UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.   )

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GENERAC HOLDINGS INC.

(Name of Registrant as Specified In Its Charter)​

   

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April 28, 2023

To the Stockholders of our Company:

You are cordially invited to attend the 2023 Annual Meeting of Stockholders where we will be voting on the below matters.

Items of Business

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To elect the four nominees named herein as Class II directors;

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To ratify the selection of Deloitte & Touche LLP as our independent, registered public accounting firm for the year ending December 31, 2023;

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To approve, on an advisory, non-binding basis, the compensation of our executive officers;

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To approve, on an advisory, non-binding basis, the frequency of future advisory votes on executive compensation; and

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To consider any other matters that may properly come before the meeting or any adjournments or postponements of the meeting.

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WHERE:	​
Generac Power Systems, Inc. S45 W29290 Hwy. 59 Waukesha, Wisconsin 53189 ADMISSION: Holders of record of our common stock at the close of business on April 17, 2023 are entitled to notice of, and to vote at, the annual meeting.	​

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​	Internet	​	​	Telephone	​	​	Mail	​	​	In Person	​
​	Visit the internet website indicated on the Notice of Internet Availability or any proxy card you receive and follow the on-screen instructions.	​	​	Use the toll-free telephone number shown on the Notice of Internet Availability or any proxy card you receive.	​	​	If you request a paper proxy card by telephone or internet, you may elect to vote by mail. If you elect to do so, you should date, sign and promptly return your proxy card by mail in the postage prepaid envelope which accompanied that proxy card.	​	​	You can deliver a completed proxy card at the meeting or vote in person.	​
​	Thank you for your continued support of and interest in the Company.										​

 

 

TABLE OF CONTENTS

 

Summary Information

Our Corporate Strategy

Generac By The Numbers

* A full discussion of our use of non-U.S. generally accepted accounting principles measures to provide a baseline for evaluating and comparing our operating results, and a reconciliation of Adjusted EBITDA to net income can be found in Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

** Gross debt leverage ratio and total liquidity as of 12/31/2022.

 

SUMMARY INFORMATION

 

SUMMARY INFORMATION

Our 2022 Business Highlights

We achieved another year of solid financial results, including record sales, in 2022.

Key Components and Design of the Executive Compensation Program

* A full discussion of our use of non-U.S. generally accepted accounting principles measures to provide a baseline for evaluating and comparing our operating results, and a reconciliation of Adjusted EBITDA to net income can be found in Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

 

Proposal 1 — Election of Class II Directors

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The nominees for election as Class II Directors at the 2023 annual meeting are described below, each of whom has been nominated by the Board of Directors. If elected, each of the nominees is expected to serve for a three-year term expiring at the annual meeting of stockholders of the Company in 2026 and until their respective successors have been elected and qualified. The Board of Directors recommends a vote FOR the Company’s nominees for Class II Directors.

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Our Board of Directors is divided into three classes, with each class serving a consecutive three-year term. The term of the current Class II Directors will expire on the date of the 2023 annual meeting, subject to the election and qualification of their respective successors. The Board of Directors expects that each of the nominees will be available for election as a director. However, if by reason of an unexpected occurrence, one or more of the nominees is not available for election, the persons named in the form of proxy have advised that they will vote for such substitute nominees as the Board of Directors may nominate.

In selecting director candidates, the Nominating and Corporate Governance Committee considers whether the candidates possess the required skill sets and fulfill the qualification requirements of directors approved by the Board of Directors, including integrity, objectivity, sound judgment, leadership, courage, and diversity in all aspects of that term, including differences of perspective, professional experience, education, skills, and other individual qualities, such as gender, race and ethnicity, and sexual orientation.

The following table provides the composition of each of our committees:

“C” = Chairperson

“L” = Lead Director

 

PROPOSAL 1 — ELECTION OF CLASS II DIRECTORS

Our directors and nominees bring a broad range of skills, experiences, and perspectives to our board. The below tables and graphics summarize the skills and experiences that bring value to our company.

 

PROPOSAL 1 — ELECTION OF CLASS II DIRECTORS

The following biographies describe the business experience of each director. Following the biographical information for each director below, we have listed qualifications that, in addition to those discussed above, the Board of Directors considered in determining whether to recommend the director be nominated for reelection.

Nominees for Election

Class II Directors

 

PROPOSAL 1 — ELECTION OF CLASS II DIRECTORS

 

PROPOSAL 1 — ELECTION OF CLASS II DIRECTORS

 

PROPOSAL 1 — ELECTION OF CLASS II DIRECTORS

Other Members of the Board of Directors

Including the nominees, the Board of Directors currently consists of eleven directors, each of whom, other than the nominees, is described below. The terms of the Class III Directors expire at the 2024 Annual Meeting of Stockholders, subject to the election and qualification of their respective successors. The terms of the Class I Directors expire at the 2025 Annual Meeting of Stockholders, subject to the election and qualification of their respective successors.

Class I Directors

 

PROPOSAL 1 — ELECTION OF CLASS II DIRECTORS

 

PROPOSAL 1 — ELECTION OF CLASS II DIRECTORS

 

PROPOSAL 1 — ELECTION OF CLASS II DIRECTORS

Class III Directors

 

PROPOSAL 1 — ELECTION OF CLASS II DIRECTORS

 

PROPOSAL 1 — ELECTION OF CLASS II DIRECTORS

 

PROPOSAL 1 — ELECTION OF CLASS II DIRECTORS

 

Corporate Governance

Board of Directors Independence Standards for Directors

Pursuant to our Corporate Governance Guidelines and Principles, a copy of which is available on our website at www.generac.com, the Board of Directors is required to affirmatively determine whether our directors are independent under the listing standards of the New York Stock Exchange (“NYSE”), the principal exchange on which our common stock is traded.

 

CORPORATE GOVERNANCE

Committees of the Board of Directors

Our Board of Directors has three standing committees: an Audit Committee, a Human Capital and Compensation Committee, and a Nominating and Corporate Governance Committee. Our Board of Directors has adopted charters for each of its standing committees. Copies of our committee charters are posted on our website at www.generac.com.

