<PAGE> 1
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SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<CAPTION>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
</TABLE>
THE SHERWIN-WILLIAMS COMPANY
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
STEPHEN J. PERISUTTI
THE SHERWIN-WILLIAMS COMPANY
101 PROSPECT AVENUE, N.W.
CLEVELAND, OHIO 44115
(216) 566-2543
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
--------
(2) Aggregate number of securities to which transaction applies:
-----------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
-------------
(4) Proposed maximum aggregate value of transaction:
-----------------------
(5) Total fee paid:
--------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------------
(3) Filing Party:
----------------------------------------------------------
(4) Date Filed:
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<PAGE> 2
Sherwin-Williams Logo
THE SHERWIN-WILLIAMS COMPANY
------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held April 22, 1998
------------------
The Annual Meeting of Shareholders of THE SHERWIN-WILLIAMS COMPANY will be
held in the Auditorium, Room 927, Midland Building, 101 Prospect Avenue, N.W.,
Cleveland, Ohio on Wednesday, April 22, 1998 at 10:00 A.M., local time, for the
following purposes:
1. To fix the number of Directors of the Company at eleven and to elect
eleven Directors to hold office until the next Annual Meeting of
Shareholders and until their successors are elected; and
2. To transact such other business as may properly come before the Annual
Meeting.
Holders of Common Stock of record at the close of business on March 2, 1998
are the only shareholders entitled to notice of and to vote at the Annual
Meeting.
L. E. STELLATO
Secretary
101 Prospect Avenue, N.W.
Cleveland, Ohio 44115-1075
March 11, 1998
YOU CAN HELP AVOID THE NECESSITY AND EXPENSE OF SENDING A FOLLOW-UP LETTER
BY THE PROMPT COMPLETION AND RETURN OF THE ENCLOSED PROXY/VOTING INSTRUCTION
CARD WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING OF SHAREHOLDERS. FOR
YOUR CONVENIENCE, THERE IS ENCLOSED A SELF-ADDRESSED ENVELOPE REQUIRING NO
POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE> 3
THE SHERWIN-WILLIAMS COMPANY
101 PROSPECT AVENUE, N.W.
CLEVELAND, OHIO 44115-1075
PROXY STATEMENT
March 11, 1998
PRELIMINARY
The enclosed proxy is requested by the Board of Directors in connection
with the Annual Meeting of Shareholders to be held April 22, 1998 for the
purpose of considering and acting upon the matters specified in the foregoing
Notice of Annual Meeting of Shareholders. The mailing date of this Proxy
Statement is on or about March 11, 1998.
The Board of Directors is not aware of matters other than those specified
in the foregoing Notice of Annual Meeting of Shareholders that will be brought
before the Annual Meeting for action. However, if any such matters should be
brought before the Annual Meeting, it is intended that the persons appointed as
proxies may vote or act thereon according to their judgment.
References contained in this Proxy Statement to certain numbers and values
of shares of the Company's Common Stock have been restated to reflect the effect
of the two-for-one stock split distributed to shareholders on March 28, 1997.
ANNUAL REPORT
The Company's Annual Report to Shareholders for the year ended December 31,
1997 is enclosed with this Proxy Statement. Additional financial and other
reports may be submitted at the Annual Meeting but it is not intended that any
action will be taken with respect thereto.
VOTING PROCEDURES
Record holders of the Company's Common Stock at the close of business on
the record date, March 2, 1998, may vote at the Annual Meeting. At the close of
business on the record date, 173,368,144 shares of Common Stock were
outstanding.
The enclosed proxy/voting instruction card includes the number of shares
which you are entitled to vote as a record holder. In addition, if you are a
participant in the Company's Stock Ownership and Automatic Dividend Reinvestment
Plan or the Company's Employee Stock Purchase and Savings Plan, the enclosed
proxy/voting instruction card also serves as voting instructions for the number
of shares which you are entitled to direct the vote under each Plan. If any of
your accounts are not registered in the same manner, you may have received
separate cards. Please sign, date and return all cards to ensure all your shares
are voted. You may have all accounts registered in the same manner by contacting
our transfer agent, The Bank of New York, at (800) 432-0140.
Record holders are entitled to cast one vote for each share of Common Stock
owned. The proposal to fix the number of Directors at eleven requires the
affirmative vote of the holders of a majority of the shares represented at the
Annual Meeting and entitled to vote on such proposal, with the nominees
receiving the greatest number of votes being elected. All other proposals and
other business as may properly come before the Annual Meeting require the
affirmative vote of a majority of the votes cast, except as otherwise provided
by statute or the Company's Amended Articles of Incorporation or Regulations.
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<PAGE> 4
Proxy cards marked as withholding authority or abstaining (including proxy
cards containing broker non-votes) will be treated as present for purposes of
determining a quorum for the Annual Meeting. Proxy cards marked as withholding
authority will also be treated as represented and entitled to vote on any
applicable proposal. With regard to the election of nominees for Director,
shares not voted for a nominee (whether by a withheld vote, a broker non-vote or
otherwise) will not be counted in such nominee's favor.
You are urged to specify your vote by marking the appropriate boxes on your
proxy/voting instruction card. If you properly sign, date and return your card,
your shares will be voted in accordance with your instructions, if indicated. If
you sign, date and return your card without specifying your vote, your shares
will be voted in favor of fixing the number of Directors at eleven and electing
the eleven nominees for Directors and in the proxy holder's discretion upon such
other business as may properly come before the Annual Meeting. If you do not
timely return a properly signed and dated card, the proxy holders cannot vote
your shares (or, in the case the Employee Stock Purchase and Savings Plan, your
shares will be voted in the same proportion as the trustee votes those shares
for which it receives proper instructions). Any unallocated shares held in the
Employee Stock Purchase and Savings Plan also will be voted by the trustee in
the same proportion as the trustee votes those shares for which it receives
proper instructions.
You may revoke your proxy at any time before a vote is taken or the
authority granted is exercised. To revoke your proxy, you may file a written
revocation with the Company's Vice President, General Counsel and Secretary or
you may sign a proxy bearing a later date. You may also revoke your proxy by
voting in person at the Annual Meeting.
ELECTION OF DIRECTORS (PROPOSAL 1)
At the Annual Meeting, the number of Directors of the Company is to be
fixed at eleven, and eleven Directors are to be elected to hold office until the
next Annual Meeting of Shareholders and until their successors are elected. The
nominees are listed below. Should any nominee decline or be unable to accept
such nomination or be unable to serve as a Director, an event which management
does not now expect, the Board of Directors reserves the right in its discretion
to substitute another person as a nominee or to reduce the number of nominees.
In such event, the proxy holders may vote in their discretion for any substitute
nominee proposed by the Board of Directors unless you indicate otherwise.
All of the nominees are currently Directors of the Company and were elected
as Directors by the shareholders at the 1997 Annual Meeting. The following is
information regarding each nominee at December 31, 1997:
JAMES M. BIGGAR has served as Chairman and Chief Executive Officer of Glencairn
Corporation (real estate development) since July 1991. Mr. Biggar is 69
years old and has served as a Director of the Company since July 1987. Mr.
Biggar is also a Director of Bridgestreet Accomodations, Inc., Donley's
Corporation, ESSEF Corporation and Norse Dairy Systems, and is a Trustee of
The Cleveland Clinic Foundation and Kent State University.
JOHN G. BREEN has served as Chairman and Chief Executive Officer of the Company
since June 1986. Mr. Breen is 63 years old and has served as a Director of
the Company since April 1979. Mr. Breen is also a Director of National City
Corporation, Mead Corporation, Parker-Hannifin Corporation and The Goodyear
Tire and Rubber Company. Mr. Breen is a Trustee of Catholic Charities
Corporation, the Cleveland Opera, John Carroll University, the Musical Arts
Association (The Cleveland Orchestra) and University Hospitals of
Cleveland, and is a Member of the Visiting Committee of Case Western
Reserve University School of Medicine.
DUANE E. COLLINS has served as President and Chief Executive Officer of
Parker-Hannifin Corporation (manufacturer of motion control products) since
July 1993 prior to which he served as Vice Chairman of the Board of
Directors of Parker-Hannifin commencing June 1992. Mr. Collins is 61 years
old and has served as a Director of the Company since January 1996. Mr.
Collins is also a
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Director of Parker-Hannifin, National City Bank and the Greater Cleveland
Growth Association, is a Trustee of the Cleveland YMCA and University
Hospitals Health System (Cleveland), and is a Member of the Visiting
Committee of Case Western Reserve University Weatherhead School of
Management.
