ttc-def14a_20190319.htm

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Filed by the Registrant                              Filed by a Party other than the Registrant  

Check the appropriate box:

 

Preliminary Proxy Statement

 

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

Definitive Proxy Statement

 

Definitive Additional Materials

 

Soliciting Material Pursuant to §240.14a-12

The Toro Company

(Name of registrant as specified in its charter)
 

Payment of Filing Fee (Check the appropriate box):

 

No fee required

 

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11

 

 

(1)

Title of each class of securities to which the transaction applies:

 

 

(2)

Aggregate number of securities to which the transaction applies:

 

 

(3)

Per unit price or other underlying value of the transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

(4)

Proposed maximum aggregate value of the transaction:

 

 

(5)

 

Total fee paid:

 

 

Fee paid previously with preliminary materials.

 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

 

(1)

Amount Previously Paid:

 

 

(2)

Form, Schedule or Registration Statement No.:

 

 

(3)

Filing Party:

 

 

(4)

Date Filed:

  

 

 

 


Table of Contents

 

 

 

 

 

The Toro Company

 

 

 

NOTICE OF 2019

ANNUAL MEETING AND

PROXY STATEMENT

FOR MARCH 19, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Table of Contents

TABLE OF CONTENTS

 

LETTER TO SHAREHOLDERS

 

iii

NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS

 

v

EXECUTIVE SUMMARY

 

vii

PROXY STATEMENT

 

1

GENERAL INFORMATION ABOUT THE 2019 ANNUAL MEETING AND VOTING

 

1

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting To Be Held on Tuesday, March 19, 2019

 

1

When and Where Will the Annual Meeting Be Held?

 

1

What Are the Purposes of the Annual Meeting?

 

1

Are There Any Matters To Be Voted On at the Annual Meeting that Are Not Included in this Proxy Statement?

 

1

Who Is Entitled to Vote and How Many Shares Must Be Present to Hold the Annual Meeting?

 

1

How Do I Vote My Shares?

 

2

How Does the Board Recommend that I Vote and What Vote is Required for Each Proposal?

 

2

How Will My Shares Be Voted?

 

3

What Does It Mean If I Receive More Than One Notice or Set of Proxy Materials?

 

3

How Can I Revoke or Change My Vote?

 

3

Who Will Count the Votes?

 

4

How Will Business Be Conducted at the Annual Meeting?

 

4

How Can I Attend the Annual Meeting?

 

4

PROPOSAL ONE—ELECTION OF DIRECTORS

 

5

Number of Directors; Board Structure

 

5

Nominees for Director

 

5

Board Recommendation

 

5

Information About Director Nominees and Continuing Directors

 

6

CORPORATE GOVERNANCE

 

13

Corporate Governance Guidelines

 

13

Board Leadership Structure

 

13

Director Independence

 

14

Director Attendance; Executive Sessions

 

14

Board Committees

 

15

Board’s Role in Risk Oversight

 

17

Executive Compensation Process

 

18

Director Nomination and Refreshment Process

 

19

Director Compensation

 

20

Related Person Transactions and Policies and Procedures Regarding Related Person Transactions

 

23

Board of Directors Business Ethics Policy Statement

 

23

Code of Conduct and Code of Ethics for our CEO and Senior Financial Personnel

 

23

Communications with Directors; Complaint Procedures

 

24

PROPOSAL TWO—RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

25

Selection of Independent Registered Public Accounting Firm

 

25

Audit, Audit-Related, Tax and Other Fees

 

25

Pre-Approval Policies and Procedures

 

25

Board Recommendation

 

25

Audit Committee Report

 

26

 

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PROPOSAL THREE—ADVISORY APPROVAL OF OUR EXECUTIVE COMPENSATION

 

27

Board Recommendation

 

28

EXECUTIVE COMPENSATION

 

29

Compensation & Human Resources Committee Report

 

29

Compensation Discussion and Analysis

 

29

Assessment of Risk Related to Compensation Programs

 

43

Summary Compensation Table

 

44

All Other Compensation for Fiscal 2018

 

45

Grants of Plan-Based Awards for Fiscal 2018

 

46

Outstanding Equity Awards at Fiscal Year-End for 2018

 

48

Option Exercises and Stock Vested for Fiscal 2018

 

49

Nonqualified Deferred Compensation for Fiscal 2018

 

50

Potential Payments Upon Termination or Change In Control

 

53

Pay Ratio Disclosure

 

58

STOCK OWNERSHIP

 

59

Significant Beneficial Owners

 

59

Directors and Executive Officers

 

60

Stock Ownership Guidelines

 

62

Section 16(a) Beneficial Ownership Reporting Compliance

 

62

EQUITY COMPENSATION PLAN INFORMATION

 

62

OTHER INFORMATION

 

63

Shareholder Proposals and Director Nominations for the 2020 Annual Meeting

 

63

Householding of Annual Meeting Materials

 

63

Annual Report

 

63

Cost and Method of Solicitation

 

64

 

NOTE ABOUT FORWARD LOOKING STATEMENTS

Certain statements in this proxy statement are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act, and are subject to the safe harbor created by those sections. Forward-looking statements are based on our current expectations of future events, and are generally identified by words such as "expect," "strive," "looking ahead," "outlook," "guidance," "forecast," "goal," "optimistic," "anticipate," "continue," "plan," "estimate," "project," "believe," "should," "could," "will," "would," "possible," "may," "likely," "intend," "can," "seek," "potential," "pro forma," or the negative thereof and similar expressions or future dates. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected or implied. The most significant factors known to us that could materially adversely affect our business, reputation, operations, industry, financial position, or future financial performance are described in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on December 22, 2018, in Part I, Item 1A, “Risk Factors.” You should not place undue reliance on any forward-looking statement, which speaks only as of the date made, and should recognize that forward-looking statements are predictions of future results, which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described in our Annual Report on Form 10-K, including in Part I, Item 1A, “Risk Factors,” as well as others that we may consider immaterial or do not anticipate at this time. The risks and uncertainties described in our Annual Report on Form 10-K are not exclusive and further information concerning our company and our businesses, including factors that potentially could materially affect our operating results or financial condition, may emerge from time to time. We make no commitment to revise or update any forward-looking statements in order to reflect actual results, events or circumstances occurring or existing after the date any forward-looking statement is made or changes in factors or assumptions affecting such forward-looking statements. We advise you, however, to consult any further disclosures we make on related subjects in our future Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K that we file with or furnish to the SEC.  

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Worldwide Headquarters

8111 Lyndale Avenue South

Bloomington, MN 55420-1196

952-888-8801

 

 

 

 

February 5, 2019

 

Dear Fellow Shareholders:

It is my pleasure to invite you to join us for The Toro Company 2019 Annual Meeting of Shareholders to be held on Tuesday, March 19, 2019, at 1:30 p.m., Central Daylight Time, at our worldwide headquarters in Bloomington, Minnesota.

Details about the annual meeting, nominees for election to the Board of Directors and other matters to be acted on at the annual meeting are presented in the notice and proxy statement that follow. Information regarding admission to the meeting, or listening to a live, audio webcast of the meeting if you are unable to attend in person, can be found on page 4 of the proxy statement.

It is important that your shares be represented at the annual meeting, regardless of the number of shares you hold and whether or not you plan to attend the meeting in person. Accordingly, please exercise your right to vote by following the instructions for voting contained in the Notice Regarding the Availability of Proxy Materials, or the paper or electronic copy of our proxy materials you received for the meeting.

On behalf of your Toro Board of Directors and Management, thank you for your continued interest in and support for our Company.

Sincerely,

RICHARD M. OLSON

Chairman of the Board, President and CEO

 

 

 

 

 

 

 

You can help us make a difference by eliminating paper proxy mailings. With your

consent, we will provide all future proxy materials electronically. Instructions for

consenting to electronic delivery can be found on your proxy card or at

www.proxyvote.com. Your consent to receive shareholder materials electronically will

remain in effect until canceled.


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NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS

 

Date:

Tuesday, March 19, 2019

Time:

1:30 p.m., Central Daylight Time

Location:

8111 Lyndale Avenue South, Bloomington, Minnesota, 55420-1196

 

 

Webcast:

www.thetorocompany.com

 

 

Agenda:

1.   To elect as directors the four nominees named in the attached proxy statement, each to serve for a term of three years ending at the 2022 Annual Meeting of Shareholders;

 

2.   To ratify the selection of KPMG LLP as our independent registered public accounting firm for our fiscal year ending October 31, 2019;

 

3.   To approve, on an advisory basis, our executive compensation; and

 

4.   To transact any other business properly brought before the annual meeting or any adjournment or postponement of the annual meeting.

We currently are not aware of any other business to be brought before the annual meeting. Shareholders of record at the close of business on January 22, 2019, the record date, will be entitled to vote at the annual meeting or at any adjournment or postponement of the annual meeting. A shareholder list will be available at our corporate offices beginning March 8, 2019, during our normal business hours for examination by any shareholder registered on our stock ledger as of the record date for any purpose germane to the annual meeting.

Your vote is important. A majority of the outstanding shares of our common stock must be represented either in person or by proxy to constitute a quorum for the conduct of business. Please promptly vote your shares by following the instructions for voting contained in the Notice Regarding the Availability of Proxy Materials or, if you received a paper or electronic copy of our proxy materials, by completing, signing, dating and returning your proxy card or by Internet, telephone or mobile device voting as described on your proxy card.

February 5, 2019

BY ORDER OF THE BOARD OF DIRECTORS

 

 

TIMOTHY P. DORDELL

Vice President, Secretary and General Counsel

 


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EXECUTIVE SUMMARY

Business Overview

The Toro Company is a leading worldwide provider of innovative solutions for the outdoor environment, including professional turf maintenance equipment and services, turf irrigation systems, landscaping equipment and lighting products, snow and ice management products, agricultural irrigation systems, rental and specialty construction equipment, and residential yard and snow thrower products. Through a strong network of professional distributors, dealers and retailers in more than 125 countries, we proudly offer a wide range of products across a family of global brands to help customers care for golf courses, landscapes, sports fields, public green spaces, commercial and residential properties and agricultural fields.

OUR PURPOSE

To help our
customers enrich the

beauty, productivity

and sustainability

of the land.

 

OUR VISION

To be the most trusted

leader in solutions for the

outdoor environment.

Every day.

Everywhere.

 

OUR MISSION

To deliver superior

innovation and to

deliver superior

customer care.

 

 

 

 

 

OUR GUIDING PRINCIPLES

The Toro Company’s success is founded on a long history of caring relationships based on trust and integrity. These relationships are the foundation on which we build market leadership with the best in innovative products and solutions to make outdoor environments beautiful, productive,
and sustainable. We are entrusted to strengthen this legacy of excellence.

Quick Facts About The Toro Company

Founded

1914

 

Fiscal 2018 Net Sales

$2.6 billion

 

Worldwide Headquarters

Bloomington, Minnesota, USA

 

 

 

 

 

 

 

 

 

Fiscal 2018 Net Earnings

$272 million

 

Fiscal 2018 Net Sales

U.S.A. – 75%

International – 25%

 

Fiscal 2018 % Net Sales

from New Products

37%

 

 

 

 

 

Fiscal 2018 Products

Equipment – 84%

Irrigation/Lighting – 16%

 

Fiscal 2018 Segments

Professional – 74%

Residential – 25%

Other – 1%

 

Manufacturing Locations

U.S.A. – 8

International – 9

The Toro Company’s Commitment to Corporate Responsibility

We seek to improve our energy efficiency and reduce the environmental footprint of our global manufacturing facilities.

 

Our values-based culture governs how our people conduct business, interact with each other, and
support our customers.

 

We were founded on an unwavering conviction to conduct business according to the highest standards of ethical behavior.

 

 

 

 

 

We believe that along with our industry leadership and financial success comes a responsibility to give back to the communities in which our employees live and work.

 

As we strive to attract and retain
the very best employees, we are committed to fostering an atmosphere that embraces diversity and supports Toro’s programs and policies related to equal opportunity.

 

We are committed to developing innovative and safe products
that yield performance, productivity and environmental benefits for
our customers.

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2019 Annual Meeting of Shareholders

 

Date and Time

Tuesday, March 19, 2019
1:30 p.m. CDT

 

Location

Worldwide Headquarters

8111 Lyndale Avenue South

Bloomington, Minnesota

 

Record Date

January 22, 2019

Meeting Agenda Voting Matters and Recommendations

Proposal One

To elect as directors the four nominees named in this proxy statement, each to serve for a term of three years ending at the 2022 Annual Meeting of Shareholders.

FOR

each nominee

Page 5

 

 

 

Proposal Two

To ratify the selection of KPMG LLP as our independent registered public accounting firm for our fiscal year ending October 31, 2019.

FOR

Page 25

 

 

 

Proposal Three

To approve, on an advisory basis, our executive compensation.

FOR

Page 27

How to Cast Your Vote

Your vote is important! Please vote your shares promptly using one of the methods listed below. See page 2 for additional voting information.

By Internet

Go to

www.proxyvote.com

 

By Phone

Call

800-690-6903

 

By Mobile Device

Scan the QR code

 

By Mail

Return your

proxy card

 

In Person

Attend the

meeting

Corporate Governance Highlights

Our Board provides oversight of critical matters such as our strategic plans, financial and other controls, risk management, merger and acquisition related activities, and management succession planning. The Board reviews our major governance documents, policies and processes regularly and thoughtfully determines the structures that are appropriate for our Company at the time.

