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In 2022, the Shyft Group team flexed in the face of record inflation, prolonged supply chain standstills, and labor challenges. While a difficult year, our team ended on a high note, surpassing $1 billion in annual revenue for the first time and achieving our third most profitable year. We accomplished this through the strong performance of our Specialty Vehicles segment and the innovative, exceptional work our employees deliver day in and day out.

Our combination of industry-leading brands, robust product portfolio, financial strength, and world-class team members also allowed the business to increase our strategic investment in electrification. Our Blue Arc^TM EV initiative unveiled in early 2022 represents Shyft’s commitment to a strong, green future as we lead the evolution of commercial fleets toward zero-emission vehicles.

At Shyft, we are charging forward positioned for new growth, profitability, and industry leadership.

It is our pleasure to invite you to join us for The Shyft Group, Inc. 2023 Annual Meeting of Shareholders, which will be webcast on Wednesday, May 17, 2023, at 10:00 a.m. Eastern Time.

The annual meeting will be conducted in a virtual-only format. Information regarding attending the virtual annual meeting can be found in the proxy statement. 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 of the annual meeting and proxy statement to follow.

Thank you for your continued support of Shyft.

Sincerely,

Cautionary note regarding forward-looking statements.

This document contains information that may constitute “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. We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in those sections. Generally, we have identified such forward-looking statements by using words such as “believe,” “expect,” “intend,” “potential,” “future,” “may,” “will,” “should,” and similar expressions or by using future dates in connection with any discussion of, among other things, the construction or operation of new or existing facilities, operating performance, trends, events or developments that we expect or anticipate will occur in the future, statements relating to volume changes, share of sales and earnings per share changes, anticipated cost savings, potential capital and operational cash improvements, anticipated disruptions to our operations and industry due to the COVID-19 pandemic, changes in supply and demand conditions and prices for our products, trade duties and other aspects of trade policy, statements regarding our future strategies, products and innovations, and statements expressing general views about future operating results. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. Forward-looking statements are not historical facts, but instead represent only the Company’s beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside of the Company’s control. It is possible that the Company’s actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Management believes that these forward-looking statements are reasonable as of the time made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company’s historical experience and our present expectations or projections. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company’s historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to the risks and uncertainties described in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, and those described from time to time in our future reports filed with the Securities and Exchange Commission.

Shyft does not incorporate into this document the contents of any website or the documents referred to in this proxy statement.

Throughout this proxy statement, we refer to certain non-GAAP measures, including Adjusted EBITDA, and free cash flow. See the reconciliation to the corresponding GAAP measure set forth in Appendix A of this proxy statement.

This summary highlights information contained elsewhere in this proxy statement. It does not contain all the information that you should consider. Please read this entire proxy statement carefully before voting.

Shyft is overseen by directors with diverse skills, qualities, attributes and experiences that effectively address the Company’s evolving needs and represent the best interests of Shyft’s shareholders.

 

Shyft’s TSR was at the 56th percentile relative to other companies in the TSR Peer Group (as defined on page 52) for the performance periods applicable to performance-based restricted stock units (“PSUs”) eligible to vest in 2022 and Shyft achieved cumulative GAAP net income of $172 million over the performance period. As a result, PSUs vested at 200% of the GAAP net income target and 124% of the TSR target for each of our NEOs who had PSUs vesting in 2022.

 

For more information on our executive compensation program and the 2022 compensation of our named executive officers, see the section titled “Compensation Discussion and Analysis” beginning on page 39.

We proactively engage with shareholders throughout the year to better understand their priorities and perspectives on significant issues, including company performance and strategy, executive compensation, corporate governance, shareholder proposals, and environmental and social matters. Members of our senior management lead our shareholder engagement and Shyft and its Board consider feedback and insights from shareholders and other stakeholders as we review our practices and disclosures.

 

Shyft operates under a corporate governance framework designed to be a flexible working structure for principled actions, effective decision-making, and appropriate monitoring of both compliance and performance. Shyft’s key governance documents, including our Corporate Governance Guidelines are available at https://theshyftgroup.com/about-us/policies-charters/.

 

Shyft’s Board oversees the CEO and other senior management in the competent and ethical operation of Shyft and seeks to ensure that the long-term interests of shareholders are being served. Directors are expected to take a proactive, focused approach to their position to ensure Shyft is committed to business success through the maintenance of high standards of responsibility and ethics.

Shyft’s Corporate Governance Principles require a majority of Board members to be independent. The Board has determined that all Board members, other than Mr. Adams, are independent under applicable rules of the Nasdaq. Additionally, the Board determined that Mr. Ronald Harbour, who retired from the Board at the conclusion of his then-current term in 2022, was independent under applicable rules of the Nasdaq.

Shyft’s Board has a standing Audit Committee (the “Audit Committee”), Human Resources and Compensation Committee (the “Compensation Committee”), and Governance and Sustainability Committee (the “Governance Committee”). The Board has determined that all committee members are independent under applicable Nasdaq and Securities and Exchange Commission (“SEC”) rules for committee memberships, and that each member of the Audit Committee also meets the additional independence criteria set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Shyft regularly reviews the Board’s leadership structure and the responsibilities and composition of its standing committees. The structure and composition of Shyft’s Board and its committees are intended to leverage the diverse perspectives of the Board members and promote effective oversight.

The Board believes its current leadership structure, in which the roles of Chair and CEO are separated, best serves Shyft’s overall corporate structure and the Board’s ability to carry out its roles and responsibilities on behalf of Shyft’s shareholders, including its oversight of management and corporate governance matters. The Board also believes that the current structure allows our CEO to focus on managing Shyft, while leveraging our independent Chair’s experience to drive accountability at the Board level.

The current membership and function of each standing committee is described on the following page. Each committee operates under a written charter adopted by the Board, which is available at https://theshyftgroup.com/about-us/policies-charters/. Each committee reviews and assesses its charter annually.

The Board has oversight responsibility regarding the assessment of the major risks inherent in our business. Accordingly, the Board reviews management’s efforts to address and mitigate risks, including strategic, regulatory, compliance, operational, financial, reputational, and cybersecurity. The Board reviews risk in the context of discussions and management reports at each regular Board meeting. The Board also evaluates the risks inherent in significant transactions. While the Board is ultimately responsible for risk oversight, the committees of the Board assist it in fulfilling its oversight responsibilities. The Board’s committees do so by considering the risks within their respective areas of expertise.