THOMAS A. COMMES has served as President and Chief Operating Officer of the
Company since June 1986. Mr. Commes is 55 years old and has served as a
Director of the Company since April 1980. Mr. Commes is also a Director of
KeyCorp, and is a Trustee of The Cleveland Clinic Foundation and Vocational
Guidance Services (Cleveland).
DANIEL E. EVANS has served as Chairman, Chief Executive Officer and Secretary of
Bob Evans Farms, Inc. (food products and restaurants) since 1971. Mr. Evans
is 61 years old and has served as a Director of the Company since April
1990. Mr. Evans is also a Director of Evans Enterprises, Inc., Motorists
Mutual Insurance Company and National City Corporation.
ROBERT W. MAHONEY has served as Chairman and Chief Executive Officer of Diebold,
Incorporated (manufacturer of financial self-service transaction systems
and security products) since April 1988. Mr. Mahoney also served as
President of Diebold from July 1993 to November 1996. Mr. Mahoney is 61
years old and has served as a Director of the Company since January 1995.
Mr. Mahoney is also a Director of The Timken Company, and is a Trustee of
Mount Union College, Ohio Foundation of Independent Colleges, the
Professional Football Hall of Fame and Canton (Ohio) Junior Achievement.
Mr. Mahoney is a Member of the Stark (County, Ohio) Development Board and
the Chamber of Commerce Leadership Canton (Ohio) Advisory Board.
WILLIAM G. MITCHELL, prior to his retirement in May 1987, served as Vice
Chairman of Centel Corporation (independent telephone and electric
properties) since May 1986. Mr. Mitchell is 67 years old and has served as
a Director of the Company since April 1979. Mr. Mitchell is also a Director
of Interlake Corporation, The Northern Trust Company, Northern Trust
Corporation and Peoples Energy Corporation.
A. MALACHI MIXON, III has served as Chief Executive Officer of Invacare
Corporation (manufacturer and distributor of home health care products)
since January 1980 and has served as Chairman of Invacare since September
1983. Mr. Mixon also served as President of Invacare from January 1980 to
November 1996. Mr. Mixon is 57 years old and has served as a Director of
the Company since April 1993. Mr. Mixon is also a Director of The Lamson
and Sessions Co. and NCS HealthCare, Inc., and is a Trustee of The
Cleveland Clinic Foundation, Cleveland Institute of Music and Case Western
Reserve University.
CURTIS E. MOLL has served as Chairman and Chief Executive Officer of MTD
Products, Inc. (manufacturer of outdoor power equipment and of tools, dies
and stampings for the automotive industry) since October 1980. Mr. Moll is
58 years old and has served as a Director of the Company since January
1997. Mr. Moll is also a Director of The Standard Products Company, Shiloh
Industries, Inc. and United Screw and Bolt Corporation, and is a Trustee of
Baldwin-Wallace College.
HELEN O. PETRAUSKAS has served as Vice President -- Environmental and Safety
Engineering of Ford Motor Company (automobile manufacturing) since March
1983. Mrs. Petrauskas is 53 years old and has served as a Director of the
Company since July 1993. Mrs. Petrauskas is also a Director of MCN Energy
Group, Inc., and is a Member of the Board of Governors of Argonne National
Laboratory, a Member of the Advisory Board -- Center for Risk Analysis,
Harvard School of Public Health and a Member of the Board of Directors of
the Wildlife Habitat Council.
RICHARD K. SMUCKER has served as President of The J.M. Smucker Company (makers
of food products) since January 1987. Mr. Smucker is 49 years old and has
served as a Director of the Company since September 1991. Mr. Smucker is
also a Director of The J.M. Smucker Company, International Multifoods
Corporation and Wm. Wrigley Jr. Company, and is a Trustee of the Musical
Arts Association (The Cleveland Orchestra).
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COMPENSATION OF DIRECTORS
Each Director who is not an employee of the Company receives an annual
retainer of $30,000, earned and payable monthly. In addition, each such Director
receives $1,750 for each meeting of the Board of Directors or Committee of the
Board of Directors that he or she attends, or $2,000 for each meeting of a
Committee of the Board of Directors that he or she chairs. Officers of the
Company who also serve as Directors do not receive any compensation specifically
for services as a member of the Board of Directors or any Committee. Directors
are permitted to defer all or a portion of their fees under The Sherwin-Williams
Company Director Deferred Fee Plan. Deferred fees may be invested in either a
Common Stock account, a shadow stock account or an interest bearing cash
account.
In addition, Directors who are not employees of the Company may receive
stock options and restricted stock under The Sherwin-Williams Company 1997 Stock
Plan for Nonemployee Directors. This plan was approved by the shareholders at
the 1997 Annual Meeting. During 1997, each nonemployee Director received a grant
of 2,000 options at an exercise price equal to the fair market value of the
Company's Common Stock on the date of grant. One third of the options become
exercisable on each of the first, second and third anniversary dates of the date
of grant. No shares of restricted stock were awarded to any nonemployee Director
during 1997.
CORPORATE OFFICERS OF THE COMPANY
The following table sets forth the names and ages of the current Corporate
Officers, the positions and offices with the Company held by them at February
28, 1998 and the date when each was first elected or appointed a Corporate
Officer.
<TABLE>
<CAPTION>
DATE WHEN
FIRST ELECTED
NAME AGE PRESENT POSITION OR APPOINTED
---- --- ---------------- -------------
<S> <C> <C> <C>
John G. Breen 63 Chairman and Chief Executive Officer, January 1979
Director
Thomas A. Commes 55 President and Chief Operating Officer, March 1979
Director
Larry J. Pitorak 51 Senior Vice President -- Finance, Treasurer June 1978
and Chief Financial Officer
John L. Ault 52 Vice President -- Corporate Controller January 1987
Cynthia D. Brogan 46 Vice President and Assistant Treasurer July 1996
Mark J. Dvoroznak 39 Vice President -- Corporate Audit & Loss September 1997
Prevention
Jane L. Haag 43 Vice President -- Information Services March 1996
Thomas E. Hopkins 40 Vice President -- Human Resources August 1997
Conway G. Ivy 56 Vice President -- Corporate Planning and March 1979
Development
James J. Sgambellone 40 Vice President -- Taxes and Assistant July 1991
Secretary
Louis E. Stellato 47 Vice President, General Counsel and December 1989
Secretary
Richard M. Weaver 43 Vice President -- Administration May 1996
</TABLE>
The following is a brief account of each Corporate Officer's business
experience with the Company during the last five years:
Mr. Breen has served as Chairman and Chief Executive Officer since June
1986 and has served as a Director since April 1979.
Mr. Commes has served as President and Chief Operating Officer since June
1986 and has served as a Director since April 1980.
Mr. Pitorak has served as Senior Vice President -- Finance, Treasurer and
Chief Financial Officer since April 1992.
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<PAGE> 7
Mr. Ault has served as Vice President -- Corporate Controller since January
1987.
Ms. Brogan has served as Vice President and Assistant Treasurer since July
1996 prior to which she served as Director, Treasury Services commencing January
1990.
Mr. Dvoroznak has served as Vice President -- Corporate Audit & Loss
Prevention since September 1997 prior to which he served as Director of
Accounting, Paint Stores Group commencing December 1991.
Ms. Haag has served as Vice President -- Information Services since
September 1996 prior to which she served as Vice President -- Corporate Audit &
Loss Prevention commencing March 1996. From October 1994 to March 1996, Ms. Haag
served as Corporate Director -- Internal Audit & Loss Prevention prior to which
she served as Corporate Director -- Internal Audit commencing August 1988.
Mr. Hopkins has served as Vice President -- Human Resources since August
1997 prior to which he served as Vice President -- Human Resources, Paint Stores
Group commencing February 1996. From November 1989 to February 1996, Mr. Hopkins
served as Director of Human Resources, Paint Stores Group.
Mr. Ivy has served as Vice President -- Corporate Planning and Development
since April 1992.
Mr. Sgambellone has served as Vice President -- Taxes and Assistant
Secretary since April 1996 prior to which he served as Assistant Secretary and
Corporate Director of Taxes commencing July 1991.
Mr. Stellato has served as Vice President, General Counsel and Secretary
since July 1991.
Mr. Weaver has served as Vice President -- Administration since May 1996
prior to which he served as President & General Manager of the Landmark Office
Towers Division (Corporate Administration) commencing November 1989.
There are no family relationships between any of the persons named.
OPERATING MANAGERS OF THE COMPANY
The following table sets forth the names and ages of the current Operating
Managers, the positions and offices with the Company held by them at February
28, 1998 and the date when each was first appointed an Operating Manager.
