UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

Filed by the Registrant  ☒                    Filed by a Party other than the Registrant  ☐

Check the appropriate box:

☐	Preliminary Proxy Statement

☐	Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

☒	Definitive Proxy Statement

☐	Definitive Additional Materials

☐	Soliciting Material Pursuant to §240.14a-12

KONTOOR BRANDS, INC.

(Name of registrant as specified in its charter)

(Name of person(s) filing proxy statement, if other than the registrant)

Payment of Filing Fee (Check the appropriate box):

 

☒		No fee required.
☐		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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:

 

 

 

 

		Letter to Shareholders

March 9, 2021

Dear Shareholders:

On behalf of the Board of Directors and the leadership team, I am pleased to invite you to attend the Kontoor Brands, Inc. 2021 Annual Meeting of Shareholders (the “Annual Meeting”) on Tuesday, April 20, 2021, at 11:00 a.m., Eastern Time, to be held live via the Internet at www.proxydocs.com/KTB. The format of the Annual Meeting will be a virtual-only meeting, instead of an in-person meeting, due to continued public health precautions regarding in-person gatherings and to support the health and well-being of shareholders and company personnel given the COVID-19 pandemic. Shareholders will not be able to attend the Annual Meeting in person.

Attached to this letter are a Notice of Annual Meeting of Shareholders and a Proxy Statement, which describe the business to be conducted at the Annual Meeting. We also will report on matters of current interest to our shareholders.

In accordance with the Securities and Exchange Commission rules allowing companies to furnish proxy materials to their shareholders over the Internet, we have sent shareholders of record at the close of business on February 16, 2021 a Notice of Internet Availability of Proxy Materials (“Notice”) on or about March 9, 2021. The Notice contains instructions on how to access our Proxy Statement and Annual Report and vote online. If you would like to receive a printed copy of these proxy materials from us instead of downloading a printable version from the Internet, please follow the instructions for requesting such materials included in the Notice, as well as in the attached Proxy Statement.

We have designed the format of the Annual Meeting to ensure that shareholders are afforded the same rights and opportunities to participate as they would at an in-person meeting, using online tools to ensure shareholder access and participation. To attend the Annual Meeting, shareholders must register in advance, using their control number and other information, at www.proxydocs.com/KTB prior to the deadline of Friday, April 16, 2021, at 5:00 p.m., Eastern Time. Upon completing registration, shareholders will receive further instructions by e-mail, including links that will allow them to access the Annual Meeting, submit questions, and vote online during the Annual Meeting.

Beginning one hour prior to, and during, the Annual Meeting, support will be available to assist shareholders with any technical difficulties they may have accessing, hearing or participating in the virtual meeting. If participants encounter any difficulty accessing, or during, the virtual meeting, they should call the support team at the numbers listed on the e-mailed instructions.

Your vote is important to us. To ensure that you will be represented, we ask you to vote your shares on the Internet, by telephone or by mail as soon as possible, or you may vote during the live webcast of the Annual Meeting. Voting on the Internet, by telephone or by mail does not deprive you of your right to attend the Annual Meeting. If you do attend the Annual Meeting and wish to vote your shares personally, you may revoke your proxy at or prior to the Annual Meeting.

I thank you for your continued support of our company.

Sincerely,

 

 

Scott Baxter

President and Chief Executive Officer

 

 

 

		Notice of Annual Meeting of Shareholders

To Be Held April 20, 2021

March 9, 2021

To the Shareholders of Kontoor Brands, Inc.:

The 2021 Annual Meeting of Shareholders of Kontoor Brands, Inc. will be held live virtually via the Internet at www.proxydocs.com/KTB, on Tuesday, April 20, 2021, at 11:00 a.m., Eastern Time, for the following purposes:

 

1.	to elect two Class II directors for a term ending at the 2023 annual meeting of shareholders;

 

2.	to ratify the appointment of PricewaterhouseCoopers LLP as Kontoor’s independent registered public accounting firm for the fiscal year ending January 1, 2022;

 

3.	to approve the compensation of Kontoor’s named executive officers as disclosed in this Proxy Statement; and

 

4.	to transact such other business as may properly come before the meeting and any adjournments thereof.

A copy of Kontoor’s Annual Report for the fiscal year ended January 2, 2021 is included for your information.

Only shareholders of record as of the close of business on February 16, 2021 are entitled to notice of and to vote at the meeting.

To attend the Annual Meeting, shareholders must register in advance, using their control number and other information, at www.proxydocs.com/KTB prior to the deadline of Friday, April 16, 2021, at 5:00 p.m., Eastern Time. Upon completing registration, shareholders will receive further instructions by e-mail, including links that will allow them to access the Annual Meeting, submit questions, and vote online during the Annual Meeting. Shareholders will not be able to attend the Annual Meeting in person.

By Order of the Board of Directors

 

 

Laurel Krueger

Executive Vice President,

General Counsel and Corporate Secretary

YOUR VOTE IS IMPORTANT

You are urged to vote your shares in advance via the Internet, through our toll-free telephone number, or by signing, dating and promptly returning your completed proxy card.

 

		2021 Notice of Annual Meeting of Shareholders

 

		Table of Contents

 

Proxy Statement Summary			1
General Information			1
Spin-Off			1
Annual Meeting			1
Voting Roadmap			2
Voting Matters			3
Who May Vote			3
What Constitutes a Quorum			3
Proposals to be Voted On			3
Votes Required			3
How Votes are Counted			4
Board Recommendations			4
How to Vote			5
How to Change Your Vote or Revoke Your Proxy			6
Proposal No. 1—Election of Directors			7
Executive Officers			13
Corporate Governance			14
Corporate Governance Principles			14
Director Orientation and Continuing Education			14
Related Person Transactions Policy			15
Corporate Governance Documents			15
Code of Conduct			15
Board Leadership Structure			15
Director Independence			16
Annual Board Evaluation Process			16
Board Meetings and Attendance			16
Executive Sessions			17
Board Committees			17
Talent and Compensation Committee Interlocks and Insider Participation			19
Board Oversight of Risk			19
Policy Against Hedging and Pledging Company Securities			20
Communications with Directors			20
Corporate Sustainability and Responsibility			20
Director Compensation			22
Director Compensation Table			23
Executive Compensation			24
Compensation Discussion and Analysis			24
Compensation Committee Report			40
Summary Compensation Table			41

 

i

 

2020 Grants of Plan-Based Awards			43
Outstanding Equity Awards at Fiscal Year-End 2020			45
2020 Option Exercises and Stock Vested			48
2020 Nonqualified Deferred Compensation			48
Potential Payments Upon Change in Control, Retirement or Termination of Employment			49
2020 Equity Compensation Plan Information Table			54
Security Ownership of Certain Beneficial Owners and Management			55
Proposal No. 2—Ratification of Appointment of Independent Registered Public Accounting Firm			57
Report of the Audit Committee			58
Proposal No. 3—Approval of Named Executive Officer Compensation on a Non-Binding Advisory Basis (“Say-on-Pay Vote”)			59
Additional Information			60
Solicitation of Proxies			60
Shareholder Proposals and Nominations for the 2022 Annual Meeting of Shareholders			60
Householding			60
Other Matters			61
Appendix A			A-1

 

ii

 

		Proxy Statement Summary

This summary highlights certain information about Kontoor Brands, Inc. (the “Company,” “Kontoor,” “we,” “us” or “our”) contained in this proxy statement (“Proxy Statement”), but does not contain all the information that you should consider when casting your vote. Please review this entire Proxy Statement as well as our Annual Report for the fiscal year ended January 2, 2021 (“Annual Report”) carefully before voting.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY

MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD

ON APRIL 20, 2021

This Proxy Statement and our Annual Report are available at

www.proxydocs.com/KTB

General Information

The Board of Directors of the Company (the “Board”) is furnishing you this Proxy Statement to solicit proxies, on its behalf, to be voted at the Company’s 2021 Annual Meeting of Shareholders (the “Annual Meeting”) to be held on Tuesday, April 20, 2021, at 11:00 a.m., Eastern Time, via the Internet at www.proxydocs.com/KTB, and at any adjournments thereof. The format of the Annual Meeting will be a virtual-only meeting, instead of an in-person meeting, due to continued public health precautions regarding in-person gatherings and to support the health and well-being of shareholders and company personnel given the COVID-19 pandemic. Shareholders will not be able to attend the Annual Meeting in person.

The Board has made this Proxy Statement and our Annual Report available to you over the Internet at www.proxydocs.com/KTB or, upon your request, has mailed you a printed version of these proxy materials in connection with the Annual Meeting. We mailed the Notice of Internet Availability of Proxy Materials (the “Notice”) to our shareholders, and this Proxy Statement and our Annual Report were posted to the above-referenced website, on or about March 9, 2021.

Spin-Off

On May 22, 2019, VF Corporation (“VF”) completed the spin-off of its Jeanswear business, which included the Wrangler, Lee and Rock & Republic brands, as well as the VF Outlet business. The spin-off transaction (the “Spin-Off”) was effected through a pro-rata distribution to VF shareholders of one share of Kontoor common stock for every seven shares of VF common stock held on the record date of May 10, 2019. Kontoor began to trade as a standalone public company on the New York Stock Exchange (the “NYSE”) under the ticker symbol “KTB” on May 23, 2019.

Although Kontoor and VF have operated as separate companies since the Spin-Off, rules and regulations of the Securities and Exchange Commission (the “SEC”) and/or the NYSE require that we provide certain information (including compensation information) regarding our executive officers and directors for the period of time prior to the Spin-Off (including for service to VF). We have endeavored to clearly indicate for you throughout this Proxy Statement what information relates to Kontoor prior to the Spin-Off and where we have changed our approach.

Annual Meeting

 

Time and Date:		11:00 a.m., Eastern Time, Tuesday, April 20, 2021
Webcast Address:		Annual Meeting to be held live virtually via the Internet—please visit www.proxydocs.com/KTB for more details.
Record Date:		February 16, 2021

 

 

1

 

Proxy Statement Summary

 

Voting Roadmap

 

Proposal		Board Recommendation		Page Reference
Proposal No. 1: Election of two Class II Directors for a term ending at the 2023 annual meeting of shareholders		The Board recommends a vote “FOR” each of the director nominees.		See “Proposal No. 1—Election of Directors” beginning on page 7 of this Proxy Statement.
Proposal No. 2: Ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending January 1, 2022		The Board recommends a vote “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending January 1, 2022.		See “Proposal No. 2—Ratification of Appointment of Independent Registered Public Accounting Firm” beginning on page 57 of this Proxy Statement.
Proposal No. 3: Approval of the compensation of our named executive officers on a non-binding advisory basis (“Say-on-Pay vote”)		The Board recommends a vote “FOR” the approval of the compensation of our named executive officers on a non-binding advisory basis.		See “Proposal No. 3—Approval of Named Executive Officer Compensation on a Non-Binding Advisory Basis (“Say-on-Pay Vote”)” beginning on page 59 of this Proxy Statement.

 

2

 

 

 

		Voting Matters

Who May Vote

If, at the close of business on February 16, 2021 (the “Record Date”), you held shares (a) directly in your name as a shareholder of record or (b) through a broker, bank or other nominee (shares held in “street name”), you have one vote for each such share of Kontoor common stock and may vote your shares by proxy via the Internet, by telephone or by mail, or you may vote your shares during the live webcast of the Annual Meeting. For shares held in street name, you generally cannot vote your shares directly and instead may vote by submitting voting instructions to your broker, bank or other nominee. Please refer to information from your broker, bank or other nominee on how to submit voting instructions. As of the close of business on the Record Date, approximately 57,390,649 shares were outstanding and entitled to vote.

What Constitutes a Quorum

The presence, on the live webcast of the Annual Meeting or by proxy, of the holders of a majority of the outstanding shares entitled to cast a vote on a particular matter to be acted upon at the Annual Meeting constitutes a quorum for the purposes of consideration and action on the matter. Abstentions are counted as present and entitled to vote for purposes of determining a quorum. Shares represented by “broker non-votes” also are counted as present and entitled to vote for purposes of determining a quorum. However, as described below under “How Votes are Counted,” if you hold your shares in street name and do not provide voting instructions to your broker, your shares will not be voted on any proposal on which your broker does not have discretionary authority to vote (a “broker non-vote”).

Proposals to be Voted On

We are asking you to vote on the following:

 

•

Proposal No. 1: Election of two Class II directors for a term ending at the 2023 annual meeting of shareholders;

 

•

Proposal No. 2: Ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending January 1, 2022; and

 

•

Proposal No. 3: Approval of the compensation of our named executive officers on a non-binding advisory basis (“Say-on-Pay vote”).

Votes Required

For Proposal No. 1, you may vote “FOR” both director nominees or “WITHHOLD” your vote for either or both of the director nominees. Proposal No. 1 requires that each director is elected by the vote of the majority of the votes cast with respect to the director at a meeting at which a quorum is present. This means that the number of shares voted “FOR” a director must exceed the number of “WITHHOLD” votes with respect to that director. Abstentions and broker non-votes will have no effect on the election of directors.

For Proposal No. 2, you may vote “FOR” or “AGAINST” or abstain from voting. Proposal No. 2 requires the affirmative vote of the holders of a majority of the shares cast at a meeting at which a quorum is present. Abstentions will not be considered as votes cast and, as a result, will not have any effect on the proposal. Because the ratification of the appointment of the independent registered public accounting firm is considered a routine matter, there will be no broker non-votes with respect to Proposal No. 2, and a broker will be permitted to exercise its discretion to vote uninstructed shares on Proposal No. 2.

For Proposal No. 3, you may vote “FOR” or “AGAINST” or abstain from voting. Proposal No. 3 requires the affirmative vote of the holders of a majority of the shares cast at a meeting at which a quorum is present. Proposal No. 3 is advisory in nature and non-binding, and the Board will review the voting results and expects to take them into consideration when making future decisions regarding executive compensation. Abstentions and broker non-votes will not be considered as votes cast and, as a result, will not have any effect on Proposal No. 3.

