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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934

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ý Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Pursuant to § 240.14a-12

AVERY DENNISON CORPORATION
(Name of Registrant as Specified In Its Charter)

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2 0 2 0 Notice and Proxy Statement Avery Dennison Corporation | 2020 Notice and Proxy Statement SECTION III

 

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LOGO

Notice of 2020 Annual Meeting of Stockholders

To Our Stockholders:

        We cordially invite you to attend our 2020 Annual Meeting of Stockholders at 207 Goode Avenue, Glendale, California 91203 on Thursday, April 23, 2020 at 1:30 p.m. Pacific Time. At the meeting, we will conduct the following items of business:

  GRAPHIC   Elect the 10 directors nominated by our Board to serve a one-year term;    
  GRAPHIC   Approve, on an advisory basis, our executive compensation;    
  GRAPHIC   Ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for fiscal year 2020; and    
  GRAPHIC   Transact any other business properly brought before the meeting or any adjournment or postponement thereof.    

        Our Board recommends that you vote FOR each of our 10 director nominees in Item 1 and FOR Items 2 and 3.

        Stockholders of record as of February 24, 2020 are entitled to notice of, and to vote at, the meeting and any adjournment or postponement thereof.

        We want your shares to be represented and voted. You can vote as shown in the chart below.

 
   
  INSTRUCTIONS FOR VOTING
GRAPHIC
BY MOBILE DEVICE   You can vote by scanning the QR code at the right before 11:59 p.m. Eastern Time on April 22, 2020. You will need the 16-digit control number on your Notice of Internet Availability or proxy card.   GRAPHIC
 
GRAPHIC
BY INTERNET   You can vote online at www.proxyvote.com before 11:59 p.m. Eastern Time on April 22, 2020. You will need the 16-digit control number on your Notice of Internet Availability or proxy card.
 
GRAPHIC
BY TELEPHONE   In the U.S. and Canada, you can vote by calling 1.800.690.6903 before 11:59 p.m. Eastern Time on April 22, 2020. You will need the 16-digit control number on your Notice of Internet Availability or proxy card.
 
GRAPHIC
BY MAIL   You can vote by mail by completing, dating and signing your proxy card and returning it in the postage-paid envelope or otherwise to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, New York 11717.
 
GRAPHIC
IN PERSON   Unless your shares are held through our Employee Savings Plan, you can vote in person at the Annual Meeting. Beneficial holders must contact their broker or other nominee if they want to vote in person.

        On behalf of our Board of Directors, management and employees, thank you for your continued support.

  By Order of Our Board of Directors

 

Susan C. Miller
Corporate Secretary

 

March 6, 2020


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        TABLE OF CONTENTS


PROXY SUMMARY   i
PROXY STATEMENT   1

GOVERNANCE, SUSTAINABILITY AND SOCIAL RESPONSIBILITY

  1

BOARD OF DIRECTORS

  8

Overview

  8

Governance Guidelines

  9

Director Independence

  10

Board Leadership Structure

  11

Board Committees

  12

Executive Sessions

  15

Risk Oversight

  15

Human Capital Management

  18

Director Education

  19

Board and Committee Evaluations

  19

Stockholder Engagement and Communications

  20

ITEM 1 – ELECTION OF DIRECTORS

  22

Selection of Director Nominees

  22

Matrix of Director Skills, Qualifications and Backgrounds

  24

Board Refreshment and Director Succession Planning

  24

Director Diversity

  26

2020 Director Nominees

  26

Director Compensation

  31

Director Compensation Table

  33

ITEM 2 – ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

  34

COMPENSATION AND EXECUTIVE PERSONNEL COMMITTEE REPORT

  35

COMPENSATION DISCUSSION AND ANALYSIS (CD&A)

  36

Executive Summary

  36

Summary of Compensation Decisions for 2019

  46

Discussion of Compensation Components and Decisions Impacting 2019 Compensation

  48

Compensation-Setting Tools

  62

Independent Oversight and Expertise

  63

Other Considerations

  64

EXECUTIVE COMPENSATION TABLES

  66

2019 Summary Compensation Table

  66

2019 Grants of Plan-Based Awards

  67

2019 Outstanding Equity Awards at Fiscal Year-End

  68

2019 Option Exercises and Stock Vested

  69

2019 Pension Benefits

  70

2019 Nonqualified Deferred Compensation

  71

Payments Upon Termination as of December 28, 2019

  73

Equity Compensation Plan Information as of December 28, 2019

  76

CEO PAY RATIO

  77

ITEM 3 – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

  79

AUDIT MATTERS

  80

AUDIT AND FINANCE COMMITTEE REPORT

  82

SECURITY OWNERSHIP INFORMATION

  85

Security Ownership of Management and Significant Stockholders

  85

Related Person Transactions

  86

VOTING AND MEETING Q&A

  87

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES FROM GAAP

  92

Avery Dennison Corporation   |  2020 Proxy Statement   |  Table of Contents


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PROXY SUMMARY

        This proxy summary contains highlights from information described in greater detail in other parts of this proxy statement and does not contain all the information you should consider before voting. We strongly encourage you to read the entire proxy statement before voting.

DISTRIBUTION OF PROXY MATERIALS

        We will mail our Notice of Internet Availability of Proxy Materials, which includes instructions on how to access these materials on the Internet, on or about March 10, 2020. If you previously elected to receive a paper copy of our proxy materials, we will mail you our 2019 integrated report, which includes a letter to stockholders from our Chairman, President and Chief Executive Officer; our 2019 annual report; our notice and proxy statement for the 2020 Annual Meeting of Stockholders (the "Annual Meeting"); and additional information regarding our businesses and financial and sustainability achievements, as well as a proxy card on or about March 10, 2020.

TIME AND LOCATION OF ANNUAL MEETING

        The Annual Meeting will take place at 1:30 p.m. Pacific Time on April 23, 2020 at 207 Goode Avenue, Glendale, California 91203. Parking will be available next door at 127 Burchett Street, Glendale, California 91203. Attendants will be available to provide assistance with directions and parking tickets will be validated at the Annual Meeting.

ITEMS BEING VOTED ON AT ANNUAL MEETING

        You are being asked to vote on the items of business shown below at the Annual Meeting. Our Board of Directors (our "Board") recommends that you vote FOR each of our 10 director nominees and FOR the other two items being brought before the stockholder vote.

ITEM
  BOARD
RECOMMENDATION

  VOTE
REQUIRED

  DISCRETIONARY
BROKER VOTING

  PAGE
REFERENCE

1

  Election of directors   GRAPHIC   FOR
each nominee
  Majority of votes cast   No   22

2

  Advisory vote to approve executive compensation   GRAPHIC   FOR   Majority of shares represented and entitled to vote   No   34

3

  Ratification of appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm for fiscal year 2020   GRAPHIC   FOR   Majority of shares represented and entitled to vote   Yes   79

BUSINESS STRATEGY OVERVIEW

        We strive to create superior long-term, sustainable value for our customers, employees and investors and improve the communities in which we operate. To realize this vision, we are focused on executing the following core strategies:

   

Achieving outsized growth in high value product categories with higher growth and margin potential (such as specialty labels, graphics, industrial tapes and radio-frequency identification (RFID));

Growing profitably in our base businesses through tailored go-to-market strategies and disciplined execution;

Advancing sustainability in our operations and throughout value chains; and

Fostering well-being and diversity in our teams.

   

Avery Dennison Corporation   |  2020 Proxy Statement    i


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In addition, we continue to focus on the following financial priorities:

   

Maintaining our relentless focus on productivity through continued operational excellence and enterprise lean sigma; and

Deploying capital effectively by balancing our investments in organic growth, productivity and acquisitions, while returning cash to stockholders.

   

FINANCIAL PERFORMANCE HIGHLIGHTS

        Strong 2019 Performance and Continued Execution of Strategic Priorities. In fiscal year 2019, we delivered another year of strong adjusted earnings per share (EPS) growth and operating margin expansion. We achieved most of our financial goals for the year, with the performance highlights described below.

   

Achieved net sales of approximately $7.1 billion, a decrease of 1.2% over prior year due to the impact of foreign currency translation.

Excluding the impact of currency, sales grew by 2.0%. On an organic basis, sales also grew by 2.0%, as growth in high value product categories more than offset a modest decline in our base businesses.

Reported EPS decreased from $5.28 in 2018 to $3.57 in 2019 reflecting settlement charges resulting from the 2018 termination of our U.S. pension plan.

Adjusted EPS increased from $6.06 to $6.60 due to higher volume and benefits from productivity initiatives, partially offset by higher employee-related costs and the impact of foreign currency translation. Adjusted EPS was above the midpoint of the $6.45 to $6.70 annual guidance range we provided to investors in January 2019.

With net cash provided by operating activities of $746.5 million, delivered free cash flow of $512.3 million.

On net income of $303.6 million and removing the impact of our negative tax rate in 2019 due to the termination of our U.S. pension plan, achieved return on total capital (ROTC) of 11.9%. Excluding the impact of pension plan settlements and a discrete foreign tax structuring transaction, adjusted ROTC was 19.6%.

   

        Sales change excluding the impact of currency (sales change ex. currency), organic sales change, adjusted EPS, free cash flow, ROTC and adjusted ROTC are supplemental financial measures that we provide to assist investors in assessing our performance and operating trends. They are defined, qualified and reconciled from generally accepted accounting principles in the United States of America (GAAP) in the last section of this proxy statement. These non-GAAP financial measures are not in accordance with, nor are they a substitute for or superior to, the comparable financial measures under GAAP.

GRAPHIC

        Delivering Financial Targets. In March 2017, we announced five-year financial goals through 2021, including targets for organic sales growth, GAAP operating margin, adjusted EPS growth and ROTC. The combination of our growth and ROTC targets is a proxy for growth in economic value added (EVA), one of the performance objectives used in our long-term incentive (LTI) compensation program. As shown on the following page, based on our results for the first three years of this five-year period, we are largely on track to deliver these commitments.

ii    2020 Proxy Statement   |  Avery Dennison Corporation


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        For the 2017-2019 period, on a three-year compound annual basis (with 2016 as the base period), GAAP reported net sales and reported EPS increased by 5.1% and 0.3%, respectively, and reported net income decreased by 1.8%.

 
  2017-2021 TARGETS
  2017-2019 RESULTS(1)

Sales Growth(2)

  4%+ organic
5%+ ex. currency(3)
  3.9% organic
5.7% ex. currency

GAAP Operating Margin

  11%+ in 2021   10.9% in 2019

Adjusted EPS Growth(2)

  10%+   18.0%

ROTC

  17%+ in 2021   11.9% in 2019
Adj. ROTC(4) of 19.6% in 2019

 

 

 

 

 

ON TRACK TO DELIVER 2017-2021 FINANCIAL TARGETS

(1)   Results for non-GAAP measures are reconciled from GAAP in the last section of this proxy statement.

(2)

 

Percentages for targets reflect five-year compound annual growth rates, with 2016 as the base period. Percentages for results reflect three-year compound annual growth rates, with 2016 as the base period.

(3)

 

Target for sales growth ex. currency reflects the impact of completed acquisitions as of March 2017 of approximately 1 point.

(4)

 

Excludes the impact of the termination of our U.S. pension plan.

        Disciplined Capital Allocation. We have been consistently disciplined in executing our approach to capital allocation, balancing our investments in organic growth, productivity and acquisitions with continuing to return cash to stockholders through dividends and share repurchases. In 2019, on net income of $303.6 million, we delivered adjusted ROTC of nearly 20% while investing $257.2 million in capital expenditures to support future growth and further productivity improvement. In addition, we paid $189.7 million in dividends and repurchased $237.7 million in shares of our common stock.

        We have invested in our businesses to support organic growth and pursued targeted acquisitions that support our strategy of increasing our exposure to high value product categories. Our spending on capital expenditures in 2019 was comparable to prior year as we continued investing to enable the future growth of our businesses, improve our profitability and expand our margins. Last November, we announced our agreement to acquire the Transponder (RFID inlay) Division of Smartrac, a leader in the development and manufacture of RFID products. Together with our Intelligent Labels business, this acquisition will create a platform with over $500 million in annual revenue, offering long-term growth and profitability, enhanced research and development capabilities, expanded product lines and additional manufacturing capacity. We completed this acquisition in February 2020. During 2019, we also made equity investments in two start-up companies developing innovative technological solutions.

        In 2019, we deployed $427.4 million to (i) repurchase 2.2 million shares at an aggregate cost of $237.7 million and (ii) pay an annual dividend of $2.26 per share for an aggregate amount of $189.7 million. Given the higher price of our common stock in 2019, we allocated less capital to share repurchases in 2019 than in 2018, a year in which our stock price had significantly declined in the second half; however, as shown in the graph on the following page the amount repurchased was comparable to the average amount repurchased over the prior four years. We have paid quarterly dividends for decades and most recently raised our quarterly dividend rate by approximately 12% in April 2019. As shown in the graph on the following page, over the last five years, we have allocated over $2 billion to dividends and share repurchases and over $565 million to acquisitions and equity investments.

Avery Dennison Corporation   |  2020 Proxy Statement    iii


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Capital Allocated to Dividends,
Share Repurchases and Acquisitions*

GRAPHIC

        Three- and Five-Year Cumulative TSR Outperformance. As shown below, we achieved total stockholder return (TSR) of over 48% in 2019, and delivered cumulative TSR for the 2017-2019 three-year period and the 2015-2019 five-year period that substantially outperformed the S&P 500® and the median of the S&P 500 Industrials and Materials subsets. We compare ourselves to the median of the S&P 500 Industrials and Materials subsets because we are a member of the Materials subset, and also share many characteristics with members of the Industrials subset. This practice is further informed by feedback from investors, who have indicated that they look at both subsets in evaluating our performance relative to that of our peers. We focus on TSR because it measures the return we provide to our stockholders, including stock price appreciation and dividends paid (assuming reinvestment of dividends).

        Although we experienced strong TSR in 2019, we continue to believe that our longer-term TSR is a more meaningful measure of our performance than our one-year TSR, which can be significantly impacted by short-term market volatility that may be unrelated to our underlying performance. For example, although we delivered strong financial results in 2018 – exceeding the high end of our adjusted EPS guidance for the year – our TSR for that year was negative, as was the TSR of each of the comparator groups shown below.

GRAPHIC


1-, 3- and 5-YEAR TSR

    2015     2016     2017     2018     2019  
3-Year TSR
 
5-Year TSR  
   

AVY

    23.8%     14.6%     66.7%     (20.3)%     48.5%   97.5%     179.9%  
   

S&P 500

    1.4%     12.0%     21.8%     (4.4)%     31.5%   53.2%     73.9%  
   

S&P 500 Industrials & Materials*

    (4.3)%     20.7%     28.6%     (14.3)%     33.7%   53.1%     78.5%  
*
Based on median of companies in both subsets as of December 31, 2019.

iv    2020 Proxy Statement   |  Avery Dennison Corporation


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STOCKHOLDER ENGAGEMENT

        We continued our longstanding practice of ongoing engagement and open dialogue with stockholders in 2019. Our engagement program takes place throughout the year and – with respect to environmental, social and governance (ESG), executive compensation and human capital management (HCM) matters – as shown in the graphic below.

GRAPHIC

2019 ENGAGEMENT RESULTS

        In advance of the 2019 Annual Meeting, we contacted our 35 largest institutional stockholders, representing approximately 61% of our then-outstanding shares. Board members, including our Lead Independent Director, and management were made available to answer questions and address concerns regarding the items being brought before the stockholder vote. While we received responses from stockholders representing over 30% of our then-outstanding shares, only one of them desired to substantively engage at that busy time. Respondents declining meetings indicated that they did not have any concerns warranting discussion during proxy season.

        In the fall, without the time pressures associated with proxy season, we contacted our 30 largest institutional stockholders, representing over 62% of our then-outstanding shares, to request a meeting with our Lead Independent Director and/or management. We received responses from stockholders representing nearly 60% of our then-outstanding shares and spoke with stockholders representing approximately 35% of our then-outstanding shares. We substantively engaged with every stockholder who requested to do so, and our Lead Independent Director led half of these engagements. We also discussed the results of our fall engagement with the Compensation and Executive Personnel Committee (the "Compensation Committee") and the Governance and Social Responsibility Committee of our Board.

        Our off-season meetings focused on potential changes in the Compensation Committee's approach to CEO compensation, as well as our non-employee directors' commitments as they relate to overboarding concerns. We also answered questions regarding our business strategies and financial performance; executive compensation and HCM matters; Board composition and refreshment process; and other ESG matters, including our progress towards achieving our 2025 sustainability goals.

Avery Dennison Corporation   |  2020 Proxy Statement    v


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        The graphics below show the results of our 2019 engagement with stockholders on ESG, executive compensation and HCM matters.

GRAPHIC

STOCKHOLDER FEEDBACK DURING 2019 ENGAGEMENT

        Our Board and management believe that regular stockholder engagement fosters a deeper understanding of investors' evolving expectations on ESG matters, as well as executive compensation and HCM matters. We look forward to continuing our longstanding practice of engaging in dialogue with our stockholders to ensure our programs continue to align with best practices.

ESG Matters

        With respect to matters related to governance, we discussed topics related to our Board composition and its succession planning and refreshment processes, as well as the skills, commitments, tenure, and diversity of our directors. We also commented on our stockholder rights profile. In addition, we discussed our Board's oversight of our business strategies and related risks; progress towards achieving our 2025 sustainability goals, including with respect to plastic recyclability and how our businesses are adapting to the risks and opportunities presented by climate change; and audit matters such as the tenure of our independent auditor.

Executive Compensation and HCM Matters

        With respect to executive compensation, we discussed the linkage between our incentive compensation and business strategies. We also reviewed our approach to HCM, including our executive leadership development and succession planning processes, diversity and inclusion initiatives and employee engagement scores. We also reported on the Compensation Committee's robust oversight of these priorities.

SUSTAINABILITY

        Sustainability is one of our core values and has long been an integral part of our approach to doing business. Our aim is to improve the sustainability of our products and processes while helping to create shared value for all of our stakeholders. Key to our progress has been integrating sustainability into our underlying business strategies and engaging employees at all levels.

