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West Pharmaceutical Services, Inc.

Notice of 2018 Annual Meeting

530 Herman O. West Drive
Exton, Pennsylvania 19341

March 21, 2018

The 2018 Annual Meeting of Shareholders of West Pharmaceutical Services, Inc. will be held at our corporate headquarters on:

The items of business are:

1.              Election of nominees named in the Proxy Statement as directors, each for a term of one year.

2.              Consideration of an advisory vote to approve named executive officer compensation.

3.              Ratification of the appointment of PricewaterhouseCoopers LLP (“PwC”) as our independent registered public accounting firm for 2018.

4.              Transaction of other business as may properly come before the meeting and any adjournments or postponements thereof.

Shareholders of record of West common stock at the close of business on March 6, 2018 are entitled to notice of, and to vote at, the meeting and any postponements or adjournments thereof.

Important Notice Regarding the Internet Availability of Proxy Materials for the Shareholder Meeting on May 1, 2018

This Notice of Annual Meeting and Proxy Statement (“Notice”) and the 2017 Annual Report on Form 10-K (“2017 Annual Report”) are available on our website at:

Your Vote is Important

Please vote as promptly as possible electronically via the Internet or by completing, signing, dating and returning the proxy card or voting instruction card.

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GENERAL INFORMATION

Proxy Summary

Below is a summary of important information you will find in this Proxy Statement.  This summary does not contain all the information that you should consider, and you should read the entire Proxy Statement carefully before voting.

Summary of Shareholder Voting Matters

Our Director Nominees

You are being asked to vote on the directors nominated below.  All directors are elected annually by a majority of votes cast, except in the case of a contested election where the number of nominees exceeds the number of open positions, in which case plurality voting is used.  Detailed information about each director’s background and areas of expertise can be found beginning on page 62.  All directors, except Mr. Green, are independent.

LEGEND: M — Member; C — Chairperson; AC — Audit Committee; CC — Compensation Committee; ITC — Innovation and Technology Committee; FC — Finance Committee; NCGC — Nominating and Corporate Governance Committee

2018 Annual Meeting and Proxy Statement

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2017 Performance and Compensation Highlights

We believe that Mr. Green and the other named executive officers (“NEOs”) performed satisfactorily in 2017 compared to established goals and that their compensation is appropriate in relation to that performance.  Under their leadership, our Company achieved a total shareholder return (“TSR”) of 17.0% in 2017 and a cumulative three-year TSR of 89.3%.  Those returns reflect our growing sales and profitability.  Compared to 2016: net sales grew 5.2% (at constant currency exchange rates), gross profit increased 2.3%, and adjusted operating profit margin grew 20 basis points to 15.0%.  As discussed in our 2017 Annual Report, proprietary products sales growth was slower than in 2016, primarily due to customers working down inventory purchased in 2016, but contract manufacturing sales growth was still robust due primarily to the ramp-up of projects in the latter half of 2016.  Adjusted earnings per share (“Adjusted EPS”) as reported in our 2017 Earnings Release filed on February 15, 2018 (the “Earnings Release”), also improved 28% year-over-year, as described in footnote 3 below.

(1)       See page 23 of our 2017 Annual Report for discussion of the impact of foreign currency rates on reported net sales.

(2)       Gross profit and adjusted operating margin are discussed on page 24 and page 27, respectively, of our 2017 Annual Report.

(3)       A meaningful comparison on EPS growth for Annual Incentive Plan (“AIP”) purposes is best explained by reconciling the results used for calculating AIP payments to U.S. GAAP and the Earnings Release.  Please see below.

The following table shows the components of 2017 compensation paid to our NEOs, including total “realizable” pay.  Realizable pay takes a retrospective look at pay and performance.  Realizable pay is the

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sum of: (1) base salary paid; (2) annual incentive plan amounts actually earned for 2017 performance; (3) the in-the-money value of stock option grants made in 2017; (4) the December 2017 estimate for payouts for the 2017 Performance Share Unit award (82.09% of target); and (5) the 2017 year-end value of any time-vesting restricted stock or restricted stock units (“RSUs”) granted in 2017.  The table is not a substitute for our 2017 Summary Compensation Table set forth on page 45.

2017 Summary Compensation and Realizable Pay

(all amounts in U.S. Dollars)

(1)                           This column is each officer’s total compensation, as determined under applicable Securities and Exchange Commission (“SEC”) rules, minus the change in pension value reported in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column of the Summary Compensation Table.  It shows the impact that change in pension values had on total compensation, as determined under applicable SEC rules, which vary substantially due to actuarial calculations.  The amounts reported in the SEC Total Without Change in Pension column may differ substantially from the amounts reported in the Total column of the Summary Compensation Table required under SEC rules and are not a substitute for total compensation as described above and in the 2017 Summary Compensation Table on page 45.

Key 2017 Compensation-Related Actions

·                                Reaffirmed compensation philosophy to target our executive compensation at the median (50th percentile) of comparator group companies.

·                                Further refined the Company’s AIP, including: (1) providing that all metrics except revenue would be based on actual foreign-exchange rates rather than budgeted rates; (2) consolidation of our Innovation and Technology and Commercial functional plans to drive focus on sales; (3) providing additional guidelines for managers to adjust bonuses for non-officers based on individual performance; and (4) providing that a prorated bonus would be paid in the event of an involuntary termination due to job elimination or redundancy.

·                                Updated the change-in-control (“CIC”) agreements for a majority of our officers (including three of our five NEOs) to bring them more in line with market practices and to further ensure focus on creating and maintaining shareholder value in the event of a proposed change-in-control.

·                                Reaffirmed the use of two comparator groups and determined that no changes were necessary given the significant update and changes made in 2016.

·                                Conducted formal: (1) pay-for-performance review of CEO compensation versus peers; and (2) realizable pay analysis to assess whether Company performance and CEO realizable pay are aligned over a given period.

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Auditors

Set forth below is summary information with respect to PwC’s fees for services provided in 2017 and 2016.

General Information About the Meeting

Proxy Solicitation

Our Board of Directors is soliciting your vote on matters that will be presented at our 2018 Annual Meeting of Shareholders and at any adjournment or postponement.  This Proxy Statement contains information on these matters to assist you in voting your shares.

The Notice, the accompanying proxy card or voting instruction card and our 2017 Annual Report, including our annual report wrapper, are being mailed starting on or about March 21, 2018.

Shareholders Entitled to Vote

All shareholders of record of our common stock, par value $.25 per share, at the close of business on March 6, 2018, are entitled to receive the Notice and to vote their shares at the meeting.

As of that date, 73,951,222 shares of our common stock were outstanding.  Each share is entitled to one vote on each matter properly brought to the meeting.

How You Can Vote

If you are a registered shareholder, you may vote at the Annual Meeting by delivering a proxy card in person or you may cast your vote in any of the following ways:

·            Logging on to www.ProxyVote.com.

·            Mailing your signed proxy card or voting instruction card to the address provided.

·            Calling toll-free from the United States, U.S. territories and Canada to 1-800-690-6903.

If you hold shares of the Company in “Street name,” please follow the voting instructions of the financial institution at which you have an account holding shares of the Company.

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Deadline for Voting.  Mailed proxy and voting instruction cards must be received before the meeting.  If you are a registered shareholder and attend the meeting, you may deliver your completed proxy card in person.  “Street name” shareholders who wish to vote at the meeting will need to obtain a proxy form from the institution that holds their shares. The deadline for voting by telephone or Internet is 11:59 PM Eastern Time on April 30, 2018.

