Supplemental Clawback Policy effective October 2, 2023
Exhibit 10.1
ESCO Technologies Inc.
SUPPLEMENTAL CLAWBACK POLICY
(Effective October 2, 2023)
Introduction
The Board of Directors (the “Board”) of ESCO Technologies Inc. (the “Company”) believes it is in the best interests of the Company and its stockholders to create and maintain a culture that reaffirms the high standards of business ethics embodied in the Company’s Code of Business Conduct and Ethics and that reinforces the Company’s pay for performance compensation philosophy to further align management with the interests of stockholders over the long term. The Human Resources and Compensation Committee (the “Committee”) has therefore adopted this supplemental policy (the “Policy”) to provide for the recoupment of certain executive compensation in the event of an accounting restatement resulting from material noncompliance with financial reporting requirements under the federal securities laws. For the avoidance of doubt, this Policy constitutes “clawback provisions” for purposes of the Company’s 2018 Omnibus Incentive Plan, as amended and restated effective February 3, 2023 (the “Omnibus Plan”, which term shall include any future amendments, restatements, modifications or supplements thereto as well as any successor incentive compensation plan), and the awards heretofore or hereafter issued pursuant thereto. This Policy is designed to comply with Section 10D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the listing standards of New York Stock Exchange LLC and its affiliates (collectively, the “NYSE”) or any other national securities exchange on which the Company’s securities are listed.
Administration
This Policy shall be administered by the Board or, if so designated by the Board, the Committee, in which case references herein to the Board shall be deemed references to the Committee. Any determinations made by the Board shall be final and binding on all affected individuals.
Covered Executives
This Policy applies to the Company’s current and former executive officers, as determined by the Board in accordance with Section 10D of the Exchange Act, Rule 10D-1 thereunder and the listing standards of the NYSE or any other national securities exchange on which the Company’s securities are listed (each, a “Covered Executive” and collectively, “Covered Executives”).
Recoupment; Accounting Restatement
In the event the Company is required to prepare an accounting restatement of its financial statements due to the Company’s material noncompliance with any financial reporting requirement under the federal securities laws, the Board shall require prompt reimbursement or forfeiture of any excess Incentive-Based Compensation received by any Covered Executive during the three completed fiscal years immediately preceding the date on which the Company is required to prepare an accounting restatement, in addition to any transition period (that results from any change in the Company’s fiscal year) within or immediately following such three completed fiscal years (the “Recoupment Amount”). The Recoupment Amount shall be computed without regard to any taxes paid by the Covered Executive with respect to such excess Incentive-Based Compensation. Incentive-Based Compensation is deemed received in the Company’s fiscal period during which the Financial Reporting Measure specified in the Incentive-Based Compensation award is attained, even if the payment or grant of the Incentive-Based Compensation occurs after the end of that period.
Incentive-Based Compensation
For purposes of this Policy, “Incentive-Based Compensation” means any of the following; provided that such compensation is granted, earned, or vested based wholly or in part upon the attainment of a “Financial Reporting Measure” (as defined below):
| · | Annual bonuses and other short- and long-term cash incentives; |
| · | Stock options; |
| · | Stock appreciation rights; |
| · | Restricted stock; |
| · | Restricted stock units; |
| · | Performance shares; |
| · | Performance share units; and |
| · | Any dividend equivalents or other accruals or payments based on any of the above. |
A “Financial Reporting Measure” is a measure that is determined and presented in accordance with the accounting principles used in preparing the Company’s financial statements, including any measure that is derived wholly or in part from such measure, including but not limited to:
| · | Company stock price; |
| · | Total shareholder return (“TSR”) and relative TSR; |
| · | Revenues; |
| · | Net income; |
| · | Earnings before interest and taxes (“EBIT”); |
| · | EBIT margin or growth; |
| · | Earnings before interest, taxes, depreciation, and amortization (“EBITDA”); |
| · | EBITDA margin or growth; |
| · | Funds from operations; |
| · | Liquidity measures such as working capital or operating cash flow; |
| · | Return measures such as return on invested capital or return on assets; |
| · | Earnings measures such as earnings per share; and |
| · | Such other financial performance criteria as defined and set forth in the Omnibus Plan. |
Excess Incentive-Based Compensation: Amount Subject to Recovery
The amount to be recovered will be the excess (if any) of the Incentive-Based Compensation paid to the Covered Executive based on the erroneous data over the Incentive-Based Compensation that would have been paid to the Covered Executive had it been based on the restated results, as determined by the Board.
