INSTEEL INDUSTRIES INC. DEF 14A

DEF 14A 1 liiin2021_def14a.htm INSTEEL INDUSTRIES INC - DEF 14A INSTEEL INDUSTRIES INC. DEF 14A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

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

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Filed by a Party other than the Registrant

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INSTEEL INDUSTRIES INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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Dear

Shareholder

H.O. Woltz III

Chairman of the Board

January 4, 2022

“Thank you for your
continued support
and interest in Insteel
Industries Inc.”

You are cordially invited to attend the 2022 Annual Meeting of Shareholders of Insteel Industries Inc. to be held February 15, 2022 at 9:00 a.m. Eastern Time. The meeting will take place at the Cross Creek Country Club, 1129 Greenhill Road, Mount Airy, North Carolina.

The attached proxy statement and formal notice of the meeting describe the matters expected to be acted upon at the meeting. We urge you to review these materials carefully and to use this opportunity to take part in the Company’s affairs by voting on the matters described in the proxy statement. At the meeting, we will also discuss our operations, fiscal year 2021 financial results and our plans for the future. Our directors and management team will be available to answer any questions you may have. We hope that you will be able to attend.

Your vote is important to us. Whether you plan to attend the meeting or not, please complete the enclosed proxy card and return it as promptly as possible. If you attend the meeting, you may elect to have your shares voted as instructed on the proxy card or you may withdraw your proxy at the meeting and vote your shares in person. If you hold shares in “street name” and would like to vote at the meeting, you should follow the instructions provided in the proxy statement.

Thank you for your continued support and interest in Insteel Industries Inc.

Sincerely,

Notice of

Annual Meeting
of Shareholders

1373 Boggs Drive

Mount Airy, North Carolina 27030
(336) 786-2141

FEBRUARY 15, 2022

9:00 a.m., Eastern Time

Cross Creek Country Club

1129 Greenhill Road

Mount Airy, North Carolina 27030

Dear Shareholder:

At our Annual Meeting, we will ask you to:

1.	Elect two nominees named in this proxy statement to the Board of Directors for terms expiring in 2025;
2.	Approve, on an advisory basis, the compensation of our executive officers;
3.	Ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for our fiscal year 2022; and
4.	Transact such other business, if any, as may properly be brought before the meeting or any adjournment thereof.

Only shareholders of record at the close of business on December 15, 2021 are entitled to vote at the Annual Meeting and any adjournment or postponement thereof.

Whether or not you plan to attend the meeting and vote your common stock in person, please mark, sign, date and promptly return the enclosed proxy card or voting instruction form in the postage-paid envelope according to the instructions printed on the card. Any proxy may be revoked at any time prior to its exercise by delivery of a later-dated proxy or by properly voting in person at the Annual Meeting.

Enclosed is a copy of our Annual Report for the year ended October 2, 2021, which includes a copy of our Annual Report on Form 10-K filed with the Securities and Exchange Commission.

By Order of the Board of Directors

James F. Petelle

Vice President and Secretary

January 4, 2022

Mount Airy, North Carolina

Table

of Contents

Proxy Summary		6
2022 Annual Meeting of Shareholders		6
Eligibility to Vote		6
Governance Highlights		6
Election of Directors		7
Advisory Vote on the Compensation of our Executive Officers		7
Ratify the Appointment of Grant Thornton LLP as our Independent Public Accounting Firm for Fiscal 2022		7

Proxy Statement		8
References to Website		8

Corporate Governance Guidelines and Board Matters		9
The Board of Directors		9
Director Attendance at Annual Meetings		9
Committees of the Board		9
Executive Sessions		11
Board Governance Guidelines		11
Board Leadership Structure		11
Risk Oversight		11
Code of Business Conduct		12
Stock Ownership Guidelines		12
Policy Regarding Hedging or Pledging of Insteel Stock		12
Availability of Bylaws, Board Governance Guidelines, Code of Conduct and Committee Charters		12
Corporate Responsibility		12
Shareholder Recommendations and Nominations		13
Process for Identifying and Evaluating Director Candidates		13
Communications with the Board of Directors		13

Security Ownership of Certain Beneficial Owners		14

Security Ownership of Directors and Executive Officers		15
Delinquent Section 16(a) Reports		15

Item Number One:	Election of Directors	16
Introduction		16
Vote Required		16
Board Recommendation		16
Information Regarding Nominees, Continuing Directors and Executive Officers		16