 

 

3

 

Voting Matters

 

How Votes are Counted

For shareholders of record, all shares represented by the proxies will be voted at the Annual Meeting in accordance with instructions given by the shareholders. Where a shareholder returns its proxy and no instructions are given with respect to a given matter, the shares will be voted: (1) “FOR” the election of the Board’s director nominees; (2) “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending January 1, 2022; (3) “FOR” the approval of the compensation of our named executive officers; and (4) as recommended by the Board or, if no recommendation is given, in the discretion of the proxy holders upon such other business as may properly come before the Annual Meeting. If you are a shareholder of record and you do not return your proxy, no votes will be cast on your behalf on any of the items of business at the Annual Meeting.

For beneficial owners of shares held in street name, the brokers, banks or other nominees holding shares for beneficial owners must vote those shares as instructed. Absent instructions from you, brokers, banks and other nominees may vote your shares only as they decide as to matters for which they have discretionary authority under the applicable NYSE rules. A broker, bank or other nominee does not have discretion to vote on the election of directors or approval of the compensation of our named executive officers. If you do not instruct your broker, bank or other nominee how to vote on those matters, no votes will be cast on your behalf on Proposal No. 1 or Proposal No. 3. Your broker will be entitled to vote your shares in its discretion, absent instructions from you, on Proposal No. 2.

Board Recommendations

Our Board recommends that you vote your shares:

 

•

“FOR” each of the director nominees set forth in this Proxy Statement;

 

•

“FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending January 1, 2022; and

 

•

“FOR” the approval of the compensation of our named executive officers.

 

4

 

 

		Voting Matters

 

How to Vote

If you are a shareholder of record or hold shares in street name and are voting by proxy, please refer to your proxy card or other information forwarded by your bank, broker or other nominee to see when your vote, or voting instructions if you hold shares in street name, must be received. All proxies must be received by Kontoor by 11:59 p.m., Eastern Time, on April 19, 2021 to be counted.

IF YOU ARE A SHAREHOLDER OF RECORD, YOU MAY VOTE BY GRANTING A PROXY. TO VOTE BY PROXY:

 

By Internet   Go to the website www.proxypush.com/KTB and follow the instructions on how to complete an electronic proxy card, 24 hours a day, seven days a week. You will need the 12-digit number included on your Notice or proxy card to vote by Internet.		By Telephone   From a touch-tone telephone, dial 866-390-5386 and follow the recorded instructions, 24 hours a day, seven days a week. You will need the 12-digit number included on your Notice or proxy card in order to vote by telephone.		By Mail   Request a proxy card from us by following the instructions on your Notice. When you receive the proxy card, mark your selections on the proxy card. Date and sign your name exactly as it appears on your proxy card. Mail the proxy card in the enclosed postage-paid envelope provided to you, or return it to:   PROXY TABULATOR FOR Kontoor Brands, Inc. P.O. Box 8016 Cary, NC 27512-9903

If you hold your shares in street name, you may submit voting instructions to your broker, bank or other nominee. In most instances, you will be able to do this over the Internet, by telephone or by mail. Please refer to information from your bank, broker or other nominee on how to submit voting instructions.

If you receive more than one Notice, it generally means you hold shares registered in more than one account. To ensure that all your shares are voted, please sign and return each proxy card or, if you vote by Internet or telephone, vote once for each Notice you receive.

During the Annual Meeting

We have designed the format of the Annual Meeting to ensure that shareholders are afforded the same rights and opportunities to participate as they would at an in-person meeting, using online tools to ensure shareholder access and participation. To submit questions and vote during the live webcast of the Annual Meeting, you must first register at www.proxydocs.com/KTB, using your control number and other information, at www.proxydocs.com/KTB prior to the deadline of Friday, April 16, 2021, at 5:00 p.m. Eastern Time. Upon completing your registration, you will receive further instructions via email, including your unique link that will allow you to access the Annual Meeting and vote online during the meeting. Please be sure to follow instructions found on your proxy card or other information forwarded by your bank, broker or other nominee and subsequent instructions that will be delivered to you via email.

Beginning one hour prior to, and during, the Annual Meeting, support will be available to assist shareholders with any technical difficulties they may have accessing, hearing or participating in the virtual meeting. If participants encounter any difficulty accessing, or during, the virtual meeting, they should call the support team at the numbers listed on the e-mailed instructions.

Even if you plan to attend the Annual Meeting, we encourage you to vote in advance by Internet, telephone or mail so that your vote will be counted even if you later decide not to attend the Annual Meeting.

 

 

5

 

Voting Matters

 

How to Change Your Vote or Revoke Your Proxy

If you are a shareholder of record, you may change your vote or revoke your proxy by:

 

•

sending a written statement to that effect to our Corporate Secretary, provided such statement is received no later than April 19, 2021;

 

•

voting again by Internet or telephone at a later time before the closing of those voting facilities at 11:59 p.m., Eastern Time, on April 19, 2021;

 

•

submitting a properly signed proxy card to: PROXY TABULATOR FOR Kontoor Brands, Inc., P.O. Box 8016, Cary, NC 27512-9903, with a later date that is received no later than April 19, 2021; or

 

•

registering prior to the deadline of Friday, April 16, 2021, at 5:00 p.m. Eastern Time, attending the Annual Meeting, revoking your proxy and voting during the live webcast of the Annual Meeting.

If you hold shares in street name, you may submit new voting instructions by contacting your bank, broker or other nominee. You may also change your vote or revoke your proxy during the live webcast of the Annual Meeting if you obtain a signed proxy from the record holder (broker, bank or other nominee) giving you the right to vote the shares.

 

6

 

 

 

		Proposal No. 1 Election of Directors

The seven individuals named below currently serve on our Board of Directors. Richard Carucci, a Class II director, will not be standing for re-election to the Board at the Annual Meeting. Kontoor acknowledges and thanks Mr. Carucci for his outstanding service on the Board. Following the conclusion of the Annual Meeting, the size of the Board will be decreased from seven directors to six directors.

 

Name		Principal Occupation		Audit Committee		Talent and Compensation Committee		Nominating  and Governance Committee
Robert Shearer Chair of the Board		Retired; Former Senior Vice President and Chief Financial Officer, VF Corporation		Chair
Scott Baxter		President and Chief Executive Officer, Kontoor Brands, Inc.
Kathleen Barclay		Retired; Former Chief Human Resources Officer and Senior Vice President, Kroger Co.				Chair		Member
Richard Carucci		Retired; Former President, Yum! Brands, Inc.		Member				Member
Juliana Chugg		Retired; Former EVP, Chief Brands Officer, Mattel, Inc.				Member		Chair
Robert Lynch		President and Chief Executive Officer, Papa John’s International, Inc.		Member		Member
Shelley Stewart, Jr.		Retired; Former Chief Procurement Officer, E.I. du Pont de Nemours & Co.		Member				Member
Number of Meetings Held in Fiscal 2020		Board—18		9		6		4

BOARD DIVERSITY

(following the Annual Meeting)

 

 

The directors are currently divided into three classes. There are currently two Class I directors, three Class II directors, and two Class III directors. At the Annual Meeting, you will be asked to elect two Class II directors: Ms. Barclay and Mr. Lynch. Both of the director nominees currently serve as Class II directors whose terms of office expire at the Annual Meeting and, if elected at the Annual Meeting, will serve for a term of office to expire at the annual meeting of shareholders to be held in 2023.

 

 

7

 

Proposal No. 1 – Election of Directors

 

The Class I and Class III directors will continue to serve on the Board. The term of the Class I directors will terminate at the annual meeting of shareholders to be held in 2023, and the term of the Class III directors will terminate at the annual meeting of shareholders to be held in 2022. Each Class III director to be elected at the 2022 annual meeting of shareholders will serve for a term of office to expire at the annual meeting of shareholders to be held in 2023. Beginning with the 2023 annual meeting of shareholders, directors will be elected for a one-year term expiring at the next annual meeting of shareholders, and the classification of the Board will cease. This temporary classified board structure is intended to provide better continuity of leadership during the Company’s first years of operation as an independent, publicly held business.

The following section provides information with respect to each director nominee and each other director of the Company who will continue to serve as a director after the Annual Meeting. It includes the specific experience, qualifications and skills considered by the Nominating and Governance Committee and/or the Board in assessing the appropriateness of the person to serve as a director. (Ages are presented as of March 9, 2021.)

Class II Nominees to Serve Until the 2023 Annual Meeting of Shareholders

Kathleen Barclay    Former Chief Human Resources Officer and Senior Vice President, Kroger Co.

 

Age: 65    |     Committees:		Nominating and Governance Committee
		Talent and Compensation Committee (Chair)

Kathleen Barclay has served on the Board since the Spin-Off. She was previously Chief Human Resources Officer and Senior Vice President of The Kroger Co., a $110 billion grocery retail company, from 2010 until her retirement in late 2015. Prior to joining The Kroger Co., Ms. Barclay served in several leadership roles at General Motors Corporation, including Senior Vice President of Global Human Resources. She currently serves as a member of the board of directors of Five Below, Inc.

Ms. Barclay earned a bachelor’s degree in Business from Michigan State University and a Master of Business Administration from the Massachusetts Institute of Technology. She is a three-time recipient of Automotive News’ 100 Leading Women, a recipient of the MSU Distinguished Alumni award, and has been named to Human Resource Executive magazine’s HR Honor Roll. In 2013, Ms. Barclay was the recipient of the YWCA’s Career Woman of Achievement Award.

Skills and Qualifications:

Ms. Barclay’s qualifications include her extensive experience in human resource management, retail management and senior leadership experience at large publicly traded companies and service on other public company boards of directors.

 

8

		Proposal No. 1 – Election of Directors

 

Robert Lynch     President and Chief Executive Officer, Papa John’s International, Inc.

 

Age: 44    |     Committees:		Audit Committee
		Talent and Compensation Committee

Robert Lynch has served on the Board since March 5, 2021. Mr. Lynch has served as President and Chief Executive Officer of Papa John’s International, Inc. since August 2019. Mr. Lynch joined Papa John’s International, Inc. from Arby’s Restaurant Group, where he served as President since August 2017, and served as Brand President and Chief Marketing Officer from August 2013 to August 2017. Prior to Arby’s Restaurant Group, he served as Vice President of Marketing at Taco Bell. Mr. Lynch has more than 20 years combined experience in the QSR and consumer packaged goods industries, and also held senior roles at H.J. Heinz Company, and Procter & Gamble.

Mr. Lynch holds a bachelor’s degree in economics and political science, and a Master’s in Business Administration, from the University of Rochester.

Skills and Qualifications:

Mr. Lynch’s qualifications include his experience as a leader of a large global publicly traded company, and his extensive marketing experience, leading purpose-driven organizations and high performing teams and growing successful consumer brands.

 

 

 

 

9

 

Proposal No. 1 – Election of Directors

 

Class III Continuing Directors to Serve Until the 2022 Annual Meeting of Shareholders

Scott Baxter    President & Chief Executive Officer

 

Age: 56    |    Committees:		None

Scott Baxter is President and Chief Executive Officer of Kontoor and has served on the Board since the Spin-Off. Mr. Baxter was named CEO in August 2018 when VF Corporation announced its intention to separate its Jeanswear organization into an independent, publicly traded company. Mr. Baxter has more than 30 years of experience in retail, operations, marketing, merchandising, sales and manufacturing.

Prior to being named CEO of Kontoor, Mr. Baxter was Group President, Americas West, for VF. In this role, he was responsible for overseeing brands such as The North Face^® and Vans^®.

Mr. Baxter’s previous leadership roles at VF also included Group President, Outdoor & Action Sports, Americas and Vice President, VF Corporation & Group President, Jeanswear, Imagewear and South America. Mr. Baxter joined VF in 2007 as the President of the Licensed Sports Group. In 2008, he was named Coalition President for the Imagewear coalition, which comprised the Image and Licensed Sports Group divisions.

Prior to joining VF, Mr. Baxter served as Senior Vice President of The Home Depot Company, leading the Services Division. He also previously served as Executive Vice President of Edward Don & Company and held a series of leadership roles with Nestle and PepsiCo.

Mr. Baxter serves on the board of directors of Callaway Golf Company, a premium golf equipment and active lifestyle company. An active member of the community, Mr. Baxter is on the board of directors for the Greensboro Chamber of Commerce and the Piedmont Triad Partnership. Mr. Baxter also serves as the honorary chairman of the PGA TOUR’s 2020 and 2021 Wyndham Championship.

Mr. Baxter holds a bachelor’s degree from the University of Toledo and a Master of Business Administration degree from Northwestern University’s Kellogg Graduate School of Management.

Skills and Qualifications:

Mr. Baxter’s qualifications include his service as President and Chief Executive Officer of Kontoor, his previous leadership roles at VF and other public companies, and his service on the board of directors of another public company.

 

10

		Proposal No. 1 – Election of Directors

 

Robert Shearer     Chair of the Board

 

Age: 69    |    Committees:		Audit Committee (Chair)

Robert Shearer has served as Chair of the Board since the Spin-Off. Mr. Shearer brings extensive management expertise to the Board, including a range of leadership experience at VF Corporation. From 2005 to 2015, Mr. Shearer served as Senior Vice President and Chief Financial Officer of VF, and from 1986 to 2005, served in various other roles of increasing responsibility at VF, including Vice President-Finance and Chief Financial Officer and Vice President-Controller. For two years, he was President of VF’s Outdoor Coalition, which was formed with the acquisition of The North Face^® brand. Prior to joining VF, Mr. Shearer was a Senior Audit Manager for Ernst and Young.

Since 2018, Mr. Shearer has served on the board of directors of Yeti Holdings, Inc., a designer, marketer, retailer, and distributor of a variety of innovative, branded, premium products. Since 2008, Mr. Shearer has served on the board of directors of Church & Dwight Co, Inc., a household products manufacturer, where he currently chairs the audit committee. He previously served on the board of directors of The Fresh Market, Inc., a specialty grocery chain.

