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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 30, 2007
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WORTHINGTON INDUSTRIES, INC.
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(Exact Name of Registrant as Specified in Charter)
Ohio 1-8399 31-1189815
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
200 Old Wilson Bridge Road, Columbus, Ohio 43085
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (614) 438-3210
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Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of
Certain Officers
The Compensation and Stock Option Committee (the "Compensation Committee") of
the Board of Directors of Worthington Industries, Inc. (the "Company") has
revised the Company's Executive Compensation Program, effective as of December
1, 2007. The changes to the compensation program primarily involve adjusting the
relationship between base salaries and bonuses by moving base salaries closer to
market levels (but keeping them at the lower end of market) with an appropriate
decrease to targeted bonuses in light of the base increase. The revised
Compensation Program (the "New Compensation Program") will result in:
1. Increased base wages, but new base wages will be at the lower end of market
comparables.
2. A new bonus program which will:
o Change the bonus from quarterly payments to semi-annual or annual
payments.
o Change from a discretionary to a non-discretionary program tied to
"specific performance measures" within the meaning of Internal Revenue
Code Section 162(m) ("Section 162(m)").
o Tie bonuses to specific targeted amounts (threshold, target, and
maximum) based on operating income, earnings per share and economic
value added (EVA) with the intended result being that there would
likely be less bonus paid when performance is weak or at target and
potentially more bonus paid when performance is very good.
3. A change in the overall mix of compensation, which will increase base
(fixed) compensation with moderating incentive (variable) compensation, but
will remain more highly leveraged than typical market practices.
For the first performance bonus period under the New Compensation Program (the
six-month period ending May 31, 2008), the Compensation Committee intends that
the total cash compensation to executives will generally be similar to that paid
for the same period in the prior year (and cost neutral) for similar Company
performance, and lower than in the prior year if Company performance declines.
The only exception would be in cases where there is an intent to increase total
cash compensation for specific individuals to reflect a new position, a merit
increase, or for similar reasons.
The Company's old compensation program (the "Old Compensation Program") has been
in place for many years and is very unique. The Old Compensation Program
provided for very low base pay, substantially below normal market levels.
Bonuses were expected to make up a large percentage of total cash compensation,
putting a very large percentage of the executive's pay "at risk." The intent
behind the Old Compensation Program was that bonuses were paid such that when
the Company performed well, executive pay would be above market median range for
total annual cash compensation for comparable companies, and during periods of
weaker company performance, bonuses declined so that total annual compensation
would fall below the market median range. Under that Old Compensation Program,
bonuses were paid as long as the Company was profitable, which it has been in
every year of its existence. Also, although the starting point for bonus
calculations was year-over-year earnings performance, bonuses could be adjusted
up or down by the Compensation Committee, the CEO, or the executive's
supervisor, as appropriate.
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This Old Compensation Program served the Company well for a number of years, but
it required executives to take a leap of faith that the bonus each year would be
sufficient to provide them with a competitive pay package, since base pay was
far below market levels.
The Company has elected to move to the New Compensation Program for a number of
reasons:
1. Since the Old Compensation Program was so unique, it was hard for investors
and new employees to understand.
2. In recent years, there has been heightened scrutiny of executive
compensation by investors and the Securities and Exchange Commission
("SEC"), and new disclosure requirements under the SEC Rules were recently
adopted. Although there have been, to the Compensation Committee's
knowledge, no concerns raised about the Company providing above-market
compensation to its Executives (in fact, CEO compensation has been well
below market levels at the request of the CEO), the Old Compensation
Program was so unique, it did not fit well into the disclosure rules
3. Because base wages were set so low compared to the competitive market, both
current and prospective employees were required to take a leap of faith
that their total cash compensation would be within market levels,
particularly in years of lower performance. In those years, it was possible
for the Company's compensation system to provide compensation well below
even the low end of the market. In some cases, potential new hires elected
not to pursue positions at the Company because they were not willing to
have such a large percentage of their total compensation "at risk."
4. Under the Old Compensation Program, the starting point for bonuses was
based primarily on year-over-year operating income and earnings per share
performance and, thus, targets were somewhat self-setting. The Compensation
Committee, the CEO or the executive's supervisor, as appropriate, were then
able to adjust the bonus up or down after the end of the quarter. Under the
New Compensation Program, the Compensation Committee will take a much more
hands-on approach in setting targets in advance of the performance period
based on the factors which it deems appropriate. The New Compensation
Program will not provide for discretionary adjustments after the end of the
performance period.