Audit Committee

In discharging its duties, the Audit Committee has the sole authority to select, retain, oversee, and terminate, if necessary, the independent registered public accounting firm, review and approve the scope of the annual audit, review and preapprove the engagement of our independent registered public accounting firm to perform audit and non-audit services, meet independently with our independent registered public accounting firm and senior management, review the integrity of our financial reporting process, and review our financial statements and disclosures and certain SEC filings and financial press releases.

The Audit Committee formally met ten times in 2022, and members of the Audit Committee also met informally among themselves, with management and with other members of the Board from time to time. Decisions regarding audit-related matters were approved by our Board after considering the recommendations of the Audit Committee and its members. The Audit Committee maintains a committee charter and meets with our independent registered public accounting firm without management present on a regular basis.

 

CORPORATE GOVERNANCE

Human Capital and Compensation Committee

The Human Capital and Compensation Committee has decision-making authority with respect to all compensation decisions for our executive officers, including annual incentive plan awards and grants of equity awards. The Human Capital and Compensation Committee is responsible for finalizing and approving the performance objectives relevant to the compensation of our CEO and other executive officers.

The Human Capital and Compensation Committee’s recommendations are developed with input from our CEO and, where appropriate, other senior executives. The Human Capital and Compensation Committee reviews management recommendations and input from compensation consultants, along with other sources of data when formulating its independent recommendations to the Board of Directors. A discussion and analysis of the Company’s compensation decisions

 

CORPORATE GOVERNANCE

regarding the executive officers named in the Summary Compensation Table appears in this proxy statement under the heading “EXECUTIVE COMPENSATION — Compensation Discussion and Analysis.”

To assist it in performing its duties, the Human Capital and Compensation Committee has the authority to engage outside consulting firms. The Human Capital and Compensation Committee has engaged Willis Towers Watson & Co. (“Willis Towers Watson”) as its independent compensation consultant since September 2014. In its capacity as outside and independent compensation consultants, Willis Towers Watson reports directly to the Human Capital and Compensation Committee.

The Human Capital and Compensation Committee has sole authority to replace compensation consultants retained from time to time, and to hire additional consultants for the Human Capital and Compensation Committee at any time.

Representatives from outside consulting firms engaged by the Human Capital and Compensation Committee attend meetings of the Human Capital and Compensation Committee, as requested, and communicate with the Chair of the Human Capital and Compensation Committee between meetings.

The Human Capital and Compensation Committee assessed the independence of Willis Towers Watson pursuant to applicable SEC rules and concluded that no conflict of interest exists that would prevent Willis Towers Watson from independently advising the Human Capital and Compensation Committee.

The Human Capital and Compensation Committee reviews and discusses with management proposed Compensation Discussion and Analysis disclosures and determines whether to recommend the Compensation Discussion and Analysis to the Board of Directors for inclusion in the Company’s proxy statement and annual report. The recommendation is described in the Human Capital and Compensation Committee Report included in this proxy statement.

The Human Capital and Compensation Committee formally met five times in 2022, and members of the Human Capital and Compensation Committee also met informally among themselves, with management, with other members of the Board, and with Willis Towers Watson from time to time. Decisions regarding executive compensation were approved by our Board after considering the recommendations of the Human Capital and Compensation Committee.

Nominating and Corporate Governance Committee

 

CORPORATE GOVERNANCE

Decisions regarding board nominations and corporate governance-related matters were approved by our Board after considering the recommendations of the Nominating and Corporate Governance Committee.

Criteria for Director Nominees

In selecting director candidates, the Nominating and Corporate Governance Committee considers whether the candidates possess the required skill sets and fulfill the qualification requirements of directors approved by the Board of Directors, including integrity, objectivity, sound judgment, leadership and diversity in all aspects of that term, including differences of perspective, professional experience, education, skills, and other individual qualities, such as gender, race, ethnicity, and sexual orientation. Annually, the Nominating and Corporate Governance Committee assesses the composition of the Board of Directors, including the Committee’s effectiveness in balancing the above considerations.

Other than the foregoing, there are no minimum criteria for director nominees, although the Nominating and Corporate Governance Committee may consider such other factors as it may deem are in the best interests of the Company and its stockholders. The Nominating and Corporate Governance Committee does not assign specific weights to, and a potential or incumbent director will not necessarily satisfy all, the foregoing criteria, and in evaluating a candidate does not distinguish on the basis of whether the candidate was recommended by a stockholder.

Notwithstanding the foregoing, in furtherance of the Committee’s commitment to increasing diversity within the Board of Directors, the Committee and the Board have determined that a focused effort to identify director candidates from underrepresented minority groups will be an important consideration and priority in selecting and nominating director candidates for election as future openings become available on the Board of Directors. Accordingly, the Company’s Corporate Governance Guidelines and Principles include a requirement that any search firm engaged to fill such openings include qualified women, racially or ethnically diverse candidates, and/or other candidates from underrepresented minority groups in all prospective director candidate pools.

Process for Identifying and Evaluating Director Nominees

The Nominating and Corporate Governance Committee identifies nominees by first evaluating the current members of the Board of Directors willing to continue in service. Current members of the Board of Directors with skills and experience that are relevant to the Company’s business and who are willing to continue in service are considered for renomination, balancing the value of continuity of service by existing members of the Board of Directors with that of obtaining a new perspective on the Board. If any member of the Board of Directors does not wish to continue in service or if the Nominating and Corporate Governance Committee decides not to renominate a member for reelection, the Nominating and Corporate Governance Committee identifies the desired skills and experience of a new nominee based on the criteria listed above. Current members of the Nominating and Corporate Governance Committee and Board of Directors are polled for suggestions as to individuals meeting the criteria of the Nominating and Corporate Governance Committee. Executive search firms may also be retained to identify qualified individuals.