Mr. Shearer holds a B.S. in Accounting from Catawba College.

Skills and Qualifications:

Mr. Shearer’s prior role as Chief Financial Officer of VF, coupled with his 12 years of experience in public accounting, enables him to provide our Board of Directors and the Audit Committee with important insights on a range of financial and internal control matters, as well as on matters relating to capital structure, information systems, risk management, public reporting and investor relations. In addition, during his tenure at VF, his participation in expansion initiatives, including a number of acquisitions and growth in international markets, enables him to provide important insights on international operations, business combination opportunities, and strategic planning.

 

 

Class I Continuing Directors to Serve Until the 2023 Annual Meeting of Shareholders

Juliana Chugg    Former EVP, Chief Brands Officer, Mattel, Inc.

 

Age: 53    |    Committees:		Nominating and Governance Committee (Chair)
		Talent and Compensation Committee

Juliana Chugg has served on the Board since the Spin-Off. Ms. Chugg was previously the Chief Brand Officer and Executive Vice President, at Mattel, Inc., a $6 billion worldwide leader in the design, manufacture and marketing of toys and entertainment experiences. Prior to Mattel, she spent nearly 20 years at General Mills, Inc., a global marketer and manufacturer of consumer goods, operating in a series of leadership roles where she served as the President of multiple divisions domestically and internationally. Ms. Chugg brings extensive board experience, having also served as a director of H.B. Fuller Company and Promina Group Ltd. Ms. Chugg currently serves on the board of directors of VF Corporation and served on the board of directors of Caesars Entertainment Corporation from December 2018 to July 2020.

Ms. Chugg graduated from the University of South Australia with a bachelor’s degree in Business.

Skills and Qualifications:

Ms. Chugg’s qualifications for election include her extensive experience leading major functions and divisions of large publicly traded multi-brand consumer products companies and service on other public company boards of directors.

 

 

11

 

Proposal No. 1 – Election of Directors

 

Shelley Stewart, Jr.    Former Chief Procurement Officer, E.I. du Pont de Nemours & Co.

 

Age: 67    |    Committees:		Audit Committee
		Nominating and Governance Committee

Shelley Stewart, Jr. has served on the Board since the Spin-Off. He was previously the Chief Procurement Officer and held responsibility for real estate and facility services at E.I. du Pont de Nemours & Co. from 2012 until his retirement in 2018. Prior to joining DuPont, Mr. Stewart held leadership positions in supply chain and procurement at Tyco International, Invensys PLC, Raytheon Company and United Technologies Corporation.

Mr. Stewart currently serves on the board of Otis Worldwide where he is also on the audit committee and nominating and governance committee. He is chairman of the Billion Dollar Roundtable Inc., a top-level advocacy organization that promotes corporate supplier diversity. He is also on the Board of Trustees for Howard University as well as chair of the board of visitors for the school of business. He is also on the board of governors for the University of New Haven. He previously served on the board of directors for Cleco Corporation.

Mr. Stewart holds bachelor’s and master’s degrees in Criminal Justice from Northeastern University and received a Master of Business Administration from the University of New Haven.

Skills and Qualifications:

Mr. Stewart’s qualifications for election include his extensive experience in senior-level supply chain and operational positions with leading industrial companies and service on other public company boards of directors.

 

12

 

		Executive Officers

Kontoor’s executive officers are as follows:

 

Name		Age		Title
Scott H. Baxter		56		President and Chief Executive Officer
Rustin Welton		51		Executive Vice President and Chief Financial Officer
Thomas E. Waldron		53		Executive Vice President and Global Brand President—Wrangler
Christopher Waldeck		54		Executive Vice President and Global Brand President—Lee
Laurel Krueger		46		Executive Vice President, General Counsel and Corporate Secretary

Certain information with respect to our executive officers, each of whom have served since the Spin-Off, is provided below. Officers are appointed to serve at the discretion of the Board. Information regarding Mr. Baxter is included in the director profiles set forth above.

Rustin Welton is Executive Vice President and Chief Financial Officer. Prior to his current role at Kontoor, Mr. Welton was VF’s Vice President and Chief Financial Officer—Americas East since January 2017. He previously served as VF’s Vice President and Chief Financial Officer for the Jeanswear Coalition, Imagewear Coalition, and Central America/South America from December 2014 until January 2017 and Chief Financial Officer—Jeanswear North and South America from 2012 to 2015. He earned an M.B.A. from Indiana University’s Kelley School of Business and a B.A. in Finance from the University of Illinois at Urbana-Champaign.

Thomas E. Waldron is Executive Vice President and Global Brand President—Wrangler. Prior to his current role at Kontoor, Mr. Waldron was VF’s Global Brand President—Wrangler since October 2018. He previously served as President—Wrangler from March 2016 until October 2018, Vice President—Mass Brands from July 2010 until March 2016, Vice President General Manager—Wrangler Male Bottoms from July 2005 until July 2010, Merchandise Manager—Wrangler Men’s from January 2003 until July 2005, National Account Executive—Walmart (Boys) from January 2000 until January 2003, National Account Executive—Walmart (Men’s) from November 1996 until January 2000 and Replenishment Manager from September 1995 until November 1996. He earned a B.S. in Economics from the University of North Carolina at Greensboro.

Christopher Waldeck is Executive Vice President and Global Brand President—Lee. Prior to his current role at Kontoor, Mr. Waldeck was VF’s Global Brand President, Lee and Rock & Republic since October 2018. He previously served as President—Lee and Rock & Republic since May 2017. Before joining VF, Mr. Waldeck was with the Adidas Group as Vice President, General Manager, Reebok USA from October 2013 until April 2017, Brand Director, Reebok Korea from May 2010 until October 2013 and Senior Director of Marketing for Equipment, Cleated Footwear from May 2004 until May 2010. He earned a B.S. in Business from Emporia State University.

Laurel Krueger is Executive Vice President, General Counsel and Corporate Secretary. Prior to her current role at Kontoor, from May 2012 to January 2019, she served in roles of increasing responsibility, and most recently as Executive Vice President, General Counsel and Corporate Secretary, at Signet Jewelers Limited, a leading global retailer of diamond jewelry. Ms. Krueger previously held a variety of legal leadership roles at publicly traded companies in retail and manufacturing, including Federal-Mogul Corporation, Tecumseh Products Company and Borders Group, Inc. Ms. Krueger earned a bachelor’s degree with high distinction from the University of Michigan-Dearborn. She earned a law degree from the University of Michigan Law School, and a Master of Business Administration with distinction from the University of Michigan-Dearborn School of Management. Ms. Krueger joined VF in 2019, prior to the Spin-Off.

 

 

13

 

		Corporate Governance

Kontoor’s business is managed under the direction of the Board. The Board regularly assesses its criteria for Board membership to identify the qualifications and skills that directors and candidates should possess. Members of the Board are kept informed of Kontoor’s business through discussions with the Chair, the President and Chief Executive Officer and other officers, by reviewing Kontoor’s annual business plan and other materials provided to them and by participating in meetings of the Board and its committees. We believe that, over time, the Board will benefit from a mix of new directors, who will bring fresh ideas and viewpoints, and longer-serving directors who will have developed deep insight into Kontoor’s business and operations. As Kontoor matures as an independent company, the Board will seek to maintain a balance of directors who have longer terms of service and directors who have joined more recently.

Corporate Governance Principles

The Board is committed to sound and effective corporate governance practices. A foundation of Kontoor’s corporate governance is the Board’s policy that a substantial majority of the members of the Board must meet the independence requirements of the NYSE. In addition, members of the Board who are also executive officers of a public company can serve on the board of directors of no more than two public companies total, and members of the Board who are not executive officers of a public company can serve on the board of directors of no more than four public companies total. These policies are included in the Board’s written corporate governance principles (the “Corporate Governance Principles”), which address a number of other important governance issues such as:

 

•

composition and selection of the Board;

 

•

ineligibility to be elected as a director for a term that extends beyond the annual meeting of shareholders immediately following a person’s seventy-second birthday;

 

•

a requirement that directors offer to submit their resignation to the Board for consideration upon a substantial change in job responsibilities;

 

•

if the chair is not an independent director, election of a lead independent director;

 

•

committee structure and responsibilities;

 

•

Board consideration of shareholder proposals receiving a majority of shareholder votes;

 

•

authority of the Board to engage outside independent advisors as it deems necessary or appropriate;

 

•

majority voting for directors in uncontested elections;

 

•

succession planning for the chief executive officer and other executive officer positions; and

 

•

annual self-evaluation by the Board and each committee.

In addition, the Board has in place formal charters stating the powers and responsibilities of each of its committees.

Director Orientation and Continuing Education

The Board views orientation and continuing education as vital tools for building an effective Board. We provide all new directors, upon joining the Board, with appropriate orientation programs, sessions or materials regarding the Board and the Company’s operations. The orientation consists of presentations by members of senior management on the Company’s financial profile, strategic plans, management organization, compliance programs and corporate policies. Directors are required to continue educating themselves with respect to topics related to the Company’s business. The Board encourages, but does not require, directors to periodically pursue or obtain appropriate programs, sessions or materials as to the responsibilities of directors of publicly-traded companies, and the Company reimburses directors for their reasonable expenses in pursuing such opportunities.

 

14

Corporate Governance

 

Related Person Transactions Policy

Our Related Person Transactions Policy sets forth the policies and procedures governing the review and approval or ratification by the Nominating and Governance Committee of transactions between Kontoor, on the one hand, and (i) an executive officer; (ii) a director or nominee to become director; (iii) any security holder who is known by Kontoor to own of record or beneficially more than five percent of any class of Kontoor’s voting securities (as defined in the policy) at the time of the transaction; or (iv) an immediate family member of such executive officer, director or nominee to become director, or five percent holder, on the other hand. Persons in the categories described above are collectively referred to as “related persons.” The policy applies to all related person transactions, and under the policy a “related person transaction” is any transaction in which:

 

•

Kontoor was or is to be a participant;

 

•

the aggregate amount involved exceeds $120,000; and

 

•

any related person had, or will have, a direct or indirect material interest.

No related person transaction shall be approved or ratified if such transaction is contrary to the best interests of the Company and its stakeholders. Unless different terms are specifically approved or ratified by the Nominating and Governance Committee, any approved or ratified transaction must be on terms that are no less favorable to Kontoor than would be obtained in a similar transaction with an unaffiliated third party under the same or similar circumstances. All related person transactions or series of similar transactions must be presented to the Nominating and Governance Committee for review and pre-approval or ratification.

Since the beginning of Kontoor’s last fiscal year, no financial transactions, arrangements or relationships, or any series of them, were disclosed or proposed through Kontoor’s processes for review, approval or ratification of transactions with related persons in which (i) Kontoor was or is to be a participant, (ii) the aggregate amount involved exceeded $120,000, and (iii) any related person had or will have a direct or indirect material interest. PNC Bank, N.A., which is one of three co-trustees under the Barbey Family Trust accounts (see footnote 4 to the “Security Ownership of Certain Beneficial Owners and Management—Common Stock Beneficial Ownership of Certain Beneficial Owners” table on page 55), is one of several lenders party to Kontoor’s revolving credit facility. The credit facility was entered in the ordinary course of business, was made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to the lender, and did not involve more than the normal risk of collectability or present other unfavorable features.

Corporate Governance Documents

The Board’s Corporate Governance Principles and the Audit Committee, the Nominating and Governance Committee and the Talent and Compensation Committee charters are available on Kontoor’s website (www.kontoorbrands.com) and will be provided free of charge to any person upon written request directed to the Corporate Secretary of Kontoor at 400 N. Elm Street, Greensboro, North Carolina 27401.

Code of Conduct

The Board has adopted a written code of business conduct and ethics (the “Code of Conduct”), which applies to all of our employees, officers and directors. Our Code of Conduct is available on Kontoor’s website (www.kontoorbrands.com) and will be provided free of charge to any person upon written request directed to the Corporate Secretary of Kontoor at 400 N. Elm Street, Greensboro, North Carolina 27401. In addition, we intend to post on our website all disclosures that are required by law or the NYSE listing rules concerning any amendments to, or waivers from, any provision of our Code of Conduct.

Board Leadership Structure

The Board has concluded that Kontoor and its shareholders are best served by not having a formal policy on whether the same individual should serve as both Chief Executive Officer and Chair of the Board. The Board retains the flexibility to determine the appropriate leadership structure based on the circumstances at the time of the determination. The Board believes Kontoor has a strong governance structure in place with sufficient processes to provide for independent discussion among directors and for independent evaluation of, and communication with, many members of senior management. These processes include the lead independent director structure adopted by the Board, whereby a lead independent director will be elected from among the independent directors in the event that, in the future, the Chair of the Board is not an independent director.

 

 

15

 

Corporate Governance

 

Robert Shearer serves as Chair of the Board and Scott Baxter serves as Chief Executive Officer of Kontoor. The members of the Board possess considerable experience and unique knowledge of the challenges and opportunities Kontoor faces, and the Board believes that the most effective leadership structure for Kontoor currently is to separate the positions of Chair of the Board and Chief Executive Officer, with an independent Chair leading the Board. We believe this structure enhances the Board’s ability to exercise independent oversight of management of Kontoor during its early stages as an independent public company. During this crucial and transformative period, the duties of Chair of the Board and Chief Executive Officer are particularly demanding.

Director Independence

Six of Kontoor’s current directors are non-employee directors. Under the NYSE listing standards, no director qualifies as “independent” unless the Board affirmatively determines that the director has no material relationship with the company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the company). The Board has adopted categorical standards for director independence that are part of the Corporate Governance Principles and are attached to this Proxy Statement as Appendix A, to assist it in making determinations of independence. In evaluating the independence of directors, the Board considered transactions and relationships between each director and members of his or her immediate family. When considering commercial transactions that are made from time to time in the ordinary course of business between Kontoor and certain entities affiliated with non-management directors, transactions are not considered to be a material transaction that would impair the independence of the relevant non-management director if the director is an executive officer or employee of another company that does business with Kontoor in an amount which, in any single fiscal year for the past three fiscal years, is less than the greater of $1 million or 2% of such other company’s consolidated gross revenues.