All directors are independent, other than CEO

 

Robust stock ownership guidelines for directors and executive officers

Robust lead director structure

Regular executive sessions of independent directors

 

Comprehensive strategy and risk oversight by the Board and its Committees

Anti-hedging and anti-pledging policy for Toro common stock

 

Annual Board and Committee self-evaluations

Codes of Conduct and Ethics for directors, executive officers and employees

 

Fiscal 2018 Board and Committee meeting attendance of 96%

 

Upon the election of all director nominees at the 2019 Annual Meeting of Shareholders, the Board will have the following composition:

 

Average Age

59

 

Average Tenure

8.5 years

 

 

 

New Directors in the
Last 5 Years

5

 

% of Directors who are
Diverse and/or Women

36%

 

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Information About our Board of Directors

 

 

 

 

 

 

 

 

 

Committee Memberships

Other

 

Name and Title

Age

 

Director

Since

 

Independent

 

A

 

F

 

N

 

C

Public

Boards

 

Director Nominees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jeffrey L. Harmening

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chairman and Chief Executive Officer,
General Mills, Inc.

 

52

 

n/a

 

Yes

 

 

 

 

 

 

 

 

 

1

 

Joyce A. Mullen

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

President, Global Channel, OEM and IoT,
Dell Technologies

 

56

 

n/a

 

Yes

 

 

 

 

 

 

 

 

 

0

 

Richard M. Olson

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chairman, President and Chief Executive
Officer, The Toro Company

 

55

 

2016

 

No

 

 

 

 

 

 

 

 

 

0

 

James C. O’Rourke

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

President and Chief Executive Officer,
The Mosaic Company

 

58

 

2012

 

Yes

 

 

 

 

 

 

 

1

 

Continuing Directors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Janet K. Cooper

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retired Senior Vice President and Treasurer,
Qwest Communications International Inc.

 

65

 

1994

 

Yes

 


*

 

 

 

 

 

 

2

 

Gary L. Ellis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retired Executive Vice President and Chief
Financial Officer, Medtronic plc

 

62

 

2006

 

Yes

 

*

 

 

 

 

 

 

1

 

Jeffrey M. Ettinger

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retired Chairman and Chief Executive
Officer, Hormel Foods Corporation

 

60

 

2010

 

Yes

 

 

 

 

 

 

 

1

 

Katherine J. Harless

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retired President and Chief Executive
Officer, Idearc Inc.

 

67

 

2000

 

Yes

 

 

 

 

 

 

 

0

 

D. Christian Koch

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

President and Chief Executive Officer,
Carlisle Companies Incorporated

 

54

 

2016

 

Yes

 

 

 

 

 

 

 

1

 

Gregg W. Steinhafel

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Former Chairman, President and Chief
Executive Officer, Target Corporation

 

64

 

1999

 

Yes

 

 

 

 

 

 

 

0

 

Michael G. Vale, Ph.D.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Executive Vice President, Health Care
Business Group, 3M Company

 

52

 

2018

 

Yes

 

 

 

 

 

 

 

0

 

Retiring Directors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Robert C. Buhrmaster – Lead Director

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retired Chairman and Chief Executive
Officer, Jostens, Inc.

 

71

 

1996

 

Yes

 

 

 

 

 

 

 

0

 

Christopher A. Twomey

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retired Chairman and Chief
Executive Officer, Arctic Cat Inc.

 

70

 

1998

 

Yes

 

 

 

 

 

 

 

0

 

 

A: Audit

 

N: Nominating & Governance

 

: Member

 

*

: Audit Committee Financial Expert

F: Finance

 

C: Compensation & Human Resources

 

: Chair

 

 

 

 

 

 

 

 

 

 

 

 

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Executive Compensation

 

Executive Compensation Program Objectives

Our executive compensation philosophy is to maintain a program that allows us to attract,

retain, motivate and reward highly qualified and talented executive officers.

 

Align interests of executive

officers with shareholder

interests

 

Link pay to

performance

 

Provide competitive target

total direct compensation

opportunities

2018 Executive Compensation Summary

A significant portion of our executive officers’ target total direct compensation is comprised of short- and long-term variable performance-based, or at risk, compensation to directly link their pay to performance. Short-term variable compensation is in the form of annual cash incentive awards. Long-term variable compensation is in the form of stock options that vest over three years and three-year performance share awards. For fiscal 2018:

 

Highlights of What We Do and Don’t Do:

 

We link a substantial portion of total executive compensation directly to performance and require that minimum, or threshold, levels of performance be met in order for there to be any payout.

 

We utilize a mix of earnings, revenue and asset-based performance measures for our annual cash incentive awards and long-term performance share awards.

 

We utilize three-year performance share awards, the payouts of which vary based on performance and are contingent upon the achievement of three-year performance goals.

 

We utilize stock options, the value of which is contingent upon long-term stock price performance.

 

We include clawback provisions within our annual cash incentive and long-term incentive awards.

 

We do not have individual employment agreements with any executive officer

 

We do not provide excessive perquisites.

 

We do not provide gross-up payments to cover personal income taxes or excise taxes that pertain to executive or severance benefits.

 

Our fiscal 2018 financial performance resulted in the following:

 

 

 

Annual cash incentives were paid at 95.46% of target.

Page 31

 

 

Three-year performance awards for the fiscal 2016 to fiscal 2018 performance period were paid at 118.03% of target.

Page 32

 

 

 

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THE TORO COMPANY

8111 Lyndale Avenue South

Bloomington, Minnesota 55420-1196

PROXY STATEMENT

2019 ANNUAL MEETING OF SHAREHOLDERS

TUESDAY, MARCH 19, 2019

1:30 p.m. Central Daylight Time

The Toro Company Board of Directors is using this proxy statement to solicit your proxy for use at The Toro Company 2019 Annual Meeting of Shareholders. We intend to send a Notice Regarding the Availability of Proxy Materials for the annual meeting and make proxy materials available to shareholders (or for certain shareholders and for those who request, a paper copy of this proxy statement and the form of proxy) on or about February 5, 2019. Please note that references in this proxy statement to “Toro,” our “Company,” “we,” “us,” “our” and similar terms refer to The Toro Company.

 

GENERAL INFORMATION ABOUT THE 2019 ANNUAL MEETING AND VOTING

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting To Be Held on Tuesday, March 19, 2019.

This proxy statement and our 2018 Annual Report, which includes our Annual Report on Form 10-K for the fiscal year ended October 31, 2018, or fiscal 2018, are available at www.thetorocompany.com/proxy.

Pursuant to rules adopted by the SEC, we have elected to provide access to our proxy materials over the Internet. Accordingly, we are sending a Notice Regarding the Availability of Proxy Materials to some of our shareholders. Shareholders have the ability to access our proxy materials on the website referred to in the Notice Regarding the Availability of Proxy Materials (www.proxyvote.com) or request to receive a printed set of our proxy materials. Instructions on how to access our proxy materials over the Internet or request a printed copy of our proxy materials may be found in the Notice Regarding the Availability of Proxy Materials. In addition, shareholders may request to receive proxy materials in printed form by mail or electronically by e-mail on an ongoing basis.

When and Where Will the Annual Meeting Be Held?

The annual meeting will be held on Tuesday, March 19, 2019, at 1:30 p.m., Central Daylight Time, at our worldwide headquarters located at 8111 Lyndale Avenue South, Bloomington, Minnesota, 55420-1196.

What Are the Purposes of the Annual Meeting?

The purposes of the 2019 Annual Meeting of Shareholders are to vote on the following items described in this proxy statement:

 

Proposal One

Election of Directors

Proposal Two

Ratification of Selection of Independent Registered Public Accounting Firm

Proposal Three

Advisory Approval of our Executive Compensation

Are There Any Matters To Be Voted On at the Annual Meeting that Are Not Included in this Proxy Statement?

We currently are not aware of any business to be acted upon at the annual meeting other than as described in this proxy statement. If, however, other matters are properly brought before the annual meeting, or any adjournment or postponement of the annual meeting, your proxy includes discretionary authority on the part of the individuals appointed to vote your shares or act on those matters according to their best judgment.

Who Is Entitled to Vote and How Many Shares Must Be Present to Hold the Annual Meeting?

Shareholders of record at the close of business on January 22, 2019, the record date, will be entitled to vote at the annual meeting or any adjournment or postponement of the annual meeting. As of January 22, 2019, there were 106,131,655 outstanding shares of our common stock. Each share of our common stock is entitled to one vote on each matter to be voted on at the annual meeting. Shares of our common stock that are held by us in our treasury are not counted as outstanding shares and will not be voted.

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The presence, in person or represented by proxy, at the annual meeting of a majority of the outstanding shares of our common stock as of the record date will constitute a quorum for the transaction of business at the annual meeting. Your shares will be counted toward the quorum if you submit a proxy or vote at the annual meeting. Shares represented by proxies marked “abstain” and “broker non-votes” also are counted in determining whether a quorum is present.

How Do I Vote My Shares?

If your shares are registered in your name, you may vote your shares in person at the annual meeting or by one of the four following methods:

 

Vote by Internet

Go to www.proxyvote.com and follow the instructions for Internet voting shown on

your Notice Regarding the Availability of Proxy Materials or proxy card.

Vote by Telephone

Call 800-690-6903 and follow the instructions for telephone voting shown on your

proxy card.

Vote by Mail

Complete, sign, date and mail your proxy card in the envelope provided if you

received a paper copy of these proxy materials. If you vote by Internet, telephone or

mobile device, please do not mail your proxy card.

Vote by Mobile Device

Scan the QR code on your Notice Regarding the Availability of Proxy Materials or

proxy card and follow the links.

 

If you hold shares as a participant in certain Toro employee benefit plans, you may vote your shares by one of the four methods noted above. If your shares are held in “street name,” you may receive a separate voting instruction form with this proxy statement or you may need to contact your broker, bank or other nominee to determine whether you will be able to vote electronically using the Internet, telephone or mobile device.

How Does the Board Recommend that I Vote and What Vote is Required for Each Proposal?

Proposal

Board

Recommendation

Available Voting

Selections

Voting Approval

Standard

Effect of

Withhold or

Abstention

Effect of

Broker Non-

Vote

1.    Election of four

directors, each to serve

for a term of three

years ending at the

2022 Annual Meeting of

Shareholders

FOR all four

nominees

FOR all four

nominees;

WITHHOLD from all

four nominees;

or WITHHOLD from

one or more nominees

Plurality: the

individuals who

receive the greatest

number of votes cast

“for” are elected as

directors(1)

Counted as a

vote against

No effect

2.    Ratification of the

selection of KPMG LLP

as our independent

registered public

accounting firm for our

fiscal year ending

October 31, 2019

FOR

FOR; AGAINST;

or ABSTAIN

Majority of shares

present and entitled

to vote

Counted as a

vote against

Not

applicable

3.    Approval of, on an

advisory basis, our

executive

compensation(2)

FOR

FOR; AGAINST;

or ABSTAIN

Majority of shares

present and entitled

to vote

Counted as a

vote against

No effect

 

 

 

 

 

(1)

Under our Amended and Restated Bylaws, if a majority of the votes of the shares present in person or represented by proxy at the annual meeting are designated to be “withheld” from a nominee for director in an uncontested election, that director must tender his or her resignation for consideration by our Nominating & Governance Committee. Our Nominating & Governance Committee then must evaluate the best interests of our Company and shareholders and recommend the action to be taken by the Board with respect to such tendered resignation.

(2)

While an advisory vote, our Compensation & Human Resources Committee and Board expect to take into account the outcome of the vote when considering future executive compensation.

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Table of Contents

How Will My Shares Be Voted?

 

 

How Your Shares are Held

How Your Shares will be Voted If You

Specify How to Vote

How Your Shares will be Voted If You Do Not

Specify How to Vote

Shares registered in your name

The named proxies will vote your shares

as you direct

The named proxies will vote FOR all

proposals

Shares held in street name

Your broker will vote your shares as you

direct

Your broker may vote only on routine

items in the absence of your instruction

how to vote(1)

Shares held in certain Toro employee

benefit plans

The plan trustee will vote your shares

confidentially as you direct

The plan trustee will vote your shares in

the same proportion as the votes actually

cast by participants

 

 

 

(1)

If your shares are held in “street name” and you do not indicate how you wish to vote, under the New York Stock Exchange, or NYSE, rules, your broker is permitted to exercise its discretion to vote your shares only on certain “routine” matters. Proposal One—Election of Directors and Proposal Three—Advisory Approval of our Executive Compensation are not “routine” matters. Accordingly, if you do not direct your broker how to vote on those proposals, your broker may not exercise discretionary voting authority and may not vote your shares on these proposals. This is called a “broker non-vote” and although your shares will be considered to be represented by proxy at the annual meeting, as discussed on page 2, they are not considered to be shares “entitled to vote” at the annual meeting and will not be counted as having been voted on the applicable proposal. Proposal Two—Ratification of Selection of Independent Registered Public Accounting Firm is a “routine” matter and your broker is permitted to exercise discretionary voting authority to vote your shares “for” or “against” the proposal in the absence of your instruction.