<TABLE>
<CAPTION>
DATE WHEN
FIRST
NAME AGE PRESENT POSITION APPOINTED
---- --- ---------------- ---------
<S> <C> <C> <C>
William P. Antonace 43 President & General Manager, January 1996
Transportation Services Division
Christopher M. Connor 41 President, Paint Stores Group June 1986
Michael A. Galasso 50 President & General Manager, Automotive June 1997
Division
Blair P. LaCour 51 President & General Manager, Mid Western October 1989
Division, Paint Stores Group
Steven J. Oberfeld 45 President & General Manager, South Western September 1992
Division, Paint Stores Group
James E. Renshaw 50 President & General Manager, Eastern June 1986
Division, Paint Stores Group
Salvatore V. Sanzone 62 President & General Manager, South- April 1994
eastern Division, Paint Stores Group
Joseph M. Scaminace 44 President & General Manager, May 1985
Coatings Division
</TABLE>
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<TABLE>
<CAPTION>
DATE WHEN
FIRST
NAME AGE PRESENT POSITION APPOINTED
---- --- ---------------- ---------
<S> <C> <C> <C>
Richard M. Wilson 45 President & General Manager, Diversified June 1987
Brands Division
</TABLE>
The following is a brief account of each Operating Manager's business
experience with the Company during the last five years:
Mr. Antonace has served as President & General Manager, Transportation
Services Division since January 1996 prior to which he served as Vice President
& Director -- Operations, Coatings Division commencing March 1993. From July
1992 to March 1993, Mr. Antonace served as Director -- Materials Management,
Coatings Division.
Mr. Connor has served as President, Paint Stores Group since August 1997
prior to which he served as President & General Manager, Diversified Brands
Division commencing April 1994. From September 1992 to April 1994, Mr. Connor
served as Senior Vice President -- Marketing, Paint Stores Group.
Mr. Galasso has served as President & General Manager, Automotive Division
since June 1997 prior to which he served as Vice President &
Director -- Operations, Automotive Division commencing May 1992.
Mr. LaCour has served as President & General Manager, Mid Western Division,
Paint Stores Group since September 1992.
Mr. Oberfeld has served as President & General Manager, South Western
Division, Paint Stores Group since September 1992.
Mr. Renshaw has served as President & General Manager, Eastern Division,
Paint Stores Group since June 1986.
Mr. Sanzone has served as President & General Manager, Southeastern
Division, Paint Stores Group since April 1994 prior to which he served as Vice
President of Sales, Eastern Division, Paint Stores Group commencing August 1990.
Mr. Scaminace has served as President & General Manager, Coatings Division
since June 1997 prior to which he served as President & General Manager,
Automotive Division commencing April 1994. From September 1985 to April 1994,
Mr. Scaminace served as President & General Manager, Diversified Brands
Division.
Mr. Wilson has served as President & General Manager, Diversified Brands
Division since August 1997 prior to which he served as Senior Vice
President -- Marketing, Paint Stores Group commencing April 1994. From June 1987
to April 1994, Mr. Wilson served as President & General Manager, Southeastern
Division, Paint Stores Group.
There are no family relationships between any of the persons named.
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COMPENSATION AND MANAGEMENT DEVELOPMENT
COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Management Compensation Program. The Company's Management Compensation
Program ("Program") is administered by the Compensation and Management
Development Committee ("Committee") of the Board of Directors. The Committee is
composed of five outside Directors and reports to the Board of Directors on all
compensation matters regarding certain members of the Company's management,
including the Executive Officers. The Executive Officers are identified in the
Company's 1997 Annual Report to Shareholders. The Program is designed to enable
the Company to attract, motivate and retain key executives and to establish and
maintain a performance and achievement-oriented environment. The Program
provides for (a) competitive base salary levels which reflect, in part,
individual performance, (b) additional annual incentive compensation based on
the achievement of financial and other performance goals, and (c) long-term
stock-based incentive opportunities. The Program consists of both cash and
equity-based compensation.
The annual base salary, annual incentive opportunities and long-term
incentive opportunities are intended to be competitive with market base salary
and incentive compensation opportunities. The Committee utilizes data from
various commercially available executive compensation surveys in order to
identify, on an annual basis, the base salary and incentive opportunities
available at manufacturing companies with comparable sales. The Committee
believes that these companies are likely competitors of the Company for
executive talent. These companies may include some of the companies comprising
the peer group identified in the performance graphs if such companies
participated in one or more of the compensation surveys. For the various
components of compensation, the Committee uses the median compensation paid to
executive officers holding equivalent positions or having similar
responsibilities in manufacturing companies with comparable sales. The amount of
compensation paid to the Executive Officers is not based upon the cumulative
total return on the Company's Common Stock as reflected in either of the
performance graphs.
Base Salary. Annual cash compensation consists, in part, of a base salary.
With regard to base salary, a salary range for each Executive Officer is
approved on the basis of such person's position and level of responsibility by
using the compensation surveys, with the median market base salary approximating
the midpoint of the range. Once a range is formulated, salary levels are based
upon the Executive Officer's performance and, to a lesser extent, tenure in the
particular position. With regard to performance, the Executive Officer's
performance for the prior year is reviewed based on performance criteria (both
quantitative and qualitative) which vary by Executive Officer and which usually
relate to the particular business unit or function for which such person has
responsibility. The base salary of each Executive Officer is reviewed and
approved annually.
Annual Incentive Compensation. Annual cash compensation also consists of
the opportunity to earn additional compensation under The Sherwin-Williams
Company Management Incentive Plan ("Incentive Plan"). All of the Executive
Officers participate in the Incentive Plan. In approving the amount of annual
incentive compensation to be paid to any of the Executive Officers under the
Incentive Plan, great emphasis is placed on establishing incentive opportunities
which are directly linked with Company performance and the maximization of
shareholder value. The Committee establishes a threshold goal of increased
Company earnings, and 75% of this earnings increase must be met before incentive
compensation is paid to the Executive Officers, subject to the Committee's
discretion to make adjustments for non-recurring or unusual items or to award
individual performance. Accordingly, this earnings goal requires that the
Company improve its earnings performance before incentive compensation is paid
(except as provided in the foregoing sentence). During the fiscal year ended
December 31, 1997, the Company's earnings exceeded the earnings goal established
for 1997.
Annual incentive compensation awarded to an Executive Officer is also
determined by using the median incentive compensation (identified from the
compensation surveys), which is generally equivalent to the amount an Executive
Officer could receive under the Incentive Plan if 100% of all of the Company and
individual goals are attained. Under the Incentive Plan, annual bonus awards for
the
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<PAGE> 10
Executive Officers range from zero, if less than 75% of the stated goals are
reached, to between 35% and 60% of the Executive Officer's base salary
(depending upon the Executive Officer's position) if 100% of the stated goals
are attained. In the event the Company and an Executive Officer exceed 100% of
the stated goals, incentive compensation can be awarded up to an aggregate
maximum amount of 60% to 95% of the Executive Officer's base salary (depending
upon position). Consequently, incentive compensation paid to an Executive
Officer in any year may exceed the median incentive compensation determined by
the compensation surveys. Decisions on annual incentive compensation awarded to
an Executive Officer are based upon financial performance goals, such as
after-tax net income and the return on stockholders' equity, for each Incentive
Plan year, and the accomplishment by the Executive Officer of individual
performance goals (both quantitative and qualitative), which vary by Executive
Officer and which usually relate to the particular business unit or function for
which such person has responsibility. The financial performance goals are
generally weighted more heavily.
Long-term Incentive Compensation. Long-term incentive compensation may be
awarded to any one or all of the Executive Officers under The Sherwin-Williams
Company 1994 Stock Plan ("1994 Stock Plan"). All of the Executive Officers
participate in the 1994 Stock Plan. Under the 1994 Stock Plan, the Committee may
grant stock options to the Executive Officers based on competitive market
practices. Competitive market practices are determined by the various
compensation surveys mentioned above, and the Committee grants stock options
based upon the median market value of the underlying stock relating to stock
options that comparable companies have been granting to their executive
officers. The specific number of stock options granted to an Executive Officer
is based upon the Executive Officer's position and level of responsibility. In
addition, during 1997 the Committee granted a greater number of stock options to
certain Executive Officers as compared to grants during prior years in part to
provide such Executive Officers with additional incentive to successfully
integrate the Company's various acquisitions that it has completed over the past
few years. The option exercise price is equal to the fair market value of the
Company's Common Stock on the date options are granted. Stock options granted
typically vest at the rate of one-third per year for three years (beginning one
year from the date of grant) and expire ten years from the date of grant.