Executive Compensation		20
Compensation Discussion and Analysis		20
I. Executive Summary		20
II. Overall Objectives		22
III. Elements of Compensation		24
Executive Compensation Committee Report		28
Summary Compensation Table		29
Fiscal 2021 Grants of Plan-Based Awards		30
Outstanding Equity Awards at Fiscal Year End 2021		32
Options Exercised and Stock Vested During Fiscal Year 2021		33
Pension Benefits		33
Potential Payments upon Termination or Change in Control		34
CEO Pay Ratio		36

Director Compensation		37

Equity Compensation Plan Information		37

Compensation Committee Interlocks and Insider Participation		38

Item Number Two:	Advisory Vote on the Compensation of our Executive Officers	39
Board Recommendation		39

Item Number Three:	Ratification of the Appointment of Grant Thornton LLP	40
Independent Registered Public Accounting Firm		40
Board Recommendation		40
Fees Paid to Independent Registered Public Accounting Firm		40
Pre-Approval Policies and Procedures		41

Report of the Audit Committee		41

Certain Relationships and Related Person Transactions		42

Other Business		42

Questions and Answers About the Annual Meeting		43

Shareholder Proposals for the 2023 Annual Meeting		47
Proposals for Inclusion in the Proxy Statement		47
Other Proposals		47
Proposals for a Director Nominee and Related Procedures		47
Delivery of Notice of a Proposal		48
The Company’s Bylaws		48

Annual Report and Financial Statements		49

		INSTEEL INDUSTRIES INC. \| 2022 Proxy Statement		5
		INSTEEL INDUSTRIES INC. \| 2022 Proxy Statement		5

Date and Time:	February 15, 2022
	9:00 a.m. Eastern Time

Place:	Cross Creek Country Club
	1129 Greenhill Road
	Mount Airy, NC 27030

•	Six out of our seven directors are independent.
•	Our Lead Independent Director leads executive sessions of the independent directors, which are held in conjunction with each regularly scheduled board meeting.
•	We require that a nominee for director submit a resignation to the Board if he or she fails to receive a majority of the shares voted in an uncontested election.
•	We maintain fully independent Audit, Compensation and Nominating and Governance Committees.
•	We have share ownership guidelines for directors and executive officers.
•	Our directors and executive officers are prohibited from hedging our stock and are required to obtain prior approval of any pledge of our stock.
•	We conduct annual Board, committee and CEO evaluations.
•	Our Board participates in annual director education programs.
•	We require prior approval of certain related party transactions and Audit Committee review of any such transactions.

Proposal	Vote Required	Board Recommendation
Proposal 1: Election of two nominees to the Board of Directors	Plurality of Votes Cast*	FOR all nominees
Proposal 2: Advisory Vote on the compensation of our executive officers	Majority of the Votes Cast	FOR
Proposal 3: Ratification of the appointment of Grant Thornton LLP as our independent registered public accounting firm for fiscal year 2022.	Majority of the Votes Cast	FOR

www.insteel.com		INSTEEL INDUSTRIES INC. \| 2022 Proxy Statement		6

	Stock ownership guidelines;
	Double triggers in our change in control severance agreements;
	Clawback policy;
	No significant perquisites;
	Prohibition of hedging of our shares;
	Long-term incentives that are entirely equity-based; and
	Prohibition of stock option repricing.

•	Independence;
•	Leadership experience;
•	Business and financial experience;
•	Familiarity with our industry, customers and suppliers;
•	Integrity;
•	Diverse talents, backgrounds and perspectives;
•	Judgment;
•	Other company board or management relationships;
•	Existing time commitments; and
•	NYSE and other regulatory requirements for the Board and its committees.

Name and Address of Beneficial Owner	Number of Shares	Percentage of Shares
BlackRock, Inc. and affiliates⁽¹⁾ 55 East 52^ndStreet New York, NY 10055	3,009,149	15.5%
Franklin Mutual Advisers, LLC and affiliates⁽²⁾ 101 John F. Kennedy Parkway Short Hills, NJ 07078-2789	1,543,224	8.0%
T. Rowe Price Associates, Inc.⁽³⁾ 100 E. Pratt Street Baltimore, MD 21202	1,341,037	6.9%
The Vanguard Group⁽⁴⁾ 100 Vanguard Blvd. Malvern, PA 19355	1,220,212	6.3%
Dimensional Fund Advisors LP⁽⁵⁾ Building One 6300 Bee Cave Road	1,162,496	6.0%

