BIO-TECHNE Corp TECH

Removed from 2024

• * Mr. Kelderman was appointed by the Board to be Chief Operating Officer effective on November 1, 2023, and Chief Executive Officer effective February 1, 2024, replacing Mr. Kummeth who transitioned to Senior Advisor until his retirement on July 1, 2024.
• Dr. McManus was hired to succeed Mr. Kelderman as President – Diagnostics and Genomics effective January 8, 2024.
• | 2024 Proxy Statement 38
• The Company ended the year with:
• 1% ORGANIC REVENUE GROWTH $1.159 BILLION TOTAL REVENUES $130 MILLION CAPITAL RETURNED TO OUR SHAREHOLDERS
• In order to produce such strong results relative to our peers, we emphasized operational excellence, conservative cost management, and prudent investment.
• Our record of delivering strong shareholder returns reflects our commitment to creating long-term shareholder value.
• Fiscal Year 2024 Incentives for Executive Employees
• Our Compensation Committee aligns pay with performance and strategic initiatives by tying a significant portion of our long- and short-term incentive awards to rigorous revenue-and earnings-based financial goals.
• Despite a difficult economic macro-environment, our leadership, and our entire team, delivered differentiated performance against our industry peers in fiscal 2024.
• As discussed in “Fiscal Year 2024 Target Bonus Earned Incentives” on page 50, Bio-Techne met organic revenue growth thresholds on a Company-wide basis, as well as within its Protein Sciences and Diagnostics and Genomics Segments; additionally, the Diagnostics and Genomics Segment met its operating margin threshold, though this threshold was not met on a Company-wide basis or by the Protein Sciences Segment.
• | 2024 Proxy Statement 39
• The Compensation Committee and management took the feedback from its shareholders as well as proxy advisors ISS and Glass Lewis as a call to action, and committed to improved transparency as well as a rigorous evaluation of shareholder feedback.
• Accordingly, during a fiscal 2024 the Compensation Committee and management embarked on a comprehensive review and partial re-design of Bio-Techne’s executive compensation program, leading to a number of changes applicable for fiscal 2025.
• The below timeline highlights the Company’s engagement efforts, as well as how the Compensation Committee considered shareholder feedback and took action.
• Further below are the detailed analyses, considerations and actions undertaken by the Committee.
• Timeline of Shareholder Engagement and Compensation Committee Actions
• 2023 June 23 – July 26 Shareholder engagement discussions (representatives of 30% of shares) • Shareholders voice concerns regarding certain aspects of executive compensation program August 3 Compensation Committee meeting • Confirm FY23 annual bonus and LTI results • Set executive compensation for FY24 September 6 Compensation Committee meeting • Approve CD&A in proxy September 13 Bio-Techne publishes 2023 proxy September 15 Compensation Committee meeting • Set three-year performance grant targets October 4 Compensation Committee meeting • Approve COO and CEO compensation package for Mr. Kelderman (subject to acceptance) • Consider and evaluate one-time grants for senior executives Mr. Hippel and Mr. Geist Glass Lewis proxy analysis October 6 ISS proxy analysis October 16 – 22 Shareholder engagement discussions (representatives of 39% of shares) • Several shareholders advise they would vote against Say on Pay • Management addresses feedback from shareholders, as well as ISS and Glass Lewis, regarding executive compensation concerns October 19 Kim Kelderman appointed by Board to succeed Chuck Kummeth as CEO October 26 Annual Shareholder Meeting
• 2024 January 24 Compensation Committee Meeting • Evaluate rTSR performance • Discuss inclusion of cap on rTSR (for 3-year LTI) where TSR is negative • Evaluate ROIC as a measure for executive compensation • Evaluate use of ESG/Sustainability metrics as a measure for executive compensation • Evaluate mix of fixed vs. at-risk compensation • Analyze the bands of “threshold – target – max” payout range for annual bonus April 23 Compensation Committee Meeting • Discussed and Approve changes to peer group for executive compensation • Discussed and Approve rTSR comparator group • Further discussed and Approved cap on rTSR (for 3-year LTI) when TSR is negative June 14 Compensation Committee meeting • Discuss and Approve update to mix of executive compensation equity compensation, weighted as follows: • 25% time-vesting RSUs • 25% time-vesting Options • 50% performance-vesting RSUs
• | 2024 Proxy Statement 40
• What Shareholders said: Shareholders were concerned that Mr. Kummeth’s CEO compensation did not align pay with performance, and requested additional insight regarding his compensation, including the rationale for the performance grant he received in fiscal 2023.
• How we responded: • We committed to improved transparency regarding the rationale for Mr. Kummeth’s compensation package • The structure of Mr. Kummeth’s package sought to align pay with Company performance, specifically continued growth, and to ensure motivation and retention for the two-year period that the Board had to identify and appoint a successor • As the pay mix was predominantly at-risk compensation consisting of performance-vesting options, it was designed to incentivize sustainable, profitable growth both during the measurement period and beyond • The Committee believes that this package was successful because of Mr. Kummeth’s and the Company’s performance remained strong throughout the entirety of a potentially disruptive, and ultimately successful and smooth CEO transition.