How Your Shares Will Be Voted

In each case, for registered shareholders, your shares will be voted as you instruct.  If you return a signed card, but do not provide voting instructions, your shares will be voted FOR each of the proposals. You may revoke or change your vote any time before the proxy is exercised by filing with our Corporate Secretary a notice of revocation or a duly executed proxy bearing a later date.  You may also vote in person at the meeting, although attendance at the meeting will not by itself revoke a previously granted proxy.  If you hold shares in the Company in “Street name” or through a broker, please refer to “Broker Voting and Votes Required” below.

Plan Participants.  Any shares you may hold in the West Pharmaceutical Services, Inc. 401(k) Plan or the West Contract Manufacturing Savings and Retirement Plan have been added to your other holdings on your proxy card.

Your completed proxy card serves as voting instructions to the trustee of those plans.  You may direct the trustee how to vote your plan shares by submitting your proxy vote for those shares, along with the rest of your shares, by Internet, phone or mail, all as described on the enclosed proxy card.

If you do not instruct the trustee how to vote, your plan shares will be voted by the trustee in the same proportion that it votes shares in other plan accounts for which it received timely voting instructions.

Broker Voting and Votes Required

If your shares are held in a stock brokerage account or by a bank or other holder of record, you are considered the “beneficial owner” of shares held in “Street name.”  The Notice would have been made available to you by your broker, bank or other holder of record who is considered the shareholder of record of those shares.  As the beneficial owner, you may direct your broker, bank or other holder of record on how to vote your shares by using the proxy card included in the materials made available to you or by following their instructions for voting on the Internet. A broker non-vote occurs when a broker or other nominee that holds shares for another does not vote on a particular item because the nominee does not have discretionary voting authority for that item and has not received instructions from the owner of the shares.  Although there is no controlling precedent under Pennsylvania law regarding the treatment of broker non-votes in certain circumstances, we intend to apply the principles outlined in the table below:

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Proxy Solicitation.  We have not retained a proxy solicitation company with respect to the proxy being solicited by this Proxy Statement.

Quorum

We must have a quorum to conduct business at the 2018 Annual Meeting.  A quorum consists of the presence at the meeting either in person or represented by proxy of the holders of a majority of the outstanding shares of our common stock entitled to vote.  For the purpose of establishing a quorum, abstentions, including brokers holding customers’ shares of record who cause abstentions to be recorded at the meeting, and broker non-votes are considered shareholders who are present and entitled to vote, and count toward the quorum.

Mailings to Multiple Shareholders at the Same Address

We have adopted a procedure called “householding” for making the Proxy Statement and the 2017 Annual Report available.  Householding means that shareholders who share the same last name and address will receive only one copy of the materials, unless we are notified that one or more of these shareholders wishes to continue receiving additional copies.

We will continue to make a proxy card available to each shareholder of record.  If you prefer to receive multiple copies of the proxy materials at the same address, please contact us in writing or by telephone: Corporate Secretary, West Pharmaceutical Services, Inc., 530 Herman O. West Drive, Exton, PA 19341, (610) 594-3319.

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Electronic Availability of Proxy Statement and Annual Report

We are pleased to be distributing our proxy materials to certain shareholders via the Internet under the “notice and access” approach permitted by the rules of the SEC.  This method conserves natural resources and reduces our costs of printing and mailing while providing a convenient way for shareholders to review our materials and vote their shares.

On March 21, 2018, we mailed a “Notice of Internet Availability” to participating shareholders, which contains instructions on how to access the proxy materials on the Internet.

If you would like to receive a printed copy of our proxy materials, we will send you one free of charge.  Instructions for requesting such materials are included in the Notice.

This Proxy Statement and our 2017 Annual Report are available at:

http://investor.westpharma.com/phoenix.zhtml?c=118197&p=irol-reportsannual.

Corporate Governance and Board Matters

During 2017, our Board met six times.  Each director attended at least 75% of the Board meetings and the meetings of the Board committees on which he or she served.  All directors are expected to attend the 2018 Annual Meeting, and all our directors attended the 2017 Annual Meeting.

Our principal governance documents are our Corporate Governance Principles, Board Committee Charters, director qualification standards and Code of Business Conduct.  Aspects of our governance documents are summarized below.  We encourage our shareholders to read our governance documents, as they present a comprehensive picture of how the Board addresses its governance responsibilities to ensure our vitality and success.  The documents are available in the “Investors — Corporate Governance” section of our website at www.westpharma.com and copies of these documents may be requested by writing to our Corporate Secretary, West Pharmaceutical Services, Inc., 530 Herman O. West Drive, Exton, PA 19341.

Corporate Governance Principles

Our Board has adopted Corporate Governance Principles to provide guidance to our Board and its committees on their respective roles, director qualifications and responsibilities, Board and committee composition, organization and leadership.  Our Nominating and Corporate Governance Committee reviewed and significantly updated our Corporate Governance Principles to meet best practices in corporate governance in 2016 and, in 2017, the Committee confirmed that the Corporate Governance Principles address our current and long-term business needs.  The only change made after this review was to increase our mandatory retirement age from 72 to 75, which is discussed in more detail below.  Our Corporate Governance Principles address, among other things:

·                  Statements of the Board’s commitment to high ethical standards, principles of fair dealing and high ethical standards;

·                  The requirement to hold separate executive sessions of the independent directors;

·                  The importance of robust executive succession planning and the role of directors in succession planning;

·                  The Board’s policy on setting director

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compensation and director share-ownership guidelines;

·                  Guidelines on Board organization and leadership, including the number and structure of committees and qualifications of committee members;

·                  Guidelines on outside board memberships;

·                  Policies on making charitable contributions and prohibition of political contributions;

·                  Policies on access to Management;

·                  Requirements fostering leadership development by senior executives;

·                  Statements of our executive compensation philosophy and our independent auditor standards;

·                  Director orientation and education; and

·                  Self-assessments of Board and Committee performance to determine their effectiveness.

Code of Business Conduct

All our employees, officers and directors are required to comply with our Code of Business Conduct as a condition of employment.  The Code of Business Conduct covers fundamental ethical and compliance-related principles and practices such as accurate accounting records and financial reporting, avoiding conflicts of interest, protection and proper use of our property and information and compliance with legal and regulatory requirements.  The Board has adopted a comprehensive Compliance and Ethics Program, which was substantially updated in 2016, and was reviewed and reaffirmed in 2017 as meeting the needs of our Company, its shareholders and other stakeholders.  Mr. Miller is our Chief Compliance Officer.  Mr. Miller delivers regular reports on program developments and initiatives to the Audit Committee and the Board.

Board Leadership Structure

The current governance structure of the Board follows:

·                  The offices of Chairman and CEO are separate;

·                  The Board has established and follows robust corporate governance guidelines;

·                  All the members of the Board, other than Mr. Green, are independent;

·                  All Board Committees are composed solely of independent directors;

·                  Our independent directors meet regularly in executive session both at the Board and Board committee levels; and

·                  Our directors as a group possess a broad range of skills and experience sufficient to provide the leadership and strategic direction the Company requires as it seeks to enhance long-term value for shareholders.

Our Board took steps to enrich our diversity during 2017, including the addition of another female director and the increase of our mandatory retirement age.

