below-market increases, no increases, or even decreases may occur in years when either individual performance or Company performance has been below expectations.

 

In January 2010, after considering all of the above factors and consulting with Frederic W. Cook & Co., the Committee determined to increase the base salaries of all of the NEOs (as well as the other Executive Officers). Among the key factors contributing to this decision were (1) the financial improvement by the Company during 2009, particularly in the second half, (2) the then-anticipated continuation of that improvement in 2010 (which, ultimately turned out to be less than had been anticipated, due principally to the lingering effects of the recession and the unanticipated dramatic increase in iron ore prices which occurred in 2010), and (3), as discussed above, the fact that not only had the NEOs not received an increase in their base compensation since January 2008, they actually had experienced a decrease in their base compensation for most of 2009.

 

Annual Incentive Awards

 

As discussed above, the Company provides annual cash performance awards to its employees, including its NEOs, pursuant to its Annual Incentive Plan. This component of an NEO’s compensation is intended to motivate the NEO to focus on both financial and non-financial annual performance-based goals that directly impact stockholders. Under the terms of the Annual Incentive Plan, a participant can earn a performance award based upon the annual performance of the Company against goals established for performance at a threshold, target and maximum level. The three performance metrics used for the goals are safety, quality and net income.

 

A performance award at the target level may be paid under the Annual Incentive Plan to the CEO in an amount equal to 110% of base salary and a performance award at the maximum level may be paid in an amount equal to 220% of base salary. For the other NEOs, and depending upon the NEO’s title and position, a performance award at the target level may be paid in an amount equal to between 60% and 75% of base salary and a performance award at the maximum level may be paid in an amount equal to between 120% and 150% of base salary. Performance awards between the threshold and the target level are determined by a straight-line interpolation between those two levels, starting from a base of zero at the threshold level. By way of example, assuming that a potential award at the target level for a particular performance factor was $10,000, then annual performance by the Company at halfway between the threshold and target goals would result in payment of a performance award with respect to that particular factor in the amount of $5,000. Similarly, performance at three-quarters of the way between the threshold and target goals would result in payment of a performance award with respect to that particular factor in the amount of $7,500.

 

Under the terms of the Annual Incentive Plan, the Committee weights each performance factor as a percentage of the whole. For 2010, the Committee approved the weighting of the three performance factors at 20% for safety, 20% for quality and 60% for financial performance for purposes of determining the portion of a performance award paid up to the target level. Payment of a performance award, if any, beyond the target level is based solely upon financial performance. Since payment beyond the target level is predicated solely on financial performance, this has

the effect of reducing the percentage of the whole award attributable to safety and quality. For example, if a performance award is earned at the maximum level, the relative weightings would be 10% for safety, 10% for quality and 80% for financial performance.

 

With respect to the safety performance factor, the metric selected by the Committee to measure performance was the number of OSHA-recordable cases. That metric was selected because there is no higher priority at the Company than the safety of its employees and it is a standard metric reported to a federal government agency. It also is commonly used in the steel industry as a measure of safety performance. For the safety component of the 2010 Annual Incentive Plan, at its January 2010 meeting the Committee established a target level goal of no more than 21 OSHA-recordable injuries on Company-wide basis and a threshold level goal equal to 125% of that number. (The threshold goal in this instance is higher than the target goal because that reflects less successful performance.) For all of 2010, the Company had a total of 23 recordable injuries. In 2010, the Company thus performed between the threshold and target level performance goals for safety under the Annual Incentive Plan.

 

With respect to the quality performance factor, the Committee selected three metrics: internal rejections, internal retreats and external customer claims. Those metrics were selected because they also are commonly used in the steel industry to measure quality performance. In addition, there is a direct relationship between the Company’s performance with respect to each of those metrics and the Company’s costs attributable to quality. At its January 2010 meeting, the Committee established a 2010 target level goal of no more than 0.58% for the internal rejection rate, 0.84% for the internal retreat rate, and 0.195% for the customer claim rate. Again, the threshold goals for each of those metrics were set at 125% of the target goals. (As with the safety performance factor, a higher number reflects less successful performance). In 2010, the Company performed at a level better than the target level performance goals with respect to each of the three quality metrics used to measure its performance under the Annual Incentive Plan.