• • The Committee does not intend to implement a compensation package that deviates from the design applicable to other NEOs absent compelling circumstances Bio-Techne announced on August 4, 2022, that Mr. Kummeth would be retiring at the end of fiscal 2024.
• By providing ample advance notice, Mr. Kummeth ensured that the Board would have sufficient time to identify and evaluate potential successors and facilitate a smooth and orderly handover of responsibility.
• The Compensation Committee and its external compensation consultant of a situation-specific compensation arrangement designed to secure Mr. Kummeth’s continued service until and through the next CEO commenced employment, in order to ensure an orderly, planful and smooth transition of the role.
• The overriding goal of this compensation package was to retain Mr. Kummeth’s active services through the end of fiscal 2024, and to provide a strong incentive for continuing to guide the Company to outstanding performance until his successor could be selected and step into the role.
• Mr. Kummeth’s salary and target bonus were set to remain flat through to his retirement.
• Mr. Kummeth’s time-vested equity consisted of time-vested RSU grants in the amount of $5 million for each of fiscal 2023 and fiscal 2024, and which was consistent with the amount of time-based equity he received in fiscal 2022.
• The greatest percentage of Mr. Kummeth’s compensation package for 2023 and 2024 came in the form of performance-vesting options that the Committee felt aligned pay with performance during a potentially distracting transition.
• These performance-vesting options were timed to align with his planned exit, and were spread across two discrete tranches valued by the Committee at $20 million.
• The first half of the performance-vesting options were eligible to vest based on fiscal 2023 performance, and the other half were eligible to vest based on fiscal 2024 performance.
• Both tranches could only vest if the Company hit organic revenue goals in line with the other NEOs.
• The Committee’s rationale for this shorter time period was that such a structure ensured that a single underperforming year would not render the entire award unachievable and undermine the retention and motivation objectives inherent in the grant.
• Further, even if the stock options vested, they would only have meaningful value if there was significant appreciation in the value of Bio-Techne common stock.
• Notably, at the time this portion of Mr. Kummeth’s compensation was negotiated, the preliminary calculations estimated the option award to be worth approximately $20 million for the two years, which would have been in line with his fiscal 2022 equity grant value of $10.3 million on an annualized basis.
• Instead, the steady increase in the Black-Scholes value of an option drove up the overall value of Mr. Kummeth’s options by approximately $4 million and which was a cause for shareholder concern.
• The Compensation Committee believes that the design and structure of Mr. Kummeth’s compensation was ultimately effective, as his and the Company’s performance remained strong relative to peers despite considerable challenges to the macro-environment, and, since the Company was able to execute a successful and smooth CEO transition.
• Because the Company unfortunately did not attain the threshold organic revenue targets required for either of Mr. Kummeth’s performance-based options to vest, no payout was awarded.
• As such, the realized value attributable to the award was $0.
• What Shareholders said: Shareholders were concerned that the inconsistency in the design of Mr. Kummeth’s CEO package might result in misalignment with the other NEOs.
• How we responded: • We committed to improved transparency • The Compensation Committee believed that it would serve shareholder interests with compensation tailored to circumstances unique to Mr. Kummeth • The Compensation Committee considered shareholder concerns in aligning the design of Mr. Kelderman’s CEO compensation with the other NEOs The Compensation Committee considered this feedback when it structured Mr. Kelderman’s CEO compensation.
• While we believe that Mr. Kummeth’s transition and retirement warranted an approach that was tailored to the circumstances, and note that Mr. Kummeth remained actively engaged during the CEO selection and transition process, the Compensation Committee applied the same design and structure to Mr. Kelderman’s CEO compensation as it applied to compensation for the other NEOs.
• | 2024 Proxy Statement 41
• What Shareholders said: Shareholders recommended we consider adding performance metrics in our executive compensation program, such as return on invested capital (ROIC) or sustainability objectives.
• How we Responded: • The Compensation Committee reviewed this recommendation during fiscal 2024 • The Committee determined that an ROIC measure would risk disincentivizing strategically beneficial investments and undermine long-term shareholder value • The Committee will continue to evaluate the viability of these and other measures in future years While the feedback provided by shareholders on this subject related primarily to the Company’s measures for long-term incentive compensation, the Compensation Committee opted to review the design of both our short- and long-term awards.
• Specifically, the Compensation Committee sought data on its peers’ experience using either ROIC or sustainability measures to determine whether their experience offered insight as to how such a measure could be modeled at Bio-Techne.
• This analysis provided insufficient data, as only a small minority of the Company’s peers used ROIC, and that ESG goals were also infrequently and inconsistently used.
• The Committee further evaluated how either of these measures may impact and incentivize performance, and determined that neither measure was appropriate at this time.
• The Compensation Committee concluded that an ROIC metric could disincentivize risk-taking in line with the Company’s strategy, or could incentivize taking risks misaligned with long term value creation.
• With respect to ESG goals, the Committee felt that its existing structure already aligned with long-term, sustainable, value-creation, and that adding narrow ESG goals might disrupt or distract from the broader strategy of growth and sustainability.