Stockholders who wish to recommend a candidate for consideration by the Nominating & Corporate Governance Committee may do so by sending the candidate’s name and supporting information to Mr. Robert Dixon, Nominating and Corporate Governance Committee Chair,

 

CORPORATE GOVERNANCE

c/o Raj Kanuru, Executive Vice President, General Counsel, & Corporate Secretary, Generac Power Systems, Inc., S45 W29290 Highway 59, Waukesha, Wisconsin 53189. Our Bylaws contain provisions that address the processes by which a stockholder may nominate an individual to stand for election to the Board of Directors. See “NOMINATIONS AND PROPOSALS BY STOCKHOLDERS” below for additional information.

Board of Directors Role in Risk Oversight

Our Board and management continually monitor the material risks facing our Company, including financial risk, strategic risk, operational risk, and legal and compliance risk. Management regularly reports to the Board on its activities in monitoring and mitigating such risks. Overall responsibility for risk oversight rests with our Board. In addition, the Board may delegate risk oversight responsibility to a particular committee in situations in which the risk falls within the committee’s area of focus or expertise. Our Board believes that for certain areas of risk, our Company is better served by having the initial risk evaluation and risk monitoring undertaken by a subset of the entire Board that is more focused on the issues pertaining to the particular risk. For instance, our Human Capital and Compensation Committee assists the Board in evaluating risks relating to social responsibility matters and compensation policies and procedures. Also, our Audit Committee assists the Board in fulfilling the Board’s oversight responsibility relating to the evaluation of financial and enterprise risks, including information security, environmental, health and safety, product regulatory, and product safety matters. As it deems necessary and on at least an annual basis, the respective committee to which oversight and monitoring of a particular risk has been assigned reports on risk exposures and mitigation strategies with respect to such risk to the entire Board.

Board of Directors Leadership Structure

Aaron Jagdfeld has served as a director of the Company since 2006 and is the Company’s Chairman of the Board, President, and Chief Executive Officer. Bennett Morgan serves as Lead Director.

The Lead Director has broad responsibility and authority, including to:

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Review the agendas for and preside over meetings of the independent directors.

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Preside at all meetings of the Board of Directors at which the Chairman is not present, including executive sessions of the independent directors.

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Call meetings of the independent directors.

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Serve as the principal liaison between the Chairman and the independent directors.

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Consult with the Chairman regarding:

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Information sent to the Board of Directors, including the quality, quantity, appropriateness, and timeliness of such information.

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Meeting agendas for the Board of Directors.

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The frequency of Board of Directors meetings and meeting schedules, assuring there is sufficient time for discussion of all agenda items.

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Development of annual priorities and goals for the Board of Directors.

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Be available, when appropriate, for consultation and direct communication with stockholders.

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CORPORATE GOVERNANCE

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Select, retain, and consult with outside counsel and other advisors as the Lead Director deems appropriate.

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In conjunction with both the Human Capital and Compensation Committee and the full Board of Directors:

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Annually review the performance of, and provide feedback to, the CEO.

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Annually meet with each Director to collect and review feedback.

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Periodically, our Board assesses these roles and the Board leadership structure to ensure the interests of the Company and its stockholders are best served.

Our Board has determined that its current structure, with a combined Chairman and CEO role and an independent Lead Director, at this time is in the best interests of the Company and its stockholders based on a number of factors, including:

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A combined Chairman and CEO structure provides the Company with decisive and effective leadership with clearer accountability to our stockholders and customers.

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The combined role is both counterbalanced and enhanced by the effective oversight and independence of our Board of Directors, and the independent leadership provided by our Lead Director and independent committee chairs.

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The Board believes that the appointment of a strong independent Lead Director and the use of regular executive sessions of the non-management Directors, along with the Board’s strong committee system and all Directors being independent except for Mr. Jagdfeld, allow it to maintain effective oversight of management.

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Stockholders and other parties interested in communicating directly with Mr. Bennett Morgan as Lead Director may do so by writing to Mr. Bennett Morgan, Lead Director, c/o Generac Holdings Inc., S45 W29290 Highway. 59, Waukesha, Wisconsin 53189.

Attendance at Meetings

It is our policy that each director is expected to dedicate sufficient time to the performance of his or her duties as a director, including by attending meetings of the stockholders, Board of Directors, and committees of which he or she is a member. All then-serving members of the Board of Directors attended the 2022 Annual Meeting of Stockholders.

In 2022, the Board of Directors held five meetings (including regularly scheduled and special meetings) and took action by unanimous written consent from time to time. All incumbent directors attended at least 75% of  (i) the total number of meetings of the Board of Directors (held during the period for which he or she has been a director); and (ii) the total number of meetings held by all committees on which he or she served (during the periods that he or she served).

Stockholder Communications with the Board of Directors

Stockholders and other parties interested in communicating directly with the Board of Directors, whether individually or as a group, may do so by writing to the Board of Directors, c/o Generac Holdings Inc., S45 W29290 Highway 59, Waukesha, Wisconsin 53189. The Secretary will review all correspondence and regularly forward to the Board of Directors all such correspondence that, in the opinion of the Secretary, deals with the functions of the Board of Directors or committees thereof, or that the Secretary otherwise determines requires attention. Concerns relating to

 

CORPORATE GOVERNANCE

accounting, internal controls, or auditing matters will immediately be brought to the attention of the Chair of the Audit Committee. We have adopted a Whistleblower Policy, which establishes procedures for submitting these types of concerns, either personally or anonymously through a toll-free telephone “hotline” or web transmission operated by an independent party. Our Whistleblower Policy can be found on the Company’s website at www.generac.com.

Stockholders and other parties interested in communicating directly with Mr. Andrew Lampereur, as Chair of the Audit Committee, may do so by writing to Mr. Lampereur, Chair, Audit Committee, c/o Generac Holdings Inc., S45 W29290 Highway 59, Waukesha, Wisconsin 53189.