 

With respect to the financial performance factor, the Annual Incentive Plan establishes net income (excluding special, unusual and extraordinary items) as the performance metric and that was the performance metric used for 2010. The net income threshold goal typically is set at a level which would represent a minimum acceptable performance by the Company. The target goal typically is set at a level which would represent performance that is more demanding, but still reasonably attainable. The maximum goal is set at a level which would represent extraordinary performance. In March 2010, when the Committee was establishing the 2010 performance goals for the net income metric of the Annual Incentive Plan, there continued to be significant uncertainty with respect to the annual benchmark price for iron ore under the Company’s contracts with its major iron ore suppliers. Not only was there uncertainty over the price itself, there also was substantial uncertainty with respect to whether an annual benchmark would be set and, if so, when that would occur. Because a change in the price paid by the Company for iron ore could have a significant impact on its financial performance, the Committee decided at its March 2010 meeting to utilize a matrix which established different net income threshold, target and maximum performance net income goals for 2010 depending upon the ultimate increase in iron ore pricing for 2010. Based upon that ultimate increase, under the matrix established by the Committee in March 2010, the threshold, target and maximum net income performance goals for 2010 under the Annual Incentive Plan were approximately $46 million, $96 million and $145 million, respectively. Because the Company did not achieve net income in 2010, it thus did not achieve the threshold necessary for a payment of the financial component of a 2010 performance award under the Annual Incentive Plan.

 

Under the terms of the Annual Incentive Plan, the Company must achieve the threshold level set for financial performance in order for there to be any payout under the quality component of the Plan. While in general the Committee believes that no payout should be made under the Annual Incentive Plan if the Company does not perform financially at least at the threshold level, an exception is made with respect to safety. The safety component of the Annual Incentive Plan may be paid out regardless of whether the threshold level for financial performance is achieved. The reason for this distinction is the extraordinary importance placed by the Company on the safety of its employees. Thus, on January 19, 2010, the Committee approved the payment of performance awards for the 2010 performance period to the participants in the Annual Incentive Plan, including the NEOs, equal to 12.38% of the total potential incentive award at the target performance level (or 6.19% at the maximum level), relating solely to the safety component of Annual Incentive Plan.

The amount of the Annual Incentive Plan performance awards to each of the NEOs for 2010 is included in the Summary Compensation Table beginning on page 54 of this Proxy Statement.

 

Long-Term Incentive Awards

 

The Company also provides cash performance awards to its employees, including its NEOs, pursuant to its Long-Term Plan. The fundamental purposes of the Company’s Long-Term Plan are to:

 

 

Under the terms of the Long-Term Plan, a participant can earn a performance award based upon the three-year performance of the Company against a goal established by the Committee at the start of that three-year period. For 2010, the Committee used cumulative EBITDA (excluding special, unusual and extraordinary items) as the performance metric for the Long-Term Plan. The Committee selected this metric because the Committee believes it creates value and provides a strong incentive for Management to achieve the Company’s objective of sustainable profitability. Accordingly, the Committee believes the use of this metric will more closely align the interests of Management with the interests of the Company’s stockholders over the long term.

 

Pursuant to the terms of the Long-Term Plan, the Committee establishes cumulative EBITDA threshold, target and maximum payout goals at the start of each three-year performance period. In determining the Long-Term Plan goals, the Committee attempts to establish a target goal which will be challenging to achieve and that is not likely to be satisfied with respect to every three-year performance period. As with respect to the Annual Incentive Plan goals, the threshold goal would be set at a level that would represent a minimum acceptable performance by the Company and the maximum goal would be set at a level that represents extraordinary performance. The threshold goal must be met before any payout is made.