 

At each regular Board meeting, the Board receives reports on significant committee activities, including oversight of risks addressed by each committee. In addition, risk management is incorporated in the Company’s annual strategic planning process, which is periodically reviewed by the Board. The Board also periodically reviews with management the Company’s insurance program and policies, including our cyber insurance coverage.

Management plays an important role in implementing the processes and procedures designed to mitigate risk and assist the Board in the exercise of its oversight function. In addition to the daily risk management processes of management, we use an enterprise risk management prioritization approach, involving risk ranking and assessment of management progress in monitoring and mitigating key identified risks, including financial, operational, compliance, and reputational risks.

Compliance and Business Conduct

Our Chief Legal and Compliance Officer oversees our corporate ethics and compliance program, our Code of Conduct training, and compliance with Company policies, standards and procedures. Our Chief Legal and Compliance Officer, or a delegee, reports to the Audit Committee regarding Code of Conduct matters related to accounting and auditing concerns. This officer also reports throughout the year to the Governance Committee regarding all other Code of Conduct concerns. At least annually, our Chief Legal and Compliance Officer reviews the effectiveness of our corporate ethics and compliance program with the Governance Committee.

The Governance Committee’s oversight of Shyft’s strategies relating to ESG includes reviewing and discussing environmental matters with Shyft’s Chief Legal and Compliance Officer, who is responsible for coordinating activities related to minimizing Shyft’s impact on the environment.

In 2020, the Board adopted Shyft’s human rights policy. The policy governs how we treat all stakeholders, including our customers, employees, business partners and participants in our supply chain. Consistent with our human rights policy, we became a signatory in 2021 to the United Nations Compact in support of principles relating to human rights, labor, environment, and anti-corruption. The Board is responsible for overseeing and periodically reviewing our human rights policy. Shyft’s Chief Legal and Compliance Officer is responsible for its ongoing implementation and reports to the Board and its committees on any significant related issues.

The Board takes an active role in overseeing matters related to our people and teams, including with respect to inclusion and diversity, culture and engagement, talent recruitment, development, and retention, and in 2022 formalized its policy of allocating direct responsibilities for DEI and human capital management to the Compensation Committee. On a regular basis, the Chief Human Resources Officer, reports to the Compensation Committee on DEI, talent related developments and risks.

Additionally, Shyft’s Compensation Committee oversees risks related to the Company’s compensation programs. Each year, the Compensation Committee evaluates whether the design and operation of Shyft’s compensation programs or policies encourage management to take unnecessary or excessive risks. In assessing Shyft’s compensation programs for risk, the Compensation Committee evaluates program features that mitigate against potential risks for our executive officers, such as fixed base salaries; goals that are tied to specific company financial measures and payout caps for the annual cash incentive program; clawbacks for our cash and equity incentives; the quantity and mix of long-term performance-based and time-based equity incentives; and stock ownership requirements. In its annual review, the Compensation Committee concluded that Shyft’s executive compensation programs and policies continue to provide an effective and appropriate mix of incentives to help ensure performance is focused on long-term shareholder value creation, and do not encourage short-term risk taking at the expense of long-term results.

The Board together with the Audit Committee, which formally assumed responsibility for cybersecurity risk oversight in 2022, regularly reviews with the Chief Information Officer our information security and enterprise-wide cybersecurity risk management program. Oversight includes visibility to our mandatory cybersecurity training for Shyft employees and third parties who may have access to our systems, the maintenance of internal controls for our systems, our ongoing evaluation of the cybersecurity threat landscape, our implementation of the NIST Cybersecurity Framework, our management of information technology risks and resources, and conducting penetration testing of our information technology infrastructure.

The Board reviews management reports regarding Shyft’s supply chain and operations. These records include updates from Shyft’s business segment leadership and Chief Operating Officer on the performance and management of our supply chain with focus on potential operational impacts.

Shyft’s full Board takes an active role in overseeing legal and regulatory risks related to Shyft’s business. The Board receives regular updates from Shyft’s Chief Legal and Compliance Officer on legal and regulatory developments affecting the Company, including updates on legislative developments, government investigations, litigation, and other legal proceedings.

We are committed to ongoing constructive, and meaningful engagement with our shareholders. During 2022, members of our executive management team attended investor conferences, hosted non-deal roadshows where they met with existing and potential shareholders, and engaged with analysts and investors at leading industry tradeshows and at a ride and drive event that focused on our electrification initiatives. Presentations from these meetings and conferences are posted on the Investors page of our website.

These various engagements allow us to receive feedback concerning our operational, financial, and strategic results, as well as ESG matters important to shareholders.

In addition, we host a quarterly earnings call during which our executive management team responds to analyst questions regarding both historical results and forward-looking information. Transcripts of our quarterly earnings calls, including the question and answer sessions, are posted on our website. In addition to the required reports we file with the SEC, we make available on our website earnings analyst packages, investor presentations, and other reports with supplementary financial and operational information. In addition to having a dedicated Investor Relations function that receives and responds to shareholder outreach, we also provide a means for shareholders to communicate directly with our Board, as provided under “Communications with Directors.”

The Company’s Board of Directors currently consists of 10 directors, divided into 3 classes approximately equal in number. The members of each class serve for staggered, 3-year terms. Any additional directorships resulting from an increase in the number of directors will be distributed among the 3 classes so that, as nearly as possible, each class will consist of one-third of the Company’s directors. Directors actively participate in Board and committee meetings. Meeting materials are distributed in advance of each regular Board meeting so that directors can prepare for meeting discussions.

During 2022, the Board initially consisted of 9 directors until Mr. Carl Esposito joined the Board on March 14, 2022, at which time the Board expanded to 10 directors. On May 18, 2022, Mr. Harbour retired from the Board at the conclusion of his then current term after serving on the Board for 13 years, at which time the Board was reduced to 9 directors. On March 21, 2023 Pamela L. Kermisch joined the Board, which was once again expanded to 10 directors. Ms. Kermisch was recommended as a director by a third-party search firm.

The Board met 6 times during 2022. Each member of the Board who served during 2022 attended or participated in 75% or more of the aggregate of (i) the total number of meetings of the Board held during 2022, and (ii) the total number of meetings held by each committee of the Board on which the member served during 2022.

Shyft expects all of its directors to attend the Annual Meeting. All directors then serving on the Board attended the 2022 annual meeting of shareholders.

