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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934

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Soliciting Material Pursuant to §240.14a-12
AMERICAN AXLE & MANUFACTURING HOLDINGS, INC.
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SEC 1913 (02-02)
 
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Table of Contents

 
  
 




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Notice of Annual Meeting
of Stockholders and
Proxy Statement

Thursday, May 2, 2019
8:00 a.m. Eastern Time



Table of Contents

































Table of Contents

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David C. Dauch
Chairman of the Board and
Chief Executive Officer

Dear Fellow Shareholders:
For AAM, 2018 was a pivotal year. We celebrated our first full year as a larger, more diverse global supplier. We launched several new key products and furthered our global growth and diversification efforts. Most importantly, we continued to prepare AAM for the future with advanced technologies focused on key trends that will help our customers address the needs of the changing global automotive landscape.
Key milestones we achieved in 2018 include:
Delivered on our key strategic objectives of profitable growth, diversification, outstanding financial performance, and technology leadership
Launched our first e-AAM electric driveline system into regular production
Achieved record sales for AAM
Continued to fund significant capital and R&D investments in order to drive organic growth to meet our strategic goals
Met key integration milestones including synergy attainment on recent acquisitions
Continued to reduce our leverage by prepaying $200 million of Senior Notes
Won several new business awards, including our 5th global EcoTrac® disconnecting all-wheel-drive program
Named Supplier of the Year by General Motors for the second year in a row
At AAM, corporate responsibility is an integral part of our business strategy. Our Environmental, Social and Governance (ESG) program is fundamental to our global business operations and is aligned with our strategic objectives. ESG is a journey, and we will continue to build upon our foundational programs as we move forward. Also, in response to shareholder feedback and to make continuous improvement, we strengthened the governance of our sustainability program with board-level oversight and with AAM leadership focused on ESG performance as a top company goal for 2019.
AAM's future continues to look bright. We are looking forward to another year of outstanding results, further diversification from a product, customer and geographic perspective and enhancement of our global sustainability program. I am excited about our future and hope you are too.
Thank you for your loyal and continued support of AAM.
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David C. Dauch
Chairman and Chief Executive Officer



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Samuel Valenti III
Lead Independent Director

Dear Fellow Shareholders:
AAM is committed to engaging in constructive and meaningful communications with our shareholders. Our Board and management team greatly value the opinions and feedback of our shareholders, which is why we have proactive, ongoing engagement throughout the year focused on corporate governance, corporate responsibility and executive compensation.
The Board was pleased with the favorable outcome of the vote on our say-on-pay proposal in 2018 (97% as compared to 38% in 2017), which we believe reflects the Board's responsiveness to shareholder feedback relating to executive compensation. Our engagement meetings this year covered a wide range of topics, including board refreshment and diversity, environmental, social and governance topics and incentive compensation metrics/goal rigor. The Board was actively involved in the process and thoughtfully considered the feedback we heard from you. As a result, we took several important actions:
Enhanced the experience, leadership and diversity of our Board with the appointments of Herbert K. Parker and Sandra E. Pierce in November 2018. These appointments were the result of active recruitment of women and minority candidates.
Formalized our commitment to Board diversity by adopting a policy that requires director searches to include qualified women and minorities in future candidate pools for nomination to our Board.
Adopted proxy access by-laws.
Strengthened the governance of our sustainability program by assigning oversight responsibility to the Nominating/Corporate Governance Committee by amending its charter. This level of oversight reflects the importance of our sustainability program to AAM's overall business strategy.
Continued to align the metrics and rigor of our incentive plans to drive achievement of AAM's business strategy.
On behalf of the Board, I would like to express our sincere appreciation for the trust you have placed in us. Know that your Board remains focused on delivering value to you, today and long into the future.
Thank you for investing in AAM.
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Samuel Valenti III
Lead Independent Director


Notice of Annual Meeting

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 2, 2019
American Axle & Manufacturing Holdings, Inc.
Meeting Information
 
Voting Information
 
 
 
 
Time and Date
8:00 a.m., local time, on Thursday, May 2, 2019
 
Please vote your shares as soon as possible, even if you plan to attend the annual meeting.
 
 
 
 
Attend in Person
AAM World Headquarters Auditorium
 
Your broker will not be able to vote your shares on the election of directors and most of the other matters presented at the meeting unless you give your broker specific instructions to do so. We strongly encourage you to vote.
 
One Dauch Drive
 
 
Detroit, MI 48211
 
 
 
 
 
Record Date
March 5, 2019
 
You may vote via the internet, by telephone, or by mail.
 
 
 
 
 
You may vote if you owned shares on the record date.
 
See "Voting and Meeting Information" beginning on page 72 of this proxy statement for more information.
 
 
 
 
Annual Meeting Agenda / Items of Business
 
1. Election of three members of the Board of Directors to serve until the Annual Meeting of Stockholders in 2022
 
2. Advisory vote on named executive officer compensation
 
3. Ratification of the appointment of Deloitte & Touche LLP as independent public accounting firm for 2019
 
4. Other business properly presented at the meeting
 
Attending in Person
 
* You do not need to attend the annual meeting to vote if you submit your proxy in advance.
 
* To attend the annual meeting you will need to:
 
      - provide proof of your stock ownership as of the record date
 
      - provide government-issued photo identification (such as a driver's license) prior to entering the meeting
 
* Doors open at 7:30 a.m.
 
* Meeting starts at 8:00 a.m.
 
Our Notice of Internet Availability of Proxy Materials or this proxy statement and proxy card are being distributed on or about March 21, 2019. You are receiving these proxy materials in connection with the solicitation by the Board of Directors of AAM of proxies to be voted at AAM's 2019 Annual Meeting of Stockholders.
Important Notice Regarding the Availability of Proxy Materials for the May 2, 2019 Stockholder Meeting: Our 2019 proxy statement and 2018 annual report and Form 10-K are available free of charge at www.envisionreports.com/axl.


Table of Contents

TABLE OF CONTENTS 

Proxy Summary
 
Ratification of Independent Registered Public Accounting Firm
Proxy Summary
 
Proposal 3 - Ratification of Independent Registered Public Accounting Firm
 
 
 
 
Policy for Pre-Approval of Audit and Non-Audit Services
Election of Directors
 
Independent Registered Public Accounting Firm's Fees
Proposal 1 - Election of Directors
 
Report of the Audit Committee
Corporate Governance
 
 
 
Compensation of Directors
 
Additional Information
Beneficial Stock Ownership
 
Voting and Meeting Information
Related Person Transactions Policy
 
Annual Report
Section 16(a) Beneficial Ownership Reporting Compliance
 
Electronic Delivery of Proxy Materials
 
 
2020 Stockholder Proposals and Nominations
Advisory Vote on Executive Compensation
 
Cost of Solicitation
Proposal 2 - Advisory Vote on Executive Compensation
 
 
 
Compensation Discussion and Analysis
 
 
 
 
 
Named Executive Officers
 
Appendix
 
 
Executive Summary
 
Appendix A - Non-GAAP Reconciliation
 
 
Compensation of Executive Officers
 
Appendix B - Director Independence Standards
 
 
Direct Compensation Elements
 
 
 
 
 
Indirect Compensation Elements
 
 
 
 
 
Other Compensation Matters
 
 
 
Compensation Committee Report
 
 
 
Executive Compensation Tables
 
 
 
CEO Pay Ratio
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2019 AAM Proxy Statement | 1

 


Proxy Summary


Your Vote is Important
Voting Matters and Board Recommendations:
Votes Required
Board Vote Recommendation
More Information
 
 
 
 
 
Proposal 1
Election of three members of the Board of Directors to serve until the Annual Meeting of Stockholders in 2022
Majority of votes cast
FOR each nominee
Page 14
 
Each nominee brings a strong and diverse background and set of skills to the Board and has demonstrated sound judgment and integrity.
 
 
 
Proposal 2
Advisory vote on named executive officer compensation
Majority of votes cast
FOR
Page 34
 
AAM's executive compensation program is market-based, performance driven and aligns with shareholder interests.
 
 
 
Proposal 3
Ratification of the appointment of Deloitte & Touche LLP as independent public accounting firm for the year ending December 31, 2019
Majority of votes cast
FOR
Page 69
 
All independence standards have been met and sound practices are employed to ensure independent financial governance.
 
 
 


How You Can Vote
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By Internet
 
By Telephone
 
By Mail
 
In Person
Go to www.envisionreports.com/axl and follow the instructions. You will need the control number on your proxy card or voter instruction form.
 
Call the number shown on your proxy card or voter instruction form. You will need the control number on your proxy card or voting instruction form.
 
Complete, sign and date the proxy card or voting instruction form and return it in the envelope provided.
 
Attend the annual meeting and cast your ballot.
 
 
 
 
 
 
 



2019 AAM Proxy Statement | 2

 


Proxy Summary

Governance Highlights
AAM's Board has a diverse mix of knowledge, experience, skills and perspectives that, when taken together, enhances the quality of the Board's deliberations and decisions and drives AAM's business strategy and governance. In November 2018, AAM further enhanced the experience, leadership and diversity of our Board through the appointment of Herbert K. Parker and Sandra E. Pierce, whose biographies follow the Board's proposal for the election of directors. These appointments are the result of active recruitment of women and minority candidates. The Board currently consists of 10 members.
Board Skills and Qualifications
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Board Composition
 
 
 
 
Independence
Tenure
Age
Diversity
90%
7
64
30%
Independent
Average
Years of Service
Average
Age
Women or Minority
The current composition of our Board reflects the Board's commitment to identify, evaluate and nominate candidates who have personal integrity, leadership skills and qualifications, and provide a diverse mix of backgrounds and characteristics (such as race and gender) that, when taken together, best serve AAM and our shareholders. Longer-tenured directors bring a deep understanding of AAM and provide continuity as new members join the Board. Newer members bring new perspectives, expertise and diversity as the Board is refreshed to address changes in the business over time.


2019 AAM Proxy Statement | 3

 


Proxy Summary

Business & Financial Highlights
Driving Long-Term Shareholder Value
AAM is a global Tier 1 supplier to the automotive, commercial and industrial markets, with broad capabilities across multiple product lines. Our mission is to deliver efficient, powerful and innovative solutions for our customers while leading the industry in quality, operational excellence and technology to maximize shareholder value. Our Board believes that AAM is well positioned to deliver long-term shareholder value by utilizing the following fundamental elements of our business:
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2018 Financial and Performance Highlights

By the end of 2018, we reached a record $7.27 billion in sales on the strength in our core markets and key product segments. We also generated $1.18 billion in Adjusted EBITDA and achieved a record-setting $772 million in cash from operations.

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2019 AAM Proxy Statement | 4

 


Proxy Summary

2018 AAM Highlights
 
 
 
 
 
 
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Delivered on our key strategic objectives of profitable growth, diversification, outstanding financial performance and technology leadership.
 
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Record Annual Sales – Over $7 Billion for the first time in AAM History
 
 
 
 
 
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Strong cash flow generation and Over $200 Million in senior debt payments
 
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AAM recognized as Fortune 500 Company
 
 
 
 
 
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Formed joint venture with Liuzhou Wuling in China
 
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Met key Integration Milestones, including Synergy Attainment
 
 
 
 
 
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QUANTUMTM technology wins Altair and SAA Lightweighting Awards
 
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5th New Business Award for our EcoTrac®  Disconnecting AWD Technology
 
 
 
 
 
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Sold Aftermarket division of our Powertrain business unit for $50 million
 
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Named GM Supplier of the Year for 2nd consecutive year


2019 AAM Proxy Statement | 5

 


Proxy Summary

Shareholder Engagement
Active Engagement with our Shareholders

Our Board and management team greatly value the opinions and feedback of our shareholders, which is why we have proactive, ongoing engagement with our shareholders throughout the year focused on corporate governance, executive compensation and corporate responsibility. This outreach is in addition to the ongoing communication between our shareholders and our Chairman & Chief Executive Officer, Vice President & Chief Financial Officer and Investor Relations team on AAM's financial performance and strategic objectives.
Why we engage
 
 
 
Provide transparency into our business strategy, corporate governance practices and executive compensation programs
Determine which issues are important to our shareholders and communicate each others' views on those topics
Identify emerging issues that may impact our business and influence our practices
How we engage
 
 
 
Investor Communication Program
 
We provide institutional investors with many opportunities to give feedback to senior management by participating in conferences, one-on-one and group meetings, investor visits to our manufacturing facilities and technical centers, and day-to-day interactions with individual investors throughout the year.

In June 2018, AAM hosted an Investor Day at the New York Stock Exchange where our CEO and senior management gave an update on our business and strategic plans.
 
 
 
Proactive Shareholder Outreach Program
 
As part of our annual shareholder outreach program, we also engage with shareholders in conference calls or meetings outside the proxy season. These exchanges, which we initiate, cover our executive compensation program, risk management, ESG, strategic planning and corporate governance practices. Soliciting shareholder feedback is a key component of this program, which we do at least annually. As appropriate, we also engage with shareholders during proxy season.

Our Board members, CFO and Investor Relations Director participate in these outreach meetings.
 
 
 
Board Involvement
 
The Chair of our Compensation Committee has participated in certain shareholder meetings. Our CFO conveys shareholders' feedback to the full Board and the Compensation Committee or Nominating/Corporate Governance Committee, depending on the subject of the feedback. The Board also receives any feedback we obtain from proxy advisory firms, such as ISS and Glass Lewis, as part of our outreach program.

The Board gives management feedback on key aspects of AAM's investor relations communication plan and shareholder outreach program.