 

A performance award at the target level may be paid under the Long-Term Plan to the CEO in an amount equal to 110% of base salary and a performance award at the maximum level may be paid in an amount equal to 220% of base salary. For the other NEOs, and depending upon the NEO’s position, a performance award at the target level may be paid in an amount equal to between 60% and 75% of base salary and a performance award at the maximum level may be paid in an amount equal to between 120% and 150% of base salary. There is a linear progression of the payout for achievement of cumulative EBITDA between the threshold, target and maximum payout goals. All payouts earned, if any, are paid in cash. For the three-year period ending December 31, 2010, the Committee established at its January 2008 meeting cumulative EBITDA goals of $1.75 billion as the threshold to reach for any incentive payment, $2.25 billion for payment at the target level, and $2.75 billion for payment at the maximum level. For the three-year period ending in 2010, the Company had actual cumulative EBITDA in accordance with the plan of $1.216 billion. Because the Company did not achieve the threshold performance level of cumulative EBITDA, no incentive payment was paid to the participants in the Long-Term Plan, including the NEOs, for the 2008 — 2010 performance period. Accordingly, the Summary Compensation Table beginning on page 54 of this Proxy Statement does not include any payouts in 2010 to the NEOs under the Long-Term Plan.

 

Equity Awards

 

Another key component of an NEO’s annual compensation package is the grant of equity awards under the Company’s Stock Plan. Such grants may be in the form of stock option awards, restricted stock awards and/or performance-based equity awards in the form of performance shares.

 

A principal purpose of equity grants under the Company’s Stock Plan is to enhance the commonality of interests between Management and the Company’s stockholders by linking executive compensation to the

Company’s performance and to appreciation in the market price of the Company’s common stock. Equity grants also are intended to encourage executives to remain in the employ of the Company, as discussed below.

 

Performance share awards

 

Performance share grants also are an important element of an NEO’s annual compensation package because they closely align the interests of the NEOs and the Company’s stockholders by directly linking how many shares, if any, ultimately are earned by an NEO to the performance of the Company over a three-year performance period. Each grant of a performance share award is expressed as a target number of shares of the Company’s common stock. The number of shares of common stock, if any, actually earned by and issued to the NEO under a performance share award will be based upon the performance of the Company over the applicable performance period. By way of example, the performance period applicable to the performance share awards granted in January 2008 started on January 1, 2008 and ended on December 31, 2010. Depending upon the Company’s performance with reference to the performance categories described below, an NEO ultimately may earn from 0% to 150% of the target number of shares granted. The performance categories used to determine how many performance shares ultimately will be earned and issued are:

 

 

One-half of the total target number of shares awarded may be earned based on the relative total stockholder return performance and the other half may be earned based on the Growth Rate performance. For each performance category, levels have been established to provide threshold, target and maximum payouts as follows:

 

 

If the threshold performance level is not achieved in a performance category as of the end of the performance period, then none of the target shares related to that category will be earned or issued. If at least the threshold is achieved in a performance category, then shares will be earned and issued in an amount equal to the number of the award’s target shares related to that category, multiplied by a percentage determined by a straight-line interpolation between the actual level of the Company’s performance and the above-stated payout percentages. As noted above under Application of Key Pay-for-Performance Components to 2010 Executive Compensation, for the three-year performance period ending in 2010, the Company’s stock performance with respect to the Total Stockholder Return and Growth Rate metrics did not meet the threshold performance levels. Accordingly, no shares of the Company’s common stock were issued with respect to the performance awards granted in January 2008.

 

Restricted stock awards

 

The Committee typically determines and approves restricted stock grants each year at its regularly-scheduled January meeting. There is a limited exception to this standard award schedule for grants of restricted stock to someone promoted or hired during the year. Restricted stock generally has a value for an NEO only if the NEO remains in the Company’s employment for the period required for the stock to vest, thus providing an incentive for the NEO to remain in the Company’s employment. (An exception to the requirement of continued employment occurs with respect to death, disability or retirement. Vesting occurs immediately upon death or disability. Upon qualification for retirement, the restricted stock will continue to vest in the normal course after the date of retirement.)

