Incentive Plan Tariff Adjustments During Trump’s First Term

Hyster-Yale Materials Handling, Inc.
DEF 14A filed 3/26/2019

Adjustments In calculating the various 2018 incentive compensation performance targets and results, adjustments were made for certain non-recurring or special items (similar to the adjustments listed for the ROTCE calculation on page 25). These adjustments were established by the Compensation Committee at the time the targets were set. In particular, the Compensation Committee approved an exclusion from the calculation of 2018 incentive compensation for the after tax cost of any law or regulation change (in excess of the amount included in the AOP, if any). During 2018, the U.S. Government enacted tariffs on (i) steel and aluminum imports under Section 232 of the Code and (ii) certain goods imported from China, including forklift trucks and components, under Section 301 of the Code (the "Tariffs"). Although the Company implemented price increases and a tariff surcharge to offset the material cost inflation driven by the Tariffs, the Company's 2018 full-year operating results suffered due to a lag in time between full realization of the price increases/surcharge and when the Tariffs and material cost increases were first realized. The Compensation Committee determined that the Tariffs were the result of "law or regulation change" within the meaning of the previously-approved adjustment and that they should not adversely affect 2018 incentive compensation payments as they were not within the control of the 2018 Incentive Plan participants. Accordingly, the ROTCE and operating profit targets and results disclosed on the tables for the Short-Term Plan and the Long-Term Plan have been adjusted to exclude the impact of the Tariffs.

Cooper Tire & Rubber Company
DEF 14A filed 3/26/2020

At the time the Compensation Committee was setting 2019 targets for the AIP and LTIP, certain new tariffs on tires being imported into the U.S. from China were being implemented or contemplated. In particular, on February 15, 2019, the same day these targets were set, anti-dumping and countervailing duties totaling 42.16 percent were imposed on the Company's truck and bus radial (“TBR”) tire imports into the U.S. from China. In addition, effective September 24, 2018, the Company was subject to a 10 percent tariff on passenger, light truck and TBR tires, raw materials and tire-manufacturing equipment imported into the U.S. from China pursuant to Section 301 of the Trade Act of 1974. The impact of these 10 percent tariffs were included in the Company's plans and the incentive targets. However, it was expected that these tariffs might increase, decrease or be eliminated due to trade negotiations between the U.S. and China. The tariff rate was increased from 10 percent to 25 percent on May 10, 2019.

Given the uncertainty and changing nature of these specific tariffs at the time the 2019 targets were being set, their large potential impact on the Company and its 2019 results, the limited ability to adapt to them in the very short time after their implementation, and the difficulty in quickly adjusting the Company’s plans and incentive targets for them, the Compensation Committee determined at the time it set the 2019 targets to not reflect the impact of these new and increased tariffs in the performance targets, but to instead adjust 2019 performance results for the impact of these tariffs, as well as any pricing actions that the Company implemented to offset their effects. In accordance with this decision made at the time the targets were set, the Compensation Committee excluded the impact of these tariffs, as well as tire pricing actions to offset their impact, from the 2019 performance results for the purpose of calculating incentive award payouts.

In addition, on December 17, 2018, U.S. Customs and Border Protection published a final rule announcing regulatory changes to duty drawback that are part of the Trade Facilitation and Trade Enforcement Act of 2015. The enactment of the Modernized Drawback Final Rule included several changes, including changes allowing the Company to obtain the refund of certain duties it had previously paid. Under the rule, recovery of duties is allowable for up to five years subsequent to the incurrence of the duty. For the Company, the change in regulations allowed for a greater population of tire exports from the U.S. to be utilized to offset duties on tires imported into the U.S. However, because duty drawback claims require detailed matching of import and export activity as part of the filings, the amount of the potential duty drawback opportunity was not known at the time the 2019 performance targets were set. The Company was able to recognize $20,091 of such recovered duties in the fourth quarter of 2019. Since these duty drawbacks were an offset of the Company's increased duty costs on tires imported to the U.S. from China, the Compensation Committee determined to exclude these duty drawbacks from the 2019 performance results for the purpose of calculating incentive award payouts.

In total, the net impact of the new anti-dumping and countervailing duties on TBR tires and increased Section 301 tariffs enacted/increased in 2019, net of tariff-related price increases and duty drawback recoveries, reduced operating profit by $18,401 ($13,083 net of tax). The net impact of these tariff items has been excluded from the Company's performance results, as defined below.

Lowe’s Companies, Inc.
DEF 14A filed 4/16/2020

The Compensation Committee adopted adjustment guidelines in January 2011 and refined the guidelines in November 2019 and March 2020. The adjustment guidelines generally relate to (i) amounts required to be reported separately under applicable accounting standards as extraordinary items, (ii) gains or losses as a result of changes in accounting principles, (iii) impact of changes in tax regulations, (iv) business results from unplanned acquisitions and divestitures, (v) costs and any other non-recurring items related to acquisition and divestiture activity, (vi) unplanned debt restructuring costs or costs associated with change in capital structure, (vii) costs of significant unplanned initiatives or investments, and (viii) significant changes to stock buyback programs or capital restructuring.

The adjustment guidelines include the following specific items as potential adjustments for consideration: (i) impact of foreign currency fluctuations; (ii) impact of tariffs and unanticipated regulatory and policy changes; (iii) asset impairments or write-offs, including store closing costs; (iv) restructuring costs; (v) litigation costs and settlements for historical transactions; (vi) timing impact for items accelerated or delayed near year-end; (vii) acts of God; and (viii) impact of global pandemics and public health emergencies.

In March 2020, the Compensation Committee reviewed the Company’s 2019 performance relative to the adjusted sales, adjusted operating income and inventory goals to determine the annual incentive awards earned under the annual incentive plan for fiscal year 2019. Adjusted sales results of $72.060 billion resulted in a payout above threshold but below target. Adjusted operating income results of $6.579 billion fell below the required payout threshold goal due to the unprecedented impact of tariffs. Throughout the course of the year, the Company was able to take actions to mitigate the majority of this tariff impact on our operating results. However, given the timing of the tariff increases and scale of the impact on our operating results, the Committee determined to provide partial relief and make an adjustment of $74 million for incentive compensation performance achievement. Following the adjustment approved by the Committee, the adjusted operating income achievement result of $6.653 billion resulted in a minimum payout at threshold. The inventory results fell below the required payout threshold goal, resulting in no payout for the metric under the plan.

Five Below, Inc.
DEF 14A filed 5/5/2020

The target bonus opportunities, weighting of performance metrics, and bonus achievement for each of our Named Executive Officers for fiscal 2019 were as follows:

Subsequent to the end of fiscal 2019, in light of the impact on the Company of tariffs imposed by the United States on certain imports from China and the substantial efforts of the executive team to fully mitigate such impact, the compensation committee authorized an adjustment to the bonus payout to the NEOs under the Incentive Bonus Plan to provide each NEO a fiscal 2019 bonus equal to 50% of their respective targets.