The Board has three standing committees: Audit, Compensation, and Governance. Each standing committee has a charter adopted by the Board. Each committee chair gives a committee report to the full Board at each regular Board meeting. The Board annually elects each committee’s members and chair. Each committee has authority to retain, approve fees for, and terminate advisors as it deems necessary to assist in the fulfillment of its responsibilities.

The Board conducts an annual self-evaluation to assess whether the Board, its committees, and each member of the Board are working effectively, and to provide an opportunity to reflect upon and improve processes and effectiveness.

The Governance Committee designs and establishes the overall evaluation framework, and Messrs. Sharman and Mascarenas, the Board Chair and Governance Committee Chair, respectively, lead the feedback session. Topics covered in the evaluation process include the effectiveness and performance of the Board and its committees; Board and committee composition and refreshment; timing, agenda, and content of Board and committee meetings; Board dynamics and function; peer contributions; and executive succession planning. A summary identifying any themes or issues that have emerged is presented to the Board on an anonymous basis.

Our Corporate Governance Principles require that the Board annually determines whether our directors are independent. Nasdaq’s rules require that the Board affirmatively determine that a director does not have a relationship that would interfere with the exercise of a director’s independent judgment. Based on the evaluations performed and recommendations made by the Governance Committee, the Board determined that each of our directors other than our CEO is independent and Mr. Harbour, who retired from the Board in 2022, was independent.

The Board has adopted written policies and procedures with respect to related party transactions, as defined in rules issued by the SEC. Any proposed related party transaction must be reviewed and approved by the full Board. There were no such transactions that required review or approval by the Board in 2022. During 2022, Shyft conducted business in the ordinary course with C.H. Robinson Worldwide, Inc., a global provider of multimodal transportation services and third-party logistics, where Ms. Freeman, a member of the Shyft Board, serves as the Chief Human Resources and ESG Officer.

Any shareholder or other interested party may communicate with our directors, individually or as a group, by contacting our Corporate Secretary or our Board Chair. The contact information is maintained through the Investors page of our website at www.theshyftgroup.com. Inquiries may also be addressed as follows:

Communications will be forwarded to the relevant director(s) except for solicitations or other matters not related to the Company.

Shyft conducts business ethically, honestly, and in compliance with laws. Shyft’s Code of Conduct details the principles that guide Shyft’s business practices – honesty, respect, confidentiality, and compliance. The Code of Conduct applies to all employees, including Shyft’s CEO and CFO, as well as our Board of Directors. We expect our suppliers, contractors, consultants, and other business partners to follow the principles set forth in the Code of Conduct when providing goods and services to Shyft or acting on its behalf. The Code is available at https://theshyftgroup.com/wp-content/uploads/2022/04/ShyftGroupCodeofConduct_2022.pdf.

Shyft’s Chief Legal and Compliance Officer is responsible for managing oversight of the Code of Conduct. Employees are required to complete training on the Code upon joining Shyft and annually thereafter.

The following documents are available through the Corporate Responsibility page of our website at www.theshyftgroup.com:

If you prefer to receive printed copies of these documents, please send a written request to our Corporate Secretary at The Shyft Group, Inc., 41280 Bridge Street, Novi, Michigan 48375.

As part of the Company’s Insider Trading Policy, we prohibit directors, officers, and other employees from (1) engaging in short sales of any Shyft securities, and (2) engaging in hedging or similar transactions involving any Shyft securities, including option contracts, puts, calls, straddles, collars, hedges, swaps, forward contracts, exchange funds, or any transactions that hedge or offset, or are designed to hedge or offset, any decrease in market value of any Shyft securities. These restrictions also apply to each employee and director’s family members and others living in their households and entities that are directed by or subject to the employee’s or director’s influence or control.

The Company’s anti-pledging policy prohibits our directors and executives, including NEOs, from purchasing Shyft securities on margin, holding Shyft securities in a margin account, or pledging Shyft securities as collateral for a loan.

We value diversity, respect human rights and the rule of law, and recognize environmental management among our highest priorities at Shyft. The Shyft Board provides guidance, insight, and oversight as to the strategy, initiatives, and management's performance in achieving ESG goals. The charters of our Board committees address the importance of these issues. The Compensation Committee Charter details the committee's role in the oversight of the Company's DEI initiatives and commitment to human capital management. The Governance Committee Charter reflects the committee's responsibility for oversight of the Company's ESG strategies and performance. In October 2022, Shyft issued its inaugural sustainability report titled Energized to Make a Difference (https://theshyftgroup.com/sustainability-report/) (the “2022 Sustainability Report”) highlighting the Company’s ongoing commitment and achievements with respect to sustainability, equality, and philanthropy.

The 2022 Sustainability Report presents a materiality-based approach to confirming our key ESG tenets, as detailed below, incorporates investor focused disclosure developed by the Sustainability Accounting Standards Board (SASB) to align future reporting with industry best practices, and demonstrates the linkage between our SASB data and the Sustainable Development Goals adopted by United Nations member states. Moreover, the 2022 Sustainability Report depicts Shyft's integration of its commitment to ESG across all aspects of the business to create a more sustainable and inclusive future.

PROPOSAL ONE

The following includes a brief overview of the experience, qualifications, attributes, and skills that led to the conclusion that the directors and nominees should serve on the Board at this time. The Governance Committee considers the experience, mix of skills, and other qualities of the existing Board to ensure appropriate Board composition. The Governance Committee believes that directors must have demonstrated excellence in their chosen field, high ethical standards and integrity, and sound business judgment. In addition, it seeks to ensure the Board includes members with diverse backgrounds, skills and experience, including appropriate financial and other expertise relevant to the Company’s business.

As more fully reflected below, the Board believes that the directors and nominees have an appropriate balance of knowledge, experience, attributes, skills and expertise as a whole to ensure the Board appropriately fulfills its oversight responsibilities and acts in the best interests of shareholders. The Board believes that each director satisfies its criteria for demonstrating excellence in his or her chosen field, high ethical standards and integrity, and sound business judgment. Further, each director or nominee brings a strong background and set of skills to the Board, giving the Board competence and experience in a wide variety of areas.

Under Michigan law and our bylaws, directors are elected by a plurality. This means the nominees who receive the most votes will be elected to the open director positions. However, we have adopted a majority vote standard in our Corporate Governance Principles that will require, in uncontested elections, any nominee for director who receives a greater number of votes “withheld” for their election than votes “for” such election to promptly tender his or her offer of resignation to the Chair of the Board for consideration by the Governance Committee.