2019 AAM Proxy Statement | 6

 


Proxy Summary

Board Responsiveness to Shareholder Feedback

As part of our annual shareholder outreach program, we contacted our 25 largest shareholders representing over 70% of outstanding shares and were able to speak with shareholders representing over 30%. The Chair of our Compensation Committee participated in this engagement, along with our CFO and Investor Relations Director. The discussion topics included those shown below.
Shareholder Engagement Topics
 
 
 
 
þ
Sustainability program
þ
Incentive compensation metrics and goal rigor
 
 
 
 
þ
Board diversity
þ
Selection process for Board candidates
 
 
 
 
þ
Board evaluation process
þ
Board oversight of risk
 
 
 
 
þ
Board refreshment
þ
Separation of Chairman and CEO roles
 
 
 
 
þ
Shareholder rights
þ
Classified Board

We shared the content of these discussions with our full Board and its Committees. As a result of these shareholder meetings and Board discussions that followed, our Board and its Committees took a number of actions in 2018 and 2019 as highlighted below.
Enhanced the experience, leadership and diversity of our Board with the appointments of Herbert K. Parker and Sandra E. Pierce in November 2018. These appointments were the result of active recruitment of women and minority candidates.
Formalized our commitment to Board diversity by adopting a policy that requires director searches to include women and minorities in the initial group of qualified candidates for every open Board seat. In February 2019, the Board amended our Corporate Governance Guidelines to include this policy.
Strengthened the governance of our sustainability program by assigning oversight responsibility to the Nominating/Corporate Governance Committee of the Board.
Increased the transparency of our sustainability program by continuing to improve the disclosure of ESG matters in our annual report to shareholders, corporate website and proxy statement. These efforts will continue on a longer-term basis as part of the sustainability journey, which is integral to our overall business strategy.
Adopted proxy access by-laws.
Continued to align the metrics and rigor of our incentive compensation plans to drive achievement of our business strategy. Our shareholders expressed support of our incentive compensation program and our transparency regarding the decision-making process through enhanced proxy statement disclosures.

2019 AAM Proxy Statement | 7

 


Proxy Summary

Sustainability Program
Environmental, Social and Governance Initiatives
At AAM, corporate responsibility is an integral part of our business strategy. Since our inception, AAM has believed being focused on sustainability is beneficial to our shareholders, associates, suppliers, customers, communities and the environment. With our cultural values and strategic principles as a foundation, AAM associates are empowered to act according to the highest standards of ethics and integrity, and with respect for the cultures in which we do business, while serving local communities and having a positive impact on the environment.
AAM's Environmental, Social and Governance (ESG) program is fundamental to our global business operations and is aligned with our strategic objectives. ESG is a journey, and we will continue to build upon our foundational programs as we move forward. We also communicate with our shareholders about ESG topics and solicit their feedback. In response to shareholder feedback and to make continuous improvement, we strengthened the governance of our sustainability program with board-level oversight and with AAM leadership focused on ESG performance as a top company goal for 2019. Some of our key ESG initiatives are summarized below.
Environmental Stewardship
AAM is dedicated to the protection and conservation of the environment. We are helping to ensure a green future through product innovation, social responsibility, global compliance, and the reduction of energy use, waste and pollution.
Technology Leadership: AAM contributes to a better global environment through the development of innovative mobility solutions that improve fuel efficiency and reduce CO2 emissions. We have made significant investments in research and development to develop and advance products that reduce mass, increase efficiency, lower emissions and advance electrification. These technologies will help automakers meet global environmental emissions regulations while also increasing fuel efficiency.
Global Environmental Policy: AAM's global operations are aligned to support our commitment to the environment. About 90% of all of our products are manufactured in facilities that are certified to ISO 14001-2015. During the last three years, we have more than tripled the number of manufacturing facilities that have earned the ISO 50001 Energy Management certification. We will continue to add more locations to the list of certified facilities and deploy best practices throughout our global operations.
Social Responsibility
People-First Culture: We are focused on recruiting, developing and retaining the best and brightest talent globally. We provide our global associates with the tools to develop technically and grow professionally into the leaders that will guide AAM into the future. We strive to ensure inclusive hiring processes and work environments and support diversity and inclusion initiatives of our associates. Our human rights policy is designed to support universal human rights and the dignity of our associates and people in our communities and global supply chain.
Safety Focus: Our most valuable asset is our global team of associates and we work hard each day to keep them safe at each of our facilities. With safety as a top priority, we designed and implemented our S4 system and safety culture, which is focused on developing, engaging, monitoring and continuously educating our associates on standardized procedures that keep them safe. Every AAM location uses the S4 system.
Community Involvement: AAM and our associates have a long tradition of supporting the communities in which we live and work. We continued to have a positive impact during 2018 through a wide variety of corporate initiatives and individual activities.
AAM committed significant resources to revitalize key Detroit neighborhoods near AAM's world headquarters as part of the City of Detroit Strategic Neighborhood Fund. Contributions from AAM and other Detroit organizations will be used to bring much-needed physical improvements to neighboring communities. Our associates will have the opportunity to participate in volunteer activities and make a difference in these vibrant but under-served neighborhoods.
In Mexico, the Richard E. Dauch Education and Development Institute opened next to AAM's Guanajuato Manufacturing Complex. A joint initiative between AAM and the local government, the Institute will train current and future AAM associates with the latest technology and manufacturing

2019 AAM Proxy Statement | 8

 


Proxy Summary

process excellence. For the benefit of the surrounding community, we designed the Institute to make the facility and its resources available for additional training and educational opportunities.
We continued our work with charitable organizations committed to supporting local families, youth outreach, education, wellness and social equality, which include the Boy Scouts of America, the United Way, the Boys and Girls Clubs of Southeastern Michigan and St. Jude Children's Hospital.
Across the globe, AAM supported opportunities for our associates to give back to their communities and those in need through charitable donations and numerous volunteer programs.
Strong Governance
In response to shareholder feedback and consistent with our focus on continuous improvement, we recently enhanced the governance of our ESG program.
Sustainability Working Group: In 2018, our corporate Policy Committee, which is chaired by the CEO, established a Sustainability Working Group to focus on and achieve objectives related to our sustainability program. The Sustainability Working Group is led by AAM's President (Environmental Factors), Vice President, Human Resources (Social Factors) and Vice President & General Counsel (Governance Factors) and is supported by cross-functional teams of subject matter experts and leaders.
Board and Committee Oversight: In 2019, the Charter of the Nominating/Corporate Governance Committee was expanded to include oversight of our sustainability policies, programs and reporting. This level of oversight reflects the importance of our sustainability program to AAM's long-term business strategy and objectives.
We recently published our first Sustainability Review, a baseline-setting document, which describes key focus areas of our ESG program. For more information on AAM's ESG program and policies, please visit www.aam.com/Sustainability.


2019 AAM Proxy Statement | 9

 


Proxy Summary

Compensation Highlights
Executive Compensation Philosophy
AAM is committed to a compensation philosophy that supports our business strategy and performance, aligns with stockholder interests, and pays competitively.
 
Supports Business Strategy
Market Competitive
Aligned with
Shareholder Interests
 
 
 
 
 
86% of CEO compensation is variable and at risk
 
Rigorous performance goals as key drivers of enterprise value creation such as EBITDA, relative TSR and cash flow
 
Programs utilize metrics that emphasize company performance and are aligned with business strategy
Attract and retain executive talent
 
Benchmark pay against a peer group of similarly sized companies
 
Target direct compensation at the 50th percentile
 
Ensure incentive plans reward for desired behaviors and pay outcomes align with results
Mix of annual and long-term incentive programs balances focus between short-term results and long-term share appreciation
 
66% of LTI is performance-based
 
Cap on payout of performance shares based on relative TSR if absolute TSR is negative
 
CEO stock ownership requirement of 6 times base salary
 
The foundation of our compensation philosophy is a best practice approach to compensation governance that includes a clawback policy, an anti-hedging policy, an annual risk assessment of compensation programs and practices, double-trigger equity vesting and severance provisions, and the exclusion of excise tax gross-ups.
2018 Executive Compensation Highlights
AAM's 2018 say-on-pay proposal received a favorable vote of 97% of votes cast. To gain this level of support, we engaged with our shareholders and implemented changes in response to their feedback.
We increased the rigor of our annual and long-term incentive compensation targets for awards granted in 2018 and continued this practice to drive management performance at the highest levels.
In April 2018, AAM amended the legacy Supplemental Executive Retirement Plan (SERP) and the Executive Deferred Compensation Plan to freeze further benefit accruals and new participation in the plans. Based on a benchmark analysis of executive retirement plan benefits, we adopted the Executive Retirement Savings Plan, a deferred compensation plan that reduces executive retirement benefits, provides cost savings to the Company as compared to the SERP, and further aligns our programs with prevailing market practices.
In April 2018, AAM adopted the Executive Officer Severance Plan in order to provide severance other than in a change in control to executive officers with the purpose of retaining our executives and allowing them to focus on our business strategy. In addition, AAM amended its employment agreements with Mr. Dauch and Mr. Simonte to align severance payable under their employment agreements with the Severance Plan.


2019 AAM Proxy Statement | 10

 


Proxy Summary

Pay for Performance Alignment
Our compensation programs are designed to balance short-term performance with long-term growth. To align executive pay with AAM's performance, a significant amount of our CEO's and other NEOs' compensation is performance based and is at risk.
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Compensation Program Metrics Link to Strategic Business Objectives
The Compensation Committee utilizes both short- and long-term financial metrics relative to our business objectives, as well as relative total shareholder return (TSR) as a long-term incentive (LTI) metric. The following chart demonstrates how our incentive compensation metrics correlate to our strategic business objectives.
Strategic Business Objective
Alignment
Incentive Metric
 
 
 
Continue to strengthen the balance sheet; provide funding for organic growth, research and development, and other capital priorities
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Free Cash Flow
- 2018 LTI Performance Shares
   (50% metric of performance-based LTI)
 
 
Develop innovative technology, including electrification. Reinvest in research and development
Relative TSR
- 2018 LTI Performance Shares (50% metric of performance-based LTI)
 
Create sustainable value for shareholders
 
 
Achieve profitable growth, along with the ability to be flexible as the market changes, and reduce leverage
EBITDA
- 2018 Annual Incentive Program
  (100% metric)

 
Deliver integration synergies from recent acquisitions


2019 AAM Proxy Statement | 11

 


Proxy Summary

Goal Rigor
The Committee annually reviews performance metrics, targets and payouts to ensure that they are challenging stretch goals designed to align with our strategy and long-range plan and also to mitigate risk. The 2018 annual and long-term incentive metrics were designed to reward growth and sustain profitability.
In addition, the 2018 incentive metrics were modified to drive significant focus on EBITDA for the short-term metric and free cash flow and relative TSR, weighted equally, for the long-term metrics.
2018 Annual Incentive Compensation
The Committee selected adjusted EBITDA as the sole metric for the 2018 annual incentive award to drive significant focus on this metric. Superior EBITDA performance is critical to our strategy of generating cash, reducing leverage and providing funding for organic and strategic growth. The performance levels for 2018 annual incentive awards reflect stretch goals that are designed to reward growth and sustain profitability as shown below.
Target performance was set at a level significantly higher than 2017 actual adjusted EBITDA performance.
Achievement of target performance would result in the highest adjusted EBITDA performance in AAM history.
Target performance is higher than the performance of a majority of our peer group companies.
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Although 2018 actual adjusted EBITDA performance was a record-setting achievement for AAM, the pre-established performance target was not achieved. As a result of this goal rigor, our NEOs received a below-target payout.
2018 Long-Term Incentive Compensation
Based on feedback from shareholders and alignment with our strategy, the Committee also modified the 2018 LTI performance metrics to include free cash flow and relative TSR, weighted equally. The performance levels set for 2018 required our management team to continue to perform at a high level, achieve integration synergies, implement productivity improvements, successfully launch new product programs and create long-term value. The Committee increased the rigor of the threshold, target and maximum performance levels as shown below.
Free cash flow target performance for 2018 - 2020 was set at a level higher than the previous three years' performance.
Achievement of target performance would result in the highest free cash flow in AAM history.
Relative TSR payout is capped if absolute TSR is negative.

2019 AAM Proxy Statement | 12

 


Proxy Summary


2016 - 2018 Performance Share Awards
Payouts under the LTI performance share awards granted in 2016 were based on two equally weighted, three-year performance metrics – adjusted relative TSR and EBITDA margin. Awards based on relative TSR resulted in a zero payout to senior management because the threshold performance level was not achieved. This result reflects the Compensation Committee's commitment to align LTI pay with the interest of our shareholders through rigorous goal-setting. Our shareholders did not realize value on our stock over this time period. Consequently, and by design, our senior management team received no value from these awards.
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Governance Point
 
 
Payout capped if 3-year absolute TSR is negative.
 
 
 
 
 
The performance targets for the EBITDA performance share awards were determined in consideration of AAM's historical EBITDA margins for 2013 - 2015 as noted below. The maximum performance level was set to drive performance significantly above our peers and encourage EBITDA margin growth. Over this period, management delivered a result well in excess of targets and prior actual performance, which supported an above-target payout. This outstanding financial performance allowed us to reduce debt and position AAM for strategic actions.
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Actual Performance
 
 
Average Adjusted EBITDA Performance from 2013 - 2015
 
13.9%
 
 
 
Peer Average Adjusted EBITDA Performance from 2013 - 2015
 
10.7%
 
 
 






2019 AAM Proxy Statement | 13

 


Election of Directors


Election of Directors
Proposal 1: Election of Directors
The Board proposes that Elizabeth A. Chappell, Herbert K. Parker and John F. Smith be re-elected to the Board as Class II directors for terms expiring at the annual meeting in 2022.
The Board is divided into three classes. Directors serve for staggered three-year terms. The Board believes that the staggered election of directors helps to maintain continuity and ensures that a majority of directors at any given time will have in-depth knowledge of the Company.
The Board unanimously approved the nominations of Ms. Chappell, Mr. Parker and Mr. Smith based on their demonstrated effectiveness as members of our Board and the committees on which they serve, their experience and expertise, and their sound judgment and integrity. Each nominee brings a strong and unique background and set of skills to the Board.
Collectively, the Board has high levels of competence and experience in a variety of areas, including manufacturing, engineering, finance, international business, management, law, risk management, strategic business development and the global automotive industry. A summary of the principal occupation, professional background and specific knowledge and expertise that qualify each nominee and returning director to serve on our Board is provided in the following pages of this proxy statement.

þ
The Board unanimously recommends a vote FOR each of the nominees.




14

Election of Directors


Nominees for Director
Class II— Directors to hold office until the 2022 Annual Meeting of Stockholders
 
Elizabeth A. Chappell
Executive Chairwoman, RediMinds, Inc.
 