While the offices of Chairman and CEO are currently separate, the Board takes a flexible approach to the issue of whether the offices of Chairman and CEO should be separate or combined.  This approach allows the Board to regularly evaluate whether it is in the best interests of the Company for the CEO or another director to hold the position of Chairman.

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The Board does not currently have a lead independent director, although the Board believes it may be useful and appropriate to designate a lead independent director if the offices of Chairman and CEO are combined in the future.

We believe the current Board leadership structure is appropriate now because it allows the Chairman to focus on corporate governance and management of the Board priorities and allows the CEO to focus directly on managing our operations and growing the Company.

Chairman of the Board of Directors

The responsibilities of the Chairman include:

·                  Chairing Board meetings, including executive sessions of the independent directors;

·                  Approving agendas and schedules for each Board meeting in consultation with the CEO; and

·                  Serving as principal liaison between the CEO and the independent directors.

Each independent director may add items to the agenda.  Independent directors meet in regularly scheduled executive sessions and in special executive sessions called by the Chairman.

Our current Chairman, Mr. Zenner, has been serving on the Board since 2002, and as our Chairman since 2015.  Each year the Board considers the role of the Chairman and who is sitting in that role.  We believe Mr. Zenner’s experience as a top executive, his independence plus his history with the Company makes him a valuable asset for the Company and provides significant leadership to our Board.

We believe continuing his Chairmanship has been beneficial to Management and enhanced shareholder value especially in light of the appointment of four new board members since 2014, and significant changes in our corporate officers since 2015, with a new CEO and new leaders in Global Operations and Supply Chain, Legal, Human Resources, Corporate Development, Strategy and Investor Relations, and Innovation and Technology.

Committees

The Board has five standing committees:

·            Audit Committee;

·            Compensation Committee;

·            Finance Committee;

·            Innovation & Technology Committee; and

·            Nominating and Corporate Governance Committee.

From time to time, the Board may form ad hoc committees to address specific situations as they may arise.  Each committee consists solely of independent directors.  Each standing committee has a written charter, which is posted in the “Investors—Corporate Governance” section of our website at www.westpharma.com.

You may request a copy of each committee’s charter from our Corporate Secretary.

Audit Committee

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Board Matters

During 2017, our Board and each of its Committees played pivotal roles in helping to develop and approve our corporate strategy.  The major issues debated and decided by the Board during 2017 included:

·            Actively updating our enterprise strategic plan and monitoring progress, including through our Finance Committee, which had its first full year of meetings during 2017;

·            Conducting a significant talent and succession planning review for key positions with Management as an integral part of our annual enterprise strategic planning meeting;

·            Reviewing potential targets for mergers and acquisitions and potential licensing opportunities and improving our merger and acquisition evaluation process;

·            Strengthening our enterprise risk management (“ERM”) process, including significant review of cybersecurity risks, protections and recovery plans;

·            Publishing our inaugural Corporate Responsibility report, which outlines our initiatives in five areas critical to our culture and success: Compliance and Ethics, Philanthropy, Diversity, Health and Safety and Environmental Sustainability;

·            Revising the director mandatory retirement age in our Corporate Governance Principles;

·            Adding a new female director with a healthcare background; and

·            Reviewing the Company’s capital allocation strategy, increasing the annual dividend and continuing our strategic share buyback program.

The Board’s Role in Risk Oversight

The Board’s role in risk oversight is consistent with our leadership structure, with Management having day-to-day responsibility for assessing and managing our risk exposure and the Board actively overseeing management of our risks—both at the Board and committee level.

The Board regularly reviews and monitors the risks associated with our financial condition and operations and specifically reviews the enterprise risks associated with our five-year plan.  In particular, the Board reviews our risk portfolio, confirms that Management has established risk-management processes that are functioning effectively and efficiently and are consistent with our corporate strategy, reviews the most significant risks and determines whether Management is responding appropriately.

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The Board performs its risk oversight role by using several different levels of review.  Each Board meeting begins with a strategic overview by the CEO that describes the most significant issues, including risks, affecting the Company and includes business updates from each reportable segment.  In addition, the Board reviews in detail the business and operations of each reportable segment quarterly, including the primary risks associated with that segment.

During 2017, with Board oversight and review, we substantially enhanced our ERM process.  This expanded ERM process helps us reduce and manage the risk inherent in our business, gain a greater understanding and awareness of risks facing the business, ensure risk-appropriate mitigation efforts are in place and regularly monitored and ensure the Company meets or exceeds the expectation of investors and regulators.

The Board focuses on the overall risks affecting the Company.  For example, the Board and each committee assesses cybersecurity risks and Management’s plan for defending against and responding to these risks.  Additionally, each committee has been delegated the responsibility for the oversight of specific risks that fall within its areas of responsibility, which were cataloged through our ERM process, including:

·            The Audit Committee oversees management of financial reporting, compliance and litigation risks as well as the steps Management has taken to monitor and control such exposures.

·            The Compensation Committee is responsible for overseeing the management of risks relating to our executive compensation policies, plans and arrangements and the extent to which those policies or practices increase or decrease risk for the Company.

·            The Finance Committee assesses the risks associated with allocation of our capital, potential acquisitions, divestitures and major business partnerships.

·            The Innovation and Technology Committee reviews risks associated with intellectual property, innovation efforts and our technology strategy.

·            The Nominating and Corporate Governance Committee manages risks associated with the independence of the Board, potential conflicts of interest and the effectiveness of the Board.

Although each Committee is responsible for evaluating certain risks and overseeing the management of those risks, the full Board is regularly informed about those risks through committee reports.

Director Independence

Our Board has adopted a formal set of categorical director independence determination standards (“Standards”).  The Standards meet or exceed the independence requirements of the NYSE corporate governance listing standards.  Under the Standards, a director must have no material relationship with us other than as a director.  The Standards specify the criteria for determining director independence, including strict guidelines for directors and their immediate families regarding employment or affiliation with us, members of our senior Management or their affiliates.  The full text of the Standards may be found under the “Investors — Corporate Governance” section on our website at www.westpharma.com.

The Board undertook its annual review of director independence in February 2018.  As a result of this review, the Board did not substantively revise the Standards.  Subsequently, the Board considered whether any relationships described under the Standards between the Company and each individual director existed.  The Board affirmatively determined that each of its non-employee directors is independent of the Company and its Management team as defined under the Standards.

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Executive Sessions of Independent Directors

Our Board also holds regular executive sessions of only independent directors to review the Company’s strategy and Management’s operating plans, the criteria by which our CEO and other senior executives are measured, Management’s performance against those criteria and other related issues and to conduct a self-assessment of its performance.  Last year, our independent directors held six executive sessions.

Board Refreshment and Retirement Age

We review our Board refreshment policies and retirement age annually, and we continue to monitor trends in this area.

The Board does not have term limits on the service of our directors, because we believe that term limits may lead to loss of valuable director insight into our business and operations that is enhanced with continuity. The Board believes that a diverse mix of long-tenured and new Board members provides a good and appropriate balance of experience to enhance shareholder value.

In 2017, we revised our Corporate Governance Principles to increase the mandatory retirement age from 72 to 75.  This means that a non-employee director must retire on the date of the Annual Meeting of Shareholders immediately following his or her 75th birthday. The Board revised the retirement age because the Board believes that directors may continue to provide meaningful, independent oversight and advice past age 72.

An employee director must submit his or her resignation upon the date he or she ceases to be an executive of the Company.