The Board has determined that all of our non-employee directors are free of any material relationship with Kontoor, other than their service as directors, and are “independent” directors both under the NYSE listing standards and the categorical standards adopted by the Board. The Board determined that Mr. Shearer, Ms. Barclay, Mr. Carucci, Ms. Chugg, Mr. Lynch and Mr. Stewart are independent directors, and that Mr. Baxter is not an independent director.

The Board, in making its determination as to Ms. Chugg’s independence, considered that Ms. Chugg serves as one of the three Trustees under the Barbey Family Trust accounts (collectively, the “Trusts”). Because all decisions of the Trustees require a majority vote, and thus none of the three Trustees individually controls the decision-making of the Trustees, the Trustees are not considered to separately beneficially own the Kontoor common stock held by the Trusts. As a result, and after considering all other relevant factors related to her role as Trustee, the Board determined that Ms. Chugg’s status as Trustee of the Trusts does not give rise to a material relationship with Kontoor other than in her service as director.

Annual Board Evaluation Process

The Board and each of its committees conduct an annual evaluation to determine whether the Board is functioning effectively both at the Board and at the committee levels. The Board recognizes that a robust evaluation process is essential to Board effectiveness, which is in turn critical for ensuring that the Company has a comprehensive long-term business strategy, prudent risk management and sound governance. The Nominating and Governance Committee oversees an annual evaluation process led by the independent Chair of the Board.

Each director completes a detailed written annual evaluation of the Board and the committees on which he or she serves and the Chair of the Board conducts one-on-one interviews with each of the directors. These Board evaluations are designed to elicit feedback on the composition, dynamics, operations and structure of the Board and its committees, and to determine whether the Board and its committees are functioning effectively. The process also evaluates the relationship between management and the Board, including the level of access to management, responsiveness of management, and the effectiveness of the Board’s evaluation of management performance. The results of this Board evaluation are discussed by the full Board and changes to the Board’s and its committees’ practices are implemented as appropriate.

Board Meetings and Attendance

During 2020, the Board held 18 meetings. Under Kontoor’s Corporate Governance Principles, directors are expected to attend all meetings of the Board, all meetings of committees of which they are members and the annual meetings of shareholders. Each current member of the Board attended 100% of the total number of meetings of the Board and all committees on which he or she served during 2020.

 

16

Corporate Governance

 

Executive Sessions

To promote open discussion among the non-management directors, those directors meet in executive session without management present on a regular basis. At least once per year, such an executive session is held to review the report of the outside auditors, the criteria upon which the performance of the Chief Executive Officer and other senior managers is based, the performance of the Chief Executive Officer against such criteria, and the compensation of the Chief Executive Officer and other senior managers. Additional executive sessions or meetings of non-management directors may be held from time to time as needed. Executive sessions or meetings are held at each Board meeting with the Chair for a general discussion of relevant subjects. At least one meeting or executive session of non-management directors per year shall include only independent directors. During 2020, the non-management directors met in executive session without management present four times. Robert Shearer, the independent Chair of the Board, currently presides over executive sessions.

Board Committees

The Board has established four standing committees – the Executive Committee, the Audit Committee, the Nominating and Governance Committee and the Talent and Compensation Committee. Each of these committees is governed by a written charter approved by the Board. Each is required to perform an annual self-evaluation, and each committee may engage outside independent advisors as the committee deems appropriate. The Board has determined that each of the members of the Audit Committee, the Nominating and Governance Committee and the Talent and Compensation Committee is independent. A brief description of the responsibilities of the Audit Committee, the Nominating and Governance Committee and the Talent and Compensation Committee follows.

Audit Committee

The Audit Committee is a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Audit Committee monitors and makes recommendations to the Board concerning the financial policies and procedures to be observed in the conduct of Kontoor’s affairs. Its duties include:

 

•

selecting the independent registered public accounting firm for Kontoor;

 

•

reviewing the scope of the audit to be conducted by the independent registered public accounting firm;

 

•

meeting with the independent registered public accounting firm concerning the results of its audit and Kontoor’s selection and disclosure of critical accounting policies;

 

•

reviewing with management and the independent registered public accounting firm Kontoor’s annual and quarterly reports prior to filing with the SEC;

 

•

overseeing the scope and adequacy of Kontoor’s system of internal control over financial reporting;

 

•

reviewing the status of compliance with laws, regulations and internal procedures, contingent liabilities and risks that may be material to Kontoor;

 

•

reviewing and assessing, and discussing with management, Kontoor’s cybersecurity, information security and technology risks, and Kontoor’s policies and procedures to monitor, manage and mitigate those risks;

 

•

preparing a report to shareholders annually for inclusion in the proxy statement; and

 

•

serving as the principal liaison between the Board and Kontoor’s independent registered public accounting firm.

As of the date of this Proxy Statement, the members of the Audit Committee are Messrs. Shearer (Chair), Carucci, Lynch and Stewart. The Audit Committee held nine meetings during 2020. The Board has determined that all of the members of the Committee are independent as independence for audit committee members is defined in the NYSE listing standards and the SEC regulations and that all are financially literate. The Board has further determined that Messrs. Shearer, Carucci and Lynch each qualify as an “audit committee financial expert” in accordance with the definition of such term in the SEC regulations and have accounting and related financial management expertise within the meaning of the NYSE listing standards. Messrs. Shearer, Carucci and Lynch acquired those attributes through acting as or actively overseeing a principal financial officer or principal accounting officer of a public company. Messrs. Shearer, Carucci and Lynch also have experience overseeing or assessing the performance of companies with respect to the evaluation of financial statements. No Audit Committee member currently serves on the audit committees of more than three public companies.

 

 

17

 

Corporate Governance

 

Nominating and Governance Committee

The responsibilities of the Nominating and Governance Committee include:

 

•

recommending to the Board criteria for Board membership, identifying potential candidates for director and recommending candidates to the Board;

 

•

overseeing Kontoor’s significant strategies and programs, policies and practices relating to environmental, social and governance (“ESG”) issues;

 

•

making recommendations to the Board on matters of Chief Executive Officer succession in the event of an emergency or retirement;

 

•

reviewing developments in corporate governance and making recommendations to the Board for governance changes, including with respect to our Corporate Governance Principles; and

 

•

reviewing continued appropriateness of Board membership of those members who retire or change the position they held when they joined the Board.

The Nominating and Governance Committee annually evaluates each director to determine his or her fitness and appropriateness for continued service on the Board. While diversity of experience and background are factors taken into consideration in selecting nominees, Board members are elected to represent all shareholders and not to represent any particular constituency. The Nominating and Governance Committee considers this policy to have been effective to date in identifying diverse candidates. The Nominating and Governance Committee will also consider potential candidates for director recommended by shareholders who follow the established procedures for shareholder nominations set forth in our Bylaws. As of the date of this Proxy Statement, the members of the Nominating and Governance Committee are Ms. Chugg (Chair), Ms. Barclay and Messrs. Carucci and Stewart. The Nominating and Governance Committee held four meetings during 2020.

Talent and Compensation Committee

The Talent and Compensation Committee has the authority to discharge the Board’s responsibilities relating to compensation of Kontoor’s executives and to review and make recommendations to the Board concerning compensation and benefits for key employees. The responsibilities of the Talent and Compensation Committee include:

 

•

annually reviewing and approving Kontoor’s goals and objectives relevant to the compensation of the Chief Executive Officer, evaluating him in light of these goals and objectives, and setting his compensation level based on this evaluation;

 

•

annually reviewing the performance evaluations of the other Kontoor senior executive officers;

 

•

annually reviewing management’s recommendation regarding the salary of each Kontoor senior executive officer and annually making recommendations to the Board on the same;

 

•

making recommendations to the Board with respect to incentive compensation-based plans and equity-based plans;

 

•

periodically reviewing all of Kontoor’s compensation and benefit plans insofar as they relate to the senior executive officers to confirm that such plans remain equitable and competitive;

 

•

administering and interpreting Kontoor’s management incentive compensation plans, in accordance with the terms of each plan;

 

•

preparing an annual report to shareholders regarding executive compensation for inclusion in the proxy statement;

 

•

reviewing Kontoor’s Compensation Discussion and Analysis (“CD&A”), discussing the CD&A with management and recommending to the Board whether the CD&A should be included in the proxy statement;

 

•

reviewing succession planning for key senior executive officer positions of Kontoor, other than the position of Chair of the Board and/or Chief Executive Officer;

 

•

overseeing Kontoor’s inclusion and diversity efforts;

 

•

periodically reviewing the competitiveness and appropriateness of the compensation program for non-employee directors and recommending to the Board compensation to be paid to non-employee directors; and

 

•

reviewing and recommending to the Board Kontoor’s submissions to shareholders on executive compensation matters.

The Talent and Compensation Committee has the authority to retain or obtain the advice of any compensation consultant, legal counsel or other adviser. The Committee may only select a compensation consultant, legal counsel or other adviser after taking into consideration the factors that affect the independence of such advisers as identified by the SEC and the NYSE. The

 

18

Corporate Governance

 

Committee has retained Frederic W. Cook & Co., Inc. (“FW Cook”) as its independent compensation consultant to assist the Talent and Compensation Committee in accomplishing its objectives. FW Cook has no relationship with Kontoor other than providing services to the Talent and Compensation Committee.

The Talent and Compensation Committee has the authority to form and delegate authority to subcommittees as it deems appropriate. The role of the Talent and Compensation Committee, the compensation consultant and management in executive compensation is discussed in further detail in the Compensation Discussion and Analysis beginning on page 24. As of the date of this Proxy Statement, the members of the Committee are Ms. Barclay (Chair), Ms. Chugg and Mr. Lynch. The Committee held six meetings during 2020.

Talent and Compensation Committee Interlocks and Insider Participation

Ms. Barclay and Ms. Chugg served as members of the Talent and Compensation Committee during fiscal 2020, and Rich Williams served on the committee until he resigned from the Board effective March 24, 2020. Mr. Lynch has served on the committee since March 5, 2021. None of the members of the Talent and Compensation Committee during fiscal 2020 (i) has ever been an officer or employee of Kontoor, (ii) had any relationship requiring disclosure by Kontoor under the rules and regulations established by the SEC, or (iii) is an executive officer of another entity at which one of Kontoor’s executive officers serves on the board of directors. None of Kontoor’s executive officers has served during 2020 as a director or a member of the compensation committee of another entity that has one or more of its executive officers serving as a member of the Board or the Talent and Compensation Committee.

Board Oversight of Risk

Risk management is primarily the responsibility of management; however, the Board oversees management’s identification and management of risks to Kontoor. The Board uses various means to fulfill this oversight responsibility. The Board, and its committees, as appropriate, regularly receive and discuss periodic updates from the Chief Executive Officer, the Chief Financial Officer, General Counsel and other members of senior management regarding significant risks to Kontoor, including in connection with the annual review of Kontoor’s business plan and its review of budgets and strategy. These discussions include operational, strategic, legal, regulatory, financial, reputational and cybersecurity risks and the plans to address these risks.

The Board has received updates on the evolving COVID-19 pandemic from, and has discussed these updates with, our management, including with regard to protecting the health and safety of our employees, and evaluating the impact of the COVID-19 pandemic on strategy, operations, liquidity and financial matters.

Each of the Board’s standing committees assists the Board in overseeing the management of the Company’s risks within the areas delegated to that committee, and reports to the full Board as appropriate. In particular:

 

•

The Audit Committee, consistent with the requirements of the NYSE and the Audit Committee charter, discusses policies to govern the process by which risk assessment and risk management are undertaken at Kontoor, including discussing with management the major financial and information technology risk exposures and the steps that have been taken to monitor and control such exposures. The Audit Committee reviews the status of compliance with laws, regulations and internal procedures, contingent liabilities and risks that may be material to Kontoor, and the scope and status of systems designed to assure Kontoor’s compliance with laws, regulations and internal procedures through receiving reports from management, legal counsel and other third parties on such matters, as well as major legislative and regulatory developments which could materially impact Kontoor’s contingent liabilities and risks. In addition, the Audit Committee has primary responsibility for overseeing risks related to cybersecurity, and receives quarterly updates from senior leadership on information security matters.

 

•

The Talent and Compensation Committee annually evaluates the risks associated with Kontoor’s compensation philosophy and programs.

 

•

The Nominating and Governance Committee oversees risks relating to the Company’s corporate governance, including ensuring the Board’s continued ability to provide independent oversight of management.

 

 

19

 

Corporate Governance

 

Policy Against Hedging and Pledging Company Securities

Our insider trading policy prohibits our directors, executive officers and certain other designated employees from engaging in derivative securities and hedging transactions relating to our securities or short selling our securities for their own account. The prohibited transactions include trading in put or call options in which our securities are the underlying security, purchasing financial instruments, including prepaid variable forward contracts, equity swaps, collars, and exchange funds or entering into other monetization transactions that limit the ability of the director, executive officer or other designated employee to profit from an increase in the market price of our securities or provide an opportunity to profit from a decrease in the market price of our securities and similar hedging transactions.

Our insider trading policy also prohibits our directors, executive officers and certain other designated employees from holding our securities in a margin account or pledging our securities as collateral for a loan.

Our policy against hedging and pledging does not apply to all employees. We believe that applying our hedging and pledging policy to all our employees would be over inclusive given the small number of employees that receive grants of our securities.

Communications with Directors

Anyone wishing to communicate directly with one or more members of the Board or with the non-management members of the Board as a group (including the directors who preside at meetings or executive sessions of non-management directors) may contact the Chair of the Nominating and Governance Committee, c/o Corporate Secretary of Kontoor at 400 N. Elm Street, Greensboro, North Carolina 27401, or call the Kontoor Ethics Helpline at 1-844-476-9158 or send an email message to corp.gov@kontoorbrands.com. The Corporate Secretary forwards all such communications, other than solicitations and frivolous communications, to the Chair of the Nominating and Governance Committee.