 
 
 
 
chappelbeth103113higha01.jpg
Current and Past Positions
Key Qualifications and Experience
 
Executive Chairwoman (co-founder)
RediMinds, Inc. (data strategy, engineering and innovation firm) since December 2017
 
President & Chief Executive Officer
Detroit Economic Club
2002 - 2017
 
Executive Vice President, Corporate Communications & Investor Relations
Compuware Corporation
1997 - 2001
 
President & Chief Executive Officer
of a consulting firm she founded
1995 - 2000
 
Various executive positions with increasing responsibility with AT&T for 16 years
Based on her professional background and prior AAM Board experience, the following qualifications led the Board to conclude that Ms. Chappell should serve on AAM's Board: her leadership experience as President & CEO of the Detroit Economic Club; the breadth of her community outreach and corporate citizenship experience in her professional, civic and charitable endeavors; and her subject matter knowledge in the areas of investor relations, marketing and communications, business development and risk management.
 
 
 
 
 
 
Current Directorships (non-profit)
 
Age: 61
Previous Directorship
Detroit Economic Club
Detroit Regional Chamber
Detroit Zoo
Michigan Israel Business Accelerator (MIBA)
Michigan State University Capital Campaign
United Way of Southeastern Michigan


 
Director Since: 2004
Handleman Company
1999 - 2009

– Compuware Corporation
1997 - 2002

 
Committees:
 
Nominating/Corp Gov
 
(Chair)
 
Technology


15

Election of Directors


 
Herbert K. Parker
Retired Executive Vice President Harman International Industries
 
 
 
 
 
parkerherbert012219high.jpg
Past Positions
Key Qualifications and Experience
 
Positions at Harman International Industries, Inc.:
Executive Vice President, Operational Excellence
January 2015 - March 2017
Executive Vice President and Chief Financial Officer
2008 - January 2014
Positions at ABB, Inc. and related ABB companies:
Chief Financial Officer, North America
2006 - 2008
Chief Financial Officer, Automation Technologies Division
2002 - 2005
Various finance positions of increasing responsibility throughout Asia, Europe and North America
1980 - 2002
Based on his professional background and public company board and audit committee experience, the following qualifications led the Board to conclude that Mr. Parker should serve on AAM’s Board: his leadership and financial experience as the Chief Financial Officer of Harman International Industries, Inc. and of ABB; his responsibilities for mergers and acquisitions, information technology, internal audit and tax; the breadth of his management experience over global operating activities, capital allocation structures and developing and implementing strategic plans; and his subject matter knowledge in the areas of finance, investments, audit and accounting, strategic planning and risk management.
 
 
 
 
 
Current Directorship (non-profit)
 
Stamford, Connecticut YMCA
 
Age: 61
Other Public Company Directorships
 
Director Since: 2018
TriMas Corporation since March 2017
Apogee Enterprises, Inc. since May 2018
nVent Enterprises Plc. since May 2018
 
Committees:
 
Audit
 
Nominating/Corp Gov
 

 
John F. Smith
Principal, Eagle Advisors LLC
 
 
 
 
 
smithjohn103113higha01.jpg
Current and Past Positions
Key Qualifications and Experience
 
Principal, Eagle Advisors LLC (strategy development and performance improvement consulting) since 2011

Positions at General Motors:
 
Group Vice President, Corporate Planning and Alliances (most recent position)
2000 - 2010
General Manager, Cadillac Motor Car
1997 - 1999
President, Allison Transmission
1994 - 1996
Vice President, Planning; International Operations, Zurich Switzerland
1989 - 1993
Based on his professional background and prior AAM Board experience, the following qualifications led the Board to conclude that Mr. Smith should serve on AAM's Board: his leadership experience in the automotive industry; the breadth of his management experience with General Motors international operations; and his subject matter knowledge in the areas of manufacturing, finance, innovation and technology, strategic planning and risk management.
 
 
 
 
 
Current Directorship (non-profit)
 
Boy Scouts of America
National Advisory Board


 
Age: 68
Other Public Company Directorships
 
Director Since: 2011
TI Fluid Systems plc (TI Automotive)
since October 2017
CEVA Holdings LLC since 2013
 
Committees:
 
Audit
Previous Directorships
 
Technology (Chair)
Covisint Corporation -- September 2016 - July 2017
Arnold Magnetics -- January 2015 - September 2016
Plasan Carbon Composites -- December 2013 - December 2014
Smith Electric Vehicles Corp. -- June 2012 - December 2013
 
 
 
 
 
 
 
 

16

Election of Directors


Returning Directors
Class III — Directors to hold office until the 2020 Annual Meeting of Stockholders
 
James A. McCaslin
Retired President & Chief Operating Officer, Harley-Davidson Motor Co.
 
 
 
 
 
mccaslinajames103113higha01.jpg
Past Positions
Key Qualifications and Experience
 
Positions at Harley-Davidson (Retired 2010):

President & Chief Operating Officer
2001 - 2009

Various senior executive positions
1992 - 2001

Other Manufacturing Company Positions:

Manufacturing and Engineering executive
JI Case (agricultural equipment)
1989 - 1992

Manufacturing and Quality executive
Chrysler Corporation
Volkswagen of America
General Motors Corporation
1966 - 1989

Based on his professional background and prior AAM Board experience, the following qualifications led the Board to conclude that Mr. McCaslin should serve on AAM's Board: his leadership experience as President & COO of Harley-Davidson Motor Company; the breadth of his manufacturing and engineering experience at global manufacturing companies; and his subject matter knowledge in the areas of engineering, innovation and technology, manufacturing and risk management.
 
 
 
 
 
 
 
Age: 70
 
 
Director Since: 2011
Previous Public Company Directorship
 
 
Committees:
Maytag Corporation
2003 - 2006
 
Compensation (Chair)
 
Nominating/Corp Gov
 
Technology
 
 
Executive

17

Election of Directors


 
William P. Miller II CFA
Head of Asset Allocation, Saudi Arabian Investment Company
 
 
 
 
 
millerwilliam103113higha01.jpg
Current and Past Positions
Key Qualifications and Experience
 
Head of Asset Allocation
Saudi Arabian Investment Company
since October 2013

Senior Managing Director &
Chief Financial Officer
Financial Markets International, Inc.
April 2011 - October 2013

Deputy Chief Investment Officer
Ohio Public Employees Retirement System
2005 - 2011

Senior Risk Manager
Abu Dhabi Investment Authority
2003 - 2005

Independent Risk Oversight Officer and Chief Compliance Officer
Commonfund Group
1996 - 2002
Based on his professional background and prior AAM Board and Audit Committee experience, the following qualifications led the Board to conclude that Mr. Miller should serve on AAM's Board: his leadership qualities developed from his experience as Head of Asset Allocation for the Saudi Arabian Investment Company and as an officer with oversight responsibilities for investments, risk and compliance since 1996; the breadth of his experience in serving on the boards of the Chicago Mercantile Exchange and the Dubai Mercantile Exchange; and his subject matter knowledge in the areas of finance, investments, audit and accounting, innovation and technology, regulatory matters and risk management.
 
 
 
 
 
 
 
Age: 63
 
Director Since: 2005
Advisory Boards (Previous)
 
Committees:
Previous Directorships
Public Company Accounting Oversight Board Standing Advisory Group
Golub Capital
Institutional Investor Advisory Board

 
Audit (Chair)
Chicago Mercantile Exchange
2003 - May 2017
Dubai Mercantile Exchange
2011 - March 2017
 
Technology
 
 

 
Sandra E. Pierce
Senior Executive Vice President Huntington Bank
 
 
 
 
 
piercesandra012219high.jpg
Current and Past Positions
Key Qualifications and Experience
 
Chair, Huntington Bank Michigan and Sr. Vice President, Private Client Group & Regional Banking Director since August 2016

Vice Chair, First Merit Corporation and Chair and Chief Executive Officer, First Merit Michigan (acquired by Huntington Bank)
2013 - 2016

President and Chief Executive Officer, Charter One, Midwest Regional Executive (RBS Citizens, N.A.)
2005 - 2012

Various banking and executive positions with increasing responsibility with JPMorgan Chase, Michigan (successor to Bank One, First Chicago NBD and NBD Bank, N.A.) 1978 - 2005
Based on her professional background and public company board experience, the following qualifications led the Board to conclude that Ms. Pierce should serve on AAM’s Board: her leadership experience as Senior Executive Vice President - Private Client Group & Regional Banking Director, and Chair of Huntington Bank Michigan, and as chief executive officer of FirstMerit Michigan and Charter One; the breadth of her corporate marketing and community development experience in her professional, civic and charitable endeavors; and her subject matter knowledge in the areas of strategic planning, finance, public relations, business development, compensation/benefits and risk management.

 
 
 
 
 
 
 
 
 
Age: 60
Other Public Company Directorships
Current Directorships (non-profit)
 
Director Since: 2018
Penske Automotive Group since 2012
Federal Reserve Bank of Chicago, Detroit Branch
Business Leaders for Michigan, Vice-Chair
Detroit Economic Club
Detroit Regional Chamber
Detroit Riverfront Conservancy
Henry Ford Health System, Chair
United Way (Southeast Michigan)
 
 
 
Committees:
Private Company Directorships
 
Audit
Barton Malow Company
since January 2013
ITC Holding Corp (subsidiary of Fortis, Inc.)
since January 2017

 
Compensation
 
 
 
 

18

Election of Directors



 
Samuel Valenti III
Chairman & Chief Executive Officer, Valenti Capital LLC
 and World Capital Partners
 
 
 
 
 
valentisam020614higha03.jpg
Current and Past Positions
Key Qualifications and Experience
 
Chairman & Chief Executive Officer
Valenti Capital LLC and
World Capital Partners (investment firms)
since 2000

Positions at Masco Corporation (1968 - 2008)

President, Masco Capital Corporation
1988 - 2008

Vice President - Investments
Masco Corporation
1974 - 1998
Based on his professional background and prior AAM Board experience, the following qualifications led the Board to conclude that Mr. Valenti should serve on AAM's Board: his leadership experience as an executive of Masco for 40 years; the breadth of his management experience in diversified manufacturing businesses; and his subject matter expertise in the areas of strategic planning, finance, economics and asset management, and risk management.
 
 
 
 
 
 
 
Age: 73
Other Public Company Directorship
Current Directorships (non-profit) and Leadership Roles

 
Director Since: 2013
TriMas Corporation since 2002
 
Lead Independent Director
Previous Directorships
Business Leaders for Michigan
Renaissance Venture Capital Fund (Michigan) Advisory Board Chairman


 
Committees:
Horizon Global Corporation
2015 - May 2018
Masco Capital Corporation
1988 - 2008
 
Audit
 
Compensation
 
Nominating/Corp Gov
 
Executive


19

Election of Directors


Class I — Directors to hold office until the 2021 Annual Meeting of Stockholders
 
David C. Dauch
Chairman of the Board & Chief Executive Officer, AAM
 
 
 
 
 
dauchdavid7957crop1a01.jpg
Current and Past Positions at AAM
Key Qualifications and Experience
 
Chairman of the Board
since August 2013

Chief Executive Officer
since September 2012

President & Chief Executive Officer
September 2012 - August 2015

President & Chief Operating Officer
2008 - 2012

Various positions of increasing responsibility
1995 - 2008
Based on his professional background and prior AAM Board experience, the following qualifications led the Board to conclude that Mr. Dauch should serve on AAM's Board: his leadership experience as an officer of AAM since 1998; the breadth of his management experience within, and knowledge of, AAM's global operations; and his subject matter knowledge in the areas of innovation and technology, manufacturing, strategic planning and risk management.
 
 
 
 
 
 
 
Age: 54
Other Company Directorship
Current Directorships (non-profit)
and Leadership Roles
 
Director Since:
Amerisure Companies since 2014
 
2013 (Chairman)
Previous Directorship
Business Leaders for Michigan
Detroit Economic Club
Detroit Regional Chamber
Great Lakes Council Boy Scouts of America
Boys & Girls Club of Southeastern Michigan
National Association of Manufacturers (NAM)
Original Equipment Suppliers Association (OESA)
Miami University Business Advisory Council
General Motors Supplier Council
FCA NAFTA Supplier Advisory Council
 
2009
Horizon Global Corporation
June 2015 - May 2018
 
Committees:
 
Executive (Chairman)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

20

Election of Directors


 
William L. Kozyra
President & Chief Executive Officer, TI Fluid Systems plc
 
 
 
 
 
koczyrabill073015higha01.jpg
Current and Past Positions
Key Qualifications and Experience
 
President & Chief Executive Officer
TI Fluid Systems plc (TI Automotive) (fluid storage, carrying and delivery systems) since 2008

President & Chief Executive Officer
Continental AG North America
1998 - 2008

Member of Executive Board
Continental AG (DAX)
2006 - 2008

Vice President & General Manager
Brake Products Division of
Bosch Braking Systems
1995 - 1997
Based on his professional background and prior AAM Board experience, the following qualifications led the Board to conclude that Mr. Kozyra should serve on AAM's Board: his leadership experience as an officer of TI Automotive since 2008; the breadth of his international experience with global companies in the automotive industry; and his subject matter knowledge in the areas of engineering, manufacturing, innovation and technology, strategic planning and risk management.
 
 
 
 
 
 
 
Age: 61
Other Public Company Directorships
Current Directorships (non-profit)
and Leadership Roles
 
Director Since: 2015
 
Committees:
TI Fluid Systems plc (TI Automotive)
since 2008
General Motors Supplier Council
Ford Motor Company Top 100 Supplier Forum
Notre Dame Preparatory School
Automotive Hall of Fame
Boy Scouts of America, Detroit
University of Detroit Alumni Council
Society of Automotive Engineers
 
Compensation
 
Nominating/Corp Gov
 
Technology
 
 
 
 
 
 
 

 
Peter D. Lyons
U.S. Regional Managing Partner, Freshfields Bruckhaus Deringer US LLP
 
 
 
 
 
lyonspeter073015higha01.jpg
Current and Past Positions
Key Qualifications and Experience
 
Attorney, U.S. Regional Managing Partner
Freshfields Bruckhaus Deringer US LLP
New York, NY
since September 2014

Partner, Mergers & Acquisitions Group Shearman & Sterling LLP
New York, NY
1979 - 2014


Based on his professional background and prior AAM Board experience, the following qualifications led the Board to conclude that Mr. Lyons should serve on AAM's Board: his experience as an attorney of a major law firm since 1979; the breadth of his experience in advising global businesses on complex legal matters and transactions; and his subject matter knowledge in the areas of corporate governance, mergers and acquisitions, international business and risk management.
 