(1)	Based upon information set forth in a Schedule 13G filed with the SEC by BlackRock, Inc. on January 25, 2021 reporting sole power to vote or direct the vote of 2,981,259 shares and sole power to dispose or direct the disposition of 3,009,149 shares. In its Schedule 13G/A, BlackRock, Inc. reported that the interest of iShares Core S&P Small-Cap ETF in the specified shares is more than 5% of the outstanding shares of our common stock.
(2)	Based upon information set forth in a Schedule 13G/A filed with the SEC by Franklin Mutual Advisers, LLC on February 4, 2021 reporting sole power to vote or direct the vote of 1,415,277 shares and sole power to dispose or direct the disposition of 1,543,224 shares. Franklin Mutual Advisers, LLC disclaimed beneficial ownership of such shares.
(3)	Based upon information set forth in a Schedule 13G/A filed with the SEC by T. Rowe Price Associates, Inc. on February 16, 2021 reporting sole power to vote or direct the vote of 401,452 shares and sole power to dispose or direct the disposition of 1,341,037 shares.
(4)	Based upon information set forth in a Schedule 13G/A filed with the SEC by The Vanguard Group on February 10, 2021 reporting shared power to vote or direct the vote of 19,958 shares, sole power to dispose or direct the disposition of 1,185,540 shares and shared power to dispose or direct the disposition of 34,672 shares.
(5)	Based upon information set forth in a Schedule 13G/A filed with the SEC by Dimensional Fund Advisors LP on February 12, 2021 reporting that it or its subsidiaries may possess sole power to vote or direct the vote of 1,103,002 shares and sole power to dispose or direct the disposition of 1,162,496 shares. Dimensional Fund Advisors LP and its subsidiaries disclaimed beneficial ownership of such shares.

	Number of		Options
	Shares of		Exercisable
Name of Beneficial Owner	Common Stock	RSUs⁽¹⁾	Within 60 days	Total	%
Abney S. Boxley, III	10,498	2,039		10,498
Anne H. Lloyd	2,716	2,039		2,716	*
W. Allen Rogers II	85,232	2,039		85,232	*
Jon M. Ruth	13,631	2,039		13,631	*
Joseph A. Rutkowski	13,619	2,039		13,619	*
G. Kennedy Thompson	23,182	2,039		23,182	*
H. O. Woltz III⁽²⁾	668,874	38,196	70,899	739,773	3.8
Mark A. Carano	0	6,764	2,354	2,354	*
James F. Petelle	17,746	9,550	13,389	31,135	*
Richard T. Wagner	35,133	17,506	54,432	89,565	*
James R. York	468	7,003	11,728	12,196	*
All Directors and Executive Officers as a Group (11 Persons)	871,099		152,802	1,023,901	5.2

(1)	The economic terms of RSUs are substantially similar to shares of restricted stock. However, because shares of restricted stock carry voting rights while RSUs do not, pursuant to SEC rules shares of restricted stock would be included in the “Total” column, while RSUs are not so included. We show them here because we believe it provides additional information to our shareholders regarding the equity interests our executive officers and directors hold in the Company.
(2)	Includes 170,610 shares held in various trusts for which Mr. Woltz serves as co-trustee. Mr. Woltz shares voting and investment power for these shares. He disclaims beneficial ownership of such shares except to the extent of his pecuniary interest in them.
()*	Less than 1%.

				Executive	Nominating and
		Director	Audit	Compensation	Governance
	Age	Since	Committee	Committee	Committee	Independent
Abney S. Boxley III	63	2018				Y
Anne H. Lloyd	60	2019				Y
W. Allen Rogers II	75	1986				Y
Jon M. Ruth	66	2016				Y
Joseph A. Rutkowski	66	2015				Y
G. Kennedy Thompson	71	2017				Y
H. O. Woltz III	65	1986				N

•	Executive Compensation Committee (Chair)
•	Nominating and Governance Committee

•	Executive Compensation Committee
•	Nominating and Governance Committee (Chair)

•	Highwood Properties, Inc.
•	James Hardie Industries p.l.c.

•	Executive Compensation Committee
•	Audit Committee (Chair)

	Compensation Discussion and Analysis	20
	I. Executive Summary	20
	II. Overall Objectives	22
	III. Elements of Compensation	24
	Executive Compensation Committee Report	28

H. O. WOLTZ III	President and Chief Executive Officer
MARK A. CARANO	Senior Vice President, Chief Financial Officer and Treasurer
JAMES F. PETELLE	Vice President – Administration, Secretary and Chief Legal Officer
RICHARD T. WAGNER	Senior Vice President and Chief Operating Officer
JAMES R. YORK⁽¹⁾	Senior Vice President – Sourcing and Logistics

Executive Officer	Previous Base Salary Approved July 15, 2018	Current Base Salary Approved December 15, 2020
H. O. Woltz III	$635,000	$675,000
James F. Petelle	$225,000	$250,000
Richard T. Wagner	$330,000	$350,000
James R. York	$230,000	$250,000