        In the integrated annual report in which this proxy statement is included, we present highlights of our achievements against our 2025 sustainability goals. In the first five years of the 10-year horizon for these goals, we have made meaningful progress. We encourage you to review these highlights, as well as our sustainability scorecard shown on the following page. You can find additional information on the sustainability section of our website.

vi    2020 Proxy Statement   |  Avery Dennison Corporation


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2025 SUSTAINABILITY GOALS
FOCUS AREA
  GOAL(S)
  HIGHLIGHTS OF PROGRESS IN OR THROUGH 2019
Greenhouse
Gas Emissions


GRAPHIC



 
Achieve at least a 3% absolute reduction year-over-year and at least a 26% overall reduction, compared to our 2015 baseline, by 2025.   Reduced our absolute GHG emissions by over 5% in 2019 and over 30% through 2019 compared to our 2015 baseline.

Paper

GRAPHIC

 

Source 100% certified paper, of which at least 70% will be Forest Stewardship Council®–certified.

 

Nearly 90% of the total volume of paper we procured in 2019 was certified, with nearly 80% of facestocks Forest Stewardship Council®-certified.

Introduced our rBG liner containing 15% post-consumer waste.

Films

GRAPHIC
    




 

Ensure that 70% of the films we buy conform to, or enable end products to conform to, our environmental and social guiding principles.

 

We introduced a number of recycled-content products in 2019, including our recycled PET (rPET) liner, which uses 30% post-consumer waste, which costs the same as conventional liners and delivers the same functionality, while offering sustainability advantages with respect to water and energy usage and greenhouse gas emissions.

Chemicals

GRAPHIC

 

Ensure that 70% of the chemicals we buy conform to, or enable end products to conform to, our environmental and social guiding principles.

 

Determined to begin a multi-year process of implementing the restricted substance list of the most restrictive countries in which we do business across all our operations, regardless of less restrictive laws and regulations in many of the countries in which we do business.

Products and
Solutions


GRAPHIC




 

Through innovation, deliver above-average growth in sales from sustainability-driven products and services.

Ensure that 70% of our products and solutions conform to, or enable end products to conform to, our environmental and social guiding principles.



 

Determined that at least 35% and 40% of our Label and Graphic Materials (LGM) and Retail Branding and Information Solutions (RBIS) business' revenues in 2019, respectively, were from products that are responsibly sourced, enable recyclability, contain recycled content, or use less material without compromising performance.


In our LGM business, we introduced several new facestocks made with recycled content as part of our Clearintent™ portfolio of more sustainable products, including our recycled polyethylene (rPE) facestock made with 30% recycled PE resin, and our Crush Range™ line of paper facestocks made of recycled paper and organic waste.

In May 2019, our RBIS business announced its 10 Solutions for Sustainable Change, which include products that promote apparel recycling, yarn made from recycled polyester, kraft paper alternatives for plastic e-commerce packaging, and intelligent labels that give consumers access to desired information, including a product's provenance and recyclability, via their mobile devices.

Waste

GRAPHIC

 

Be 95% landfill-free, with at least 75% of our waste reused, repurposed or recycled.

Eliminate 70% of the matrix and liner waste from our value chain.

 

As of the end of 2019, diverted over 90% of our solid waste from landfills with nearly 100 of our sites worldwide over 95% landfill-free, and recycled over 60% of our diverted waste.

We continue working to eliminate the liner and matrix by-product that remains after our label materials are applied. In late 2019, we created an industrywide group focused on better communicating the recycling capabilities offered throughout the industry beginning in North America and Europe, with the aim to ultimately expand these efforts globally.

Transparency

GRAPHIC



 

Commit to goals publicly and be transparent in reporting our progress.

 

Partnered with Business for Social Responsibility to update our sustainability materiality assessment to ensure continued alignment with the sustainable practices and goals of our customers and the industries we serve.

Published our 2019 integrated report, which summarizes our sustainability progress since our last biennial Sustainability Report was published in September 2017. We are now committing to publishing our progress annually.

People

GRAPHIC

 

Continue to cultivate a diverse (40%+ female at the level of manager and above), engaged, safe (recordable incident rate of <0.25), productive and healthy workforce.

Continue to invest in our employees and the communities in which they live and work.

 

Expanded our flexible work arrangements, female employee leadership program and unconscious bias training. Evaluated our gender pay equity, making adjustments to compensation where needed. Launched employee resource groups and established regional diversity and inclusion councils. While we have increased female representation at the level of manager and above by over 6% from our 2016 baseline year, it was 34% at the end of 2019.

Continued our world class safety record, with a recordable incident rate of 0.23 in 2019, far surpassing the manufacturing industry average of 3.4 in 2018 (the most recently available industry average).

Avery Dennison Corporation   |  2020 Proxy Statement    vii


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2020 DIRECTOR NOMINEES (ITEM 1)

        Our Board provides strong oversight of our management team and company, with the following notable accomplishments in recent years:

   

Successful execution of our business strategies, which has delivered strong compound annual organic sales growth, operating margin expansion, and double-digit compound adjusted EPS growth in the first three years of the five-year horizon reflected in our financial targets through 2021, as well as TSR over the most recent three- and five-year periods of approximately 96% and 180%, respectively, in each case substantially outperforming the S&P 500;

The completion of six acquisitions and equity investments in six other companies, in each case consistent with our disciplined approach to acquisitions and investments through which we target companies that can enhance our existing capabilities and increase our exposure to high value product categories;

Orderly executive leadership development and succession planning, with experienced leaders promoted to CEO and CFO and effectively transitioning into their roles; and

Thoughtful Board refreshment and succession planning, with four new independent directors appointed to our Board in the last seven years, three of whom increased the racial, ethnic or gender diversity on our Board, as well as two long-serving directors departing from our Board to focus on other endeavors.

   

BOARD REFRESHMENT AND SUCCESSION

Departure of Current Lead Independent Director; Post-Annual Meeting Board Leadership Structure

        In February 2020, our Lead Independent Director, David Pyott, notified our Board of his intention not to stand for reelection at the Annual Meeting so that he may focus on other endeavors. As a result, Mr. Pyott's membership on our Board will end on the date of the Annual Meeting. Our Board actively reviews its composition and the need for refreshment, and determined not to appoint an additional director at this time but may decide to do so in the future.

        In light of Mr. Pyott's upcoming departure, in February 2020, the Governance Committee evaluated our Board leadership structure and recommended to our Board that Patrick Siewert be selected to serve as Lead Independent Director. The committee's decision took into account his significant contribution to the Board's responsibility of maintaining the integrity of our financial statements as a member of the Audit and Finance Committee for the past 15 years and its Chair for the past four years, as well as his extensive international experience in Asia, a region in which nearly 35% of our sales are generated and approximately 60% of our employees are located. With Mr. Pyott's departure, the Governance Committee determined that Mr. Siewert is best positioned to provide independent leadership of our Board in overseeing our strategies to drive long-term value creation for our key stakeholders of customers, employees, investors and communities. Upon the recommendation of the Governance Committee, the independent directors on our Board unanimously selected Mr. Siewert (with him and Mr. Pyott abstaining) to serve as our Lead Independent Director, effective immediately after the Annual Meeting subject to his reelection. A description of responsibilities of our Lead Independent Director can be found on page 11 of this proxy statement.

viii    2020 Proxy Statement   |  Avery Dennison Corporation


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DIRECTOR NOMINEES

        Our 10 director nominees have demonstrated their commitment to diligently executing their fiduciary duties on behalf of our stockholders, and we recommend that our stockholders elect each of the nominees shown in the chart below at the Annual Meeting.

NAME
  AGE
  DIRECTOR
SINCE

  PRINCIPAL OCCUPATION
  INDEPENDENT
  AC
  CC
  GC
               
Bradley A. Alford   63   2010   Retired Chairman & CEO, Nestlé USA       M   M

Anthony K. Anderson

 

64

 

2012

 

Retired Vice Chair & Managing Partner, Ernst & Young LLP

 


 

M

 

 

 

M

Peter K. Barker

 

71

 

2003

 

Retired Chairman of California, JPMorgan Chase & Co.

 


 

M

 


 

C

Mark J. Barrenechea

 

55

 

2018

 

Vice Chair, CEO & CTO, OpenText Corporation

 


 

 

 

M

 

 

Mitchell R. Butier

 

48

 

2016

 

Chairman, President & CEO, Avery Dennison Corporation

 


 


 


 


Ken C. Hicks

 

67

 

2007

 

Chairman, President & CEO, Academy Sports + Outdoors

 


 

 

 

M

 

 

Andres A. Lopez

 

57

 

2017

 

President & CEO, O-I Glass, Inc.

 


 

M

 


 


Patrick T. Siewert (LID-Elect)

 

64

 

2005

 

Managing Director & Partner, The Carlyle Group

 


 

C

 

 

 

M

Julia A. Stewart

 

64

 

2003

 

Chair & CEO, Alurx, Inc.

 


 


 

C

 

M

Martha N. Sullivan

 

63

 

2013

 

Retired President & CEO, Sensata Technologies Holding PLC

 


 

M

 

 

 

 

AC = Audit & Finance Committee    CC = Compensation & Executive Personnel Committee     GC = Governance & Social Responsibility Committee
M = Member    C = Chair    LID = Lead Independent Director

        Our 10 director nominees bring a balance of skills, qualifications and backgrounds in overseeing our company, as highlighted below and shown in greater detail in the matrix of director skills, qualifications and backgrounds included in the Item 1 – Election of Directors section of this proxy statement.

GRAPHIC

Avery Dennison Corporation   |  2020 Proxy Statement    ix


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GOVERNANCE HIGHLIGHTS

        Our governance program reflects our company values and facilitates our Board's independent oversight of our company. Highlights of our program, which we believe is generally consistent and aligned with the Investor Stewardship Group's Corporate Governance Principles for U.S. Listed Companies, are shown below.

GRAPHIC

APPROVAL OF EXECUTIVE COMPENSATION (ITEM 2)

COMPENSATION DESIGN

        The Compensation Committee designs our executive compensation program to motivate our executives to execute our business strategies and create long-term value for our stakeholders. The program delivers pay for performance, with realized compensation dependent on our company achieving rigorous annual and long-term financial performance targets and value creation objectives that advance the interests of our stockholders.

PERFORMANCE-BASED COMPENSATION

        Target total direct compensation (TDC) for our Named Executive Officers (NEOs) is comprised of the following three components:

   

Base salary;

Performance-based annual cash incentive award under our Annual Incentive Plan (AIP); and

Long-term incentives (LTIs) delivered in performance-based equity awards, consisting 50% of performance units (PUs) and 50% of market-leveraged stock units (MSUs).

   

        The Compensation Committee establishes the target TDC of our NEOs to incent strong operational and financial performance and stockholder value creation, generally giving consideration to the market median, role responsibilities, individual performance, tenure, retention and succession. The majority of this compensation is performance-based, meaning that these executives ultimately may not realize some of these components of TDC if we fail to achieve our financial objectives.

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2019 Target TDC Mix

GRAPHIC

PAY FOR PERFORMANCE

        Over the past five years, our cumulative TSR has increased by nearly 180% while the annual compensation of our CEO has remained relatively constant. In the graph below, CEO pay reflects the compensation of our former CEO for 2015, and the compensation of our current CEO thereafter.


Five-Year CEO Pay and Cumulative TSR

GRAPHIC

CHANGES IN APPROACH TO CEO COMPENSATION FOR 2020

        Over the last few years, the Compensation Committee discussed how best to ensure that it is compensating our CEO optimally and in alignment with the long-term interests of our stockholders. The committee's objectives were to:

   

Recognize our company's performance and delivery of value to our customers, employees, investors and communities during his four-year tenure as our CEO;

Enhance his incentive to continue creating value for these stakeholders, including by driving superior TSR for our investors; and

Encourage his retention for the long term.

   

The committee also sought to maintain market-competitive target TDC for him that is well-aligned with our company's performance and ensure that his target TDC does not fall substantially below the market median, without relying on the traditional approach of periodic incremental increases to the components of his TDC – base salary, target AIP award opportunity and target LTI award opportunity – to maintain consistency with a continually rising market median.

Avery Dennison Corporation   |  2020 Proxy Statement    xi


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        After extensive discussion, and giving consideration to the feedback received from dialogue with some of our largest stockholders, the Compensation Committee determined to eliminate potential annual increases to our CEO's base salary and target AIP and LTI opportunities in favor of an even longer-term approach that would hold his target TDC constant for a three-year period. During the three-year period, the Compensation Committee retains the discretion to review our CEO's target TDC if market conditions or company results warrant a change. At the end of the period, the Compensation Committee plans to evaluate both his and our company's performance and market conditions before determining the appropriate level of his compensation, continuing to give consideration to factors such as individual performance, tenure, retention and succession. This approach to CEO compensation is intended to be more consistent with the long-term approach we take to planning our strategies, setting our financial targets and sustainability goals, creating value for our stockholders, developing an engaged and diverse workforce, and investing in the communities in which we operate.

        To ensure our CEO's compensation determined in 2020 remains competitive and mitigate the potential for his target TDC to substantially trail behind his peers in the next three years, the Compensation Committee determined to set his target TDC modestly above market median, recognizing that his base salary had not increased in the previous two years and his target AIP opportunity had not increased since he became CEO in 2016. The committee intends to make no additional increases until 2023. Anticipating that the median for market will continue to grow at historical rates, the Compensation Committee determined to set our CEO's compensation package roughly halfway between the current 50th and 75th percentiles of his market peers, with the expectation that – at the end of the three-year period during which Mr. Butier's compensation is expected not to increase – his TDC would be at or around the market median. This approach is consistent with the approach taken by the Compensation Committee with respect to recommending to our Board the compensation of our non-employee directors.

        Based on 2019 market pay rates and projected 2020 market pay rates for companies with a market capitalization between $6 billion and $10 billion, and with the expert advice and recommendation of its independent compensation consultant, Willis Towers Watson, the Compensation Committee determined to set Mr. Butier's target TDC for 2020 at $9.9 million by increasing (i) his base salary by 6% to $1.2 million, noting that his base salary had not been increased in the previous two years; (ii) his target AIP opportunity from 125% of base salary, the same level as when he became CEO in 2016, to 140% of base salary; and (iii) his target LTI opportunity from 475% of base salary to 585% of base salary. The Compensation Committee noted that over 90% of this increase consists of at-risk, performance-based compensation. These targets are not expected to increase during the next three years, but could decrease if warranted by market conditions or our company results. Mr. Butier's realized compensation will be dependent on our company achieving strong TSR performance, delivering our 2021 financial targets and 2025 sustainability goals, and continuing to serve our customers, engage our employees, and invest in the communities in which we operate.

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COMPENSATION BEST PRACTICES

        As summarized below and described in further detail in the Compensation Discussion and Analysis section of this proxy statement, our executive compensation program aligns with our financial goals and business strategies and reflects best practices.

  What We Do


Pay for performance – 86% of our CEO's 2019 target TDC was tied to company performance
Emphasize long-term performance – 68% of our CEO's 2019 target TDC was equity-based and tied to delivering long-term stockholder value
Use double-trigger change of control vesting provisions – vesting requires a qualifying termination of employment within 24 months
Manage share usage conservatively – our three-year average burn rate at the end of fiscal year 2019 of 0.7% was slightly above the 50th percentile of companies in the S&P 500
Maintain rigorous stock ownership policy – 6x base salary for our CEO and 3x base salary for our other NEOs; requires that they hold 50% of their respective minimum ownership level in vested shares
Able to clawback compensation in the event of an accounting restatement
Rely on the advice of an independent compensation consultant retained directly by, and serving at the direction of, the Compensation Committee
Annually evaluate the Compensation Committee and review its charter
Periodically assess risks related to our compensation policies and practices
Following termination, obtain releases from liability from and impose restrictive covenants on our departing executives
Review tally sheets for our NEOs reflecting all compensation components

  What We Don't Do


    X
    Employment contracts with our NEOs
    X
    Guaranteed AIP awards; rather, these awards for our NEOs are generally based solely on company or business performance
    X
    Excise tax gross-ups on change of control severance benefits
    X
    Hedging or pledging of company stock by directors and officers
    X
    Tax gross-ups on perquisites
    X
    Above-market interest rates in our only deferred compensation plan currently available for deferrals
    X
    Re-pricing of stock options without stockholder approval
    X
    Payout of accrued dividends unless performance conditions are met and underlying equity awards vest
    X
    Grant of stock options below fair market value
    X
    Supplemental retirement benefits for executive officers

RATIFICATION OF APPOINTMENT OF PwC (ITEM 3)

        Our Board's Audit and Finance Committee has appointed PricewaterhouseCoopers LLP (PwC) as our independent registered public accounting firm for fiscal year 2020, and our Board is seeking stockholder ratification of the appointment. PwC is very well qualified to act as our independent registered public accounting firm and has a deep understanding of our operations and accounting practices. The Audit and Finance Committee considered the qualifications, performance, and independence of PwC, the quality of its discussions with PwC, and the fees charged by PwC for the level and quality of services provided during 2019, and determined that the reappointment of PwC is in the best interest of our company and stockholders.

Avery Dennison Corporation   |  2020 Proxy Statement    xiii


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PROXY STATEMENT

GOVERNANCE, SUSTAINABILITY AND SOCIAL RESPONSIBILITY

        We produce pressure-sensitive materials and a variety of tickets, tags, labels and other converted products. We sell most of our pressure-sensitive materials to label printers and converters that convert the materials into labels and other products through embossing, printing, stamping and die-cutting. We sell other pressure-sensitive materials in converted form as tapes and reflective sheeting. We also manufacture and sell a variety of other converted products and items not involving pressure-sensitive components, such as fasteners, tickets, tags, radio-frequency identification (RFID) inlays and tags, and imprinting equipment and related solutions, which serve the apparel and other end markets.