Restrictions on grants of common stock to the Company’s employees typically will lapse with respect to one-third of the shares on the first anniversary of the date of the award, and with respect to an additional one-third of the shares on each of the second and third anniversaries of the date of the award. That is the case with all of the restricted stock grants to the NEOs which occurred in January 2010 at the time the Committee determined the 2010 compensation packages for the NEOs. However, in connection with the promotion of three of the existing Named Executive Officers (Messrs. Ferrara, Horn and Kaloski), on May 26, 2010, the Committee approved additional grants of restricted stock to each of them with a vesting schedule that differs from the normal three-year step vesting. With respect to these May stock grants, the vesting schedule is three-year “cliff” vesting. That is, all of the shares of restricted stock granted in May 2010 will vest at the third anniversary of the grant date. The reason for the change from the normal three-year step vesting schedule was to increase the term for which the restricted stock provides an incentive to each of these NEOs to continue their employment with the Company.

 

Stock option awards

 

Stock option grants serve the purposes of the Stock Plan because they generally have a value to the grantee only if the grantee remains in the Company’s employment for the period required for the option to become exercisable, and then only if the market price of the Company’s stock increases above its price on the date the option was granted. This provides an incentive for the grantee to remain employed by the Company and to take actions which, over time, are intended to enhance the value of the Company’s stock. (As with restricted stock, an exception to the requirement of continued employment is made in the event of death, disability or retirement. In addition, for stock options an exception is made for involuntary termination without cause.)

 

For each NEO, stock options are a part of the determination of the NEO’s overall compensation package for that year. The Company has not had, and does not have, a policy or a practice of reloading or repricing options granted to its NEOs that have expired, been exercised or are “under water.” All options granted to employees under the Stock Plan, including the NEOs, must be exercised within a ten-year period of the grant date and typically vest in three equal installments on the first, second and third anniversary of the grant date. However, in 2009, the Board, upon the recommendation of the Committee, amended the Company’s Stock Plan to provide for immediate vesting of unvested stock options upon a participant’s disability. Previously, such options vested over the normal course of the three-year vesting schedule upon disability. The rationale for this amendment was to treat the events of death and disability with respect to stock options consistently under the Stock Plan.

 

Under the terms of the Stock Plan, the exercise price for a share of the Company’s common stock underlying an option may not be less than the fair market value of the Company’s stock on the date on which such option was granted. It has been the uniform practice of the Committee to establish an option exercise price equal to the fair market value of the underlying common stock. Under the terms of the Stock Plan, that fair market value is the average of the highest and lowest sales price for the Company’s common stock on the grant date (or if there were no sales of the Company’s common stock on the grant date, then the weighted average of the mean between the highest and lowest sales price for the Company’s common stock on the nearest preceding trading day during which there were sales of such stock). It is both the policy and practice of the Committee only to grant options to its employees, including its NEOs, as of the date of the meeting at which the grants were made. This typically occurs at the regularly-scheduled January Committee meeting. Generally, the Committee only grants options at a meeting other than the January meeting in a situation in which an employee is being promoted (e.g., to a new key management or officer position) or is first hired. Under those circumstances, the grant may occur at a meeting other than the regularly-scheduled January Committee meeting, but the grant date for the options still would be the date of the meeting at which the grant was approved. The exercise price for such options also still would be the fair market value of the Company’s common stock determined as described above under the terms of the Stock Plan. The Company has not had, and does not have, a policy or practice of backdating stock options. Neither the selection of Committee meeting dates nor option grant dates is timed in any way to try to maximize gain or manipulate the price of an option. Management does not have a role in determining the timing of option grants.

 

2010 Equity Grants to NEOs

 

As in past, the Committee engaged Frederic W. Cook & Co. to provide assistance in determining appropriate equity awards to the Executive Officers, including the NEOs, for 2010. In January 2010, Frederic W. Cook & Co.

developed and provided to the Committee competitive compensation data based upon publicly available information from the Company’s peer group, as well as general industry surveys for similarly-sized companies. The Committee relied upon and considered this data as a factor in its determination of equity grants, but it did not utilize a particular compensation percentile as a benchmark for purposes of determining such grants. Rather, it used this competitive data to help the Committee assess the reasonableness of the grant awards under consideration by the Committee for an Executive Officer.