Awards of restricted stock under the 1994 Stock Plan, which are subject to
a "substantial risk of forfeiture", may be granted to the Executive Officers.
The granting of restricted stock is determined in the same manner that the
granting of stock options is determined. If granted, restricted stock is issued
with certain performance and time restrictions. The number of shares of
restricted stock which may actually vest at the end of the restriction period is
dependent upon the Company's relative return on average shareholder equity
versus a group of peer companies. With regard to outstanding shares of
restricted stock granted prior to December 31, 1996, the companies that comprise
this group of peer companies are the same companies that comprise the peer group
identified in the performance graphs (except for one company for which
sufficient financial data is not available to calculate cumulative total
return). For shares of restricted stock granted after December 31, 1996, the
restricted stock peer group also does not include three companies which have
been acquired by other companies and one company which has filed for bankruptcy.
Depending on the Company's performance at the end of the restriction period,
from 0% to 100% of the restricted stock may vest. The restriction period is
typically four years from the date of grant of the restricted stock. The amount
of outstanding stock options and shares of restricted stock generally is not
considered by the Committee in making awards of stock options and restricted
stock.
Chief Executive Officer's Compensation. The Committee determined Mr.
Breen's compensation for the fiscal year ended December 31, 1997 based on a
number of factors and criteria. Mr. Breen's base salary range was determined
using the median base salary of chief executive officers for manufacturing
companies having comparable sales as the Company. Mr. Breen's base salary within
his range was established based upon a review by the Committee of Mr. Breen's
1996 performance (which was measured, in part, by the Company's 1996
performance) and his tenure with the Company. For 1997, the average salary
increase given generally to salaried employees of the Company was 4.0%, and the
range of potential increases was 0% to 8.5%. Mr. Breen received a base salary
increase of 8.0% in January 1997, bringing his base salary to $891,020. Mr.
Breen's increase was based primarily upon the Committee's
8
<PAGE> 11
evaluation of Mr. Breen's 1996 performance relating to the financial and other
performance measures set forth in the next paragraph and his tenure with the
Company.
In addition, in 1997 Mr. Breen earned a bonus of $740,000 as annual
incentive compensation under the Incentive Plan. The amount of this bonus was
based primarily upon the Company's achievement of 1997 financial performance
goals relating to after-tax net income, return on stockholders' equity, return
on sales, cash flow, working capital as a percent of sales and post-acquisition
operating results relating to the Company's acquisitions of Pratt & Lambert
United, Inc. and Thompson Minwax Holding Corp. Mr. Breen's achievement of
certain other 1997 goals relating to management succession planning and
acquisition strategies were also factors, but were weighted less heavily.
In January 1997, Mr. Breen was awarded 150,000 stock options and 40,000
shares of restricted stock under the 1994 Stock Plan. In determining the number
of stock options and shares of restricted stock awarded to Mr. Breen, the
Committee also identified the median market value of the underlying shares
relating to stock options and of shares of restricted stock which comparable
companies granted to their chief executive officers. In addition, during 1997
the Committee granted a greater number of stock options to certain Executive
Officers, including Mr. Breen, as compared to grants during prior years in part
to provide such Executive Officers with additional incentive to successfully
integrate the Company's various acquisitions that it has completed over the past
few years. The amount of outstanding stock options and shares of restricted
stock generally is not considered by the Committee in making awards of stock
options and restricted stock.
Policy on Deductibility of Compensation. Section 162(m) of the Internal
Revenue Code generally provides that certain compensation in excess of $1
million per year paid to a company's chief executive officer and any of its four
other highest paid executive officers is not deductible to a company unless the
compensation qualifies for an exception. This deduction limit generally applies
only to compensation that could otherwise be deducted by a company in a taxable
year. For 1997, the Committee does not expect that Section 162(m) will limit the
Company's deductibility of compensation paid to any of such executive officers.
Section 162(m) provides an exception to the deductibility limit for
performance-based compensation if certain procedural requirements, including
shareholder approval of the material terms of the performance goal, are
satisfied. The Committee believes that grants of options, stock appreciation
rights and restricted stock under the 1994 Stock Plan qualify for full
deductibility under Section 162(m). Compensation paid under the Incentive Plan
does not qualify for the exemption for performance-based compensation. At this
time, based upon the Company's current compensation structure, the Committee
believes it is in the best interests of the Company and its shareholders for the
Committee to retain flexibility in awarding incentive compensation under the
Incentive Plan which does not qualify for the exemption for performance-based
compensation. The Committee will continue to review and evaluate, as necessary,
the impact of Section 162(m) on the Company's compensation programs.
COMPENSATION AND MANAGEMENT
DEVELOPMENT COMMITTEE
W.G. Mitchell, Chairman
J.M. Biggar
D.E. Collins
R.W. Mahoney
A.M. Mixon, III
9
<PAGE> 12
PERFORMANCE GRAPHS
The following graphs compare the cumulative total shareholder return on the
Company's Common Stock with the cumulative total return of the companies listed
on the Standard & Poor's 500 Stock Index and a peer group of companies selected
on a line-of-business basis. The "Peer Group" is comprised of the following
companies: Akzo Nobel nv, Armstrong World Industries, Inc., BASF Corporation,
Ferro Corporation, H.B. Fuller Company, Genuine Parts Company, Grow Group,
Inc.*, Guardsman Products, Inc.*, Hechinger Company, The Home Depot, Inc.,
Imperial Chemicals Industries PLC, Lilly Industries, Inc., Lowe's Companies,
Inc., Masco Corporation, Morton International, Inc., Newell Co., PPG Industries,
Inc., Pratt & Lambert United, Inc.*, RPM, Inc., Standard Brands Paint Company*,
The Stanley Works, USG Corporation and The Valspar Corporation. An asterisk
indicates that the company is included in the performance graphs through the
last day it was publicly traded.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG THE SHERWIN-WILLIAMS COMPANY, S&P 500 INDEX AND
THE PEER GROUP
<TABLE>
<CAPTION>
MEASUREMENT PERIOD SHERWIN-
(FISCAL YEAR COVERED) WILLIAMS S&P 500 PEER GROUP
<S> <C> <C> <C>
1992 $100 $100 $100
1993 119 110 120
1994 113 112 123
1995 140 153 139
1996 195 189 171
1997 196 252 239
</TABLE>
Assumes $100 invested on December 31, 1992 in the Common Stock of The
Sherwin-Williams Company, S&P 500 Index and the Peer Group, including
reinvestment of dividends, through the fiscal year ended December 31, 1997.
10
<PAGE> 13
COMPARISON OF TEN YEAR CUMULATIVE TOTAL RETURN
AMONG THE SHERWIN-WILLIAMS COMPANY, S&P 500 INDEX AND
THE PEER GROUP
<TABLE>
<CAPTION>
MEASUREMENT PERIOD SHERWIN-
(FISCAL YEAR COVERED) WILLIAMS S&P 500 PEER GROUP
<S> <C> <C> <C>
1987 $100 $100 $100
1988 107 117 111
1989 148 154 125
1990 164 149 115
1991 239 194 172
1992 278 209 191
1993 330 230 228
1994 313 233 235
1995 389 321 264
1996 543 394 326
1997 546 526 456
</TABLE>
Assumes $100 invested on December 31, 1987 in the Common Stock of The
Sherwin-Williams Company, S&P 500 Index and the Peer Group, including
reinvestment of dividends, through the fiscal year ended December 31, 1997.