GOVERNANCE

        Under the oversight of our Board of Directors (our "Board"), we have designed our governance program to comply with applicable laws and regulations – including the rules of the Securities and Exchange Commission (SEC) and the listing standards of the New York Stock Exchange (NYSE) – and to reflect best practices as informed by the practices of other large public companies, recommendations from our outside advisors, the voting guidelines of our stockholders and the policies of proxy advisory firms. The key features of our program are noted in the Governance Highlights section of the Proxy Summary; together they form a governance program that we believe is generally consistent and aligned with the Investor Stewardship Group's Corporate Governance Principles for U.S. Listed Companies.

        We encourage you to visit the investors section of our website under Corporate Governance, where you can review and download the following documents as currently in effect:

   

Amended and Restated Certificate of Incorporation;

Amended and Restated Bylaws (our "Bylaws");

Corporate Governance Guidelines (our "Governance Guidelines");

Charters for our Board's Audit and Finance Committee (the "Audit Committee"), Compensation and Executive Personnel Committee (the "Compensation Committee"), and Governance and Social Responsibility Committee (the "Governance Committee");

Code of Conduct;

Code of Ethics for the Chief Executive Officer (CEO) and Senior Financial Officers; and

Audit Committee Complaint Procedures for Accounting and Auditing Matters.

   

        Information on our website is not and should not be considered part of, nor is it incorporated by reference into, this proxy statement. You can also receive copies of these documents, without charge, by writing to our Corporate Secretary at Avery Dennison Corporation, 207 Goode Avenue, Glendale, California 91203.

Avery Dennison Corporation   |  2020 Proxy Statement    1


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CODE OF ETHICS

        We have adopted a Code of Ethics that requires our CEO, Chief Financial Officer (CFO) and Chief Accounting Officer (CAO) to act professionally and ethically in fulfilling their responsibilities.

Code of Ethics

    Our CEO, CFO and CAO must avoid actual or apparent conflicts of interest and disclose any material
    transaction or relationship that could reasonably be expected to raise a conflict of interest to the Governance Committee.


    In addition, they must:
   

Ensure that our SEC filings are complete and accurate and contain understandable information;

Respect the confidentiality of information acquired in the course of the performance of their responsibilities;

Employ corporate assets responsibly; and

Report violations of our Code of Ethics to the Chair of either the Audit Committee or the Governance Committee.

   

        Supporting the principles reflected in our Code of Ethics, our controllership and internal audit functions ensure that we maintain a robust internal control environment, with the leaders of these functions regularly reporting to, and periodically meeting in executive session with, the Audit Committee.

        Our Code of Ethics is available under Corporate Governance in the investors section of our website. Only the Audit Committee or the Governance Committee can amend or waive the provisions of the Code of Ethics, and any amendments or waivers must be posted promptly on our website or timely filed with the SEC on a Current Report on Form 8-K. We last amended our Code of Ethics in April 2014.

CODE OF CONDUCT

        Our Code of Conduct applies to all of our directors, officers and employees and reflects our values of Integrity, Courage, External Focus, Diversity, Sustainability, Innovation, Teamwork and Excellence. It is available under Corporate Governance in the investors section of our website and includes leadership messages, expanded information regarding higher risk areas, and case studies to provide additional guidance on situations that raise more complex ethical questions. Our Code of Conduct has been translated into over 30 languages and our leaders affirm their commitment to complying with it when they first join our company and annually thereafter. We train employees on the Code at least biannually, in addition to our online training program generally consisting of four courses per year covering specific risk areas from the Code that designated computer-based employees are required to complete.

        To ensure that the policies and principles encompassed in our Code of Conduct reach all our employees, we develop and launch "Talkabout" toolkits (also in over 30 languages) globally each year, which managers are required to use to engage in meaningful discussion with their teams regarding topics from the Code of Conduct. These toolkits consist of presentation slides, a leader discussion guide and an introductory subtitled video, which includes messages from our Chief Compliance Officer and other company leaders.

Ethics-Based Corporate Culture and Policies

        Reflecting the culture of our company, the ethics-based corporate policies and other matters discussed in our Code of Conduct are shown on the following page. Our global supplier standards extend our commitment to many of these principles to our third party service providers, establishing our expectation that they also do business in an ethical manner.

2    2020 Proxy Statement   |  Avery Dennison Corporation


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GRAPHIC

Business Conduct GuideLine

        Our Business Conduct GuideLine (the "GuideLine") is a whistleblower hotline available at all hours for employees or third parties to report potential violations of our Code of Conduct, anonymously if they so choose.

        The GuideLine may be reached by (i) calling 800.461.9330 toll-free in the United States, 720.514.4400 direct with applicable charges from any location, or toll-free outside of the United States using the country-specific toll-free numbers found in our Code of Conduct or (ii) visiting averydennison.com/guidelinereport (averydennison.com/guidelinereport-eu in Europe). The hotline is operated by an independent third party and accepts reports in any language to accommodate the needs of our global workforce and customer/supplier base. Reports are investigated under the direction of our Chief Compliance Officer, in consultation with our law department and senior management and with oversight from the Governance Committee. We prohibit retaliation for good-faith reporting.

COMPLAINT PROCEDURES FOR ACCOUNTING AND AUDITING MATTERS

        The Audit Committee has adopted procedures for the confidential, anonymous submission of complaints related to accounting, accounting standards, internal accounting controls and audit practices.

        These procedures relate to complaints of (i) fraud or deliberate error in the preparation, evaluation, review or audit of our financial statements or other financial reports; (ii) fraud or deliberate error in the recording or maintenance of our financial records; (iii) deficiencies in, or noncompliance with, our internal accounting controls; (iv) misrepresentation or false statement to or by a senior officer or accountant regarding any matter contained in our financial records, statements, or other reports; or (v) deviation from full and fair reporting of our financial condition. Any person, including third parties, may submit a good faith complaint regarding accounting and auditing matters and employees may do so without fear of dismissal or other retaliation. The Audit Committee oversees these procedures, which are available under Corporate Governance in the investors section of our website. Investigations are conducted under the direction of our internal audit department in consultation with our Chief Compliance Officer, law department and senior management to the extent appropriate under the circumstances.

        Stockholders and other interested parties interested in communicating regarding these matters may make a confidential, anonymous report by contacting the GuideLine as described on the previous page or writing to the Audit and Finance Committee Chair, c/o Corporate Secretary, Avery Dennison Corporation, 207 Goode Avenue, Glendale, California 91203.

Avery Dennison Corporation   |  2020 Proxy Statement    3


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STOCK OWNERSHIP POLICY

        Our stock ownership policy requires that non-employee directors acquire and maintain a minimum ownership interest in our company of $500,000 and our CEO and other NEOs acquire and maintain a minimum ownership interest in our company equal to 6x and 3x his or her annual base salary, respectively. At least 50% of the applicable minimum ownership level must be held in vested shares.

        The values of the following shares/units are considered in measuring compliance with our stock ownership policy: (i) shares beneficially owned or deemed to be beneficially owned, directly or indirectly, under federal securities laws; (ii) shares or units held in qualified and non-qualified employee benefit plans; (iii) unvested restricted stock units (RSUs) subject only to time-based vesting; and (iv) 50% of the value of unvested market-leveraged stock units (MSUs) at the target payout level. Neither unvested performance units (PUs) nor stock options are considered in measuring compliance with our stock ownership policy.

        If a director or officer fails to achieve or make reasonable progress towards achieving his or her respective ownership level, he or she is required to retain shares acquired, net of taxes, from the exercise of stock options or vesting of stock awards until such level is met. Executives are not allowed to transact in company stock until they certify that they will remain in compliance with our stock ownership policy after giving effect to the transaction they plan to effectuate.

        The Compensation Committee and the Governance Committee reviewed the stock ownership of our non-employee directors in December 2019 and February 2020, respectively. Both Committees noted that all of our non-employee directors had exceeded the minimum ownership level required by the policy, except for Mark Barrenechea who became a director in September 2018 and has five years to reach the minimum ownership level. The Committee noted that, because he had made reasonable progress towards meeting the applicable level, Mr. Barrenechea was also in compliance with the policy. On average, the ownership of our non-employee directors was approximately 9x the minimum ownership level, aligning their interests with those of our stockholders and further incenting their focus on long-term stockholder value creation.

        The Compensation Committee reviewed officer stock ownership in December 2019 and determined that all of our NEOs were in compliance with our stock ownership policy.

COMPLIANCE WITH STOCK OWNERSHIP POLICY
 
  SHARES* AS OF
2019 FYE (#)

  MINIMUM
GUIDELINE

  % OF GUIDELINE
  POLICY
COMPLIANCE

NON-EMPLOYEE DIRECTORS

    $500,000    

Bradley Alford

    38,060         1,009%  

Anthony Anderson

    14,544         385%  

Peter Barker

    61,628         1,633%  

Mark Barrenechea

    3,324         88%  

Ken Hicks

    40,709         1,079%  

Andres Lopez

    5,732         152%  

David Pyott

    70,665         1,873%  

Patrick Siewert

    15,460         410%  

Julia Stewart

    58,447         1,549%  

Martha Sullivan

    24,579         651%  

CHAIRMAN, PRESIDENT & CEO

    6x Base Salary    

Mitchell Butier

    188,839   $6,798,000     368%  

OTHER NEOs

    3x Base Salary*    

Gregory Lovins

    32,653   $1,854,000     233%  

Georges Gravanis

    19,624   $1,878,846     138%  

Susan Miller

    23,286   $1,743,144     177%  

Deon Stander

    16,740   $1,665,387     133%  
*
Reflects shares/units considered in measuring compliance with our stock ownership policy rather than actual shares owned.

4    2020 Proxy Statement   |  Avery Dennison Corporation


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INSIDER TRADING POLICY

        Our insider trading policy prohibits our directors, officers and employees from (i) engaging in transactions in our company's stock while in the possession of material non-public information; (ii) engaging in transactions in the stock of other companies while in possession of material non-public information that they become aware of in performing their duties; and (iii) disclosing material non-public information to unauthorized persons outside our company.

Limited Trading Windows

        Our insider trading policy restricts trading for directors and officers (including our NEOs) during blackout periods, which generally begin two weeks before the end of each fiscal quarter and end two business days after the release of earnings for the quarter. Additional blackout periods may be imposed from time to time, with or without notice, depending on the circumstances.

Prohibitions on Hedging and Pledging

        Our insider trading policy expressly prohibits our directors, officers and employees from purchasing financial instruments (such as prepaid variable forward contracts, equity swaps, collars and exchange funds) designed to hedge or offset any decrease in the market value of shares of our common stock they hold, directly or indirectly. In addition, directors and officers are expressly prohibited from – and our non-officer employees are strongly discouraged from – pledging any of their shares of common stock to secure personal loans or other obligations, including by holding such shares in a margin account.

        To our knowledge, based on our review of their written representations in our annual director and officer questionnaire, all of our directors and executive officers complied with our insider trading policy during 2019, and none of them has hedged or pledged shares of our common stock.

SUSTAINABILITY

        Sustainability is one of our core values and has long been part of our approach to doing business, driving us to work collaboratively across our entire value chain to address the environmental and social impacts of our products. We aim to continually improve the sustainability of our products and processes to create shared value for all of our stakeholders.

        With strategic guidance and direction provided by Mitch Butier, our Chairman, President and CEO, responsibility over ensuring that we continue to make meaningful progress towards achieving our 2025 sustainability goals currently resides with Deon Stander, Vice President and General Manager of our Retail Branding and Information Solutions (RBIS) business. Our Sustainability Council, led by Mr. Stander and comprised of a cross-divisional and cross-functional group of leaders to drive broad accountability and continually accelerate our progress, generally meets bimonthly and updates our executive leadership team quarterly. Board oversight over sustainability is primarily conducted by the Governance Committee, which receives a report from management at least once a year. In addition, our full Board hears from our leaders on each of our businesses' sustainability initiatives during its regular review of their business strategies. In July 2019, our Board held strategy sessions focused on our sustainability progress and our innovation efforts to address increasing demand for more sustainable products.

ENGAGING OUR STAKEHOLDERS

        We seek to ensure that our sustainability efforts are consistent with the expectations of our stakeholders shown on the following page. We regularly communicate with individuals and organizations interested in how we do business generally and our sustainability efforts in particular, and also conduct stakeholder interviews as part of our regular sustainability materiality assessments. These assessments help set our sustainability agenda, focusing us on the areas in which we can have the most impact.

Avery Dennison Corporation   |  2020 Proxy Statement    5


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SUSTAINABILITY STAKEHOLDERS

GRAPHIC

PROGRESS TOWARDS ACHIEVING 2025 SUSTAINABILITY GOALS

        In the integrated report in which this proxy statement is included, we present the highlights of our achievements against our 2025 sustainability goals. In the first five years of the 10-year horizon for these goals, we have made meaningful progress, which is summarized on our sustainability scorecard shown on page vii of the Proxy Summary. You can find additional information on the sustainability section of our website.

SOCIAL RESPONSIBILITY

AVERY DENNISON FOUNDATION

        With Board oversight from the Governance Committee, our social responsibility efforts reflect our spirit of community and help strengthen the places around the world in which we operate. We make most of our community investments through the Avery Dennison Foundation (the "Foundation"), which annually invests at least 5% of its assets from the prior year primarily to advance education, sustainability and women's empowerment, and encourages employee engagement with a spirit of invention and innovation. The Foundation invests in communities by making grants to community-based organizations, promoting employee volunteerism and engagement, and awarding scholarships.

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GLOBAL GRANTMAKING

        The Foundation's global grantmaking initiative is its primary means of giving. Grantmaking is aided by our employees worldwide who help identify deserving NGOs. Grant decisions are primarily guided by the priorities shown below, which are targeted to the communities in which our employees live and work.

GRAPHIC

EMPLOYEE ENGAGEMENT

        As the hands and heart of our company, our employees are critical to advancing the Foundation's efforts. Because they better understand of the needs of their communities, more than 150 employee teams coordinate volunteerism locally at our global locations. In 2019, over 75% of the Foundation's grants were enhanced with volunteer time from our employees.

        The Foundation also engages employees through its Granting Wishes program, which allows them to recommend one-time grants to local NGOs. Employees often have a connection to the organizations they nominate through volunteerism or service on the organization's board. In the eight years since the Foundation launched Granting Wishes, more than 2,000 of our employees have made recommendations, enabling grants to more than 360 organizations.

SCHOLARSHIPS

        The Foundation provides scholarships to the children of our U.S. employees. To date, over 650 scholarships have been awarded to U.S. college students.

        In China and India, the Foundation's InvEnt Scholarships have for more than a decade supported the next generation of innovators in science, technology, engineering and mathematics. By providing undergraduates in those communities with tuition assistance, an invention competition and professional development opportunities, the Foundation seeks to inspire the spirit of innovation in future engineers and technology workers. As part of their application, students submit ideas for an invention they then design during their scholarship year. To date, nearly 200 scholarships have been awarded to Chinese and Indian students who have demonstrated outstanding innovative spirit and strong practical competence.

Avery Dennison Corporation   |  2020 Proxy Statement    7


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OUR BOARD OF DIRECTORS

OVERVIEW

        Our Board oversees, counsels and ensures management is serving the best interests of our company and stockholders, with the goal of maximizing the performance of our businesses to deliver long-term value for all our stakeholders.

Our Board's primary responsibilities include the following:

    Establishing a strong governance program, with a Board and Committee structure that ensures independent oversight;

    Conducting director succession planning to ensure we maintain an engaged and diverse Board with the skills, qualifications and backgrounds to effectively oversee our company;

    Overseeing our businesses, strategies and risks;

    Approving our annual operating plan and significant strategic and operational actions, including significant capital expenditures and acquisitions;

    Maintaining the integrity of our financial statements;

    Evaluating the performance of our senior leaders and determining executive compensation; and

    Conducting succession planning for our CEO and other senior executives, and ensuring we have a human capital management program that is effectively developing our current and future leaders.

2020 DIRECTOR NOMINEES

        Our Bylaws provide that our Board be comprised of between eight and 12 directors, with the exact number fixed from time to time by Board resolution. Our Board has fixed the current number of directors at 11 and expects to reduce the size to 10 in April 2020 to reflect David Pyott's departure from the Board at the end of his current term. The nominees for election at the Annual Meeting – and the year of his or her respective initial appointment or election, current or most recent principal occupation, independence status, and current committee memberships – are shown in the chart below.

NAME
  AGE
  DIRECTOR
SINCE

  PRINCIPAL OCCUPATION
  INDEPENDENT
  AC
  CC
  GC

Bradley A. Alford

 

63

 

2010

 

Retired Chairman & CEO, Nestlé USA

 



 



 


M

 

M

Anthony K. Anderson

 

64

 

2012

 

Retired Vice Chair & Managing Partner, Ernst & Young LLP

 

 


 

 

M

 

 

 

 

M

Peter K. Barker

 

71

 

2003

 

Retired Chairman of California, JPMorgan Chase & Co.

 



 


M

 



 

C

Mark J. Barrenechea

 

55

 

2018

 

Vice Chair, CEO & CTO, OpenText Corporation

 

 


 

 

 

 

 

M

 

 

Mitchell R. Butier

 

48

 

2016

 

Chairman, President & CEO, Avery Dennison Corporation

 



 



 



 


Ken C. Hicks

 

67

 

2007

 

Chairman, President & CEO, Academy Sports + Outdoors

 

 


 

 

 

 

 

M

 

 

Andres A. Lopez

 

57

 

2017

 

President & CEO, O-I Glass, Inc.

 



 


M

 



 


Patrick T. Siewert (LID-Elect)

 

64

 

2005

 

Managing Director & Partner, The Carlyle Group

 

 


 

 

C

 

 

 

 

M

Julia A. Stewart

 

64

 

2003

 

Chair & CEO, Alurx, Inc.

 



 



 


C

 

M

Martha N. Sullivan

 

63

 

2013

 

Retired President & CEO, Sensata Technologies Holding PLC

 

 


 

 

M

 

 

 

 

 

AC = Audit & Finance Committee    CC = Compensation & Executive Personnel Committee    GC = Governance & Social Responsibility Committee
M = Member    C = Chair    LID = Lead Independent Director

        The ages of our director nominees range from 48 to 71, with an average age of 62. Their lengths of service range from one-and-a-half to 17 years, with an average tenure on our Board of approximately nine years.