What Does It Mean If I Receive More Than One Notice or Set of Proxy Materials?

If you hold your shares in more than one account, you may receive multiple copies of the Notice Regarding the Availability of Proxy Materials and/or electronic or paper copies of our proxy materials. If you are a participant in the dividend reinvestment feature of our Direct Stock Purchase Plan, shares registered in your name are combined with shares you hold in that plan. Similarly, where possible, shares registered in your name are combined with shares you hold, if any, as a participant in certain Toro employee benefit plans. However, shares you hold in “street name” (through a broker, bank or other nominee) are not combined with shares registered in your name or held as a participant in Toro employee benefit plans. If you receive more than one Notice Regarding the Availability of Proxy Materials and/or electronic or paper copies of our proxy materials, you must vote separately for each notice, e-mail notification or proxy and/or voting instruction card having a unique control number to ensure that all of your shares are voted.

How Can I Revoke or Change My Vote?

You may revoke your proxy or change your vote at any time before your shares are voted at the annual meeting by one of the following methods:

 

How Your Shares are Held

Method to Revoke or Change Your Vote

Shares registered in your name

Submit another proper proxy with a more recent date than that of the proxy first given by following the Internet, telephone or mobile device voting instructions or complete, sign, date and mail a proxy card;

Send written notice of revocation to our Vice President, Secretary and General Counsel; or

Attend the annual meeting in person and vote by ballot

Shares held in street name

Follow instructions provided by your broker, bank or other nominee

Shares held in certain Toro employee benefit plans

Submit another proper proxy with a more recent date than that of the proxy first given by following the Internet, telephone or mobile device voting instructions or complete, sign, date and mail a proxy card

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Table of Contents

Who Will Count the Votes?

Broadridge Financial Solutions, Inc. has been engaged to tabulate shareholder votes. An agent of Broadridge Financial Solutions, Inc. will act as our independent inspector of elections for the annual meeting.

How Will Business Be Conducted at the Annual Meeting?

The presiding officer at the annual meeting will determine how business at the meeting will be conducted. Only nominations and other proposals brought before the annual meeting in accordance with the advance notice and information requirements of our Amended and Restated Bylaws will be considered, and no such nominations or other proposals were received.

How Can I Attend the Annual Meeting?

We provide the opportunity for our shareholders to attend the annual meeting in person. Only registered shareholders of our common stock or beneficial shareholders holding shares in street name at the close of business on the record date (January 22, 2019), or their duly appointed proxies, may attend the annual meeting in person. Doors will open approximately fifteen minutes prior to the start of the annual meeting and will close once the meeting has started, at which time admission to the annual meeting will no longer be permitted. For admission to the meeting you may be asked to provide identification and establish proof of ownership. If you are a registered shareholder, your name may be verified against our list of registered shareholders. If you hold your shares in street name, please bring one of the following: an account statement showing your ownership as of the record date; a voting instruction form provided by your broker, trustee, bank or nominee holding your shares containing a valid control number; the Notice of Internet Availability of Proxy Materials that you received in the mail containing a valid control number; a copy of the email you received with instructions containing a link to the website where our proxy materials are available or a link to the proxy voting website and a valid control number; or a letter from a broker, trustee, bank or nominee holding your shares confirming your ownership as of the record date. If you are serving as a legal proxy, please bring a legal proxy containing a valid control number or a letter from a registered shareholder naming you as proxy. Rules governing the conduct of the annual meeting will be distributed at the annual meeting along with an agenda.

Shareholders unable to attend the annual meeting in person have the opportunity to listen to our live, audio-only webcast of the annual meeting. A link to the webcast may be found on our website at www.thetorocompany.com.

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Table of Contents

PROPOSAL ONE—ELECTION OF DIRECTORS

Number of Directors; Board Structure

Our Restated Certificate of Incorporation provides that our Board of Directors may be comprised of between eight and twelve directors. Our Board currently is comprised of eleven directors. As provided in our Restated Certificate of Incorporation, our Board is divided into three staggered classes of directors of the same or nearly the same number, with each class elected in a different year for a term of three years. Our current directors and their respective current terms are as follows:

 

Current Term Ending at

2019 Annual Meeting

Current Term Ending at

2020 Annual Meeting

Current Term Ending at

2021 Annual Meeting

Robert C. Buhrmaster

Jeffrey M. Ettinger

Janet K. Cooper

Richard M. Olson

Katherine J. Harless

Gary L. Ellis

James C. O’Rourke

D. Christian Koch

Gregg W. Steinhafel

Christopher A. Twomey

 

Michael G. Vale

Mr. Buhrmaster and Mr. Twomey each attained the age of 70 during his current term and, in accordance with our Corporate Governance Guidelines, will retire from the Board at the expiration of such term at the 2019 Annual Meeting of Shareholders. Mr. Buhrmaster has served as a director of the Company for 22 years, and also served as our presiding non-management director, or Lead Independent Director, for 12 years and as Chair of the Nominating & Governance Committee for 8 years. Mr. Twomey has served as a director for 21 years, and also served as Chair of the Compensation & Human Resources Committee for 12 years. The Board wishes to thank Messrs. Buhrmaster and Twomey for their many years of dedicated service to the Company.

In light of these retirements, and if all director nominees are elected to the Board by our shareholders, the Board will continue to be comprised of eleven directors.

Nominees for Director

The Board has nominated each of Jeffrey L. Harmening, Joyce A. Mullen, Richard M. Olson, and James C. O’Rourke for election to the Board to serve for a three-year term ending at the 2022 Annual Meeting of Shareholders. Each of Mr. Olson and Mr. O’Rourke is a current member of the Board. Neither Mr. Harmening nor Ms. Mullen is a current member of the Board. Each of the director nominees has consented to serve if elected. Proxies only can be voted for the number of persons named as nominees in this proxy statement, which is four.

If prior to the annual meeting the Board learns that any nominee will be unable to serve for any reason, the proxies that otherwise would have been voted for that nominee will be voted for a substitute nominee as selected by the Board. Alternatively, at the Board’s discretion, the proxies may be voted for that fewer number of nominees as results from the inability of any nominee to serve. The Board has no reason to believe that any of the nominees will be unable to serve.

The Board of Directors Recommends a Vote FOR Each Nominee for Director

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Table of Contents

Information About Director Nominees and Continuing Directors

The following pages provide information about each nominee for election to the Board at the annual meeting and each other member of the Board. We believe that all of our director nominees and continuing directors display:

 

personal and professional integrity;

 

appropriate levels of education and business experience;

 

strong business acumen;

 

an appropriate level of understanding of our business, industry and other industries relevant to our business;

 

the ability and willingness to devote adequate time to the work of our Board and its committees;

 

a fit of skills and personality with those of our other directors that helps build a Board that is effective, collegial and responsive to the needs of our Company;

 

strategic thinking and a willingness to share ideas;

 

a diversity of experiences, expertise and background; and

 

the ability to represent the interests of all of our shareholders.

All of our directors and director nominees bring to our Board a wealth of executive leadership experience, particularly at companies with international manufacturing operations. The following chart summarizes each director and director nominee’s key qualifications, experience and skills.

Experience as an Executive Leader in the Following Areas:

Janet Cooper

Gary Ellis

Jeffrey Ettinger

Katherine Harless

Jeffrey Harmening

D. Christian Koch

Joyce Mullen

Richard Olson

James O'Rourke

Gregg Steinhafel

Michael Vale

Current/Former CEO

 

 

 

 

Finance/Financial Oversight

 

Public Company Board
(other than Toro)

 

 

 

 

Distribution Channel

 

 

 

 

Manufacturing/Supply Chain

 

 

 

 

Mergers & Acquisitions

International Sales and/or Operations

 

Strategic Planning

The information presented on the following pages regarding each director nominee or continuing director also sets forth specific experience, qualifications, attributes and skills that led our Board to conclude that he or she should serve as a director in light of our business and structure.

 

 

 

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Table of Contents

Director Nominees for Election to the Board for a Term Ending at the 2022 Annual Meeting

 

 

Background

Jeffrey L. Harmening is the Chairman and Chief Executive Officer of General Mills, Inc., Minneapolis, Minnesota (a global manufacturer, marketer and supplier of food products). He holds or has held the following positions, all at General Mills:

•  Chairman and Chief Executive Officer (since January 2018)

•  Chief Executive Officer (June 2017 – January 2018)

•  President and Chief Operating Officer (July 2016 – May 2017)

•  Executive Vice President, Chief Operating Officer, U.S. Retail (May 2014 – June 2016)

•  Senior Vice President, Chief Executive Officer, Cereal Partners Worldwide (July 2012 – April 2014)

Jeffrey L. Harmening

Age 52

 

Qualifications

Director Nominee

 

With over 20 years of service at General Mills in a variety of senior leadership roles across several business categories, including as its current Chief Executive Officer, Mr. Harmening brings to our Board experience as a seasoned executive with strong business acumen and experience implementing the strategic direction for a publicly traded company with extensive distribution channels and supply chain operations. Furthermore, he brings experience in driving growth through offering customer-valued products and acquisitions. In addition, he has significant experience managing operations around the world, including having lived in Europe for six years during his tenure at General Mills.  

Independent

 

Committees

 

Not applicable

 

 

 

 

 

 

 

Other Public Company Boards

 

 

Current

Past 5 Years

 

 

General Mills, Inc.

None

 

 

 

 

 

 

Background

Joyce A. Mullen is the President, Global Channel, OEM and IoT of Dell Technologies, Round Rock, Texas (a technology solutions company). She holds or has held the following positions, all at Dell:

•  President, Global Channel, OEM and IoT (since November 2017)

•  Senior Vice President and General Manager, Global OEM and IoT Solutions (February 2015 – November 2017)

•  Vice President and General Manager, Global OEM Solutions (February 2012 – February 2015)

•  Prior positions include vice president–level leadership for sales operations, global strategy and planning, global alliances and services solutions

Ms. Mullen also spent 10 years in various leadership positions at Cummins Engine Company, including distribution, manufacturing and international business development.

Qualifications

Joyce A. Mullen

 

Age 56

 

Director Nominee

 

Independent

 

Committees

 

Ms. Mullen brings to our Board significant executive leadership skills, technology and smart-connected products expertise, strategic and innovative thinking and strong international business experience. She also contributes substantial knowledge of worldwide manufacturing, distribution channels, and supply chain strategies, including improving efficiencies in manufacturing operations using Six Sigma, Kaizen, and Lean techniques.

Not applicable

 

 

 

 

 

 

 

Other Public Company Boards

 

 

Current

Past 5 Years

 

 

None

None

 

 

7


Table of Contents

 

Background

Richard M. Olson is our Chairman of the Board, President and Chief Executive Officer, and we generally refer to him in this proxy statement as our Chairman and CEO. He holds or has held the following positions, all at The Toro Company:

•  Chairman (since November 2017)

•  Chief Executive Officer (since November 2016)

•  President (since September 2015)

•  Chief Operating Officer (September 2015 – October 2016)

•  Group Vice President, International Business, Micro Irrigation Business and Distributor Development (June 2014 – September 2015)

•  Vice President, International Business (March 2013 – June 2014)

•  Vice President, Exmark (March 2012 – March 2013)

Richard M. Olson

 

Age 55

 

Director since 2016

 

Qualifications

Committees

 

In his more than 32 years with our Company, Mr. Olson has developed and brings to our Board rich knowledge of the Company, including, in particular, our global businesses and operations, manufacturing processes, distribution and channel development, and product development strategies. In addition, the broad experience he has gained through his past leadership of our various businesses and manufacturing operations provides him with a unique perspective regarding our growth initiatives and strategic direction. He contributes a deep commitment to quality, innovation, ethical values and business conduct and focus on customer service. As a result of his dual role as Chairman and CEO, Mr. Olson provides unique insight into our Company’s future strategies, opportunities and challenges and serves as a unifying element between our Board and Management.

None

 

 

 

 

Other Public Company Boards

 

 

Current

Past 5 Years

 

 

None

None

 

 

 

 

 

 

Background

James C. O’Rourke is the President and Chief Executive Officer of The Mosaic Company, Plymouth, Minnesota (a global producer and marketer of combined concentrated phosphate and potash crop nutrients for the global agriculture industry). He holds or has held the following positions, all at The Mosaic Company:

•  President and Chief Executive Officer (since August 2015)

•  Executive Vice President—Operations and Chief Operating Officer (August 2012 August 2015)

•  Executive Vice President—Operations (January 2009 – August 2012)

Qualifications

James C. O’Rourke

 

Mr. O’Rourke brings to our Board significant leadership skills, strategic and innovative thinking and strong international business expertise. He also contributes substantial knowledge of worldwide manufacturing, distribution and supply chain strategies and environmental, health and safety matters. In addition, as a public company director and executive, Mr. O’Rourke contributes a solid understanding of executive compensation and corporate governance matters.