Director Evaluation

Each year the Board and each committee review their performance as a committee during executive sessions.  This review centers around questions directors are asked to contemplate before the meeting.  These questions include topics such as the relationship between members, quality of the materials provided, the relationship with management, their calendar and topics that they would like to see added or deleted to meeting agendas.

Additionally, the Nominating and Corporate Governance Committee reviews the evaluation process annually and makes suggested changes  when necessary.  Beginning in 2016, the Chairman of this Committee reaches out to each director individually to discuss any concerns and relays them to the Board using an interview template approved by the Committee.

We believe this evaluation system, coupled with our strong Chairman of the Board and open-door policy, which encourage sharing of ideas among all directors, makes for a robust process that ensures the Board’s effectiveness.

Director Education

The Board believes shareholders are best served by Board members who are well versed in corporate governance principles and other subject matters relevant to board service.  Therefore, all directors are encouraged to attend any director education programs they consider appropriate to stay informed about developments in corporate governance and the markets we serve.  The Company reimburses directors for the reasonable costs of attending director education programs.  To encourage continuing director education, the Board also arranges for a series of annual educational presentations on its calendar.

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Share Ownership Goals for Directors and Executive Management

To encourage significant share ownership by our directors and further align their interests with the interests of our shareholders, directors are expected to acquire within three years of appointment, and to retain during their Board tenure, shares of our common stock equal in value to at least five times their annual retainer.  All directors meet this requirement or are within the three-year period to obtain the necessary shares.  The Board has also set share ownership goals for senior executive Management, which are described under “Compensation Discussion and Analysis — Other Compensation Policies.”

2017 Shareholder Outreach

To ensure that the Board considers shareholder views on compensation, corporate governance and business matters, we maintain an active shareholder engagement program.  Throughout the year, Management meets with our actively-managed, institutional shareholders, which own a majority of our shares.   Management discusses topics of interest from our shareholders, solicits their input on these topics and provides our own views on these topics. The Board receives regular updates on investor feedback.

The Board remains committed to aligning pay and performance in a manner that enhances shareholder value.  Our shareholders have historically expressed support for our long-term performance goals, including return on invested capital and top line sales growth.

Additionally, Management heard our shareholders express support for our corporate governance framework, Board membership and Board policies, including our tenure policies.

During 2017, we also addressed director attendance and its importance with these shareholders.  Our Board is committed to ensuring that directors attend meetings and that the Board and its Committees devote sufficient time necessary for the effective oversight of the Company and its Management.

Communicating with the Board

You may communicate with the Chairman of the Board or the independent directors as a group by sending a letter addressed to the Board of Directors, c/o Corporate Secretary, West Pharmaceutical Services, Inc., 530 Herman O. West Drive, Exton, Pennsylvania 19341.  Communications to a particular director should be addressed to that director at the same address.

Our Corporate Secretary maintains a log of all communications received through this process.  Communications to specific directors are forwarded to those directors.  All other communications are given directly to the Chairman of the Board who decides whether they should be forwarded to a Board committee or to Management for further handling.

Director Nominations, Criteria and Diversity

Candidates for nomination to our Board are selected by the Nominating and Corporate Governance Committee in accordance with the Committee’s charter, our Articles of Incorporation, our Bylaws and our Corporate Governance Principles.  All persons recommended for nomination to our Board, regardless of the source of the recommendation, are evaluated by the Committee.

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The Board and the Nominating and Corporate Governance Committee consider, at a minimum, the following factors in recommending potential new Board members or the continued service of existing members:

·      A director is nominated based on his or her professional experience.  A director’s traits, expertise and experience add to the skill-set of the Board as a whole and provide value in areas needed for the Board to operate effectively.

·      A director must have high standards of integrity and commitment, and exhibit independence of judgment, a willingness to ask hard questions of Management and the ability to work well with others.

·      A director should be willing and able to devote sufficient time to the affairs of the Company and be free of any disabling conflict.

·      All the non-employee directors should be “independent” as outlined in our Standards.

·      A director should exhibit confidence and a willingness to express ideas and engage in constructive discussion with other Board members, Management and relevant persons.

·      A director should actively participate in the decision-making process, be willing to make difficult decisions, and demonstrate diligence and faithfulness in attending Board and committee meetings.

·      The Board generally seeks active or former senior executives of public companies, particularly those with international operations, leaders in healthcare or public health fields, with science or technology backgrounds, and individuals with financial expertise.

When reviewing nominees, the Nominating and Corporate Governance Committee considers whether the candidate possesses the qualifications, experience and skills it considers appropriate in the context of the Board’s overall composition and needs.  The Nominating and Corporate Governance Committee also values diversity on the Board in the director nominee identification and nomination process.

Our Corporate Governance Principles include a statement of the importance of board diversity to ensure that the director nomination process considers a diverse mix of background, age, gender, sexual orientation, as well as cultural and ethnic composition.  Accordingly, the Committee’s evaluation of director nominees includes consideration of their ability to contribute to the diversity of personal and professional experiences, opinions, perspectives and backgrounds on the Board.  The Committee regularly assesses the effectiveness of this approach as part of its review of the Board’s composition.

In 2017, we appointed a new Board member, Ms. Keller, who has experience leading a multinational drug development business that partners with leading pharmaceutical and biotechnology companies like our Company.  In addition, we increased our mandatory retirement age from 72 to 75.  Each of these actions help to ensure we have a diversity of perspectives and experience levels on the Board.

To assist it with its evaluation of the director nominees for election at the 2018 Annual Meeting, the Committee considered the factors listed above and used a skills matrix highlighting the experience of our directors in areas such as industry experience, international background, leadership, financial literacy, risk management expertise and independence.

Under the heading “Director Qualifications and Biographies,” we provide an overview of each nominee’s principal occupation, business experience and other directorships of publicly-traded companies, together with the qualifications, experience, key attributes and skills the Committee and the Board believe will best serve the interests of the Board, the Company and our shareholders.

Shareholders who wish to recommend or nominate director candidates must provide information about themselves and their candidates and comply with procedures and timelines contained in our Bylaws.  These procedures are described under “Other Information — 2019 Shareholder Proposals or Nominations” in this Proxy Statement.

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Related Person Transactions and Procedures

The Board has adopted written policies and procedures relating to the Nominating and Corporate Governance Committee’s review and approval of transactions with related persons that are required to be disclosed in proxy statements under SEC regulations.  A “related person” includes our directors, officers, 5% shareholders and immediate family members of these persons.

Under the policy, the Nominating and Corporate Governance Committee reviews the material facts of all related-person transactions, determines whether the related person has a material interest in the transaction and may approve, ratify, rescind or take other action with respect to the transaction.

In approving a transaction, the Committee will consider, among other factors, 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 the extent of the related person’s interest in the transaction.

The Committee reviews and pre-approves certain types of related person transactions, including certain transactions with companies at which the related person is an employee only, and charitable contributions that would not disqualify a director’s independent status.  The policy and procedures can be found in the “Investors—Corporate Governance — Governance Documents” section of our website, www.westpharma.com.

We have no related person transactions required to be reported under applicable SEC rules.

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DIRECTOR COMPENSATION

Director Compensation

2017 Non-Employee Director Compensation

The compensation structure was reviewed in 2017 by the Board of Directors in consultation with Pay Governance LLC (“Pay Governance”), our independent compensation consultant.  After this review, it was determined that no changes were necessary to the compensation structure.  The structure that was in effect for all of 2017 is set forth below.