 

Additional equity awards in the form of shares of restricted stock were made to three of the Named Executive Officers — Messrs. Ferrara, Horn and Kaloski — in May 2010 at the time they received promotions. Such grants also were reviewed and discussed in advance with the Committee’s executive compensation consultants.

 

While there is no express policy with respect to the allocation of each type of equity award, the total fair value at the grant date of the January 2010 equity grants to the NEOs was allocated approximately as follows:17% stock options, 30% restricted stock, and 53% performance shares at target. The specific grants of stock options, restricted stock and performance shares made during 2010 to each of the NEOs are set forth in the Grants of Plan-Based Award Table beginning on page 57 of this Proxy Statement.

 

Post-Termination Benefits

 

Rationale for Severance and Change-in-Control Agreements

 

The Company has entered into severance agreements and change-in-control agreements with each of the NEOs that provide post-termination benefits. The current forms of these agreements were attached as exhibits to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 20, 2004, as subsequently amended by the forms attached as exhibits to the Company’s Quarterly Report on Form 10-Q for the quarters ended November 6, 2007 and November 3, 2009. For each of the NEOs, the original agreements were effective as of July 26, 2004, had an initial five-year term, and renew automatically on a year-to-year basis thereafter unless written notice of non-renewal is given by either party at least 90 days prior to the expiration of the term. These forms were recommended by the Committee and approved by the Board in 2004 after the Committee undertook an evaluation of its then-existing Executive Officer severance agreements.

 

The severance agreements were approved because they promote the interests of the Company and its stakeholders by, among other things:

 

 

The change-in-control agreements were approved because they promote the interests of the Company and its stakeholders by, among other things:

 

 

As it does each year, in 2010 the Committee reviewed the form and terms of the Company’s severance and change-in-control agreements to evaluate whether they continued to promote the interests of the Company as noted above and were appropriate and competitive under the then-existing circumstances. The Committee concluded that the agreements continue to meet that standard and should remain in effect.

 

Severance Agreements Terms Overview

 

Under the terms of the existing form of severance agreement with the Company’s NEOs, an NEO who voluntarily terminates employment or whose employment is terminated involuntarily for cause would not receive any severance benefits associated with such termination. An NEO who is terminated involuntarily without cause would receive at a minimum a lump sum payment equal to the NEO’s base salary for a period of six months. In addition, if the NEO executes an agreement releasing the Company from any liability for claims relating to the NEO’s employment with the Company, the NEO also is entitled to receive:

 

 

Change-in-Control Agreements Terms Overview

 

An NEO typically is entitled to severance payments and other benefits under the NEO’s change-in-control agreement if, within 24 months following a change-in-control of the Company, the NEO’s employment with the Company is involuntarily terminated without cause or the NEO voluntarily terminates employment with the Company for “good reason.” Under one version of the termination section, however, the Committee believed it would be in the best interests of both the Company and the individuals for two of the NEOs to be entitled to benefits upon voluntary termination for any reason within six months after a change-in-control.

 

There also are different versions of the change-in-control agreement with respect to the level of benefit payments made in the event of a change-in-control. Generally, the highest level of benefits is provided for Mr. Wainscott. For each NEO, the base severance benefit is a lump sum payment equal to the NEO’s base salary for a period of six months. In addition, if the NEO executes an agreement releasing the Company from any liability for claims relating to employment with the Company, the NEO would be entitled to receive:

 

 

 

With respect to the last bullet point addressing “gross-up” payments for taxes, in October 2009 the Board determined that all new Executive Officer Change-in-Control Agreements entered into between the Company and Executive Officers in the future will not include “gross-up” payments to reimburse such officers for individual excise or income taxes incurred with respect to benefits triggered by a change in control of the Company. The rationale for this change, including the prospective nature of the change, was to reflect best practices with respect to the subject of gross-up payments in the context of change-of-control agreements, while still respecting the Company’s contractual and other commitments to its existing Executive Officers.