Other Public Company Boards

Age 58

 

Director since 2012

 

Independent

 

Committees

 

•  Compensation &
Human Resources

•  Nominating &
Governance

 

Current

Past 5 Years

 

 

The Mosaic Company

None

 

 

 

 

 

 

 

 

 


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Table of Contents

Continuing Members of the Board – Current Term Ending at the 2020 Annual Meeting

 

 

Background

Jeffrey M. Ettinger retired from Hormel Foods Corporation, Austin, Minnesota (a multinational manufacturer and marketer of consumer-branded food and meat products). He held the following positions, all at Hormel Foods:

•  Chairman of the Board (October 2016 – November 2017)

•  Chairman of the Board and Chief Executive Officer (January 2006 – October 2016)

•  President (July 2004 – October 2015)

 

 

Qualifications

Jeffrey M. Ettinger

 

Mr. Ettinger brings to our Board strong business acumen, significant executive leadership attributes and relevant experience of driving growth through innovation and strategic acquisitions. Mr. Ettinger provides relevant insight and guidance with respect to numerous issues important to our Company, including, in particular, our strategy of driving growth in our business through the development of innovative, customer-valued products and expansion of our global presence through targeted acquisitions. Additionally, as an experienced public company director and former executive, he contributes knowledge of public company requirements and issues, including those related to corporate governance and executive compensation matters.

Age 60

 

Director since 2010

 

Independent

 

Committees

 

•  Compensation &
Human Resources

•  Nominating &
Governance

 

 

 

Other Public Company Boards

 

 

Current

Past 5 Years

 

 

Ecolab Inc. (Lead Director)

Hormel Foods Corporation

 

 

 

 

 

 

Background

Katherine J. Harless retired from Idearc Inc.(1), Dallas/Fort Worth, Texas (a provider of sales, publishing and related services including Verizon Yellow Pages and SuperPages.com). She held the following positions:

•  Director, Idearc  (November 2006 – May 2008)

•  President and Chief Executive Officer, Idearc  (November 2006 – February 2008)

•  President, Verizon Information Services Inc. (spun off by Verizon Communications, Inc. to become Idearc Inc., 2000 – November 2006)

Ms. Harless is a director of the North Texas Chapter of the National Association of Corporate Directors (“NACD”) and is an NACD Board Leadership Fellow.

Katherine J. Harless

 

Qualifications

Age 67

 

Ms. Harless brings to our Board executive leadership experience, management skills and knowledge of financial, executive compensation, corporate governance and other issues applicable to public companies. She provides a seasoned business perspective and valuable business, leadership and management insights with respect to our strategic direction.

Director since 2000

 

Independent

 

Committees

 

•  Audit

•  Finance

 

 

 

Other Public Company Boards

 

 

Current

Past 5 Years

 

 

None

None

 

 

 

 

 

 

 

 

 

 

 

9


Table of Contents

 

Background

D. Christian Koch is the President and Chief Executive Officer of Carlisle Companies Incorporated, Scottsdale, Arizona (a diversified manufacturing company that produces and distributes a broad range of products). He holds or has held the following positions, all at Carlisle:

•  President and Chief Executive Officer (since January 2016)

•  President and Chief Operating Officer (May 2014 – January 2016)

•  Group President, Carlisle Diversified Products (June 2012May 2014)

•  President, Carlisle Brake & Friction (January 2009 – June 2012)

•  President, Carlisle Asia-Pacific (February 2008 – January 2009)

D. Christian Koch

 

Qualifications

Age 54

 

Mr. Koch brings to our Board his experience as a seasoned executive with strong business acumen and significant experience managing distribution, supply chain, manufacturing and sales operations around the world as well as with mergers and acquisitions. In addition, as a public company director and executive, Mr. Koch contributes a solid understanding of financial oversight requirements, strategic planning, executive compensation and corporate governance.

Director since 2016

 

Independent

 

Committees

 

•  Audit

•  Finance

 

 

 

Other Public Company Boards

 

 

Current

Past 5 Years

 

 

Carlisle Companies Inc.

Arctic Cat Inc.

 

 

 

 

 

Continuing Members of the Board – Current Term Ending at the 2021 Annual Meeting

 

 

Background

Janet K. Cooper retired from Qwest Communications International Inc., Denver, Colorado (a U.S. telecommunications company that merged with and now does business as CenturyLink). She held the following positions:

•  Senior Vice President and Treasurer, Qwest (September 2002 – June 2008)

•  Chief Financial Officer and Senior Vice President, McDATA Corporation (2001 – 2002)

•  Senior Vice President, Finance, Qwest (2000 – 2001)

•  Prior positions at U.S. West Inc. include Vice President, Finance and Controller, and Vice President and Treasurer

Qualifications

Janet K. Cooper

 

Ms. Cooper brings to our Board substantial financial and accounting knowledge and expertise. Ms. Cooper’s experience as a public company director and audit committee member and her financial expertise and acumen in capital markets, audit, tax, accounting, treasury and risk-management, including related to information systems and cybersecurity, assists our Board in providing oversight to Management on these matters. Ms. Cooper’s senior leadership experience also enables her to provide strategic input to our Board, in addition to her financial expertise, discipline and oversight.

Other Public Company Boards

Age 65

 

Director since 1994

 

Independent

 

Committees

 

•  Audit (Chair)

•  Finance

 

 

 

 

 

Current

Past 5 Years

 

 

Lennox International Inc.

Resonant Inc.

None

 

 

 

 

 

 

 

 

 

 

 

 

10


Table of Contents

Gary L. Ellis

 

Background

Gary L. Ellis retired from Medtronic plc, Dublin, Ireland (a global medical technology company). He held the following positions:

•  Executive Vice President, Global Operations, Information Technology and Facilities & Real Estate, Medtronic plc (June 2016 – December 2016)

•  Executive Vice President and Chief Financial Officer, Medtronic, Inc. (April 2014 – June 2016)

•  Senior Vice President and Chief Financial Officer, Medtronic, Inc. (May 2005 – April 2014)

•  Vice President, Corporate Controller and Treasurer, Medtronic, Inc. (1999 – May 2005)

Age 62

 

Qualifications

Director since 2006

 

Mr. Ellis brings extensive financial leadership experience and expertise to our Board which provides oversight regarding capital structure, financial condition and policies, long-range financial objectives, tax strategies, financing requirements and arrangements, capital budgets and expenditures, risk-management, insurance coverage, and strategic planning matters. As a former executive of a public company and an experienced public company director, Mr. Ellis contributes enhanced knowledge of public company requirements and issues. Additionally, Mr. Ellis contributes his international experience managing worldwide financial operations and analyzing financial implications of merger and acquisition transactions, as well as aligning business strategies and financial decisions.

Independent

 

Committees

 

•  Finance (Chair)

 

•  Audit

 

 

 

 

 

Other Public Company Boards

 

 

Current

Past 5 Years

 

 

Hill-Rom Holdings, Inc.

None

 

 

 

 

 

 

Background

Gregg W. Steinhafel was the Chairman, President and Chief Executive Officer of Target Corporation(2), Minneapolis, Minnesota (a variety retailing company).  He held the following positions, all at Target:

•  Chairman of the Board (February 2009 – May 2014)

•  Chief Executive Officer (May 2008 – May 2014)

•  Director (January 2007 – May 2014)

•  President (1999 – May 2014)

 

Qualifications

Gregg W. Steinhafel

 

Mr. Steinhafel brings to our Board meaningful leadership experience and retail knowledge, including a deep understanding of the value of strong brand recognition, devotion to innovation, strong supply chain initiatives, and a disciplined approach to business management and investment in future growth. In addition, he contributes decision-making skills and valuable strategic planning expertise, as well as relevant knowledge of public company requirements and issues, including those related to corporate governance and executive compensation matters. Mr. Steinhafel’s significant retail knowledge assists our Board in providing guidance with respect to our residential business, which is affected by consumer confidence and spending levels, changing buying patterns of customers and product placement at mass retailers.

Age 64

 

Director since 1999

 

Independent

 

Committees

 

•  Compensation &
Human Resources

 

•  Nominating & Governance

 

 

 

 

 

Other Public Company Boards

 

 

Current

Past 5 Years

 

 

None

Target Corporation

 

 

 

 

 

 

11


Table of Contents

 

Background

Michael G. Vale, Ph.D., is the Executive Vice President, Health Care Business Group of 3M Company, St. Paul, Minnesota (a global diversified technology company). He holds or has held the following positions, all at 3M:

•  Executive Vice President, Health Care Business Group (since July 2016)

•  Executive Vice President, Consumer Business Group (August 2011 – July 2016)

•  Prior positions include product development engineer; manufacturing director; managing director, 3M Spain; and managing director, 3M Brazil

 

Qualifications

Michael G. Vale, Ph.D.

 

Dr. Vale brings to our Board extensive global business experience and expertise in research and development, technology and manufacturing. Dr. Vale also contributes substantial knowledge of  consumer marketing, distribution channels, supply chaing, mergers and acquisitions and managing customer relationships, all of which provide valuable management insight with respect to our strategic planning and assist our Board in providing oversight to our businesses.

 

Other Public Company Boards

Age 52

 

Director since 2018

 

Independent

 

Committees

 

•  Audit

 

•  Finance

 

 

 

Current

Past 5 Years

 

 

None

None

 

 

(1)

On December 31, 2009, Idearc emerged from voluntary Chapter 11 bankruptcy proceedings that it filed in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division, on March 31, 2009, which was after Ms. Harless retired from Idearc.

(2)

In January 2015, after Mr. Steinhafel left Target, Target Canada Co., an indirect wholly owned subsidiary of Target, filed an application for protection under the Companies’ Creditors Arrangement Act with the Ontario Superior Court of Justice in Toronto and was deconsolidated.

 

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Table of Contents

CORPORATE GOVERNANCE

Corporate Governance Guidelines

The Board has adopted Corporate Governance Guidelines, which describe our corporate governance practices and policies and provide a framework for our Board governance. The topics addressed in our Corporate Governance Guidelines include: director qualifications and responsibilities; Board committees; director board limits; director access to officers and employees; director compensation; director independence; related party transactions; director orientation and continuing education; CEO evaluation and management succession; and Board annual self-evaluation. Our Corporate Governance Guidelines provide, among other things, that:

 

The Board will have a majority of directors who meet the criteria for independence required by law, the SEC and the NYSE listing standards;

 

No director shall sit on boards of directors of more than four publicly held companies without the approval of the Nominating & Governance Committee;

 

No director who is an active, full-time employee of our Company shall serve as a director of more than two other publicly held companies and there shall be no interlocking board memberships without the approval of the Nominating & Governance Committee;

 

While the Board does not believe it should establish age limits, any director who has attained the age of 70 should volunteer not to stand for re-election;

 

The CEO will annually review with the Board top management succession plans, including development plans for succession candidates, and will periodically review with the Board an emergency leadership preparedness plan applicable in the event the CEO unexpectedly becomes incapacitated or otherwise is unable to serve; and

 

The Board will conduct an annual self-evaluation to determine whether it and its committees are functioning effectively.

Our Corporate Governance Guidelines can be found on our website at www.thetorocompany.com/corporategovernance. From time to time the Board, upon recommendation of the Nominating & Governance Committee, reviews and updates our Corporate Governance Guidelines as it deems necessary and appropriate.

Board Leadership Structure

Our Corporate Governance Guidelines provide that (i) our Board has no policy with respect to the separation of the offices of the Chairman and the CEO; (ii) our Board believes that this issue is part of the succession planning process and will be reviewed as the Nominating & Governance Committee deems it appropriate; and (iii) (a) if the offices of Chairman and CEO are held by the same person, or (b) the Chairman does not meet the criteria for “independence” as established by applicable law, the rules and regulations of the SEC or the NYSE listing standards, then the Board, upon recommendation of the Nominating & Governance Committee, shall appoint a Lead Independent Director, who shall have such duties as are described in the Corporate Governance Guidelines or otherwise determined by the Board. The Board believes it is appropriate not to have a policy requiring the separation of the offices of the Chairman and the CEO so that it may make this determination based on what it believes is best under the current circumstances. However, the Board endorses the concept of an independent, non-employee director being in a position of leadership and, thus, our Corporate Governance Guidelines require a Lead Independent Director when the Chairman is not independent.

Our Board is currently chaired by Richard M. Olson, our Chairman and CEO. Our Lead Independent Director is Mr. Buhrmaster and he will serve in this role until his retirement from our Board in connection with the annual meeting. Our Nominating & Governance Committee and Board believe that our current Board leadership structure ensures a strong and independent Board of Directors, provides effective governance, creates appropriate oversight for the long-term benefit of our shareholders and is appropriate for several reasons, including: (i) Mr. Olson’s extensive knowledge of our Company, our business, operations and industry, obtained through his more than 32 years of service to our Company, which benefit Board leadership and the Board’s decision-making process through his active role as Chairman; (ii) unification of Board leadership and strategic direction as implemented by our Management; and (iii) appropriate balance of risks relating to concentration of authority through the oversight of our independent and engaged Lead Independent Director and Board.

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As our Lead Independent Director, Mr. Buhrmaster (i) assists Mr. Olson in establishing the agendas for Board meetings and the schedule of agenda subjects to be discussed during the year, to the extent such subjects can be foreseen; (ii) presides at regularly scheduled executive sessions of the non-employee directors without Management present; (iii) together with the Chair of the Compensation & Human Resources Committee, communicates to Mr. Olson the results of his annual performance review and compensation; and (iv) leads the Board’s annual self-evaluation. With more than 22 years of continuous service on our Board, Mr. Buhrmaster has developed considerable knowledge of our Company, our business and our industry. Mr. Buhrmaster also has significant public company board experience. In addition to serving as our Lead Independent Director, Mr. Buhrmaster serves as the Chair of our Nominating & Governance Committee and will continue to do so until his retirement from our Board in connection with the annual meeting.