8    2020 Proxy Statement   |  Avery Dennison Corporation


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DEPARTURE OF CURRENT LEAD INDEPENDENT DIRECTOR; POST-ANNUAL MEETING BOARD LEADERSHIP STRUCTURE

        In February 2020, our Lead Independent Director, David Pyott, notified our Board of his intention not to stand for reelection at the Annual Meeting so that he may focus on other endeavors. As a result, Mr. Pyott's membership on our Board will end on the date of the Annual Meeting. Our Board actively reviews its composition and the need for refreshment, and determined not to appoint an additional director at this time but may decide to do so in the future

        In light of Mr. Pyott's upcoming departure, in February 2020, the Governance Committee evaluated our Board leadership structure and recommended to our Board that Patrick Siewert be selected to serve as Lead Independent Director. The committee's decision took into account his significant contribution to the Board's responsibility of maintaining the integrity of our financial statements as a member of the Audit Committee for the past 15 years and its Chair for the past four years, as well as his extensive international experience in Asia, a region in which nearly 35% of our sales are generated and approximately 60% of our employees are located. With Mr. Pyott's departure, the Governance Committee determined that Mr. Siewert is best positioned to provide independent leadership of our Board in overseeing our strategies to drive long-term value creation for our key stakeholders of customers, employees, investors and communities. Upon the recommendation of the Governance Committee, the independent directors on our Board unanimously selected Mr. Siewert (with him and Mr. Pyott abstaining) to serve as our Lead Independent Director, effective immediately after the Annual Meeting subject to his reelection. A description of responsibilities of our Lead Independent Director can be found on page 11 of this proxy statement.

BOARD MEETINGS AND ATTENDANCE

        Our Board met five times and acted once by unanimous written consent during 2019. There were 17 Committee meetings during the year. All of our current directors attended at least 85% of the aggregate number of Board and Committee meetings of which he or she was a member during 2019; the average attendance of these directors was 97%. Directors are strongly encouraged to attend our annual stockholder meetings under our Governance Guidelines and, except for our then-retiring former Chairman, all of our directors attended the 2019 Annual Meeting.

GOVERNANCE GUIDELINES

        Our Governance Guidelines provide the governance framework for our company and reflect the values of our Board, as highlighted on the following page. They are reviewed at least annually and amended from time to time to reflect changes in regulatory requirements, evolving market practices, recommendations from our advisors and feedback from our stockholders. Our Governance Guidelines were most recently amended in December 2019.

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Governance Guidelines Highlights

    Board Composition    

 

Reasonable Board size of 11 directors in 2019

Mandatory retirement after age 72, with no term limits

 

 


 

 

Director Independence

 

 

 

Current directors and director nominees 91% and 90% independent, respectively

Executive sessions of independent directors held at three Board meetings during 2019

 

 


 

 

Board Leadership Structure

 

 

 

Annual review of Board leadership structure by the Governance Committee

Robust Lead Independent Director role and independent Committee Chairs

 

 


 

 

Board Committees

 

 

 

100% independent

Act under charters delineating Committee responsibilities

Directors required to attend Board and Committee meetings

 

 


 

 

Board Duties

 

 

 

Directors entitled to rely on independent legal, financial or other advisors at our expense

Regular review of long-term strategic plans, including major risks and mitigating strategies

Regular succession planning for our CEO and other senior executives primarily through the Compensation Committee

 

 


 

 

Continuous Board Improvement

 

 

 

All new directors participate in an initial orientation to familiarize themselves with our company and after joining a Board committee to understand its responsibilities

Directors continue their education through meetings with management, visits to our facilities and attendance at director education programs

The Governance Committee oversees an annual evaluation process to ensure our Board, Committees, Chairman, Lead Independent Director and Committee Chairs are functioning effectively; in 2019, this process included our directors discussing with the Governance Committee Chair the individual performance of their peers

 

 


 

 

Director Qualifications

 

 

 

The Governance Committee reviews the skills and characteristics of our Board members and recommends director nominees

 

 

DIRECTOR INDEPENDENCE

        Our Governance Guidelines require that our Board be comprised of a majority of directors who satisfy the criteria for independence under NYSE listing standards. These standards also require that our audit, compensation and nominating committees be comprised entirely of independent directors. An independent director is one who meets the independence requirements of the NYSE and who our Board affirmatively determines has no material relationship with our company, directly or indirectly as a partner, stockholder or officer of an entity with which we have a relationship.

        Each year, our directors complete a questionnaire designed to solicit information that may have a bearing on the annual independence determination, including all relevant relationships they have with our company, directly or indirectly through our company's sale or purchase of products or services to or from the companies or firms by which they are employed. The Governance Committee reviews any relevant disclosures made in the questionnaires with our General Counsel/Corporate Secretary, as well as any transactions our company has with director-affiliated entities. In February 2020, the Governance Committee reviewed only one relationship impacting the independence of our directors, namely Mr. Butier's service as our President and CEO.

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        After review and discussion of the relevant facts and circumstances, the Governance Committee concluded that only Mr. Butier had a relationship that was disqualifying under NYSE listing standards, otherwise material or impairing of director independence. Upon recommendation of the Governance Committee, our Board affirmatively determined the 10 current directors named below to be independent, representing 90% of our 10 director nominees.

GRAPHIC   GRAPHIC

        For a discussion of the potential impact of tenure on director independence, see the Board Refreshment and Director Succession Planning section of this proxy statement.

BOARD LEADERSHIP STRUCTURE

        Our Governance Guidelines give our Board – acting through its independent directors – the discretion to separate or combine the roles of Chairman and CEO as it deems appropriate based on the needs of our company at any given time. To facilitate this decision-making, the Governance Committee annually reviews our Board leadership structure, providing its recommendation on the appropriate structure for the following one-year term to our independent directors. Our independent directors do not view any particular Board leadership structure as necessarily preferable; rather, they make an annual determination taking into account, among other things, our financial position, business strategies and any feedback received from our stockholders.

ROBUST LEAD INDEPENDENT DIRECTOR ROLE

        Our Lead Independent Director role provides an effective balance with our combined Chairman/CEO role, exercising critical duties in the boardroom to ensure independent Board decision-making. Our Governance Guidelines clearly delineate these responsibilities, which are shown below. Mr. Pyott served as our Lead Independent Director during 2019 and, subject to his reelection, Mr. Siewert will assume the role after the Annual Meeting.

LEAD INDEPENDENT DIRECTOR   PRIMARY RESPONSIBILITIES
     
Designee:
    David Pyott
 

Preside over executive sessions of independent directors and meetings of our Board at which our non-independent Chairman/CEO is not present

Designee-Elect:
    Patrick Siewert
 

Serve as liaison between the non-independent Chairman/CEO and our independent directors

Selected annually by our independent directors.  

Approve meeting agendas and schedules and other information sent to our Board to ensure that appropriate items are discussed, with sufficient time for discussion of all items

Call meetings of independent directors when necessary or appropriate

If requested, consult and meet with our stockholders

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        In addition to these responsibilities, Mr. Pyott performed the following activities as Lead Independent Director in 2019:

   

Regularly engaged with our Chairman/CEO to help guide management's ongoing discussions with the Board on our strategic direction, including the review of our business strategies, the mitigation of related risks and the assessment of potential acquisitions;

Consulted regularly with our other independent directors;

Provided feedback to our Chairman/CEO based on his discussions with our other independent directors;

Met with members of senior management other than our Chairman/CEO; and

Led discussions with several of our investors during our fall stockholder engagement program.

   

        Supplementing our Lead Independent Director in providing independent Board leadership are our Committee Chairs, all of whom are independent.

PRE-ANNUAL MEETING LEADERSHIP STRUCTURE

        Our Board currently has a Chairman/CEO and a Lead Independent Director. The Governance Committee oversaw the evaluation of the performance of our Chairman/CEO and Lead Independent Director during the Board evaluation process conducted in the fourth quarter of 2019, noting that Messrs. Butier and Pyott received positive feedback from our independent directors in their respective roles. Based in part on these evaluations, we believe that our current Board leadership structure has provided effective independent oversight of our company. During our ongoing engagement with our stockholders, few of them have expressed concerns with our Board leadership structure, which we believe reflects support for our robust and clearly delineated Lead Independent Director role.

POST-ANNUAL MEETING LEADERSHIP STRUCTURE

        In February 2020, the Governance Committee evaluated our Board leadership structure and recommended to our Board that Mr. Butier be elected to continue serving as Chairman, noting that he has successfully led our company for the last four years and is best positioned to lead our Board in overseeing our strategies to drive long-term value creation for our key stakeholders of customers, investors, employees and communities. The committee further noted that Mr. Butier has articulated and worked to realize a long-term vision for our company that has delivered top quartile TSR performance and resonated strongly with our stockholders, and that we could best continue our progress towards achieving our 2021 financial targets and 2025 sustainability goals by continuing combined leadership in the boardroom at this time. Upon the recommendation of the Governance Committee, our Board unanimously elected Mr. Butier (with him and Mr. Pyott abstaining) to serve as our Chairman, effective immediately after the Annual Meeting subject to his reelection.

        In light of Mr. Pyott's upcoming departure from our Board, the Governance Committee recommended that Mr. Siewert (with him and Mr. Pyott abstaining) serve as Lead Independent Director. Having an experienced director with financial expertise and substantial international experience serve as Lead Independent Director will provide Mr. Butier valuable mentorship, independent guidance and leadership as he enters his second year in the Chairman role. With Mr. Pyott's departure, the Governance Committee determined that Mr. Siewert is best positioned to provide independent leadership of our Board in overseeing our strategies to drive long-term value creation for our key stakeholders. The committee's decision took into account his significant contribution to the Board's responsibility of maintaining the integrity of our financial statements as a member of the Audit Committee for the past 15 years and its Chair for the past four years, as well as his extensive international experience in Asia, a region in which nearly 35% of our sales are generated and approximately 60% of our employees are located. Upon the recommendation of the Governance Committee, our independent directors unanimously selected Mr. Siewert (with him and Mr. Pyott abstaining) to serve as our Lead Independent Director, effective immediately after the Annual Meeting subject to his reelection.

BOARD COMMITTEES

        Each of our Board committees has a written charter that describes its purposes, membership and meeting structure, and responsibilities. These charters, which may be found on our website at www.averydennison.com/corporategovernance, are reviewed by the respective committee at least annually, with any recommended changes adopted upon approval by our Board. Amended charters are promptly posted on our website. The Charters for the Audit, Compensation and Governance Committees were last amended in December 2018, December 2019, and December 2016, respectively.

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        Each of our Board committees has the ability to form and delegate authority to subcommittees and may obtain advice and assistance from internal or external consultants, legal counsel or other advisors at our expense. In addition, each committee annually evaluates its performance. The primary responsibilities, current membership and 2019 meeting attendance information for the three standing committees of our Board are summarized below and on the following page.

AUDIT & FINANCE COMMITTEE   PRIMARY RESPONSIBILITIES

 

 

 
Current Members:
  Patrick Siewert (Chair)
  Anthony Anderson
  Peter Barker
  Andres Lopez
  Martha Sullivan

Meetings in 2019: 9

Average Attendance in 2019: 96%

All members satisfy the enhanced independence standards required by the NYSE and have been determined by our Board to be financially literate.

Each of Messrs. Anderson, Barker and Siewert has been determined by our Board to be an "audit committee financial expert" under applicable SEC regulations.

 

Oversee financial statement and disclosure matters, including our quarterly and annual financial results, earnings release documentation and SEC reports, internal controls and major financial risk exposures

Appoint and oversee our independent registered public accounting firm, including its qualifications, performance and independence, and the scope, staffing and fees for its annual audit and other audit, review or attestation services

Oversee our internal audit function, including appointing or dismissing the senior internal auditor, evaluating his performance, reviewing significant issues raised in its audits and management's response, and discussing the annual internal audit plan, budget and staffing

Perform compliance oversight responsibilities, including overseeing our cybersecurity risk management program and risks related to our company's information technology controls and security; maintaining the procedures established for receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters; reviewing significant correspondence with governmental agencies and legal matters that may have a material impact on our financial statements; and making determinations and recommending actions to our Board regarding any violations of our Code of Ethics related to information contained in our SEC filings and other public communications

Conduct finance oversight responsibilities, including reviewing our capital structure and financing plans, capital allocation strategy, the funding status of our pension plans, and significant tax matters

Approve the Audit and Finance Committee Report included in our proxy statement

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COMPENSATION & EXECUTIVE PERSONNEL COMMITTEE   PRIMARY RESPONSIBILITIES

 

 

 
Current Members:
  Julia Stewart (Chair)
  Bradley Alford
  Mark Barrenechea
  Ken Hicks

Meetings in 2019: 4

Average Attendance in 2019: 100%

All members satisfy the enhanced independence standards required by the NYSE.

All members qualify as "non-employee directors" under Rule 16b-3 of the Securities Exchange Act of 1934, as amended.

Relies on expert advice of an independent compensation consultant that reports directly to the Committee.

 

Review and approve corporate goals and individual objectives for our CEO's compensation and evaluate our company's and his individual performance to determine annual CEO compensation

Review and approve senior executive compensation, including base salaries and incentive compensation, giving consideration to the recommendations of our CEO

Recommend appropriate compensation strategy, incentive plans and benefit programs

Review our diversity and inclusion initiatives, including key performance metrics, as well as our learning and development programs and the results of our employee engagement survey

Approve the Compensation Discussion and Analysis and the Compensation and Executive Personnel Committee Report included in our proxy statement

Oversee stockholder approval of executive compensation matters, including advisory votes on executive compensation and the frequency of such votes

Ensure no encouragement of excessive risk-taking in our compensation policies and programs

Recommend non-employee director compensation

Conduct succession planning for our CEO and other senior executive positions and regularly review executive new hires, promotions and role changes, departures and open positions

 

GOVERNANCE & SOCIAL RESPONSIBILITY COMMITTEE   PRIMARY RESPONSIBILITIES

 

 

 
Current Members:
  Peter Barker (Chair)
  Bradley Alford
  Anthony Anderson
  David Pyott
  Patrick Siewert
  Julia Stewart

Meetings in 2019: 4

Average Attendance in 2019: 96%

All members satisfy the independence standards required by the NYSE.

 

Identify potential Board members and recommend director nominees using the criteria set forth in our Governance Guidelines

Periodically consider our Board leadership structure and recommend to our Board whether to separate or combine the positions of Chairman and CEO, as well as who should serve as Lead Independent Director if those positions are combined

Recommend Board and Committee structure, Chairs and members

Recommend our independent directors using the independence standards of the NYSE

Review and approve related person transactions

Oversee and conduct an annual performance evaluation of our Board and its Committees

Review our Governance Guidelines and recommend any changes to our Board

Review sustainability and corporate social responsibility matters

Oversee our values and ethics program and Code of Conduct, evaluate significant conflicts of interest or questions related to our Code of Conduct and policy on legal and ethical conduct, and make determinations and recommend actions to the Board regarding violations of the Code of Ethics (except for violations over which the Audit Committee has such authority)

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EXECUTIVE SESSIONS

        Our Board believes it is important to have executive sessions without our Chairman/CEO or other members of management present, which are generally held at regular Board meetings. Our independent directors have robust and candid discussions at these executive sessions during which they critically evaluate the performance of our company, Chairman/CEO and management. As Lead Independent Director, Mr. Pyott presided over the three executive sessions of independent directors held during 2019.

        Executive sessions were also scheduled for regular meetings of the Audit, Compensation and Governance Committees held. These executive sessions generally excluded our former non-independent Chairman, our current Chairman/CEO and other members of management, unless the Committee requested the then-serving Chairman and/or one or more members of management to attend a portion of the session to provide information or perspective.

RISK OVERSIGHT

        Management is responsible for managing the day-to-day risks confronting our businesses, but our Board has responsibility for overseeing enterprise risk management (ERM). The teams leading our businesses have incorporated ERM into developing and executing their strategies, assessing the risks impacting their businesses, and identifying and implementing appropriate mitigating actions on an ongoing basis. In addition, in consultation with our head of risk management and senior management, these teams semiannually prepare a risk profile consisting of a heat map and a summary of their key risks and mitigating strategies, which are used to prepare a company risk profile based on identified business-specific risks as well as enterprise-wide risks.

        We also have robust global processes that support a strong internal control environment to promote the early identification and continued management of risks by our company's leadership. Our legal and compliance functions report into our General Counsel to provide independent evaluation of the challenges facing our businesses and our Vice President of Internal Audit reports to the Audit Committee in the conduct of his operational responsibilities, ensuring his independence from management.

        In performing its oversight role, our Board is responsible for ensuring that the ERM processes designed and implemented by management are functioning effectively, and that our culture promotes risk-adjusted decision-making.

        Our Board as a whole oversees risks related to our company and business strategies and operations, exercising this responsibility by considering the risks related to its decisions. Each year, our Board receives reports on the ERM process and the strategic plans and risks facing our businesses and company as a whole. These risks include financial risks, geopolitical risks, legal and regulatory risks, supply chain risks, competitive risks, information technology risks, and other risks related to the ways in which we do business. Employees who lead various risk areas – such as information technology; environmental, health and safety; tax; compliance; sustainability; and social responsibility – report periodically to Board Committees and occasionally to our full Board.

        Our Board has delegated elements of its risk oversight function to its Committees to better coordinate with management to serve the long-term interests of all of our stakeholders. Our Board receives reports from the Committee Chairs regarding topics discussed at committee meetings, which include the areas of risk overseen primarily by the Board Committees.

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        The Audit Committee oversees our internal control environment and evaluates the effectiveness of our internal controls at least annually. Supplementing these processes, the Audit Committee periodically meets in executive session with each of our CEO, CFO, CAO, General Counsel, Vice President of Internal Audit, and representatives of our independent registered public accounting firm. The Governance Committee meets semiannually with our Chief Compliance Officer to discuss, among other things, the investigation of allegations reported to our Business Conduct GuideLine.