•	Our revenues increased 25% to $590.6M, while our shipments were essentially flat.
•	Net earnings increased 250% to $66.6M or $3.41 per diluted share.
•	Return on capital, as calculated under our Return on Capital Incentive Compensation Plan (“ROCICP”), was 36.9%.
•	We invested $17.5M in our facilities during fiscal 2021 in support of our ongoing efforts to reduce production costs, enhance our manufacturing capabilities and strengthen our market leadership position.
•	We ended fiscal 2021 debt-free with $89.9M of cash, providing us with ample liquidity to meet our funding requirements and pursue growth opportunities.
•	Following the end of fiscal 2021, our Board again decided to return excess cash to shareholders in the form of a special dividend of $2.00 per share, paid on December 17, 2021.

FY	Short-Term Incentive Payments As Percent of Target	Return on Capital (As Calculated Under Our ROCICP)
2012	0.0%	1.4%
2013	85.6%	7.7%
2014	140.0%	10.4%
2015	153.1%	11.1%
2016	200.0%	23.1%
2017	163.0%	12.5%
2018	200.0%	16.6%
2019	0.0%	1.8%
2020	85.4%	9.7%
2021	200.0%	36.9%

	A Committee comprised solely of independent directors.
	An independent compensation consultant that reports to and is directed by the Committee, and that provides no other services to the Company.
	A clawback policy in the event of a financial restatement.
	Change in control payments that are contingent upon a qualifying transaction and a qualifying termination of employment (commonly referred to as a “Double Trigger”).
	Share ownership guidelines.
	No tax gross-ups of any kind including for any excise taxes in conjunction with payments that are contingent upon a change in control.
	No significant perquisites.
	Award caps that apply to both our ROCICP and to our long-term incentives.
	Mitigation of risk, in that responsible management of our assets is an integral component of the calculation of annual incentives payable under our ROCICP.

•	to attract, motivate and retain executives who will be successful in this environment;
•	to align executives’ interests with those of our shareholders; and
•	to provide appropriate rewards based on the financial performance of our business.

•	Attract, motivate and retain key executives by providing total compensation opportunities competitive with those provided to executives employed by companies of a similar size and/or operating in similar industries.
	In formulating our approach to total compensation each year, the Committee requires its consultant to compile peer group data and benchmark our compensation system against systems of other companies in similar industries, as well as comparably-sized companies in other industries. The objective of our benchmarking process is to provide total compensation opportunities to our executive officers that are near the median of our peer group. Although comparisons to compensation levels in other companies are considered helpful in assessing the overall competitiveness of our compensation practices, the Committee does not believe it needs to adhere precisely to the mathematical median, and it places a relatively greater emphasis on overall compensation opportunities rather than on setting each element of compensation at or near the median for that element.
•	Align executives’ interests with those of our shareholders by closely linking performance-based compensation to corporate performance.
	•	Annual Incentive. Our primary objective is to create shareholder value. To motivate our executive officers and align their interests with those of our shareholders, we provide annual incentives, which are designed to reward them for the attainment of short-term goals, and long-term incentives, which are designed to reward them for increases in our shareholder value over time. The annual incentive for our executive officers is based entirely on the Company’s return on capital, which is a measure that incorporates both the generation of earnings and the management of the Company’s balance sheet and is closely correlated with long-term shareholder returns.
	•	Long-Term Incentives. Our long-term incentives are entirely equity-based, comprised of 50% RSUs and 50% stock options. Use of these equity-based incentives ensures that their value is directly linked to changes in the price of our common stock. Following much consideration, we believe that time-based vesting of equity awards is most appropriate for us in view of the highly volatile nature of our markets and financial performance, and our policy of making no subjective adjustments to the annual incentive when we do not achieve our return on capital targets. Our long-term incentive program does not include a cash component.
•	Encourage long-term commitment to the Company.
	We believe that the value provided by employees increases over time as they become increasingly knowledgeable about our industry, customers and competitors, as well as our business processes, people and culture. We believe that providing incentives for executive officers to remain with the Company will enhance its long-term value. Accordingly, we include programs such as our Supplemental Retirement Plan (“SRP”) and Change-in-Control Severance Agreements as components of our executive compensation system to provide such incentives. The full benefit under our SRP is not earned until an executive officer is employed by us for 30 years, and the minimum benefit under these agreements requires 10 years of service. We believe that our long-term incentives are also a key element of our effort to ensure retention of our key executives.
•	Administrative simplicity and direct line of sight to performance.
	Each component of the Company’s compensation program is formulaic and focused on creating short-term and long-term shareholder value. The absence of subjective and behavioral criteria in the plan simplifies administration and promotes clear line of sight for participants between performance and their compensation.