The following matrix highlights the mix of skills, qualities, attributes, and experiences or our directors, including the nominees (Dinkins, Freeman, Kermisch, and Rourke), that among other factors, led the Board and the Governance Committee to recommend the nominees for election to the Board. The matrix is intended to depict notable areas of focus for each director, and not having a mark does not mean that a particular director does not possess that qualification or skill. The demographic information presented below is based on voluntary self-identification by each director. Additional biographical information on each director begins on page 19.

 

The Audit Committee represents and assists the Board in fulfilling its responsibilities for general oversight of the integrity of the Company’s financial statements, the Company’s compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications and independence, the performance of the Company’s internal audit function, the performance of the Company’s independent registered public accounting firm, and risk assessment and risk management. The Audit Committee manages the Company’s relationship with the independent registered public accounting firm, which reports directly to the Audit Committee. The Audit Committee has the authority to obtain advice and assistance from outside legal, accounting and other advisors as it deems necessary to carry out its duties and receives appropriate funding from the Company, as determined by the Audit Committee, for such advice and assistance.

The Company’s management is primarily responsible for the Company’s internal control and financial reporting process. The Company’s independent registered public accounting firm, Deloitte & Touche LLP (“Deloitte”), is responsible for performing an independent audit of the Company’s consolidated financial statements and issuing opinions on the conformity of those audited financial statements with United States generally accepted accounting principles and the effectiveness of the Company’s internal control over financial reporting. The Audit Committee monitors the Company’s financial reporting process and reports to the Board on its findings.

In this context, the Audit Committee hereby reports as follows:

Based on the review and discussions referred to in paragraphs 1 through 3 above, the Audit Committee recommended to the Board, and the Board has approved, that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, for filing with the SEC.

The undersigned members of the Audit Committee have submitted this Report to the Board.

The Audit Committee

Michael Dinkins, Chair

Carl Esposito

Terri Pizzuto

PROPOSAL TWO

The Audit Committee is responsible to select, in its sole discretion, the firm of independent auditors to audit Shyft’s financial statements for each fiscal year. The Audit Committee is also directly responsible for the appointment, compensation, retention, and oversight of the work of the independent auditors, including resolution of any disagreements that arise between management and the auditor regarding financial reporting or other audit, review or attest services for the Company. The independent auditors report directly to the Audit Committee.

The Audit Committee annually reviews and evaluates the performance of the Company’s independent auditors. In evaluating the independent auditors, the Audit Committee considers, among other things, the quality of the independent auditor’s service, the sufficiency of its resources, its independence and objectivity, and the length of time the firm has been engaged as Shyft’s independent auditors.

Set forth below is a summary of the fees paid by Shyft for the years ended December 31, 2022 and 2021, to its independent auditor for such year and such firm’s affiliates:

We have been advised by Deloitte and BDO, respectively, that neither the firm, nor any member of the firm, has any financial interest, direct or indirect, in any capacity in the Company or its subsidiaries.

SEC rules prohibit independent auditors of public companies from providing certain non-audit services and require that other non-audit services be approved by the Audit Committee. The Company’s policy implementing this requirement:

PROPOSAL THREE

We believe the compensation of our named executive officers should be:

87% of the votes cast on the advisory Say on Pay proposal at the 2022 Annual Meeting voted in favor of the compensation of our executive officers.

The Compensation Discussion and Analysis beginning on page 39 explains in detail the elements of the Company’s executive compensation program with respect to our NEOs, and the steps taken by the Company to ensure that the program, as implemented in 2022, was aligned with these core principles. Balancing annual and long-term compensation elements, the program directly links incentive compensation for executives with increases in shareholder value, principally by means of annual cash bonuses based on achievement of performance goals set by the Compensation Committee at the beginning of the year, performance-based restricted share units that vest in accordance with the Company’s TSR Peer Group, the Company’s cumulative GAAP net income over a three-year period, and time-based restricted share units that vest over a three-year period. The Company believes this system, as put into practice under the supervision of the Compensation Committee, is instrumental in enabling the Company to achieve superior financial performance and investor returns.

The Board strongly endorses the Company’s actions in this regard and recommends that shareholders vote to approve, on an advisory basis, the compensation of the named executive officers as disclosed in this proxy statement, according to the following resolution:

RESOLVED, that the compensation of the named executive officers, as disclosed in the proxy statement for the 2023 Annual Meeting of Shareholders is approved by the shareholders on an advisory basis.

Unless otherwise directed by the shareholders, proxies that are properly executed and returned will be voted for the resolution. Abstentions and broker non-votes will not count as votes for or against the proposal and will not be included in calculating the number of votes in favor of the proposal.

PROPOSAL FOUR

Our shareholders voted on a similar proposal in 2017 with the majority voting to hold the Say on Pay vote every year. Our Board and Compensation Committee continue to believe that Say on Pay votes should be conducted each year so that our shareholders may express their views on our executive compensation program and the Compensation Committee can consider such views in its compensation planning for the fiscal year following the Say on Pay vote.

Shareholders may cast their advisory vote to recommend conducting advisory votes on named executive officer compensation every ‘‘1 Year,” “2 Years,” or “3 Years,” or “Abstain.”

The Board recommends that shareholders recommend future advisory votes on NEO compensation occur every “1 Year.”

As an advisory vote, this proposal is not binding on Shyft, the Board, or the Compensation Committee. However, the Compensation Committee and the Board value the opinions expressed by shareholders and will consider the outcome of the vote when making a decision regarding the frequency of conducting a Say on Pay vote.

It is expected that the next Say on Pay frequency vote will occur at the 2029 annual meeting of shareholders.

PROPOSAL FIVE

On March 20, 2023, upon recommendation by the Compensation Committee, the Board of Directors approved and adopted a further amendment and restatement of the 2016 Plan, subject to the approval of the Shyft shareholders at the Annual Meeting, in the form attached as Appendix B to this proxy statement. In general, we refer to the 2016 Plan as proposed to be amended and restated here in 2023 as the “Amended Plan,” and the 2016 Plan prior to the amendment and restatement proposed here in 2023 as the “Existing Plan.” Further, we are dropping the reference to 2016 from the name of the Existing Plan in order to modernize it for 2023 and beyond.