 

Specific Payments and Benefits under Severance and Change-in-Control Agreements

 

The specific circumstances that would trigger the payments and other benefits under the severance agreements, the estimated payments and benefits that would be provided in each covered circumstance for each NEO, how the payments and benefits are determined under such circumstances and all material conditions and obligations applicable to the receipt of the payments and benefits are set forth in the Potential Payments Upon Termination or Change-in-Control discussion beginning on page 65 of this Proxy Statement.

 

Pension and Other Retirement Benefits

 

Non-Contributory Pension Plan

 

Prior to January 31, 2009, the Company’s full-time, non-represented salaried employees, including its NEOs, could elect to participate in a qualified benefit plan known as the Non-Contributory Pension Plan. Effective January 31, 2009, however, no new participants were allowed to enter the Non-Contributory Pension Plan and all benefit accruals under the plan for existing participants were frozen. For those who entered the Non-Contributory Pension Plan prior to January 31, 2009, retirement benefits are calculated using one of two formulas: (1) a cash balance formula, or (2) a final average pay formula. Eligibility for coverage under a particular formula is typically determined by the date on which a participant commenced employment with the Company. Participants generally are vested under the Non-Contributory Pension Plan after five years of service regardless of which formula is used to calculate benefits. The compensation taken into account in determining benefits under either formula is subject to the compensation limits imposed by the Internal Revenue Code. A description of the terms of the Non-Contributory Pension Plan, including the formulas used to calculate a participant’s retirement benefits, is set forth in footnote (1) to the Pension Benefit Table in this Proxy Statement beginning at page 62. The number of years of credited service and the present value of accumulated benefits for each of the NEOs under the Non-Contributory Pension Plan are also set forth in the Pension Benefit Table beginning at page 62 of this Proxy Statement. All years of service, including service after benefit accruals under the plan were frozen effective January 31, 2009, will continue to count toward vesting and retirement benefit eligibility.

 

Executive Minimum and Supplemental Retirement Plan

 

The Company’s officers, including its NEOs, are eligible to participate in an unfunded nonqualified deferred compensation plan called the Executive Minimum and Supplemental Retirement Plan, also known as a supplemental executive retirement plan, or “SERP.” Each of the NEOs is a participant in the Company’s SERP. The Company’s SERP provides (1) a “make up” of qualified plan benefits that were denied as a result of limitations imposed by the Internal Revenue Code, and (2) supplemental benefits to vested participants. As part of its annual review of retirement benefits provided to Executive Officers, including the NEOs, the Committee has determined

that the retirement benefit provided by the SERP continues to be a key element of a competitive compensation package and, therefore, important to recruiting and retaining key management members.

 

The benefits for participants in the SERP, including the NEOs, vest under a form of graded vesting. More specifically, a participant will vest in 50% of his or her accrued benefit after a minimum requirement of five years of service as an officer of the Company and as a participant in the SERP, and in an additional 10% of such benefit for each year of service as an employee of the Company in addition to such five years, up to 100% vesting after ten years of total service. Vesting also will occur upon the effective date of a Change of Control (as defined in the SERP).

 

The form of payment is a lump sum payment to be made within 30 days after the later of attainment of age 55 or termination of employment, subject to a six-month delay for specified employees, including the NEOs. A participant whose employment with the Company terminates after his or her benefit has vested, but before the participant reaches the age of 60, is entitled to an early retirement benefit, reduced to its actuarial equivalent based on the participant’s age.

 

Benefits paid under the SERP are subject to an offset for any benefit received under the Company’s qualified defined benefit plan, as well as the actuarial equivalent of certain Company-provided vested benefits accumulated under the AK Steel Corporation Thrift Plan A. A participant’s benefit under the SERP, prior to giving effect to such offset, is equal to the greater of: (1) 50% of his or her average covered compensation (base salary and bonus under the Annual Incentive Plan) during the employee’s highest consecutive three-year period of eligible earnings over the participant’s last ten years of consecutive service, or (2) the participant’s benefit under the applicable qualified plan in which he or she participates without regard to the limitations imposed by the Internal Revenue Code. The present value of accumulated benefits for each of the NEOs under the SERP is set forth in the Pension Benefits Table beginning on page 62 of this Proxy Statement.