In anticipation of Mr. Buhrmaster’s retirement at the annual meeting, the Board has selected Mr. Ellis to serve as our next Lead Independent Director. The appointment of Mr. Ellis as our Lead Independent Director will be effective immediately following the annual meeting. Our Nominating & Governance Committee and Board believe that the selection of Mr. Ellis as our next Lead Independent Director will continue our commitment to having a strong and independent Board of Directors that provides effective governance and appropriate oversight for the long-term benefit of our shareholders. Mr. Ellis has served on our Board for more than 12 years and has been a member of our Audit Committee and Chair of our Finance Committee throughout his tenure. As a result, he has developed a deep understanding of our Company, business and industry. In addition, as a recently retired executive officer from Medtronic, he has significant public company experience that the Nominating & Governance Committee and the Board believe will continue the effective balance of Management authority and Board oversight. More information about Mr. Ellis’ background may be found on page 11. Mr. Ellis will also continue to serve as Chair of our Finance Committee.

Director Independence

The Board, following consideration of all relevant facts and circumstances and upon recommendation of the Nominating & Governance Committee, has affirmatively determined that each director who served as a member of our Board during fiscal 2018 (Robert C. Buhrmaster, Janet K. Cooper, Gary L. Ellis, Jeffrey M. Ettinger, Katherine J. Harless, D. Christian Koch, James C. O’Rourke, Gregg W. Steinhafel, Christopher A. Twomey and Michael G. Vale) other than Michael J. Hoffman, our former Executive Chairman who served until November 3, 2017, and Richard M. Olson, our current Chairman and CEO, is independent. In addition, the Board, following consideration of all relevant facts and circumstances and upon recommendation of the Nominating & Governance Committee, has affirmatively determined that each of Jeffrey L. Harmening and Joyce A. Mullen is independent. These determinations were made because each such person has no material relationship with our Company, our Management, our independent registered public accounting firm, or external auditor, our independent external compensation consultant or our external compensation legal advisers, and otherwise meets the independence requirements as established by applicable law, the rules and regulations of the SEC and the NYSE listing standards. The Board based its independence determinations, in part, upon a review by the Nominating & Governance Committee and the Board of certain transactions between us and the employers of certain of our directors, each of which was deemed to be pre-approved under our Corporate Governance Guidelines in that each such transaction was made in the ordinary course of business, at arm’s length, at prices and on terms customarily available to unrelated third party vendors or customers generally, in amounts that are not material to us or such unaffiliated corporation, and in which the director had no direct or indirect personal interest, nor received any personal benefit.

Director Attendance; Executive Sessions

The Board held seven meetings during fiscal 2018 and took action by unanimous written consent once in fiscal 2018. Each incumbent director attended at least 75% of the aggregate total number of meetings held by the Board and all committees on which he or she served. Our Corporate Governance Guidelines provide that the non-employee directors will meet in regularly scheduled executive sessions without Management. At each regular Board meeting held during fiscal 2018 our non-employee directors met in executive session without Management present and such meetings were presided over by our Lead Independent Director.

We expect all of our directors and our director nominees to attend our annual meeting of shareholders and we customarily schedule a regular Board meeting on the same day as our annual meeting. All directors serving at the time of our 2018 Annual Meeting of Shareholders held on March 20, 2018 were in attendance.

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Board Committees

The Board has four committees, the Audit Committee, Compensation & Human Resources Committee, Nominating & Governance Committee, and Finance Committee. Each committee has a charter that is posted on our website at www.thetorocompany.com/corporategovernance. The charter of each committee describes the principal functions of the committee. On an annual basis the Audit Committee, Nominating & Governance Committee and Compensation & Human Resources Committee review the adequacy of their charter and their performance. The Finance Committee periodically reviews its charter and performance, with such review historically conducted on an annual basis. The Chair of each Board committee provides a summary of the matters discussed in their committee meeting to the full Board.

The Board has determined that each of the members, current and as anticipated immediately after the annual meeting, of the Audit Committee, Compensation & Human Resources Committee and Nominating & Governance Committee meets the independence and other requirements established by applicable law, the rules and regulations of the SEC, the NYSE listing standards and the Internal Revenue Code of 1986, as amended, or Code, as applicable.

The current membership of each committee, the anticipated future membership of each committee immediately after the annual meeting, the number of times each committee met, including by executive session, during fiscal 2018 and key functions of each committee are noted in the table and accompanying footnotes below. Neither Mr. Olson, nor Mr. Hoffman prior to his retirement as Executive Chairman, is or was a member of any Board committee. In fiscal 2018 Mr. Olson attended, and currently may attend, various committee meetings, or portions of such meetings as appropriate, as a member of Management at the invitation of such Board committees.

 

Audit
Committee

Key Committee Functions

 Oversees the accounting and financial reporting processes, audits of consolidated financial statements and internal controls over financial reporting

 Selects, compensates and evaluates independent external auditor

 Reviews with Management and external auditor Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and earnings releases

 Reviews general policies and procedures with respect to accounting and financial matters, internal controls and disclosure controls and procedures

 

 Reviews internal audit’s annual audit plans, performance, audit recommendations and applicable responses from Management

 Reviews Code of Conduct and Code of Ethics for CEO and Senior Financial Personnel, and policies and procedures for the receipt, retention and treatment of complaints from employees on accounting, internal accounting controls or auditing matters

 Provides oversight for Enterprise Risk Management, or ERM, process

 Reviews Information Services strategy and security activities

Committee Members(1), (2)

Ms. Cooper (Chair)

Mr. Ellis

Ms. Harless

Mr. Koch

Dr. Vale

 

During Fiscal 2018

Number of Meetings: 13

Number of Executive Sessions:

6 – with Committee

6 – with Management

4 – with internal auditor

5 – with external auditor

(1)In anticipation of the election of Mr. Harmening and Ms. Mullen at the annual meeting, the Nominating & Governance Committee and Board have determined that Mr. Harmening will join the Audit Committee, effective immediately after his election to our Board by our shareholders at the annual meeting. In addition, Mr. Koch will transition from being a member of the Audit Committee and Finance Committee to a member of the Nominating & Governance Committee and Compensation & Human Resources Committee in connection with such elections.

(2)The Board has determined that all members of the Audit Committee (current and as anticipated immediately after the annual meeting) are financially literate and that each of Janet K. Cooper and Gary L. Ellis meets the definition of “audit committee financial expert.” Other members of the Audit Committee who currently are serving or have served as chief executive officers or chief financial officers of other public companies also may be considered financial experts, but the Board has not so designated them.

 

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Compensation & Human Resources Committee

Key Committee Functions

 Approves the compensation levels, salaries, incentive opportunities and other compensation arrangements for the CEO and executive officers

 Reviews compensation policies and practices as they affect all employees and relate to risk management practices and risk-taking incentives

 Evaluates the CEO’s performance

 

 Approves performance goals for performance based awards

 Reviews with Management the Compensation Discussion and Analysis, the Committee report on executive compensation, and any compensation-related proposals, including say-on-pay and frequency of say-on-pay proposals

 Reviews non-employee director compensation components and amounts

Committee Members(1)

Mr. Twomey (Chair)

Mr. Buhrmaster

Mr. Ettinger

Mr. O’Rourke

Mr. Steinhafel

 

During Fiscal 2018

Number of Meetings: 4

Number of Executive Sessions: 3

 

(1)In connection with Mr. Twomey’s retirement at the annual meeting, the Nominating & Governance Committee and Board have selected Mr. O’Rouke to serve as Chair of the Compensation & Human Resources Committee, effective immediately following the annual meeting. In addition, in anticipation of the election of Mr. Harmening and Ms. Mullen at the annual meeting, the Nominating & Governance Committee and Board have determined that (i) Ms. Mullen will join the Compensation & Human Resources Committee and Nominating & Governance Committee and (ii) Mr. Koch will transition from being a member of the Audit Committee and Finance Committee to a member of the Nominating & Governance Committee and Compensation & Human Resources Committee, with such appointments to be effective immediately after the election of Ms. Harmening and Ms. Mullen to our Board by our shareholders at the annual meeting.

 

 

 

 

Nominating & Governance Committee

Key Committee Functions

 Reviews and recommends to the Board the size and composition of the Board and its committees

 Identifies individuals qualified to become Board members

 Recommends to the Board director nominees for election at the annual meeting

 Oversees the annual evaluation of the Board

 

 Reviews and recommends to the Board any proposed amendments or changes to Restated Certificate of Incorporation or Amended and Restated Bylaws

 Reviews Corporate Governance Guidelines and recommends to the Board any changes

 Monitors corporate governance trends

Committee Members(1)

Mr. Buhrmaster (Chair)

Mr. Ettinger

Mr. O’Rourke

Mr. Steinhafel

Mr. Twomey

 

During Fiscal 2018

Number of Meetings: 2

Number of Executive Sessions: 2

(1)In connection with Mr. Buhrmaster’s retirement at the annual meeting, the Nominating & Governance Committee and the Board have selected Mr. Ettinger to serve as Chair of the Nominating & Governance Committee, effective immediately following the annual meeting. In addition, in anticipation of the election of Mr. Harmening and Ms. Mullen at the annual meeting, the Nominating & Governance Committee and Board have determined that (i) Ms. Mullen will join the Compensation & Human Resources Committee and Nominating & Governance Committee and (ii) Mr. Koch will transition from being a member of the Audit Committee and Finance Committee to a member of the Nominating & Governance Committee and Compensation & Human Resources Committee, with such appointments to be effective immediately after the election of Ms. Harmening and Ms. Mullen to our Board by our shareholders at the annual meeting.

 

 

 

 

Finance
Committee

Key Committee Functions

 Reviews, and recommends to the Board as required, capital structure and related financial policies and long-range objectives, capital expenditures, tax strategies and restructuring projects, financing arrangements and cash or any special dividends

 Reviews and recommends to the Board the authorization for the issuance or repurchase of equity or long-term debt

 

 Reviews use of derivative, hedging and similar instruments to manage financial, currency and interest rate exposure

 Evaluates, and recommends to the Board as required, financing implications of certain proposed merger, acquisition, divestiture, joint venture and other business combination transactions or investments

Committee Members(1)

Mr. Ellis (Chair)

Ms. Cooper

Ms. Harless

Mr. Koch

Dr. Vale

 

During Fiscal 2018

Number of Meetings: 7

Number of Executive Sessions: 5

 

(1)In anticipation of the election of Mr. Harmening and Ms. Mullen at the annual meeting, the Nominating & Governance Committee and Board have determined that Mr. Harmening will join the Finance Committee, effective immediately after his election to our Board by our shareholders at the annual meeting. In addition, Mr. Koch will transition from being a member of the Audit Committee and Finance Committee to a member of the Nominating & Governance Committee and Compensation & Human Resources Committee in connection with such elections.

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Board’s Role in Risk Oversight

Management is primarily responsible for the identification, assessment and management of the key risks faced by our Company. We engage in an enterprise risk management, or ERM, process, which is coordinated primarily through our internal audit function, and involves:

 

identification by senior leaders of our business functions and divisions of the particular risks relevant to their respective areas or to our Company as a whole;

 

assessment of the materiality of those risks, based on expected probability of occurrence and severity of impact;

 

to the extent prudent and feasible, development of strategies and plans to mitigate, monitor and control such risks; and

 

scheduled reports by the respective senior leaders on such items to the relevant committee or the Board, as applicable, throughout the ERM review cycle.  

The Board’s oversight of these risks primarily occurs in connection with the exercise of its responsibility to oversee our business, including through the review of our long-term strategic plans, annual operating plans, financial results, merger and acquisition related activities, material legal proceedings, and management succession plans. In addition, the Board relies on its committees to assist with risk oversight within their respective areas of responsibility and expertise as follows:

 

The Audit Committee assists through its oversight of the quality and integrity of our financial reports; compliance with applicable legal and regulatory requirements; qualifications, performance and independence of our external auditor; performance of our internal audit function; accounting and reporting processes; strategy, performance and experience of our information technology and security function and practices, including those related to cybersecurity; performance of our health and safety program; and our general policies and procedures regarding accounting and financial matters and internal controls. The Audit Committee is also responsible for providing oversight of our ERM process by discussing our procedures with respect to risk assessment and risk management, including our major financial and business risk exposures and the steps Management has taken to monitor and control such exposures.

 

The Compensation & Human Resources Committee assists through its oversight of our compensation and human resources programs and policies, including executive compensation, organizational, and corporate culture plans and strategies. A discussion of the Compensation & Human Resources Committee’s assessment of compensation policies and practices as they relate to our Company’s risk management is found under “Assessment of Risk Related to Compensation Programs” on page 43.

 

The Finance Committee assists through its oversight of our capital structure and related policies; long-range objectives; tax strategies and restructuring projects; financing requirements and arrangements; equity and debt issuances and repurchases; use of derivative, hedging and similar instruments; annual capital budget and capital expenditures; D&O and liability insurance coverage; the delegated responsibilities of our Management Investment Committee relating to our ERISA-regulated employee benefit plans; and through its evaluation of, among other things, the financial impact of certain proposed business combination transactions.