Shareholders previously approved the Existing Plan; you are being asked to approve the Amended Plan, which continues to afford the Compensation Committee the ability to design compensatory awards that are responsive to the Company’s needs by permitting a variety of awards designed to advance the interests and long-term success of the Company to be granted to Shyft non-employee directors and officers and other employees of Shyft and its subsidiaries, plus certain consultants to the Company and its subsidiaries.

The Board of Directors recommends that you vote to approve the Amended Plan. In general, shareholder approval of the Amended Plan would make available for awards under the Amended Plan an additional 1,000,000 shares of Shyft common stock, no par value (“Common Stock”), above and beyond those authorized for the Existing Plan, with such total share pool subject to adjustment as described in the Amended Plan, including under the Amended Plan’s share counting rules. The Amended Plan will be the revised continuation of the Existing Plan, and shares remaining available for awards under the Existing Plan on the date of the Annual Meeting will continue to be available for awards under the Amended Plan, in addition to the newly authorized Common Stock. If the Amended Plan is approved by shareholders, it will be effective as of the day of the Annual Meeting. If the Amended Plan is not approved by our shareholders, no awards will be made under the Amended Plan, and the Existing Plan will remain in effect in accordance with its terms.

The following proposal summarizes information about the Existing Plan and the Amended Plan, plus reasons why we believe you should approve the Amended Plan, in addition to the material terms and conditions of the Amended Plan and other information required to be included in this proposal. The full text of the Amended Plan being submitted for approval by the shareholders is included as Appendix B to this proxy statement.

Our future success continues to depend in part on our ability to attract, motivate and retain high quality employees and directors; the ability to provide equity-based and incentive-based awards under the Amended Plan is critical to achieving this success. We would be at a severe competitive disadvantage if we could not use stock-based awards to recruit and compensate our employees and directors. The use of Common Stock as part of our compensation program is also important because equity-based awards continue to be an essential component of our compensation program for selected employees, as such awards help link compensation with long-term shareholder value creation and reward participants based on service and/or performance.

As of March 31, 2023, 555,724 shares of Common Stock remained available for awards under the Existing Plan. If the Amended Plan is not approved, we may be compelled to significantly increase the cash component of our employee and director compensation, which approach may not necessarily align employee and director compensation interests with the investment interests of our shareholders. Replacing equity awards with cash also would increase cash compensation expense and use cash that could be better utilized for other purposes.

The following includes aggregated information regarding our view of the overhang and dilution associated with the Existing Plan, and the potential dilution associated with the Amended Plan (Shyft made its annual award grants to employees on March 31, 2023, and those awards are included in the data below). This information is as of March 31, 2023, and as of that date there were approximately 34,875,382 shares of Common Stock outstanding:

Based on the closing price on the Nasdaq Stock Market for our Common Stock on March 4, 2023 of $27.11 per share, the aggregate market value of the new 1,000,000 shares of Common Stock requested under the Amended Plan was $27,110,000. In fiscal years 2020, 2021, and 2022, we granted awards (consisting of RSUs and PSUs at maximum) under the Existing Plan regarding 798,178 shares, 364,783 shares, and 488,545 shares, respectively. Based on our basic weighted average shares of Common Stock outstanding for those three fiscal years of 35,479,000, 35,333,000 and 35,073,000, respectively, for the three-fiscal-year period 2020-2022, our average burn rate, not taking into account forfeitures, on this basis was 1.6%. Our individual years’ burn rates on this basis were 2.2% for fiscal 2020, 1.0% for fiscal 2021 and 1.4% for fiscal 2022.

In determining the number of shares to request for approval under the Amended Plan, our management team worked with Mercer and the Compensation Committee to evaluate a number of factors, including our recent and expected share usage and criteria expected to be utilized by institutional proxy advisory firms in evaluating our proposal for the Amended Plan. If the Amended Plan is approved, we intend to utilize the shares authorized under the Amended Plan to continue our practice of incentivizing key individuals through equity grants. We currently anticipate that the shares requested in connection with the approval of the Amended Plan will last for about four years, including based on our historic grant rates, new hiring and the approximate current share price, but could last for a different period of time if actual practice does not match recent rates or our share price changes

materially. As noted below, our Compensation Committee retains full discretion under the Amended Plan to determine the number and amount of awards to be granted under the Amended Plan, subject to the terms of the Amended Plan. Future benefits that may be received by participants under the Amended Plan are not determinable at this time.

The Amended Plan: (1) adds consultants as participants and fully-vested stock as an equity vehicle under the Amended Plan; (2) increases the number of shares of Common Stock available for awards by 1,000,000 shares; (3) correspondingly increases the limit on shares that may be issued or transferred upon the exercise of incentive stock options granted under the Amended Plan, during its duration (as described below), by the same 1,000,000 shares; (4) clarifies the share counting provisions, stock option exercise price payment provisions, continued/accelerated vesting provisions and equitable anti-dilution adjustment provisions to operate as described below; (5) prohibits current dividends or dividend equivalents on unearned or unvested awards; (6) allows for share withholding for tax withholding purposes up to maximum permissible amounts, rather than capping such amounts at statutory minimum amounts; (7) provides a limit on the amount of compensation a non-employee director may be awarded each year for such service under the Amended Plan; (8) permits grants under the Nasdaq exception to the shareholder approval requirements for certain mergers and acquisitions activities as described below; and (9) extends the term of the Amended Plan until the tenth anniversary of the date of shareholder approval of the Amended Plan. The Amended Plan also makes certain other conforming, clarifying or non-substantive changes to the terms of the Existing Plan to implement the Amended Plan.

The Amended Plan will be administered by the Compensation Committee (or its successor), which will determine, subject to the terms of the Amended Plan, the persons receiving awards, the nature and amount of awards granted to each person (subject to the limits specified in the Amended Plan), the time of each grant, the terms and duration of each grant, and all other determinations necessary or advisable for administration of the Amended Plan. The Compensation Committee may amend the terms of awards granted under the Amended Plan from time to time in any manner, subject to the limitations specified in the Amended Plan. Awards may be granted under the Amended Plan to participants for no cash consideration or for such minimum consideration as determined by the Compensation Committee. The Plan is not qualified under Section 401(a) of the Code and is not subject to the Employee Retirement Income Security Act of 1974 (ERISA). The Amended Plan is drafted to comply with or be exempt from Section 409A of the Code, which imposes specific rules on the timing and payment of deferred compensation. Pursuant to the provisions of the Amended Plan, no awards may be granted under the Amended Plan after its expiration in May 17, 2033.