If the Board cannot determine the amount of excess Incentive-Based Compensation received by the Covered Executive directly from the information in the accounting restatement, then it will make its determination based on a reasonable estimate of the effect of the accounting restatement.
Method of Recoupment
The Board will determine, in its sole discretion, the method for recouping Incentive-Based Compensation hereunder which may include, without limitation:
| · | cancelling outstanding vested or unvested awards or any portion thereof; |
| · | requiring reimbursement of cash Incentive-Based Compensation previously paid; |
| · | seeking recovery of any gain realized on the vesting, exercise, settlement, sale, transfer, or other disposition of any equity-based awards; |
| · | seeking recovery of equity issued pursuant to any equity-based award and still held; |
| · | offsetting the recouped amount from any compensation otherwise owed by the Company to the Covered Executive; and/or |
| · | taking any other remedial and recovery action permitted by law, as determined by the Board. |
No Indemnification
The Company shall not indemnify any Covered Executive against the loss of any excess Incentive-Based Compensation.
Interpretation
The Board is authorized to interpret and construe this Policy and to make all determinations necessary, appropriate, or advisable for the administration of this Policy. It is intended that this Policy be interpreted in a manner that is consistent with the requirements of Section 10D of the Exchange Act and any applicable rules or standards heretofore or hereafter proposed or adopted by the Securities and Exchange Commission (the “SEC”), the NYSE or any national securities exchange on which the Company’s securities are listed (collectively, the “Applicable Rules”).
Effective Date
This Policy shall be effective as of the date first set forth above (the “Effective Date”) and shall apply to all Incentive-Based Compensation that is received by Covered Executives on or after the Effective Date.
Amendment; Termination; Applicable Rules
The Board may amend or terminate this Policy from time to time in its discretion. This Policy shall be interpreted in a manner that is consistent with any Applicable Rule and shall otherwise be interpreted (including in the determination of amounts recoverable) in the business judgment of the Board. To the extent the Applicable Rules require recovery of Incentive-Based Compensation in additional circumstances beyond those specified in this Policy, nothing in this Policy shall be deemed to limit or restrict the right or obligation of the Company to recover Incentive-Based Compensation to the fullest extent required by the Applicable Rules. This Policy shall be deemed to be automatically amended, as of the date the Applicable Rules become effective with respect to the Company, to the extent required for this Policy to comply with the Applicable Rules.
Other Recoupment Rights
The Board intends that this Policy will be applied to the fullest extent of the law. The Board may require that any employment agreement, equity award agreement, stock options award agreement, long term cash incentive award agreement, performance-accelerated restricted shares award agreement, stock appreciation rights award agreement, or other similar agreement or instrument entered into on or after the Effective Date shall, as a condition to the grant of any benefit thereunder, require a Covered Executive to agree to abide by the terms of this Policy. Any right of recoupment under this Policy is in addition to, and not in lieu of, any other remedies or rights of recoupment that may be available to the Company pursuant to the terms of any similar policy in any compensation plan or policy, including, without limitation, that certain Compensation Recovery Policy adopted by the Committee on February 4, 2010, employment agreement, equity award agreement, stock options award agreement, long term cash incentive award agreement, performance-accelerated restricted shares award agreement, stock appreciation rights award agreement, or other similar agreement or instrument and any other legal remedies available to the Company.
Impracticability
The Board shall recover any excess Incentive-Based Compensation in accordance with this Policy unless such recovery would be impracticable, as determined by the Board in accordance with the Applicable Rules.
Successors
This Policy shall be binding and enforceable against all Covered Executives and their beneficiaries, heirs, executors, administrators or other legal representatives.