Compensation Element	Description	Objective
Base Salary	Fixed cash compensation.	• Provide basic level of income.
		• Compensate executive officers for fulfilling basic job responsibilities.
		• Provide base pay commensurate with median salaries of peer group.
		• Attract and retain key executive officers.
ROCICP Annual Incentive Program	Variable cash compensation paid pursuant to a plan in which all of our sales and administrative employees participate.	• Align executive compensation with shareholder interests through the payment of an incentive that is based on return on capital, a metric closely correlated with the creation of shareholder value.
		• Reward executive officers based on actual returns generated relative to the Company’s cost of capital.
Long-Term Incentives	Variable compensation granted 50% as RSUs (normally vesting after three years) and 50% as stock options (normally vesting one-third each year for three years).	• Further align executive compensation with long-term shareholder interests by linking the value of these incentives to changes in the Company’s common stock price.
		• Aid in retention and encourage long-term commitment to the Company.
Supplemental Retirement Plan	Non-qualified retirement plan providing additional income to executive officers who meet age and service requirements for 15 years following retirement.	• Aid in retention and encourage long-term commitment to the Company.
		• Compensate for federal limits on qualified retirement plans.
Severance/Change-in-Control Severance (“CIC”) Agreements	Our CEO has a severance agreement that specifies payments to him in the event of involuntary termination. All executive officers have CIC agreements specifying their rights related to termination of employment following a change in control of the Company.	• Encourage long-term commitment to the Company. Focus executives on shareholder interests.
		• Provide transition assistance in the event of job loss.
Other Benefits	Medical, life and disability insurance; 401(k) savings plan.	• Provide insurance and basic retirement benefits of the same nature that other Company employees receive.

•	The executive’s performance;
•	The executive’s responsibilities;
•	The strategic importance of the position;
•	Competitive market compensation information;
•	Skills, experience and the amount of time the executive has served in the position; and
•	The Company’s recent performance and current business outlook.

Date	Type of Grant	No. of Units	Closing Price	ASC Topic 718 Grant Date Value
2/16/21	RSUs	5,097	$29.43	$150,005
2/16/21	Stock Options	12,165	$29.43	$149,994
8/16/21	RSUs	3,583	$41.87	$150,020
8/16/21	Stock Options	8,656	$41.87	$150,008

Company Name	Ticker	Company Name	Ticker
Quanex Building Products Corp.	NX	Northwest Pipe Co.	NWPX
Gibraltar Industries, Inc.	ROCK	Trex Co., Inc.	TREX
Simpson Manufacturing Co.	SSD	PGT Innovations, Inc.	PGTI
Eagle Materials, Inc.	EXP	TimkenSteel Corporation	TMST
L.B. Foster Company	FSTR	Ampco-Pittsburgh Corporation	AP
United States Lime & Minerals, Inc.	USLM	Synalloy Corporation	SYNL

Name and Principal Position	Year	Salary ($)⁽³⁾	Stock Awards⁽⁴⁾ ($)	Option Awards⁽⁴⁾ ($)	Non-Equity Incentive Plan Compensation⁽⁵⁾ ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings⁽⁶⁾ ($)	All Other Compensation⁽⁷⁾ ($)	Total ($)
H. O. Woltz III President and CEO	2021	665,769	300,025	300,002	932,077	195,092	82,784	2,475,749
	2020	659,423	299,994	300,001	394,203	303,499	17,952	1,975,072
	2019	635,000	299,995	299,995	0	511,779	22,691	1,769,460
Mark A. Carano⁽¹⁾ Senior Vice President, CFO and Treasurer	2021	345,000	125,021	124,993	414,000	55,532	86,350	1,150,896
	2020	132,692	62,499	62,499	67,991	20,703	56,010	402,394
James F. Petelle Vice President - Administration and Secretary and CLO	2021	244,231	75,010	74,998	293,077	70,717	35,092	793,125
	2020	233,654	75,006	74,994	119,724	72,929	17,370	593,677
	2019	225,000	75,014	74,999	0	91,114	15,675	481,802
Richard T. Wagner Senior Vice President and Chief Operating Officer	2021	345,385	137,499	137,500	414,462	152,587	40,539	1,227,972
	2020	342,692	137,499	137,496	175,595	193,495	14,535	1,001,312
	2019	330,000	137,492	137,500	0	293,511	14,946	913,449
James R. York Senior Vice President Sourcing and Logistics⁽²⁾	2021	245,385	54,997	54,999	294,462	45,116	21,994	716,953

SEC Form DEF 14A filed by Insteel Industries, Inc.