Corporate Sustainability and Responsibility

Our sustainability approach is aligned with Kontoor’s focus on innovation, design and sustainable performance. It underscores our commitment to our purpose: to inspire people to live with passion and confidence. Through our three strategic pillars—Planet, Product and People – we emphasize protecting the environment, sourcing products and materials from companies that share our values and operating with the highest standards of ethics and transparency.

We are pleased to have published our inaugural Sustainability Report in September 2020. We also announced our first global sustainability goals to measure and manage our progress. Additionally, we have aligned our goals with the relevant United Nations Sustainable Development Goals. Our Global Sustainable Business Team leads our enterprise-wide sustainability efforts, working closely with our stakeholder groups globally to ensure progress toward our goals.

Sustainability Governance

The Board is responsible for promoting the exercise of responsible corporate citizenship and monitoring adherence to our standards. The Nominating and Governance Committee reviews and evaluates our strategies, programs, policies and practices relating to ESG issues and impacts to support the sustainable and responsible growth of our business. We articulate our commitments to corporate sustainability and responsibility in our Code of Conduct.

The Kontoor Brands Sustainability Council champions our company-wide commitment to sustainability performance and transparency. The Council, which consists of members from our Executive Leadership Team, our Global Sustainability Business Team and select working group leaders, meets bi-annually. The Council promotes and guides progress toward Kontoor Brands’ Global Sustainability Goals and fosters our culture of sustainability.

Our Enterprise Risk Management Council is organized to identify, evaluate and manage risk topics and issues, in alignment with our business priorities. The Council meets regularly and provides leadership on strategy, financial, operational, compliance and reputational risk.

 

20

Corporate Governance

 

Materiality Assessment and Goals

Kontoor’s Global Sustainability Business Team discussed the landscape of salient material issues and the best organization of the issues into understandable groupings to present to stakeholders.

External subject matter experts analyzed over 300 contextually relevant articles on material issues and sustainability governance to inform the identification and organization of the issues. Additionally, specific reporting frameworks such as the Global Reporting Initiative (GRI), THESIS (The Sustainability Insight System) Index and the Sustainability Accounting Standards Board (SASB) were reviewed for relevant material issues.

Kontoor’s Global Sustainability Business Team reviewed GRI’s stated objectives, guidance and requirements while also evaluating dozens of material issue presentations by our industry peers, as well as those outside our industry.

Based on the results, we set six ESG goals aligned with the United Nations Sustainable Development Goals (SDGs). We measure and manage our progress through goals and measurable targets.

 

Topic		Goal
Energy		Power 100 percent of owned and operated facilities with renewable energy by 2025
Climate		Establish a science-based target by 2022
Water		Save 10 billion liters of water by 2025
Materials		Source 100 percent sustainable raw materials, including Forest-Derived and Animal-Derived Materials by 2023, Cotton by 2025 and Synthetics by 2030
Chemistry		Use 100 percent preferred chemistry by 2023
Worker Well-Being		Work only with factories that support a worker well-being or community development program by 2025

Inclusion and Diversity

Inclusion and Diversity have been at the heart of the Company and ingrained in our values since Kontoor was created. In 2020, we introduced our Inclusion and Diversity strategy and multiyear objectives, which are overseen by the Talent and Compensation Committee. This will provide transparency with respect to our journey, establish measurable and visible objectives for the changes we seek to achieve, and put into motion detailed plans to get us where we need to be.

The Nominating and Governance Committee considers diversity as one of many factors in identifying nominees for director, including personal characteristics such as race and gender, as well as diversity in the experience and skills that contribute to the Board’s performance of its responsibilities in the oversight of a complex and highly-competitive global business. The Nominating and Governance Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective nominees.

 

 

21

 

		Director Compensation

The primary components of compensation for our non-employee directors are a cash retainer, equity-based grant of restricted stock units (“RSUs”) under Kontoor’s 2019 Stock Compensation Plan and Committee Chair fees. The Board sets director compensation annually based on an analysis of non-employee director compensation practices at Kontoor peers and peer company information provided by FW Cook, the independent compensation consultant to the Talent and Compensation Committee. The following describes our fiscal 2020 non-employee director compensation:

 

Compensation Element		Director Compensation Program
Annual Cash Retainer		$85,000, paid quarterly arrears in cash
Annual Equity Retainer		RSUs equaling $160,0001
Committee Fees		None
Committee Chair Fee2		$20,000
Non-Executive Director Chair Retainer		$175,000
Meeting Fee for Board Meetings in Excess of Ten Meetings During the Year		$1,500 per meeting
Stock Ownership Guidelines		Stock ownership with a fair market value equal to five times the annual cash retainer3

 

1

RSUs are fully vested and non-forfeitable at grant and will be settled in shares of Kontoor common stock one year after the date of grant. RSU retainer grants will be pro-rated in the year of a director’s initial election to the Board and will vest in the same manner as other awards subject to the annual equity grant.

 

2	Chairs of the Audit, Talent and Compensation and Nominating and Governance Committees are eligible to receive committee chair fees.

 

3	Messrs. Shearer and Carucci and Ms. Chugg exceed the target for director stock ownership. Non-employee directors must retain 100% of the net shares resulting from the vesting of RSUs until the guideline is met.

In response to the impact of the COVID-19 pandemic, the non-employee directors: (i) elected to forego cash retainer and committee chair fees for the second quarter of fiscal 2020, excluding the non-executive director chair fee and (ii) waived their meeting fee for Board meetings in excess of ten meetings during the year for fiscal 2020.

Mr. Baxter, the only director who is an employee of Kontoor, does not receive any compensation in addition to his regular compensation for service on the Board and attendance at meetings of the Board or any of its committees.

Each non-employee director may elect to defer all or part of his or her cash retainer and fees into equivalent units of Kontoor common stock under the Kontoor Deferred Savings Plan for Non-Employee Directors. All Kontoor common stock equivalent units receive dividend equivalents. Deferred sums are generally payable in cash to the participant upon termination of service in a lump sum or substantially equal annual installments over up to ten (10) years, as specified in advance by the participant. Messrs. Shearer and Carucci and Ms. Chugg elected to defer compensation in 2020.

Kontoor reimburses non-employee directors for travel and lodging expenses incurred in the performance of their duties. Directors traveling on Kontoor business are covered by Kontoor’s business travel accident insurance policy, which generally covers all Kontoor’s employees and directors. Directors are encouraged to attend formal training programs in areas relevant to the discharge of their duties as directors. Kontoor reimburses expenses incurred by directors attending such programs. Directors are also eligible for discounts on Kontoor products equal to discounts available to all employees of Kontoor. Kontoor does not provide medical or life insurance benefits to its non-employee directors.

 

22

Director Compensation

 

Director Compensation Table

 

Name		Fees Earned or Paid in Cash ($)(1)					Stock Awards ($)(2)					All Other Compensation ($)					Total      ($)
Robert K. Shearer			$	253,750				$	82,234					-0-				$	335,984
Kathleen S. Barclay				78,750					82,234					-0-					160,984
Richard T. Carucci				63,750					82,234					-0-					145,984
Juliana L. Chugg				78,750					82,234					-0-					160,984
Shelley Stewart, Jr.				63,750					82,234					-0-					145,984
Rich Williams 3				21,250					82,234					-0-					103,484

 

1

Kontoor allows its non-employee directors to defer all or a portion of his or her cash retainer and fees under the Kontoor Deferred Savings Plan for Non-Employee Directors. In fiscal 2020, Messrs. Shearer and Carucci and Ms. Chugg deferred fees under the Kontoor Deferred Savings Plan for Non-Employee Directors.

 

2

Each director serving in fiscal 2020 was awarded 5,302 RSUs on April 1, 2020 in connection with compensation for fiscal 2020. The value in this column is the grant date fair value ($15.51 per RSU) computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718. The assumptions used are summarized in Note 16 to our audited financial statements included in our Annual Report on Form 10-K for the year ended January 2, 2021. These RSUs, which are fully vested and non-forfeitable at grant, earn dividend equivalents and will be settled in shares of Kontoor common stock one year after the date of grant, on April 1, 2021.

 

3	Mr. Williams resigned from the Board on March 24, 2020.

 

 

23

 

		Executive Compensation

Compensation Discussion and Analysis

Introduction

This Compensation Discussion and Analysis (“CD&A”) provides an overview of our named executive officers’ compensation for the period December 29, 2019 through January 2, 2021 (referred to herein as “fiscal 2020” or “2020”). The CD&A explains Kontoor’s executive compensation program, compensation philosophy and objectives, the components of executive compensation and executive stock ownership. The focus of the analysis is on the Company’s named executive officers listed in the Summary Compensation Table (the “NEOs”):

 

Name		Title
Scott H. Baxter		President and Chief Executive Officer
Rustin Welton		Executive Vice President and Chief Financial Officer
Thomas E. Waldron		Executive Vice President and Global Brand President—Wrangler
Christopher Waldeck		Executive Vice President and Global Brand President—Lee
Laurel Krueger		Executive Vice President, General Counsel and Corporate Secretary

Executive Summary

Effect of the COVID-19 Pandemic—2020 was a pivotal year for Kontoor. We completed our first full year as a separate, independent publicly-traded company and global apparel and accessory company with a diverse portfolio of jeanswear and apparel brands. Early in 2020, we believed our company performance was on track to meet or exceed several of the company-wide performance measures underlying our performance-based incentive plans. However, the swift emergence of the pandemic disrupted nearly every thread of society and the apparel and accessories industry was among the industries most severely impacted by COVID-19. Public and private sector policies and initiatives implemented to reduce the transmission of COVID-19, such as mandatory lock-downs, retail store and plant closures, imposition of travel restrictions, social distancing, and the switch to remote working, significantly disrupted our and our customers’ and suppliers’ operations. Accordingly, we faced, and continue to face, challenges associated with operating our manufacturing facilities, sourcing our materials, and operating our retail outlets. Furthermore, the global macroeconomic uncertainty caused by the pandemic challenged, and continues to challenge, consumer spending.

Despite the extraordinary challenges presented by the pandemic, Kontoor accomplished the following achievements in fiscal 2020:

 

•

Focus on Employee Engagement and Wellness: We enhanced safety and protection measures for our essential workers, including global cleaning and social distancing protocols. Where possible, employees are working remotely to help maintain their health and safety as well as business continuity. We are proud of the resilience and perseverance our employees have demonstrated through this challenging time and our priority remains their health and safety.

 

•

Delivered Shareholder Value: Despite the impact of the pandemic, we reinstated payment of a dividend in the fourth quarter of 2020, returning $22.8 million to our shareholders in December 2020.

 

•

Strategic Actions: We continued to build out our direct-to-consumer and online retail presence, accelerating the implementation of our new digital platform to secure an improved customer online experience and position us for accelerated growth. As a result, we improved our gross margins through growth in accretive channels such as digital.

 

•

Launched Inclusion and Diversity Strategy and Published First Sustainability Report: We launched our Inclusion and Diversity Strategy in August 2020, with clearly stated objectives to increase diverse representation across our global workforce, particularly in senior level positions, and established our Global & Regional Inclusion and Diversity Council. We published our first sustainability report in September 2020, underscoring our commitment to drive positive changes with our products, on the planet and in our communities.

 

24

Executive Compensation

 

•

Contribution to the Fight Against the COVID-19 Pandemic: We engaged with our wider communities by producing critical personal protective equipment, including patient gowns and disposable isolation gowns for clinicians, and donated the PPE to hospitals facing an influx of COVID-19 patients. In addition, we provided assistance to local communities by making monetary donations to local food banks.

 

•

Finished 2020 in a Strong Financial Position: Strong EPS and operating cash flow performance allowed the pay down of Company debt and liquidity improvement, resulting in our lowest net debt level and highest liquidity level since the Spin-Off.

Fiscal 2020 Key Financial, Operational and Strategic Highlights:

 

•

Full year EPS was $1.17 on a reported basis, and adjusted EPS was $2.61 (adjusted EPS is our reported earnings per share for the year ended January 2, 2021 adjusted for restructuring and separation costs)

 

•

Full year gross margin increased 180 basis points to 41.2 percent on a reported basis compared to the prior year

 

•

Based on improving fundamentals, we announced the early termination of the covenant relief period in our amended credit facility

Impact of COVID-19 on Key Fiscal 2020 Compensation Decisions—Following the completion of the Spin-Off, our Talent and Compensation Committee (also referred to as the “Committee”) designed our executive compensation program to support strategic growth plans and long-term commitments to our shareholders. After reviewing the function and results of the new executive compensation program for fiscal 2019, the Committee determined that the program generally fit the needs of the Company and did not implement any significant changes to its structure for fiscal 2020.

Starting with Asia in early 2020, as the cascading effect of COVID-19 across our global operations intensified with each passing month, the Committee held regular and special meetings to review and discuss the pandemic’s impact on our 2020 annual incentive plan that covers executives and more than 11,500 employees, the effect of 2020 performance goals on multiple tranches of in-cycle long-term performance awards, and the continuing impact on our compensation program for 2021.

The following is a summary of the impact of COVID-19 on key fiscal 2020 compensation decisions:

 

•

Base Salary Reductions. Our CEO and other members of our executive leadership team acted swiftly to help the Company conserve cash and took the largest salary reductions in the Company. Our CEO voluntarily agreed to a 30% reduction of his base salary and our other NEOs agreed to a 15% reduction of their base salary, during the April—July 2020 period.

 

•

Adjustment to Fiscal 2020 Performance Goals. The fiscal 2020 financial goals for our annual incentive plan and our long-term performance-based incentive program were originally set in March 2020 before the pandemic began to significantly impact the global economy and our operations. By the second quarter of fiscal 2020, as the trajectory of the pandemic worsened and country lock-downs persisted, it became clear that the pre-pandemic goals were unlikely to be achieved.