5. As noted above, with the increase in base wages under the New Compensation
Program, bonuses paid for threshold and targeted performance are expected
to be below those bonuses currently paid for similar performance. Likewise,
under the new system, if performance falls below threshold levels, no bonus
would be paid, whereas under the Old Compensation Program, a bonus would be
paid as long as the Company remained profitable. The New Compensation
Program will substantially increase the risk to the employees that no bonus
would be paid.
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6. The overall goal of the bonus targets to be set under the New Compensation
Program will be to encourage executives to drive Company performance and
growth. In general, targets will be expected to drive year-over-year growth
under the applicable metrics (currently operating income, earnings per
share and EVA). However, other factors may be considered such as the
overall conditions in the economy in general and the specific company
markets, the strength and weakness of the performance in the prior year
(for example, growth would generally be expected to be stronger following a
weak year), long-term growth targets of the Company, and such other factors
as the Compensation Committee deems appropriate.
7. Under the Old Compensation Program, since base wages were so low, bonuses
were paid quarterly to support an employee's cash flow. With the increase
in base wages, changing to semi-annual or annual bonuses will now be
possible.
8. Although the Old Compensation Program was clearly tied to performance,
since bonuses were driven in large part by the Company's earnings per
share, it permitted discretion and did not comply with the technical
requirements of Section 162(m) as "performance based compensation" and the
Company could have lost tax deductions on some portion of the bonuses in
some situations. Bonuses under the New Compensation Program will be
intended to qualify as "performance based compensation" under Section
162(m) which would make them tax deductible in full for the Company.
Annual Base Salaries Approved for Named Executive Officers:
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Effective December 1, 2007, the Compensation Committee approved the following
base salaries for the named executive officers set forth below based on the New
Compensation Program, individual performance assessments and market data:
Prior Annual New Annual
Name and Principal Position Base Salary Base Salary
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John P. McConnell, Chairman and Chief $550,000 $550,000
Executive Officer
John S. Christie, President and Chief 356,000 440,000
Financial Officer
George P. Stoe, Executive Vice-President 340,000 510,000
and Chief Operating Officer
Harry A. Goussetis, President - Worthington 169,000 300,000
Cylinder Corporation
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Bonus Awards to Named Executive Officers:
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Consistent with the New Compensation Program, effective December 1, 2007, the
Compensation Committee made the following cash performance bonus awards to the
named executive officers under the Worthington Industries, Inc. 1997 Long-Term
Incentive Plan for the six-month period ending May 31, 2008.
Name Threshold ($) Target ($) Maximum ($)
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John P. McConnell 183,750 367,500 735,000
John S. Christie 115,000 230,000 460,000
George P. Stoe 147,500 295,000 590,000
Harry A. Goussetis 75,000 150,000 300,000
Payouts of cash performance bonus awards are generally tied to achieving
specified levels (threshold, target and maximum) of corporate economic value
added and earnings per share (in each case excluding restructuring charges and
non-recurring items) for the six-month performance period with each performance
measure carrying a 50% weighting. For business unit executives, including Mr.
Goussetis, the corporate earnings per share measure carries a 20% weighting,
business unit operating income carries a 30% weighting and business unit
economic value added carries a 50% weighting. If the performance level falls
between threshold and target or between target and maximum, the award is
prorated. If threshold levels are not reached for any performance measure, no
bonus will be paid. Performance award payouts will be made within a reasonable
time following the end of the performance period. Performance awards will be
paid in cash, unless the Board specifically provides otherwise. In the event of
a change in control of the Company, all cash performance bonus awards would be
considered to be earned at target, payable in full, and immediately settled or
distributed.
For further information about the Worthington Industries, Inc. 1997 Long-Term
Incentive Plan and the performance awards to be made to executive officers of
the Registrant, please refer to the 1997 Long-Term Incentive Plan (which was
filed as Exhibit 10(e) to the Annual Report on Form 10-K of Worthington
Industries, Inc., a Delaware corporation, for the fiscal year ended May 31, 1997
(SEC File No. 0-04016)), and the form of letter evidencing performance awards
granted under the 1997 Long-Term Incentive Plan, which is filed as Exhibit 10.1
to this current report on Form 8-K and is incorporated herein by reference.
Item 9.01 Financial Statements and Exhibits.
(a) - (c) Not applicable.
(d) Exhibits:
10.1 Form of Long-Term Incentive Performance Award Letter
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
WORTHINGTON INDUSTRIES, INC.
Date: November 30, 2007
By: /s/ Dale T. Brinkman
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Dale T. Brinkman,
Vice President-Administration,
General Counsel and Secretary
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