11
<PAGE> 14
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------------- -----------------------
RESTRICTED SECURITIES
STOCK UNDERLYING ALL OTHER
NAME AND AWARD(S) OPTIONS/ COMPEN-
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)(1,2) SARS (#) SATION($)(3)
------------------ ---- ---------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
J. G. Breen 1997 905,616 740,000 1,107,500 150,000 294,399
Chairman and Chief 1996 825,006 715,000 -0- 74,000 262,573
Executive Officer 1995 793,052 585,000 667,500 88,000 134,701
T. A. Commes 1997 578,158 490,000 609,125 100,000 177,991
President and Chief 1996 536,000 480,000 -0- 38,000 179,505
Operating Officer 1995 514,900 390,000 367,125 46,000 131,732
L. J. Pitorak 1997 319,764 260,000 276,875 50,000 74,309
Senior Vice President 1996 287,852 255,000 -0- 20,000 70,750
-- Finance, Treasurer 1995 272,840 210,000 166,875 22,000 63,818
and Chief Financial Officer
J. M. Scaminace 1997 299,480 235,000 276,875 50,000 73,065
President & General 1996 251,340 228,000 -0- 14,000 74,204
Manager, Coatings Division 1995 242,163 115,000 166,875 16,000 54,453
C. M. Connor 1997 274,085 250,000 276,875 50,000 66,566
President, Paint Stores 1996 236,100 205,000 -0- 14,000 68,218
Group 1995 224,480 105,000 166,875 16,000 49,418
</TABLE>
- ---------------
(1) The value of restricted stock indicated in the table is equal to the number
of shares of restricted stock multiplied by the closing price of the
Company's Common Stock on the date of grant. At December 31, 1997, the
number and value of shares of restricted stock held by Messrs. Breen,
Commes, Pitorak, Scaminace and Connor are 80,000 shares with a value of
$2,220,000, 44,000 shares with a value of $1,221,000, 20,000 shares with a
value of $555,000, 20,000 shares with a value of $555,000 and 20,000 shares
with a value of $555,000, respectively. The values indicated are not
necessarily indicative of the actual values which may be realized by the
named Executive Officers.
(2) Dividends are paid on all restricted stock at the same rate as paid on the
Company's Common Stock.
(3) The amounts disclosed in this column for 1997 include: (a) Company
contributions in the amount of $7,500 for each of Messrs. Commes, Pitorak,
Scaminace and Connor under the Company's Pension Investment Plan, a defined
contribution plan (Mr. Breen does not participate in such plan); (b) Company
contributions in the amounts of $38,800, $17,393, $10,817 and $9,555 for
Messrs. Commes, Pitorak, Scaminace and Connor, respectively, under the
Company's Pension Investment Plan Equalization Program, a defined
contribution plan (Mr. Breen does not participate in such plan); (c) Company
contributions in the amount of $7,040 for each of Messrs. Breen, Commes,
Pitorak, Scaminace and Connor under the Company's Employee Stock Purchase
and Savings Plan, a defined contribution plan; (d) Company contributions in
the amounts of $112,850, $71,480, $17,883, $27,834 and $25,009 for Messrs.
Breen, Commes, Pitorak, Scaminace and Connor, respectively, under the
Company's Deferred Compensation Savings Plan, a defined contribution plan;
(e) the dollar value of compensatory split-dollar life insurance benefits in
the amounts of $88,673, $49,928, $21,962, $17,807 and $15,649 for Messrs.
Breen, Commes, Pitorak, Scaminace and Connor, respectively, under the
Company's Executive Life Insurance Plan; (f) the dollar value of additional
compensatory split-dollar life insurance benefits in the amount of $82,135
for Mr. Breen (such policy was purchased by the Company in 1996 and replaces
Mr. Breen's benefits accruing under the Company's Retirement Equalization
Program after January 1, 1996; see "Pension Plan"); and (g) payments by the
Company in the amounts of $3,701, $3,243, $2,531, $2,067 and $1,813 for
Messrs. Breen, Commes, Pitorak, Scaminace and Connor, respectively, related
to premiums under the Company's Executive Disability Income Plan.
12
<PAGE> 15
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/ POTENTIAL REALIZABLE VALUE
UNDERLYING SARS AT ASSUMED ANNUAL RATES
OPTIONS/ GRANTED TO OF STOCK PRICE APPRECIATION
SARS EMPLOYEES EXERCISE OR FOR OPTION TERM(4)
GRANTED IN FISCAL BASE PRICE EXPIRATION ----------------------------
(#)(1,2) YEAR ($/SH)(3) DATE 5% ($) 10% ($)
NAME ---------- ---------- ----------- ---------- ------------- -------------
----
<S> <C> <C> <C> <C> <C> <C>
J. G. Breen 150,000 8.6780 27.75 1/28/07 2,617,774 6,633,953
T. A. Commes 100,000 5.7854 27.75 1/28/07 1,745,183 4,422,635
L. J. Pitorak 50,000 2.8927 27.75 1/28/07 872,591 2,211,318
J. M. Scaminace 24,000 1.3885 27.75 1/28/07 418,844 1,061,432
26,000 1.5042 32.2813 7/15/07 527,840 1,337,650
C. M. Connor 24,000 1.3885 27.75 1/28/07 418,844 1,061,432
26,000 1.5042 28.3438 10/16/07 463,457 1,174,491
Value realizable for all
shareholders(5) N/A N/A N/A N/A 3,004,305,646 7,613,500,376
Value realizable for the named
Executive Officers as a % of
value realizable for all
shareholders N/A N/A N/A N/A 0.235% 0.235%
</TABLE>
- ---------------
(1) Generally, one-third of the options granted are exercisable on each of the
first, second and third anniversary dates of the grant.
(2) All options granted become immediately exercisable, in full, upon (a) a
filing pursuant to any federal or state law in connection with any tender
offer for shares of the Company's Common Stock (other than a tender offer by
the Company), or (b) the signing of any agreement for the merger of the
Company into, or the Company's consolidation with, another corporation or
for the sale of substantially all of the assets of the Company to another
corporation; which tender offer, merger, consolidation or sale, if
consummated, would, in the opinion of the Board of Directors of the Company,
likely result in a change in control of the Company. In the event any such
tender offer, merger, consolidation or sale is abandoned or, in the opinion
of the Board of Directors, is not likely to be consummated, the Board of
Directors may nullify the effect of the immediately preceding sentence and
reinstate the provisions providing for accrual in installments, without
prejudice to any exercise of options that may have occurred prior to such
nullification.
(3) The exercise price is equal to the fair market value of the Company's Common
Stock on the date of grant.
(4) The amounts disclosed in these columns, which reflect appreciation of the
Company's Common Stock price at 5% and 10% annual rates over the ten year
terms of the options as requested by the Securities and Exchange Commission,
are not intended to be a forecast of the Company's Common Stock price and
are not necessarily indicative of the actual values which may be realized by
the named Executive Officers or the shareholders. These assumed rates of 5%
and 10% would result in the Company's Common Stock price increasing from
$27.75 per share to approximately $45.20 per share and $71.98 per share,
respectively.
(5) The amounts disclosed reflect appreciation of the Company's Common Stock
price at 5% and 10% annual rates over a ten year period for all shareholders
of the Company based on the total number of shares of Common Stock
outstanding on January 29, 1997 (the date on which most of the options set
forth in this table were granted) and assuming a per share price of $27.75
(the exercise price of such options).
13
<PAGE> 16
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
SHARES UNDERLYING UNEXERCISED MONEY OPTIONS/SARS AT FY-
ACQUIRED ON OPTIONS/SARS AT FY-END (#) END ($)(2)
EXERCISE VALUE --------------------------- -----------------------------
NAME (#) REALIZED ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- --------------- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
J. G. Breen 75,334 976,072 -0- 228,668 -0- 656,883
T. A. Commes -0- -0- 40,000 140,668 384,960 340,322
L. J. Pitorak 20,000 246,649 -0- 70,668 -0- 170,948
J. M. Scaminace 39,600 921,674 50,732 64,668 575,225 121,886
C. M. Connor 10,000 165,000 29,332 64,668 303,175 121,886
</TABLE>
- ---------------
(1) The value realized on the exercise of options is based on the difference
between the exercise price and the fair market value of the Company's Common
Stock on the date of exercise.
(2) The value of unexercised in-the-money options is based on the difference
between the exercise price and the fair market value of the Company's Common
Stock on December 31, 1997.
PENSION PLAN
The Sherwin-Williams Company Salaried Employees' Retirement Plan ("Pension
Plan") provides pension benefits for certain salaried employees hired on or
before December 31, 1983. The Pension Plan requires five years of service for a
participant to become fully vested if the participant has at least one hour of
service on or after January 1, 1989 and ten years of service for all other
participants. A participant may also become fully vested in the event the
participant's employment is terminated (in specified situations) after a Change
in Control (as defined in the Pension Plan) of the Company. Normal monthly
pensions equal one-twelfth of one percent of the Average Annual Earnings (as
defined in the Pension Plan) times the number of years of credited service up to
a maximum of forty years, less an offset of $42.50 (or such lesser amount as may
be required under the Internal Revenue Code). At December 31, 1997, the maximum
annual benefit under the provisions of the Pension Plan is $130,000 due to
limitations imposed by ERISA and the Internal Revenue Code. Mr. Breen is the
only Executive Officer named in the Summary Compensation Table who participates
in the Pension Plan and he is fully vested.