            In 2019, the following risk areas were of particular Board and Committee focus:

   

The system and controls we put in place to ensure timely compliance with new lease accounting guidance, as well as our control environment in new or expanded international operations;

Our tax planning and structuring transactions and strategies;

Our transfer of assets and liabilities primarily to an annuity insurance provider following the 2018 termination of our U.S. pension plan;

Cybersecurity and information technology operational risks, including our implementations of an enterprise resource planning system in our Label and Graphic Materials North America business and a significant software upgrade in our RBIS business;

Risks associated with our restructuring actions, capital investments in the U.S. and South Asia, R&D and innovation, and acquisitions and equity investments; and

Risks related to environmental, social and governance matters, particularly in the areas of sustainability, our Values and Ethics program, and corporate social responsibility, as well as human capital management.

   

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RISKS ASSOCIATED WITH COMPENSATION POLICIES AND PRACTICES

        As described in the Compensation Discussion and Analysis section of this proxy statement, we maintain best practices in compensation that collectively encourage ongoing risk assessment and mitigation. The Compensation Committee periodically reviews our compensation programs to ensure that they do not provide incentives that encourage our employees to take excessive risks in managing their respective businesses or functional areas. The committee conducted its most recent review in 2018.

        Based on the advice of its independent compensation consultant, Willis Towers Watson, the Compensation Committee noted the risk-mitigating features of our compensation policies and practices described below and on the following page, which are substantially the same as what they were at the time of the committee's most recent review.

Governance and Oversight

   

The Compensation Committee has discretion to decrease Annual Incentive Plan (AIP) awards and long-term incentive (LTI) grants based on individual performance, including as a result of excessive risk-taking.

Our clawback policy serves as a deterrent to fraud or other misconduct that necessitates a restatement of our financial statements (including, without limitation, any accounting restatement due to material noncompliance with any financial reporting requirement).

The Compensation Committee annually evaluates the performance of our CEO and other senior executives in the context of our company and business goals and their individual contributions.

Our stock ownership policy is rigorous and consistent with best practices, with a minimum ownership level of 6x and 3x base salary for our CEO and other NEOs, respectively, and a requirement that 50% of their respective minimum ownership level be held in vested shares.

We prohibit our officers from hedging or pledging company stock and require them to engage in stock transactions only during limited trading windows.

   

Pay Philosophy and Structure

   

Our programs prioritize incenting stockholder value creation, balanced by retention and other considerations.

The substantial majority of executive compensation is delivered in equity to motivate our company's pursuit of strong long-term performance and sustainable growth.

Our change of control and executive severance plans are reasonable and consistent with market practices, with change of control benefits provided on a double-trigger basis to mitigate the risk that such a transaction be pursued to advance personal interests rather than the best interests of our stockholders.

Our incentive compensation consists of short- and long-term performance objectives balanced with objectives designed to incent strong annual financial performance and long-term economic and stockholder value creation, as well as balancing growth and efficient capital deployment.

   

Incentive Program Design

   

Our AIP and LTI awards incent annual profitable growth balanced with long-term financial value creation, using multiple performance objectives to deliver realized compensation that is based on company and/or business performance.

   

 

AIP awards are not guaranteed, with below-threshold performance potentially resulting in zero payout, payments subject to an overall cap of 200%, and individual modifiers for our NEOs generally capped at 100%.

   

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Our equity awards are performance-based, use multiple performance objectives, are subject to threshold and maximum payout opportunities, and have the following additional features that limit potential risk-taking:

 

 

       


Our performance units (PUs) cliff vest at the end of three years with the payout for the relative total stockholder return (TSR) component capped at 100% of target for any three-year performance period in which absolute TSR is negative to prevent executives from being unduly enriched when stockholders experience loss, while still incenting them to deliver relatively strong performance during challenging economic periods; and

       
       


Our market-leveraged stock units (MSUs) vest over one-, two-, three- and four-year performance periods (with an average performance period of 2.5 years), with challenging performance objectives, including a threshold performance level of absolute TSR of (15)% and a target performance level of absolute TSR of 10%.

       

        Based on these and other factors, Willis Towers Watson determined that our compensation program strikes an appropriate pay-risk balance.

        Giving consideration to the advice of Willis Towers Watson, the Compensation Committee has concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on our company.

HUMAN CAPITAL MANAGEMENT (HCM)

SUCCESSION PLANNING

        The Compensation Committee and our full Board conduct executive succession planning semiannually, developing and refining succession plans for our CEO and other senior executives. Consistent with this practice, in April 2019, our Board discussed potential successors to our CEO. In addition, in October 2019, the Compensation Committee reviewed talent that is ready – or, with continued development on their current trajectory with mentorship and coaching from our current leaders, will be ready – to fill other senior executive positions in the event of a vacancy. These assessments were then further discussed with our full Board. The Compensation Committee also regularly reviews executive new hires, promotions, transfers and departures to assist with succession planning and leadership development.

LEADERSHIP DEVELOPMENT

        Our Board is actively involved in overseeing our company's HCM program to identify and develop our future leaders. We maintain robust performance review and leadership development processes for our employees. Senior management develops and reports to the Compensation Committee or our full Board on leadership at executive levels of our organization by identifying high potential talent and critical experts, cultivating the skills and capabilities to allow identified individuals to become our future leaders, and providing them with opportunities to further develop. Through regular reports from management, our Board has the opportunity to meet our business leaders and functional leaders in law, finance, information technology, compliance, and human resources. In addition, Board members have freedom of access to all our employees, and are encouraged to visit our facilities to meet local management and attend company events.

DIVERSITY AND INCLUSION

        Diversity is one of our core values, reflecting our efforts to create an inclusive and respectful environment for people of all backgrounds and orientations and our recognition that we gain strength from diverse ideas and teams. The importance of diversity and inclusion to our company is further evidenced by the inclusion of diversity-related targets in our 2025 sustainability goals. Diversity and inclusion at our company are led by our cross-functional and cross-divisional Diversity and Inclusion Council, co-chaired by Anne Hill, our Senior Vice President and Chief Human Resources Officer, and Deon Stander, the Vice President and General Manager of our RBIS business. Board oversight is conducted primarily through the Compensation Committee.

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        In recent years, among other initiatives, our diversity and inclusion efforts have focused on training our managers globally on unconscious bias, increasing the number of sites offering flexible work arrangements, and expanding our Women Empowered program featuring interactive discussions among nominated participants to facilitate and enhance their development. We also evaluated our gender pay equity and made adjustments to compensation where needed.

        In 2019, we launched employee resource groups (ERGs), which are voluntary employee-led groups made up of individuals who join together based on common interests, backgrounds or demographic characteristics such as race, ethnicity or sexual orientation. Our ERGs currently include groups centered around women, ethnic Chinese, black employees, military veterans, and LGBT+ individuals; participation in these groups is not limited to individuals in these categories, but rather is open to all employees interested in learning about the experiences and challenges of their colleagues. In addition, we established regional diversity and inclusion councils to provide leadership of initiatives that more strongly resonate with employees in their respective regions. We plan to launch global harassment prevention training in 2020 to supplement the anti-harassment messages we continually reinforce as part of our Values and Ethics program.

DIRECTOR EDUCATION

INITIAL ORIENTATION

        Our initial director orientation generally covers (i) our strategies, performance and leadership; (ii) investor messaging; (iii) the strategies and risks of our businesses; (iv) finance matters, including our financial reporting policies and practices, internal control environment, internal audit deployment, tax planning and compliance, and capital structure; (v) legal and compliance matters, including our governance policies and procedures, Values and Ethics program, and ERM; (vi) executive compensation and HCM matters, including succession planning, leadership development, and diversity and inclusion; and (vii) information technology and cybersecurity.

CONTINUING EDUCATION

        Our continuing director education program consists of periodic visits to our facilities and management presentations regarding our business operations, strategies, risks and values and ethics. We provide updates on these topics to our Board at and between meetings throughout the year, and provide access to a boardroom news resource platform for them to keep informed of emerging best practices. We also reimburse directors who attend continuing director education programs for fees and related expenses.

BOARD AND COMMITTEE EVALUATIONS

        The Governance Committee oversees and conducts an annual performance evaluation of our Board, Chairman, Lead Independent Director and Board Committees, including the Committee Chairs. In 2019, our directors began evaluating the individual performance of their peers serving on the Board, providing candid feedback and helping ensure continuous boardroom improvement, as well as assisting with director succession planning. Our Board views the evaluation process as integral to assessing its effectiveness and identifying improvement opportunities in the pursuit of continued excellence. Many of the improvements in our governance practices and Board processes were identified and implemented as a result of the annual evaluation process.

GRAPHIC

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        In response to evaluation feedback received in recent years, our Board made the following enhancements to its membership and processes:

   

Enhanced our director succession planning process by focusing more deeply on Board leadership roles, such as our Lead Independent Director and Committee Chairs, and identifying the need for independent directors with packaging and technology expertise, culminating in the appointments of Messrs. Lopez and Barrenechea to our Board;

Enhanced the review of potential CEO successors and their progress against their development plans and continued its focus on executive succession planning and leadership development with more frequent discussions with the Compensation Committee and our full Board;

Given our strategic focus on acquisitions, enhanced discussion of our M&A pipeline and targets actively under consideration, as well as the integration and performance of acquired companies;

Continued our Board's and the Audit Committee's review and discussion of our cybersecurity preparedness and actions being taken to address our pension liabilities, including the 2018 termination of our U.S. pension plan and the transfer of those liabilities primarily to an annuity insurance provider in 2019;

Conducted annual post-investment reviews of the return on significant capital expenditures, acquisitions and information technology investments;

Increased engagement with the Board on investor relations matters and our stockholder engagement program and provided additional information on the competitive landscape in each of our businesses, in each case to further bring external perspectives into the boardroom; and

Enhanced our Chairman/CEO's engagement with the Board between meetings, with regular email updates to the full Board and one-on-one meetings between him and each director.

   

STOCKHOLDER ENGAGEMENT AND COMMUNICATIONS

        We value stockholder feedback on our environmental, social and governance (ESG) and executive compensation and HCM matters, and we actively solicit input through stockholder engagement to ensure that we reflect not only our evolving business strategies but also the expectations of our investors.

STOCKHOLDER ENGAGEMENT ON ESG MATTERS IN 2019

        We continued our longstanding practice of open dialogue with stockholders in 2019. In advance of the 2019 Annual Meeting, we contacted our 35 largest institutional stockholders, representing approximately 61% of our then-outstanding shares. Board members, including our Lead Independent Director, and management were made available to answer questions and address concerns regarding the items being brought before the Annual Meeting. While we received responses from stockholders representing over 30% of our then-outstanding shares, only one of them desired to substantively engage at that busy time. Respondents declining meetings indicated that they did not have any concerns warranting discussion during proxy season.

        In the fall, without the time pressures associated with proxy season, we contacted our 30 largest institutional stockholders, representing over 62% of our then-outstanding shares, to request a meeting with our Lead Independent Director and/or management. We received responses from stockholders representing nearly 60% of our then-outstanding shares and spoke with stockholders representing approximately 35% of our then-outstanding shares. We substantively engaged with every stockholder who requested to do so, and our Lead Independent Director led half of these engagements. We also discussed the results of our fall engagement on ESG matters with the Governance Committee.

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        With respect to matters related to governance, we focused on our non-employee directors' commitments as they relate to overboarding concerns and discussed our Board composition and its succession planning and refreshment processes, as well as the skills, commitments, tenure, and diversity of our directors. We also commented on our stockholder rights profile. In addition, we discussed our Board's oversight of our business strategies and related risks; progress towards achieving our 2025 sustainability goals, including with respect to plastic recyclability and how our businesses are adapting to the risks and opportunities presented by climate change; and audit matters such as the tenure of our independent auditor.

CONTACTING OUR BOARD

        Our Board welcomes feedback from all our stockholders. We review correspondence submitted by stockholders, discussing any substantive feedback received with senior management and/or our Board as appropriate.

        Stockholders and other interested parties may contact our Board, Chairman, Lead Independent Director, any Committee or Committee Chair, or any other individual director concerning business matters by writing to: Board of Directors (or a particular subgroup or individual director), c/o Corporate Secretary, Avery Dennison Corporation, 207 Goode Avenue, Glendale, California 91203.

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ITEM 1 – ELECTION OF DIRECTORS

        Our Bylaws provide for a Board of between eight and 12 directors, with the exact number fixed by a resolution of our Board. Our Board has fixed the current number of directors at 11; in April 2020, our Board expects to fix the number of directors at 10 to reflect David Pyott's departure from the Board on the date of the Annual Meeting. All nominees are standing for election for a one-year term expiring at the 2021 Annual Meeting.

        Each of the 10 nominees is presently serving on our Board and has consented to being named in this proxy statement and serving if elected by our stockholders.

MAJORITY VOTING STANDARD; UNELECTED DIRECTOR RESIGNATION REQUIREMENT

        Our Bylaws provide for the approval by a majority of votes cast for the election of directors in uncontested elections like this one and require that an incumbent director who is not re-elected tender his or her resignation from our Board. Our Board, excluding the tendering director, is required to determine whether to accept the resignation – taking into account the recommendation of the Governance Committee and any other factors it considers appropriate – and publicly disclose its decision regarding the tendered resignation, including its rationale for the decision, within 90 days from the date election results are certified. In contested elections, plurality voting is the standard for the election of directors.

        In voting for the election of directors, each share has one vote for each position to be filled and there is no cumulative voting.

RECOMMENDATION OF BOARD OF DIRECTORS

        Our Board of Directors recommends that you vote FOR each of the 10 director nominees. The persons named as proxies will vote for their election, unless you specify otherwise. If any director nominee were to become unavailable prior to the Annual Meeting, your proxy would be voted for a substitute nominee designated by our Board or we would decrease the size of our Board.

SELECTION OF DIRECTOR NOMINEES

        Director nominees are generally recommended by the Governance Committee for nomination by our Board and election by our stockholders. Director nominees may also be recommended by the Governance Committee for appointment to our Board, with their election by stockholders taking place at the next Annual Meeting. Our Board believes that our directors reflect a balance of skills, qualifications and backgrounds that allows them to effectively discharge their oversight responsibilities as shown in the matrix included later in this section.

        In evaluating whether to recommend a candidate as a director nominee, the Governance Committee primarily uses the following criteria set forth in our Governance Guidelines:

    Independence, to ensure that a majority of our Board remains independent;

    Business and leadership experience, including industry experience and global exposure and considering factors such as size, scope, and complexity;

    Board experience at another public company;

    Experience in finance, accounting and/or executive compensation;

    Time commitments, including other boards on which the nominee serves;

    Potential conflicts of interest;

    Demographic characteristics (such as gender, race and ethnicity);

    Ability to contribute to the oversight and governance of our company; and

    Ability to represent the balanced interests of stockholders as a whole, rather than those of any special interest group.

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        For incumbent directors, the Governance Committee also considers their contributions to our Board and Committees, attendance at Board and Committee meetings, compliance with our stock ownership policy, and mandatory retirement dates to assist with director succession planning. The Governance Committee does not assign specific weights to the criteria and no particular criterion is necessarily applicable to all nominees.

        The Governance Committee reviews the qualifications of any candidate with those of our current directors in assessing how our Board can most effectively fulfill its oversight responsibilities. Sources for identifying potential nominees include current Board members, senior management, executive search firms, and our stockholders.

STOCKHOLDER SUBMISSION OF DIRECTOR NOMINEES

Advance Notice Nominees

        Stockholders may recommend director candidates by submitting the candidate's name, together with his or her biographical information, professional experience and written consent to nomination, to Governance and Social Responsibility Committee Chair, c/o Corporate Secretary, Avery Dennison Corporation, 207 Goode Avenue, Glendale, California 91203. To be considered at the 2021 Annual Meeting, advance notice stockholder nominations must comply with the requirements described in the penultimate section of this proxy statement. The Governance Committee considers stockholder nominees on the same basis as it considers all other nominees.

Proxy Access Nominees

        A stockholder, or a group of no more than 20 stockholders, owning at least 3% of our company's stock continuously for at least three years is permitted to submit director nominees (up to 20% of the Board) for inclusion in our proxy materials, subject to the requirements specified in our Bylaws. For further information on submitting proxy access nominees, please refer to the penultimate section of this proxy statement.

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MATRIX OF DIRECTOR SKILLS, QUALIFICATIONS AND BACKGROUNDS

        Our director nominees bring a balance of skills, qualifications and backgrounds to their oversight of our company, as shown in the matrix below. The Governance Committee regularly evaluates the skills and qualifications desirable for our Board to best advance our business strategies and serve the interests of our key stakeholders of customers, investors, employees and communities.

GRAPHIC

BOARD REFRESHMENT AND DIRECTOR SUCCESSION PLANNING

        Our Board's ongoing director succession planning is designed to ensure an independent, well-qualified Board, with diversity in skills, qualifications and backgrounds that aligns with our business strategies and enables effective oversight.

NO TERM LIMITS

        Our Governance Guidelines reflect our Board's belief that directors should not be subject to term limits. While term limits could help facilitate fresh ideas and viewpoints being brought to the boardroom, our Board believes they could result in the premature loss of a director who over a period of time has gained expertise in assessing our strategies, operations and risks and is continuing to provide valuable contributions to Board deliberations. Further, we believe that our Board's decision not to establish term limits at this time is consistent with the prevailing practice among companies in the S&P 500.

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        Our Board recognizes that certain governance stakeholders have suggested that longer-serving directors may have decreased independence and objectivity; however, our Board believes that arbitrarily removing knowledgeable directors and losing the oversight consistency they bring – particularly during periods of either executive management change, such as our recent CEO and CFO transitions, or Board change, such as Dean Scarborough's April 2019 departure from our Board after having served as Chairman for nine years and David Pyott's upcoming departure from our Board in April 2020 after having served as Lead Independent Director for 10 years – weighs against implementing term limits at this time. Ultimately, our Board believes that it is its responsibility to establish appropriate board refreshment policies, in light of our strategies, leadership team and financial position at any particular time, exercising its discretion in the best interest of our company and stockholders. To assist in discharging this responsibility, the Governance Committee and/or full Board regularly reviews the skills, qualifications and backgrounds of its members to ensure that they continue to meet the needs of our businesses, align with our strategies and advance the interests of all of our stakeholders.