Persons eligible to receive awards pursuant to the Amended Plan include Shyft directors, officers and other employees of Shyft and its subsidiaries, and certain consultants of Shyft and its subsidiaries, as described in the Amended Plan. Eligible participants must be selected for awards by the Compensation Committee (or its proper delegate) to be participants in the Amended Plan. There are currently approximately 9 Shyft non-employee directors and 150 officers and other employees of Shyft and its subsidiaries that could be eligible to be selected for awards under the Amended Plan. There are currently approximately less than 10 consultants for Shyft and its subsidiaries that could be eligible to be selected for awards under the Amended Plan. Additional individuals may become directors, officers, or employees in the future and could participate in the Amended Plan. The basis for participation in the Amended Plan by eligible persons is the selection of such persons for participation by the Compensation Committee (or its proper delegate) in its discretion.

The awards described in this section may be granted under the Amended Plan. A “stock option” is a contractual right to purchase a number of shares at a price determined at the date the stock option is granted. The exercise price included in both incentive stock options and nonqualified stock options (unless substitute, replacement or assumed awards as described below) must equal at least 100% of the fair market value of the stock at the date of the grant (and the exercise price may be paid in cash, previously-held shares, share withholding, cash equivalents or other consideration approved by the Compensation Committee, all as further described in the Amended Plan. A “stock appreciation right” is an award of the right to receive stock or cash of an equivalent value in an amount equal to the difference between the price specified in the stock appreciation right and the prevailing market price of our common stock at the time of exercise. Stock appreciation rights may be granted in tandem with stock options. The exercise price included for stock appreciation rights (unless substitute, replacement or assumed awards as described below) must equal at least 100% of the fair market value of the stock at the date of the grant. “Restricted Stock” and “Restricted Stock Units” (or RSUs) are awards of Common Stock (or the right to receive Common Stock or cash) granted to a participant for no or nominal consideration. Title to the shares passes to the participant at the time of the grant of restricted stock but not RSUs; however, the ability to sell or otherwise dispose of the shares or RSUs is subject to restrictions and conditions determined by the Compensation Committee. “Performance Share Units” (or PSUs) are an award of the right to receive stock or cash of an equivalent value generally after the end of the specified performance period upon the attainment of specified performance goals. “Stock awards” are awards of fully-vested stock, provided that such awards satisfy an exception to the minimum vesting provisions under the Amended Plan.

Please see the Amended Plan for more information about specific requirements for and limitations on the awards that can be granted under the Amended Plan, including those relating to clawback requirements and transferability restrictions. Further, the Amended Plan provides default provisions regarding the treatment of awards in the event of certain terminations of employment or service, which default provisions may be changed by the Compensation Committee or in an applicable award agreement.

Awards under the Amended Plan are subject generally to one-year minimum time-based vesting or one-year minimum performance period requirements, but these requirements do not apply to awards granted in payment of or exchange for earned compensation, upon a change in control of Shyft as described in the Amended Plan, for terminations of service (including due to death, disability, termination without cause or termination due to good reason, or awards covering up to 5% of the shares available under the Amended Plan share pool (all as further described in the Amended Plan). These minimum vesting provisions do not prohibit awards from (or the Compensation Committee from taking discretionary action regarding the) continued vesting or earlier vesting awards, including based on retirement, death, disability or termination of employment or service.

Subject to adjustment as described in the Amended Plan and the Amended Plan share counting rules, 5,000,000 shares (consisting of 2,800,000 shares approved in 2016, 1,200,000 shares approved in 2020, and 1,000,000 shares to be approved in 2023), plus shares subject to awards under the Existing Plan or Amended Plan (or a prior plan) that become available under the Amended Plan as a result of forfeiture, cancellation, expiration, exchange, termination, cash settlement or less-than-maximum earning of such awards, plus shares subject to full-value awards that are surrendered to us for taxes (for 10 years following shareholder approval), will be available for awards under the Amended Plan. Generally, shares will count against the Amended Plan on a one-for-one basis.

The following shares will not be added (or added back, as applicable) to the available share pool under the Amended Plan: (1) shares withheld by us, tendered or otherwise used in payment of the exercise price of a stock option; (2) shares withheld by us, tendered or otherwise used to satisfy tax withholding for stock options and stock appreciation rights, (3) shares subject to share-settled stock appreciation rights that are not actually issued upon the exercise thereof, and (4) shares reacquired by us on the open market or otherwise using cash proceeds from the exercise of stock options. Further, shares received where a participant elects to give up the right to receive other compensation based on fair market value will not count against the aggregate number of shares available under the Amended Plan.

No participant will be granted, during any one calendar year, awards with respect to more than 500,000 shares, subject to adjustment as provided in the Amended Plan. Notwithstanding anything to the contrary contained in the Amended Plan, in no event will any non-employee director be granted compensation in any one calendar year for non-employee director service if the compensation has an aggregate maximum value (measured at the date of grant based on the grant date fair value for financial reporting purposes), in excess of $750,000. Incentive stock options may be granted only to participants who meet the definition of “employees” under Section 3401(c) of the Code, and the aggregate number of shares actually issued or transferred upon the exercise of incentive stock options will not exceed 5,000,000.

Upon the occurrence of a “change in control" of Shyft (as defined in the plan), if the Company or the Company’s successor does not continue or assume the obligations under the Amended Plan or replace outstanding awards with awards having substantially the same intrinsic value, all outstanding stock options and stock appreciation rights would become immediately exercisable in full and would remain exercisable in accordance with their terms. All other outstanding awards under the Amended Plan would immediately become fully vested, exercisable, and nonforfeitable. Where awards are continued, assumed or replaced in the change in control, then unvested or unexercised awards will be subject to default treatment under Section 9.3 of the Amended Plan for qualifying terminations of employment or service as described in the Amended Plan (generally, all outstanding stock options and stock appreciation rights would become immediately exercisable in full and would remain exercisable in accordance with their terms, and all other outstanding awards under the Amended Plan would immediately become fully vested).