However, rather than overriding the selected metrics and financial goals in their entirety, and based on rigorous analysis, with input from its independent compensation consultant, the Committee decided to maintain the core metrics in both the annual and long-term incentive programs but recalibrate the threshold-to-maximum performance curve in order to mitigate the disruption resulting from the pandemic, aligning our shareholders’ interests through strong pay for performance.

First, the Committee assessed the Company’s relative performance compared to its peer group with regard to the metrics applicable to the Company’s incentive programs through the first three quarters of 2020 and determined that:

 

•

Kontoor significantly outperformed its peer group with respect to relative total shareholder return;

 

•

Kontoor significantly outperformed its peer group with respect to adjusted profit before taxes;

 

•

Kontoor significantly outperformed its peer group with respect to operating cash flow;

 

•

Kontoor significantly outperformed its peer group with respect to earnings per share;

 

•

Kontoor outperformed its peer group with respect to gross margin; and

 

•

Kontoor performed on par with its peer group with respect to revenue.

Recognizing the Company’s very strong relative performance to its peers, the Committee then utilized the average performance of the peer set with regard to the Company’s performance metrics to inform the recalibrated performance curve. Accordingly, for

 

 

25

 

 

Executive Compensation

 

the full year 2020, the incentive payouts were based on the Company’s relative performance to its peers, within the performance metrics of the Company’s incentive programs. Furthermore, to align the Company’s incentive programs with the interests of its stakeholders, the Committee capped the potential payout under the annual incentive plan at 100% of target and capped the potential payout under the long-term program at 75% of target for the 2020 performance year.

The Committee viewed the adjustment to the fiscal 2020 performance goals as consistent with its performance-based compensation philosophy, taking into consideration (i) Kontoor’s very strong relative performance to peers with respect to total shareholder return, profit before taxes, cash flow, earnings per share, and gross margin over the first three quarters of 2020, (ii) Kontoor’s strong performance prior to the pandemic, (iii) the strong leadership demonstrated by Kontoor’s executive leadership team and resilience and agility demonstrated by Kontoor’s employees under challenging conditions, and (iv) Kontoor’s projected financial performance results against the original performance goals. The Committee believes these decisions, including the capped payouts under the AIP and MTIP for 2020 at 100% of target and 75% of target, respectively, were made in the best interests of our shareholders, as they compensate our executives and employees appropriately for their leadership and performance in 2020 and promote alignment of our executives’ focus with our core strategic priorities that we believe will generate long-term shareholder value.

 

•

Fiscal 2020 Performance Achievement. Based on our performance relative to the recalibrated performance goals, we achieved 100% payout under the annual incentive plan and 106% payout for the 2020 component of the outstanding PRSUs. The Committee reduced the fiscal 2020 payout of PRSUs to 75% of target, in consideration of the recalibrated goals, as described above.

Our Compensation Philosophy—Kontoor’s Executive Compensation Program (or the “Program”) is designed to:

 

•

Enable Kontoor to attract and retain talented executives

 

•

Align our executives’ interests with those of shareholders by paying for performance and providing a high percentage of our executives’ total direct compensation in pay that is at-risk and in the form of long-term equity-based compensation

The Committee is committed to ensuring that the Program is oriented toward pay-for-performance and designed to achieve the objectives of our compensation philosophy for our NEOs through the grant of short- and long-term incentive awards that align with Kontoor’s five primary priorities:

 

•

Scaling our advantage in the core denim business

 

•

Accelerating our positions in high-value segments, channels and geographies

 

•

Building advantaged positions to reach new consumers

 

•

Driving an unwavering focus on margin expansion and improving capital efficiency

 

•

Sustaining high levels of engagement by a performance-driven team

Our NEOs’ 2020 compensation is comprised of base salary, annual cash incentive compensation and long-term equity incentive compensation, with long-term equity compensation in the form of Kontoor performance-based and time-based restricted stock unit awards.

Balance of Base Salary and At-Risk Pay for Performance Components—Kontoor’s philosophy is that a significant portion of each executive’s total direct compensation should be at-risk, meaning subject to fluctuation based on Kontoor’s financial and stock price performance. The at-risk components of total compensation targets are annual cash incentives and long-term equity compensation. The at-risk portion of target total compensation is greater for higher level positions, reflecting greater accountability for performance results. For our NEOs, 60% of our long-term incentive equity awards are at-risk and subject to financial performance objectives linked to our strategic priorities and shareholder returns. Our 2020 executive compensation program design is aligned with the Company’s pay-for-performance philosophy.

 

26

Executive Compensation

 

CEO		OTHER NEOS

We compensate our executives through programs that substantially link compensation to Kontoor Brands’ performance, with a view to striking an appropriate balance between the long-term and annual performance of Kontoor, and between Kontoor’s financial performance and shareholder returns.

Our Governance Practices—Our executive compensation practices promote good governance and mitigate excessive risk-taking. Below we highlight key compensation practices that we have implemented in our Program, to promote the interests of shareholders, and responsible compensation and governance practices:

WHAT WE DO

 

 

WHAT WE DO NOT DO

 

 

 

27

 

Executive Compensation

 

Say-on-Pay—In 2020, we provided our shareholders with their first advisory, non-binding vote on our executive compensation program as an independent public company (a “Say-on-Pay” vote). At our 2020 annual meeting of shareholders, shareholders owning more than 97% of our stock voted for our Say-on-Pay proposal. After considering our 2020 Say-on-Pay voting results and the advice from our compensation consultant, the Committee determined that it was appropriate to maintain the core design of our Program from 2020 and, therefore, did not make any material changes to the design of the Program in response to the 2020 Say-on-Pay voting results. The Committee expects to consider future annual Say-on-Pay votes and investor feedback when making decisions relating to our executive compensation program, policies and practices.

In addition, at our 2020 annual meeting, our shareholders voted, on an advisory basis, to include a Say-on-Pay proposal in our proxy materials on an annual basis. In accordance with the advisory vote, we determined that we will include a Say-on-Pay proposal in our proxy materials for each annual meeting of shareholders until the next advisory vote on the frequency of future Say-on-Pay votes, which will occur no later than our 2026 annual meeting of shareholders.

Compensation Program

Compensation Philosophy and Objectives

The fundamental philosophy of our Program is to pay for performance, through the alignment of our executives’ pay with the achievement of our short- and long-term business strategies. The Program incorporates the following objectives:

 

•

Motivate executives to accomplish Kontoor’s short-term and long-term business objectives;

 

•

Provide annual incentives to executives based on corporate, business group and/or individual performance;

 

•

Provide executives with long-term equity-based compensation that aligns the interests of shareholders and executives;

 

•

Retain our executive talent; and

 

•

Offer executives total compensation competitive with other companies with which Kontoor may compete for talent, with a focus on globally-oriented apparel and accessory companies.

Our Program is designed to balance fixed and performance-based compensation components and incentivize responsible achievement of multiple operating goals over one- and multi-year periods. For the purpose of valuing total direct compensation, the performance-based elements are valued at their grant date at target levels. Such awards also provide for above- and below- target payout levels and thereby directly motivate executives to achieve Kontoor’s business goals, reward them for achieving and exceeding these goals and reduce compensation below target levels if goals are not achieved.

 

28

 

 

		Executive Compensation

 

Following are the Elements of our Program:

 

Type		Component		Element		Terms		Objective		Vesting Period
Fixed Compensation		Annual Base Salary		Cash		•  Fixed pay reflective of an executive’s role, responsibilities and individual performance   •  Reviewed annually		•  Competitively compensate executives for their level of responsibility, skills, experience and sustained individual contribution		N/A
Performance- Based Compensation		Annual Incentive Award		Cash		•  Variable, performance-based cash compensation earned based on achieving pre-established annual goals   •  Annual payouts range from 0% to 200% of the targeted incentive opportunity		•  Link compensation to annual operating and strategic performance objectives		One Year
		Long-Term Equity Incentive Awards		Performance- Based Restricted Stock Units (“PRSUs”)		•  For 2020, variable, performance-based equity compensation earned based on achieving pre-established financial goals over a three-year performance cycle comprised of three consecutive one-year performance periods (subject to adjustment based on fiscal 2020-22 relative TSR)   •  Payouts range from 0% to 200% of the targeted incentive opportunity (±25% of target award tied to relative TSR)   •  Dividend equivalent units accumulate during the vesting period, but remain subject to attainment of performance goals   •  Paid in shares of Kontoor common stock upon vesting		•  Link compensation to annual operating performance objectives   •  Link rewards to long- term operating performance   •  Link rewards to shareholder value creation through stock price growth   •  Aid in retention		Three Years
Time-Based Compensation		Long-Term Equity Incentive Awards		Restricted Stock Units (“RSUs”)		•  Dividend equivalent units accumulate during the vesting period, but are not paid unless the underlying RSUs vest   •  Paid in shares of Kontoor common stock upon vesting		•  Link rewards to shareholder value creation through stock price growth   •  Aid in retention		Three Years (ratable vesting)

In establishing the elements of executive compensation, the Committee, in consultation with its independent consultant, assesses whether the Program’s terms promote unnecessary risk-taking. In performing this assessment, the Committee reviews such compensation design elements as pay mix, performance metrics, performance goals and payout curves, payment timing and adjustments, equity incentives, stock ownership requirements, clawbacks and Kontoor’s trading policies. The Committee’s independent consultant considered risk and the potential for unintended consequences associated with incentive design as part of its ongoing work with the Committee. After performing this analysis, the Committee has concluded that the Program does not promote excessive or unnecessary risk-taking.

 

 

29

 

Executive Compensation

 

Compensation Decision-Making Process—Roles and Responsibilities

 

The Talent and Compensation Committee
Kontoor’s Talent and Compensation Committee, composed entirely of independent directors, reviews all components of the Program periodically to confirm that they are necessary and appropriate to promote Kontoor’s strategic objectives while considering the competitive marketplace for executive talent. In addition, pertaining to their compensation related roles and responsibilities, the Committee:
•  Reviews and approves Kontoor’s goals and objectives relevant to the President and Chief Executive Officer’s compensation, evaluates his performance and sets his compensation levels   •  Annually reviews the performance evaluations of the other NEOs   •  Reviews and approves the compensation packages for the other NEOs   •  Approves base salary adjustments to the extent they are warranted by changes in market pay data, the executive’s performance and other considerations   •  Approves annual and long-term incentive award payouts based on performance achieved relative to the pre-established performance targets   •  Evaluates and approves executive officer compensation to ensure that a significant portion is performance-based, while creating incentives for above-target performance and consequences for below-target performance   •  Annually reviews aggregate long-term incentive practices, including share usage, potential dilution and total cost of long-term incentive program   •  Reviews and establishes the peer group companies used as a reference to compare Company performance and executive officer compensation   •  Continually monitors external compensation practices that meet high governance standards and considers their implementation as appropriate. Receives regular reports on such practices from its independent compensation consultant. Considers, as appropriate, available analysis of the Program by the leading proxy voting advisory firms. Receives feedback from Kontoor shareholders through Kontoor’s investor relations department		•  Confirms that total compensation paid to each executive officer is appropriate based on comparing the Company’s financial performance relative to the peer group as measured by financial metrics including operating performance   •  Considers the results of the vote by Kontoor shareholders on the advisory “Say-on-Pay” proposal in connection with the discharge of its responsibilities   •  Reviews and approves executive compensation policies, such as clawback policies and share ownership requirements   •  Performs a total compensation review to understand the elements of the executives’ compensation   •  Reviews all components of Kontoor’s top executives’ compensation including current cash compensation (base salary and annual cash incentive awards) and assumed value of long- term equity incentive compensation (performance-based RSUs and service-based RSUs)   •  Reviews the dollar value to the executive and the cost to Kontoor of all perquisites and other benefits granted to the NEOs. Reviews aggregate balances under Kontoor’s deferred compensation plans. Considers projected payout levels under several termination-of-employment scenarios   •  Annually performs or reviews a compensation risk evaluation

 

The Independent Committee Consultant
The Committee retained Frederic W. Cook & Co., Inc. (“FW Cook”), as its independent compensation consultant to assist the Committee in accomplishing its objectives for 2020. FW Cook is independent of Kontoor, having no relationship with Kontoor other than providing advisory services to the Committee. In reviewing FW Cook’s independence, the Committee has considered the six factor test prescribed under NYSE rules. The Committee has sole authority to retain or terminate the service of its compensation consultant and to establish the fees to be paid to the consultant. FW Cook’s responsibilities include:
•  At the Committee’s instruction, independently prepare an analysis of compensation data relating to the named executive officers and other Section 16 officers as well as benchmarking on non-employee director compensation   •  At the Committee’s request, a representative of FW Cook attended a majority of the meetings and executive sessions of the Committee in 2020		•  Advises the Committee on current executive compensation practices that meet high governance standards, as well as current market trends, regulatory issues and developments related to executive compensation and director compensation   •  Periodically reviews the industry group of publicly traded apparel/ accessory companies whose compensation data is used by the Committee in its process of establishing compensation levels (collectively, the “Industry Group”)

 

30

 

 

		Executive Compensation

 

Kontoor Management
As requested by the Committee, management is responsible for preparing information for each Committee meeting and providing FW Cook with information to facilitate its role in advising the Committee.
•  The Executive Vice President and Chief Human Resources Officer, the General Counsel and the President and Chief Executive Officer generally attend Committee meetings, except the executive sessions that are held as part of each meeting   •  The Executive Vice President and Chief Human Resources Officer, the General Counsel and the President and Chief Executive Officer work with the Committee Chair to prepare the agenda for each meeting   •  The President and Chief Executive Officer makes recommendations to the Committee regarding compensation for NEOs (other than himself)   •  The President and Chief Executive Officer provides the Committee with information regarding his achievement of objectives and other leadership accomplishments		•  Management provides information on Kontoor’s strategic objectives to the Committee and makes recommendations to the Committee regarding business performance targets and objectives for all senior executives including the President and Chief Executive Officer   •  In consultation with FW Cook, management recommends for the Committee’s consideration the Industry Group whose compensation data is used by the Committee to establish market pay levels for Kontoor executives

Competitive Compensation Targets and the Role of the Industry Group

In 2020, FW Cook and management each independently analyzed peer data as well as broader market data applicable to the talent pool from which the Company draws (the “Comparison Data”) in proposing compensation targets for 2020.