 
 
 
 
 
 
Age: 63
 
 
 
Director Since: 2015
 
 
Committees:
 
 
Compensation
 
 
Nominating/Corp Gov
 


21

Corporate Governance




Corporate Governance
Corporate Governance Highlights
At AAM, we believe that strong corporate governance contributes to long-term shareholder value. We are committed to sound governance practices, including those described below.
Independence
 
Accountability
9 of 10 independent directors (except our CEO)
Lead Independent Director
Committees comprised of only independent directors (except Executive Committee)
Independent directors meet regularly in executive session without management present
 
Proactive shareholder engagement program
Proxy access by-laws
Majority vote for directors In uncontested elections,
Annual Board and committee evaluations
Commitment to Board refreshment
Sound Practices
 
Risk Management
In 2019, the Board adopted a policy to include women and minority candidates in the selection process
In 2019, the Board assigned oversight responsibility for AAM's sustainability program to the Nominating/ Corporate Governance Committee
Director orientation and education
Stock ownership requirements for directors and executive officers
Hedging or pledging AAM stock is prohibited
 
Active Board oversight of AAM's overall risk management structure
Individual Board committees oversee risks related to their areas of responsibility
AAM has robust risk management processes throughout the company
The Board and its committees receive regular updates from management on top enterprise risks, and the steps management has taken or will take to mitigate these risks
Active Engagement with our Shareholders
Our Board and management team greatly value the opinions and feedback of our shareholders, which is why we have proactive, ongoing engagement with our shareholders throughout the year focused on corporate governance, executive compensation and corporate responsibility. This outreach is in addition to the ongoing communication between our shareholders and our Chairman & Chief Executive Officer, Vice President & Chief Financial Officer and Investor Relations team on AAM's financial performance and strategic objectives.
Why we engage
 
 
 
Provide transparency into our business strategy, corporate governance practices and executive compensation programs
Determine which issues are important to our shareholders and communicate each others' views on those topics
Identify emerging issues that may impact our business and influence our practices

22

Corporate Governance




How we engage
 
 
 
Investor Communication Program
 
We provide institutional investors with many opportunities to provide feedback to senior management by participating in conferences, one-on-one and group meetings, investor visits to our manufacturing facilities and technical centers, and day-to-day interactions with individual investors throughout the year.

In June 2018, AAM hosted an Investor Day at the New York Stock Exchange where our CEO and senior management gave an update on our business and strategic plans.
 
 
 
Proactive Shareholder Outreach Program
 
As part of our annual shareholder outreach program, we also engage with shareholders in conference calls or meetings outside the proxy season. These exchanges, which we initiate, cover our executive compensation program, risk management, ESG, strategic planning and corporate governance practices. Soliciting shareholder feedback is a key component of this program, which we do at least annually. As appropriate, we also engage with shareholders during proxy season.

Our Board members, CFO and Investor Relations Director participate in these outreach meetings.

Our shareholder outreach activities during 2018 - 2019 are described in the Proxy Summary and the Compensation Discussion & Analysis.
 
 
 
Board Involvement
 
The Chair of our Compensation Committee has participated in certain shareholder meetings. Our CFO conveys shareholders' feedback to the full Board and the Compensation Committee or Nominating/ Corporate Governance Committee, depending on the subject of the feedback. The Board also receives any feedback we obtain from proxy advisory firms, such as ISS and Glass Lewis, as part of our outreach program.

The Board gives management feedback on key aspects of AAM's investor relations communication plan and shareholder outreach program.
Director Independence
The Board has adopted Director Independence Guidelines to assist in determining the independence of our directors under the independence standards of the New York Stock Exchange (NYSE). The Director Independence Guidelines are included in AAM’s Corporate Governance Guidelines, which are available on our website at http://investor.aam.com. The Board annually reviews and determines, on the recommendation of the Nominating/Corporate Governance Committee, whether any director has a material relationship with the Company that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. No director qualifies as independent unless the Board determines that the director has no direct or indirect material relationship with the Company.
In February 2019, the Board reviewed the independence of each then-sitting director, applying the independence standards set forth in our Corporate Governance Guidelines. Based on these independence standards and the relevant facts and circumstances, the Board determined that no director other than Mr. Dauch, our CEO, has a material relationship with AAM and that each director other that Mr. Dauch is independent. Mr. Dauch is not independent because of his employment with AAM.
Board Leadership Structure
Our Board consists of a combined Chairman and CEO role, complemented with a Lead Independent Director chosen from our independent directors. This structure, along with our sound governance practices, provides effective and independent oversight of the Company.
The Chairman and CEO role brings to the Board the experience and expertise of both the Company and the automotive industry. The skills and experience of our CEO are well-suited for the role of Chairman, putting the Board in the best position to identify and assess key industry drivers and important changes in the competitive landscape so that the Board can develop effective strategies. In light of the opportunities and challenges facing

23

Corporate Governance




AAM and the importance of the Chairman role, the Board believes that shareholders are best served by having Mr. Dauch serve in the combined role of Chairman and CEO.
While our independent directors bring diverse experiences and expertise from various perspectives outside AAM, Mr. Dauch's in-depth knowledge of our business enables him to identify important areas of focus for the Board and effectively recommend appropriate agendas. The combined role of Chairman and CEO facilitates information flow between management and the Board, provides clear accountability and promotes efficient decision making, all of which are essential to effective governance.
Lead Independent Director
Our Board leadership structure is further enhanced by a Lead Independent Director. The Lead Independent Director plays an important role in our governance structure, working with both the independent directors and the CEO to ensure the Company is well positioned with sound strategy, robust risk management and effective governance. The Lead Independent Director's key responsibilities are to:
preside at executive sessions of independent directors;
call special executive sessions of independent directors, as appropriate;
serve as liaison between the independent directors and the Chairman & CEO;
inform the Chairman & CEO of issues arising from executive sessions of the independent directors; and
with Board approval, retain outside advisors who report to the full Board on matters of interest to the Board.
Mr. Valenti currently serves as Lead Independent Director.
Board Meetings
Under AAM's by-laws, regular meetings of the Board are held at least quarterly. Our practice is to schedule certain Board meetings at an AAM manufacturing or technical center so our directors have an opportunity to observe different aspects of our business first-hand. During 2018, the Board held four regularly scheduled meetings.
Directors are expected to attend all Board meetings, meetings of committees on which they serve, and the annual meeting of stockholders. Directors are expected to spend the time needed and meet as frequently as necessary to properly discharge their responsibilities. All continuing directors attended 100% of the Board and applicable committee meetings during 2018, except one director missed one Board meeting and another missed two committee meetings that were held on the same day. Overall attendance at Board and committee meetings was 97%. All directors then in office attended the 2018 annual meeting of stockholders. No director attended less than 88% of Board and committee meetings on which he or she served in 2018.
Board Committees
The Board has delegated some of its authority to five committees: the Executive Committee, the Audit Committee, the Compensation Committee, the Nominating/Corporate Governance Committee and the Technology Committee. Each of the Audit, Compensation and Nominating/Corporate Governance Committees has adopted a charter that complies with current NYSE rules relating to corporate governance. Copies of these committee charters are available at http://investor.aam.com.
The Board approved the rotation of certain directors' committee memberships effective January 2019. The Board believes that periodic rotation of committee membership is generally desirable to ensure that committees regularly benefit from diverse views.
With respect to the Audit Committee, the Board appointed Mr. Parker and Ms. Pierce as new members based on each of their professional experience and expertise. Based on Mr. Parker's prior experience as a chief financial officer, the Board determined that Mr. Parker is a financial expert according to SEC rules. In addition, the Board considered Mr. Parker's concurrent service on the audit committees of three other public companies since his retirement from Harman International Industries, Inc. in March 2017. The Board concluded that, as a retiree, Mr. Parker's simultaneous service on the other audit committees would not impair his ability to effectively serve on AAM's Audit Committee. Mr. Parker has adequate time to fulfill his responsibilities as a member of the Audit Committee and our Board.
Committee membership as of March 21, 2019, the number of meetings held during 2018, and each committee's primary responsibilities are summarized below. Every committee other than the Executive Committee regularly reports on its activities to the full Board.

24

Corporate Governance




Audit Committee
 
 
2018 Meetings: 4

Members:

William P. Miller II (Chair) *
Herbert K. Parker*
Sandra E. Pierce
John F. Smith*
Samuel Valenti III

 *Financial Expert
 Oversees the independent auditors' qualifications, independence and performance
 Oversees the quality and integrity of our financial statements
 Oversees the performance of our internal audit function
Discusses with management the Company's risk assessment and risk management framework
Approves audit and non-audit services provided by the independent auditors
 
Oversees the Company's hedging and derivatives practices
*Financial Expert
Provides oversight of the Company's ethics and compliance programs
 
Oversees our cybersecurity risk management program and receives quarterly reports by our Chief Information Officer
 
 
Compensation Committee
 
 
2018 Meetings: 5

Members:
 
James A. McCaslin (Chair)
William L. Kozyra
Peter D. Lyons
Sandra E. Pierce
Samuel Valenti III
 Recommends the CEO's compensation to the Board and establishes the compensation of other executive officers
Recommends incentive compensation and equity-based plans to the Board
Approves executive officer compensation to ensure that is designed to support achievement of the Company's business strategy and objectives while considering competitive market practices and shareholder interests
 Recommends non-employee director compensation to the Board
Oversees management's risk assessment of the Company's policies and practices regarding compensation of executive officers and other associates
 
 Evaluates and approves corporate goals and objectives for executive officer compensation and evaluates performance in light of these criteria
 
 Oversees the preparation of the Compensation Discussion and Analysis (CD&A) and produces a Committee report for inclusion in our annual proxy statement
 
 
Nominating/Corporate Governance Committee
 
 
2018 Meetings: 4

Members:
 
Elizabeth A. Chappell (Chair)
William L. Kozyra
Peter D. Lyons
James A. McCaslin
Herbert K. Parker
Samuel Valenti III

 
 Identifies qualified individuals to serve on the Board and committees
Reviews our Corporate Governance Guidelines and Code of Business Conduct and recommends changes as appropriate
Oversees succession planning for executive officers and other key executive positions and supports the Board's succession/contingency planning process for the CEO
Oversees evaluation of the Board and its committees
Reviews committee charters and recommends any changes to the Board
Oversees our sustainability program policies, strategies and performance and reviews sustainability/corporate responsibility matters with management
 
 

25

Corporate Governance




Technology Committee
 
 
2018 Meetings: 3

Members:
 
John F. Smith (Chair)
Elizabeth A. Chappell
William L. Kozyra
James A. McCaslin
William P. Miller II
 Advises the Board and management on the Company's strategy for innovation and technology
 Maintains awareness of market demands for technology advancements relative to product, processes and systems
 Oversees and advises management regarding product, process and systems technologies
Reviews technology opportunities as potential ways to increase productivity, efficiency, quality and warranty performance and to support the Company's goals and objectives
 
 Conducts strategy discussions with the full Board
 
 
Executive Committee
 
 
2018 Meetings: 1

Members:
 
David C. Dauch (Chair)
James A. McCaslin
Samuel Valenti III
  Acts on matters requiring Board action between meetings of the full Board
Has authority to act on certain significant matters, limited by our by-laws
All members other than Mr. Dauch are independent
 
 
Board Oversight of Risk Management
The Board believes that strong and effective internal controls and risk management processes are essential for achieving shareholder value. The Board has oversight for risk management with a focus on the most significant risks facing the Company, including strategic, operational, financial and compliance risks. The Board's risk oversight process builds upon management's risk assessment and mitigation processes, which include an enterprise risk management program, regular internal management disclosure and compliance committee meetings, a global ethics and compliance program and comprehensive internal audit processes.
The Board implements its risk oversight function both as a full Board and through delegation to Board committees, which regularly report to the full Board. The Board has delegated the oversight of specific risks to Board committees that align with their functional responsibilities, as summarized in the table below.

26

Corporate Governance




Responsible
Party
Primary Areas of Risk Oversight
 
 
 
Full Board
 
Oversees overall risk management function and regularly receives reports from the chairs of individual Board committees on risk-related matters falling within each committee's oversight responsibilities. Also receives reports from management on particular risks facing the Company, including through the review of AAM's strategic plan.
 
 
 
Audit Committee
 
Monitors financial, operational, and compliance risks by regularly reviewing reports and presentations given by management, Internal Audit, Company advisors and the independent auditors.

Regularly reviews risk management practices and risk-related policies (for example, AAM's risk management process and cybersecurity strategy) and evaluates potential risks related to internal controls over financial reporting.

Oversees cybersecurity risk management and risk controls. Receives quarterly reports from our Chief Information Officer on AAM's cybersecurity program, including AAM's monitoring, auditing, implementation and communication processes, controls and procedures.

Monitors financial risks, including capital structure and liquidity risks, and reviews the policies and strategies for managing financial exposure and contingent liabilities.
 
 
 
Compensation Committee
 
Monitors potential risks related to the design and administration of our compensation plans, policies and programs, including our performance-based compensation programs, to promote appropriate incentives that do not encourage executive officers to take unnecessary and/or excessive risks.
 
 
 
Nominating / Corporate Governance Committee
 
Monitors potential risks related to our governance practices by, among other things, reviewing succession plans and performance evaluations of the Board and CEO and monitoring legal developments and trends regarding corporate governance practices.
 