Awards under the Amended Plan will be subject to mandatory, equitable, anti-dilution adjustments by the Compensation Committee as described in the Amended Plan, including to all terms and conditions of such awards, for certain corporate events or transactions including a stock dividend, extraordinary cash dividend, stock split, share combination, recapitalization or other general distribution of Common Stock or other securities to holders of Common Stock, or other change in the capital structure of the Company. Also, in the event of these corporate events or transactions, underwater stock options and stock appreciation rights may be cancelled without payment under certain circumstances as described in the Amended Plan. Dividends or dividend equivalents on restricted stock or RSU award will be deferred until and paid contingent upon the vesting or earning of such awards. Stock options and stock appreciation rights may not provide for any dividends or dividend equivalents.

The Board of Directors may terminate the Amended Plan at any time and may from time to time amend the Amended Plan as it considers proper and in the best interests of Shyft, provided that no amendment may materially and adversely impair any outstanding award without the consent of the participant, except according to the terms of the Amended Plan or the award. In addition, subject to the adjustment provisions of the Amended Plan, no such amendment may be made without the approval of shareholders of Shyft if it would (1) reduce the exercise price of outstanding stock options or the base price of outstanding stock appreciation rights, (2) increase the individual annual maximum award limit, or (3) otherwise amend the Amended Plan in any manner requiring shareholder approval by law or under Nasdaq listing requirements or rules.

Awards granted under the Amended Plan in substitution for or conversion of, or in connection with an assumption of, stock options, stock appreciation rights, restricted stock, RSUs, or stock awards held by awardees of an entity engaging in a corporate acquisition or merger transaction with us or any of our subsidiaries will not count against (or be added to) the aggregate share limit

or other Amended Plan limits described above. Additionally, shares available under certain plans that we or our subsidiaries may assume in connection with corporate transactions from another entity may be available for certain awards under the Amended Plan, under circumstances further described in the Amended Plan, but will not count against the aggregate share limit or other Amended Plan limits described above.

The following is a brief summary of certain of the Federal income tax consequences of certain transactions under the Amended Plan based on Federal income tax laws in effect. This summary, which is presented for the information of shareholders considering how to vote on this proposal and not for Amended Plan participants, is not intended to be complete and does not describe Federal taxes other than income taxes (such as Medicare and Social Security taxes), or state, local or foreign tax consequences.

Restricted Stock. The recipient of restricted stock generally will be subject to tax at ordinary income rates on the fair market value of the restricted stock (reduced by any amount paid by the recipient for such restricted stock) at such time as the restricted stock is no longer subject to forfeiture or restrictions on transfer for purposes of Section 83 of the Code (“Restrictions”). However, a recipient who so elects under Section 83(b) of the Code within 30 days of the date of transfer of the shares will have taxable ordinary income on the date of transfer of the shares equal to the excess of the fair market value of such shares (determined without regard to the Restrictions) over the purchase price, if any, of such restricted stock. If a Section 83(b) election has not been made, any dividends received with respect to restricted stock that is subject to the Restrictions generally will be treated as compensation that is taxable as ordinary income to the recipient.

Performance Awards. No income generally will be recognized upon the grant of performance awards. Upon payment in respect of the earn-out of performance awards, the recipient generally will be required to include as taxable ordinary income in the year of receipt an amount equal to the amount of cash received and the fair market value of any unrestricted Common Stock received.

Incentive Stock Options. No income generally will be recognized by an optionee upon the grant or exercise an incentive stock option. If Common Stock is issued to the optionee pursuant to the exercise of an incentive stock option, and if no disqualifying disposition of such shares is made by such optionee within two years after the date of grant or within one year after the transfer of such shares to the optionee, then upon sale of such shares, any amount realized in excess of the option price will be taxed to the optionee as a long-term capital gain and any loss sustained will be a long-term capital loss.

If Common Stock acquired upon the exercise of an incentive stock option is disposed of prior to the expiration of either holding period described above, the optionee generally will recognize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of such shares at the time of exercise (or, if less, the amount realized on the disposition of such shares if a sale or exchange) over the exercise price paid for such shares. Any further gain (or loss) realized by the participant generally will be taxed as short-term or long-term capital gain (or loss) depending on the holding period.

Stock Appreciation Rights. No income will be recognized by a participant in connection with the grant of stock appreciation rights. When the stock appreciation rights are exercised, the participant normally will be required to include as taxable ordinary income in the year of exercise an amount equal to the amount of cash received and the fair market value of any unrestricted Common Stock received on the exercise.

RSUs. No income generally will be recognized upon the award of RSUs. The recipient of an RSU award generally will be subject to tax at ordinary income rates on the fair market value of unrestricted Common Stock on the date that such shares are transferred to the participant under the award (reduced by any amount paid by the participant for such RSUs), and the capital gains/loss holding period for such shares will also commence on such date.

Tax Consequences to the Company and its Subsidiaries. To the extent that a participant recognizes ordinary income in the circumstances described above, the Company or the subsidiary for which the participant performs services will be entitled to a corresponding deduction, provided that, among other things, the income meets the test of reasonableness, is an ordinary and necessary business expense, is not an “excess parachute payment” within the meaning of Section 280G of the Code and is not disallowed by the $1 million limitation on certain executive compensation under Section 162(m) of the Code.

The shares currently authorized for issuance under the Existing Plan have been registered pursuant to the Securities Act of 1933. If the shareholders approve the proposal, the Company intends to also register the additional shares pursuant to the Securities Act of 1933 before any such additional shares are granted or issued pursuant to the Amended Plan.

It is not possible to determine the specific amounts and types of awards that may be awarded in the future under the Amended Plan because the grant and actual settlement of awards under the Amended Plan are subject to the discretion of the plan administrator.

The table below shows the number of awards granted under the Existing Plan to the persons and groups indicated below since its inception through March 31, 2023.

The following table provides information about our equity compensation plans regarding the number of securities to be issued under these plans upon the exercise of outstanding options, the weighted-average exercise prices of options outstanding under these plans, and the number of securities available for future issuance as of December 31, 2022.

2022 was a challenging year due to hard-hitting disruptions from supply chain standstills, labor challenges and inflationary pressures. While this impacted year-over-year growth and our ability to generate cash, it also provided an effective proving ground for our business model and strategies. The Shyft team persevered and ended the year on a high note — delivering record revenues exceeding $1 billion by year end marking our third most profitable year.

As a testament to our overall financial strength, innovation, combination of industry-leading brands and robust product portfolio, we were also able to increase our strategic investment in electrification as we prepare to start the production of Class 3, 4, and 5 commercial-grade all-electric delivery vehicles in the second half of 2023.

