SCHN 2017 Proxy Statement

Compensation Discussion and Analysis time-based retention incentive that the Committee believes better meets its compensation and retention objectives. RSU awards under the LTIP are generally made pursuant to our standard form of restricted stock unit award agreement. See “All Other Stock Awards: Number of Shares of Stock or Units” in the “Grants of Plan-Based Awards in Fiscal 2017” table. Performance Shares. Performance-based long-term incentive awards payable in our common stock are designed to focus our NEOs on the achievement of long-term objective performance goals established by the Committee and vest only to the extent those performance goals are met. Fiscal 2017-2019 Grants. For performance shares awarded in November 2016, the performance period was set at three years. When granting the second half of fiscal 2017 performance shares in April 2017, the Committee set the performance period as the remaining 2 1 ⁄ 2 years of the fiscal 2017-2019 period. For both fiscal 2017 performance share awards, the following metrics were utilized: • TSR relative to a peer group of companies with similar financial and operational characteristics; and • CFROI against specific targets over the performance period. Working with its independent compensation consultant, the Committee determined that TSR should provide better alignment with the experience of shareholders and that CFROI is well-aligned with shareholder value creation since it measures the generation of cash and efficient use of capital. TSR, including reinvested dividends, will be calculated for each year of the three-year performance period for the Company and each performance peer group company, except that for the first year of the performance period TSR is measured from the grant date of the award to the fiscal year end. The TSR of the Company and each of the performance peer group companies is then ranked based on their respective TSR’s from lowest to highest. The average of the Company’s TSR percentile rank for each of the three fiscal years will then be used to determine the overall relative level of TSR performance. The TSR payout level will be based on the percentile rank of our average TSR as compared to the performance peer group, as follows: Average TSR Percentile Rank TSR Payout Factor less than 25% 0.0x 25% 0.5x 50% 1.0x 90% or more 2.0x The Compensation Committee determined that using an average of the Company’s relative TSR for each year of the three-year performance period was warranted to limit the possibility of disproportionate payouts, either positive or negative, as a result of sharp stock price movements toward the end of the three-year performance period. The performance share award also contains a “positive TSR” modifier whereby if our TSR is negative when measured over the full performance period, the maximum TSR payout factor is limited to 1.0x even if the relative TSR would have resulted in a greater payout factor. In addition, the performance share award contains an overall cap which provides that the maximum value (including stock price appreciation) of shares payable under the TSR metric at the time of payment is limited to 4.0x the value of the target number of shares under the TSR metric on the date of grant of the performance share award. See “– The Executive Compensation Process – Competitive Market Overview” for the listing of performance peer group companies used in fiscal 2017. The CFROI metric is based on the average of the CFROIs achieved by the Company in each of the three years of the performance period. CFROI for each year is defined as (a) net cash provided by operating activities less net capital expenditures, divided by (b) average capital employed which is generally equal to total assets minus total liabilities other than debt and capital lease obligations. CFROI for each fiscal year will be adjusted to eliminate the impacts of impairments of goodwill or other assets; certain environmental expenses; restructuring charges and other exit-related activities announced in the final six months of fiscal 2019; business acquisitions or combinations completed or reviewed in fiscal 2019; changes in accounting principles; and the discrete income tax impact of the foregoing adjustments. We consider the CFROI targets for uncompleted performance periods to be confidential financial information, the disclosure of which would result in competitive harm to us because they would reveal information about our earnings and growth profile and the effects of anticipated capital expenditures and corporate acquisitions, none of which is otherwise made public. A participant generally must be employed by us on the October 31 following the end of the performance period to receive an award payout, although adjusted awards, pro-rated based on the period of employment during the performance period, will be paid subject to the terms of the applicable award agreement if employment terminates earlier on account Notice of Annual Meeting of Shareholders and 2017 Proxy Statement | 49