 
 
Technology Committee
 
Monitors risks associated with the Company's product portfolio and our innovation and technology plans.
Identifying and Evaluating Director Candidates
Our Board believes that the most effective oversight comes from a Board that represents a diverse range of experience and perspectives that provide the collective skills, qualifications and attributes necessary to provide sound governance. To carry out its responsibilities and set the appropriate tone at the top, our Board is focused on the character, integrity and qualifications of its members, and on the Board's leadership structure and composition.
The Nominating/Corporate Governance Committee reviews with the Board the experience and attributes desired for effective governance in our changing industry and evaluates the current Board composition in light of these criteria. Although specific qualifications may vary from time to time, desired qualities and characteristics include:
high ethical character and shared values with AAM;
high-level leadership experience and achievement at a policy-making level in business, educational or professional activities;
breadth of knowledge of issues affecting AAM;
special competencies, such as financial, technical, international business or other expertise, or industry knowledge;
awareness of a director's vital role in AAM's good corporate citizenship and corporate image; and
sufficient time and availability to effectively carry out a director's duties.
The Board as a whole should reflect a balance of knowledge, experience, skills, expertise and diversity that, when taken together, will enhance the quality of the Board’s deliberations and decisions.
The Board believes that diversity is an essential element of Board effectiveness. Consistent with this philosophy, the Board is committed to including in each search qualified candidates who reflect diverse backgrounds, including

27

Corporate Governance




diversity of gender and race. The Board formalized this commitment to diversity by amending its Corporate Governance Guidelines in February 2019.
Based on shareholder feedback and the Board's focus on Board diversity and refreshment, the Board enhanced the experience, leadership and diversity of the Board with the appointments of Herbert K. Parker and Sandra E. Pierce in November 2018. These appointments were the result of active recruitment of women and minority candidates. Ms. Pierce was identified as a candidate by Mr. Dauch and Mr. Parker was identified by another Board member.
In addition, for incumbent directors, the Nominating/Corporate Governance Committee and the full Board consider attendance, past performance on the Board and contributions to the Board and applicable committees. These factors also were taken into consideration in nominating Ms. Chappell, Mr. Parker and Mr. Smith for re-election as Class II directors, each with a term expiring on the date of the 2022 annual meeting of stockholders.
Our current Board, comprised of 10 directors, reflects the Board's commitment to identify, evaluate and nominate candidates who possess personal qualities, qualifications, skills, and diversity of backgrounds, and provide a mix of tenures that, when taken together, best serve our company and our shareholders. Diversity in tenure creates a good mix of perspectives. Longer-tenured directors bring a deep understanding of the Company and continuity as new directors join the Board. Newer members bring new perspectives, expertise and diversity as the Board is refreshed to address changes in the business over time.
The current mix of top skills and qualifications of our Board members and key features of the Board's composition are depicted below.
Director Qualifications, Skills and Experience
chart-cab29aba817653ccfa5.jpg
Board Composition
 
 
 
 
Independence
Tenure
Age
Diversity
90%
7
64
30%
Independent
Average
Years of Service
Average
Age
Women or Minority

28

Corporate Governance




Communicating with the Board
Our Board and management team value the opinions and feedback of our shareholders, and we engage with stockholders throughout the year on a variety of issues, including our executive compensation program and corporate governance. Shareholders and other interested parties who wish to communicate with us on these or other matters may contact our Investor Relations Department by email at investorrelations@aam.com or by mail at One Dauch Drive, Detroit, Michigan 48211-1198 (corporate address).
Shareholders or other interested parties may communicate with the Board through the Secretary of AAM by e-mail at AAMBoardofDirectors@aam.com or by mail at the corporate address above. The Board has instructed the Secretary to review all such communications and to exercise his discretion not to forward correspondence to the Board that is inappropriate, such as advertising and business solicitations, routine business matters and personal grievances. However, any director may instruct the Secretary to forward any communication received by the Secretary on behalf of the Board.
Corporate Governance and ESG Policies
Because we believe corporate governance is integral to creating long-term shareholder value, our Board has adopted company-wide corporate governance policies, which are periodically reviewed and revised as appropriate to ensure that they reflect the Board's corporate governance objectives.
Please visit the Governance section of our website (http://investor.aam.com/governance) to learn more about our corporate governance practices and to access the following materials:
Corporate Governance Guidelines
Code of Ethics for the CEO, CFO and other Senior Financial Executives (Code of Ethics)
Charters of our Board Committees
Code of Business Conduct
A written copy of our Code of Business Conduct and Code of Ethics also may be obtained by any stockholder without charge upon request to the AAM Investor Relations Department by email at investorrelations@aam.com or by mail at our corporate address above.
We recently published our first Sustainability Review, a baseline-setting document, which describes key focus areas of our ESG program. For more information on AAM's ESG program and policies, please visit www.aam.com/Sustainability.





29

Compensation of Directors

Compensation of Directors
The Compensation Committee has authority to develop and recommend to the full Board the compensation policies and programs for non-employee directors. The Committee retains Meridian Compensation Partners LLC (Meridian) to advise when setting non-employee director compensation to ensure it is market-based, aligned with shareholder interests and consistent with our compensation principles.
AAM's compensation program for our non-employee directors is designed to meet the following objectives:
recognize the significant investment of time and expertise required of directors;
align the directors' interests with the long-term interests of our shareholders; and
ensure that the compensation of directors is well perceived by our shareholders.

2018 Annual Retainer and Committee Chair Retainers
Annual retainer
$
110,000

Committee chair annual retainer:
 
Audit Committee chair
20,000

Compensation Committee chair
15,000

Other committee chair
10,000

Lead director annual retainer
30,000

Non-employee director compensation for 2018 remained unchanged from 2017.
Annual Equity Grant
Non-employee directors serving on the Board on the date of the 2018 annual meeting received a grant of 8,711 restricted stock units (RSUs) with a grant date value of $125,000. The RSUs are payable in stock and vest in one year, unless vesting is accelerated upon death, disability or a change in control. Non-employee directors may elect to defer settlement of the RSUs until after termination of service from the Board.
Director Stock Ownership Guidelines
Our non-employee director stock ownership guidelines provide that each non-employee director should own shares with a value equal to at least five times the director annual cash retainer. Non-employee directors are expected to meet the guidelines within five years from the date of election to the Board or February 2017, whichever is later. For purposes of meeting these guidelines, shares owned directly, deferred RSUs and unvested RSUs are counted. Each non-employee director has met, or is on track to meet, these ownership guidelines. Current stock ownership of non-employee directors is shown in the Beneficial Stock Ownership table.
Anti-hedging and Anti-pledging policy
Non-employee directors are prohibited from entering into transactions that may result in a financial benefit if our stock price declines, or any hedging transaction involving our stock, including the use of financial derivatives, short sales or any similar transactions. Pledging of AAM stock is also prohibited.

30

Compensation of Directors


Director Compensation Table
Total 2018 compensation of our non-employee directors is shown below.
Name
Fees Earned or
Paid in Cash(1)
($)

Stock Awards(2)
($)

All Other Compensation(3)
($)

Total
($)

Elizabeth A. Chappell
120,000

125,003

700

245,703

William L. Kozyra
110,000

125,003

700

235,703

Peter D. Lyons
110,000

125,003

800

235,803

James A. McCaslin
125,000

125,003

600

250,603

William P. Miller II
130,000

125,003

700

255,703

Herbert K. Parker(4)
18,333



18,333

Sandra E. Pierce(4)
9,167



9,167

John F. Smith
120,000

125,003

700

245,703

George Thanopoulos(5)
36,667



36,667

Samuel Valenti III
140,000

125,003

1,400

266,403

(1)
Fees earned in 2018 for services whether paid currently in cash or deferred. Non-employee directors may elect to defer, on a pre-tax basis, a portion of their retainer and meeting fees and receive tax-deferred earnings (or losses) on the deferrals under AAM’s Executive Deferred Compensation Plan.
(2)
Reflects the full grant date fair value of RSUs granted on May 3, 2018 calculated in accordance with FASB ASC 718 (without any reduction for risk of forfeiture) as determined by applying the assumptions used in our financial statements. The grant date fair value of equity awards was calculated using the closing market price of AAM common stock on the grant date ($14.35). See Note 10 to the audited consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2018 for assumptions underlying the valuation of equity awards.
(3)
The Company reimburses non-employee directors for travel and related out-of-pocket expenses in connection with attending Board, committee and stockholder meetings. From time to time, the Company invites spouses of non-employee directors to attend Company events associated with these meetings. The Company pays for spousal travel and certain other expenses and reimburses non-employee directors for taxes attributable to the income associated with this benefit. Amounts reflect reimbursement of taxes on this income.
(4)
Mr. Parker joined the Board on November 1, 2018 and Ms. Pierce joined the Board on November 23, 2018.
(5)
Mr. Thanopoulos resigned from the Board on May 7, 2018.

As of December 31, 2018, each incumbent non-employee director had the number of outstanding RSUs (including those deferred) shown below. No options were outstanding as of December 31, 2018.
Name
Restricted Stock
Units Outstanding
(#)

Elizabeth A. Chappell
60,157

William L. Kozyra
23,573

Peter D. Lyons
27,585

James A. McCaslin
49,057

William P. Miller II
63,407

Herbert K. Parker (1)

Sandra E. Pierce (1)

John F. Smith
49,057

Samuel Valenti III
33,044

(1) Mr. Parker and Ms. Pierce did not receive a grant of RSUs.


31

Beneficial Stock Ownership

Beneficial Stock Ownership
The following tables show the number of shares of AAM common stock beneficially owned by:
each person known to us who beneficially owns more than 5% of AAM common stock;
each of our non-employee directors and nominees as of March 5, 2019;
each of the named executive officers shown in the Summary Compensation Table; and
all directors, nominees and executive officers as a group as of March 5, 2019.
A beneficial owner of stock is a person who has voting power (the power to control voting decisions) or investment power (the power to cause the sale of the stock). All individuals listed below have sole voting and investment power over the shares (unless otherwise noted). The beneficial ownership calculation includes 111,742,180 shares of AAM common stock outstanding on March 5, 2019 (record date).
 
Shares Beneficially
Owned

Percent of Shares
Outstanding

Greater Than 5% Owners
 
 
Blackrock, Inc.(1)
16,410,999

14.70

55 East 52nd Street
 
 
New York, NY 10055
 
 
The Vanguard Group(2)
11,599,669

10.38

100 Vanguard Blvd.
 
 
Malvern, PA 19355
 
 
Dimensional Fund Advisors LP(3)
9,386,258

8.40

6300 Bee Cave Road
 
 
Austin, TX 78746
 
 
Barrow, Hanley, Mewhinney & Strauss, LLC(4)
6,146,108

5.50

6300 Bee Cave Road
 
 
Austin, TX 78746
 
 
 
 
 
 
 
 
Non-Employee Directors (5)
 
 
Elizabeth A. Chappell
66,133

*

William L. Kozyra
27,585

*

Peter D. Lyons
32,585

*

James A. McCaslin
57,557

*

William P. Miller II
74,607

*

Herbert K. Parker


Sandra E. Pierce


John F. Smith
54,057

*

Samuel Valenti III
43,044

*

 
 
 
Named Executive Officers
 
 
David C. Dauch(6)
645,703

*

Christopher J. May
38,668

*

Michael K. Simonte
170,349

*

Alberto L. Satine
34,733

*

Norman Willemse
62,452

*

All Directors and Executive Officers as a Group (22 persons)
1,425,508

1.3

(*) Less than 1% of the outstanding shares of AAM common stock.
(1)
Based on the Schedule 13G filed on January 24, 2019 by Blackrock, Inc., reporting sole voting power over 16,130,452 shares and sole investment power over 16,410,999 shares.
(2)
Based on the Schedule 13G filed on February 11, 2019 by The Vanguard Group, reporting sole voting power over 111,941 shares, sole investment power over 11,487,466, shared voting power over 13,600 shares and shared investment power over 112,203 shares.
(3)
Based on the Schedule 13G filed on February 8, 2019 by Dimensional Fund Advisors LP, reporting sole voting power over 9,009,327 shares and sole investment power over 9,386,258 shares.

32

Beneficial Stock Ownership

(4)
Based on the Schedule 13G filed on February 12, 2019 by Barrow, Hanley, Mewhinney & Strauss, LLC, reporting sole voting power over 4,286,382 shares and shared voting power over 1,859,726 shares and sole investment power over 6,146,108 shares.
(5)
Includes vested RSUs awarded to non-employee directors that have been deferred. For the number of RSUs held by each non-employee director, see table included in Compensation of Directors.
(6)
Includes 548 shares held in trusts for the benefit of Mr. Dauch’s children.

Related Person Transactions Policy
The Board has adopted a written policy and procedure for the review, approval and ratification of transactions involving AAM and any “related person” as defined in the policy. This policy supplements AAM’s other conflict of interest policies in our Code of Business Conduct. The Audit Committee is responsible for reviewing, approving and ratifying all related person transactions.
For purposes of this policy, a related person transaction includes any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships in which AAM is or is expected to be a participant, the amount involved exceeds $120,000, and a related person has or will have a material interest. A related person includes directors and executive officers and their immediate family members, stockholders owning more than five percent of the Company's outstanding common stock as of the last completed fiscal year, and any entity owned or controlled by any one of these persons.
The Audit Committee makes a determination whether a related person's interest in a transaction is material based on a review of the facts and circumstances. In deciding whether to approve or ratify a related person transaction, the Audit Committee will take into account, among other factors it deems appropriate, (1) whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and (2) the significance of the related person's interest in the transaction.
A member of the Audit Committee may not participate in the review or vote concerning any related person transaction in which the Audit Committee member or his or her immediate family member is involved.
The policy also provides that certain types of transactions are deemed to be pre-approved by the Audit Committee and do not require separate approval or ratification. During fiscal year 2018 and as of the date of this proxy statement, the Company has not engaged in any reportable related person transactions.

Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than 10% of a registered class of our equity securities, to file with the Securities and Exchange Commission (SEC) initial reports of ownership and reports of changes in ownership of our common stock. Based solely on our review of these reports, and written representations from such reporting persons, we believe that the Section 16(a) filing requirements for such reporting persons were met during 2018.