During 2022, we achieved the following:

Ended a Difficult Year on a High Note

Accelerated our EV Initiative

Achieved Strong Organic Growth

Strategically Expanded our Product Portfolio

Advanced our ESG Commitment

The Board believes its NEO compensation approach and practices contribute to the Company’s success in enhancing shareholder value and driving long-term growth and profitability. Previously, the Board utilized a Leadership Team Compensation plan, which provided a framework to guide compensation decisions. In 2022, the Board discontinued the use of the Leadership Team Compensation plan to better align decisions on an annual basis with performance and to provide greater flexibility for the Committee. The other key compensation decisions the Committee made for 2022 are summarized below and discussed in greater detail in the remainder of this CD&A.

The Committee approved base salary increases for all NEOs in 2022 to maintain alignment with market median per our compensation philosophy and to recognize individual performance. However, in response to the significant external challenges we faced in the first half of 2022, the base salary adjustments were not implemented until August 1, 2022.

For fiscal year 2022, the annual incentive compensation program (“AIC”) for Messrs. Adams, Douyard, Hindman and Sherbin was based on the following performance metrics and weightings: Company Adjusted EBITDA 65%; Company free cash flow 15%; and individual management business objectives (“MBOs”) 20%.

For fiscal year 2022, the AIC for Mr. Guillaume was based on the following performance measures and weightings: Company Adjusted EBITDA 25%; Company free cash flow 15%; segment Adjusted EBITDA 40%; and MBOs 20%.

In 2022, the Committee granted performance based restricted stock units (“PSUs”) and time-based restricted share units (“RSUs”) to the NEOs. For each NEO, the total long-term incentive compensation (“LTIC”) target award value was allocated 70% to target PSUs and 30% to RSUs. All awards earned will be settled in shares. The RSUs generally vest in three equal installments on the first three anniversaries of the grant date of the award. The PSUs in general are subject to a performance period of 36 months and cliff vesting at the end of the performance period following Committee approval. These PSU awards are subject to Total Shareholder Return (“TSR”) and cumulative GAAP net income performance measures, as further described below.

In addition to the 2022 annual LTIC award, the Committee approved an additional equity award for each NEO other than the CEO. These grants were in recognition of such NEOs’ performance and leadership during the supply chain and labor challenges of the first half of 2022 and are intended to enhance retention. The RSUs were granted on August 4, 2022 and in general will cliff vest after three years. They are further described below and are reflected in the Grants of Plan-Based Awards table.

The Company’s executive compensation philosophy is to provide competitive compensation that incentivizes and rewards the achievement of strong performance. The Company’s executive compensation policies are designed to achieve the following five primary objectives:

The Committee is firmly committed to implementing an executive compensation program that aligns management and shareholder interests, encourages executives to drive sustainable shareholder value creation, mitigates risk, attracts top talent, and helps retain key people. A summary of what we do and do not do in that regard follows:

 

The following are the primary elements of our NEO compensation program and the objectives for including them.

The mix of target total direct compensation (base salary, target annual incentive awards, and target long-term incentive awards) for 2022 was structured to deliver the approximate proportions set forth below of total compensation to our Chief Executive Officer and the other NEOs (on average) if target levels of performance are achieved. The Committee believes the percentage of an executive’s total compensation that is “at risk” should increase as the executive’s responsibilities and ability to influence profits increase. For this reason, the percentage of an executive officer’s potential compensation that is based on bonuses and equity awards is larger relative to other employees.

 

The Say on Pay vote to approve named executive compensation was conducted at our annual meeting of shareholders in 2022, based on the disclosure of our executive compensation in the proxy statement for that meeting. Of the shares of common stock represented at that meeting in person or by proxy that participated in the advisory vote, over 87% voted to approve the resolution. Our Board considered the results of this vote to be supportive of the Company’s compensation policies and programs and did not make any changes to such policies and programs as a result of such vote.

The Company takes meaningful measures to engage with its shareholders, including through attendance at multiple investor conferences throughout the year and regular phone calls, in-person meetings, and other communications, including periodic investor/analyst day events. The Company works to be responsive to all shareholder inquiries raised to the Company in an effort to fully engage with shareholders and respond to shareholder concerns.

The Committee has selected and retained Mercer US LLC (“Mercer”), an independent executive compensation consulting firm, to: provide competitive market data and advice related to the NEO’s compensation level and incentive design; review and evaluate management-developed recommendations on compensation levels, incentive mix, and incentive design for the non-CEO NEOs and

certain other executives; develop the selection criteria and recommend comparative companies for executive compensation and performance comparisons; provide information on executive compensation trends and their implications to Shyft; and provide competitive market data and advice on non-employee director compensation.

The Committee evaluates the independence of Mercer to ensure it maintains objectivity and independence when rendering advice to the Committee. Neither Mercer nor any of its affiliates provided any additional services to the Company during 2022 (beyond those described above). Mercer reports directly to the Committee and is independent of management. The Committee has determined that the services Mercer provides do not create or present any conflicts of interest.

The Committee periodically engages independent third-party consultants to provide data and analysis regarding the compensation of executives at our peer group companies and at companies with whom we compete for talent. The Committee uses this data to design and implement competitive compensation programs.

With the assistance of its third-party consultant, Mercer, the Committee has established a group of peer companies that are:

Compared to the 2021 peer group, the Committee eliminated Shiloh Industries, Inc. from the 2022 peer group due to it being acquired and added Standex International Corporation.

In late 2021, the Committee engaged Mercer to update the benchmarking analysis that reviewed total direct compensation (consisting of base salary, target bonus, and the value of long-term incentive grants) of the NEOs at the median of the peer group, with the intention that the total direct compensation of these executives would be set at amounts that are in the market median range. In performing this review, Mercer conducted benchmarking analysis of the NEOs’ compensation, including base salaries, short- and long-term incentives, and severance practices, using information from proxy disclosures and published surveys.

The Committee considered the peer group data when making compensation decisions in 2022. The Committee generally uses the median of the peer group as an initial reference point for evaluating base salary, annual incentive and long-term incentive targets. The actual base salary and incentive targets for an individual NEO may be set higher or lower than median based on the Committee’s assessment of individual NEO performance, experience, and potential. The NEO compensation levels generally reflect the Committee’s views on general business conditions, each NEO’s tenure in the applicable role, and the importance of placing higher value on performance-based compensation.