Company: AOS
Filing Date: 2025-02-27
Form Type: DEF 14A
Source: 0001193125-25-037641
Chunk: 43

Company: SMITH A O CORP
Filing Date: 2025-02-27
Form: DEF 14A
Chunk 43
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000 |     | 103%                    |
| Stephen M. Shafer1 |     |                | 3,000,000 |     | 194%                    |
| James F. Stern     |     |                | 1,020,000 |     | 111%                    |
| Stephen D. O’Brien |     |                |   660,000 |     | 86%                     |
| Mark A. Petrarca   |     |                |   770,000 |     | 109%                    |

| 1 | In addition to the annual grant amount shown in the table, Mr. Shafer also received a special one-time grant of $2,000,000 in restricted stock units to account for equity awards he forfeited to join the company in March 2024. The restricted stock units will vest on March 18, 2027 |

Emphasis on Performance-Based Awards Our approach is to structure our awards so that restricted stock units represent 50% of our long-term incentive awards, performance cash 35% and performance stock 15%. All three components have a financial or strategic performance metric associated with them. Restricted stock units entitle the executive to receive a share of Common Stock for each unit when the restricted stock unit vests. Restricted stock units are time-based but have a minimum performance threshold based on average Return on Equity that must be achieved in order to vest. The average Return on Equity is calculated by dividing net income by stockholder equity, adjusted to exclude certain extraordinary and nonrecurring items, 34 A. O. Smith Corporation

Executive Compensation averaged over the three-year vesting period. We use average Return on Equity because we believe it represents a sound measure of our performance that is easily recognized and readily used by investors and that links executive performance to stockholder interest over the three-year performance period of the award. The value to the executive of restricted stock units is dependent upon the value of our Common Stock at the time of vesting. Restricted stock units are used to provide a combination of retention value and incremental performance incentives. For 2024, the minimum average Return on Equity for restricted stock unit payouts was 5%. Performance cash is valued at $100 per unit at the time of grant. The value to the executive is dependent upon return on invested capital (or ROIC) performance over a three-year vesting period. [We calculate ROIC by taking net operating profit after taxes and dividing it by total capital.] The 2024 performance cash award uses ROIC to measure