In establishing a peer Industry Group to review in July 2019 following the Spin-Off, the Committee primarily identified companies that are of comparable size (based on revenue and market capitalization), and met a majority of several criteria, such as

 

•

having similar products and/or customers,

 

•

having strong brands that are respected and well-known,

 

•

having wholesale operations and domestic U.S. sales and

 

•

is a frequent peer of peers being listed as a compensation peer in at least three other current peer companies.

In July 2019, the Committee approved the following Industry Group constituent companies:

 

Capri Holdings Limited (f/k/a Michael Kors Holdings Limited)		Carter’s, Inc.		Columbia Sportswear Company
Deckers Outdoor Corporation		Express, Inc.		G-III Apparel Group, Ltd.
Gildan Activewear Inc.		Guess?, Inc.		Hanesbrands Inc.
Levi Strauss & Co.		Oxford Industries, Inc.		Ralph Lauren Corporation
Steven Madden, Ltd.		Tapestry, Inc.		Under Armour, Inc.
		Wolverine World Wide, Inc.

Our revenues rank between the 25^th percentile and 50^th percentile and our market capitalization ranks near the 25^th percentile of the Industry Group companies. In 2020, the Committee reviewed the composition of the Industry Group and, based on the recommendation from FW Cook, approved the Industry Group with no changes to the constituent companies that made up our Industry Group for 2019.

For 2020, compensation was established for each NEO taking into consideration the Comparison Data, the scope of the executive’s duties, the executive’s experience in his or her role and the executive’s individual performance relative to his or her peers. The Committee also evaluated the relative compensation levels among Kontoor’s senior executives as compared to the market pay levels of companies in the Industry Group. The Committee seeks to set total target director compensation, and balance the elements of total direct compensation (base salary, target annual cash incentive awards and target annual long-term equity incentive award values), for senior executives at levels competitive with compensation paid to executives in comparable positions at Industry Group peers.

Benefits in 2020 were set at levels intended to be competitive within the Industry Group but were not included in the Committee’s evaluation of total direct compensation.

 

 

31

 

Executive Compensation

 

Components of Total Direct Compensation

The components of the target total direct compensation opportunity set by the Committee annually for each executive are short-term cash compensation (annual base salary and target annual cash incentive award) and long-term equity incentive compensation (RSUs and PRSUs under the Stock Plan). The portions of FY2020 target total direct compensation for each of the compensation elements for the NEOs were as follows:

 

Executive		Base Salary					Annual Cash Incentive Award					Long-Term Equity Incentive  Awards					At-Risk Portion*					Performance-Based       Portion
Mr. Baxter				18	%				23	%				59	%				82	%				58	%
Mr. Welton				32	%				24	%				44	%				68	%				50	%
Mr. Waldron				31	%				23	%				46	%				69	%				51	%
Mr. Waldeck				31	%				23	%				46	%				69	%				51	%
Ms. Krueger				40	%				26	%				34	%				60	%				46	%

 

*	“At-Risk Portion” includes Annual Cash Incentive Award and Long-Term Equity Incentive Awards.

Base Salary

Base salary is designed to compensate executives for their level of responsibility, skills, experience and sustained individual contribution. Base salary is generally intended to be competitive as compared to salary levels for equivalent executive positions at companies in the Industry Group. The Committee believes that a competitive base salary provides the foundation for the total compensation package required to attract, retain and motivate executives in alignment with Kontoor’s business strategies.

The Committee annually reviews individual salaries for the NEOs and intends to conduct a review at the time of a promotion or other change in responsibilities. Each NEO is evaluated annually based on several components: key job responsibilities, key accomplishments, performance trends and annual goals and objectives. The resulting performance evaluations are presented to the Committee and used in assessing salary and the other components of total compensation for each NEO.

Fiscal 2019 base salaries of the NEOs were set by the Board of Directors effective as of the Spin-Off on May 22, 2019. Following the Spin-Off, the Committee requested a competitive market assessment of Kontoor’s senior executive officer compensation levels from the Committee’s independent compensation consultant to assist with compensation planning for fiscal 2020. The benchmarking data indicated that NEO base salaries were below the 25^th percentile of our peer group, and near the 25^th percentile of a broader general industry survey group. Accordingly, the Committee set fiscal 2020 base salaries for the NEOs based on (i) review of the competitive market salary range for the individual’s position, as described above, (ii) assessment of the individual’s experience, skill set and performance, (iii) Kontoor’s overall merit increase budget for salaries and (iv) recognition of substantial increases in the executive’s responsibilities. The base salary increases more closely align our executives with similar executives at Kontoor peer companies.

 

Executive		FY2019 Base Salary					FY2020 Base Salary					Percentage      Increase
Mr. Baxter			$	875,000				$	1,000,000					15	%
Mr. Welton			$	500,000				$	550,000					10	%
Mr. Waldron			$	460,000				$	505,000					10	%
Mr. Waldeck			$	440,000				$	505,000					15	%
Ms. Krueger			$	475,000				$	485,000					3	%

On account of the COVID-19 pandemic, our CEO voluntarily agreed to a temporary 30 percent reduction of his base salary and our other NEOs agreed to a temporary 15 percent reduction of their base salary beginning in April 2020, which reduction ended in July 2020.

Annual Cash Incentives

Kontoor has an annual cash incentive program (the “AIP”). All Kontoor employees are eligible to participate in the AIP, unless they participate in a sales incentive plan. The AIP focuses employee attention on Kontoor’s annual performance as measured by pre-established goals. The incentives are designed to motivate Kontoor’s employees by providing payments for achieving and exceeding goals related to Kontoor’s annual business plan and strategic priorities. AIP bonuses for the NEOs are paid according to the terms of Kontoor Brands Management Incentive Compensation Plan (“MIC Plan”).

 

32

 

 

Executive Compensation

 

Under the AIP, annual performance goals are set by the Committee. While it is the policy of the Committee to provide opportunities for annual incentive compensation for achievement of pre-established performance goals based primarily on financial measures, the Committee also retains discretion to pay bonuses apart from the AIP and the MIC Plan, reflecting its subjective assessment of the value of accomplishments of Kontoor’s executive officers which, in the Committee’s view, cannot always be anticipated in advance or reflected in such pre-established goals.

The Committee sets the targeted annual incentive opportunities under the AIP for executives after considering external compensation data, the recommendations of the President and Chief Executive Officer (other than with respect to his compensation) and FW Cook analysis. The Committee also makes a general assessment as to the relative amounts of annual incentives for the NEOs to make sure they are, in the Committee’s judgment, fair and reasonable.

Our Performance Goals—The structure of the AIP seeks to align Kontoor’s strategic growth plans and focus on the most impactful drivers of annual shareholder return. The Committee believes the following key drivers of total shareholder return should be the foundation for annual bonus payouts for the NEOs:

 

Objective		Rationale
GAAP Revenue		Key measure of top line growth that indicates sustainability of the company over the long term and its ability to generate profits.
Gross Margin		Used to measure company efficiency and brand strength.
Profit Before Taxes*		Profit measure that can be compared year-to-year at the business level.

 

*	Profit before taxes is our reported income before taxes for the year ended January 2, 2021 adjusted for restructuring and separation costs and other non-recurring expenses.

The Company believes these three metrics are the most important performance outcomes to create shareholder value, while securing our future as a global leader in lifestyle apparel. In addition, these metrics align with those used by companies in our peer group to motivate management. For 2020, we included a revenue component to emphasize the importance of revenue growth as Kontoor moves beyond the Spin-Off. We removed operating cash flow as a metric from our annual incentive plan, but maintain it in our long-term incentive plan, thereby removing duplication of the performance metric while maintaining cash flow as a key measure tracked by our shareholders as a measure of the Company’s long-term financial strength.

The performance goals for 2020 were set in line with Kontoor’s strategy to deliver consistent, profitable growth that provides sustainable, long term returns for Kontoor’s shareholders while considering the impact of external factors on short term performance. The goals reflected a number of factors, including Kontoor’s strategic growth plan and value creation model and long-term commitments to our shareholders. Because the AIP performance goals were established in March 2020 before the COVID-19 pandemic began to significantly impact the global economy and the Company’s operations, neither the original performance goals nor the pre-determined adjustment categories, specifically contemplated the long-term impact of a global pandemic.

As described in more detail under “Executive Summary—Impact of COVID-19 on Key Fiscal 2020 Compensation Decisions” beginning on page 25, the Committee determined that the original performance goals were rendered obsolete due to circumstances outside of Kontoor’s control. Informed by Kontoor’s very strong relative performance to peers through the first three quarters of 2020, the Committee recalibrated the performance goals to mitigate the unforeseeable business disruption caused by the pandemic and capped the fiscal 2020 payout under the AIP at 100% of target in consideration of the modified goals. The modifications to the performance goals were within the Committee’s authority under the terms of the MIC Plan.

 

 

33

 

Executive Compensation

 

Details of the original and modified performance goals are shown below.

 

Original Fiscal Year 2020 Kontoor AIP Performance Goals
						Performance Levels
Performance Metric		Metric Weighting				Threshold (50%)				Target (100%)				Maximum (200%)
GAAP Revenue			20	%		$	2,310,000,000			$	2,565,000,000			$	2,820,000,000
Gross Margin			40	%			40.8	%			41.1	%			42.9	%
Profit Before Taxes			40	%		$	245,000,000			$	272,000,000			$	295,000,000

 

Modified Fiscal Year 2020 Kontoor AIP Performance Targets
						Performance Levels
Performance Metric		Metric Weighting				Threshold (50%)				Target (100%)				Maximum (200%)
GAAP Revenue			20	%		$	1,770,000,000			$	2,300,000,000			$	2,820,000,000
Gross Margin			40	%			37.2	%			41.0	%			42.9	%
Profit Before Taxes			40	%		$	55,000,000			$	166,000,000			$	295,000,000

 

(1)	Performance achievement is interpolated between levels.

 

(2)

When assessing AIP performance, the Committee may adjust for (i) the effects of impairment charges, restructuring charges, unplanned impact of trade tariffs, other extraordinary items, regulatory changes, non-recurring items and required changes in accounting policies, and (ii) differences between actual foreign exchange rates and the foreign exchange rates used in Kontoor’s 2020 financial plan.

The Kontoor performance goals are measured at threshold, target and maximum amounts. The target award amounts, which are based on fiscal 2020 base salary without giving effect to the April – July 2020 salary reductions, are set forth in the Grants of Plan-Based Awards table on page 43.

For fiscal 2020, the Company’s GAAP revenue, gross margin and profit before taxes were $2.10 billion, 41.2% and $176 million, respectively. After reviewing the Company’s performance against the recalibrated performance goals, the Committee determined payout for fiscal 2020 performance at 100%. Under the original fiscal 2020 performance goals, the payout would have been 43% of the AIP target award.

The payments made to the NEOs under the AIP are set forth in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table on page 41.

In the future, the Committee may set targets related to not only Company financial performance but also Company non-financial performance goals, as well as individual, regional, business unit and similar performance goals.

Performance-Based Restricted Stock Units (60% of Annual LTI Awards)

Under the Kontoor Brands Mid-Term Incentive Plan (“MTIP”), executives are awarded performance-based RSUs (“PRSUs”) that are settled under the Stock Plan. The PRSUs give recipients the opportunity to earn shares of Kontoor common stock for performance achieved over a multi-year performance cycle. PRSUs provide long-term incentive compensation for executives with the objectives of providing a focus on long-term value and increasing stock ownership. PRSUs are designed to align the interests of Kontoor executives with those of shareholders by encouraging the executives to enhance the value of Kontoor common stock. In addition, the multi-year performance cycle is designed to create an incentive for individual executives to remain with Kontoor.

Recipients may earn from 0% to 200% of the target number of PRSUs granted. The Committee will determine the number of PRSUs earned at the end of the three-year performance cycle and may impose a modifier, such as total shareholder return, in determining performance achievement. The PRSUs cliff vest three years from the grant date, to the extent earned. Dividend equivalents are paid on the shares actually paid out under the MTIP (no dividend equivalents are paid on any portion of the PRSUs not earned). At the payout date, the cash value of dividend equivalents is converted into additional shares.

 

34

 

 

Executive Compensation

 

Our Performance Goals—The structure of the MTIP seeks to align Kontoor’s strategic growth plans and focus on the most impactful drivers of long-term shareholder return. The Committee believes the following key drivers of long-term shareholder return should be the foundation for PRSUs for the NEOs:

 

Objective		Rationale
Operating Cash flow		Indicates the financial strength of the company, supports the company’s Horizon 1 initiative and allows it to return earnings to shareholders through dividends and pursue opportunities that enhance shareholder value.
Adjusted EPS*		Used to measure company efficiency.

 

*	Adjusted earnings per share is our reported earnings per share for the year ended January 2, 2021 adjusted for restructuring and separation costs.

Cash flow and adjusted earnings per share were selected as measures for our long-term performance program due to the Committee’s desire to focus management on two of the performance drivers it viewed as most critical to our long-term success. We added adjusted earnings per share as a metric in an effort to focus our executive leadership team on a key driver of long-term shareholder value, as Kontoor moves beyond the Spin-Off. We removed gross profit as a metric from our long-term performance program, but maintain a related metric (profit before taxes) in our annual incentive plan, thereby removing duplication of the performance metric while maintaining profitability as a key measure tracked by our shareholders.