The Company has established a Retirement Equalization Program to provide
eligible employees with the benefits they would have received under the Pension
Plan but for the maximum limitations imposed by ERISA and the Internal Revenue
Code. The Retirement Equalization Program authorizes the Company, at its
discretion, to enter into appropriate agreements with employees who are, or may
become, eligible to participate. The benefits under the Retirement Equalization
Program will be paid either from one or more grantor trusts established by the
Company and funded from the Company's general funds or by the Company directly
from the Company's general funds. Mr. Breen also participates in the Retirement
Equalization Program.
The following table sets forth the estimated aggregate annual normal
benefits payable under the Pension Plan and the Retirement Equalization Program
commencing at age 65 in the form of a single life annuity.
14
<PAGE> 17
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------
REMUNERATION 15 20 25 30
- ------------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
1,000,000 149,490 199,490 249,490 299,490
1,100,000 164,490 219,490 274,490 329,490
1,200,000 179,490 239,490 299,490 359,490
1,300,000 194,490 259,490 324,490 389,490
1,400,000 209,490 279,490 349,490 419,490
1,500,000 224,490 299,490 374,490 449,490
1,600,000 239,490 319,490 399,490 479,490
1,700,000 254,490 339,490 424,490 509,490
1,800,000 269,490 359,490 449,490 539,490
</TABLE>
Pensions are based upon average annual earnings (salary and bonus) for the
highest five consecutive years out of the last ten years of employment with the
Company. For Mr. Breen this average amount equaled $1,446,072 at December 31,
1997. Mr. Breen was credited with nineteen years of service under the Pension
Plan at December 31, 1997. Pensions may be adjusted for a surviving spouse's
pension or other options under the Pension Plan. Pensions are not subject to any
other deduction for social security or any other offset amounts.
In addition, pursuant to a provision of Mr. Breen's employment contract,
the Company will pay to Mr. Breen, upon retirement, supplemental pension
benefits so that his total pension benefits will not be less than the amount of
benefits he would have received under the Gould Inc. Salaried Retirement Plan if
Mr. Breen had continued to be employed by Gould Inc. (Mr. Breen's previous
employer) until his retirement and had received compensation in the amount and
form paid to him by the Company. The following table sets forth the estimated
aggregate annual supplemental benefits payable to Mr. Breen, under this
provision of his employment contract, commencing at age 65 in the form of a
single life annuity. The total amount of benefits payable to Mr. Breen will be
equal to the amount determined in accordance with the Pension Plan Table set
forth above, plus the amount determined in accordance with the table set forth
below, minus $48,722 (which is the value of the benefits waived by Mr. Breen as
described below).
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------
REMUNERATION 15 20 25 30
- ------------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
$1,000,000 278,987 228,987 178,987 128,987
1,100,000 308,987 253,987 198,987 143,987
1,200,000 338,987 278,987 218,987 158,987
1,300,000 368,987 303,987 238,987 173,987
1,400,000 398,987 328,987 258,987 188,987
1,500,000 428,987 353,987 278,987 203,987
1,600,000 458,987 378,987 298,987 218,987
1,700,000 488,987 403,987 318,987 233,987
1,800,000 518,987 428,987 338,987 248,987
</TABLE>
These supplemental pension benefits are based upon the average annual
salary and bonus paid to Mr. Breen for the highest five years out of the last
fifteen years of employment with the Company. For Mr. Breen, this average amount
equaled $1,446,072 at December 31, 1997. Mr. Breen was credited with nineteen
years of service at December 31, 1997 for purposes of determining these
supplemental pension benefits. These benefits reflect the applicable deduction
for social security.
In connection with the Company's purchase of an additional split-dollar
life insurance policy for Mr. Breen in 1996 (as mentioned in Footnote 3 of the
Summary Compensation Table), Mr. Breen agreed to waive all future benefits
accruing under the Retirement Equalization Program after January 1, 1996.
15
<PAGE> 18
At December 31, 1997, the value of such benefits (valued in the form of a single
life annuity) was $48,722.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS
Employment Contracts. Messrs. Breen and Commes have employment contracts
with the Company. In addition to their basic compensation, incentive
compensation, and participation in the employee benefit plans and the 1994 Stock
Plan, each is entitled to receive, in the event the Company terminates his
employment for any reason, except in the event termination is the result of a
change of control of the Company, an amount equal to one and one-half times his
annual salary and any bonus paid or payable to him for the preceding year. In
the event the termination of employment is the result of a change of control of
the Company, Mr. Breen is entitled to receive, at the time of his termination of
employment, a cash amount equal to two times his annual assured compensation,
and Mr. Commes is entitled to receive a cash amount equal to his annual assured
compensation. Annual assured compensation is defined as the sum of (i)
twenty-six times the executive's highest regular bi-weekly salary in effect
within the three year period preceding termination, plus (ii) the greater of the
highest bonus paid or payable within the three year period preceding termination
or the bonus such executive would have received for the year of termination had
the executive reached 100% of any stated goals (as explained in the Compensation
and Management Development Committee Report on Executive Compensation). Assuming
a termination date of February 28, 1998 as a result of a change of control, the
cash amounts payable under such contracts would have been approximately
$3,404,604 and $1,064,990 for Messrs. Breen and Commes, respectively. Amounts
received under the employment contracts due to a termination of employment
resulting from a change of control of the Company will be offset against the
amounts payable under the severance pay agreements described below.
Severance Pay Agreements. To ensure continuity and the continued
dedication of key executives during any period of uncertainty caused by the
possible threat of a takeover, the Company has entered into severance pay
agreements with certain key executives, including each of the Executive Officers
named in the Summary Compensation Table. In the event there is a Change of
Control (as that term is defined in the agreements) of the Company and the
employment of the executive terminates under certain conditions described in the
agreements at any time during the two year period following a Change of Control,
the executive will receive an agreed upon amount of severance pay. In the event
the executive has an employment contract with the Company providing for the
payment of severance pay at the time of termination of employment, the amounts
payable under such employment contract will be offset against amounts payable
under the severance pay agreement.
For Messrs. Breen and Commes, the severance pay agreements provide that
upon termination, whether voluntary or involuntary, unless the termination is
because of death or by the Company for Cause (as such term is defined in the
agreements), the executive will receive, in addition to accrued salary, bonus
and vacation pay: (a) a lump sum cash amount equal to four times the sum of (i)
twenty-six times the executive's highest regular bi-weekly compensation in
effect within the three year period preceding termination, plus (ii) the greater
of the highest bonus received by the executive within the three year period
preceding termination or the bonus such executive would have received for the
year of termination had the executive reached 100% of any stated goals (as
explained in the Compensation and Management Development Committee Report on
Executive Compensation); (b) continued participation in the Company's employee
welfare benefit plans and other benefit arrangements for a period of four years
following termination; and (c) special retirement benefits so that the total
retirement benefits received will be equal to the retirement benefits which
would have been received had such executive's employment with the Company
continued during the four year period following termination. The executive will
also receive an additional payment equal to the amount of any excise tax imposed
on the executive by Section 4999 of the Internal Revenue Code and any taxes,
interest or penalties incurred with respect thereto. Assuming a termination date
of February 28, 1998, the lump sum cash amounts payable under the foregoing
provisions of the severance pay agreements (including any amount relating
16
<PAGE> 19
to the excise tax described above) would have been approximately $10,985,284 and
$6,513,152 for Messrs. Breen and Commes, respectively.
For Messrs. Pitorak, Scaminace and Connor, the severance pay agreements
provide that upon termination for any reason (including the executive's right to
terminate his employment with the Company for any reason during the thirty day
period immediately following the first anniversary date of a Change of Control)
other than death, Disability, by the Company for Cause or by the executive for
other than Good Reason (as such terms are defined in the agreements), the
executive will receive, in addition to accrued salary, bonus and vacation pay:
(a) a lump sum cash amount equal to three times the sum of (i) twenty-six times
the executive's highest regular bi-weekly compensation in effect within the
three year period preceding termination, plus (ii) the greater of the highest
bonus received by the executive within the three year period preceding
termination or the bonus such executive would have received for the year of
termination had the executive reached 100% of any stated goals (as explained in
the Compensation and Management Development Committee Report on Executive
Compensation); (b) continued participation in the Company's employee welfare
benefit plans and other benefit arrangements for a period of three years
following termination; and (c) special retirement benefits so that the total
retirement benefits received will be equal to the retirement benefits which
would have been received had such executive's employment with the Company
continued during the three year period following termination. The executive will
also receive an additional payment equal to the amount of any excise tax imposed
on the executive by Section 4999 of the Internal Revenue Code and any taxes,
interest or penalties incurred with respect thereto. Assuming a termination date
of February 28, 1998, the lump sum cash amounts payable under the foregoing
provisions of the severance pay agreements (including any amount relating to the
excise tax described above) would have been approximately $1,785,186, $1,755,373
and $2,812,196 for Messrs. Pitorak, Scaminace and Connor, respectively.