 

The Nominating & Governance Committee assists through its oversight of our overall corporate governance structure and policies, including director nominations, director retirements, director independence and qualifications, Board leadership structure, Board committee structure and monitoring of corporate governance trends, including environmental, social and governance, or ESG, ratings.

The Board believes that its oversight of risk is enhanced by its current leadership structure, as previously discussed, because our Chairman and CEO, who is ultimately responsible for our Management’s risk responsibility, also chairs regular Board meetings and, with his in-depth knowledge and understanding of our Company, is well positioned to bring key business issues and risks to the attention of the full Board.

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Executive Compensation Process

At the beginning of each fiscal year, the Compensation & Human Resources Committee reviews and approves compensation for each of our executive officers which generally includes:

 

changes, if any, to base salary; and

 

incentive awards, including:

 

annual cash incentive awards for the current fiscal year, including (i) participation targets expressed as a percentage of base salary, target payout amounts, and maximum cash payout amounts and (ii) performance measures, weightings, goals and adjustment events; and

 

long-term incentive awards, including (i) stock option awards and (ii) three-year performance share awards, including (a) target share payout amounts and maximum share payout amounts and (b) performance measures, weightings, goals and adjustment events.

In connection with this review and approval, the Compensation & Human Resources Committee receives information regarding:

 

market base salary, total cash compensation and total direct compensation data and analysis prepared by its independent external compensation consultant;

 

total cash compensation to be paid for the fiscal year if annual cash incentive awards are achieved and paid at target;

 

prior fiscal year target equity values; and

 

total direct compensation for the fiscal year, assuming equity awards at target.

Additionally, the Committee obtains executive compensation recommendations from our Chairman and CEO, Vice President, Human Resources and Distributor Development, and Managing Director, Total Rewards and Employee Services that reflect individual performance; corporate, division and/or plant performance, as applicable; tenure in the position; comparison to market; level of professional experience; duties and responsibilities; internal pay comparisons; and outside market factors, including general economic conditions. Neither the Chairman and CEO nor the Vice President, Human Resources and Distributor Development provide input or recommendations with respect to his or her own compensation. The Chair of the Committee is also responsible for coordinating a performance evaluation for the Chairman and CEO based on feedback from all non-employee directors in connection with the ratification of the Chairman and CEO’s compensation by the Board. Information on the compensation of our named executive officers is found under “Executive Compensation” beginning on page 29. Also, at the beginning of each fiscal year, the Committee certifies the achievement of the applicable performance goals previously established by the Committee for the annual cash incentive awards and performance share awards and approves resulting payouts, if any.

The Compensation & Human Resources Committee retained Willis Towers Watson to assist in the design and review of our executive compensation program during fiscal 2018. Additional information regarding the role of Willis Towers Watson during fiscal 2018 is found under “Compensation Discussion and Analysis—Role of the Independent External Compensation Consultant” beginning on page 32. From time to time, the Committee also has engaged Willis Towers Watson to perform other compensation consulting services, which in fiscal 2018 included a review of non-employee director compensation and a compensation risk assessment. For the services performed for us in fiscal 2018, the Committee assessed the independence of Willis Towers Watson pursuant to SEC and NYSE rules and concluded that the work of Willis Towers Watson did not raise any conflicts of interest. A representative from Willis Towers Watson attended two of the four Committee meetings in fiscal 2018, including executive sessions without Management present, to act as a resource to the Committee in carrying out its responsibilities. The Committee, through its Chair, can request an independent meeting with representatives from our independent external compensation consultant at any time. The Committee also has the authority to obtain advice and assistance from external legal, accounting or other advisers.

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Director Nomination and Refreshment Process

In identifying new nominees for election to the Board when vacancies occur, the Nominating & Governance Committee may solicit recommendations for nominees from other members of our Board or Senior Management. In addition, the Committee may (i) consider candidates put forth by external search or placement firms, (ii) formally engage such firms to assist it in identifying and evaluating qualified nominees, and/or (iii) consider certain individuals who contacted the Chairman of the Board, the Lead Independent Director and/or the Board of Directors and expressed an interest in serving on the Board.

When reviewing the requisite skills and characteristics of potential new director nominees, the Nominating & Governance Committee, pursuant to our Corporate Governance Guidelines, will consider a variety of criteria, including an individual’s independence, diversity, age, skills, business experience, professional experience and industry experience, each in the context of the needs of the Board as a whole. Although the Committee does not have a formal policy regarding consideration of diversity in identifying director nominees, the Committee will evaluate a nominee based on his or her diversity of background, skills, experiences, viewpoints, and geographical representation, as well as more traditional diversity factors. As a result, the composition of the current Board reflects diversity in age, gender, background, skills, and business and professional experiences.

Once a proposed candidate is identified, the Nominating & Governance Committee may solicit the views of Senior Management, Board members and any other individuals it believes may have insight into a particular candidate. The Committee may designate one or more of its members and/or other Board members to interview any proposed candidate. The Committee then will recommend a director nominee to the Board based on its evaluation of such criteria.

As noted previously, Messrs. Buhrmaster and Twomey will be retiring from our Board in connection with the annual meeting pursuant to our Board retirement age guideline. In anticipation of such retirements, our Chairman and CEO and the Nominating & Governance Committee began the process after our last annual meeting to identify nominees for election to the Board. This process included (i) considering recommendations from members of the Board, including the Chairman and CEO, (ii) engaging James Drury Partners as our external search firm to identify qualified candidates, and (iii) considering certain individuals who contacted the Chairman and CEO, the Lead Independent Director and/or the Board of Directors and expressed an interest in serving on the Board. As a result of this process, Mr. Harmening was identified through the work of James Drury Partners and Ms. Mullen was identified through recommendations by our Board. Each of Mr. Harmening and Ms. Mullen were subsequently interviewed by several members of the Board, including the Chairman and CEO, the Chair of the Nominating & Governance Committee, the Chair of the Audit Committee, and the Chair of the Finance Committee. Following that process, the Nominating & Governance Committee considered, and formally recommended to the full Board, that Mr. Harmening and Ms. Mullen be nominated for election by our shareholders at the annual meeting to fill the vacancies that will be created by the retirements of Messrs. Buhrmaster and Twomey at the annual meeting and that each of Mr. Harmening and Ms. Mullen be included in the group of nominees for election by our shareholders at the 2019 Annual Meeting of Shareholders for a term expiring at the 2022 Annual Meeting of Shareholders. See Proposal One—Election of Directors on page 5. Each of Mr. Harmening and Ms. Mullen will become members of our Board effective immediately upon their election by our shareholders at the annual meeting.

The Nominating & Governance Committee will consider director candidates recommended to it by our shareholders. Those candidates must be qualified and exhibit the experience and expertise required of the Board’s own pool of candidates, as well as have an interest in our business, and the demonstrated ability to attend and prepare for Board, committee and shareholder meetings. Any candidate must state in advance his or her willingness and interest in serving on the Board. Candidates should represent the interests of all shareholders and not those of a special interest group. The Committee will evaluate candidates recommended by shareholders using the same criteria it uses to evaluate candidates recommended by others as described above. A shareholder that desires to nominate a person for election to the Board at a meeting of shareholders must follow the specified advance notice requirements contained in, and provide the specific information required by, our Amended and Restated Bylaws. The current requirements of our Amended and Restated Bylaws are as described under “Shareholder Proposals and Director Nominations for the 2020 Annual Meeting” on page 63.

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Director Compensation

Overview.    Our non-employee director compensation program generally is designed to attract and retain experienced and knowledgeable directors and to provide equity-based compensation to align the interests of our directors with those of our shareholders. In fiscal 2018, our non-employee director compensation was comprised of equity compensation, in the form of annual stock and stock option awards, and cash compensation, in the form of annual retainers. Each of these components is described in more detail below. This compensation program structure, together with the feature of The Toro Company Amended and Restated 2010 Equity and Incentive Plan, as amended and restated, or the Amended and Restated 2010 Plan, that enables our directors to elect to receive a portion or all of their cash compensation in the form of our common stock, causes a substantial portion of our non-employee director compensation to be linked to our common stock performance. As current or former employee directors, Mr. Olson does not and Mr. Hoffman did not receive any additional compensation for their service as directors.

Processes for Consideration and Determination of Director Compensation.    The Board has delegated to the Compensation & Human Resources Committee the responsibility, among other things, to review and recommend to the Board any proposed changes in non-employee director compensation. In connection with such review, the Compensation & Human Resources Committee is assisted in performing its duties by our Human Resources Department and also engages an independent external compensation consultant to provide analysis regarding non-employee director compensation.

The Compensation & Human Resources Committee engages Willis Towers Watson to review our non-employee director compensation each year. The Willis Towers Watson review consists of, among other things, analysis of board compensation trends and a competitive assessment based on a selected group of manufacturing companies operating in the United States that are similar size to us from a revenue and market capitalization perspective. The Compensation & Human Resources Committee considered this data in determining whether to recommend any changes to our non-employee director compensation program and the approved non-employee director compensation program is presented in the table below. Overall, the reviews by Willis Towers Watson showed that our non-employee director compensation program aligned with market trends from a design perspective and at or below the peer group midpoint from a compensation level standpoint.

Elements of Our Non-Employee Director Compensation Program.    The following table sets forth our fiscal 2018 non-employee director compensation program. There were no changes for the fiscal 2019 program.

 

Non-Employee Director Compensation

 

Fiscal 2018

 

Annual Stock Award Value

 

$

60,000

 

Annual Stock Option Award Value

 

$

55,000

 

Annual Board and Committee Member Retainers

 

 

 

 

Board

 

$

80,000

 

Audit Committee Member

 

$

12,500

 

Compensation & Human Resources Committee Member

 

$

7,000

 

Nominating & Governance Committee Member

 

$

6,000

 

Finance Committee Member

 

$

6,000

 

Annual Lead Independent Director and Committee Chair Additional Retainers

 

 

 

 

Lead Independent Director

 

$

25,000

 

Audit Committee Chair

 

$

20,000

 

Compensation & Human Resources Committee Chair

 

$

12,000

 

Nominating & Governance Committee Chair

 

$

7,500

 

Finance Committee Chair

 

$

7,500

 

 

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The following summarizes the key characteristics of the elements of our non-employee director compensation program:

 

Element

Key Characteristics

Annual Retainers

Each Board and committee member, committee chair and the Lead Independent Director receive annual retainers as described in the foregoing table for their respective service on our Board.

Stock Awards

On the first business day of our fiscal year (usually November 1), shares of our common stock are automatically granted under the Amended and Restated 2010 Plan. The stock award is determined by dividing the stock award value by the average of the closing prices of our common stock, as reported on the NYSE, during the three months prior to the grant. The shares are fully vested at the time of grant.

Stock Option Awards

On the first business day of our fiscal year, a stock option to purchase shares of our common stock is automatically granted. The stock option award is determined by dividing the stock option award value by the grant date fair value of a stock option to purchase one share of our common stock. See below for additional information regarding vesting of stock option grants.

Common Stock In Lieu of Annual Retainers

Our non-employee directors may elect to convert a portion or all of their calendar year annual retainers otherwise payable in cash into shares of our common stock. Annual retainers earned after the date a director makes a stock-in-lieu of cash election for a calendar year are issued in shares of common stock in December of that year, the number of which is determined by dividing the dollar amount of the annual retainers earned in the calendar year and elected to be converted into shares of our common stock by the closing price of our common stock, as reported on the NYSE, on the date that the shares are issued.

Deferred Compensation Plan

Non-employee directors may elect to defer receipt of all or a part of his or her stock award and/or cash compensation on a calendar year basis under The Toro Company Deferred Compensation Plan for Non-Employee Directors, or the Deferred Plan for Directors. Because the value of a director’s deferred compensation account fluctuates, as applicable, based on the market value of our common stock or based on a rate of return on funds that are comparable to funds available in The Toro Company Investment, Savings and Employee Stock Ownership Plan, or IS&ESOP, earnings on deferred compensation are not preferential. Dividends paid on our common stock are credited to a director’s account as additional common stock units. A director is fully vested in his or her deferred compensation accounts. Distributions under the Deferred Plan for Directors are payable in accordance with the director participant’s prior distribution elections upon the earliest of retirement, prior to retirement if a valid election has been made or in an unforeseeable financial emergency.

Company Products

Each of our non-employee directors is entitled to receive certain Company products and related parts, service and accessories for his or her personal use, at no cost; provided, however, that directors are responsible for payment of applicable taxes attributable to the value of such items. The value of products, parts and accessories is deemed to be our distributor net price or its equivalent, which is also the price at which such items are generally available to our employees for purchase.

Charitable Giving

We offer a matching gift program for our non-employee directors, similar to the matching gift program offered to all employees, which provides that a gift or gifts by a director and/or his or her spouse to one or more tax exempt 501(c)(3) charitable organizations located in the United States will be matched by us in an aggregate amount of up to $1,000 per director per year.

Indemnification and D&O Insurance

Each non-employee director is a party to an indemnification agreement with us pursuant to which we have agreed to provide indemnification and advancement of expenses to the fullest extent permitted by Delaware law and our Restated Certificate of Incorporation and continued coverage under our D&O insurance.

Stock Option Vesting.    Except as described below, stock options granted to our non-employee directors vest in three equal installments on each of the first, second and third year anniversaries of the date of grant and remain exercisable for a term of ten years after the date of grant.