* Payable in cash or restricted stock, which vests 25% per quarter, as elected annually by the Chairman.

The following table shows the total 2017 compensation of our non-employee directors.

2017 Non-Employee Director Compensation

Fees Earned or Paid in Cash

The amounts in the “Fees Earned or Paid in Cash” column are retainers earned for serving on our Board, its committees and as committee chairs and Chairman, Independent Directors or Chairman, as applicable.  All annual retainers are paid quarterly.  For Mr. Zenner this amount includes his cash fees for serving as Chairman of the Board.

The amounts are not reduced to reflect elections to defer fees under the Nonqualified Deferred Compensation Plan for Non-Employee Directors (“Director Deferred Compensation Plan”).  During 2017, Mr. Buthman, Ms. Keller, Mr. Michels, and Mr. Weiland deferred 100% of their fees paid in 2017.  Dr. Lai-Goldman deferred 50% of these fees.

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Stock Awards

The amounts in the “Stock Awards” column reflect the grant date fair value of stock-settled RSU awards made in 2017 and the grant date fair value is determined under Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 718.  In 2017, each continuing non-employee director was awarded 1,697 RSUs, with a grant date fair market value of $94.27 per share based on the closing price of our common stock on the award date, May 2, 2017.  These awards had a grant date fair value of $159,976.  Ms. Keller was awarded a prorated grant on the commencement of her service on June 1, 2017.  Her award was for 1,483 shares at $98.89 per share, which had a grant date fair value of $146,654.  For a discussion on RSU grant date fair value, refer to Note 12 of the consolidated financial statements in our 2017 Annual Report.

RSUs are granted on the date of our Annual Meeting (or, as in the case with Ms. Keller, upon commencement of service) and fully vest on the date of the next Annual Meeting so long as a director remains on the Board as of that date.  Generally, all unvested grants of equity forfeit upon termination.  However, if a director retires during the calendar year that he or she reaches our mandatory retirement age, the award will vest on a monthly basis through retirement.

Stock-settled RSUs are distributed upon vesting, unless a director elects to defer the award under the Director Deferred Compensation Plan.  In 2017, all directors elected to defer their RSU awards.  All awards are distributed as shares of common stock, as described below.  When dividends are paid on common stock, additional shares are credited to each director’s deferred stock account as if those dividends were used to purchase additional shares.

For Mr. Zenner this column also includes the 528 shares of restricted stock he elected to receive in lieu of cash for his additional $100,000 Chairman’s annual retainer.  The restricted stock, which had a grant date fair value of $94.27, vests 25% per quarter and was equivalent to approximately 50% of his Chairman’s retainer, or $49,775.  These restricted shares are issued and outstanding, and, therefore, earn dividends.  They are not eligible to be deferred or credited to the Director Deferred Compensation Plan.  The remainder of this retainer was paid in cash.

The table below shows the number of outstanding stock awards held by each director at year-end.  No directors have any outstanding options.

Outstanding Director Stock Awards at Year-End 2017

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All Other Compensation

The amounts in the “All Other Compensation” column are Dividend Equivalent Units (“DEUs”) credited to accounts under the Director Deferred Compensation Plan.  No charitable matching contributions were made on behalf of any directors in 2017.

Director Deferred Compensation Plan

All non-employee directors may participate in the Director Deferred Compensation Plan, which permits participants to defer all or a part of their annual cash compensation until their Board service terminates.  Deferred fees may be credited to a “stock-unit” account that is deemed invested in our common stock or to an account that earns interest at the prime rate of our principal commercial bank.  Stock-unit accounts are credited with DEUs based on the number of stock units credited on the dividend record date.

The value of a director’s account balance is distributed on termination of Board service.  The value of a director’s stock-unit account is determined by multiplying the number of units credited to the account by the fair market value of our common stock on the termination date.

RSUs that a director elects to defer (and all shares of deferred stock) are distributed in shares of stock.  Pre-2014 stock units may be distributed in cash in lieu of stock, if a director made an election in 2013.  All post-2013 stock units are only distributable in stock.  Partial shares are distributed in cash.

Directors may receive their distribution as a lump sum or in up to ten annual installments.  Separate elections apply to amounts earned and vested before January 1, 2005 and amounts earned and vested after December 31, 2004, which solely applies to Mr. Zenner.  If a director elects the installment option, the cash balance during the distribution period will earn interest at the prime rate of our principal commercial bank and deferred stock and stock-settled units will be credited with DEUs until paid.

Director Deferred Compensation Plan at Year-End 2017

The following table summarizes the amounts credited to each Director Deferred Compensation Plan account as of December 31, 2017:

(1)         Value is determined by multiplying the number of stock units or shares of deferred stock, as applicable, by $98.67, the fair market value of a share of stock on December 29, 2017.  A portion of the stock units may relate to deferred compensation that has previously been reported in the “Fees Earned or Paid in Cash” column for the year the compensation was earned by the director.

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EXECUTIVE COMPENSATION

Executive Compensation

Executive Summary

Our Compensation Philosophy and Goals

We believe that our long-term success is directly related to our ability to attract, motivate and retain highly talented individuals committed to driving innovation in our products and services improving financial performance, achieving profitable growth on a sustainable basis and enhancing shareholder value.

To that end, our Compensation Committee (all subsequent references to “Committee” in this Executive Compensation section are to the Compensation Committee) has developed and implemented a pay-for-performance compensation philosophy that closely aligns our executives’ incentive compensation with Company performance and shareholder interests on a short- and long-term basis without promoting excessive risk.  When we deliver expected performance, our pay should approximate the market median.  Actual compensation, however, varies with our performance.

For our Corporate function participants and Ms. Flynn, our annual cash incentive bonus plan, the Annual Incentive Plan (“AIP”), is based on our performance on three financial measures: Adjusted Diluted EPS, Adjusted Operating Cash Flow (“OCF”) and Adjusted Consolidated Revenue (“Adjusted Revenue”).

Mr. Montecalvo, who leads our Global Operations and Supply Chain function, has goals based 50% on the aforementioned Corporate metrics and 50% based on performance against goals for Gross Profit for our proprietary products (“Proprietary GP”) and OCF for our proprietary products (“Proprietary OCF”).

All goals are set using a rigorous process to ensure sufficient stretch and encourage achievement of our committed growth targets.  Our annual incentive plan targets and our incentive compensation philosophy are reviewed annually by the Committee to ensure alignment with our organizational structure and enterprise strategy.  This, in turn, drives alignment between pay and performance.

Annual awards are paid only if performance meets or exceeds 85% of the target.  At the 85% threshold only 50% of the AIP target is paid with increasing amounts for improved performance.

We believe our long-term incentive awards are aligned with shareholder interests with targets based on the achievement of the three-year compound annual growth rate (“CAGR”) and the return on invested capital (“ROIC”) targets.  Both focused on delivering value over the long term and encouraging share ownership and help in the retention of key talent.

To ensure our long-term goals are delivering shareholder value we undergo an annual review of the correlation between our long-term incentive plan (“LTIP”) payouts and our TSR over the performance period.  As in prior years, our review indicates that our LTIP is highly correlated to our TSR and that our TSR outpaces our peers and the market as a whole.

Finally, to ensure direct linkage to business performance and pay, a significant portion of the total compensation opportunity for each of our executives, including the NEOs, is directly dependent on the achievement of pre-established corporate goals — more than 82% for our CEO and more than 68% for our other NEOs.