Code of Ethics and Business Conduct

We have adopted a Code of Ethics and Business Conduct (the “Code”), that applies to all our directors, officers and employees, including our principal executive officer and principal financial accounting officer. In addition, we have adopted a Supplemental Code of Ethics and Conduct (the “Supplement”) that applies to all our directors and executive officers, including our principal executive officer and principal financial accounting officer. The Code and Supplement are both posted on our website at www.generac.com. Any amendments to, or waivers under, our Code or Supplement which are required to be disclosed by the rules promulgated by the SEC will be disclosed on the Company’s website at www.generac.com.

Corporate Governance Guidelines and Principles

We have adopted Corporate Governance Guidelines and Principles. These guidelines outline the role of our Board of Directors, the composition and operating principles of our Board of Directors and its committees, and our Board of Directors’ working process. Our Corporate Governance Guidelines and Principles are posted on our website at www.generac.com.

Environmental, Social, and Governance Practices

Generac’s purpose is to lead the world’s evolution to more resilient, efficient, and sustainable energy solutions. In furthering that mission, Generac takes seriously its ESG responsibilities and, in the course of its business, encounters and manages a broad range of ESG matters. We understand and appreciate that there is a growing interest in greater ESG disclosure by public companies. To meet these growing expectations, the Company published its 2022 Environmental, Social, and Governance Report (“ESG Report”) in April 2023. The ESG Report can be found at www.generac.com, and will be updated and published on an annual basis.

Political Contributions

It is Generac’s policy that Company funds or assets will not be used to make a political contribution to any political party or candidate, unless approval has been given by the Board of Directors or its authorized designee. Generac did not contribute to any political parties or candidates in 2022. In addition, Generac has not organized or established any political action committee.

Website Information

Website references and their hyperlinks throughout this document are provided for convenience only, and the content of the referenced websites, including but not limited to the content contained in our ESG Report, is not incorporated by reference into this proxy statement, nor does it constitute a part of this proxy statement.

 

CORPORATE GOVERNANCE

Human Capital and Compensation Committee Interlocks and Insider Participation

In 2022, the members of our Human Capital and Compensation Committee were Marcia Avedon (Chairperson), John Bowlin, Bennett Morgan, William Jenkins, and Dominick Zarcone. No member of the Human Capital and Compensation Committee was, during 2022 or previously, an officer or employee of Generac or its subsidiaries. In addition, during 2022, there were no Human Capital and Compensation Committee interlocks required to be disclosed.

 

Beneficial Ownership of our Common Stock

The following table shows information regarding the beneficial ownership of our common stock as of April 17, 2023, by:

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each person or group who is known to own beneficially more than five percent of our common stock;

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each member of our Board of Directors, each nominee for election as a director, and each of our named executive officers; and

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all members of our Board of Directors and our executive officers as a group.

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Beneficial ownership of shares is determined under rules of the SEC, and generally includes any shares over which a person exercises sole or shared voting or investment power. Except as noted by footnote, and subject to community property laws where applicable, we believe based on the information provided to us that the persons and entities named in the table below have sole voting and investment power with respect to all shares of our common stock shown as beneficially owned by them.

Unless otherwise indicated, the address for each holder listed below is c/o Generac Holdings Inc., S45 W29290 Highway 59, Waukesha, Wisconsin 53189.

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Less than 0.1%

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(1)

Based on information obtained from Amendment No. 12 to Schedule 13G filed by The Vanguard Group (“Vanguard”) on February 9, 2023. According to that report, Vanguard

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BENEFICIAL OWNERSHIP OF OUR COMMON STOCK

possesses shared power to vote or to direct the voting of 93,885 of such shares and possesses shared power to dispose or to direct the disposition of 264,005 of such shares and possesses sole power to dispose or to direct the disposition of 6,743,873 of such shares. In addition, according to that report, Vanguard’s business address is 100 Vanguard Blvd., Malvern, Pennsylvania 19355.

(2)

Based on information obtained from Amendment No. 9 to Schedule 13G filed by Blackrock, Inc. on February 7, 2023. According to that report, Blackrock, Inc. possesses sole power to vote 3,841,841 of such shares and possesses sole power to dispose 4,259,220 of such shares. In addition, according to that report, Blackrock, Inc.’s business address is 55 East 52nd Street, New York, New York 10022.

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(3)

With respect to Messrs. Jagdfeld, Ragen, Forsythe and Wilde, the number of shares beneficially owned includes 528,394, 108,394, 64,624 and 17,337 shares respectively, which may be acquired pursuant to options issued under the Omnibus Plan because such options are exercisable within 60 days. The respective number of shares for the individuals mentioned above were in each case also added to the denominator for purposes of calculating the percentage ownership of that individual.

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(4)

With respect to Ms. Roedel and Messrs. Ramon, Dixon, Morgan, Lampereur, Jenkins and Zarcone, the number of shares beneficially owned includes 9,604, 4,231, 8,188, 12,208, 14,833, 1,417 and 10,356 Deferred Stock Units, respectively, all of which were issued pursuant to the Company’s Deferred Stock Unit Plan for Non-Employee Directors, effective April 1, 2017.

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Executive Compensation

Compensation Discussion and Analysis

This Compensation Discussion and Analysis (“CD&A”) describes our executive compensation program. It provides an overview of the 2022 compensation for the following named executive officers (“NEOs”), practices and policies, and how the Human Capital and Compensation Committee made its decisions.