The salary and other benefits provided by the severance pay agreements will
be payable either from an escrow fund established by the Company with a national
banking institution or from the Company's general funds. The Company has agreed
to indemnify such executives for any legal expense incurred in the enforcement
of their rights under the severance pay agreements.
Estate Protection Plan Trust. In connection with the Company's purchase of
the additional split-dollar life insurance policy for Mr. Breen in 1996, the
Company established a "rabbi trust" for the benefit of Mr. Breen. Upon a "Change
in Control" or a "Potential Change in Control" of the Company (as such terms are
defined in the trust), the Company is required to fund the trust in an amount
equal to the Company's entire interest in the cash value of the life insurance
policy, plus an amount sufficient to pay future premiums for the policy.
INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed Ernst & Young LLP to examine the
consolidated financial statements and other records of the Company for the
fiscal year ending December 31, 1998. Representatives of Ernst & Young LLP are
expected to be present at the Annual Meeting and will have an opportunity to
make a statement if they wish and to respond to appropriate shareholders'
questions.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held five meetings during the fiscal year ended
December 31, 1997. During 1997, each Director attended at least 75% of the
meetings of the Board of Directors and committees on which he or she served,
except for Mr. Collins who attended 60%.
The Board of Directors has established, among other committees, an Audit
Committee, a Board Composition Committee and a Compensation and Management
Development Committee. The functions and members of these Committees are as
follows:
17
<PAGE> 20
Audit. The Audit Committee has the responsibility of reviewing the adequacy
of the Company's financial controls and the quality and integrity of its
financial reports. In addition, the Audit Committee recommends to the Board of
Directors independent public accountants to audit the books, records and
accounts of the Company for the ensuing fiscal year. The Committee reviews all
reports and recommendations of the independent public accountants with respect
to matters within their area of responsibility and reports to the Board of
Directors on the scope and depth of the audit. The Committee also makes
inquiries into the Company's internal audit functions and procedures.
The Audit Committee met twice during 1997 and is currently composed of five
outside Directors: D. E. Evans, W. G. Mitchell, C. E. Moll, H. O. Petrauskas and
R. K. Smucker.
Board Composition. The Board Composition Committee develops plans for the
composition and size of the Board of Directors. Matters considered by this
Committee include the ratio of inside to outside Directors, as well as the
skills and disciplines desired as represented by individual Directors. The
Committee also is charged with the responsibility to conduct searches for
individual members, interview prospective candidates and make selections and
recommendations to the Board of Directors. The Committee has not undertaken to
consider nominees recommended by shareholders but has and will continue to
employ professional search firms to assist it in identifying potential members
of the Board of Directors with the desired skills and disciplines.
The Board Composition Committee met once in 1997 and is currently composed
of three outside Directors: J. M. Biggar, D. E. Collins and W. G. Mitchell.
Compensation and Management Development. The Compensation and Management
Development Committee establishes general policies on an annual basis for
changes in compensation for all key employees of the Company. In addition, the
Committee sets the compensation for certain officers and key employees. The
Committee administers the Company's Management Incentive Plan, Executive Life
Insurance Plan, Executive Disability Income Plan, Deferred Compensation Savings
Plan, Key Management Deferred Compensation Plan, Retirement Equalization
Program, Pension Investment Plan Equalization Program and 1994 Stock Plan and
recommends to the Board of Directors for approval other types of incentive
compensation and similar plans.
The Compensation and Management Development Committee met three times
during 1997 and is currently composed of five outside Directors: J. M. Biggar,
D. E. Collins, R. W. Mahoney, W. G. Mitchell and A. M. Mixon, III.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following outside Directors served on the Compensation and Management
Development Committee of the Board of Directors of the Company during 1997: J.
M. Biggar, D. E. Collins, R. W. Mahoney, W. G. Mitchell and A. M. Mixon, III.
Mr. Breen, Chairman and Chief Executive Officer of the Company, serves on the
Compensation and Management Development Committee of the Board of Directors of
Parker-Hannifin Corporation, of which Mr. Collins is President and Chief
Executive Officer.
18
<PAGE> 21
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as to each Director and nominee, each
Executive Officer named in the Summary Compensation Table and all Directors and
Executive Officers as a group, information regarding the amount and nature of
shares of Common Stock beneficially owned and the amount of shadow stock units
owned at December 31, 1997. All of the Directors and Executive Officers have
sole voting and investment power over the shares of Common Stock listed, except
as otherwise provided below.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF AMOUNT OF
OF COMMON STOCK COMMON STOCK SHADOW STOCK
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1),(2),(3) BENEFICIALLY OWNED UNITS OWNED(4)
- ------------------------ ----------------------------- ------------------ ------------
<S> <C> <C> <C>
J. M. Biggar 18,800 * 0
J. G. Breen 920,109 * 130,486
D. E. Collins 3,000 * 2,655
T. A. Commes 486,871 * 53,756
C. M. Connor 105,612 * 7,387
D. E. Evans 400 * 0
R. W. Mahoney 4,400 * 0
W. G. Mitchell 7,764 * 0
A. M. Mixon, III 10,000 * 8,231
C. E. Moll(5) 3,136 * 0
H. O. Petrauskas 2,693 * 225
L. J. Pitorak 81,605 * 15,255
J. M. Scaminace 116,121 * 11,308
R. K. Smucker 2,683 * 0
All Directors and 2,466,335 1.4264% 278,035
Executive Officers as
a Group
</TABLE>
- ---------------
*Represents beneficial ownership of less than 1% of the total number of shares
of Common Stock outstanding.
1 The amounts listed include shares of Common Stock held under plans offered by
the Company for which the Directors and Executive Officers have the right to
direct the vote, including the following number of shares under the Employee
Stock Purchase and Savings Plan: Mr. Breen, 383,114; Mr. Commes, 186,969; Mr.
Pitorak, 14,348; Mr. Scaminace, 23,475; Mr. Connor, 34,422; and all Executive
Officers as a group, 872,137.
2 The amounts listed include the following number of shares of Common Stock
owned by immediate family members of the Directors and Executive Officers, for
which each such person disclaims beneficial ownership: Mr. Biggar, 1,600, Mr.
Moll, 340, and all Directors and Executive Officers as a group, 25,992. The
amounts listed also include shares of Common Stock over which the Directors
and Executive Officers share voting and investment power with immediate family
members.
3 The amounts listed include the following number of shares of Common Stock for
which the Executive Officers have the right to acquire beneficial ownership,
within sixty days from December 31, 1997, through the exercise of stock
options: Mr. Breen, 104,000; Mr. Commes, 101,334; Mr. Pitorak, 30,666; Mr.
Scaminace, 68,732; Mr. Connor, 47,332; and all Executive Officers as a group,
682,860.
4 Shadow stock units are owned by outside Directors under the Company's Director
Deferred Fee Plan, whereby outside Directors may defer payment of all or a
portion of their directors' fees into a shadow stock account. Shadow stock
units are owned by Executive Officers under the Company's Deferred
Compensation Savings Plan and Key Management Deferred Compensation Savings
Plan, whereby eligible employees may defer payment of a portion of such
employee's compensation into a shadow stock account. The value of shadow stock
units fluctuates according to the market value of Common Stock. Directors and
Executive Officers have no voting rights associated with shadow stock units,
and such ownership does not result in any beneficial ownership of Common
Stock.
5 Includes 2,000 shares owned by the MTD Products, Inc. pension fund, of which
Mr. Moll is a trustee.
19
<PAGE> 22
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as to each beneficial owner of more than
five percent of the Company's Common Stock, information regarding shares of
Common Stock owned by each at December 31, 1997.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
------------------------ -------------------- ----------
<S> <C> <C>
The Sherwin-Williams Company
Employee Stock Purchase
and Savings Plan 25,560,734(1) 14.78
101 Prospect Avenue, N.W.
Cleveland, Ohio 44115
FMR Corp. 11,164,363(2) 6.46
82 Devonshire Street
Boston, MA 02109
</TABLE>
- ---------------
1 Shares owned pursuant to The Sherwin-Williams Company Employee Stock Purchase
and Savings Plan are voted by the trustee in accordance with written
instructions of plan participants. If no instructions are received by the
trustee, the trustee votes such shares (along with any unallocated shares held
in the plan) in the same proportion as it votes those shares for which it
receives proper instructions.