• The Committee has committed to continue to assess the potential inclusion of either or both of these measures in future years if aligned with Company objectives and shareholder value creation.
• What Shareholders said: Shareholders stated that the annual cash bonus payout curve seemed narrow, leading to potential bonus payouts that are disproportionate to actual achievements.
• How we Responded: • The Compensation Committee reviewed this recommendation during fiscal 2024 • The Committee implemented an expanded curve, with a lower threshold and a higher maximum, serving shareholder interests in retaining strong leadership while motivating exceptional performance The Compensation Committee evaluated its fiscal 2023 curve of 97% - 103% and agreed that these payout bands disproportionately rewarded overperformance, and simultaneously did not sufficiently reward the Company’s differentiated actual performance relative to its peers in the face of significant industry headwinds.
• To better align pay with performance as well as to simultaneously drive retention and exceptional performance, the Compensation Committee implemented a wider payout band effective for fiscal 2025.
• For external data points, the Compensation Committee analyzed the payout curves used by the Company’s peers for these same measures, and noted that peers utilized wider curves with lower thresholds and more challenging maximum thresholds.
• Accordingly, the Committee adopted for fiscal 2025 a payout range for organic revenue measure of 93% for threshold and 105% for maximum; and for adjusted operating margin, 92% for threshold and 108% for maximum.
• What Shareholders said: Shareholders requested greater detail regarding the design of the rTSR input into the performance-vesting portion of fiscal 2024 long-term incentive compensation.
• How we Responded: • We committed to improved transparency • See “Introducing the rTSR Measure for Fiscal 2024 Performance-Based Long Term Incentives” on page 51 • We have provided details regarding changes to the rTSR measure that will be effective in fiscal 2025 Consistent with our commitment to providing transparency on our executive compensation philosophy and structure, we are providing a detailed overview of our rTSR metric found in “Introducing the rTSR Measure for Fiscal 2024 Performance-Based Long-Term Incentives” on page 51, as well as changes implemented for fiscal 2025 in Preview of Executive Compensation Changes for Fiscal Year 2025 on page 55.
• What Shareholders said: Shareholders asked that the Company consider increasing the percentage of at-risk or variable compensation.
• How we Responded: • The Compensation Committee reviewed this recommendation during fiscal 2024 • The Committee determined that executive compensation had an appropriate mix of at-risk and variable compensation dependent on company performance The Compensation Committee worked with its compensation consultant to evaluate whether the pay mix for its executive officers was structured to achieve long term shareholder value through exceptional performance and retaining top leadership talent.
• This analysis anchored on the fact that Mr. Kelderman’s at-risk/variable CEO compensation was 89%, meaning that this percentage of his compensation depended on current and future company growth, through bonus payment, future value of options, etc. Similarly, the other NEOs average percentage of at-risk/variable compensation was 82%.
• As additional data points, the Compensation Committee benchmarked these data against its peers, and found that Bio-Techne’s CEO’s and other NEOs’ percentages of at-risk/variable compensation was significantly greater than its peers.
• Accordingly, based on its comprehensive evaluation and competitive position on executive compensation, the Committee did not feel an increase in at-risk/variable compensation was warranted.
• Base Salary • Set to be competitive in the marketplace • Adjusted when the Compensation Committee determines an increase is warranted due to a change in responsibilities, demonstrated performance, or relevant market data Short-Term Incentives • Earned based on performance against goals for Company-wide (and for some executives, segment) organic revenue and adjusted operating income Long-Term Incentives • Incentivize executives to deliver long-term shareholder value • Provide a retention vehicle • Typically in the form of share options and RSUs
• • Note that retiring CEO Mr. Kummeth did not receive the Long-Term Equity Awards listed in row 4, as the structure of his package during the CEO transition included base salary, annual cash inventive, restricted stock grant, and the two-year performance grants.
• Our executive compensation packages are heavily weighted to variable, at-risk pay in order to align pay with performance, as shown below.
• The Compensation Committee does not have any formal policies for allocating total compensation among the various components.
• Instead, the Compensation Committee uses its judgment, in consultation with its independent compensation consultant, to establish a mix of short-term and long-term incentive compensation, and cash and equity compensation for each NEO.
• The balance among the components may change from year to year based on corporate strategy and objectives, among other considerations.
• The below diagram includes Mr. Kelderman’s annualized CEO pay mix along with Mr. Kummeth’s pay mix.
• Due to his retirement and support during the CEO transition, Mr. Kummeth’s performance equity grants could have vested in two one-year periods, but ultimately did not vest.
• Sound financial goals.
• No repricing of stock options or stock appreciation rights without shareholder approval.
• Mitigate undue risk.
• Engage independent consultants.
• The Compensation Committee sets targets for our incentive plans based on these objectives.
• Key Considerations in Development of Annual and Long-Term Goals
• Business Environment Competitive Factors Company-Specific Factors • Market outlook • Industry trends • Historical trends • International trends • Competitive landscape • Historical performance • Analyst expectations • Market growth • Strategic initiatives • Tax policy • Capital deployment opportunities • Recent capital deployment decisions
• of the Company’s place in the market than revenue alone.
• This is especially true because Bio-Techne is a high-growth company.