 

Thrift Plan and Supplemental Thrift Plan

 

The Thrift Plan is a qualified retirement plan under Section 401(k) of the Internal Revenue Code. It provides for Company matching contributions with respect to employee contributions up to 5% of base salary, a portion of which is guaranteed and a portion of which is dependent upon the Company’s net income. It further provides for supplemental contributions by the Company if the Company’s net income exceeds $150 million. At the same time that the Company locked and froze its Non-Contributory Pension Plan (see discussion above), it amended its Thrift Plan to add an automatic contribution by the Company to a participant’s account in the Thrift Plan. Effective January 31, 2009, the Thrift Plan provides for the Company to make a contribution to the account of each participant in the Thrift Plan equal to 3% of the participant’s base salary, whether or not the participant makes an elective contribution to the Thrift Plan. This 3% contribution is in addition to the matching contributions described above with respect to the participant’s elective contributions. All such contributions are subject to the compensation limits imposed by the Internal Revenue Code.

 

The Supplemental Thrift Plan is an unfunded nonqualified retirement plan. It provides for Company matching contributions with respect to base salary that may not be taken into account under the Thrift Plan due to limits on earnings imposed by the Internal Revenue Code. The Supplemental Thrift Plan thus provides a vehicle to maximize Company matching contributions that otherwise would not be eligible for the Thrift Plan due to the Internal Revenue Code’s compensation limits. The Committee has determined that, like the SERP, the Supplemental Thrift Plan provides a retirement benefit that is a key competitive element of the overall compensation package and, therefore, important to recruiting and retaining key management members.

 

Any member of Management of the Company, including an NEO, is eligible for participation in the Thrift Plan, but participants in the Supplemental Thrift Plan must be selected by the Committee. For 2010, the participants in the Supplemental Thrift Plan included the NEOs. The contributions under these plans for 2010 are set forth in the Nonqualified Deferred Compensation Table for Fiscal Year 2010 on page 64 of this Proxy Statement. In 2010, all contributions to these plans were fixed contributions that were not dependent upon the Company’s net income; there were no performance-based contributions because the Company had a net loss for the year.

Executive Deferred Compensation Plan

 

The Company has an Executive Deferred Compensation Plan (the “Deferred Plan”). The Deferred Plan is an unfunded nonqualified deferred compensation arrangement. Participants are always fully vested in their accounts under this plan. Participants direct the investment of their accounts among available investment options (generally the same investment options available under the Company’s qualified thrift plan) at market rates. To be eligible to participate in the Deferred Plan, an employee must be an elected officer or other member of the Management of the Company. Eligible employees who desire to participate in the Deferred Plan must be approved by the Chairman and the Committee. In 2010, Mr. Gant was the only one of the NEOs who chose to participate in the Deferred Plan.

 

Death and Disability Benefits

 

NEOs are covered by the normal and customary programs generally available to all employees on the same terms and conditions of other similarly situated employees. No other death and disability benefits are provided to the NEOs.

 

Perquisites and Other Personal Benefits

 

Each of the NEOs receives various perquisites and other personal benefits which the Committee has determined, based upon information provided by Frederic W. Cook & Co., are customary for executive officers of a company the size and stature of the Company and appropriate to provide a competitive overall compensation package to the Company’s NEOs. These include reimbursement for tax planning services, financial planning services, mandatory annual physical evaluations, and limited personal use of the Company’s airplane by the CEO. While the value of these perquisites and other personal benefits is not considered by the Committee to be a material component of the overall compensation package of an NEO, to the extent that their aggregate amount is greater than $10,000 for any NEO, the perquisites and personal benefits provided to that NEO are disclosed in the All Other Compensation column of the Summary Compensation Table beginning on page 54 of this Proxy Statement.