Due to the lack of historical performance data as a stand-alone company and the higher risk of goal obsolescence associated with the establishment of multi-year performance goals following the Spin-Off, the three-year performance cycle for the PRSUs granted in 2020 consists of three consecutive one-year performance periods, with payout based on the average of performance. A total shareholder return (“TSR”) modifier covering the three-year 2020-2022 Kontoor performance period also applies to the PRSUs granted in 2020. The TSR modifier enhances the long-term performance orientation of the award in light of the Company’s unique position in its first full year as a stand-alone company following the Spin-Off. As a result of the COVID-19 pandemic, and the challenge of establishing cumulative three-year performance goals based on unprecedented levels of business disruption and uncertainty, the Company anticipates the establishment of three consecutive one-year performance periods for the performance grants to be awarded in 2021. The Company intends to establish cumulative three-year performance goals for future performance grants issued in 2022, as soon as business and operations return to pre-pandemic levels.

For 2020, the Committee established the following first-year goals for the first year of the December 29, 2019 through December 31, 2022 performance cycle.

 

Original Fiscal Year 2020 Kontoor PRSU Performance Goals
Performance Goal		Weighting				Threshold Performance (50%)				Target Performance (100%)				Maximum Performance (200%)
Cash Flow			40	%		$	280,000,000			$	360,000,000			$	425,000,000
Adjusted EPS			60	%		$	3.30			$	3.69			$	3.95

 

(1)	Performance achievement is interpolated between levels.

 

(2)

When assessing MTIP performance, the Committee may adjust for (i) the effects of impairment charges, restructuring charges, unplanned impact of trade tariffs, other extraordinary items, regulatory changes, non-recurring items and required changes in accounting policies, and (ii) differences between actual foreign exchange rates and the foreign exchange rates used in Kontoor’s 2020 financial plan.

The fiscal 2020 PRSU performance goals were applicable to the following outstanding awards:

 

•

Year 1 of 3 of the fiscal 2020 PRSU award (December 29, 2019 through December 31, 2022 performance cycle);

 

•

Year 2 of 3 of the fiscal 2019 annual PRSU award (December 29, 2018 through January 1, 2021 performance cycle);

 

•

Year 2 of 3 of the PRSUs granted by Kontoor in 2019 in connection with the Spin-Off (the “Launch PRSUs”) (December 29, 2018 through January 1, 2021 performance cycle); and

 

•

Year 2 of 2 of the PRSUs issued by Kontoor to replace certain PRSUs granted by VF in 2018 (and 2019 in the case of Ms. Krueger) that were forfeited pursuant to the terms of the Spin-Off (the “Replacement PRSUs”).

 

 

35

 

Executive Compensation

 

As described in more detail under “Executive Summary—Impact of COVID-19 on Key Fiscal 2020 Compensation Decisions” beginning on page 25, the Committee determined that the original fiscal 2020 PRSU performance goals were unattainable due to circumstances outside of Kontoor’s control. In addition, the Committee considered the cascading effect of the 2020 goals on the outstanding PRSU awards, as well as the pandemic’s impact on the design of the Launch PRSUs, which were one-time awards intended to strengthen alignment between management and shareholders and focus our key talent on financial and shareholder commitments in our first years as an independent company. Informed by Kontoor’s very strong relative performance to peers through the first three quarters of 2020, the Committee recalibrated the 2020 performance goals to mitigate the unforeseeable business disruption caused by the pandemic and capped the 2020 payout for the PRSUs at 75% of target in consideration of the modified goals and maintain alignment with shareholder interests. The modifications to the performance goals were within the Committee’s authority under the terms of the MTIP.

As a result, the Committee approved the following modified goals for the first year of the December 29, 2019 through December 31, 2022 performance cycle.

 

Modified Fiscal Year 2020 Kontoor PRSU Performance Goals
Performance Goal		Weighting				Threshold Performance (50%)				Target Performance (100%)				Maximum Performance (200%)
Cash Flow			40	%		$	50,000,000			$	256,000,000			$	425,000,000
Adjusted EPS			60	%		$	1.15			$	2.38			$	3.95

 

(1)	Performance achievement is interpolated between levels.

 

(2)

When assessing MTIP performance, the Committee may adjust for (i) the effects of impairment charges, restructuring charges, unplanned impact of trade tariffs, other extraordinary items, regulatory changes, non-recurring items and required changes in accounting policies, and (ii) differences between actual foreign exchange rates and the foreign exchange rates used in Kontoor’s 2020 financial plan.

To determine the number of PRSUs earned, the performance goals achieved over the performance cycle, as determined by the Committee, will be averaged. The participant’s payout is calculated by multiplying the target number of PRSUs granted by the interpolated payout percentage (between 0% and 200% of the participant’s target award). A second component, a relative performance metric, applies to the PRSUs granted in 2020 and will be based on Kontoor’s TSR for the 2020-2022 three-year performance cycle, as compared to the TSR generated by the Russell 3000 Index companies during such 36-month period. At the end of the three-year performance period, the payout for each participant will:

 

(i)	be unaffected if Kontoor’s TSR is between the 75th and 25th percentile of TSR of the Russell 3000 Index companies over the period,

 

(ii)	increase in the amount of 25% of the participant’s target award if Kontoor’s TSR is greater than or equal to the 75th percentile of TSR of the Russell 3000 Index companies over the period, or

 

(iii)

decrease in the amount of 25% of the participant’s target award if Kontoor’s TSR is equal to or below the 25th percentile of TSR of the Russell 3000 Index companies over the period.

As a result of including this relative performance metric, actual payouts may range from 0% to 225% of the targeted award. An additional number of shares equal to the dollar value of the dividends that would have accrued (without compounding) will also be added to the shares subject to the payout, to the extent the award is earned.

The PRSU target award amounts established by Kontoor for the NEOs for the 2020-2022 performance period are set forth below:

 

Executive		FY 2020 – 2022 PRSUs Awarded ($)				FY 2020 – 2022 PRSUs Awarded (#)
Mr. Baxter		$	986,731				63,619
Mr. Welton		$	231,270				14,911
Mr. Waldron		$	231,270				14,911
Mr. Waldeck		$	231,270				14,911
Ms. Krueger		$	123,351				7,953

As noted above, the adjustment to the 2020 performance goals resulted in the modification of multiple tranches of in-cycle long-term performance awards, including Year 1 of 3 of the annual 2020 PRSUs, Year 2 of 3 of the annual 2019 PRSUs and the Launch PRSUs and Year 2 of 2 of the Replacement PRSUs. Under SEC rules, the incremental fair value of these modified awards as of the modification date is required to be disclosed as compensation in the year the modification occurred, is

 

36

 

 

Executive Compensation

 

not representative of a new award or an increase in the realizable value of the awards, and represents additional non-cash accounting charges resulting from the modification of the PRSUs. Thus, the Summary Compensation Table on page 41 shows larger stock award compensation values than contemplated by our Talent and Compensation Committee in March 2020 when it initially established the long-term equity compensation opportunities for our NEOs for 2020, comprised of annual 2020 PRSUs and time-based restricted stock units. Similarly, the Grants of Plan-Based Awards table on page 43 shows the incremental fair value of the modified PRSUs, as required to be disclosed under SEC rules, and do not represent an additional award or an increase in the realizable value of the awards.

Fiscal Year 2020 Performance-Based RSU Awards Earned

In 2019, Kontoor issued Replacement PRSUs under the MTIP to the NEOs to replace certain PRSUs granted by VF in 2018 (and 2019 in the case of Ms. Krueger) (the “2018 VF PRSUs”) that were forfeited pursuant to the terms of the Spin-Off. These Replacement PRSUs equitably replace 62% of the 2018 VF PRSUs, with the remaining 38% of the 2018 VF PRSUs (as adjusted pursuant to the terms of the Spin-Off) being settled by VF. The Replacement PRSUs consist of two consecutive one-year performance periods, ending December 26, 2020.

For fiscal 2020, the Company’s cash flow and adjusted EPS were $242 million and $2.61, respectively. After reviewing the Company’s performance against the recalibrated performance goals, the Committee determined payout for fiscal 2020 performance at 106%. The Committee reduced the fiscal 2020 MTIP payout to 75% of target. Therefore, the Committee determined that the level of achievement for the Replacement PRSUs was 87.5%, determined by averaging the achievement of the MTIP goals for fiscal 2019 (100%) and 2020 (75%).

No payout would have been earned under the original fiscal 2020 performance goals.

Restricted Stock Units (40% of Annual LTI Awards)

Executives are also awarded time-based restricted stock units (the “RSUs”) under the Stock Plan. The RSUs consist of awards of the right to receive stock as determined by the Committee at the end of a specified restricted period, subject generally to continued employment. Dividend equivalents shall be paid or credited on RSUs, but any such dividend equivalents shall be subject to the same risk of forfeiture, other restrictions and deferral of settlement, if applicable, as apply to the underlying RSUs. The RSUs vest ratably in annual installments over three years.

The 2020 RSU awards are set forth in the Grants of Plan-Based Awards table on page 43. The grant-date fair value of the RSU awards granted to NEOs in 2020 is reflected in the Stock Awards column of the Summary Compensation Table on page 41.

Retention and Special Awards

Retention equity awards may be made by the Committee from time to time to attract or retain key executives and are designed to promote long-term employment with Kontoor. Awards of restricted stock or restricted stock units for retention purposes under the Stock Plan are not part of regular annual compensation and are not treated as part of total direct compensation as discussed above. No special awards were granted to the NEOs in 2020.

Policy for the Recovery of Awards or Payments in the Event of Financial Restatement

The Committee has adopted a policy for the recovery of cash and equity incentive compensation from officers and certain other employees (these are generally referred to as “recoupment” or “clawback” policies). The policy provides that the Committee may require a covered employee to forfeit an equity-based incentive award or repay cash-based incentive compensation if Kontoor is required to prepare an accounting restatement as a result of the covered employee’s misconduct, if the covered employee engages in misconduct materially detrimental to Kontoor or if otherwise required by applicable laws, rules or regulations. The award agreements for performance-based restricted stock units, restricted stock units, restricted stock awards and options under the Stock Plan include provisions respecting such recovery, as does the MIC Plan.

Policy Regarding Hedging or Pledging of Kontoor Common Stock

The Committee has adopted a policy prohibiting Kontoor directors, executive officers named in this Proxy Statement and certain other executives from engaging in transactions in derivative securities (including puts, calls, collars, forward contracts, equity swaps, exchange funds and the like) relating to Kontoor securities, transactions “hedging” the risk of ownership of Kontoor

 

 

37

 

Executive Compensation

 

securities and short sales of Kontoor securities. In addition, these individuals are prohibited from holding Kontoor securities in margin accounts or pledging Kontoor securities as collateral for loans.

Retirement and Other Benefits

The Committee believes that retirement and other benefits are important components of competitive compensation packages necessary to attract and retain qualified senior executives. The Committee intends to review the amounts of such benefits periodically along with other compensation components. However, such benefits do not affect the decisions the Committee makes regarding other compensation components, which are generally structured to achieve Kontoor’s short-term and long-term financial objectives.

401k Plan

During 2020, our NEOs were permitted to participate in the Kontoor Brands 401(k) Savings Plan (the “401k Plan”). The 401k Plan is a broad-based tax-qualified defined contribution plan available to most U.S.-based employees of Kontoor. Prior to the Spin-Off, the executives were eligible to participate in the VF Corporation Retirement Savings Plan.

Pension Benefits

Kontoor does not maintain a defined benefit pension plan. However, prior to the Spin-Off, VF sponsored and maintained the VF Pension Plan (the “VF Pension Plan”), a tax-qualified defined benefit plan that covered most of VF’s U.S.-based employees who were employed by VF on or before December 31, 2004. The purpose of the VF Pension Plan is to provide retirement benefits for those employees who qualify for such benefits under the provisions of the VF Pension Plan. The VF Pension Plan was closed to new participants at the end of 2004. Effective December 31, 2018, the VF Pension Plan ceased to recognize any future service performance and any eligible compensation paid for purposes of calculating participant accrued benefits under the VF Pension Plan. As of January 2, 2021, Mr. Waldron was the only Kontoor NEO who participated in the VF Pension Plan, and none of the Company’s other NEOs has ever participated in the VF Pension Plan. As part of the Spin-Off, VF retained the assets and liabilities associated with the VF Pension Plan; Kontoor does not share any of the assets or liabilities of the VF Pension Plan. None of the NEOs continue to participate in the VF Pension Plan with respect to their service to Kontoor following the Spin-Off.

Supplemental Executive Retirement Plan

Kontoor has not adopted a defined benefit pension plan. However, prior to the Spin-Off, VF maintained a Supplemental Executive Retirement Plan (the “VF SERP”), which was an unfunded, nonqualified plan for eligible participants primarily designed to restore benefits lost under the VF Pension Plan due to the maximum legal limit of pension benefits imposed under the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Code. The VF SERP was closed to new participants at the end of 2004. Effective December 31, 2018, the VF SERP ceased to recognize any future service performance and any eligible compensation paid for purposes of calculating participant accrued benefits under the VF SERP. As of January 2, 2021, Mr. Waldron was the only Kontoor NEO who participated in the VF SERP, and none of the Company’s other NEOs have ever participated in the VF SERP.

Nonqualified Deferred Compensation

Kontoor’s U.S.-based senior executives, including the NEOs, are permitted to defer compensation and receive a limited amount of matching credits under the Kontoor Brands Executive Deferred Savings Plan. Each Kontoor NEO participates in the Kontoor Brands Executive Deferred Savings Plan II, while only Mr. Waldron participates in the Kontoor Brands Executive Deferred Savings Plan. These plans enable executives to save for retirement on a tax-deferred basis. Nonqualified deferred compensation is discussed in further detail under the caption “2020 Nonqualified Deferred Compensation.”

Employee Benefits

Kontoor provides a number of benefit plans to all eligible employees, including the NEOs. These benefits include programs such as medical, dental, vision, life insurance and short- and long-term disability coverage and a merchandise discount on most Kontoor products. The NEOs are also eligible for financial counseling and an annual executive physical.

 

38