2022 was another solid year for Generac:

* A full discussion of our use of non-U.S. generally accepted accounting principles measures to provide a baseline for evaluating and comparing our operating results, and a reconciliation of Adjusted EBITDA to net income can be found in Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Thanks to the collective efforts of our global team of approximately 9,500 employees, Generac achieved another year of strong revenue in 2022, notably exceeding the previous record levels seen last year. Revenue grew by approximately 22% over the prior year, marking our third consecutive year of double-digit increases, with strong growth in both our Residential and Commercial & Industrial (“C&I”) product categories in the full-year period. Additionally, our International segment achieved all-time highs in net sales, Adjusted EBITDA, and Adjusted EBITDA margin. However, our Residential product category faced some challenges during the second half of 2022 as softness in home standby generator shipments resulted from elevated levels of field inventory and sales of PWRcell energy storage systems were negatively impacted by the loss of a large customer that ceased operations and the overhang of certain quality-related concerns. In addition, Adjusted EBITDA margins for the Domestic segment during the year were impacted by higher-than-expected input costs due to supply chain challenges and the overall inflationary environment, as well as continued operating expense investments for future growth

 

EXECUTIVE COMPENSATION

and the impact of acquisitions. The combination of these factors resulted in the full-year 2022 financial performance for the company to come in below bonus threshold targets.

* A full discussion of our use of non-U.S. generally accepted accounting principles measures to provide a baseline for evaluating and comparing our operating results, and a reconciliation of Adjusted EBITDA to net income can be found in Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

(1)   Total Shareholder Return reflects the compound annual price appreciation of Generac shares expressed as a percentage.

Generac also made important progress on several key strategic initiatives in 2022, including:

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We began building a significantly deeper and more experienced energy technology leadership team, which we expect to lead the full integration of our energy technology investments under a common strategy.

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We continued to develop and invest in numerous new technologies and capabilities during the year, including taking a minority equity investment in Watt Fuel Cell, acquiring C&I connectivity capabilities via the purchase of Blue Pillar, and launching our “Single Pane of Glass” initiative, which is focused on developing the user interface, or central hub, of our smart home energy ecosystem.

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We brought multiple new solutions to market during the year as we began shipping our second-generation load control device called PWRmanager, launched a line of portable battery solutions called Portable Power Stations, and announced new electric vehicle (“EV”) charging solutions for utilities and EV owners.

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We repurchased more than 2.7 million shares during the second half of 2022, returning approximately $346 million of cash to stockholders.

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Our 2022 accomplishments across both our residential and C&I product categories furthered Generac’s evolution to an energy technology solutions company as we continue to execute against our ‘Powering a Smarter World’ enterprise strategy.

 

EXECUTIVE COMPENSATION

Generac’s Executive Compensation Practices

The following best practices ensure alignment between stockholders and executives while maintaining corporate governance.

 

EXECUTIVE COMPENSATION

ABOUT OUR EXECUTIVE COMPENSATION PROGRAM

2022 Executive Compensation Program Changes and Events

We remain focused on the continuous improvement of our executive compensation program to ensure alignment with our compensation philosophy, Powering a Smarter World Strategy, and shareholder interests, as well as market best practices. To this end, the Human Capital and Compensation Committee has made the following refinements to executive compensation:

Philosophy and Objectives

We believe that the compensation program for our executives should directly support the achievement of specific annual, long-term, and strategic goals of the business and, thereby, align the interests of executives with the interests of our stockholders. Our compensation program is designed to balance rewards for corporate, business, and individual results.

The program’s strong pay-for-performance alignment is an important part of our continuing commitment to enhancing long-term stockholder value.

 

EXECUTIVE COMPENSATION

We also believe that stockholders are best served when we can attract and retain high caliber executive talent. To that end, we offer competitive base salaries, as well as annual and long-term incentive opportunities, which encourage specific performance and reward the successful efforts of our executives. Within this context, the four major objectives for our executive compensation program are:

To achieve these objectives, we have structured a compensation program that provides our executives with the following:

The total direct compensation of our executives is market-based, and a significant portion of that compensation, including annual and long-term incentives, is also performance-based. The Human Capital and Compensation Committee believes this construct results in a fair level of pay for target performance, and an above-market opportunity if the executive team builds share value in a sustainable way. We target cash compensation (base salary and annual bonus) around the median of our market and compensation peer group, taking into account the relative responsibilities of our executives. In general, we target long-term incentives at or above the

 

EXECUTIVE COMPENSATION

market median to encourage the sustainability of the business and drive long-term stockholder value creation. This aligns with our approach to long-term financial goal setting in which the Company often sets performance goals above the median, and in some cases above the 75th percentile. Actual total compensation in any given year may be above or below the total target level based on individual and corporate performance.

Target Pay Mix

The charts below reflect the target pay mix for our CEO and average target pay mix for our other named executives, and show that the majority of the total target direct compensation for our NEOs in 2022 was variable and performance based:

HOW COMPENSATION DECISIONS ARE MADE

The Human Capital and Compensation Committee, composed solely of independent directors, is responsible for making executive compensation decisions for the named executive officers. The Human Capital and Compensation Committee works closely with its independent compensation consultant and management to examine pay and performance matters throughout the year.

Each year, the CEO and CFO establish a budget that is approved by the Board of Directors. The budget establishes financial targets and other performance-related goals, which gives the Human Capital and Compensation Committee a basis for approving financial targets under the annual incentive plans for the year. The Human Capital and Compensation Committee also reviews the basis for establishing goals and objectives related to the compensation of the named executive officers.

During this review, the Human Capital and Compensation Committee considers the balance between short-term cash compensation and long-term incentives and evaluates alignment of pay for performance in light of established goals and objectives. The Human Capital and Compensation Committee also considers profitable growth of the business and financial performance.

 

EXECUTIVE COMPENSATION

The Human Capital and Compensation Committee sets the CEO compensation based on that evaluation using market and peer group data to determine appropriate total direct compensation levels (consisting of base salary and annual and long-term incentives). The Human Capital and Compensation Committee also reviews and approves compensation for all executive officers using market data and in conjunction with recommendations from the CEO and EVP, Human Resources. See “Assessing External Market Practice” below for more information.

Finally, in making subjective evaluations of the overall performance of the CEO, the Human Capital and Compensation Committee considers performance from the perspective of our core values and our leadership principles, which include practicing integrity, driving innovation, demonstrating agility, operational excellence, developing our employees, and building a team environment.