If a director becomes disabled or dies, all outstanding unvested stock options will vest in full on the date the director’s service ceases by reason of such disability or death and all outstanding stock options may be exercised up to the earlier of the date the stock options expire or one year after the date the director’s service ceased by reason of such disability or death.

If a director has served as a member of the Board for ten full fiscal years or longer and terminates his or her service on the Board, other than due to death or disability, his or her outstanding unvested stock options will continue to vest in accordance with their terms and the director may exercise the vested portions of the stock options for up to four years after the director’s date of termination, but not later than the date the stock options expire. If a director has served as a member of the Board for less than ten full fiscal years and terminates his or her service on the Board, other than due to death or disability, his or her outstanding unvested stock options will expire and be canceled and the director may exercise any vested portions of the stock options for up to three months after the director’s date of termination, but not later than the date the stock options expire. The following

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directors have served as a member of the Board for ten full fiscal years or longer: Robert C. Buhrmaster, Janet K. Cooper, Gary L. Ellis, Katherine J. Harless, Gregg W. Steinhafel and Christopher A. Twomey.

If there is a change in control of our Company, stock options granted under the Amended and Restated 2010 Plan will vest immediately and remain exercisable for the remaining term and stock options granted under The Toro Company 2000 Directors Stock Plan, as amended, or 2000 Directors Stock Plan, will remain exercisable for three years or their respective expiration date, if earlier. The general definition of a change in control under the Amended and Restated 2010 Plan and the 2000 Directors Stock Plan is described under “Potential Payments Upon Termination or Change in Control—Change in Control” beginning on page 55.

Director Compensation for Fiscal 2018.    The following table provides summary information concerning the compensation of each individual non-employee director who served during fiscal 2018. Each of Richard M. Olson, who served as Chairman and CEO in fiscal 2018, and Michael J. Hoffman, who served as Executive Chairman at the beginning of fiscal 2018, is not compensated separately for his service as a director. Mr. Olson’s compensation is discussed in the “Executive Compensation” section beginning on page 29. Neither Mr. Harmening nor Ms. Mullen served as a director in fiscal 2018 and, therefore, are not included in this table.

 

Name

 

Fees Earned or

Paid in Cash

($)(1)

 

 

Stock Awards

($)(2)

 

 

Option Awards

($)(3)(4)

 

 

All Other

Compensation

($)(5)

 

 

Total

($)

 

Robert C. Buhrmaster

 

$

125,500

 

 

$

58,846

 

 

$

54,995

 

 

$

1,586

 

 

$

240,927

 

Janet K. Cooper

 

$

118,500

 

 

$

58,846

 

 

$

54,995

 

 

$

1,796

 

 

$

234,137

 

Gary L. Ellis

 

$

106,000

 

 

$

58,846

 

 

$

54,995

 

 

$

4,884

 

 

$

224,725

 

Jeffrey M. Ettinger(6)

 

$

93,000

 

 

$

58,846

 

 

$

54,995

 

 

$

0

 

 

$

206,841

 

Katherine J. Harless(7)

 

$

98,750

 

 

$

58,846

 

 

$

54,995

 

 

$

4,972

 

 

$

217,563

 

D. Christian Koch

 

$

98,500

 

 

$

58,846

 

 

$

54,995

 

 

$

554

 

 

$

212,895

 

James C. O’Rourke

 

$

94,375

 

 

$

58,846

 

 

$

54,995

 

 

$

2,446

 

 

$

210,662

 

Gregg W. Steinhafel

 

$

93,000

 

 

$

58,846

 

 

$

54,995

 

 

$

13,465

 

 

$

220,306

 

Christopher A. Twomey

 

$

105,000

 

 

$

58,846

 

 

$

54,995

 

 

$

9,685

 

 

$

228,526

 

Michael G. Vale(8)

 

$

82,173

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

82,173

 

 

(1)

Unless a director otherwise elected to convert a portion or all of his or her annual retainers into shares of our common stock under our Amended and Restated 2010 Plan, annual retainers were paid in cash in four quarterly installments at the beginning of each fiscal quarter.

(2)

On November 1, 2017, 932 shares of our common stock were granted to each non-employee director with the calculation based on the average of the closing prices of our common stock, as reported on the NYSE, during the three months prior to the grant, which was $64.35. However, the amount reported in the table represents the grant date fair value, computed in accordance with Financial Accounting Standards Board (FASB) Accounting Standard Codification (ASC) Topic 718. The closing price on the grant date of $63.14 was used in calculating the grant date fair value. The automatic grant of stock awards on November 1, 2017, were the only stock awards granted to directors during fiscal 2018. As of October 31, 2018, no directors held any restricted stock or other unvested stock awards.

(3)

On November 1, 2017, a stock option to purchase 3,846 shares of our common stock was granted to each non-employee director. The amount reported in the table represents the grant date fair value computed in accordance with FASB ASC Topic 718. The grant date fair value is based on a Black-Scholes model valuation of $14.2993 per share. The following assumptions were used in the Black-Scholes calculation: a risk-free interest rate of 2.14%; expected life of 6.3 years; expected volatility of 21.83%; and an expected dividend yield of 1.01%. The exercise price per share is equal to 100% of the fair market value of one share of our common stock on the date of grant, as determined by the closing price for our common stock, as reported on the NYSE, which was $63.14 on November 1, 2017. The actual value of the stock option awards, if any, to be realized by a director depends upon whether the price of our common stock at exercise is greater than the exercise price of the stock options. The automatic grant of stock option awards on November 1, 2017 were the only stock options granted to directors during fiscal 2018.

(4)

As of October 31, 2018, the aggregate number of stock options (exercisable and unexercisable) held by each director was as follows: Mr. Buhrmaster—65,373; Ms. Cooper—50,265; Mr. Ellis—65,373; Mr. Ettinger—50,265; Ms. Harless—54,373; Mr. Koch—8,797; Mr. O’Rourke—24,131; Mr. Steinhafel—19,027; and Mr. Twomey—30,973. These numbers are different from the numbers set forth in the “Stock Options” column in footnote (2) to the “Directors and Executive Officers” stock ownership table beginning on page 60 which

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(i) sets forth information as of January 22, 2019 and (ii) does not include options that will become exercisable more than 60 days after January 22, 2019.

(5)

We generally do not provide perquisites and other personal benefits to our non-employee directors other than Company products for personal use. The amount reported includes for (i) each of Ms. Harless and Messrs. Ellis, O’Rourke, Steinhafel and Twomey the value of products, parts, service or accessories, as described under “Company Products” on page 21; (ii) each of Mses. Cooper and Harless and Mr. Twomey a charitable donation under our director matching gift program, as described under “Charitable Giving” on page 21; and (iii) each of Ms. Cooper and Messrs. Buhrmaster, Ellis, Koch, O’Rourke and Steinhafel the incremental cost to the Company for spousal travel in connection with an off-site board meeting.

(6)

Mr. Ettinger elected to convert his calendar 2017 and calendar 2018 retainers into shares of our common stock under the Amended and Restated 2010 Plan. On December 17, 2018, based on that day’s closing stock price of $56.48, as reported on the NYSE, Mr. Ettinger received 1,646 shares of our common stock in lieu of $92,966 cash that would have been paid in calendar 2018. The amount shown in the “Fees Earned or Paid in Cash” column represents the amount he earned for fiscal 2018.

(7)

Ms. Harless elected to defer receipt of her (i) calendar 2017 and calendar 2018 retainers earned in fiscal 2018, and (ii) the annual stock award granted on November 1, 2017, each under the Deferred Plan for Directors.

(8)

Dr. Vale was elected to the Board on January 1, 2018. Accordingly, the fees shown for Dr. Vale are for the period from January 1, 2018 through October 31, 2018. As he was not serving on the Board on November 1, 2017, the date of the fiscal 2018 automatic annual stock award and annual stock option grants, he did not receive such awards in fiscal 2018. Additionally, Dr. Vale elected to defer receipt of his calendar 2018 retainers earned in fiscal 2018.

Related Person Transactions and Policies and Procedures Regarding Related Person Transactions

Our Corporate Governance Guidelines set forth in writing our policies and procedures regarding the review, approval and ratification of related person transactions. All reportable related person transactions must be reviewed, approved or ratified by the Nominating & Governance Committee. In determining whether to approve or ratify such transactions, the Committee will take into account, among other factors and information it deems appropriate:

 

the related person’s relationship to our Company and interest in the transaction;

 

the material facts of the transaction;

 

the benefits to our Company of the transaction; and

 

an assessment of whether the transaction is (to the extent applicable) in the ordinary course of business, at arm’s length, at prices and on terms customarily available to unrelated third party vendors or customers generally, and whether the related person had any direct or indirect personal interest in, or received any personal benefit from, such transaction.

Transactions in the ordinary course of business, between us and an unaffiliated corporation of which one of our non-employee directors or director nominees serves as an officer, that are at arm’s length, at prices and on terms customarily available to unrelated third party vendors or customers generally, in which the non-employee director or director nominee had no direct or indirect personal interest, nor received any personal benefit, and in amounts that are not material to our business or the business of such unaffiliated corporation, are deemed conclusively pre-approved.

Board of Directors Business Ethics Policy Statement

It is our policy to maintain the highest level of moral, ethical and legal standards in the conduct of our business. Pursuant to our Corporate Governance Guidelines, the Board has adopted, and each director annually signs, a Business Ethics Policy Statement. The policy can be found on our website at www.thetorocompany.com/corporategovernance.

Code of Conduct and Code of Ethics for our CEO and Senior Financial Personnel

All of our directors and employees are required to comply with our Code of Conduct to help ensure that our business is conducted in accordance with the highest level of moral, ethical and legal standards. We also have a

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Code of Ethics for our CEO and Senior Financial Personnel applicable to our CEO (our principal executive officer), our Vice President, Treasurer and Chief Financial Officer (our principal financial and accounting officer), and certain senior accounting and/or treasury personnel who are also bound by the provisions set forth in the Code of Conduct relating to ethical conduct, conflicts of interest and compliance with the law. Our Code of Conduct and Code of Ethics for our CEO and Senior Financial Personnel can be found on our website at www.thetorocompany.com/corporategovernance. If necessary, we intend to satisfy the disclosure requirements of Item 5.05 of the Current Report on Form 8-K regarding amendments to or waivers from any provision of our Code of Ethics for our CEO and Senior Financial Personnel by posting such information on our website at www.thetorocompany.com/corporategovernance.

Communications with Directors; Complaint Procedures

Shareholders and other interested parties may communicate directly with our Board of Directors, our Board committees, our non-employee directors as a group, our Lead Independent Director, or any other specified individual director in writing by (i) sending a letter addressed to The Toro Company Board of Directors, c/o Vice President, Secretary and General Counsel, 8111 Lyndale Avenue South, Bloomington, Minnesota, 55420-1196, or (ii) sending an email to boardofdirectors@toro.com. Substantive communications, such as corporate governance matters or potential issues relating to accounting, internal controls or other auditing matters, are forwarded by our Vice President, Secretary and General Counsel to the relevant director(s) as appropriate. Communications not requiring the substantive attention of our Board, such as employment inquiries, sales solicitations, donation requests, questions about our products, and other such matters, are handled directly by our Management.

We maintain procedures to receive, retain and treat complaints regarding accounting, internal accounting controls or auditing matters and to allow for the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters. A 24-hour, toll-free confidential ethics hotline and a confidential web-based reporting tool are available for the submission of concerns regarding these and other matters by any employee. Concerns and questions received through these methods relating to accounting, internal accounting controls or auditing matters are promptly brought to the attention of the Chair of the Audit Committee and are handled in accordance with procedures established by the Audit Committee. Complete information regarding our complaint procedures is contained within our Code of Conduct, which may be accessed on our website as noted above.

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PROPOSAL TWO—RATIFICATION OF SELECTION OF

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Selection of Independent Registered Public Accounting Firm

The Audit Committee selects our external auditor. In this regard, the Audit Committee evaluates the qualifications, performance and independence of our external auditor and determines whether to re-engage the current external auditor. As part of its evaluation, the Audit Committee considers, among other factors, the quality and efficiency of the services provided by the external auditor, including the performance, technical expertise, and industry knowledge of the lead audit partner and the audit team assigned to our account; the overall strength and reputation of the external audit firm; the external auditor’s global capabilities relative to our business; the external auditor’s knowledge of our operations; and the external auditor’s fees. Upon consideration of these and other factors, the Audit Committee has selected KPMG LLP, or KPMG, to serve as our external auditor for fiscal 2019. Although it is not required to do so, the Board, as it traditionally has done in the past, is asking our shareholders to ratify the Audit Committee’s selection of KPMG. If our shareholders do not ratify the selection of KPMG, the Audit Committee may reconsider its selection. Even if the selection is ratified by our shareholders, the Audit Committee in its discretion may change the appointment at any time during the year if it determines that such a change would be in the best interests of our Company and our shareholders.

Representatives of KPMG will be present at the annual meeting to answer appropriate questions. They also will have the opportunity to make a statement if they wish to do so.

Audit, Audit-Related, Tax and Other Fees

The following table sets forth the aggregate fees billed to us for professional services rendered by KPMG for fiscal 2018 and fiscal 2017 by category, as described in the footnotes to the table.