2 Of the shares listed, Fidelity Management & Research Company ("Fidelity"), a
wholly-owned subsidiary of FMR Corp., beneficially owns 10,376,020 (6.00%)
shares as a result of acting as an investment adviser to various investment
companies. Of the total shares listed, FMR Corp. has sole voting power over
542,543 shares and sole dispositive power over all shares, but has no shared
voting or shared dispositive power. Edward C. Johnson, III (the Chairman of
FMR Corp.) and Fidelity also each have sole dispositive power over the shares
owned by Fidelity, but neither has sole voting power over such shares; such
power resides with the Boards of Trustees of the Fidelity funds. Mr. Johnson,
III, Abigail P. Johnson, certain members of the Johnson Family, and trusts for
their benefit may be deemed to be a controlling group with respect to FMR
Corp. This information is based upon FMR Corp.'s Schedule 13G, dated February
14, 1998.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors and Executive Officers, and persons owning more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership of such equity securities with the Securities
and Exchange Commission and the New York Stock Exchange. To the Company's
knowledge, based solely on the information furnished to the Company and written
representations by such persons, all of the Company's Directors and Executive
Officers complied with their respective filing requirements under Section 16(a)
for 1997, except that Mr. Biggar recently discovered that he inadvertently
failed to file three Forms 4 reporting three purchases of a total of 1,500
shares of Common Stock (on a pre-split basis) in 1994. Upon discovery, Mr.
Biggar promptly filed a Form 4 reporting the transactions.
RELATED TRANSACTIONS
During 1997, the Company and its subsidiaries purchased products and
services from, and sold products and services to, corporations of which certain
of the Company's nonemployee Directors and/or nominees for Director are
officers. These transactions were in the ordinary course of the Company's
business and were at competitive terms and prices. The Company does not consider
these transactions to be material to the Company's business or to such other
companies' businesses.
20
<PAGE> 23
EXPENSE AND METHOD OF PROXY SOLICITATION
The enclosed proxy is solicited by the Board of Directors and the entire
cost of solicitation will be paid by the Company. In addition to the
solicitation of proxies by use of the mails, officers and other employees of the
Company may solicit the return of proxies. Kissel-Blake, Inc., New York, N.Y.,
has also been retained to aid in the solicitation of proxies, for which it will
receive a fee estimated at $14,000. Proxies will be solicited by personal
interview, mail, telephone and telegraph.
DATE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Shareholder proposals must be received at the Company's headquarters, 101
Prospect Avenue, N.W., Cleveland, Ohio 44115-1075, Attention: Vice President,
General Counsel and Secretary, on or before November 11, 1998 in order to be
included in the proxy material relating to the 1999 Annual Meeting of
Shareholders. In order to remove any question as to the date on which a proposal
was received by the Company, it is suggested that proposals be submitted by
Certified Mail-Return Receipt Requested.
ANNUAL REPORT ON FORM 10-K
THE COMPANY WILL PROVIDE TO EACH SHAREHOLDER WHO IS SOLICITED TO VOTE AT
THE 1998 ANNUAL MEETING OF SHAREHOLDERS, UPON THE WRITTEN REQUEST OF SUCH PERSON
AND WITHOUT CHARGE, A COPY OF THE COMPANY'S 1997 ANNUAL REPORT ON FORM 10-K.
PLEASE DIRECT REQUESTS TO THE COMPANY'S HEADQUARTERS, 101 PROSPECT AVENUE, N.W.,
CLEVELAND, OHIO 44115-1075, ATTENTION: INVESTOR RELATIONS.
21
<PAGE> 24
ANNUAL MEETING OF SHAREHOLDERS
OF
THE SHERWIN-WILLIAMS COMPANY
Wednesday, April 22, 1998
Auditorium
Midland Building, Room 927
101 Prospect Avenue, N.W.
Cleveland, Ohio
AGENDA
------
- Fix the number of Directors at eleven and elect eleven Directors
to hold office until the next Annual Meeting of Shareholders and
until their successors are elected.
- Transact such other business as may properly come before the
Annual Meeting.
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT!
Whether or not you plan to attend the Annual Meeting, please complete, sign and
return the attached proxy/voting instruction card in the enclosed envelope. Your
prompt return of the card will help avoid additional solicitation costs.
Returning your completed card will not prevent you from voting in person at the
Annual Meeting if you wish to do so.
- --------------------------------------------------------------------------------
[SHERWIN THE SHERWIN-WILLIAMS COMPANY
WILLIAMS PROXY/VOTING INSTRUCTION CARD
LOGO] ANNUAL MEETING OF SHAREHOLDERS - APRIL 22, 1998
The undersigned hereby authorizes J.G. BREEN and T.A. COMMES, and each of
them individually, with power of substitution, to vote and otherwise represent
all of the shares of Common Stock of The Sherwin-Williams Company (the
"Company"), which the undersigned is entitled to vote as a recordholder, at the
Annual Meeting of Shareholders of the Company to be held on Wednesday, April 22,
1998, and any adjournment(s) thereof, as indicated on the reverse side, and, in
their discretion, on all other matters as may properly come before the Annual
Meeting. This card also provides voting instructions for shares of Common Stock,
if any, held for the account of the undersigned by The Bank of New York, as
agent of the Company's Stock Ownership and Automatic Dividend Reinvestment Plan,
and by Fidelity Management Trust Company, as trustee of the Company's Employee
Stock Purchase and Savings Plan.
THIS PROXY/VOTING INSTRUCTION CARD IS SOLICITED JOINTLY BY THE BOARD OF
DIRECTORS OF THE COMPANY, THE BANK OF NEW YORK (WITH RESPECT TO COMMON STOCK
HELD UNDER THE DIVIDEND REINVESTMENT PLAN) AND FIDELITY (WITH RESPECT TO COMMON
STOCK HELD UNDER THE STOCK PURCHASE AND SAVINGS PLAN). YOU ARE ENCOURAGED TO
SPECIFY YOUR VOTE BY COMPLETING THE REVERSE SIDE OF THIS CARD. WHEN PROPERLY
SIGNED, YOUR SHARES WILL BE VOTED IN ACCORDANCE WITH YOUR INSTRUCTIONS, IF
INDICATED. IF YOU SIGN, DATE AND RETURN THIS CARD WITHOUT SPECIFYING YOUR VOTE,
YOUR SHARES WILL BE VOTED FOR PROPOSAL 1 AND IN THE PROXY HOLDER'S DISCRETION
UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING. IF YOU
DO NOT TIMELY RETURN THIS CARD, THE PROXY HOLDERS CAN NOT VOTE YOUR SHARES (OR,
IN THE CASE OF THE STOCK PURCHASE AND SAVINGS PLAN, IF YOU DO NOT RETURN THIS
CARD BY THE CLOSE OF BUSINESS ON APRIL 16, 1998, YOUR SHARES WILL BE VOTED IN
THE SAME PROPORTION AS FIDELITY VOTES THOSE SHARES FOR WHICH IT RECEIVES PROPER
INSTRUCTIONS).
(Continued and to be dated and signed on reverse side.)
THE SHERWIN WILLIAMS COMPANY
P.O. BOX 11069
NEW YORK, N.Y. 10203-0069
<PAGE> 25
DETACH PROXY CARD HERE
<TABLE>
<CAPTION>
[ ]
(THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 1.)
<S> <C> <C> <C>
1. Election of Directors FOR the 11 nominees WITHHOLD AUTHORITY to vote for the *EXCEPTIONS
listed below 11 nominees listed below.
</TABLE>
Nominees: J.M. BIGGAR, J.G. BREEN, D.E. COLLINS, T.A. COMMES, D.E. EVANS, R.W.
MAHONEY, W.G. MITCHELL, A.M. MIXON, III, C.E. MOLL, H.O. PETRAUSKAS, R.K.
SMUCKER
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME ON THE LINE BELOW).
*Exceptions_____________________________________________________________________
2. In their discretion, the proxies are authorized to consider and vote upon
such other business as may properly come before the Annual Meeting or any
adjournment thereof.
Change of Address and
or Comments Mark Here
Please sign exactly as your name appears
hereon. Joint owners should each sign. When
signing as attorney, executor,
administrator, trustee, guardian or in other
representative capacity, please give your
full title.
Dated:________________________________, 1998
____________________________________________
Signature
____________________________________________
Signature
VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE
INK.
Sign, Date and Return this Card Promptly Using the Enclosed Envelope.