 

The Company has a policy pursuant to which the Company’s Chief Executive Officer has limited use of the Company plane for personal purposes. Such personal use results in imputed income to Mr. Wainscott. Prior to January 1, 2010, the Company made “gross-up” payments to Mr. Wainscott to reimburse him for the individual income taxes incurred as a result of his personal use of the plane. Effective January 1, 2010, however, the policy was modified to eliminate such gross-up payments. The rationale for this change was to update the Company’s policy with respect to personal use of the Company plane by the Chief Executive Officer to make it consistent with current best practices for executive compensation.

 

Other Employee Benefit Plans

 

Each of the NEOs also participates in various employee benefit plans generally available to all employees on the same terms and conditions as with respect to other similarly situated employees. These include normal and customary programs for life insurance, health insurance, prescription drug insurance, dental insurance, vision insurance, pre-tax flexible spending accounts, short- and long-term disability insurance, pension benefits, thrift plan, educational assistance and matching gifts for charitable contributions. While these benefits are considered to be an important and appropriate employment benefit for all employees of the Company, they are not considered to be a material component of an NEO’s annual compensation program. Because the NEOs receive these benefits on the same basis as other employees, these benefits are not established or determined by the Committee separately for each NEO as part of the NEO’s annual compensation package.

 

What is the Company’s Policy with Respect to Deductibility of Executive Compensation?

 

Section 162(m) of the Internal Revenue Code (the “Code”) generally places a $1,000,000 limit on the deductibility for federal income tax purposes of the annual compensation paid to a company’s Chief Executive Officer and each of its other three most highly compensated executive officers (excluding the Chief Financial Officer). However, “qualified performance-based compensation” is exempt from this deductibility limitation. Qualified performance-based compensation is compensation paid based solely upon the achievement of objective performance goals, the material terms of which are approved by the stockholders of the paying corporation.

Historically, compensation attributable to the exercise of stock options and performance shares granted under the Stock Plan, as well as incentive awards paid under the Annual Incentive Plan and the Long-Term Plan, have been deemed to be qualified performance-based compensation and thus excluded from the $1,000,000 deductibility limit imposed by Section 162(m). On February 21, 2008, however, the Internal Revenue Service (the “IRS”) issued revenue ruling 2008-13 (the “Revenue Ruling”), which altered the historical definition of “qualified performance-based compensation” used by the IRS. More specifically, the Revenue Ruling identifies certain circumstances under which compensation paid to an executive officer will not be considered qualified performance-based compensation for purposes of section 162(m) of the Code even if the payment of such compensation is linked to the attainment of a performance goal. More specifically, if the plan agreement or contract provides for payment of compensation to an executive not only upon the attainment of a performance goal, but also in the event of (1) termination without “cause” or for “good reason” or (2) voluntary retirement, the compensation will not constitute “qualified performance-based compensation” for purposes of section 162(m). The Committee has reviewed the Revenue Ruling and, with the assistance of counsel, has concluded that it will not adversely affect the deductibility of the compensation of any of the NEOs.

 

The Committee considers the anticipated tax treatment to the Company when determining executive compensation and routinely seeks to structure its executive compensation program in a way which preserves the deductibility of compensation payments and benefits. It should be noted, however, that there are many factors which are considered by the Committee in determining executive compensation and, similarly, there are many factors which may affect the deductibility of executive compensation. In order to maintain the flexibility to be able to compensate NEOs in a manner designed to promote varying corporate goals, the Committee has not adopted a strict policy that all executive compensation must be deductible under Section 162(m).

 

The Management Development and Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with Management and, based upon such review and discussion, the Management Development and Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

THE MANAGEMENT DEVELOPMENT AND
COMPENSATION COMMITTEE

 

Mr. Richard A. Abdoo, Chair

Mr. John S. Brinzo

Dr. Bonnie G. Hill

Mr. Robert H. Jenkins

Mr. Ralph S. Michael, III

 

The table below summarizes the total compensation paid to or earned by each Named Executive Officer (“NEO”) for the fiscal years ended December 31, 2008, 2009 and 2010:

 

 

 

 

 

 

 

Non-Equity Incentive Plan Compensation

 

 

 

Summary of All Other Compensation