 

 

 

Fiscal 2018

 

 

Fiscal 2017

 

Audit Fees(1)

 

$

1,375,200

 

 

$

1,248,875

 

Audit-Related Fees(2)

 

$

55,300

 

 

$

63,425

 

Tax Fees(3)

 

$

225,705

 

 

$

193,246

 

All Other Fees

 

$

0

 

 

$

0

 

 

(1)

Consist of aggregate fees billed, or expected to be billed, for fiscal 2018 and fiscal 2017, respectively, for professional services rendered by KPMG in connection with the audit of our consolidated financial statements included in our Annual Report on Form 10-K, review of our condensed consolidated financial statements included in our Quarterly Reports on Form 10-Q, statutory audits of certain of our international subsidiaries and the audit of internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002.

(2)

Consist of aggregate fees billed for KPMG’s services related to audits of employee benefit plans and various other attestation procedures.

(3)

Consist of aggregate fees billed for professional services rendered by KPMG for permissible domestic and international tax consulting, planning and compliance services. The amount for fiscal 2017 has been revised to reflect additional professional compliance services rendered by KPMG.

Pre-Approval Policies and Procedures

The Audit Committee Charter requires that the Audit Committee review and approve in advance the retention of our external auditor for all types of audit and non-audit services to be performed for us by our external auditor and approve the fees for such services, other than de minimus non-audit services allowed by relevant rules and regulations. All of the services provided to us by KPMG for which we paid Audit Fees, Audit-Related Fees and Tax Fees, as shown in the table above, were pre-approved by the Audit Committee in accordance with this pre-approval policy and procedures.

The Board of Directors Recommends a Vote FOR Ratification of the Selection of

KPMG LLP as Our Independent Registered Public Accounting Firm for Fiscal 2019

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Audit Committee Report

This report is furnished by the Audit Committee with respect to our financial statements for fiscal 2018.

Ultimate responsibility for good corporate governance rests with our Board, whose primary roles and responsibilities involve oversight, counseling and providing direction to our Management in the best long-term interests of Toro and our shareholders. As set forth in its charter, the Audit Committee assists our Board by, among other things, providing oversight of our accounting and financial reporting processes, the audits of our annual financial statements and internal control over financial reporting. A copy of our Audit Committee Charter, which further describes the role and responsibilities of the Audit Committee, is available online at www.thetorocompany.com/corporategovernance.  

Management is primarily responsible for the establishment and maintenance of our accounting and financial reporting processes, including our internal controls, and for the preparation and presentation of complete and accurate financial statements. Our independent registered public accounting firm, KPMG LLP, is responsible for performing an independent audit of our financial statements and internal controls over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (U.S.), or PCAOB, expressing an opinion as to the conformity of the financial statements with generally accepted accounting principles, and expressing an opinion on the effectiveness of our internal control over financial reporting.

In performing its oversight role, the Audit Committee has (i) reviewed and discussed with Management our audited financial statements for fiscal 2018, (ii) discussed with representatives of KPMG the matters required to be discussed by PCAOB Auditing Standard 1301 (Communications with Audit Committees), (iii) received the written disclosures and the letters from KPMG required by applicable requirements of the PCAOB regarding KPMG’s communications with the Audit Committee concerning KPMG’s independence, and (iv) discussed with representatives of KPMG its independence and concluded that it is independent from Toro and its Management.

Based on the review and discussions referred to in the foregoing paragraph and subject to the limitations on its responsibilities set forth in its charter, the Audit Committee recommended to our Board that our audited financial statements for fiscal 2018 be included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2018, for filing with the SEC.

Audit Committee:

Janet K. Cooper (Chair)

Gary L. Ellis

Katherine J. Harless

D. Christian Koch

Michael G. Vale

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PROPOSAL THREE—ADVISORY APPROVAL OF OUR EXECUTIVE COMPENSATION

The Board is providing our shareholders with an advisory vote on our executive compensation pursuant to the Dodd-Frank Wall Street Consumer Protection Act, or the Dodd-Frank Act, and Section 14A of the Exchange Act. This advisory vote, commonly known as a say-on-pay vote, is a non-binding vote on the compensation paid to our named executive officers as set forth in the “Executive Compensation” section of this proxy statement beginning on page 29, including in the “Compensation Discussion and Analysis,” the accompanying compensation tables and the corresponding narrative discussion and footnotes. At the 2018 Annual Meeting of Shareholders held on March 20, 2018, over 95% of the votes cast by our shareholders were in favor of our say-on-pay vote. The Compensation & Human Resources Committee believes that such results affirmed shareholder support of our approach to executive compensation.

Our executive compensation program is generally designed to attract, retain, motivate and reward highly qualified and talented executive officers, including our named executive officers, that will enable us to perform better than our competitors and drive long-term shareholder value. The underlying core principles of our executive compensation program include (i) aligning the interests of our executives with those of our shareholders and linking pay to performance by providing compensation opportunities that are tied directly to the achievement of financial performance goals and long-term stock price performance and (ii) providing competitive compensation opportunities targeted at the market 50th percentile for both individual elements of compensation and total direct compensation at target levels of financial performance, which we believe allows us to attract and retain the necessary executive talent while motivating and rewarding the accomplishment of annual and long-term financial performance goals and maintaining an appropriate cost structure. The “Compensation Discussion and Analysis,” beginning on page 29, describes our executive compensation program and the executive compensation decisions made by the Compensation & Human Resources Committee in fiscal 2018 in more detail. Important considerations include:

 

A substantial portion of total executive compensation is linked directly to performance and requires that minimum, or threshold, levels of performance be met in order for there to be any payout.

 

All incentive compensation awards, including annual and long-term equity and incentive awards, are subject to a “clawback” mechanism.

 

None of our executive officers have employment or severance agreements or arrangements, except as provided for in our change in control severance compensation policy, or CIC policy.

 

We do not provide tax “gross-up” payments under our CIC policy or in connection with any annual or long-term compensation, benefits or perquisites provided to our executive officers.

 

Our executive officers receive only modest perquisites.

 

We maintain stock ownership guidelines for each of our executive officers.

 

Our insider trading policy prohibits executive officers and directors from purchasing Toro securities on margin, borrowing against any account in which Toro securities are held, or pledging Toro securities as collateral for a loan.

 

Our insider trading policy prohibits employees, executive officers and directors from purchasing any financial instruments (including without limitation collars, equity swaps, prepaid variable forward contracts, and exchange funds) that are designed to hedge or offset any decrease in the market value of Toro securities.

 

We have an independent Compensation & Human Resources Committee.

 

We utilize an independent external compensation consultant.

We believe that our executive compensation objectives and core principles have resulted in an executive compensation program and related decisions that have appropriately incentivized the achievement of financial goals and produced financial results that have benefited our Company and our shareholders and are expected to drive long-term shareholder value.

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Accordingly, the Board recommends that our shareholders vote in favor of the say-on-pay vote as set forth in the following resolution:

RESOLVED, that our shareholders approve, on an advisory basis, the compensation paid to our named executive officers, as disclosed pursuant to the compensation disclosure rules of the SEC, including in the “Compensation Discussion and Analysis,” the accompanying compensation tables and the corresponding narrative discussion and footnotes, and any related material disclosed in this proxy statement.

Shareholders are not voting to approve or disapprove the Board’s recommendation. As this is an advisory vote, the outcome of the vote is not binding on us with respect to future executive compensation decisions, including those relating to our named executive officers, or otherwise. Our Compensation & Human Resources Committee and Board expect to take into account the outcome of the vote when considering future executive compensation decisions.

In accordance with the result of the advisory vote on the frequency of the say-on-pay vote, which was conducted at the Company’s 2017 Annual Meeting of Shareholders, the Board of Directors has determined that the Company will continue to conduct an executive compensation advisory vote on an annual basis. Accordingly, the next say-on-pay vote will occur in 2020 in connection with our 2020 Annual Meeting of Shareholders.

The Board of Directors Recommends a Vote FOR Approval, on an
Advisory Basis, of our Executive Compensation, or Say-On-Pay Vote.

 

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EXECUTIVE COMPENSATION

Compensation & Human Resources Committee Report

The Compensation & Human Resources Committee has reviewed and discussed the “Compensation Discussion and Analysis” with Management and recommended to the Board that the “Compensation Discussion and Analysis” be included in this proxy statement and in our Annual Report on Form 10-K for the fiscal year ended October 31, 2018.

Compensation & Human Resources Committee:

Christopher A. Twomey (Chair)

Robert C. Buhrmaster

Jeffrey M. Ettinger

James C. O‘Rourke

Gregg W. Steinhafel

Compensation Discussion and Analysis

Overview.    In this Compensation Discussion and Analysis, or CD&A, we describe key principles and approaches used to determine elements of compensation paid or awarded to and earned by the following named executive officers whose compensation is set forth in the “Summary Compensation Table” beginning on page 44.

 

Richard M. Olson, Chairman of the Board, President and CEO;

 

Renee J. Peterson, Vice President, Treasurer and Chief Financial Officer;

 

William E. Brown, Jr., Group Vice President, Residential and Contractor Businesses;

 

Timothy P. Dordell, Vice President, Secretary and General Counsel; and

 

Bradley A. Hamilton, Group Vice President, Commercial, International and Irrigation Businesses.

Michael J. Hoffman, former Executive Chairman of the Board, retired at the beginning of the fiscal year on November 3, 2017. At that time, Mr. Olson became Chairman of the Board in addition to his previous role as President and CEO. Mr. Brown retired from our Company on January 11, 2019.

This CD&A should be read in conjunction with the accompanying compensation tables, corresponding footnotes and narrative discussion, as they provide information and context to the compensation disclosures. Additionally, this CD&A should be read in conjunction with our advisory vote on executive compensation, which can be found under “Proposal Three—Advisory Approval of our Executive Compensation” beginning on page 27.

Executive Compensation Program Objectives.    Our guiding compensation philosophy is to maintain an executive compensation program that allows us to attract, retain, motivate and reward highly qualified and talented executive officers that will enable us to perform better than our competitors and drive long-term shareholder value. The following core principles provide a framework for our executive compensation program:

 

Align interests of executive officers with shareholder interests;

 

Link pay to performance; and

 

Provide competitive target total direct compensation opportunities.

Highlights of Compensation Practices.    At our 2018 Annual Meeting of Shareholders, our shareholders had the opportunity to vote on an advisory say-on-pay proposal and over 95% of the votes cast were in favor of such proposal. The Compensation & Human Resources Committee believes that such results affirmed shareholder support of our approach to executive compensation and did not believe it was necessary to, and, therefore, did not, make any significant changes to our executive compensation program in fiscal 2018.

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What We Do:

We link a substantial portion of total executive compensation directly to performance and require that minimum, or threshold, levels of performance be met in order for there to be any payout.

We utilize a mix of earnings, revenue and asset-based performance measures for our annual cash incentive awards and long-term performance share awards.

We cap annual cash incentive award and long-term performance share award payouts at 200% of the target award.

We utilize three-year performance share awards, the payouts of which vary based on performance and are contingent upon the achievement of three-year performance goals.

We utilize stock options, the value of which is contingent upon long-term stock price performance since stock options only have value if the stock price at the time of exercise exceeds the exercise price; the exercise price reflects the closing price of our common stock, as reported on the NYSE, on the date of grant.

We impose a minimum vesting requirement of three years or more for our time-based equity awards.

We maintain stock ownership guidelines for our executive officers.

We include clawback provisions within our annual cash incentive and long-term incentive awards.

We have an independent Compensation & Human Resources Committee which is advised by an independent external compensation consultant.

We provide our shareholders with the opportunity to cast an advisory say-on-pay vote on an annual basis.

 

What We Don’t Do:

 

We do not allow repricing or exchange of any equity awards without shareholder approval.

 

We do not have individual employment agreements with any executive officer.

 

We do not provide excessive perquisites.

 

We do not provide gross-up payments to cover personal income taxes or excise taxes that pertain to executive or severance benefits.

 

We do not allow hedging or pledging of Toro securities by our executive officers.

Pay Levels/Mix.    A significant portion of our executive officers’ target total direct compensation is comprised of short- and long-term variable performance-based, or at risk, compensation to directly link their pay to performance. Generally, higher level executive positions have a higher level of pay that is performance-based. For fiscal 2018:

 

82% of the target total direct compensation for our Chairman and CEO was performance-based, and

 

67% of the target total direct compensation for our other named executive officers was performance-based.

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Short-term variable compensation is in the form of annual cash incentive awards. Long-term variable compensation is in the form of stock options that vest over three years and three-year performance share awards. We target pay opportunities within a competitive range of the market 50th percentile for each element of compensation and in total; however, variance around the market 50th percentile is dependent on a number of factors. We also provide our executive officers with modest perquisites and market competitive retirement and benefit plans.

Fiscal 2018 Financial Highlights.    Below are brief financial highlights for fiscal 2018.

 

Financial Highlights

 

Fiscal 2017

 

 

Fiscal 2018

 

 

Change

 

Net sales (in millions)

 

$

2,505.2

 

 

$

2,618.7

 

 

+4.5%

 

Diluted net EPS

 

$

2.41

 

 

$

2.50

 

 

+3.7%

 

Corporate average net assets turns*

 

 

2.3953

 

 

 

2.4442

 

 

Increase of 0.0467 points

 

Quarterly cash dividend

 

$

0.175

 

 

$

0.20