33

Advisory Vote on Executive Compensation


Proposal 2: Advisory vote on Executive Compensation
AAM is seeking a non-binding advisory vote from our stockholders to approve the compensation of our named executive officers as disclosed in the Compensation Discussion and Analysis (CD&A) and narrative and tabular disclosures in this proxy statement. In the CD&A, we provide a detailed description of our compensation programs, including our compensation philosophy and objectives, the individual elements of executive pay, and how the programs are administered. We encourage you to review the CD&A, together with the other narrative and tabular disclosures, in considering your advisory vote on our named executive officers’ compensation (say-on-pay).
Pay for Performance Philosophy
AAM is committed to a compensation philosophy that supports our business strategy and performance, aligns with stockholder interests, and pays competitively. Our compensation programs are designed to balance short-term performance with long-term growth. To align executive pay with AAM's performance, a significant amount of our CEO's and other NEOs' compensation is performance based and is at risk.
Our incentive programs utilize both short- and long-term financial metrics that correlate to our strategic business objectives. The Compensation Committee annually reviews performance metrics, targets and payouts to ensure that they are challenging stretch goals designed to mitigate risk and align with our budget and long-range planning performance.
Shareholder Engagement
Our Board and management team greatly value the opinions and feedback of our shareholders, which is why we have proactive, ongoing engagement with our shareholders throughout the year focused on corporate governance, executive compensation and corporate responsibility. Most recently, our shareholders expressed support of our overall executive compensation program.
2018 Changes to Executive Compensation Programs
To further align our compensation programs with our business strategy and market practices, we continued to refine our programs by taking the following steps:
We increased the rigor of our annual and long-term compensation targets for awards granted in 2018 and continued this practice to drive management performance at the highest levels.
We amended the Supplemental Executive Retirement Plan (SERP) and the Executive Deferred Compensation Plan to freeze further benefit accruals and freeze the plans to new participants.
We adopted a deferred compensation plan, the Executive Retirement Savings Plan which reduces executive retirement benefits as compared to that of the legacy SERP, a defined benefit plan.
Although your vote on this proposal is advisory and non-binding, the Board and the Compensation Committee will continue to carefully consider the voting results when making future compensation decisions.

þ
The Board unanimously recommends a vote FOR the approval of the compensation of our named executive officers.





34

Compensation Discussion and Analysis

Compensation Discussion and Analysis
Our executive compensation program is designed to attract, motivate and retain high quality leaders that are necessary to manage a company of AAM's size and complexity. In designing our executive compensation program, the Compensation Committee (Committee) strives to align the incentives of our named executive officers (NEOs) with the interests of our shareholders by using performance metrics and challenging goals that tie directly to our business strategy. We believe consistent execution of our strategy will drive long-term value creation.
Named Executive Officers
The Compensation Discussion and Analysis (CD&A) provides a description of our executive compensation programs, including the Committee's underlying philosophy and decision-making process, components of compensation, and the relationship between AAM's performance and the compensation earned by our NEOs in 2018. Our NEOs for the fiscal year ending December 31, 2018 are shown below.
Named Executive Officers
 
David C. Dauch
Chairman & Chief Executive Officer
 
Christopher J. May
Vice President & Chief Financial Officer
 
Michael K. Simonte
President
 
Alberto L. Satine
President Electrification (title at 12/31/18)
 
Norman Willemse
President Metal Forming

35

Compensation Discussion and Analysis

Executive Summary
2018 Financial and Performance Highlights

By the end of 2018, we reached a record $7.27 billion in sales on the strength in our core markets and key product segments. We also generated $1.18 billion in Adjusted EBITDA and achieved a record-setting $772 million in cash from operations.

chart-9bbff960f706d09ce6b.jpgchart-53ed20f5fff2325dc79.jpgchart-250f24d3122ba5a3229.jpg
2018 Achievements
þ
Delivered on our key strategic objectives of profitable growth, diversification, outstanding financial performance, and technology leadership.
þ
Strong cash flow generation and over $200 million in senior debt payments
 
 
 
 
þ
Formed joint venture with Liuzhou Wuling in China
þ
Recognized as a Fortune 500 Company
 
 
 
 
þ
QUANTUMTM technology wins Altair and SAA Lightweighting Awards
þ
Met key integration milestones, including synergy attainment from recent acquisitions
 
 
 
 
þ
5th new business award for our EcoTrac® disconnecting all-wheel-drive technology
þ
Named GM Supplier of the Year for 2nd consecutive year
 
 
 
 
þ
Continued to fund significant capital and R&D investments in order to drive organic growth to meet our strategic goals
þ
Sold Aftermarket division of our Powertrain Business Unit for $50 million

36

Compensation Discussion and Analysis

Executive Compensation Highlights
Compensation Program Metrics Link to Strategic Business Objectives
The Committee utilizes both short- and long-term financial metrics relative to our business objectives, as well as relative total shareholder return (TSR) as a long-term incentive (LTI) metric. The following chart demonstrates how our incentive compensation metrics correlate to our strategic business objectives.
Strategic Business Objective
Alignment
Incentive Metric
 
 
 
Continue to strengthen the balance sheet; provide funding for organic growth, research and development, and other capital priorities
arrowsa09.jpg
Free Cash Flow
- 2018 LTI Performance Shares
   (50% metric of performance-based LTI)
 
 
Develop innovative technology, including electrification. Reinvest in research and development.
Relative TSR
- 2018 LTI Performance Shares (50% metric of performance-based LTI)
 
Create sustainable value for shareholders
 
 
Achieve profitable growth, along with the ability to be flexible as the market changes, and reduce leverage
EBITDA
- 2018 Annual Incentive Program
  (100% metric)

 
Deliver integration synergies from recent acquisitions
Goal Rigor
The Committee annually reviews performance metrics, targets and payouts to ensure that they are challenging, stretch goals that are aligned with our strategy and long-range plan and are also designed to mitigate risk.
The incentive metrics selected by the Committee in 2018 focused on the importance of EBITDA performance for the annual incentive and free cash flow and relative TSR, weighted equally, for the LTI awards.
Significantly, the Committee increased the rigor of our annual and long-term compensation targets for awards granted in 2018. The impact of this goal rigor is reflected in the 2018 annual incentive award payout. Although AAM achieved record-setting adjusted EBITDA performance in 2018, our NEOs received a below-target payout based on the stretch goals set by the Committee.
2018 Changes to Executive Compensation Programs
AAM is committed to engaging in constructive and meaningful communications with our shareholders. We received a favorable vote of 97% for our say-on-pay proposal in 2018. We believe this outcome reflects our responsiveness to shareholder feedback relating to executive compensation. More recently, our shareholders continued to express support of our overall executive compensation program and the alignment of our incentive compensation goals with the Company's overall business strategy. In consideration of the feedback we continued to receive from our shareholders and prevailing market practices among our peers, we continued to refine our programs.
We increased the rigor of our annual and LTI compensation targets for awards granted in 2018 and continued this practice to drive management performance at the highest levels.

37

Compensation Discussion and Analysis

In April 2018, AAM amended the Supplemental Executive Retirement Plan (SERP) and the Executive Deferred Compensation Plan to freeze further benefit accruals and freeze the plans to new participants. At the same time, and to further align our benefit programs with prevailing market practices, AAM adopted the Executive Retirement Savings Plan (ERSP) to become effective January 1, 2019. The ERSP, a deferred compensation plan, reduces executive retirement benefits and provides cost savings to the Company as compared to the legacy SERP, a defined benefit plan.
In April 2018, AAM adopted the Executive Officer Severance Plan (Severance Plan) in order to provide severance other than in a change in control to executive officers with the purpose of retaining our executives and allowing them to focus on our business strategy. In addition, AAM amended its employment agreements with Mr. Dauch and Mr. Simonte to align severance payable under their employment agreements with the Severance Plan.
Pay for Performance Alignment
Total direct compensation consists of base salary plus target annual and long-term incentive compensation. Total direct compensation for each NEO may be above or below the 50th percentile of our comparative peer group based on various factors, including an individual's level of responsibility, demonstrated skills and experience, significance of position, contribution to Company performance, time in position, potential for advancement and internal pay equity considerations. The Committee generally sets performance objectives for annual and long-term incentive compensation so that targeted total direct compensation levels can be achieved only when target performance objectives are met. Consequently, actual pay may vary from targeted levels based on achieved performance against pre-established performance objectives.
The following chart illustrates the allocation of 2018 total direct compensation components at target for our CEO and for our other NEOs (average) as a group as of December 31, 2018. This analysis highlights the Company's emphasis on long-term and at-risk compensation.
ceotargetpay.jpg
neotargetpay.jpg


38

Compensation Discussion and Analysis

Compensation of Executive Officers
Executive Compensation Philosophy
AAM is committed to a compensation philosophy that supports our business strategy and performance, aligns with stockholder interests, and pays competitively.
 
Supports Business Strategy
Market Competitive
Aligned with
Shareholder Interests
 
 
 
 
 
86% of CEO compensation is variable and at risk
 
Rigorous performance goals as key drivers of enterprise value creation such as EBITDA, relative TSR and cash flow
 
Programs utilize metrics that emphasize company performance and are aligned with business strategy
Attract and retain executive talent
 
Benchmark pay against a peer group of similarly sized companies
 
Target direct compensation at the 50th percentile
 
Ensure incentive plans reward for desired behaviors and pay outcomes align with results
Mix of annual and long-term incentive programs balances focus between short-term results and long-term share appreciation
 
66% of LTI is performance-based
 
Cap on payout of performance shares based on relative TSR if absolute TSR is negative
 
CEO stock ownership requirement of 6 times base salary
 
The foundation of our philosophy is a best practice approach to compensation governance that includes a clawback policy, an anti-hedging policy, an annual risk assessment of compensation programs and practices, double-trigger equity vesting and severance provisions, and the exclusion of excise tax gross-ups.
Components of Compensation Program
The primary components of AAM’s executive compensation program are summarized below.
Component
Purpose
Characteristics
 
 
 
Base Salary
Based on level of responsibility, experience, individual performance and internal pay equity
Fixed cash component generally targeted at the peer group median
 
 
 
Annual Incentive Compensation
Incentive to drive short-term performance aligned with strategic goals
Cash award that is at-risk subject to the attainment of performance targets
 
 
 
Long-Term Incentive Compensation
Incentive to drive long-term financial and strategic growth that creates shareholder value and supports retention of executives
Awarded in a combination of Performance Shares (66%) and RSUs (34%) tied to financial and share performance that drive sustainable results and shareholder value
 
 
 
Retirement and Deferred Compensation
Provide income upon retirement
401(k) and nonqualified defined benefit and deferred compensation plans
 
 
 
Perquisites
Limited supplement to total direct compensation
Primary benefit is company-provided vehicles with AAM content
 
 
 

39

Compensation Discussion and Analysis

Decision-Making Process
Comprised solely of independent, non-employee directors, the Compensation Committee oversees the compensation and benefits programs for our executive officers, including the NEOs. In its oversight of our 2018 executive compensation program, the Committee worked with its independent compensation consultant, and with the CEO, the President, the CFO, and the Vice President, Human Resources. The CEO and the other officers provided information and recommendations with respect to:
Company performance objectives and goals, which serve as a basis for incentive compensation;
attracting, retaining and motivating executive officers;
information regarding financial performance, budgets and forecasts as they pertain to compensation; and
industry and market conditions affecting AAM's business strategy.
Based on the recommendation of the Committee, the Board exercises its judgment to approve the compensation for the CEO. For all other executive officers, the Committee considers the CEO's recommendation for setting compensation levels. The compensation approved for the CEO and other executives is aligned with the Company's overall compensation philosophy. For 2018, the Committee made pay decisions based on a market analysis, Company performance and specific factors about each NEO, including individual performance, experience, internal equity, scope and responsibility of position, retention and other factors described in more detail below.
Role of the Compensation Consultant
The Committee has retained Meridian Compensation Partners LLC (Meridian) as its independent compensation consultant. Meridian provides the Committee with independent advice and ongoing recommendations on compensation matters related to our executive officers and non-employee directors. Meridian provides the Committee with competitive market data, peer group analyses and updates on compensation trends and regulatory developments. Meridian also worked with the Company in evaluating its incentive programs and the selection of performance measures in response to shareholder feedback.
In the course of fulfilling its responsibilities, Meridian frequently communicates with the Chair of the Committee both prior to and following Committee meetings. Meridian also meets with management to gather information, prepare materials and review proposals to be made to the Committee. Meridian provides no other services to the Company and has no other direct or indirect business relationships with AAM or any of its subsidiaries or affiliates. Based on information provided by Meridian, the Committee assessed Meridian's independence pursuant to NYSE and SEC rules and concluded that no conflict of interest exists that prevents Meridian from independently advising the Committee.

40

Compensation Discussion and Analysis

Peer Group and Market Analysis
The Committee annually reviews the composition of our comparative peer group and makes adjustments to reflect changes in our business, as well as industry and market conditions. The overall purpose of this peer group is to provide a market frame of reference for evaluating our compensation arrangements, understanding compensation trends among comparable companies and reviewing other compensation and governance-related topics. The companies are selected primarily based on the following criteria:
total revenue and market capitalization;
competitors in industry segment;
complexity of global business and operations; and
competition for talent and investor capital.
The Committee changed the comparative peer group to benchmark executive 2018 and 2019 compensation. AAM's revenues are at approximately the median of the comparative peer revenues. The comparative peer group from 2017 to 2019 is shown below.
 
2017 Peers
 
2017 to 2018 Changes
 
2018 Peers
 
2018 to 2019 Changes
 
 
 
 
 
 
 
 
 
Ametek Inc.
Aptiv PLC
BorgWarner Inc.
Cooper-Standard Holdings Inc.
Cummins Inc.
Dana Incorporated
Dover Corporation
Federal-Mogul Corporation
Flowserve Corporation
Fluor Corp.
Goodyear Tire & Rubber Company
Lear Corporation
Meritor, Inc.
Illinois Tool Works Inc.
Navistar International Corporation
PACCAR Inc
Parker-Hannifin Corporation
Rockwell Automation
Tenneco Inc.
Terex Corporation
Trinity Industries, Inc.
Visteon Corporation
 
ADDITIONS
 
Ametek Inc.
Aptiv PLC
BorgWarner Inc.
Cooper-Standard Holdings Inc.
Cummins Inc.
Dana Incorporated
Dover Corporation
Flowserve Corporation
Fluor Corp.
Goodyear Tire & Rubber Company
Lear Corporation
Meritor, Inc.
Navistar International Corporation
PACCAR Inc
Parker-Hannifin Corporation
Rockwell Automation
Tenneco Inc.
Terex Corporation
Trinity Industries, Inc.
Visteon Corporation
 
ADDITIONS
 
 
 
 
 
More closely aligned with the size and complexity of our business, our industry and competition for talent
Adient plc
Cooper Tire & Rubber Company
Delphi Technologies
Oshkosh Corporation
 
 
 
 
 
 
 
 
 
 
 
À
No additions for 2018
u
À
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
REMOVAL
 
 
REMOVAL
 
 
Federal-Mogul Corporation
- Acquired by Tenneco

Illinois Tool Works Inc.
 - Removed due to size
 
 
No longer aligned with our size and business operations

Ametek Inc.
Cummins Inc.
Dover Corporation
Fluor Corp.
PACCAR Inc.


 
 
 
 
 
 
 
 
 
-
u
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


41

Compensation Discussion and Analysis

Direct Compensation Elements
Base Salary
In determining salary levels for each of our NEOs, the Committee considers factors such as financial and operational performance, leadership, development, time in position, internal equity and potential. The Committee also considers each NEO's current base salary as compared to the salary range and median salary practices of our peer group.
The Committee determined that base salaries for the CEO and the NEOs (other than Mr. May) would remain unchanged for 2018. The Committee decided to increase Mr. May's 2018 base salary in consideration of his pay level relative to the market median. NEO base salaries as of December 31, 2018 and 2017 are shown below.
 
 
2018

 
2017

% Change

David C. Dauch
 
$
1,150,000

 
$
1,150,000

%
Christopher J. May
 
$
550,000

 
$
500,000

10
%
Michael K. Simonte
 
$
750,000

 
$
750,000

%
Alberto L. Satine
 
$
610,000

 
$
610,000

%
Norman Willemse
 
$
530,000

 
$
530,000

%
The Committee determined that base salaries for the CEO and the NEOs (other than Mr. Willemse) will also remain unchanged for 2019. The Committee decided to increase Mr. Willemse's 2019 base salary to $575,000 effective January 16, 2019 in consideration of the growth of the Metal Forming business unit as a result of the realignment of the Company's business units. The Summary Compensation Table shows the base salary earned in 2018 for each NEO.
Incentive Compensation
Annual Incentive Compensation
Each NEO's annual incentive compensation is based on achieved results against financial targets approved by the Committee under the AAM Incentive Compensation Program for Executive Officers. Payment of annual cash incentive awards is permitted to the extent the Company meets or exceeds threshold performance levels.
During shareholder outreach, shareholders expressed support of the Committee's efforts to align performance measures with our business strategy. The Committee considered this feedback in selecting absolute EBITDA dollars as the sole metric for determining 2018 annual incentive payouts. Strong EBITDA performance positions AAM to generate cash, reduce debt and provide funding for profitable growth and other capital priorities. The selection of EBITDA dollars as the sole performance measure emphasizes its importance to our business strategy.
The Committee set the 2018 annual incentive EBITDA target at a level that drives management to continue to perform at a high level, achieve integration synergies, implement productivity improvements and successfully launch new product programs. Recognizing the importance of strong EBITDA performance, the Committee increased the rigor of the threshold, target and maximum performance levels. The performance levels for 2018 annual incentive awards reflect stretch goals that are designed to reward growth and sustain profitability.
2018 target performance was set at a level significantly higher than 2017 actual adjusted EBITDA performance.
Achievement of target performance would result in the highest adjusted EBITDA performance in AAM history.
Target performance is higher than the performance of a majority of our competitor peer group companies.

42

Compensation Discussion and Analysis

The following table describes the performance levels and results for 2018.
 
Weighting

 
Threshold (Payout 50%)
 
Target
(Payout 100%)
 
Maximum (Payout 200%)
 
2018 Actual Performance
2018 Actual Payout %
Adjusted EBITDA
100
%
 
$956 million
 
$1,275 million
 
$1,466 million
 
$1,190.7(1)
87%
(1) Excludes the impact of restructuring and acquisition-related net activity of $47.8 million, debt refinancing and redemption costs of $19.4 million and goodwill impairment of $485.5. AAM sold the Powertrain aftermarket business in April 2018. Previously, in February 2018, performance goals for our annual incentive plan were established. As a result of this timing, full-year EBITDA associated with this business was included in the 2018 annual incentive target. An adjustment of $6.8 million has been included to reflect the portion of the year that has been excluded from actual EBITDA results. Considering the impact of this adjustment, actual adjusted EBITDA reflects EBITDA of this business through the closing date of April 4, 2018. Accordingly, adjusted EBITDA reported in our annual report on Form 10-K for the year ended December 31, 2018 was adjusted by this amount for purposes of calculating performance achievements under the annual incentive plan. See Non-GAAP Reconciliation in Appendix A.
chart-a534c068ba8ca6db292.jpg
Although 2018 actual adjusted EBITDA performance was a record-setting achievement for AAM, the stretch target previously set by the Committee was not achieved. As a result of this goal rigor, our NEOs received a below-target payout of 87%. In addition, the Committee made no discretionary increases in 2018 annual incentive payouts for any NEO. The amounts paid are shown in the Summary Compensation Table.
Target Annual Incentive Award Opportunities
The table below shows the 2018 target annual incentive opportunities for our NEOs, stated as a percentage of base salary. In October 2017, the Committee determined that the annual incentive target opportunities for each NEO would remain unchanged for 2018.
 
Target Annual Incentive Opportunity
 
 
2018

2017

David C. Dauch
135
%
135
%
Christopher J. May
80
%
80
%
Michael K. Simonte
100
%
100
%
Alberto L. Satine
80
%
80
%
Norman Willemse
80
%
80
%
 

43

Compensation Discussion and Analysis

Long-Term Incentive Compensation
Our LTI program for executive officers is designed to reward NEOs for creating sustained shareholder value, to encourage ownership of Company stock, and to retain and motivate executives while aligning their interests with those of our shareholders. AAM generally makes equity grants to its executive officers and other executives on an annual basis, subject to the approval of the Committee. Grants are typically made in the first quarter of each year to coincide with the communication to executive officers of their annual cash incentive awards for the previous year’s performance. This timing increases the impact of the awards by strengthening the link between pay and performance.
2018 LTI Award Overview
 
Form of Award
 
Performance Shares

RSUs

LTI Mix
66
%
34
%
 
 
 
Objective
Drive and reward performance key to strategic business objectives

Encourage retention and ownership supporting shareholder alignment

 
 
 
Performance Measure
50% Free Cash Flow
50% RelativeTSR

Continued service with AAM

 
 
 
Competitor Peer Group for Relative TSR
Autoliv Inc.
BorgWarner Inc.
Dana Incorporated
Lear Corporation
Magna International Inc.
Meritor Inc,
Tenneco Inc.
Visteon Corporation

Not applicable

 
 
 
Performance / Vesting Period
Subject to achievement of performance measures over the three-year performance period January 1, 2018 through December 31, 2020

Cliff vest on the third anniversary of the grant date

 
 
 
Settlement
Settled in AAM stock upon vesting

Settled in AAM stock upon vesting

Our competitor peer group is used to assess relative performance for establishing long-term incentive award performance levels. The competitor peer group consists of companies that compete with AAM for capital and operate in similar markets. This group of companies serves as an appropriate benchmark for long-term incentives because of the likelihood that these companies will experience similar business conditions over a three-year cycle.
The Committee evaluated the performance measures for 2018 LTI performance share awards to ensure that the measures are aligned with our business strategy. A key objective of the Company is to strengthen our balance sheet and continue to provide for profitable growth, research and development of innovative technology and other capital priorities. As a result, free cash flow is a key driver to reduce gross leverage and ultimately convert value to shareholders through the valuation process. Accordingly, the Committee modified the 2018 LTI performance metrics to replace EBITDA margin with free cash flow. The Committee believes that relative TSR continues to be an important measure of performance because of its alignment with shareholder value creation. Based on these considerations, the 2018 performance share awards are based 50% on free cash flow and 50% on relative TSR.
The performance levels set for 2018 LTI required our management team to continue to perform at a high level, achieve integration synergies, implement productivity improvements, successfully launch new product programs and create long-term value. The Committee increased the rigor of the threshold, target and maximum performance levels as shown below.
Free cash flow target performance for 2018 - 2020 was set at a level higher than the previous three years' performance.

44

Compensation Discussion and Analysis

Achievement of target performance would result in the highest free cash flow in AAM history.
Relative TSR payout is capped if absolute TSR is negative.
The table below shows the threshold, target and maximum free cash flow and relative TSR performance levels to be used in determining the payouts for these awards for the performance period January 1, 2018 through December 31, 2020.
 
Free Cash Flow Performance Measure
 
Relative TSR Performance Measure
 
Performance Level
3 Year Cumulative
Free Cash Flow
Percent of
Target Award
Opportunity Earned

Company's TSR Percentile Rank
Percent of
Target Award
Opportunity Earned

Threshold
$990 million
50
%
35th
50
%
Target
$1,325 million
100
%
50th
100
%
Maximum
$1,525 million
200
%
75th
200
%
LTI Award Values
The table below shows the 2018 and 2017 target long-term incentive opportunities for our NEOs. In connection with our acquisition of MPG in 2017, the Committee increased the 2018 LTI target opportunities for the NEOs to reflect the significant increase in size and complexity of the Company. The Committee also considered the greater levels of responsibility and challenges ahead for each of the NEOs to deliver expected results. For Mr. May, the Committee made an incremental increase to his 2018 LTI target to more closely align his incentive opportunity with comparable market practice.
 
2018 Target Long-Term Incentive Opportunity
 
2017 Target Long-Term Incentive Opportunity
 
 
($)(1)

%(2)

($)(1)

%(2)

David C. Dauch
5,750,000

500
%
5,175,000

450
%
Christopher J. May
1,375,000

250
%
412,000

100
%
Michael K. Simonte
2,250,000

300
%
1,516,160

230
%
Alberto L. Satine
1,220,000

200
%
787,950

150
%
Norman Willemse
1,060,000

200
%
695,250

150
%
(1) Amounts reflect the value the Committee considered when granting the awards for 2018 and 2017. These amounts differ from the value of the awards shown in the Summary Compensation Table and Grants of Plan-Based Awards Table because those tables reflect the grant date fair value of these awards, which is based on the probable outcome of the performance metrics for the performance shares.
(2) Stated as a percentage of base salary.
Payout of 2016 Performance Share Awards
The performance period for 2016 performance awards ended on December 31, 2018. The number of shares earned was based on relative TSR and EBITDA margin over the three-year performance period as shown below.
 
Actual Performance
 
% of Target Shares Earned

 
Award Weighting

 
Weighted Payout

Relative TSR
11th percentile
 
0
%
 
50
%
 
0
%
 
 
 
 
 
 
 
 
EBITDA Margin
16.6%(1)
 
200
%
 
50
%
 
200
%
 
 
 
Final Payout as a % of Target
 
 
100
%
(1) Excludes the restructuring and acquisition-related costs and debt refinancing and redemption costs, goodwill impairment and other non-recurring items. See Non-GAAP Reconciliation in Appendix A.

45

Compensation Discussion and Analysis

Payouts under the relative TSR performance share awards resulted in a zero payout to senior management because the threshold performance level was not achieved. This result reflects the Committee's commitment to align LTI pay with the interest of our shareholders through rigorous goal-setting. Our shareholders did not realize value on our stock over this time period. Consequently, and by design, our senior management team received no value from these awards.
chart-e1a564cc3f3c510a9ee.jpg
Governance Point
 
 
Payout capped if 3-year absolute TSR is negative.
 
 
 
 
 
The performance targets for the EBITDA margin performance share awards were determined in consideration of AAM's historical EBITDA margins for 2013 – 2015. The maximum performance level was set to drive performance significantly above our peers and encourage EBITDA margin growth. Over this period, management delivered a result well in excess of targets and prior actual performance, which supported an above-target payout. This outstanding financial performance allowed us to reduce debt and position AAM to achieve our strategic objectives.
adjebitdaa01.jpg
Actual Performance
 
 
Average Adjusted EBITDA Performance from 2013 - 2015
 
13.9%
 
 
 
Peer Average Adjusted EBITDA Performance from 2013 - 2015
 
10.7%
 
 
 
2018 Omnibus Incentive Plan
At the 2018 annual meeting, our shareholders approved the adoption of the 2018 Omnibus Incentive Plan. Beginning in 2019, LTI awards are granted under this plan. In approving the 2019 LTI awards, the Committee determined that 66% of the total LTI award would continue to be performance-based in order to drive superior performance that is aligned with our business strategy. Consistent with 2018 performance-based LTI awards, one-half of the 2019 performance-based LTI award is based on relative TSR and one-half is based on free cash flow performance. The relative TSR portion of the 2019 LTI award is denominated and settled in AAM stock. The free cash flow portion of the 2019 LTI award is a performance unit that is denominated in dollars and settled in cash.

46

Compensation Discussion and Analysis


Summary of Direct Compensation
The Committee believes each pay element of direct compensation is consistent with our compensation philosophy. The Committee reviews direct compensation for each NEO and compares each compensation element to the market data of our comparative peer group. The Committee also considers individual performance, experience, internal equity, scope and responsibility of position, retention and other factors.
Direct compensation for our CEO is higher than for the other NEOs due to the CEO's breadth of executive and operating responsibilities for the entire global enterprise. The Committee does not target CEO pay as a certain multiple of the pay of the other NEOs. For 2018, the Committee set total direct compensation for the NEOs at approximately the 50th percentile of the peer group.
Indirect Compensation Elements
Retirement and Deferred Compensation Plans
Our NEOs participate in AAM's qualified retirement and nonqualified retirement and deferred compensation plans. Each executive officer is eligible to participate in the Company's 401(k) plan, which allows U.S. salaried participants to defer a portion of their base salary up to certain IRS limits.
The Supplemental Executive Retirement Plan (SERP), a nonqualified defined benefit plan, provides retirement benefits to executives that are offset by the qualified pension plan benefits. To align our benefit programs with prevailing market practices, the SERP was amended to freeze further benefit accruals as of April 30, 2018 and to freeze the plan to new participants as of April 1, 2018. At the time the legacy SERP was frozen, the AAM Executive Retirement Savings Plan (ERSP) was adopted to become effective January 1, 2019. The ERSP, a nonqualified deferred compensation plan, reduces executive retirement benefits and provides cost savings to the Company as compared to the legacy SERP.
The ERSP provides certain highly-compensated associates the opportunity to receive supplemental deferred compensation upon retirement and certain other qualifying events. The Company provides contributions to the plan equal to a percentage of a participant's combined base salary and bonus paid during a calendar year less their maximum eligible 401(k) Company contributions. The Company may also make discretionary contributions.
In April 2018, the Company also froze the Executive Deferred Compensation Plan (EDC) to further contributions as of December 31, 2018 and to new participants as of April 1, 2018, due to the EDC's limited participation and retention value. Existing contributions will vest and be paid in accordance with the EDC's terms.
The SERP, ERSP and EDC plans are further described in Pension Benefits and Nonqualified Deferred Compensation.
Other Benefits and Perquisites
Our NEOs participate in the same medical plans as our U.S. salaried associates. A group of approximately 40 senior executives, including the NEOs, also receive supplemental life, supplemental disability and umbrella liability insurance benefits.
AAM provides a very limited number of perquisites to senior executives, including our NEOs. Senior executives are eligible for the use of a Company-provided vehicle with AAM content. Mr. Dauch has the use of two Company-provided vehicles. Occasionally, we invite spouses of AAM executives to attend Company business events and pay for the spouse’s travel and related non-business expenses. AAM reimburses the executive for taxes attributable to the income associated with this benefit. We do not otherwise provide tax gross ups for executives except for those available for all salaried associates generally. Perquisites are further described in the footnotes to the Summary Compensation Table.

47

Compensation Discussion and Analysis


Other Compensation Matters
Severance Programs
The Company provides severance benefits to NEOs (other than the CEO and President) under the AAM Executive Officer Severance Plan (Severance Plan) and the AAM Change in Control Plan (CIC Plan). Mr. Dauch and Mr. Simonte do not participate in these programs because their employment agreements provide severance payments and benefits as described below.
The Committee believes that these severance programs provide competitive severance benefits that attract and retain key talent during potentially critical and uncertain periods. These programs are designed to foster stability within senior management by helping executives maintain focus on and dedication to their responsibilities to maximize shareholder value, including in the event of a transaction that may result in a change in control. These programs are also guided by our compensation philosophy and governance practices (e.g., double-trigger change in control provisions, no tax gross ups) and are well aligned with those of our peers.
The Severance Plan, which was adopted in April 2018, provides severance benefits other than in connection with a change in control. The Committee adopted this plan to further align our programs with market practices. Under the Severance Plan, upon termination of employment by the Company without cause or resignation by a participant for good reason, each eligible executive officer will be entitled to certain severance payments and benefits, including a multiple of base salary and target bonus, prorated annual target bonus for the year of termination and continued participation in the Company's medical benefit plans for the applicable severance period.
The CIC Plan provides participants, including eligible executive officers, severance payments and benefits in the event of termination of employment on or within two years following a CIC. These benefits include a multiple of base salary and target bonus and continued participation in the Company's medical benefit plans for the applicable severance period.
Benefits under the Severance Plan and the CIC Plan are subject to execution and non-revocation of a general waiver and release of claims against the Company and compliance with certain restrictive covenants. The benefits are also subject to recoupment or clawback. Benefits provided to our NEOs under these programs are described in Potential Payments Upon Termination or Change in Control.
Employment Agreements
Severance benefits are provided to Mr. Dauch and Mr. Simonte under the terms of each of their employment agreements. In connection with the adoption of the Severance Plan in April 2018, their employment agreements were amended to align the calculation of cash severance payable with that of the Severance Plan. Accordingly, severance calculations under the amended employment agreements include a target annual bonus (in addition to base salary) and a prorated annual target bonus for the year of termination. Severance payments will be paid in a lump sum to the extent allowable under Section 409A.
Executive Compensation Recoupment (Clawback) Policy
The clawback policy authorizes the Committee to determine whether to require recoupment of performance-based incentive compensation actually paid or awarded to any executive officer if certain conditions are met. For purposes of this policy, performance-based compensation includes all annual and long-term incentive awards, whether paid in cash or equity, to the extent the awards are based on the Company's financial performance.
The Committee may require recoupment if the executive officer engaged in fraud or intentional misconduct that caused or contributed to the need for a material restatement of the Company's financial statements filed with the SEC. If the Committee determines that any performance-based compensation paid or awarded to the executive officer would not have been awarded or would have been awarded at a lower amount had it been calculated based on such restated financial statements (adjusted compensation), the Committee may seek to recover for the benefit of the Company the excess of the awarded compensation over the adjusted compensation (excess compensation). In deciding whether to seek recovery of excess compensation from the executive officer, the

48

Compensation Discussion and Analysis

Committee will consider the factors it deems relevant under the circumstances and whether the assertion of a claim is in the best interests of the Company.
Executive Officer Stock Ownership Requirements
Our stock ownership policy is an important feature of our compensation philosophy that helps to ensure alignment of our executives' interests with those of our stockholders. The stock ownership requirement for each executive is based on the executive's position as described below.  
 
Multiple of
Base Salary

Chief Executive Officer
6

Chief Financial Officer; President
3

Other Executive Officers
2

Executive officers have five years from 2017 to meet these requirements or, for new executive officers, five years from the date of appointment. Shares owned directly, unvested RSUs and performance shares (at target) count toward the requirement. These ownership levels must be maintained as long as the person is an executive officer of AAM. NEOs who have not met these requirements may not sell shares. The Committee annually reviews each executive officer’s stock ownership level according to this policy. Each NEO has met or is on track to meet the ownership requirements established for his position.
Anti-Hedging and Anti-Pledging Policy
AAM prohibits employees and non-employee directors from entering into transactions that may result in a financial benefit if our stock price declines, or any hedging transaction involving our stock, including the use of financial derivatives, short sales or any similar transactions. Pledging of AAM stock is also prohibited.
Risk Assessment of Compensation Policies and Practices
We conducted an annual risk assessment for the Committee to determine whether the risks arising from our 2018 compensation practices are reasonably likely to have a material adverse effect on the Company. The risk assessment considered AAM’s annual and long-term incentive programs and pay mix, performance measures used to calculate payouts, and pay philosophy and governance. Our annual assessment focuses on the program for executive officers in light of their decision-making authority and influence, but also considers the compensation of other salaried associates. Our methodology was reviewed by the Committee and Meridian.
We have designed our compensation programs with specific features to address potential risks while rewarding our executive officers and other associates for achieving long-term financial and strategic objectives through prudent business judgment and appropriate risk taking. Based on our risk assessment and consideration of various mitigating factors, we concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company.
Tax Deductibility of Compensation
Section 162(m) of the Code (Section 162(m)) generally disallows a tax deduction to public companies for compensation over $1 million paid to certain “covered employees.”  Pursuant to the Tax Cuts and Jobs Act, enacted on December 22, 2017, the definition of “covered employees” under Section 162(m) includes a company's CEO, CFO and the three other most highly compensated executive officers. Once an officer is a “covered employee,” the officer’s pay will remain subject to Section 162(m) for so long as the officer is receiving compensation from the Company. Further, the Tax Cuts and Jobs Act repealed the exclusion for “qualified performance-based compensation” under Section 162(m) effective January 1, 2018, except for compensation payable pursuant to a written binding contract in place before November 2, 2017 that is not materially modified thereafter (a grandfathered arrangement). The Company can no longer grant qualified performance-based compensation. Outstanding awards that previously qualified for the performance-based compensation exclusion under Section 162(m) may or may not qualify as grandfathered awards.


49

Compensation Committee Report




Compensation Committee Report
We have reviewed and discussed the Compensation Discussion and Analysis with management. Based on such review and discussion, we recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.
Compensation Committee of the Board of Directors
James A. McCaslin, Chair
William L. Kozyra
Peter D. Lyons
Sandra E. Pierce
Samuel Valenti III



50

Executive Compensation Tables

Executive Compensation Tables
Summary Compensation Table
The following table summarizes the compensation of our named executive officers (NEOs) for the fiscal years ended December 31, 2018, December 31, 2017 and December 31, 2016 to the extent they served as NEOs in such years.
Name and
Principal Position
Year
Salary
 ($)

Bonus ($)

Stock
Awards(2) ($)

Options
Awards
($)

Non-Equity
Incentive
Plan
Compen-
sation(3)
($)

Change in
Pension Value
And
Nonqualified
Deferred
Compensation
Earnings(4)
($)

All Other
Compen-
sation(5)
($)

Total
 ($)

David C. Dauch(1)
Chairman & Chief Executive Officer
2018
1,150,000


5,700,848


1,350,700

1,168,373

99,378

9,469,299

2017
1,150,000


7,319,937


2,819,000

1,869,698

86,982

13,245,617

2016
1,150,000


5,617,069


2,875,000

1,385,652

74,599

11,102,320

Christopher J. May
Vice President & Chief Financial Officer
2018
550,000


1,363,250


382,800

278,969

47,939

2,622,958

2017
478,003


582,790


693,800

397,791

44,586

2,196,970

2016
391,667


488,450


480,000

231,058

47,641

1,638,816

Michael K. Simonte
President
2018
750,000


2,230,775


652,500

517,163

66,424

4,216,862

2017
727,300


2,144,593


1,387,500

720,741

56,779

5,036,913

2016
640,000


1,797,486


1,280,000

397,940

50,836

4,166,262

Alberto L. Satine President Electrification(6)
2018
610,000


1,209,580


424,600

250,024

61,972

2,556,176

2017
588,825


1,114,572


902,800

482,501

59,099

3,147,797

2016
510,000


934,146


814,500

280,651

58,130

2,597,427

Norman Willemse
President Metal Forming
(7)
2018
530,000


1,050,955


368,900

227,486

50,203

2,227,544

2017
513,378


983,438


784,400

380,281

34,521

2,696,018

2016
450,000


824,283


720,000

236,980

33,925

2,265,188

(1)
Compensation of Mr. Dauch is based solely on employment as an executive officer. He received no compensation for serving as a director.
(2)
Reflects the grant date fair value of restricted stock units and performance share awards made during fiscal year 2018 calculated in accordance with FASB ASC 718 (without any reduction for risk of forfeiture) as determined based on applying the assumptions used in our financial statements. See Note 10 to the audited consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2018 regarding assumptions underlying the valuation of equity awards. Assuming the maximum performance levels are achieved for the performance share awards granted on March 2, 2018, the maximum value of performance share awards would be $7,590,048 for Mr. Dauch, $1,814,988 for Mr. May, $2,970,012 for Mr. Simonte, $1,610,441 for Mr. Satine and $1,399,212 for Mr. Willemse based on grant date fair value. These amounts may not reflect the actual value realized upon vesting or settlement, if any.
(3)
Reflects amounts earned under the AAM Incentive Compensation Plan for Executive Officers for 2018.
(4)
Reflects the annualized increase in pension value under the Salaried Retirement Program, the Albion Pension Plan and the Supplemental Executive Retirement Program (SERP). See Pension Benefits Table. There are no above-market or preferential earnings on compensation deferred under our Executive Deferred Compensation Plan.

51

Executive Compensation Tables

(5)
The components of All Other Compensation for 2018 are as follows:
Name
Employer
401(k) Match
Contributions(a)
($)

Retirement
Contributions(b)
($)

Executive
Life
Insurance
Premiums(c)
 ($)

Company-Provided
Vehicles(d)
($)

Tax Gross Ups for Spousal Travel(e)
 ($)

Other(f)
 ($)

Total
 ($)

David C. Dauch
13,750

13,750

13,690

32,016

9,554

16,618

99,378

Christopher J. May
13,750

13,750

3,229

16,587


623

47,939

Michael K. Simonte
13,750

13,750

8,510

26,976


3,438

66,424

Alberto L. Satine
13,750

13,750

11,884

20,555


2,033

61,972

Norman Willemse
13,583

13,750

10,526

11,721


623

50,203

(a)Includes employer matching contributions under AAM’s 401(k) plan.
(b)Includes employer retirement contributions under AAM’s 401(k) plan.
(c)Includes executive life insurance premiums paid by the Company.
(d)
Includes personal use of Company-provided vehicles. The aggregate incremental cost of Company-provided vehicles is based on total vehicle cost if business use of the vehicle is less than 50%. For Mr. Dauch, includes the cost of personal use of a second Company-provided vehicle.
(e)
Includes amounts reimbursed for taxes attributable to the income associated with the cost of travel for spouse accompanying the NEO to Company business meetings and events.
(f)
For Mr. Dauch, includes $11,772 for the cost of travel for spouse accompanying him to Company business meetings or events, personal umbrella liability insurance premiums, cost of an executive physical and meals provided during business hours. For Mr. Simonte and Mr. Satine, includes the cost of personal umbrella liability insurance premiums and the cost of an executive physical. For Mr. May and Mr. Willemse, includes the cost of personal umbrella liability insurance premiums.
(6)    Effective January 16, 2019, Mr. Satine's title was changed to Senior Vice President Special Projects.
(7) Mr. Willemse was not an NEO in 2017.


52

Executive Compensation Tables

Grants of Plan-Based Awards
Annual and long-term incentive awards granted in 2018 to the NEOs are shown in the following table. The annual and long-term incentive compensation programs are described in the Compensation Discussion and Analysis and the Narrative to Summary Compensation Table and Grants of Plan-Based Awards Table.
 
 
 
Estimated Future Payouts under
Non Equity Incentive Plan Awards(1)
Estimated Future Payouts under
Equity Incentive Plan Awards(2)
 
 
Name
Grant Date

Approval
Date

Threshold
($)

Target
($)

Maximum ($)

Threshold
(#)

Target
(#)

Maximum
(#)

All Other
Stock Awards:
Number of
Shares of Stock
or Units(3)
(#)

Grant Date
Fair
Value of
Stock and
Option
Awards(4)
($)

David C. Dauch
 
 
 
 
 
 
 
 
 
 
Annual Incentive


776,250

1,552,500

3,105,000






Performance Shares (TSR)
3/2/2018
2/7/2018



66,440

132,879

265,758


1,848,347

Performance Shares (Free Cash Flow)
3/2/2018
2/7/2018



66,440

132,879

265,758


1,897,512

Restricted Stock Units
3/2/2018
2/7/2018






136,904

1,954,989

Christopher J. May
 
 
 
 
 
 
 
 
 
 
Annual Incentive


220,000

440,000

880,000



&