POLICIES AND RECENT ACTIONS SUPPORTING REGULAR BOARD REFRESHMENT

        Our Board has adopted the policies described below to facilitate regular refreshment of our Board and ensure that it continues to independently oversee, challenge and partner with our management team.

POLICY
DESCRIPTION
EVENTS OCCURRING AT OR SINCE 2019 ANNUAL MEETING
Mandatory
Resignation
Policy


Incumbent directors who are not elected by our stockholders must tender their resignation. All incumbent directors standing for election were elected at the 2019 Annual Meeting.

Mandatory
Retirement
Policy


Directors must retire on the date of the annual meeting of stockholders that follows their reaching the age of 72. Since inception, this policy has never been waived.


No directors retired under this policy in 2019.

Resignation Tendered Upon Change in Principal Employment


Directors who change the principal occupation, position or responsibility they held when they were elected to our Board must volunteer to resign from the Board.


In November 2019, Ms. Stewart informed our Chairman and the Governance Committee Chair of her potential appointment as chairman and CEO of a then-yet-to-be-named specialty products company focused on health and wellness. Although she volunteered to resign from the Board, the Governance Committee determined that Ms. Stewart should remain on our Board.

In January 2020, Ms. Sullivan informed our Chairman and the Governance Committee Chair of her retirement as President and CEO of Sensata Technologies effective March 1, 2020. Although she volunteered to resign from the Board, the Governance Committee determined that Ms. Sullivan should remain on our Board.

Prior Notice Requirement to Prevent Over-Boarding

Directors must give prior notice before accepting another public company directorship so that the director's ability to fulfill Board responsibilities may be appropriately evaluated if he or she serves on more than four other public company boards.

No directors accepted another public company directorship in 2019.

        Upon the recommendation of the Governance Committee, Messrs. Barrenechea and Lopez were appointed to our Board as independent directors in September 2018 and February 2017, respectively. In connection with his becoming our CEO, Mr. Butier joined our Board as a non-independent director in May 2016. In addition, Mr. Scarborough departed from our Board in April 2019 and Mr. Pyott will depart our Board in April 2020. We believe that this recent experience with both joining and departing directors demonstrates our Board's commitment to regular refreshment.

AGE AND TENURE

        The average age of our director nominees is 62, which we believe is comparable to the average board age in the S&P 500 and within the 60-63 year band in which the plurality of these companies fall. The average tenure of our director nominees is approximately nine years, which we believe is comparable to the average tenure for companies in the S&P 500 and within the 6-10 year band in which the majority of these companies fall.

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        The charts below show the age and tenure of our director nominees, which reflect a balance between newer directors who bring fresh ideas and insights and longer-serving directors with deep institutional knowledge of our Board and company.


Director Nominees

GRAPHIC

DIRECTOR DIVERSITY

        Our Governance Guidelines reflect that the Governance Committee's assessment of the qualifications of director candidates includes consideration of demographic characteristics such as race, gender and ethnicity. Although neither the Governance Committee nor our full Board has a formal policy regarding the consideration of diversity in selecting director nominees, the committee seeks to recommend individuals with a broad diversity of experience, profession, skill, geographic representation and demographic background, including characteristics such as race, gender and ethnicity. While diversity is a consideration, nominees are not chosen or excluded solely or primarily on that basis; rather, the Governance Committee focuses on skills, experience and background that can complement our existing Board in light of the diverse and global nature of our businesses and operations.

        Our Board recognizes the benefits of racial, ethnic and gender diversity in the boardroom, including better reflecting our global customer base and the healthy debate that results from different viewpoints that may stem from diverse backgrounds. The racial, ethnic and gender diversity of our 2020 director nominees is shown in the chart below.

GRAPHIC

2020 DIRECTOR NOMINEES

        The following pages provide information on the directors nominated for election at the Annual Meeting, including his or her age, current board leadership roles, and business experience during at least the past five years. We also indicate the name of any other public company board on which each nominee currently serves, or has served during the past five years; for these purposes, "public company" means one that is required to file reports with the SEC.

        In addition to the information presented regarding each nominee's experience and qualifications that led our Board to conclude that he or she should serve as a director – which includes senior leadership experience, industry experience, global exposure, financial sophistication, and public company board experience – we believe that each of them has integrity and adheres to our high ethical standards. Each nominee also has demonstrated the ability to exercise sound judgment, fulfill the time commitments necessary to serve on our Board, and advance the long-term interests of all our stakeholders.

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GRAPHIC  

RECENT BUSINESS EXPERIENCE

O-I Glass, Inc., a glass container manufacturer and supplier to food and beverage brands

President & Chief Executive Officer since January 2016

Chief Operating Officer & President, Glass Containers, from February 2015 to December 2015

President, O-I Americas, from July 2014 to January 2015

President, O-I Latin America, from April 2009 to July 2014

    

Andres A. Lopez

Age 57


Director since February 2017


Independent


Other Public Company Boards

Current:

O-I Glass, Inc.

Past Five Years:

None

 

SELECT SKILLS AND QUALIFICATIONS

Senior leadership experience

Oversees a company with over $6.7 billion revenues and more than 27,000 employees in 2019

Industry experience and global exposure

Leads a multinational packaging company in the beverage segment of the consumer goods industry into which we sell our label and graphic materials

Led Latin America and Americas divisions, after having worked in positions of increasing responsibility throughout the region

Public company board experience

Concurrent service on one other public company board

BOARD LEADERSHIP ROLES

Audit Committee Member

     
GRAPHIC  

RECENT BUSINESS EXPERIENCE

Ernst & Young LLP, an assurance, tax, transaction and advisory services firm

Vice Chair, Managing Partner and Member of the Executive Board from 2000 to March 2012

  




Anthony K. Anderson

Age 64


Director since December 2012


Independent


Other Public Company Boards

Current:

AAR Corporation

Exelon Corporation

Marsh & McLennan Companies, Inc.

Past Five Years:

First American Financial Corporation

 

SELECT SKILLS AND QUALIFICATIONS

Senior leadership experience

Served on the executive board of Ernst & Young for 12 years, and as the managing partner of the Midwest and Pacific Southwest regions

Financial sophistication

35 years of financial statement and internal control expertise acquired through auditing global public companies

Substantial experience advising audit committees of large multinational corporations

Certified public accountant (now inactive)

Public company board experience

Concurrent service on three other public company boards and prior service on other public company boards

BOARD LEADERSHIP ROLES

Audit Committee Member

Governance Committee Member

     
GRAPHIC  

RECENT BUSINESS EXPERIENCE

Nestlé USA, a nutrition, health and wellness company

Chairman & Chief Executive Officer from January 2006 to October 2012

Nestlé Brands Company, an operating unit of Nestlé USA

President & Chief Executive Officer from 2003 to December 2005

    

Bradley A. Alford

Age 63


Director since April 2010


Independent


Other Public Company Boards

Current:

Perrigo Company plc

Past Five Years:

ConAgra Foods, Inc.

 

SELECT SKILLS AND QUALIFICATIONS

Senior leadership experience

Led a company then with over $12 billion in annual revenues and more than 26,000 employees

Industry experience and global exposure

35+ years in the consumer goods industry

Knowledge of the food and beverage segments of the consumer goods industry into which we sell our label and graphic materials

Substantial M&A and integration experience

Public company board experience

Concurrent service on one other public company board and prior service on other public company boards

BOARD LEADERSHIP ROLES

Compensation Committee Member

Governance Committee Member



   

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GRAPHIC  

RECENT BUSINESS EXPERIENCE

Alurx, Inc., a specialty products company focused on health and wellness

Chair & Chief Executive Officer since January 2020

Dine Brands Global, Inc. (formerly DineEquity, Inc.), owner, operator and franchisor of IHOP and

Applebee's restaurants

Chairman & Chief Executive Officer from June 2008 to March 2017

Julia A. Stewart

Age 64


Director since January 2003


Independent


Other Public Company Boards

Current:

None

Past Five Years:

Dine Brands Global, Inc.

 

SELECT SKILLS AND QUALIFICATIONS

Senior leadership experience

Led a company then with over $600 million in annual revenues and nearly 1,000 employees

Global exposure

Substantial operational and marketing experience in the dining industry

Expertise in brand positioning, risk assessment, financial reporting and governance

Public company board experience

Prior service on other public company boards

BOARD LEADERSHIP ROLES

Compensation Committee Chair

Governance Committee Member

     
GRAPHIC  

RECENT BUSINESS EXPERIENCE

Academy Sports + Outdoors, a sports and recreation retailer

Chairman, President & Chief Executive Officer since May 2018

Foot Locker, Inc., a specialty athletic retailer

Executive Chairman from December 2014 to May 2015

Chairman, President & Chief Executive Officer from February 2010 to November 2014

President and Chief Executive Officer from August 2009 to February 2010

Ken C. Hicks

Age 67


Director since July 2007


Independent


Other Public Company Boards

Current:

None

Past Five Years:

Foot Locker,  Inc.

Whole Foods Corporation

 

SELECT SKILLS AND QUALIFICATIONS

Senior leadership experience

Leads a company currently with more than 250 U.S. locations, nearly $5 billion in annual revenues and more than 23,000 employees

Industry experience

30+ years of senior marketing and operational experience in the retail industry into which we sell our retail branding and information solutions

Public company board experience

Prior service on other public company boards

BOARD LEADERSHIP ROLES

Compensation Committee Member

     
GRAPHIC  

RECENT BUSINESS EXPERIENCE

OpenText Corporation, a global software company

Vice Chair, Chief Executive Officer and Chief Technology Officer since January 2012

  
  
  
    

Mark J. Barrenechea

Age 55


Director since September 2018


Independent


Other Public Company Boards

Current:

OpenText Corporation

Dicks Sporting Goods

Past Five Years:

None

 

SELECT SKILLS AND QUALIFICATIONS

Senior leadership experience

Leads a company with nearly $3 billion in revenues and approximately 13,000 employees in 2019

Industry experience and global exposure

Over 30 years of experience in the technology industry, including experience globally in software, cloud solutions, cybersecurity, and information technology transformation

Public company board experience

Concurrent service on two other public company boards

  
    

BOARD LEADERSHIP ROLES

Compensation Committee Member



   

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GRAPHIC  

RECENT BUSINESS EXPERIENCE

Sensata Technologies Holding PLC, a supplier of sensors and controls

President & Chief Executive Officer from January 2013 to March 2020

President from September 2010 to December 2012

Chief Operating Officer from April 2006 to August 2010

Texas Instruments, Inc., Sensata's predecessor entity

Vice President of Sensor Products from 1997 to 2006

Martha N. Sullivan

Age 63


Director since February 2013


Independent


Other Public Company Boards

Current:

Sensata Technologies Holding PLC

Past Five Years:

None

 

SELECT SKILLS AND QUALIFICATIONS

Senior leadership experience

Led a company with approximately $3.5 billion in revenues and more than 21,000 employees in 2019

Industry experience and global exposure

Oversees all business segments, global operations and strategic planning

Strong technology background, including experience overseeing a radio-frequency identification business

Public company board experience

Concurrent service on one other public company board

BOARD LEADERSHIP ROLES

Audit Committee Member

     
GRAPHIC  

RECENT BUSINESS EXPERIENCE

Avery Dennison Corporation

Chairman, President & Chief Executive Officer since April 2019

President & Chief Executive Officer from May 2016 to April 2019

President & Chief Operating Officer from November 2014 to April 2016

Senior Vice President & Chief Financial Officer from June 2010 to October 2014; continued serving as CFO until March 2015

Vice President, Global Finance, and Chief Accounting Officer from March 2007 to May 2010

    

Mitchell R. Butier

Age 48


Director since April 2016


Not Independent


Other Public Company Boards

Current:

None

Past Five Years:

None

 

SELECT SKILLS AND QUALIFICATIONS

Senior leadership experience

Held roles of increasing responsibility at our company, including CAO, CFO, COO and now Chairman, President & CEO

Industry experience and global exposure

Served in senior leadership positions in our primary business segments, including international assignments in Europe

Financial sophistication

Served as our CFO for almost three years and our CAO for nearly five years

BOARD LEADERSHIP ROLES

Chairman

     
GRAPHIC  

RECENT BUSINESS EXPERIENCE

The Carlyle Group, a global alternative investment firm

Managing Director and Partner since April 2007

The Coca-Cola Company, a beverage company

Senior Advisor from February 2006 to March 2007

Group President, Asia, from August 2001 to February 2006

    

Patrick T. Siewert

Age 64


Director since April 2005


Independent


Other Public Company Boards

Current:

Mondelez International, Inc.

Past Five Years:

None

 

SELECT SKILLS AND QUALIFICATIONS

Industry experience and global exposure

Led a division of a global company in the beverage segment of the consumer goods industry into which we sell our label and graphic materials

Work experience in Asia, a region in which we generate a significant amount of our sales and a majority of our employees is located

Financial sophistication

Advises on investments in consumer goods businesses globally, particularly in Asia

Public company board experience

Concurrent service on one other public board

BOARD LEADERSHIP ROLES

Lead Independent Director-Elect

Audit Committee Chair

Governance Committee Member



   

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GRAPHIC  

RECENT BUSINESS EXPERIENCE

JPMorgan Chase & Co., a global financial services firm

Chairman of California and Executive Committee Member from September 2009 to January 2013

Goldman Sachs & Co., an investment banking, securities and investment management firm

Partner/Managing Director from 1982 to 1998

Peter K. Barker

Age 71


Director since January 2003


Independent


Other Public Company Boards

Current:

Fluor Corporation

Franklin Resources, Inc.

Past Five Years:

None

 

SELECT SKILLS AND QUALIFICATIONS

Senior leadership experience

Member of the executive committee overseeing a global company then with over $100 billion in annual revenues

Led a division then with more than 21,000 employees

Financial sophistication

37 years of investment banking experience, advising companies on capital structure, strategic planning, financing, recapitalization, acquisitions and divestitures

Public company board experience

Concurrent service on two other public boards and prior service on other public boards

BOARD LEADERSHIP ROLES

Governance Committee Chair

Audit Committee Member

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DIRECTOR COMPENSATION

        In recommending non-employee director compensation to our Board based on the independent expert advice of Willis Towers Watson, the Compensation Committee seeks to target compensation at the median of companies similar in size, global scope and complexity with which we compete for director talent. Compensation is reviewed periodically (approximately every three years) to ensure market competitiveness and consistency. The majority of compensation is delivered in equity to align director interests with those of our stockholders.

MEDIAN TARGET COMPENSATION

        The components of our non-employee director compensation program are summarized in the charts below and described thereafter.

GRAPHIC   GRAPHIC

        Our 2017 Incentive Award Plan, under which RSUs are granted to our non-employee directors, limits the sum of the grant date fair value of equity awards and the amount of any cash compensation, in each case granted to any non-employee director during any calendar year, to $600,000. In 2019, each of our non-employee directors received less than half of our maximum compensation amount.

COMPENSATION SETTING

        In February 2019, the Compensation Committee considered our non-employee director compensation program, which had not changed the compensation received by our non-employee directors other than our Lead Independent Director since May 2016. At the Compensation Committee's request, Willis Towers Watson reviewed trends in non-employee director compensation and assessed the competitiveness of all components of our program, including cash compensation (Board and Committee Chair retainers), equity grants, total direct compensation (annual cash plus equity), total remuneration, our stock ownership policy and the additional retainer for our Lead Independent Director.

        Using benchmarking data from public filings of companies ranked in the Fortune 375-500, Willis Towers Watson recommended that our annual equity grant to non-employee directors be increased by $15,000 to increase the proportion of their compensation delivered in equity to 60% to further align their interests with those of our stockholders. This change would bring total non-employee director compensation to $255,000, the projected median non-employee director compensation of our Fortune 375-500 peers in 2021, the next time the Compensation Committee then expected to review the program. Based on Willis Towers Watson's recommendation, the Compensation Committee recommended to our Board that the amount of annual equity compensation granted to our non-employee directors be increased to $155,000, with grants continuing to be in the form of RSUs that vest in one year.

        After consideration of the advice from the independent compensation consultant, the recommendation of the Compensation Committee, and further discussion, our Board approved the revised non-employee director compensation program, effective as of the date of the 2019 Annual Meeting.

STOCK OWNERSHIP POLICY

        Our stock ownership policy requires non-employee directors to own $500,000 of our company stock, 50% of which must be held in vested shares. Stock option gains are not considered towards measuring policy compliance; only shares owned directly or in a trust, deferred stock units (DSUs) and unvested RSUs count for these purposes.

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        Directors are prohibited from hedging or pledging our common stock.

        Except for our newest director, who has five years to reach the minimum ownership level, all of our non-employee directors have achieved the minimum ownership level required by our stock ownership policy; average non-employee director ownership was approximately 9x the required level at year-end 2019. Based on our review of their written representations in our annual director questionnaire, none of our non-employee directors has hedged or pledged our common stock.

EQUITY COMPENSATION

        The 2019 equity grant to non-employee directors was made in the form of RSUs that vest on the one-year anniversary of the grant date, consistent with the one-year term to which directors are elected. Unvested RSUs (i) fully vest upon a director's death, disability, retirement from our Board after reaching age 72 or termination of service within 24 months after a change of control and (ii) are cancelled in the event a director voluntarily resigns, is not re-elected by stockholders or is otherwise asked to leave our Board, unless the Compensation Committee determines otherwise. On May 1, 2019, each of our then-serving non-employee directors was granted 1,414 RSUs with a grant date value of approximately $155,000 based on the fair market value of our common stock on that date.

        In connection with his departure from our Board on the date of the 2019 Annual Meeting and as permitted by our 2017 Incentive Award Plan, the Compensation Committee determined to accelerate the vesting of the RSUs granted in May 2018 to Dean Scarborough, our former Chairman. These RSUs were scheduled to vest a few days after his departure from our Board. In accelerating the vesting, the Compensation Committee noted that Mr. Scarborough had served nearly the entire one-year term for which he had been elected by our stockholders.

DEFERRABLE CASH COMPENSATION

        Cash retainers are paid semiannually and prorated for any director's partial service during the year. Directors are also reimbursed for travel expenses incurred to attend Board meetings and continuing director education events.