The CEO and EVP, Human Resources also provide the Human Capital and Compensation Committee with additional analyses and recommendations related to compensation of the CFO, our other executive officers, and certain other key members of executive management. The annual analysis includes market compensation data and a review of factors such as industry knowledge, level of experience, scope and complexity of position, skill set, and future potential. Neither the CEO nor the EVP, Human Resources makes recommendations with respect to his or her own compensation.

In 2022, Willis Towers Watson provided advice to the Human Capital and Compensation Committee regarding base pay, peer group, benchmarking of unique job scopes, and annual and long-term incentive design, along with a variety of other compensation-related topics and trends. The Human Capital and Compensation Committee has assessed the independence of Willis Towers Watson pursuant to the SEC rules and concluded that no conflict of interest exists that would prevent Willis Towers Watson from independently advising the Human Capital and Compensation Committee.

Attracting and incentivizing high caliber executive talent is a critical part of our compensation philosophy and leadership strategy. Therefore, integral to our approach for setting compensation levels is ensuring we have a competitive pay framework. In support of this objective, Willis Towers Watson annually provides the Human Capital and Compensation Committee with compensation data with respect to similarly sized manufacturing and technology companies in the identified peer group and amongst similarly sized general and technology industry companies from a published survey perspective. In 2022, the Human Capital and Compensation Committee considered both sources in determining competitive total direct compensation benchmarks for our CEO, CFO and for the EVPs of our business groups. Published industry-specific market survey data was considered in determining market total direct compensation benchmarks for all other executive officers. The Human Capital and Compensation Committee has generally targeted the market median for total cash compensation of our named executive officers, with the opportunity to meet or exceed market median if the Company achieves outstanding financial performance in a particular year. The Human Capital and Compensation has targeted long-term incentive grant values at or above market median, which may result in total direct compensation at or above the market median with outstanding financial performance.

Peer group composition is also reviewed annually. In September 2022, the Human Capital and Compensation Committee engaged Willis Towers Watson to evaluate the peer group to ensure

 

EXECUTIVE COMPENSATION

alignment with the company’s energy technology strategy and recent growth. Following the review, the Human Capital and Compensation Committee approved changes to remove three companies, Altra Industrial Motion Corporation, Itron, and Watts Water Technologies, due to the companies’ different scopes and their size being outside of our financial parameters. The Human Capital and Compensation Committee also approved the addition of five new companies, including Brookfield Renewable Corporation, Dover Corporation, Ingersoll Rand, Inc., Skyworks Solutions Inc., and Xylem, Inc., which are other general industrials that fall within our financial parameters. Following these changes, the Human Capital and Compensation Committee examined the compensation practices of the following peer group companies for 2023 compensation decisions:

Companies highlighted are new, effective September 2022.

During 2022, we met with various stockholders to discuss corporate governance, executive compensation, and other matters. The Board and the Human Capital and Compensation Committee have considered, and will continue to seriously consider, feedback from these discussions as we review and evaluate our corporate governance practices and executive compensation programs.

 

EXECUTIVE COMPENSATION

2022 EXECUTIVE COMPENSATION PROGRAM
DECISIONS

Base Salary

The Human Capital and Compensation Committee reviews and approves base salary levels for all named executive officers at the beginning of each year. The following decisions reflect the Human Capital and Compensation Committee’s consideration of external market practices, company performance, peer and published survey data, and other factors, including the executive’s industry knowledge, level of experience, scope, complexity of position, skill set, performance, and future potential.

In early March 2022, the Human Capital and Compensation Committee addressed market considerations and recognized the sustained strong performance and strategic contributions of Mr. Jagdfeld with an increase in base salary to $1,050,000. The Human Capital and Compensation Committee also increased the base salary for Messrs. Ragen, Forsythe and Wilde to $525,000, $430,000, and $420,000, respectively. The increases for Messrs. Ragen and Wilde recognize performance and further align their pay to market competitive levels. Mr. Taffe joined the Company in August of 2022.

No 2023 pay changes for NEOs were approved by the Human Capital and Compensation Committee at this time.

Annual Performance Bonus Plan

Under the Annual Performance Bonus Plan, the Human Capital and Compensation Committee approved the financial targets of the 2022 Annual Incentive Plan (“AIP”). Consistent with prior years, the annual incentive is calculated as a percentage of base salary and is paid in cash.

In February 2022, the Human Capital and Compensation Committee increased Mr. Jagdfeld’s Target Bonus from 125% to 130% and Mr. Wilde’s Target Bonus from 65% to 75%, to further align their pay to market competitive levels. The Threshold, Target, and Maximum Bonus opportunities for each NEO are as follows:

 

EXECUTIVE COMPENSATION

For 2022, the AIP financial metrics used in the plan did not change as the Human Capital and Compensation Committee felt the plan effectively connected the CEO, our executives, and our employees to our strategy and appropriate financial metrics for managing the business. The two financial metrics used include: Adjusted EBITDA (excluding the impact of acquisitions that occurred during the performance period and before deduction for noncontrolling interests) and Primary Working Capital (“PWC”) as a percentage of net sales. Individual performance goals (“IPG”) continued to be the third and nonfinancial metric. The Human Capital and Compensation Committee approved an adjustment of the Threshold payout level from 40% to 50% for the financial metrics of Adjusted EBITDA and PWC, and retained a payout of 80% at Threshold for the IPG portion.

Executive officers with enterprise responsibilities, including all NEOs other than Mr. Wilde, had 100% of their cash incentive tied to the enterprise’s consolidated financial performance. 75% of Mr. Wilde’s cash incentive was tied to specific business group performance, as described further below. The weighting of the metrics for those responsible for enterprise performance is as follows:

2022 Annual Performance Bonus Plan Results

The 2022 consolidated financial targets for Adjusted EBITDA and PWC were $1,167.7 million and 24.0%, respectively. IPG goals for named executive officers in 2022 were based on achieving these financial targets, improving energy resilience and independence, optimizing energy efficiency and consumption, protecting and building critical infrastructure, culture and employee engagement, customer experience, continuous improvement, and technology leadership. For 2022, we incorporated ESG goals into the IPGs for our named executive officers, which address the design and development of our ESG programs, goals, initiatives, and metrics.