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2017 Say-on-Pay Results

At our 2017 Annual Meeting of Shareholders, we held a shareholder “Say-on-Pay” advisory vote to approve the compensation of our NEOs as disclosed in our Proxy Statement.  Approximately 96% of our shareholders supported and approved our NEO pay.  In 2017, 89.8% of these shareholders approved holding this advisory vote on an annual basis.

The Committee considered these votes as demonstrating strong support for our compensation programs and continued to apply the same effective principles and philosophies that have been applied in prior years when making compensation decisions for 2017.  These principles and philosophies are highlighted above and described more fully below.

2017 Financial Highlights

The Company achieved record net sales, gross profit, adjusted operating profit and Adjusted Diluted EPS.  Compared to 2016, net sales increased 5.2% (at constant currency exchange rates), gross profit grew by 2.3%, and adjusted operating profit margin grew 0.2 margin points to 15.0%.  Full year adjusted diluted earnings per share was $2.78 as compared to $2.18 in the prior year, representing 28% growth.  For AIP purposes, we also excluded an unbudgeted $0.44 per share benefit due to an accounting change for stock-based compensation tax benefits and a $0.01 benefit generated by our unbudgeted share repurchase program. Excluding these items, the adjusted diluted EPS used in our AIP was $2.33 in 2017.  For additional information please see “2017 Performance and Compensation Highlights” on page 3.

Our shareholders also benefitted as we delivered a three-year TSR which placed us in the 84th percentile for the Business Segment Group of companies we use for benchmarking our executive compensation and more than doubled the TSR for the S&P 500 Index.  One-year TSR, however, lagged behind most of our peers and the S&P 500.  Nevertheless, Management remains focused primarily on longer-term goals and performance due to the inherent variability with annual performance.

With regard to our incentive plan targets, our annual plan uses a one-year measurement period and our LTIP uses three-year metrics.  Despite favorable comparisons to our Business Segment Group and the market in general, we fell short of our ambitious growth targets, we paid out at less than 100% for both plans.  The three-year long-term plan paid out at 96.60%, while the short-term annual incentive plan paid at 83.9% for four of our NEOs and 72.6% for Mr. Montecalvo.

However, LTIP recipients benefitted from the 89.3% three-year TSR, including dividend equivalents and a 71.8% stock price increase from $54.14 on February 23, 2015, which was the grant date for executives who were employed at the beginning of the period, to $93.00, the price on the payout date, February 13, 2018.  Our NEOs also shared in this price appreciation with regard to options awarded on that date (or their employment commencement date, if later).

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Executive Compensation Elements

2017 Performance-Based Bonuses (Cash)

AIP payouts for all officers, including the NEOs, include measurement against performance for three principal Corporate financial metrics: Adjusted Diluted EPS, Adjusted Revenue and Adjusted OCF.  For Mr. Montecalvo, in addition to these goals which collectively make up 50% of his target bonus, he has targets based on Proprietary GP and Proprietary OCF.  The target bonus is set as a percentage of base salary, which for the NEOs, ranges from 60% to 105%.  2017 AIP target goals were set by the Committee based on the budget approved by the Board and the Committee’s determination that the targets contained sufficient “stretch.”  This analysis is aided by a retrospective review of our performance compared to that of our competitors.  This review is performed annually

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by the Board’s independent compensation consultant, Pay Governance.

During 2017, we exceeded our target level for Adjusted OCF achieving 104.4% compared to target.  We exceeded the threshold for Adjusted Revenue and Adjusted Diluted EPS, but were below the target level resulting in an overall payout of 83.9% for these Corporate metrics for all NEOs, including Ms. Flynn, though she had different metric weights as discussed below.

As noted above, for Mr. Montecalvo, the Corporate metrics make up 50% of his overall target.  An additional 30% is based upon Proprietary GP and 20% Proprietary OCF, which resulted in a payout of 72.6%.  This payout resulted from above-threshold but below target performance on all metrics except Adjusted OCF, which, as mentioned, exceeded target.

Despite considerable improvement on Adjusted OCF performance, our Adjusted Diluted EPS and Adjusted Revenue performance were less favorable than in 2016.  Overall, this resulted in a lower AIP payout in 2017 versus 2016.  As discussed more fully in our 2017 Annual Report, underperformance in EPS, Revenue and Gross Profit was due to lower than expected sales growth in our Proprietary Products segment as customers continued to work down inventory levels purchased in 2016 as well as higher material, labor and overhead costs.  Additionally, as noted above, TSR underperformed in 2017.

The financial results and consequent lesser payouts demonstrate our pay-for-performance philosophy discussed in the “Compensation Discussion and Analysis” below.  A reconciliation of each of the metrics to the amounts reported under U.S. Generally Accepted Accounting Principles (“GAAP”) is provided under “Financial Measures and Adjustments” on page 58.

2017 AIP Performance Against Corporate Metrics

Threshold, Target and Actual Performance

Corporate Metrics

(Applicable to All NEOs)

Global Operations Metric

(Applicable to Mr. Montecalvo only)

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2017 Long-Term Incentive Awards (Equity)

Long-term incentive compensation opportunities for our executives, including the NEOs, are entirely equity based.  Executives receive an award of PSUs and time-vested stock options, approximately equal in grant date fair value.  The value of each NEO’s long-term grant is determined by the Committee based on its review of peer-group market data, the executive’s roles and responsibilities, his or her impact on our results, and advancement potential.  PSUs entitle the recipient to receive common shares based on achievement of three-year CAGR and ROIC targets.  The following chart shows the performance against target and threshold for the three-year performance period that ended December 31, 2017.

(1)         Calculated at 2017 budgeted foreign exchange translation rates.

Our Compensation Practices

We continue to incorporate leading practices into our compensation programs:

·                  Our compensation philosophy targets total direct compensation of our NEOs at the 50th percentile of our thoughtfully-selected comparator group companies.

·                  We prohibit our officers and directors from hedging, pledging or engaging in any derivatives trading with respect to our common stock.

·                  Our equity incentive plan prohibits the repricing or exchange of awards without shareholder approval.

·                  Dividend equivalent units are paid on equity awards only if the underlying award is earned and vested.

·                  We conduct realizable-pay analyses on our CEO compensation and review tally sheets to provide additional benchmarking information on executive pay.

·                  We require a “double-trigger” feature and have not provided golden parachute excise tax gross-ups in any CIC agreements offered to executives after 2010.

·                  We require our executive officers to meet share-ownership guidelines, and to take a portion of their bonus in shares until their ownership guidelines are met.  The ownership guideline for our CEO is six times base salary and the guideline for our other officers is two times base salary.

·                  The Committee has engaged an independent outside compensation consultant.  See “Role of the Compensation Consultant and Executives.”

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·                  The Committee may cancel or recover any cash- or equity-based incentive compensation based on achievement of specified financial results that are the subject of a subsequent restatement.  We intend to seek repayment of any amount determined to have been inappropriately received due to mathematical errors, fraud, misconduct or gross negligence.

·                  We annually review the potential risk associated with our compensation programs.