        Our non-employee directors may choose to receive this compensation in (i) cash, either paid directly or deferred into an account under our Directors Variable Deferred Compensation Program (DVDCP), which accrues earnings at the rate of return of certain bond and equity investment funds managed by a third party; (ii) DSUs credited to an individual account pursuant to our Directors Deferred Equity Compensation Program (DDECP); or (iii) a combination of cash and DSUs. None of our non-employee directors currently participates in the DVDCP and nine of them currently participate in the DDECP. When a director participating in the DDECP retires or otherwise ceases serving as a director, the dollar value of the DSUs in his or her account is divided by the closing price of our common stock on the last date of the director's service, with the resulting number of shares of our common stock issued to the director. Dividend equivalents, representing the value of dividends per share paid on shares of our common stock calculated with reference to the number of DSUs held as of a dividend record date, are reinvested on the applicable payable date in the form of additional DSUs credited to the accounts of directors participating in the DDECP.

MATCHING GIFT PROGRAM

        We match up to $10,000 per year of a non-employee director's contributions to charitable organizations or educational institutions.

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DIRECTOR COMPENSATION TABLE

NAME
FEES
EARNED
OR PAID
IN CASH(1)

STOCK
AWARDS(2)

CHANGE IN
PENSION VALUE AND
NONQUALIFIED DEFERRED
COMPENSATION EARNINGS(3)

ALL OTHER
COMPENSATION(4)

TOTAL

Bradley A. Alford

$ 100,000 $ 151,777



$ 7,500 $ 259,277

Anthony A. Anderson

$ 100,000 $ 151,777 $ 251,777

Peter K. Barker

$ 115,000 $ 151,777



$ 10,000 $ 276,777

Mark J. Barrenechea

$ 100,000 $ 151,777 $ 251,777

Ken C. Hicks

$ 100,000 $ 151,777



$ 10,000 $ 261,777

Andres A. Lopez

$ 100,000 $ 151,777 $ 251,777

David E.I. Pyott

$ 130,000 $ 151,777 $ 7,132 $ 10,000 $ 298,909

Dean A. Scarborough(5)

Patrick T. Siewert

$ 120,000 $ 151,777



$ 10,000 $ 281,777

Julia A. Stewart

$ 115,000 $ 151,777 $ 10,000 $ 276,777

Martha N. Sullivan

$ 100,000 $ 151,777



$ 10,000 $ 261,777
(1)
Mr. Butier does not appear in the table because he served as President and CEO of our company in 2019 and did not receive any additional compensation to serve as director or Chairman. Amounts represent retainers earned as shown in the table below. At their election, the following directors deferred their cash compensation through the DDECP, with the following balances of DSUs in their accounts as of December 28, 2019, the last day of our 2019 fiscal year: Alford – 18,675; Anderson – 10,268; Barker – 30,468; Barrenechea – 1,030; Hicks – 13,949; Lopez – 859; Pyott – 51,981; Stewart – 39,047; and Sullivan – 10,161.
DIRECTOR
BOARD LEADERSHIP ROLES
BOARD
RETAINER

COMMITTEE
CHAIR RETAINER

LEAD DIRECTOR
RETAINER

Alford $ 100,000







Anderson   $ 100,000
Barker Governance Committee Chair $ 100,000 $ 15,000



Barrenechea   $ 100,000
Hicks $ 100,000







Lopez   $ 100,000
Pyott Lead Independent Director $ 100,000



$ 30,000
Scarborough Former Chairman
Siewert Audit Committee Chair $ 100,000 $ 20,000



Stewart Compensation Committee Chair $ 100,000 $ 15,000
Sullivan $ 100,000







(2)
Amounts reflect the grant date fair value of 1,414 RSUs granted on May 1, 2019. The fair value of RSUs was determined based on the fair market value of our common stock on the grant date, adjusted for foregone dividends, of $107.34. Each non-employee director serving as of December 28, 2019 held 1,414 unvested RSUs, except for Mr. Lopez, who held 1,563 unvested RSUs.

(3)
We do not currently have a retirement benefit program for non-employee directors. Amount for Mr. Pyott reflects the change in present value of his accumulated benefits, based on an interest rate of 2.37% as of December 28, 2019, under a director retirement plan the accrual of benefits under which was frozen in 2002.

(4)
Amounts reflect our matching gifts for contributions made to charitable organizations or educational institutions.

(5)
Mr. Scarborough retired from the Board on the date of our 2019 Annual Meeting. Although he served as a non-employee director for four months of the year, he received no cash fees during this time since the fees for the second half of a non-employee director's term are paid in December of the previous year. In addition, he received no stock awards during the year, which are granted only to elected directors after the date of the Annual Meeting. However, in connection with his departure from our Board on the date of the 2019 Annual Meeting and as permitted by our 2017 Incentive Award Plan, the Compensation Committee determined to accelerate Mr. Scarborough's RSUs granted in May 2018 that were scheduled to vest a few days after his departure from our Board. In accelerating the vesting, the Compensation Committee noted that he had served nearly the entire one-year term for which he had been elected by our stockholders.

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ITEM 2 — ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

        After considering the voting results of the advisory vote on the frequency of our say-on-pay vote at our 2017 Annual Meeting, our Board determined to hold say-on-pay votes annually, at least until the next advisory vote on the frequency of our say-on-pay vote (expected to occur at our 2023 Annual Meeting).

        In this Item 2, our stockholders are being asked to vote on the following resolution:

         RESOLVED, that the Company's stockholders approve, on an advisory basis, the compensation of the Company's Named Executive Officers (NEOs), as described in the Compensation Discussion and Analysis and Executive Compensation Tables sections of the Company's 2020 proxy statement.

RECOMMENDATION OF BOARD OF DIRECTORS

        We are committed to maintaining ongoing engagement with our stockholders to seek their feedback and discuss why we believe our executive compensation program properly aligns with our strategies by incenting our leaders to deliver strong financial performance and create superior long-term, sustainable value for our customers, employees, investors and communities. Our Board of Directors recommends that you vote FOR approval, on an advisory basis, of our executive compensation. Properly dated and signed proxies will be so voted unless you specify otherwise.

MEANING OF ADVISORY VOTE

        The advisory vote is a vote to approve the compensation of our NEOs, as described in the Compensation Discussion and Analysis (CD&A) and Executive Compensation Tables sections of this proxy statement. It is not a vote on our general compensation policies or any specific element of compensation, the compensation of our non-employee directors, our CEO pay ratio, or the features of our compensation program designed to prevent excessive risk-taking as described in Risks Associated with Compensation Policies and Practices.

        The results of the advisory vote are not binding on our Board. However, in accordance with SEC regulations, the Compensation Committee will disclose the extent to which it takes into account the results of the vote in the CD&A of our 2021 proxy statement.

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COMPENSATION AND EXECUTIVE PERSONNEL COMMITTEE REPORT

        The Compensation and Executive Personnel Committee (referred to in this report as the "Committee") of our Board of Directors has reviewed and discussed the Compensation Discussion and Analysis (CD&A) required by Item 402(b) of Regulation S-K with management and, based on its review and those discussions, has recommended to our Board of Directors that the CD&A be included in our 2020 proxy statement and incorporated by reference into our 2019 Annual Report on Form 10-K.

        The Committee welcomes feedback regarding our executive compensation program. Stockholders may communicate with the Committee by writing to the Compensation and Executive Personnel Committee Chair, c/o Corporate Secretary, Avery Dennison Corporation, 207 Goode Avenue, Glendale, California 91203.

Julia A. Stewart, Chair
Bradley A. Alford
Mark J. Barrenechea
Ken C. Hicks

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COMPENSATION DISCUSSION AND ANALYSIS*

        This Compensation Discussion and Analysis (CD&A) describes the principles and practices underlying our executive compensation program and the decisions made by the Compensation and Executive Personnel Committee of our Board of Directors (referred to in this CD&A as the "Committee") related to 2019 executive compensation. This CD&A contains the sections shown below.

EXECUTIVE SUMMARY

BUSINESS STRATEGY OVERVIEW

        Over the last several years, we have successfully executed our business strategies, which are designed to create long-term, sustainable value for our customers, employees and investors and improve the communities in which we operate. From our stockholders' perspective, we believe that value is best measured by our total stockholder return (TSR) and cumulative economic value added (EVA), both of which are performance objectives used in our long-term incentive (LTI) compensation program and inform how we set our goals for sales growth, operating margin improvement, asset efficiency, return on total capital (ROTC) and capital allocation.

        In March 2017, we announced long-term goals for our three reporting segments – Label and Graphic Materials (LGM), Retail Branding and Information Solutions (RBIS) and Industrial and Healthcare Materials (IHM) – and our company as a whole, targeting continued solid organic sales growth, GAAP operating margin expansion, double-digit adjusted earnings per share (EPS) growth on a compound annual basis, and the ROTC we planned to achieve by 2021.

   


*
This CD&A contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from the results, performance or achievements expressed or implied thereby. For a detailed discussion of these risks, see Part I, Item 1a, "Risk Factors" and Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our 2019 Annual Report on Form 10-K, filed on February 26, 2020 with the SEC (our "2019 Annual Report"). Stockholders should note that statements contained in this CD&A regarding our company and business performance targets and goals should not be interpreted as management's expectations, estimates of results or other guidance.

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        To achieve these goals, we are focused on executing the following four core strategies:

   

Achieving outsized growth in high value product categories (organically and through acquisitions) to improve our portfolio mix over time. Product categories are defined as high value when they serve markets that are growing faster than gross domestic product (GDP), represent large pools of potential profit and leverage our core capabilities. Examples include our specialty and durable label materials, graphic and reflective solutions, industrial tapes, and radio-frequency identification (RFID) inlays and tags. In 2019, we delivered growth in most of these categories that was higher than the growth in our base businesses, while also enhancing our RFID platform through our agreement to acquire the Transponder (RFID inlay) Division of Smartrac (such division referred to herein as "Smartrac"), which we announced last November;

Growing profitably in our base businesses by carefully balancing volume, price and mix; reducing complexity; and tailoring our go-to-market strategies;

Advancing sustainability in our operations and throughout value chains; and

Fostering well-being and diversity in our teams.

   

        In addition, we continue to focus on the following financial priorities:

   

Maintaining our relentless focus on productivity to expand margins, enhance our competitiveness (particularly in our base businesses) and provide a funding source for reinvestment. Product reengineering and enterprise lean sigma are the primary levers we use in executing this priority.

Deploying capital effectively and in a highly disciplined manner. This is reflected in how we deploy capital for organic growth, productivity, acquisitions and equity investments, as well as our approach to stockholder distributions (dividends and share repurchases).

   

DELIVERING FINANCIAL TARGETS

        The five-year financial goals through 2021 that we announced in March 2017 included targets for organic sales growth, GAAP operating margin, adjusted EPS growth and ROTC. As shown below, based on our results of the first three years of this five-year period, we are largely on track to deliver these commitments.

        Organic sales change, adjusted EPS, ROTC and adjusted ROTC – as well as sales change excluding currency (sales change ex. currency) and free cash flow, which are also discussed in this CD&A – are non-GAAP financial measures that we provide investors to assist them in assessing our performance and operating trends. These non-GAAP financial measures are not in accordance with, nor are they a substitute for or superior to, the comparable financial measures under GAAP, are defined, qualified and reconciled from GAAP in the last section of this proxy statement.

        For the 2017-2019 period, on a three-year compound annual basis (with 2016 as the base period), GAAP reported net sales and reported EPS increased by 5.1% and 0.3%, respectively, and GAAP reported net income decreased by 1.8%.

 
  2017-2021 TARGETS
  2017-2019 RESULTS(1)

Sales Growth(2)

  4%+ organic
5%+ ex. currency(3)
  3.9% organic
5.7% ex. currency

GAAP Operating Margin

  11%+ in 2021   10.9% in 2019

Adjusted EPS Growth(2)

  10%+   18.0%

ROTC

  17%+ in 2021   11.9% in 2019
Adj. ROTC(4) of 19.6% in 2019

 

 

 

 

 

ON TRACK TO DELIVER 2017-2021 FINANCIAL TARGETS

(1)

  Results for non-GAAP measures are reconciled from GAAP in the last section of this proxy statement.

(2)

 

Percentages for targets reflect five-year compound annual growth rates, with 2016 as the base period. Percentages for results reflect three-year compound annual growth rates, with 2016 as the base period.

(3)

 

Target for sales growth ex. currency reflects the impact of completed acquisitions as of March 2017 of approximately 1 point.

(4)

 

Excludes the impact of the termination of our U.S. pension plan.

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2019 FINANCIAL PERFORMANCE

        In fiscal year 2019, we delivered another year of strong adjusted EPS growth and operating margin expansion. We achieved most of our financial goals for the year, with the accomplishments shown below.

GRAPHIC

DISCIPLINED CAPITAL ALLOCATION

        We have been consistently disciplined in executing our approach to capital allocation, balancing our investments in organic growth, productivity and acquisitions, with continuing to return cash to stockholders through dividends and share repurchases. In 2019, on net income of $303.6 million, we delivered adjusted ROTC of nearly 20% while investing $257.2 million in capital expenditures to support future growth and further productivity improvement. In addition, we paid $189.7 million in dividends and repurchased $237.7 million in shares of our common stock.

        We have invested in our businesses to support organic growth and pursued targeted acquisitions that support our strategy of increasing our exposure to high value product categories. Our spending on capital expenditures in 2019 was comparable to prior year as we continued investing to enable the future growth of our businesses, improve our profitability and expand our margins. Last November, we announced our agreement to acquire Smartrac, a leader in the development and manufacture of RFID products. Together with our Intelligent Labels business, this acquisition will create a platform with over $500 million in annual revenue, offering long-term growth and profitability, enhanced research and development capabilities, expanded product lines and additional manufacturing capacity. We completed this acquisition in February 2020. During 2019, we also made equity investments in two start-up companies developing innovative technological solutions.

        In 2019, we deployed $427.4 million to (i) repurchase 2.2 million shares at an aggregate cost of $237.7 million and (ii) pay an annual dividend of $2.26 per share for an aggregate amount of $189.7 million. Given the higher price of our common stock in 2019, we allocated less capital to share repurchases in 2019 than in 2018; however, as shown in the graph on the following page, the amount repurchased was comparable to the average amount repurchased over the prior two years. We have paid quarterly dividends for decades and most recently raised our quarterly dividend rate by

   


For complete information regarding our 2019 performance, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" – in particular the information contained under the heading "Non-GAAP Financial Measures" – and our audited consolidated financial statements and notes thereto contained in our 2019 Annual Report.

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approximately 12% in April 2019. As shown in the graphs below, over the last three years, we have allocated nearly $1.3 billion to dividends and share repurchases.

GRAPHIC

THREE- AND FIVE-YEAR CUMULATIVE TSR OUTPERFORMANCE

        As shown below, we achieved total stockholder return (TSR) of over 48% in 2019, and delivered cumulative TSR for the 2017-2019 three-year period and the 2015-2019 five-year period that substantially outperformed the S&P 500® and the median of the S&P 500 Industrials and Materials subsets. We compare ourselves to the median of the S&P 500 Industrials and Materials subsets because we are a member of the Materials subset, and also share many characteristics with members of the Industrials subset. This practice is further informed by feedback from investors, who have indicated that they look at both subsets in evaluating our performance relative to that of our peers. We focus on TSR because it measures the return we provide to our stockholders, including stock price appreciation and dividends paid (assuming reinvestment of dividends).

        Although we experienced strong TSR in 2019, we continue to believe that our longer-term TSR is a more meaningful measure of our performance than our one-year TSR, which can be significantly impacted by short-term market volatility that may be unrelated to our underlying performance. For example, although we delivered strong financial results in 2018 – exceeding the high end of our adjusted EPS guidance for the year – our TSR for that year was negative, as was the TSR of each of the comparator groups shown below.

GRAPHIC


1-, 3- and 5-YEAR TSR

    2015     2016     2017     2018     2019  
3-Year TSR
 
5-Year TSR  
   

AVY

    23.8%     14.6%     66.7%     (20.3)%     48.5%   97.5%     179.9%  
   

S&P 500

    1.4%     12.0%     21.8%     (4.4)%     31.5%   53.2%     73.9%  
   

S&P 500 Industrials & Materials*

    (4.3)%     20.7%     28.6%     (14.3)%     33.7%   53.1%     78.5%  
*
Based on median of companies in both subsets as of December 31, 2019.

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2019 SAY-ON-PAY VOTE AND STOCKHOLDER FEEDBACK DURING 2019 ENGAGEMENT

        We continued our practice of maintaining proactive ongoing dialogue with stockholders in 2019. The Committee continually evolves our executive compensation program – including, in recent years, replacing regular grants of stock options and time-vesting restricted stock units (RSUs) with performance-based market-leveraged stock units (MSUs), capping Annual Incentive Plan (AIP) awards at 200% of target, and establishing additional guardrails on PU and MSU performance criteria – to address feedback from our stockholders and more closely align our executive compensation program with our financial profile and business strategies. We believe this process and the specific actions taken demonstrate the Committee's commitment to paying for performance and being responsive to stockholder feedback. In 2019, during our ongoing stockholder engagement program, we discussed elements of our executive compensation program with some of our stockholders, who generally expressed support for its structure. We also solicited stockholder opinions regarding potential changes in the Committee's approach to CEO compensation for 2020 that are discussed later in this CD&A, sharing that feedback with the Committee.

Results and Analysis of 2019 Vote

        At the 2019 Annual Meeting, approximately 95% of our stockholders approved, on an advisory basis, our executive compensation. The level of support we received was consistent with the high approval rates we have received in each of the last three years. The Committee believes that our high approval rates in recent years, along with the positive feedback we have received during our ongoing engagement with stockholders, reflects strong support of our compensation program, as well as our consistently improving CD&A disclosure.

Stockholder Engagement Process

        We continued our longstanding practice of ongoing engagement and open dialogue on executive compensation and human capital management (HCM) matters with stockholders in 2019. Our engagement program takes place throughout the year, as shown in the graphic below.