Achievement of the above-stated financial targets under the AIP would result in a 100%-of-Target payout for the three components in the plan, assuming 100% achievement of IPGs. Under the AIP, the consolidated Adjusted EBITDA (excluding the impact of acquisitions that occurred during the performance period and before deduction for noncontrolling interests) was $824.7 million, which was well below Threshold for the Adjusted EBITDA portion. The IPG portion of the AIP is paid out at the same level of achievement as that achieved for Adjusted EBITDA, subject to adjustments for each NEO’s performance against certain defined and measurable goals established at the commencement of the year and developed to achieve specific initiatives related to the Company’s long-term strategy. The Company’s PWC, excluding the impact of acquisitions, was 33.6%, which also fell well below Threshold for the PWC portion. As a result, there was no AIP payment for 2022 for those with enterprise responsibilities, including Messrs. Jagdfeld, Ragen, Forsythe, and Taffe.

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*

Adjusted EBITDA under the AIP excludes the impact of acquisitions that occurred during the performance period and is calculated before deduction for noncontrolling interests.

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EXECUTIVE COMPENSATION

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*

Achievement percentages are inclusive of each NEO’s IPG ratings

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Under the AIP, Mr. Wilde was measured on a combination of business group and consolidated financial targets (25% business group Adjusted EBITDA, 25% business group PWC, 25% consolidated Adjusted EBITDA, and 25% Individual Performance Goals). As a result, Mr. Wilde received an overall AIP payment of 34.9% of his Target Bonus. This payment is slightly below his Threshold amount, reflecting achievement of Threshold for two of the four AIP financial metrics — business group Adjusted EBITDA and IPG. The remaining two metrics, business group PWC and consolidated Adjusted EBITDA, fell below Threshold achievement.

The Human Capital and Compensation Committee maintains its discretion to adjust the annual performance bonuses, regardless of the outcome under incentive bonus formulas. For 2022, the Human Capital and Compensation Committee made no adjustments or modifications to the financial targets or payouts.

Long-Term Incentives

Generac believes that equity awards and other forms of long-term incentive compensation are a critical component of a competitive, comprehensive executive compensation program, and thus as a component of annual compensation for NEOs.

Our long-term incentive program (“LTIP”) is designed to reward our executives for their contribution to the Company’s long-term growth and performance, and to better align the interests of our named executive officers with those of our stockholders. In addition, our long-term awards are used to attract and retain critical employee talent by providing a competitive market-based opportunity.

For the grants made in 2022, the Company granted to the named executive officers a combination of stock options, restricted stock, and performance share awards, as follows:

•

Thirty-three percent (33.3%) of the award was granted in the form of performance shares. Named executive officers may earn from 0% to 200% of their target performance share awards based on the achievement of specified revenue growth, EBITDA margin, and Free Cash Flow Conversion goals. Each performance share has a value equal to a share of common stock and the number of shares that can be earned is contingent upon Company performance, over a three-year performance period, against goals approved by the Human Capital and Compensation Committee.

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•

Thirty-three percent (33.3%) of the award was granted in the form of restricted stock, with those shares vesting equally over the three anniversaries immediately following the date of grant.

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•

Thirty-three percent (33.4%) of the award was granted in the form of stock options, with those options vesting equally over the four anniversaries immediately following the date of grant.

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EXECUTIVE COMPENSATION

2022 Long-Term Equity Incentive Mix

For 2022, the LTIP awards granted to the NEOs were as follows:

2022 Long-Term Equity Awards

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(1)

Represents value of time-vested stock options at March 2022 grant date.

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(2)

Represents value of time-vested restricted stock at March 2022 grant date.

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(3)

Represents value of performance shares at March 2022 grant date.

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(4)

Mr. Taffe was hired on August 22, 2022. This represents the value of equity awards approved by the Human Capital and Compensation Committee, to be granted to Mr. Taffe effective September 1, 2022. The equity award included $500,000 in restricted stock that vests in equal installments on the first three anniversaries of the grant date, and performance shares valued at $1.5 million, at target achievement level, with a 3-year performance period ending December 31, 2026. Other than the use of financial metrics tied to the Company’s Energy Technology business for measuring target achievement and share payout, the awards have the same vesting terms and conditions as the performance shares received by other executives in 2022.

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2020-2022 Performance Share Results

The named executive officers held performance shares granted in 2020 that vested based on results during the three-year, 2020 to 2022 performance period. This grant was intended to encourage target revenue growth measured in compound annual growth rate (“CAGR”), target Adjusted EBITDA margin percentages, and Free Cash Flow (“FCF”) Conversion percentages for 2020 to 2022. Specifically, if revenue growth (CAGR), average Adjusted EBITDA margin percentages, and FCF Conversion percentages during the period were achieved within a defined target range on a performance matrix, the named executive officers would earn from

 

EXECUTIVE COMPENSATION

50% to 200% of their target performance share awards. The revenue growth (CAGR), Adjusted EBITDA margin, and FCF Conversion targets were set at a level, given business conditions at the time the awards were granted, that were designed to be challenging but achievable with strong management performance. After the conclusion of the three-year period, the performance share targets were measured against actual financial results for Generac, excluding any businesses acquired during the three-year period. For the three-year period from 2020 to 2022, the Human Capital and Compensation Committee determined and approved a final payout equal to 133.2% of target, out of a maximum of 200%. The Minimum, Target, and Maximum financial performance metrics and the actual results for the 2020 to 2022 performance awards are reflected below:

OTHER PRACTICES, POLICIES & GUIDELINES

Clawback and Hedging Policies

Effective April 2019, the Company adopted a formal “clawback” policy applicable to annual and long-term incentive awards made to the CEO, CFO and any other key member of executive management as identified by the board or CEO. Under this policy, the Company may seek to recoup incentive compensation paid to covered employees to the extent that such compensation was granted, vested, or earned based on financial results that the Company is required to restate as a result of material noncompliance with any financial reporting requirement under federal securities laws.