Compensation Committee Report

The Compensation Committee has reviewed and discussed with Management the “Compensation Discussion and Analysis.”  Based on its review and discussions with Management, the Compensation Committee recommended to the Board, and the Board approved, the inclusion of the “Compensation Discussion and Analysis” in this Proxy Statement and in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

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Compensation Discussion and Analysis

This section discusses our executive compensation programs for 2017, the compensation decisions made under those programs and the factors that were considered by the Committee in making those decisions.  It focuses on the compensation for each of our NEOs for 2017:

·                  Eric M. Green, President and Chief Executive Officer;

·                  William J. Federici, Senior Vice President, Chief Financial Officer and Treasurer; (1)

·                  Karen A. Flynn, Senior Vice President and Chief Commercial Officer;

·                  George L. Miller, Senior Vice President, General Counsel and Corporate Secretary; and

·                  David A. Montecalvo, Senior Vice President, Global Operations and Supply Chain.

(1)         Mr. Federici was named Treasurer effective January 1, 2017 with the retirement of our previous Treasurer, Michael A. Anderson, on December 31, 2016.  On March 2, 2018, Mr. Federici announced his intention to retire during 2018.

This Compensation Discussion and Analysis is divided into two parts:

Part 1 discusses our 2017 performance, the Committee’s actions in 2017, our compensation practices and the compensation decisions for our NEOs.

Part 2 discusses our compensation framework in more detail, including how we apply our compensation philosophy and determine competitive positioning of our executive compensation and other policies.

Part 1 — 2017 Performance, Compensation Committee Actions, Compensation Practices and Decisions

2017 Performance Overview

Among the accomplishments of our executive team during 2017 were:

·                  Net sales increased by 5.2% (excluding foreign currency effects).

·                  Our 2017 gross profit and consolidated operating profit both increased to record levels.

·                  Full-year Adjusted Diluted EPS was $2.78 as compared to $2.18 in the prior year, representing 28% growth.  For AIP performance measurement purposes, in accordance with the AIP document, the Committee also excluded an unbudgeted $0.44 per share benefit due to an accounting change for stock-based compensation tax benefits and a $0.01 benefit for our unbudgeted share repurchase program.

·                  Contract-Manufactured Products sales increased 12.0% over 2016 on a constant currency basis due primarily to the ramp-up of several new projects in the latter half of 2016.

·                  Opened a new state-of-the-art Research and Development Center in Germany and began moving into our new production facility in Waterford, Ireland, which is scheduled to begin commercial operations in 2018.

·                  Increased quarterly dividend to $0.14 per share.

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As discussed in this Proxy Statement, despite these accomplishments, our overall one-year performance during 2017 fell below targeted levels, and payouts under the AIP accordingly were less than 100% of target.  Additionally, our three-year performance was above ROIC target but below our CAGR target, which makes up 50% of our long-term incentive payout, and, therefore, that payout was lower.  Our long-term TSR performance exceeded the average performance of our peer group and the S&P 500.  Our three-year performance exceeded the 84th percentile among our peers while our one-year TSR was less than the median of our peers and the S&P 500.

LTIP participants also share in the stock price increase over the performance period, to the same extent as shareholders.  Therefore, values at the time of payout greatly exceed the original grant date fair values.  These participants also share in the price increase to the same extent as our shareholders, with increasing option values.  We believe both of these features of our long-term incentives reflect our pay-for-performance philosophy and help align management and shareholder objectives. Lastly, annual incentives, which are cash-based, paid out at no more than 83.9% in every case, except Contract-Manufactured Products where business unit revenue and operating profit exceeded targets.

2017 Committee Actions

The Committee regularly evaluates the design and performance of our executive compensation programs to ensure they are operating as intended and consistent with relevant benchmarks and market practices.  The Committee also reviews its compensation philosophy each year.  As a result of these evaluations and reviews, the Committee took the following actions in 2017:

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Executive Compensation Elements

The following chart summarizes the key features of each element of our executive compensation program: Cash (salary and annual bonus); equity (long-term incentive); retirement, which includes the West Pharmaceutical Services, Inc. Employees’ Retirement Plan (“Retirement Plan”), Supplemental Employee Retirement Plan (“SERP”), 401(k) Plan, and Deferred Compensation for Designated Employees (“Employee Deferred Compensation Plan; and other compensation (perquisites).  Each type is discussed in detail in the remainder of this Compensation Discussion and Analysis, and the accompanying tables.

[CONTINUED ON NEXT PAGE]

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Summary of Key 2017 Compensation Decisions

After a thorough review of our pay practices, including benchmarking our process, the Committee concluded to not make any significant changes to our compensation structure in light of the strong linkage between pay and performance and the Company’s positioning relative to its peers.

The following highlights the Committee’s key NEO compensation decisions for 2017, as reported in the 2017 Summary Compensation Table on page 45.  The decisions were made after considering input from the Committee’s independent compensation consultant, Pay Governance, the CEO (for pay other than his own) and our Chief Human Resources Officer (“CHRO”), Annette F. Favorite.

CEO Compensation

Mr. Green’s 2017 pay elements were evaluated after a review of CEO realizable pay and pay-for-performance materials prepared and distributed by Pay Governance.  The materials

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examined realizable pay and performance as compared to our peer groups and realized pay (actual compensation received including stock option exercises and stock vesting) versus pay opportunity.  Performance was compared to the Business Segment Group approved in 2016.  The Committee concluded that our aggregate performance and CEO pay were aligned on a one-year and three-year basis.  Our strong stock price growth was another indicator showing strong linkage between pay and performance.

The Committee held an executive session with Pay Governance and Ms. Favorite, during which Mr. Green’s current year performance and objective attainment were reviewed and discussed.  The Committee’s assessment of Mr. Green’s performance was favorable as he had demonstrated progress in attainment of financial, operational, commercial, human resources and  personal goals.

Additionally, the Committee considered, and discussed extensively with Pay Governance, the position of Mr. Green’s compensation in the market.  All of Mr. Green’s compensation elements (salary, short-term incentives and long-term incentives), compared to both our revamped Business Segment and Broad Talent Market Groups were found to be below the 25th percentile, Mr. Green’s base salary and total cash consideration (“TCC”), which is the sum of his base salary and AIP target, were 15% (Business Segment) and 13% (Broad Talent Market) below the 50th percentile.  Additionally, Mr. Green’s Total Direct Compensation (“TDC”), which is the sum of his TCC and long-term incentive opportunity, was approximately 25% to 34% below the median of our comparator groups.

The Committee reaffirmed its goal to pay compensation at the median level and continue to increase Mr. Green’s pay to that level from his 2015 appointment, while continually assessing his performance.  Therefore, based on the Company’s strong performance and Mr. Green’s relatively low pay, the Committee agreed to make a significant increase in his pay for 2017.

Because the Committee strongly believes a significant portion of Mr. Green’s pay should be performance based, and should focus on long-term objectives, the increases to incentive pay were greater than the increase in base salary.  The Committee approved a 9.7% increase in salary from $775,000 to $850,000 and an increase in long-term incentive opportunity from $2,000,000 to $3,000,000, which is a 50% increase.  The Committee also increased his short-term cash incentive opportunity from 100% of base salary to 105% of base salary.  When coupled with his salary increase, the increase in short-term opportunity was 15.2%.  The larger increase for incentives will drive a healthy pay mix weighted towards long-term goals, which most closely aligns with our shareholders and locks in his commitment to growing shareholder value.

Based on Pay Governance data, these changes will bring Mr. Green’s TDC and TCC between the 25th and 50th percentile of both of our comparator groups.

Compensation of Other NEOs

The Committee approved salaries and set incentive-compensation targets of the other NEOs taking into account the CEO’s and CHRO’s recommendations, the advice of Pay Governance, comparator group data, relative duties and responsibilities, advancement potential and impact on our financial and strategic performance.

Upon reviewing the data, Mr. Federici was close to the 50th percentile of both comparator groups from a TCC (8 to 14% above) and TDC (ranging from 1% above to 12% below) perspective.  Given our strong performance and Mr. Federici’s long-service as a high performing CFO, these findings were consistent with the Committee’s expectations.  Therefore, the Committee approved a 3% increase in base salary and no changes to short-term or long-term incentives which were both increased in 2016.

With regard to Ms. Flynn, Management discussed with the Committee her superior performance during the transition of the Company from a product-led organization to a market-led organization.  Based on her long track record of success, her sponsorship of several important initiatives and her compensation’s position in the market, the Committee agreed with Management’s

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recommendation and approved a 6.7% increase in base salary.  Her pay mix was deemed to be appropriate and competitive and, therefore, was not adjusted.  However, the Committee approved an additional one-time $300,000 increase in her long-term incentive grant date fair value from $700,000 to $1,000,000 for her 2017 award.  The additional long-term incentive opportunity is subject to the same terms and conditions that apply to the annual LTIP awards.

Mr. Miller’s pay was assessed against both our Business Segment and Broad Talent Market Group.  His TCC was found to be close to the market median (6 to 9%) and TDC was slightly above the median (13 to 21%).  Mr. Miller did not receive an increase in May 2016 given his hiring occurred in November 2015.  In recognition of his efforts, experience as a legal executive, and importance in leading the Company into the future, the Committee approved a 3.8% increase in base salary, with no changes to his incentive opportunities, which were found to be appropriate.

Mr. Montecalvo was hired in September 2016 and his pay had been benchmarked on his experience and in a manner consistent with our internal pay structure.  Since his hiring, he took on additional responsibilities for the Supply Chain function and his efforts to reduce costs had already seen progress.  Rather than wait until May 2018 for an increase, the Committee approved a 3% increase in his base salary for 2017.  In accordance with his offer, his LTIP target increased from $300,000 to $400,000 to reflect that he will be present for the entire performance period.

2017 Continuing NEO Base Salaries, Annual Incentive Plan Target,

Long-Term Grant Date Fair Value and Incentive Compensation (1)

(1)         All NEO salary increases for incumbents were effective May 2017.

(2)         These are approved target values.  Actual award values vary due to rounding and share price.

(3)         Includes one-time additional increase of $300,000.

(4)         TDC is base salary plus annual bonus target plus long-term value.

(5)         Both Broad Talent Market and Business Segment Group data are reviewed for all executives, where available.  For purposes of this chart, percentages are estimates based on the Business Segment Group for Mr. Green and Mr. Federici.  For all other NEOs the TDC percentile is based upon the Broad Talent Market Group.

Pay Mix

Our compensation philosophy is to put the greatest emphasis on creating long-term shareholder value and variable pay.  Therefore, the largest percentage of an NEO’s pay is awarded under our LTIP (split equally between options and performance shares).  During 2016, 56% of Mr. Green’s TDC was based on long-term goals and 78% of his TDC was variable.  In 2017, the Committee substantially increased the portion of Mr. Green’s TDC that is based on long-term goals to 63% and the variable portion was increased to 82%.  For our other executives, approximately 47% of their TDC is based upon long-term awards and 68% is variable, which is slightly higher than in 2016.  Consistent with market practices, a larger portion of their pay mix is salary, but it is still less than one-third of their TDC.

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Our Annual Incentive Compensation Program

Plan Criteria and Rationale

The annual incentives for all AIP participants are based, at least in part, on our financial performance as a whole measured by Adjusted Diluted EPS, Adjusted Revenue and Adjusted OCF. Mr. Montecalvo has two additional metrics based on Proprietary OCF and Proprietary GP.

In 2017, as in past years, the Committee evaluated and decided upon the appropriate AIP financial measures using the following principles:

·       Metrics must support achievement of an annual Board-approved operating plan;

·       Metrics must support profitable growth while preserving cash for longer-term investment;

·       Metrics must provide a clear line of sight—i.e., that are clearly understood and can be affected by the performance of our executives and employees; and

·       Metrics should be consistent with market practice and used within our comparator groups.

Following this review, the Committee concluded that the continued use of the AIP financial measures supports the foregoing principles for the following reasons:

·      EPS is a comprehensive measure of income and provides an emphasis on profitable growth while focusing managers on expense control.

·      Consolidated revenue provides a clear line of sight target for all members of our executive officer team as we strive to grow our sales to meet increasing demand for our products, particularly high-value products.

·      OCF provides a focus on generating cash in the short term to fund operations, research and capital projects and focuses managers on expense control.

·      For Mr. Montecalvo, who is responsible for Global Operations and Supply Chain, we increased the focus on items under his direct control, with a particular focus on controlling costs.  We also excluded the impact of our Contract-Manufactured Products business unit, which was separately managed in 2017.  The rationale for his additional metrics are:

·                  Proprietary OCF is based solely on the cash generated with respect to our

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Proprietary Products (exclusive of Contract-Manufactured Products) and encourages expense control.

·      Proprietary GP creates a greater incentive for operations to reduce costs related to our high value proprietary products, which fuel our profitable growth.

Our AIP targets for NEOs are global, rather than regional, reflecting the growing globalization of our business and the expectations of our customers that the Company acts as a single enterprise.  With respect to Global Operations, this structure was recently consolidated under Mr. Montecalvo, and we expect to make further changes to drive network optimization which will be reflected in our 2018 AIP metrics.

Target Setting

The target annual incentive awards for our NEOs are set as a percentage of base salary.  Target awards are reviewed annually to ensure alignment with our compensation philosophy to target each compensation element and total direct compensation at the market median.

Variances from this goal are based on an evaluation of competitive market data, internal equity considerations among the CEO’s direct reports and individual performance evaluations.

For 2017, target annual incentive opportunities for the NEOs ranged from 60% to 105% of their year-end base salary rate.  Our payout curve is structured to reflect our philosophy that Management should be rewarded for exceeding goals and with diminished payouts, ultimately to zero, when targets are missed.

The payout factor is a pre-established multiplier that corresponds, on a sliding scale, to the achievement percentage of the AIP target objective so that if actual performance is less than target, the multiplier decreases on a sliding scale based on the achievement percentage and is based on the following chart:

Achievement between the threshold and maximum levels is straight-line interpolated.

Financial Results for AIP Purposes

The Committee set the AIP performance targets based on its evaluation of the 2017 business operating plan and its assessment that the targets contained a sufficient degree of “stretch.”  Our 2017 actual performance level for all Corporate metrics was 92.1% or greater.  Given Ms. Flynn’s position as commercial leader and her responsibilities for Contract-Manufactured Products, her goals were more heavily weighted on Corporate revenue, but the 2017 payout was coincidentally identical.  Payouts were 83.9% for Mr. Green, Mr. Federici, Ms. Flynn and Mr. Miller.  In addition to the Corporate metrics, Mr. Montecalvo, also has performance goals related to cost control.  These metrics performed at achievement levels of 89.1% and 87.3% respectively for Proprietary GP and Proprietary OCF.  Therefore, his payout was at 72.6%.  This demonstrates our focus and structured link between business alignment, pay and short-term performance.

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2017 AIP Corporate

Performance Metrics, Weight, Achievement and Payout Percentages

(all Dollar amounts in Millions except EPS)