GRAPHIC

Feedback During 2019 Engagement

        In advance of the 2019 Annual Meeting, we contacted our 35 largest institutional stockholders, representing approximately 61% of our then-outstanding shares. Board members, including our Lead Independent Director, and management were made available to answer questions and address concerns regarding the items being brought before the stockholder vote. While we received responses from stockholders representing over 30% of our then-outstanding shares, only one of them desired to substantively engage at that busy time. Respondents declining meetings indicated that they did not have any concerns warranting discussion during proxy season.

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        In the fall, without the time pressures associated with proxy season, we contacted our 30 largest institutional stockholders, representing over 62% of our then-outstanding shares, to request a meeting with our Lead Independent Director and/or management. We received responses from stockholders representing nearly 60% of our then-outstanding shares and spoke with stockholders representing approximately 35% of our then-outstanding shares. We substantively engaged with every stockholder who requested to do so, and our Lead Independent Director led half of these engagements. We also discussed the results of our fall engagement with the Committee.

        Our off-season meetings focused on potential changes in the Committee's approach to CEO compensation for 2020 described later in this CD&A. With respect to executive compensation, we also discussed the linkage between our incentive compensation and business strategies. We also reviewed our approach to HCM, including our executive leadership development and succession planning processes, diversity and inclusion initiatives and employee engagement scores. We also reported on the Committee's robust oversight of these priorities.

2019 NAMED EXECUTIVE OFFICERS (NEOs)

        In this CD&A and the Executive Compensation Tables section of this proxy statement, we provide compensation information for our 2019 NEOs, identified in the chart below. In connection with his planned retirement, Mr. Gravanis ceased serving in the capacity shown below and as an executive officer of our company on December 31, 2019.

2019 NEOs
NAME
  TITLE
Mitchell R. Butier   Chairman, President & Chief Executive Officer
Gregory S. Lovins   Senior Vice President & Chief Financial Officer
Susan C. Miller   Senior Vice President, General Counsel & Secretary
Deon M. Stander   Vice President & General Manager,
Retail Branding and Information Solutions
Georges Gravanis   Former President, Label and Graphic Materials

OVERVIEW OF PAY PHILOSOPHY AND EXECUTIVE COMPENSATION COMPONENTS

        Our executive compensation program reflects the Committee's philosophy that a substantial majority of compensation should be tied to our success in meeting our performance objectives and creating stockholder value, providing higher compensation when we deliver superior, sustained performance. The objectives of this strategy are to motivate our executives to achieve our annual and long-term financial goals and recognize their contributions to delivering strong performance.

The Committee implements its pay-for-performance philosophy primarily through the following:

    Establishing target total direct compensation (TDC) to incent strong operational and financial performance and stockholder value creation, giving consideration to the market median of companies similar in size, scope and complexity with which we compete for executive talent, role responsibilities, individual performance, tenure, retention, and succession;

    Aligning our annual incentives for executives with our company's annual operating plan and key financial and strategic goals; and

    Rewarding long-term performance using absolute and relative TSR, as well as cumulative EVA, to focus our executives on delivering consistent and sustainable stockholder value creation.

        Incentive compensation for the year consisted of target award opportunities under our AIP and our LTI compensation program, with payouts determined based on our performance against goals established by the Committee in February 2019. The Committee structures annual incentive compensation to reward NEOs based on corporate and/or business performance to motivate them and align their compensation with stockholder interests, giving consideration to their individual contributions in achieving our financial results. Our LTI awards provide higher realized compensation for exceeding performance targets and downside risk (up to and including cancellation) for failing to achieve threshold performance, with EVA targets consistent with our externally communicated long-term financial goals for earnings

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growth and ROTC. AIP targets are established at or above the midpoint of the guidance we give to our stockholders on our anticipated performance for the year and consistent with the achievement of our long-term financial goals.


Elements of TDC for Corporate NEOs

GRAPHIC

        As shown in the graph below, the substantial majority of our NEOs' 2019 target TDC was performance-based.

GRAPHIC

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        Over the past five years, our cumulative TSR has increased by nearly 180% while the annual compensation of our CEO has remained relatively constant. In the graph below, CEO pay reflects the compensation of our former CEO for 2015, and the compensation of our current CEO thereafter.


Five-Year CEO Pay and Cumulative TSR

GRAPHIC

CHANGES IN APPROACH TO CEO COMPENSATION FOR 2020

        Over the last few years, the Committee discussed how best to ensure that it is compensating our CEO optimally and in alignment with the long-term interests of our stockholders. The Committee's objectives were to:

   

Recognize our company's performance and delivery of value to our customers, employees, investors and communities during his four-year tenure as our CEO;

Enhance his incentive to continue creating value for these stakeholders, including by driving superior TSR for our investors; and

Encourage his retention for the long term.

   

        The Committee also sought to maintain market-competitive target TDC for him that is well-aligned with our company's performance and ensure that his target TDC does not fall substantially below the market median, without relying on the traditional approach of periodic incremental increases to the components of his TDC – base salary, target AIP award opportunity and target LTI award opportunity – to maintain consistency with a continually rising market median.

        After extensive discussion, and giving consideration to the feedback received from dialogue with some of our largest stockholders, the Committee determined to eliminate year-over-year increases to our CEO's base salary and target AIP and LTI opportunities in favor of an even longer-term approach that would hold his target TDC constant for a three-year period. During the three-year period, the Committee retains the discretion to review our CEO's target TDC if market conditions or company results warrant a change. At the end of the period, the Committee plans to evaluate both his and our company's performance and market conditions before determining the appropriate level of his compensation, continuing to give consideration to factors such as individual performance, tenure, retention and succession. This approach to CEO compensation is intended to be more consistent with the long-term approach we take to planning our strategies, setting our financial targets and sustainability goals, creating value for our stockholders, developing an engaged and diverse workforce, and investing in the communities in which we operate.

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        To ensure our CEO's compensation determined in 2020 remains competitive and mitigate the potential for his target TDC to substantially trail behind his peers in the next three years, the Committee determined to set his target TDC modestly above market median, recognizing that his base salary had not increased for two years and his target AIP opportunity had not increased since he became CEO in 2016. The Committee intends to make no additional increases until 2023. Anticipating that the median for market will continue to grow at historical rates, the Committee determined to set our CEO's compensation package roughly halfway between the current 50th and 75th percentiles of his market peers, with the expectation that – at the end of the three-year period during which Mr. Butier's compensation is expected not to increase – his TDC would be at or around the market median. This approach is consistent with the approach taken by the Committee with respect to recommending to our Board the compensation of our non-employee directors.

        Based on 2019 market pay rates and projected 2020 market pay rates for companies with a market capitalization between $6 billion and $10 billion, and with the expert advice and recommendation of its independent compensation consultant, Willis Towers Watson, the Committee determined to set Mr. Butier's target TDC for 2020 at $9.9 million by increasing (i) his base salary by 6% to $1.2 million, noting that his base salary had not been increased in the previous two years; (ii) his target AIP opportunity from 125% of base salary, the same level it was when he became CEO in 2016, to 140% of base salary; and (iii) his target LTI opportunity from 475% of base salary to 585% of base salary. The Committee noted that over 90% of this increase consists of at-risk, performance based compensation. These targets are not expected to increase during the next three years, but could decrease if warranted by market conditions or company results. Mr. Butier's realized compensation will be dependent on our company achieving strong TSR performance, delivering our 2021 financial targets and 2025 sustainability goals, and continuing to serve our customers, engage our employees, and invest in the communities in which we operate.

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STRONG COMPENSATION GOVERNANCE PRACTICES

        Our executive compensation program incorporates the best practices shown below, which the Committee believes ensure that it serves the long-term interests of our stockholders.

POLICY OR BEST PRACTICE
  DESCRIPTION AND BENEFIT TO OUR STOCKHOLDERS
PAY FOR PERFORMANCE
Compensation Primarily Performance-Based   86% of our CEO's target TDC and 72% of the average target TDC of our other NEOs for 2019 was tied to company performance and will not be earned for below-threshold performance.
Capped Annual Incentive
Set At or Above
Midpoint of Guidance
  AIP award is based primarily on our achievement of performance objectives targeted at or above the midpoint of our annual guidance and consistent with our long-term financial goals, subject to downward discretion based on the Committee's assessment of our CEO's achievement of his predetermined and objectively measurable goals and our other NEOs' individual contributions, with AIP awards capped at 200% of target and individual modifiers for our NEOs generally capped at 100%.
Majority Long-Term Equity Incentive Compensation   Our LTI awards emphasize long-term performance, with PUs cliff-vesting at the end of three years and MSUs having an average performance period of 2.5 years. Equity compensation aligns NEO interests with stockholder interests by delivering compensation based on our long-term performance and stockholder value creation.
Median Targeting   TDC (base salary + annual cash incentive opportunity + LTI equity opportunity) and its elements are targeted at the median of companies similar in size, global scope and complexity, giving consideration to role responsibilities, individual performance, tenure, retention, and succession.
No Annual Stock Options   Given their past adverse impact on our burn rate and related stockholder feedback, we last made a regular grant of stock options in 2012, though stock options may be granted for special purposes such as promotion.
BEST PRACTICES
No Employment
Contracts

 
Our NEOs are employed at-will.
Rigorous Stock
Ownership Policy
  Our CEO is currently required to maintain at least 6x his base salary; at the end of 2019, Mr. Butier owned stock with a market value of approximately 22x his base salary and nearly 4x the level required by our policy. Our other NEOs are required to maintain ownership of at least 3x their respective base salaries. All of our NEOs were in compliance with our stock ownership policy at the end of 2019.
No Hedging
or Pledging

 
Our insider trading policy prohibits our officers and employees from hedging – and our officers from pledging – our common stock and all our NEOs complied with the policy in 2019.
Limited Trading Windows   Our NEOs may only transact in our common stock during approved trading windows after satsifying the clearance requirements under our insider trading policy, which includes certifying that they will remain in compliance with our stock ownership policy after giving effect to the transaction they plan to effectuate.
Median Burn Rate   Our three-year average burn rate of 0.7% at the end of fiscal year 2019 was slightly above the 50th percentile of the companies in the S&P 500.
Clawback Policy   Cash and equity incentive compensation is subject to clawback in the event of fraud or other intentional misconduct on the part of an NEO that necessitates a restatement of our financial results.
No Excise Tax
Gross Ups

 
We do not gross-up payments received in connection with termination following a change of control for excise taxes.
Double Trigger
Equity Vesting
  Equity awards are not accelerated on change of control, unless the NEO is terminated without cause or terminates employment for good reason within 24 months following the change of control.
No Repricing/Exchange
of Underwater
Stock Options


 
Our equity plans prohibit the repricing or exchange of underwater options without stockholder approval.
Limited
Perquisites
  Other than a capped financial planning reimbursement and our payment for an annual physical examination, our corporate NEOs receive a flat taxable executive benefit allowance that is not subject to any tax gross-up.
Reasonable
Severance Benefits

 
Current severance formula for qualifying termination:
CEO: 2x (annual salary + highest AIP award in last three years + cash value of 12 months of health insurance premiums)
Others: 1x (annual salary + highest AIP award in last three years + cash value of 12 months of health insurance premiums)
Reasonable Change of
Control Benefits
  Current severance formula for qualifying termination within 24 months following a change of control:
CEO: 3x (annual salary + highest AIP award in last three years + cash value of 12 months of health insurance premiums) + prorated AIP award for year of termination
Others: 2x (annual salary + highest AIP award in last three years + cash value of 12 months of health insurance premiums) + prorated AIP award for year of termination
STRONG GOVERNANCE
Independent
Oversight

 
The Committee is comprised solely of independent directors and its executive compensation decisions are reviewed and ratified by all of our independent directors.
Expert Compensation Consultant   Willis Towers Watson, which has been determined by the Committee to be independent and free of conflicts of interest, provides the Committee with expert executive compensation advice.

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SUMMARY OF COMPENSATION DECISIONS FOR 2019

        The Committee designs executive compensation to pay for performance, with the target TDC of NEOs established to incent strong financial performance and stockholder value creation, giving consideration to the market median of companies similar in size, global scope and complexity with which we compete for executive talent, role responsibilities, individual performance, tenure, retention and succession. This compensation is primarily performance-based, meaning that our executives may ultimately not realize some or all of these components of compensation if we fail to achieve our financial objectives. In 2019, approximately 86% and 72% of the TDC of our CEO and average of our other NEOs, respectively, was performance-based.

        In determining 2019 NEO compensation, the Committee considered the following:

   

Company/Business Performance – Our company's financial performance, including our 2019 adjusted sales growth, adjusted EPS, and free cash flow for our corporate NEOs, and, for our business NEOs, primarily the performance of their respective business;

Stockholder Returns – Our TSR on an absolute basis, as well as relative to an objectively determined group of peer companies;

Annual Individual Performance – Our CEO's performance against the predetermined and objectively measurable strategic objectives established for him at the beginning of the year and the individual contributions of our other NEOs;

Competitiveness – Market pay practices and company performance relative to peers; and

Investor Feedback – The results of our 2019 say-on-pay vote and feedback on our executive compensation received during our ongoing stockholder engagement program.

   

        The key elements of 2019 NEO target TDC are described in the table shown on the following pages. While we provide consistent, market-competitive target TDC opportunities for our NEOs, the actual compensation they realize varies year-to-year based primarily on company and business performance; for 2019, the incentive compensation realized by our NEOs was based solely on company and/or business performance.

        In determining Mr. Butier's target TDC for 2019, the Committee focused on his LTI compensation, having increased his target LTI opportunity from 425% to 475% of base salary in February 2018. The Committee had not increased his base salary in either of the past two years or his target AIP opportunity since he became CEO in 2016. This approach reflects the Committee's pay-for-performance philosophy by prioritizing performance-based equity to further incent our CEO to deliver top quartile long-term stockholder value creation.

46    2020 Proxy Statement   |  Avery Dennison Corporation


Table of Contents

2019 TDC SUMMARY
COMPONENT
  DESCRIPTION
  DECISIONS IMPACTING 2019 EXECUTIVE COMPENSATION
            
FIXED

Base Salary

14% of TDC for CEO;

Avg. 28% of TDC for
Other NEOs


 
Provides fixed, market competitive monthly income for performing daily responsibilities   The Committee approved limited salary increases for our NEOs of approximately 3%, consistent with the average increase for our U.S. employees, except for Mr. Butier, whose base salary was not increased.
            
PERFORMANCE-BASED CASH

Target
AIP Award

Capped at 200% of
target

Avg. 18% of TDC for
all NEOs

  Provides variable, cash-based incentive to motivate our executives to grow sales, increase profits and deliver strong free cash flow consistent with our annual financial goals

AIP opportunity based on market survey data; financial modifier based on corporate or business performance; capped individual modifier based on our CEO's achievement against predetermined and objectively measurable strategic objectives and our other NEOs' individual contributions

  The only change to NEO target AIP opportunities in 2019 was an increase in Mr. Stander's target AIP opportunity from 50% to 60% of base salary to better reflect the market median for his role.

Our company or business performance resulted in financial modifiers of 91%, 76% and 114% for our corporate NEOs, LGM business NEO (Mr. Gravanis) and RBIS business NEO (Mr. Stander), respectively.

The individual modifiers for our CEO and other NEOs are generally capped at 100% (rather than the 150% applicable to other AIP participants) to focus their efforts on delivering long-term company and business performance. The Committee approved individual modifiers of 100% for all NEOs for 2019.

            
PERFORMANCE-BASED EQUITY

LTI Awards

68% of TDC for CEO;

Avg. 53% of TDC for
Other NEOs


 
Provides variable, equity-based incentive compensation to align NEO interests with stockholder interests and drive long-term value creation

LTI opportunity based on market survey data; award vehicles, performance criteria and weightings informed by expert advice and recommendations of Willis Towers Watson

  LTI Awards Granted in 2019

The only changes to NEO target LTI opportunities for 2019 were increases in (i) Mr. Lovins' target LTI opportunity from 200% to 250% and (ii) Mr. Stander's target LTI opportunity from 140% to 180% of base salary, in each case to better reflect the market median for his respective role.

50% in PUs that cliff-vest at the end of a three-year period with payout ranging from zero to 200% based on the achievement of the cumulative EVA and relative TSR performance objectives established for the award. The payout for the TSR component is capped at 100% of target for any three-year performance period in which absolute TSR is negative. There were no changes to the performance objectives or weightings from the prior year for our corporate NEOs or our LGM business NEO; the objectives for our RBIS business NEO changed from 100% RBIS' cumulative EVA in 2018 to 75% RBIS' cumulative EVA and 25% company TSR in 2019.

50% in MSUs that vest based on our absolute TSR over one-, two-, three- and four-year performance periods, with an average performance period of 2.5 years. Consistent with recent years, the performance criteria were as follows: (i) the threshold performance level for absolute TSR, which results in a payout at vesting of 85%, was (15)%; (ii) the target performance level, which results in a payout at vesting of 100%, requires a TSR of 10%; and (iii) the maximum performance level, which results in a payout at vesting of 200%, requires a TSR of 75%.

 

  LTI Awards Vesting in 2019

2017-2019 PUs: Our 2017-2019 TSR was at the 97th percentile of the objectively determined peer group established in February 2017. Cumulative EVA for our company was $890.0 million, exceeding the maximum level of performance. Cumulative EVA for our RBIS business also exceeded its maximum level of performance. Cumulative EVA for our LGM business was 115% of target. The PUs granted in 2017 for the 2017-2019 performance period paid out at (i) 200% of target for our corporate NEOs and our RBIS business NEO and (ii) 136% of target for our LGM business NEO.

Avery Dennison Corporation   |  2020 Proxy Statement    47


Table of Contents

2019 TDC SUMMARY
COMPONENT
  DESCRIPTION
  DECISIONS IMPACTING 2019 EXECUTIVE COMPENSATION
     
    LTI Awards Vesting in 2019

 

 

4th Tranche of MSUs granted in 2016:
2016-2019 Absolute TSR = 136%
Paid out at 200% of target

     

3rd Tranche of MSUs granted in 2017:
2017-2019 Absolute TSR = 90%
Paid out at 200% of target

     

2nd Tranche of MSUs granted in 2018:
2018-2019 Absolute TSR = 14%
Paid out at 106% of target