In March 2022, the Company expanded the policy to allow recoupment of incentive compensation paid in the event of gross negligence in performance or misconduct resulting in a violation of law or Company policy, where such acts resulted in significant financial or reputational harm to the Company. The Company expects to revise its compensation recovery policy in the next year to comply with new NYSE and SEC rules.

In addition, under our insider trading policy, officers, employees, and members of the Board of Directors may not engage in short-selling Company common stock at any time. Such individuals are also prohibited from pledging Company securities, including holding Company securities in a margin account, and from engaging in hedging transactions. The prohibition on hedging transactions covers all officers, employees and members of the Board of Directors, and their designees, and prohibits the purchase of any financial instruments (including prepaid variable forward contracts, equity swaps, collars and exchange funds) and other transactions that hedge or offset, or are designed to hedge or offset, any decrease in the market value of the Company’s securities. The prohibition on hedging does not preclude general portfolio diversification or investing in broad-based index funds.

Stock Ownership Guidelines

The Human Capital and Compensation Committee believes that it is in the best interest of Generac and its stockholders to align the financial interests of the Company’s officers and directors with those of Generac’s stockholders by requiring officers and directors to establish and maintain a permanent minimum ownership position in Company stock (based on the market

 

EXECUTIVE COMPENSATION

value of our common stock), and by limiting the ability to sell Company stock until guideline ownership levels have been achieved. In addition, the Human Capital and Compensation Committee believes that the investment community values stock ownership by such officers and that share ownership demonstrates a commitment to and belief in the long-term strategic direction of Generac. Accordingly, stock ownership guidelines have been established for the Company’s officers and directors, including all the named executive officers.

In June 2022, the Human Capital and Compensation Committee revised the top executive ownership requirements, excluding the CEO, from 2.0X to 3.0X annual base salary. The current stock ownership guidelines are as follows:

Executives are expected to build ownership value over time as a result of their performance and participation in the Company’s equity compensation programs. Under the guidelines, no time period is specified for compliance by officers. The following retention ratios apply to each executive based on years of service and percentage of the guideline that has been achieved. Under the stock ownership guidelines, (i) an executive that has met 50% of the multiple of salary guideline and has less than five years of service has a 50% retention ratio, (ii) an executive that has met 50% of the multiple of salary guideline and has five or more years of service has a 25% retention ratio and (iii) an executive that has met less than 50% of the multiple of salary guideline has a 75% retention ratio. The Human Capital and Compensation Committee assesses progress towards meeting the guidelines on an annual basis. As of March 31, 2023, four out of five NEOs, including the CEO and CFO, have met their ownership guidelines.

Outside directors have five years to meet their minimum ownership requirement. As of March 31, 2023, all Directors are compliant with the applicable stock ownership guidelines.

Benefits and Perquisites

Generac does not provide special medical, dental, insurance or disability benefits for the named executive officers beyond that offered to all employees. In addition, Generac does not offer special perquisites for any of the named executive officers.

Retirement Plans

The named executive officers are eligible to participate in the Generac Power Systems, Inc. Employees 401(k) Savings Plan on the same terms as other participating employees.

 

Report of the Human Capital and Compensation Committee

The Human Capital and Compensation Committee has reviewed and discussed the “EXECUTIVE COMPENSATION — Compensation Discussion and Analysis” section with our management. Based upon this review and discussion, the Human Capital and Compensation Committee recommended to the Board of Directors that the “EXECUTIVE COMPENSATION — Compensation Discussion and Analysis” section be included in this Proxy Statement, which has been incorporated by reference in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Respectfully submitted by the Human Capital and Compensation Committee of the Board of Directors.

Marcia Avedon, Chair
John Bowlin
William Jenkins
Bennett Morgan
Dominick Zarcone

 

 

2022 Summary Compensation Table

The following table shows compensation information for 2020, 2021 and 2022 for our named executive officers.

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(1)

The amounts reported for 2022 represent the aggregate grant date fair value for awards of restricted stock, stock options, and performance shares and are computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Subtopic 718. See Note 17 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of the relevant assumptions used in calculating these amounts. All amounts represent potential future income calculated for financial reporting purposes; actual amounts recognized by the named executive officers may be materially different depending on, among other things, the Company’s stock price performance and the period of service of the executive. The Stock Award amounts are composed in equal measure of restricted stock and performance shares, with the performance share portion assuming target performance by the Company during the relevant performance period. Assuming achievement of maximum performance during the relevant performance period for the performance shares, the Stock Award amounts provided would increase by a multiplier of 1.5.

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(2)

The non-equity incentive plan compensation column reflects cash incentive awards earned pursuant to our Annual Performance Bonus Plan as previously described. These awards are earned during the year reflected and paid in the following year.

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(3)

All other compensation represents the employer matching contributions and employer nonelective contributions of the defined contribution plan.

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Grants of Plan-Based Awards in 2022

The following table indicates potential cash incentive compensation under our Annual Performance Bonus Plan based on 2022 performance and equity awards granted in 2022.

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(1)

Under the Annual Performance Bonus Plan, the Human Capital and Compensation Committee approved the 2022 AIP. For additional information regarding the AIP, please see the Compensation Discussion and Analysis above.

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(2)

Represents an award of performance shares that vests between 50% to 200% of target on the third anniversary of the grant date if certain Company performance goals relating to the 2022-2024 performance period are met.

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(3)

Represents an award of restricted stock, vesting in equal installments on each anniversary of the date of grant over three years.

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(4)

Represents an award of stock options, vesting 25% on each anniversary of the date of grant over four years.

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(5)

The grant date fair values were computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Subtopic 718. See Note 17 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of the relevant assumptions used in calculating these amounts.

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2022 Outstanding Equity Awards at Fiscal Year-End

The following table sets forth information regarding outstanding equity awards held by our named executive officers as of December 31, 2022: