UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

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HOUSTON WIRE & CABLE COMPANY

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[On May 4, 2020, the Company sent the following message to the 20 largest stockholders]

 

Dear Shareholder,

As detailed in my email to you dated May 1, 2020, Houston Wire & Cable Company (NASDAQ:  HWCC) has been in discussions with Institutional Shareholder Services (ISS) involving their recommendation against HWCC’s Omnibus Stock Plan.  Attached, please find the ISS Proxy Alert that changes its recommendation to a vote FOR the Omnibus Stock Plan. 

We hope that this amended recommendation, as well as our prior press releases and communications will help provide you additional context and a greater understanding of how approval of the Omnibus Stock Plan will benefit HWCC as it executes its turnaround plan in this difficult operating environment.

Please feel free to give me a call if you have any questions or wish further discussion.

 

Sincerely,

 

James L. Pokluda III
President & Chief Executive Office

 

 

 

ISS Proxy Analysis & Benchmark Policy Voting Recommendations Houston Wire & Cable Company Meeting Type: Annual Meeting Date: 11 May 2020 Record Date: 13 March 2020 Meeting ID: 1412348 NASDAQ: HWCC Index: N/A Sector: Trading Companies & Distributors GICS: 20107010 Proxy Alert Alert Date: 4 May 2020 Original Publication Date: 19 April 2020 This alert updates the vote recommendation for the analysis dated April 19, 2020, with respect to Item 4: Amend Omnibus Stock Plan. On May 4, 2020, the company filed a DEFA14A that indicates that the compensation committee intends for at least 50 percent of annual equity incentive awards to executive officers to be subject to the achievement of performance goals. The filing also indicates that the company may “increase performance-based compensation as a percentage of total compensation and probably will reduce the use of shares to mitigate the effect of dilution.” In light of these expected improvements, the concerns regarding equity compensation no longer rise to the level warranting a pay-for-performance disconnect overriding factor under the Equity Plan Scorecard (EPSC) analysis. Accordingly, a vote FOR Item 4 is now warranted. An updated EPSC analysis is displayed below. Given noted concerns under the say-on-pay analysis regarding disclosure and one-time awards for 2019 compensation, there is no change to the vote recommendation for Item 2. All other vote recommendations remain unchanged. Policy: United States Agenda & Recommendations Incorporated: Delaware, USA Item Code Proposal Board Rec. ISS Rec. MANAGEMENT PROPOSALS 1.1 M0201 Elect Director James L. Pokluda, III FOR FOR 1.2 M0201 Elect Director Roy W. Haley FOR FOR 1.3 M0201 Elect Director Margaret S. Laird FOR FOR 1.4 M0201 Elect Director David Nierenberg FOR FOR 1.5 M0201 Elect Director Sandford W. Rothe FOR FOR 1.6 M0201 Elect Director William H. Sheffield FOR FOR 1.7 M0201 Elect Director G. Gary Yetman FOR FOR 2 M0550 Advisory Vote to Ratify Named Executive Officers' Compensation FOR AGAINST 3 M0101 Ratify Ernst & Young LLP as Auditors FOR FOR 4 M0524 Amend Omnibus Stock Plan FOR FOR © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 Meeting Agenda and Proposals Item 4. Amend Omnibus Stock Plan FOR VOTE RECOMMENDATION Based on the Equity Plan Scorecard evaluation (EPSC), a vote FOR this proposal is warranted. BACKGROUND INFORMATION Policies: Amending Equity Plans Vote Requirement: Majority of votes cast (abstentions count against; broker non-votes not counted) Proposal Plan Name 2017 Stock Plan Year of last share request 2018 New share request 1,500,000 shares Shares rolled over from prior plan(s) None Shares remaining under existing plan(s) 5,148 Evergreen provision No Shares outstanding* 16,556,950 shares Market value* $83,612,598 *As of Record Date using 200-day average closing price as of December 1, 2019 Analysis ISS' analysis considers multiple positive and negative factors to evaluate equity incentive plan proposals within three pillars: Estimated Cost, Plan Features, and Equity Grant Practices. Pillars and factors are weighted according to their relative importance, with a maximum of 100 potential points; a score of 53 points generally results in a favorable recommendation. In some cases, regardless of the score, overriding factors or an analysis of the amendments may affect the recommendation, also as indicated below. For more details, please see the Equity Compensation Plans FAQs. SUMMARY EVALUATION EPSC Model: Non-Russell 3000 Evaluation Component Maximum Score Company Score Plan Costs 45 19.3 Plan Features 27 19.0 Grant Practices 28 26.3 Total Score 100 64.6 Overriding Factors: None ISS Recommendation: FOR For the following analysis, has a positive impact, has a negative impact, and is neutral. I Plan Cost Score: 19.3 of 45 Impact Shareholder Value Transfer (SVT) ISS Benchmark* Plan SVT Publication Date: 4 May 2020 Page 2 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 New + Available shares 9.55% 9.09% New + Available + Outstanding grants 12.91% 14.72% The potential value transfer of equity based on new, available, and outstanding shares exceeds the ISS benchmark. *Maximum point accrue for company SVT = 65% of ISS Benchmark SVT Blank II Plan Features Score: 19.0 of 27 Impact Factors Plan Data Complete CIC vesting disclosure No The plan's disclosure of CIC vesting treatment is incomplete (or otherwise is considered to be discretionary). Liberal share recycling No Broad discretion to accelerate vesting Yes The administrator may accelerate the vesting of any award type, beyond cases involving a death or disability. Vesting requirement of at least one year for all equity award types Yes Plan prohibits payment of dividends on unvested equity awards Yes Blank III Grant Practices Score: 26.3 of 28 Impact Factors Company Data 3-year average burn rate* 4.52% Estimated plan duration 4.1 years *Index/Industry mean + 1 standard deviation; maximum points accrue for company burn rate < 50% of ISS Benchmark Burn Rate Blank IV Overriding Factors Feature/Practice Company/Plan Provision to reprice w/o shareholder approval Prohibits Cash buyout w/o shareholder approval Prohibits Liberal CIC vesting risk No Equity-related pay-for-performance disconnect No Problematic equity-related provision No Excessive dilution N/A 162(m) approval only and committee independent N/A DISCUSSION There are no overriding factors that have an impact on this proposal. Supplemental Information Shareholder Value Transfer (SVT) Evergreen funding: No Fungible share counting (FV multiplier): None 200-day average closing price as of December 1, 2019 $5.05 4-digit GICS 2010 (Capital Goods) Publication Date: 4 May 2020 Page 3 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 SVT Calculation Company ISS Valuation SVT New shares requested (A) 1,500,000 $7,575,000 9.06% Available shares remaining (B) 5,148 $25,997 0.03% Unvested/Unexercised granted shares (C) 1,053,000 $4,710,090 5.63% New + Available (A+B) 1,505,148 $7,600,997 9.09% New + Available + Outstanding (A+B+C) 2,558,148 $12,311,087 14.72% Source: A shares - (DEF 14A filed 3/26/2020, p. 26); B shares - (10-K filed 3/13/2020, p. F-18); C shares consist of 122,000 stock options and 931,000 full-value awards (10-K filed 3/13/2020, p. F-16 - F-18). Blank Space Blank Space Company Burn Rate (Historical Grants) Index/ Industry group: Non-Russell 3000/ 2010 (Capital Goods) 3-year stock volatility: 42.69% Volatility multiplier: 1 Full Value Award = 2.00 Option Shares ISS benchmark: 8.17% Fiscal Year 2019 2018 2017 Options/SARs (O): - - - Full value awards (FV): 637,433 175,974 296,733 O + FV: 637,433 175,974 296,733 Adjusted O + FV (after multiplier): 1,274,866 351,948 593,466 Wtd. common shares outstanding: 16,433,644 16,389,876 16,269,611 Unadjusted burn rate: 3.88% 1.07% 1.82% 3-year average unadjusted burn rate: 2.26% Adjusted burn rate: 7.76% 2.15% 3.65% 3-year average adjusted burn rate: 4.52% Blank Space Share Dilution Shares outstanding (1): 16,556,950 Warrants & convertibles (2): 0 Shares reserved under plans (3): 2,558,148 Fully diluted shares (1+2+3): 19,115,098 Shares Dilution (Basic)* Dilution (Full)* New shares requested: 1,500,000 9.06% 7.85% Existing shares available for grant: 5,148 0.03% 0.03% Granted unexercised/Unvested shares: 1,053,000 6.36% 5.51% Total share allocation: 2,558,148 15.45% 13.38% *Assuming maximum dilution Blank Space Peer Comparisons* - Dilution/Burn Rate/ NEO Concentration Ratios 3-yr Avg. Adjusted 3-yr Avg. Grants to 3-yr Avg. Grants to Dilution (Full) Burn Rate CEO NEOs Company: 13.38% 4.52% 50.69% 66.19% GICS median: 10.40% 2.40% 20.90% 39.70% GICS average: 12.80% 3.30% 23.20% 44.20% GICS 75th percentile: 14.50% 4.30% 30.50% 57.80% *4-digit GICS peers Publication Date: 4 May 2020 Page 4 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 Blank Space Additional Plan Features Award types authorized ISOs (100%), NSOs (100%), SARs, RSUs, restricted stock, performance units and (minimum option exercise price): performance shares Award-type limits: None Eligible participants: All employees and non-employee directors Plan administrator: Compensation Committee Plan expiration date: August 4, 2027 Individual award limits: In any calendar year: Options or SARs - 500,000 shares; Performance-based Stock awards or Stock Unit Awards - 150,000 shares; Stock Units settled in cash are limited to an amount equal to the fair market value of 150,000 shares Terms/vesting provisions: Stock options and SARs have a maximum 10-year term. Minimum vesting requirements: Appreciation awards: 1 year; Full-value awards: 1 year Up to 5% of the plan's share reserve may be issued without a minimum vesting requirement Loans to participants: The plan does not allow the company to extend loans to participants. Performance criteria disclosed: Yes Treatment in a CIC: The vesting of time-based equity awards would be at the discretion of the plan administrator; performance awards would be settled at target. Meeting Type: Annual Houston Wire & Cable Meeting Date: 11 May 2020 Record Date: 13 March 2020 Meeting ID: 1412348 Company NASDAQ: HWCC Index: N/A Sector: Trading Companies & Distributors GICS: 20107010 Proxy Alert Alert Date: 1 May 2020 Original Publication Date: 19 April 2020 This informational alert updates the report published on April 19, 2020. On April 29, 2020, the company filed a Form DEFA14A announcing that William Sheffield is not standing for re-election at the 2021 annual shareholders meeting and will be succeeded by incumbent director Gary Yetman as chairman of the board. Immediately after this year's annual meeting, Yetman will succeed Sheffield as Nominating and Governance Committee chairman and will step down as Compensation Committee chairman. In turn, David Nierenberg will then succeed Yetman as Compensation Committee chairman. Updated board tables are presented below. In addition, the company disclosed that in March 2020, the compensation committee convened to discuss the impact of the coronavirus pandemic and the oil imbalance on the 2020 annual incentive plan for members of senior management. In light of these recent events, the committee determined that the original goals under the plan should be replaced by two new goals for “controlling the controllables.” Moreover, the company disclosed certain salary and board fee reductions for employees of the company and for members of the board. The board has also elected to receive its compensation in stock, subject to shareholder approval of additional shares under the company's stock plan. Updated table and discussion are presented below. All vote recommendations remain unchanged. Publication Date: 4 May 2020 Page 5 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 Agenda & Recommendations Policy: United States Incorporated: Delaware, USA Item Code Proposal Board Rec. ISS Rec. MANAGEMENT PROPOSALS 1.1 M0201 Elect Director James L. Pokluda, III FOR FOR 1.2 M0201 Elect Director Roy W. Haley FOR FOR 1.3 M0201 Elect Director Margaret S. Laird FOR FOR 1.4 M0201 Elect Director David Nierenberg FOR FOR 1.5 M0201 Elect Director Sandford W. Rothe FOR FOR 1.6 M0201 Elect Director William H. Sheffield FOR FOR 1.7 M0201 Elect Director G. Gary Yetman FOR FOR 2 M0550 Advisory Vote to Ratify Named Executive Officers' Compensation FOR AGAINST 3 M0101 Ratify Ernst & Young LLP as Auditors FOR FOR 4 M0524 Amend Omnibus Stock Plan FOR AGAINST Publication Date: 4 May 2020 Page 6 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 Board & Committee Composition The information provided in the charts and tables below is based on ISS data records, which rely on disclosures in proxy materials and other public sources available as of the date set forth below (for the general meeting under review) and, with respect to information from prior years, information that was available ahead of each year’s annual general meeting at the time of ISS’ report for that meeting. As such, these charts and tables might not reflect changes to the board composition and/or other covered elements subsequently disclosed by the issuer after ISS’ publications or between general meetings. Independence values refer to ISS Independence classifications (“Exec”: Executive Director; “N-Ind.”: Non-Independent Director; “Ind.”: Independent Director). as of May 11, 2020 Board Audit Comp Nom Ind.: Ind.: Ind.: 100%, 2 100%, 3 100%, 3 Ind.: 86%, 6 Exec.: Meetings last FY:4 Meetings last FY:5 Meetings last FY:4 14%, 1 Exec N-Ind. Ind. Meetings last FY:8 Independence History Gender Diversity Trend 100% 100% 90% 90% 86% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 14% 10% 0% 2016 2017 2018 2019 After AGM 0% Board 83% 83% 80% 86% 86% 2016 2017 2018 2019 After AGM Audit Com 100% 100% 100% 100% 100% male 100% 100% 100% 86% 86% Comp Com 100% 100% 100% 100% 100% female 0% 0% 0% 14% 14% Nom Com 100% 100% 100% 100% 100% Director tenure 0 2 4 6 8 10 12 14 16 Publication Date: 4 May 2020 Page 7 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 Board Profile (after upcoming meeting) Item # Executive Directors Affiliation Independence Leadership Gender Age Tenure Term Committee Ends Co. ISS Audit Comp Nom Gov 1.1 James Pokluda III Exec Exec CEO M 55 8 2021 Non-Executive Directors 1.6 William (Bill) Sheffield Ind. Ind. Chair M 71 14 2021 1.2 Roy Haley Ind. Ind. M 73 2 2021 M M 1.3 Margaret (Maggie) Laird Ind. Ind. F 43 1 2021 M 1.4 David Nierenberg Ind. Ind. M 66 0* 2021 C M M 1.5 Sandford Rothe Ind. Ind. M 64 1 2021 C F M M 1.7 G. Gary Yetman Ind. Ind. M 65 5 2021 C C 100% 100% 100% 100% 86% Ind. 86% Ind. 14% F Ave: 62 Ave: 4 Ave: 1 Ind. Ind. Ind. Ind. Committee Membership: M = Member | C = Chair | F = Financial Expert *Indicates director not previously submitted to shareholders for election. COMMITMENTS AT PUBLIC COMPANIES Item # # of Board Committee Ownership Director Name Mandate Type CEO boards* Company Name Chair Audit Comp Nom # % stock % votes 1.1 James Pokluda III 1 Houston Wire & Cable Company Executive Director 213,819 1.3 1.3 1.6 William (Bill) Sheffield 3 Houston Wire & Cable Company Non-Executive Director 40,415 0.2 0.2 Velan Inc. Non-Executive Director C C Hydro One Limited Non-Executive Director M 1.2 Roy Haley 1 Houston Wire & Cable Company Non-Executive Director M M 292,537 1.8 1.6 1.3 Margaret (Maggie) 1 Houston Wire & Cable Company Non-Executive Director M 500 <0.1 <0.1 Laird Hitachi Ltd. Executive Officer (non-director) 1.4 David Nierenberg 4 Houston Wire & Cable Company Non-Executive Director C M 2,043,358 12.3 12.3 Rosetta Stone Inc. Non-Executive Director F C M Flotek Industries, Inc. Non-Executive Director F M M Riverview Bancorp, Inc. Non-Executive Director M M 1.5 Sandford Rothe 1 Houston Wire & Cable Company Non-Executive Director C F M 24,000 0.1 0.1 1.7 G. Gary Yetman 1 Houston Wire & Cable Company Non-Executive Director C 17,669 0.1 0.1 *The number of boards for each director is the total of executive director and/ or non-executive director mandates. Ownership values take into account Deferred Share Units where applicable. Publication Date: 4 May 2020 Page 8 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 Meeting Agenda and Proposals Item 2. Advisory Vote to Ratify Named Executive Officers' Compensation AGAINST VOTE RECOMMENDATION A vote AGAINST this proposal is warranted. Total CEO compensation increased significantly over the prior year due to the grant of equity awards. While a portion of the equity awards is subject to a multi-year performance period, the specific goals associated with the performance metrics are not disclosed. In addition, a majority of the equity awards lack performance criteria, and certain of these awards will vest solely upon a CIC of the company. Such awards may incentivize a sale of the company and, absent a minimum consideration requirement, are not strongly linked to company performance. BACKGROUND INFORMATION Policies: Advisory Votes on Executive Compensation Vote Requirement: Majority of votes cast (abstentions count against; broker non-votes not counted) Executive Compensation Analysis Blank Blank space 1 Other Short-Term Incentive Factors Discretionary bonus?* No Future performance metrics Net debt, Normalized net income *Based on the Bonus column in the SCT; per SEC rules, amounts disclosed in this column were not based on pre-set goals. Blank Blank8 S&P 500 is FALS Analysis Other Notable Factors Updates for 2020 compensation. In March 2020, the compensation committee convened to discuss the impact of the coronavirus pandemic and the oil imbalance on the 2020 annual incentive plan for the company’s senior management. In light of these recent events, the committee determined that the goals have been overtaken and should be replaced by two new goals, as follows: 1. halving the company's net debt from $79.3 million at year-end 2019 to under $40 million (weighted at 70 percent); and 2. producing a positive normalized net income for 2020, even in the face of the COVID-19 pandemic and the oil imbalance (weighted at 30 percent). The board states while it retains discretion, it is their intention that bonuses under the revised AIP will be earned only if a goal is fully realized in 2020. The company also announced certain salary reductions for 2020. Specifically, the CEO reduced his salary by 15 percent, and the company reduced employees' compensation by 5 to 10 percent. Publication Date: 4 May 2020 Page 9 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 Meeting Type: Annual Meeting Date: 11 May 2020 Houston Wire & Cable Record Date: 13 March 2020 Meeting ID: 1412348 NASDAQ: HWCC Index: N/A Company Sector: Trading Companies & Distributors GICS: 20107010 Proxy Alert Alert Date: 22 April 2020 Original Publication Date: 19 April 2020 This informational alert updates the date, time, and location of the 2020 annual meeting. On April 20, 2020, the company filed a DEFA 14A, announcing the annual meeting has been rescheduled and the location has been changed from an in-person meeting to a virtual meeting format only due to the public health impact of the coronavirus pandemic and to support the health and well-being of its employees, shareholders, and community. The annual meeting will now be held on May 11, 2020 at 2:00 p.m. Central Time and will be accessible at www.virtualshareholdermeeting.com/HWCC2020. All vote recommendations remain unchanged. Policy: United States Agenda & Recommendations Incorporated: Delaware, USA Item Code Proposal Board Rec. ISS Rec. MANAGEMENT PROPOSALS 1.1 M0201 Elect Director James L. Pokluda, III FOR FOR 1.2 M0201 Elect Director Roy W. Haley FOR FOR 1.3 M0201 Elect Director Margaret S. Laird FOR FOR 1.4 M0201 Elect Director David Nierenberg FOR FOR 1.5 M0201 Elect Director Sandford W. Rothe FOR FOR 1.6 M0201 Elect Director William H. Sheffield FOR FOR 1.7 M0201 Elect Director G. Gary Yetman FOR FOR 2 M0550 Advisory Vote to Ratify Named Executive Officers' Compensation FOR AGAINST 3 M0101 Ratify Ernst & Young LLP as Auditors FOR FOR 4 M0524 Amend Omnibus Stock Plan FOR AGAINST Publication Date: 4 May 2020 Page 10 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 Meeting Type: Annual Houston Wire & Cable Company Meeting Date: 5 May 2020 Record Date: 13 March 2020 Meeting ID: 1412348 Key Takeaways NASDAQ: HWCC Index: N/A 1. While a portion of the equity awards is subject to a multi-year performance period, the Sector: Trading Companies & specific goals associated with the performance metrics are not disclosed. In addition, a Distributors majority of the equity awards lack performance criteria, and certain of these awards GICS: 20107010 will vest solely upon a CIC of the company. Primary Contacts 2. The company’s equity usage contributes to the pay-for-performance misalignment, and Jan Carlo Joson the equity plan is not sufficiently broad-based. Audrey Velasco Compensation U.S. Research Help Center Agenda & Recommendations Policy: United States Incorporated: Delaware, USA Item Code Proposal Board Rec. ISS Rec. MANAGEMENT PROPOSALS 1.1 M0201 Elect Director James L. Pokluda, III FOR FOR 1.2 M0201 Elect Director Roy W. Haley FOR FOR 1.3 M0201 Elect Director Margaret S. Laird FOR FOR 1.4 M0201 Elect Director David Nierenberg FOR FOR 1.5 M0201 Elect Director Sandford W. Rothe FOR FOR 1.6 M0201 Elect Director William H. Sheffield FOR FOR 1.7 M0201 Elect Director G. Gary Yetman FOR FOR 2 M0550 Advisory Vote to Ratify Named Executive Officers’ Compensation FOR AGAINST 3 M0101 Ratify Ernst & Young LLP as Auditors FOR FOR 4 M0524 Amend Omnibus Stock Plan FOR AGAINST Shading indicates that ISS recommendation differs from Board recommendation Items deserving attention due to contentious issues or controversy Publication Date: 4 May 2020 Page 11 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 TOTAL SHAREHOLDER RETURNS 1 Year 3 Year 5 Year Company TSR (%) -12.85 -12.13 -16.81 GICS 2010 TSR (%) 11.97 9.06 Russell 3000 TSR (%) 31.02 14.57 11.24 Source: Compustat. As of closest month end to company FY end. Material Company Updates Item Summary Shareholder Concern In an amended Schedule 13D filed on Dec. 23, 2019, DC3 Family Funds, holder of 10 percent of the company shares, expressed concern over the company’s underperformance and intrinsic value discount. Specifically, DC3 stated that in contrast to the stock market’s rise, the company’s share price has fallen by 21 percent after dropping 30 percent in 2018. On March 13, DC3 amended its filing to request that the company appoint DC3 President David Nierenberg as a director and Damon Benedict as a board observer; the fund also argued for a sum-of-the-parts disaggregation strategy. Board Updates On March 16, 2020, David Nierenberg was appointed to the board. Robert Reymond is retiring from the board at this year’s annual meeting. Publication Date: 4 May 2020 Page 12 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 Corporate Governance Profile BOARD SUMMARY SHAREHOLDER RIGHTS SUMMARY Chairman classification Independent Controlled company No Separate chair/CEO Yes Classified board No Independent lead director N/A Dual-class stock No Voting standard Plurality Vote standard for mergers/acquisitions Majority Plurality carveout for contested elections N/A Vote standard for charter amendment Majority Resignation policy No Vote standard for bylaw amendment Majority Total director ownership (000 shares) 2,632 Shareholder right to call special No Total director ownership (%) 15.9 meetings Percentage of directors owning stock 100% Material restrictions on right to call N/A special meetings Number of directors attending < 75% of 0 meetings Shareholder right to act by written No consent Average director age 62 years Cumulative voting No Average director tenure 4 years Board authorized to issue blank-check Yes Percentage of women on board 14% preferred stock Poison pill No Proxy Access No Publication Date: 4 May 2020 Page 13 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 Board & Committee Composition The information provided in the charts and tables below is based on ISS data records, which rely on disclosures in proxy materials and other public sources available as of the date set forth below (for the general meeting under review) and, with respect to information from prior years, information that was available ahead of each year’s annual general meeting at the time of ISS’ report for that meeting. As such, these charts and tables might not reflect changes to the board composition and/or other covered elements subsequently disclosed by the issuer after ISS’ publications or between general meetings. Independence values refer to ISS Independence classifications (“Exec”: Executive Director; “N-Ind.”: Non-Independent Director; “Ind.”: Independent Director). as of May 5, 2020 Board Audit Comp Nom Ind.: Ind.: Ind.: 100%, 2 100%, 4 100%, 4 Ind.: 86%, 6 Exec.: Meetings last FY:4 Meetings last FY:5 Meetings last FY:4 14%, 1 Exec N-Ind. Ind. Meetings last FY:8 Independence History Gender Diversity Trend 100% 100% 90% 90% 86% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 14% 10% 0% 2016 2017 2018 2019 After AGM 0% Board 83% 83% 80% 86% 86% 2016 2017 2018 2019 After AGM Audit Com 100% 100% 100% 100% 100% male 100% 100% 100% 86% 86% Comp Com 100% 100% 100% 100% 100% female 0% 0% 0% 14% 14% Nom Com 100% 100% 100% 100% 100% Director tenure 0 2 4 6 8 10 12 14 16 Publication Date: 4 May 2020 Page 14 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 Board Profile (after upcoming meeting) Item # Executive Directors Affiliation Independence Leadership Gender Age Tenure Term Committee Ends Co. ISS Audit Comp Nom Gov 1.1 James Pokluda III Exec Exec CEO M 55 8 2021 Non-Executive Directors 1.6 William (Bill) Sheffield Ind. Ind. Chair M 71 14 2021 C C 1.2 Roy Haley Ind. Ind. M 73 2 2021 M M 1.3 Margaret (Maggie) Laird Ind. Ind. F 43 1 2021 M 1.4 David Nierenberg Ind. Ind. M 66 0* 2021 M M M 1.5 Sandford Rothe Ind. Ind. M 64 1 2021 C F M M 1.7 G. Gary Yetman Ind. Ind. M 65 5 2021 C M M 100% 100% 100% 100% 86% Ind. 86% Ind. 14% F Ave: 62 Ave: 4 Ave: 1 Ind. Ind. Ind. Ind. Committee Membership: M = Member | C = Chair | F = Financial Expert *Indicates director not previously submitted to shareholders for election. COMMITMENTS AT PUBLIC COMPANIES # of Board Committee Ownership Item # Director Name Mandate Type CEO boards* Company Name Chair Audit Comp Nom # % stock % votes 1.1 James Pokluda III 1 Houston Wire & Cable Company Executive Director 213,819 1.3 1.3 1.6 William (Bill) Sheffield 3 Houston Wire & Cable Company Non-Executive Director C 40,415 0.2 0.2 Velan Inc. Non-Executive Director C C Hydro One Limited Non-Executive Director M 1.2 Roy Haley 1 Houston Wire & Cable Company Non-Executive Director M M 292,537 1.8 1.6 1.3 Margaret (Maggie) 1 Houston Wire & Cable Company Non-Executive Director M 500 <0.1 <0.1 Laird Hitachi Ltd. Executive Officer (non-director) 1.4 David Nierenberg 4 Houston Wire & Cable Company Non-Executive Director M M 2,043,358 12.3 12.3 Rosetta Stone Inc. Non-Executive Director F C M Flotek Industries, Inc. Non-Executive Director F M M Riverview Bancorp, Inc. Non-Executive Director M M 1.5 Sandford Rothe 1 Houston Wire & Cable Company Non-Executive Director C F M 24,000 0.1 0.1 1.7 G. Gary Yetman 1 Houston Wire & Cable Company Non-Executive Director C M 17,669 0.1 0.1 *The number of boards for each director is the total of executive director and/ or non-executive director mandates. Ownership values take into account Deferred Share Units where applicable. DIRECTOR PAY AND ATTENDANCE OVERVIEW MOST RECENT FY Item # Director Name Board Position Attendance (in %) Total Compensation 1.1 James Pokluda III ED, CEO 75% * 1.6 William (Bill) Sheffield NED, Chair, Nom (C) 75% 170,000 1.2 Roy Haley NED, Audit (M), Comp (M) 75% 129,000 1.3 Margaret (Maggie) Laird NED, Comp (M) 75% 105,000 1.4 David Nierenberg NED, Comp (M), Nom (M) N/A N/A 1.5 Sandford Rothe NED, Audit (C), Nom (M) 75% 129,000 1.7 G. Gary Yetman NED, Comp (C), Nom (M) 75% 129,000 Total 662,000 Pay in local currency ED for Executive Directors, NED for Non-Executive Directors *For executive director data, please refer to Executive Pay Overview. Publication Date: 4 May 2020 Page 15 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 Compensation Profile EXECUTIVE PAY OVERVIEW Executive Title Base Salary Change in Bonus & Restricted Option Total Pension, Non-equity Stock Grant Deferred Comp, Incentives All Other Comp J. Pokluda President & Chief Executive 549 10 83 1,560 0 2,202 Officer C. Micklas Chief Financial Officer 315 14 20 630 0 978 Median CEO Pay ISS Selected Peer Group 555 38 367 317 0 1,313 Company Defined Peers 588 34 364 501 0 1,790 Source: ISS. Pay in $thousands. Total pay is sum of all reported pay elements, using ISS’ Black-Scholes estimate for option grant-date values. Note: Median total pay will not equal sum of pay elements medians. Company Defined Peers are as disclosed. More information on ISS’ peer group methodology at www.issgovernance.com/policy-gateway/us-compensation-policy-guidance/. OPTION VALUATION ASSUMPTIONS CEO PAY MULTIPLES Compared to Multiple For CEO’s last FY Grant* Company ISS 2nd highest active executive 2.25 Volatility (%) N/A N/A Average active NEO 2.25 Dividend Yield (%) N/A N/A ISS peer median 1.68 Term (yrs) N/A N/A Company peer median 1.23 Risk-free Rate (%) N/A N/A Median employee/CEO Pay Ratio* N/D Grant date fair value per option N/A N/A *The company does not disclose the median compensation of all employees. Grant Date Fair Value ($ in 000) N/A N/A The CEO did not receive stock options in the most recent fiscal year. CEO TALLY SHEET CEO J. Pokluda CEO tenure at FYE: 8 years Present value of all accumulated pension: N/A Value of CEO stock owned (excluding options): $502,475 Potential Termination Payments Involuntary termination without cause: $1,993,288 Termination after a change in control: $3,396,605 Source: DEF14A Publication Date: 4 May 2020 Page 16 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 Vote Results ANNUAL MEETING 7 MAY 2019 Proposal Board Rec ISS Rec Disclosed Support Including Support Result Abstains (%)1 Excluding Abstains (%)2 1.1 Elect Director James L. Pokluda, III For For Pass 97.9 97.9 1.2 Elect Director Roy W. Haley For For Pass 98.0 98.0 1.3 Elect Director Margaret S. Laird For For Pass 99.1 99.1 1.4 Elect Director Robert L. Reymond For For Pass 94.8 94.8 1.5 Elect Director Sandford W. Rothe For For Pass 98.9 98.9 1.6 Elect Director William H. Sheffield For For Pass 98.8 98.8 1.7 Elect Director G. Gary Yetman For For Pass 98.8 98.8 2 Ratify Ernst & Young LLP as Auditors For For Pass 98.9 99.5 3 Advisory Vote to Ratify Named Executive Officers’ For For Pass 95.1 96.9 Compensation Shaded results reflect a majority of votes cast FOR shareholder proposal or AGAINST management proposal or director election 1Support Including Abstains is defined as %FOR/(For + Against + Abstain), as expressed as a percentage. 2Support Excluding Abstains is defined as %FOR/(For + Against), as expressed as a percentage, provided if different from For + Against + Abstain. Publication Date: 4 May 2020 Page 17 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 Meeting Agenda & Proposals Items 1.1-1.7. Elect Directors FOR VOTE RECOMMENDATION A vote FOR the director nominees is warranted. BACKGROUND INFORMATION Policies: Board Accountability | Board Responsiveness | Director Competence | Director Independence | Election of Directors | ISS Categorization of Directors | Vote No campaigns Vote Requirement: The company has a plurality vote standard for the election of directors. Discussion Please see the Board Profile section above for more information on director nominees. No significant issues are highlighted at this time. ELECTION SUMMARY The company proposes the following (re)elections: Type of election Nominees Incumbent board members to be reelected William (Bill) Sheffield, James Pokluda III, Roy Haley, Margaret (Maggie) Laird, Sandford Rothe, and G. Gary Yetman New board nominee to be elected by shareholders David Nierenberg Terms of candidates Nominees One-year term William (Bill) Sheffield, James Pokluda III, Roy Haley, Margaret (Maggie) Laird, David Nierenberg, Sandford Rothe, and G. Gary Yetman Blank space. INFORMATION ON NEW NOMINEES David Nierenberg # Shares held 2,043,358 Voting power 12.34 CEO or Chair positions N/A ISS POLICY COMPLIANCE TABLE Company-level Nominee impact Disclosure Names of new nominee(s) Disclosed Biographies of new nominee(s) Disclosed Independence Board 86% Audit committee 100% Publication Date: 4 May 2020 Page 18 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 Compensation committee 100% Nominating committee 100% Composition Poor attendance No concerns Overboarding No concerns Executive on a key committee No concerns Combined Chair/CEO N/A Length of term N/A Blank. N/A in this market No concerns No impacted nominees Impacted nominees are on ballot Publication Date: 4 May 2020 Page 19 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 Item 2. Advisory Vote to Ratify Named Executive Officers’ Compensation AGAINST VOTE RECOMMENDATION A vote AGAINST this proposal is warranted. Total CEO compensation increased significantly over the prior year due to the grant of equity awards. While a portion of the equity awards isd subject to a multi-year performance period, the specific goals associated with the performance metrics are not disclosed. In addition, a majority of the equity awards lack performance criteria, and certain of these awards will vest solely upon a CIC of the company. Such awards may incentivize a sale of the company and, absent a minimum consideration requirement, are not strongly linked to company performance. BACKGROUND INFORMATION Policies: Advisory Votes on Executive Compensation Vote Requirement: Majority of votes cast (abstentions count against; broker non-votes not counted) Executive Compensation Analysis COMPONENTS OF PAY CEO Peer Other ($ in thousands) CEO Median NEOs J. Pokluda J. Pokluda J. Pokluda 2019 Change 2018 2017 2019 2019 Base salary 549 6.6% 515 499 555 315 Deferred comp & pension 0 0 0 0 0 All other comp 10 -51.8% 21 14 22 14 Bonus 0 0 0 0 0 Non-equity incentives 83 -85.1% 557 538 358 20 Restricted stock 1,560 420.8% 300 1,350 317 630 Option grant 0 0 0 0 0 Total 2,202 58.2% 1,391 2,400 1,313 978 % of Net Income 86.3% 38.4% % of Revenue 0.7% 0.3% Blank Non-Performance-Based Pay Elements (CEO) Key perquisites ($) Auto: 4,542; CEO Aggregate Perks: 2,618* Key tax gross-ups on perks ($) None Value of accumulated NQDC** ($) N/A Present value of all pensions ($) N/A Years of actual plan service N/A Additional years credited service N/A *Represents amount for group term life and long-term disability insurance premiums **Non-qualified Deferred Compensation Blank Disclosed Benchmarking Targets Base salary None Disclosed Target short-term incentive None Disclosed Publication Date: 4 May 2020 Page 20 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 Target long-term incentive (equity) None Disclosed Target total compensation None Disclosed Blank Severance/Change-in-Control Arrangements (CEO unless noted) Contractual severance arrangement Individual Contract Non-CIC estimated severance ($) 1,993,288 Change-in-Control Severance Arrangement Cash severance trigger* Double trigger Cash severance multiple 2 times Cash severance basis Base Salary + Most Recent Bonus Treatment of equity Auto-accelerated equity vesting Excise tax gross-up* No Estimated CIC severance ($) 3,396,605 *All NEOs considered Compensation Committee Communication & Responsiveness Disclosure of Metrics/Goals Annual incentives Yes Long-term incentives Partial Pay Riskiness Discussion Process discussed? No Material risks found? No Risk Mitigators Clawback policy* Yes CEO stock ownership guideline 2X Stock holding period requirements No stock holding period requirements disclosed *Must apply to cash as well as equity incentives and at least all NEOs. Pledging/Hedging of Shares Anti-hedging policy Company has a robust policy Anti-pledging policy The proxy statement does not disclose a robust policy Compensation Committee Responsiveness MSOP vote results (F/F+A) 2019: 96.9%; 2018: 96.2%; 2017: 98.0% Frequency approved by shareholders Annual with 86.6% support Frequency adopted by company Annual (most recent frequency vote: 2017) Repricing History Repriced/exchanged underwater No options last FY? Publication Date: 4 May 2020 Page 21 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 Pay for Performance Evaluation PAY-FOR-PERFORMANCE QUANTITATIVE SCREEN The pay-for-performance quantitative screen uses four measures that together evaluate the alignment of CEO pay and company performance. The screen measures alignment over multiple time horizons, on both an absolute and relative basis, using multiple performance measures. The screen is designed to identify outlier companies that demonstrate a significant quantitative misalignment over time. RELATIVE DEGREE OF ALIGNMENT The chart plots percentiles of the annualized 3-year performance and pay rankings for the company ( ) and ISS' derived peers ( ). The gray band generally indicates alignment 100% Performance 50% 0% 0% 50% 100% Pay FINANCIAL PERFORMANCE ASSESSMENT Blue boxes indicate the company's quartile rankings compared to ISS' selected peer group in the applicable measure/metric, measured over three years. The leftmost box indicates bottom quartile and rightmost box indicates top quartile. Measure Result Relative Degree of Alignment -57.32 Multiple of Median 1.68 Initial Quantitative Concern Medium Financial Performance Assessment -14.85 Overall Quantitative Concern Medium P4P Run # 202004060151 MULTIPLE OF MEDIAN Pay in $thousands. The gray band represents 25th to 75th percentile of CEO pay of ISS' selected group, and the blue line represents the 50th percentile. CEO total pay is 1.68 times the median of peers. 2,000 4,000 6,000 8,000 10,000 Measure Quartile Ranking vs. Peers Pay Weighted Performance Long-Term Metrics Quartile Ranking vs. Peers Performance EVA Margin -1.54 EVA Spread -2.43 EVA Momentum (Sales) 0.87 EVA Momentum 1.39 (Capital) EVA Metrics are calculated by ISS EVA, and are based on audited financial data reported in 10-K 10-Q filings. For more information on the EVA methodology and metrics, visit https://www.issgovernance.com/solutions/iss-analytics/iss-eva-resource-center/ 3-YEAR MULTIPLE OF MEDIAN Pay in $ thousands. The gray band represents 25th to 75th percentile of CEO pay of ISS’ selected peer group, and the blue line represents the 50th percentile. GAAP FINANCIAL PERFORMANCE The below GAAP financial performance information is provided for informational purposes. It not affect the pay-for performance quantitative screens. Publication Date: 4 May 2020 Page 22 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 CEO total pay (3-year average) is 1.14 times the median of peers. - 2,000 4,000 6,000 8,000 CEO total pay (3-year average): $1,997,858 CEO total pay (3-year cumulative): $5,993,574 Measure Quartile Ranking vs. Peers Pay Weighted Performance Metrics (ranked by Long-Term Quartile Ranking vs. Peers weight) Performance ROIC 1.8 Return on Assets 1.5 Return on Equity 3.1 EBITDA Growth 758.6 ISS AND COMPANY PEER GROUPS CAI International, Inc. EVI Industries, Inc. ISS General Finance Corporation Hurco Companies, Inc. Selected The Eastern Company The L.S. Starrett Company (8) Twin Disc, incorporated Willis Lease Finance Corporation Huttig Building Products, Insteel Industries, Inc. Inc. Lawson Products, Inc. Shared (6) L.B. Foster Co. Transcat, Inc. Northwest Pipe Company Advanced Energy Industries, Badger Meter, Inc. Inc. Columbus McKinnon Company-CECO Environmental Corp. Corporation Disclosed Flotek Industries, Inc. Hill International, Inc. (9) NN, Inc. Powell Industries, Inc. Raven Industries, Inc. The shaded area represents the overlap group of companies that are in both ISS’ comparison group and the company's disclosed CEO compensation benchmarking peer group. Excludes private or foreign companies, or companies for which financial data is unavailable. For more information on the ISS peer group methodology, visit https://www.issgovernance.com/policy-gateway/voting-policies/ PEER GROUP SIZE Size (by revenue) of the ISS, company and overlap peer groups gray area represents 0.4 - 2.5 times the company’s revenue. Size as multiple of target 0 1 2 3 Houston Wire & Cable Company ISS Only Shared Company Only Data for ISS’ pay-for-performance tests are sourced from proxy disclosures for pay and from Compustat for TSR and financial performance. For more information on ISS' quantitative pay-for-performance evaluation, visit https://www.issgovernance.com/policy-gateway/voting-policies/ Publication Date: 4 May 2020 Page 23 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 Short-Term Cash Incentives Short-term Incentives CEO STI Opportunities FY 2019 (J. Pokluda) FY 2018 (J. Pokluda) Target Maximum Target Maximum STI targets ($) 440,000 770,000 412,000 618,000 STI targets (calculated) 80% of base salary 140% of base salary 80% of base salary 120% of base salary STI targets (as disclosed) 80% of base salary ISS peer median 78% of base salary Company peer median 100% of base salary Blank Actual Payouts ($) FY 2019 (J. Pokluda) FY 2018 (J. Pokluda) Amount % of base salary Amount % of base salary Bonus 0 0 0 0 Non-equity incentive 82,500 15 556,563 108 Total Bonus + Non-equity 82,500 15 556,563 108 Blank1 Performance Provisions STI performance Metric Form Weight Threshold Target Maximum Actual metrics/goals $18.6 $21.6 EBITDA Absolute 60% ND $9.4 million million million Individual Absolute 20% ND ND ND ND objectives Working capital $2.90 $3.05 $2.44 Absolute 20% ND efficiency million million million Blank5 Blank space 1 Other Short-Term Incentive Factors Discretionary bonus?* No Future performance metrics Not disclosed *Based on the Bonus column in the SCT; per SEC rules, amounts disclosed in this column were not based on pre-set goals. Blank Blank8 Long-Term Incentives CEO's last FY LTI target (%) None disclosed NEOs' last FY award type(s) Performance-based stock, Time-based stock Last FY performance Metric Threshold Target Maximum metrics/goals 3-yr Cumulative ND ND ND EBITDA 3-yr Stock price ND ND ND performance *Includes S&P 500 is FALSE Publication Date: 4 May 2020 Page 24 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 Long-Term Equity Grants CEO Equity Awards FY 2019 FY 2018 Shares (#) % shares* Value ($)* % value Shares (#) % shares* Value ($)* % value Time-based shares 328,125 86 1,260,000 81 48,387 100 299,516 100 Standard options 0 0 0 0 0 0 0 0 Performance shares 52,910 14 300,000 19 0 0 0 0 Performance Options 0 0 0 0 0 0 0 0 Total Equity 381,035 1,560,000 48,387 299,516 Time-based equity vesting 78,215 restricted shares: One-third per year 250,000 restricted shares: Vest if there is a change-in-control of the company on or before Dec. 2, 2024 Perf. measurement period Three years (FY2019-21) CEO one-time equity award N/A CEO equity pay mix (by Performance-conditioned: 19.2%; Time-based: 80.8% value)* *Performance shares, if any, are counted and valued at target. S&P 500 is FALSE Executive Summary Evaluation Component Level of Concern Key Reasons Non-Performance-Based Pay Elements Low Peer Group Benchmarking Low Severance/CIC Arrangements Medium Auto-Accelerated Equity Vesting Comp Committee Communication/Responsiveness Low Pay for Performance Evaluation High P4P Misalignment ISS Recommendation: AGAINST Pay for Performance Analysis ISS’ quantitative screen yields a medium concern level, indicating a misalignment between CEO pay and company performance. ISS’ qualitative review, which closely examines the compensation program to identify factors that reinforce or mitigate the quantitative misalignment, indicates the following: OVERVIEW TSR underperformed; total CEO pay increased. Total shareholder returns on a one-, three-, and five-year basis underperformed the company's four-digit GICS group and the broader Russell 3000 Index, posting negative returns over all periods. Total CEO pay increased by approximately 58 percent, to $2.2 million in FY2019. Such increase was mainly driven by the grant of equity awards. ANNUAL COMPENSATION 1. STI program is primarily based on pre-set objective measures 2. Below target payouts in line with performance Annual incentives were primarily based on pre-set objective metrics. The annual incentives were based on the achievement of an EBITDA metric (weighted at 60 percent), a working capital efficiency metric (20 percent), and individual objectives (20 percent). The EBITDA target was set above actual 2018 results while individual objectives replaced the strategic sales margin metric. The proxy does not disclose the individual objectives set for each NEO. Payouts earned below target. The target annual cash bonus opportunities for CEO Pokluda and CFO Micklas were set at 80 percent and 40 percent, respectively, of base salary. For FY2019, the company achieved below target for both the EBITDA and working capital metrics while the proxy indicates that individual incentives were not applicable. As a result, Pokluda and Micklas earned Publication Date: 4 May 2020 Page 25 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 $82,500 and $19,875, respectively, representing approximately 19 percent and 16 percent of their respective target bonus opportunities. LONG-TERM COMPENSATION 1. Majority of LTI awards lack rigorous performance criteria 2. Forward-looking performance targets not disclosed NEO equity mix consisted of performance-conditioned and time-based awards. Per the latest Form 10-K, Pokluda and Micklas were granted the following equity awards during fiscal 2019: 1. 78,125 shares of restricted stock to Pokluda and 19,531 shares of restricted stock to Micklas, which vest in one-third increments on each anniversary of the grant date; 2. 52,910 performance stock units to Pokluda and 13,228 performance stock units to Micklas, which vest based on the achievement of cumulative EBITDA and stock price performance goals over a three-year period. However, the specific goals associated with each performance metric are not disclosed in the proxy statement; and 3. 250,000 shares of restricted stock to Pokluda and 125,000 shares of restricted stock to Micklas, which will solely vest if there is a change-in-control of the company (as defined in the 2017 Plan) on or before Dec. 2, 2024. Pokluda's equity awards are valued by ISS in the aggregate at $1.6 million. Other Notable Factors Single-trigger equity vesting acceleration. Equity award arrangements provide for automatic accelerated vesting upon a change-incontrol. Such single-trigger vesting may result in an economic windfall to the executive without an accompanying termination of employment. Conclusion Total CEO compensation increased significantly over the prior year due to the grant of equity awards. While a portion of the equity awards is subject to a multi-year performance period, the specific goals associated with the performance metrics are not disclosed. In addition, a majority of the equity awards lack performance criteria, and certain of these awards will vest solely upon a CIC of the company. Such awards may incentivize a sale of the company and, absent a minimum consideration requirement, are not strongly linked to company performance. In light of these concerns, support for this proposal is not warranted. There is a management proposal on ballot requesting new shares under the company’s 2017 Stock Plan (see Item 4). The pay-for-performance disconnect is driven by the company's use of equity. Given that the stock program is not sufficiently broad-based (e.g. there is a high concentration ratio of grants for top executives), the equity plan is viewed as a vehicle for the misalignment and a vote against the equity plan proposal is therefore also warranted. Publication Date: 4 May 2020 Page 26 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 Item 3. Ratify Ernst & Young LLP as Auditors FOR VOTE RECOMMENDATION A vote FOR this proposal to ratify the auditor is warranted. BACKGROUND INFORMATION Policies: Auditor Ratification Vote Requirement: Majority of votes cast (abstentions count against; broker non-votes not counted) Discussion AUDIT FIRM INFORMATION The board recommends that Ernst & Young LLP be reappointed as the company's independent audit firm. Audit firm name Ernst & Young LLP Audit firm since (as disclosed) 1997 Audit opinion for the last fiscal year Unqualified Term to serve if reappointed 1 year FEES PAID DURING THE LAST FISCAL YEAR Audit firm name Ernst & Young LLP Fees currency USD Total fees paid to the audit firm 656,575 Audit fees 535,000 Audit-related fees 50,000 Total transaction-related fees 0 Total tax fees 71,575 Tax compliance/preparation fees 71,575 Tax advice fees 0 Other fees 0 Total non-audit fees* 0 Total non-audit fees as a percentage of total fees 0.0% *Total non-audit fees include other fees, tax advice fees, and certain transaction-related fees. Non-audit fees will also include any tax-related fees not identified as tax compliance or tax preparation. The auditor's report contained in the annual report is unqualified, meaning that in the opinion of the auditor, the company's financial statements are fairly presented in accordance with generally accepted accounting principles. Analysis This request to ratify the auditor does not raise any exceptional issues, as the auditor is independent, there are no non-audit fees, and there is no reason to believe the auditor has rendered an inaccurate opinion or engaged in poor accounting practices. Publication Date: 4 May 2020 Page 27 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 Item 4. Amend Omnibus Stock Plan AGAINST VOTE RECOMMENDATION A vote AGAINST this proposal is warranted. There is a pay-for-performance misalignment that is driven by problematic equity usage, and the plan is not sufficiently broad based. Therefore, the plan is viewed as a vehicle for the pay-for-performance misalignment. BACKGROUND INFORMATION Policies: Amending Equity Plans Vote Requirement: Majority of votes cast (abstentions count against; broker non-votes not counted) Proposal Plan Name 2017 Stock Plan Year of last share request 2018 New share request 1,500,000 shares Shares rolled over from prior plan(s) None Shares remaining under existing plan(s) 5,148 shares Evergreen provision No Shares outstanding* 16,556,950 shares Market value* $83,612,598 *As of Record Date using 200-day average closing price as of December 1, 2019 Analysis ISS' analysis considers multiple positive and negative factors to evaluate equity incentive plan proposals within three pillars: Estimated Cost, Plan Features, and Equity Grant Practices. Pillars and factors are weighted according to their relative importance, with a maximum of 100 potential points; a score of 53 points generally results in a favorable recommendation. In some cases, regardless of the score, overriding factors or an analysis of the amendments may affect the recommendation, also as indicated below. For more details, please see the Equity Compensation Plans FAQs. SUMMARY EVALUATION EPSC Model: Non-Russell 3000 Evaluation Component Maximum Score Company Score Plan Costs 45 19.3 Plan Features 27 19.0 Grant Practices 28 26.3 Total Score 100 64.6 Overriding Factors: Equity-related pay-for-performance disconnect ISS Recommendation: AGAINST Publication Date: 4 May 2020 Page 28 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 For the following analysis, has a positive impact, has a negative impact, and is neutral. I Plan Cost Score: 19.3 of 45 Impact Shareholder Value Transfer (SVT) ISS Benchmark* Plan SVT New + Available shares 9.55% 9.09% New + Available + Outstanding grants 12.91% 14.72% The potential value transfer of equity based on new, available, and outstanding shares exceeds the ISS benchmark. *Maximum point accrue for company SVT = 65% of ISS Benchmark SVT Blank II Plan Features Score: 19.0 of 27 Impact Factors Plan Data Complete CIC vesting disclosure No The plan's disclosure of CIC vesting treatment is incomplete (or otherwise is considered to be discretionary). Liberal share recycling No Broad discretion to accelerate vesting Yes The administrator may accelerate the vesting of any award type, beyond cases involving a death or disability. Vesting requirement of at least one year for all equity award types Yes Plan prohibits payment of dividends on unvested equity awards Yes Blank III Grant Practices Score: 26.3 of 28 Impact Factors Company Data 3-year average burn rate* 4.52% Estimated plan duration 4.1 years *Index/Industry mean + 1 standard deviation; maximum points accrue for company burn rate < 50% of ISS Benchmark Burn Rate Blank IV Overriding Factors Feature/Practice Company/Plan Provision to reprice w/o shareholder approval Prohibits Cash buyout w/o shareholder approval Prohibits Liberal CIC vesting risk No Equity-related pay-for-performance disconnect Yes Problematic equity-related provision No Excessive dilution N/A 162(m) approval only and committee independent N/A DISCUSSION As discussed under Item 2, there is a pay-for-performance misalignment driven by problematic equity grant practices. The specific goals associated with the performance metrics of the performance-conditioned awards are not disclosed. In addition, a majority of the equity awards lack performance criteria, and certain of these awards will vest upon a CIC of the company. Moreover, the company's equity grants overall are highly concentrated on the NEOs (e.g. the plan is not sufficiently broad-based). Accordingly, this is an overriding factor that warrants an adverse vote recommendation. Publication Date: 4 May 2020 Page 29 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 Supplemental Information Shareholder Value Transfer (SVT) Evergreen funding: No Fungible share counting (FV multiplier): None 200-day average closing price as of December 1, 2019 $5.05 4-digit GICS 2010 (Capital Goods) SVT Calculation Company ISS Valuation SVT New shares requested (A) 1,500,000 $7,575,000 9.06% Available shares remaining (B) 5,148 $25,997 0.03% Unvested/Unexercised granted shares (C) 1,053,000 $4,710,090 5.63% New + Available (A+B) 1,505,148 $7,600,997 9.09% New + Available + Outstanding (A+B+C) 2,558,148 $12,311,087 14.72% Source: A shares - (DEF 14A, 3/26/2020, p. 26) B shares - (10-K, 3/13/2020, p. F-18) C shares consist of 122,000 stock options and 931,000 full-value awards (10-K, 3/13/2020, pp. F-16 - F-18) Blank Space Blank Space Company Burn Rate (Historical Grants) Index/ Industry group: Non-Russell 3000/ 2010 (Capital Goods) 3-year stock volatility: 42.69% Volatility multiplier: 1 Full Value Award = 2.00 Option Shares ISS benchmark: 8.17% Fiscal Year 2019 2018 2017 Options/SARs (O): - - - Full value awards (FV): 637,433 175,974 296,733 O + FV: 637,433 175,974 296,733 Adjusted O + FV (after multiplier): 1,274,866 351,948 593,466 Wtd. common shares outstanding: 16,433,644 16,389,876 16,269,611 Unadjusted burn rate: 3.88% 1.07% 1.82% 3-year average unadjusted burn rate: 2.26% Adjusted burn rate: 7.76% 2.15% 3.65% 3-year average adjusted burn rate: 4.52% Blank Space Share Dilution Shares outstanding (1): 16,556,950 Warrants & convertibles (2): 0 Shares reserved under plans (3): 2,558,148 Fully diluted shares (1+2+3): 19,115,098 Shares Dilution (Basic)* Dilution (Full)* New shares requested: 1,500,000 9.06% 7.85% Existing shares available for grant: 5,148 0.03% 0.03% Granted unexercised/Unvested shares: 1,053,000 6.36% 5.51% Total share allocation: 2,558,148 15.45% 13.38% *Assuming maximum dilution Blank Space Publication Date: 4 May 2020 Page 30 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 Peer Comparisons* - Dilution/Burn Rate/ NEO Concentration Ratios 3-yr Avg. Adjusted 3-yr Avg. Grants to 3-yr Avg. Grants to Dilution (Full) Burn Rate CEO NEOs Company: 13.38% 4.52% 50.69% 66.19% GICS median: 10.40% 2.40% 20.90% 39.70% GICS average: 12.80% 3.30% 23.20% 44.20% GICS 75th percentile: 14.50% 4.30% 30.50% 57.80% *4-digit GICS peers Blank Space Additional Plan Features Award types authorized ISOs (100%), NSOs (100%), SARs, RSUs, restricted stock, performance units and (minimum option exercise price): performance shares Award-type limits: None Eligible participants: All employees and non-employee directors (NEDs) Plan administrator: Compensation Committee Plan expiration date: August 4, 2027 Individual award limits: In any calendar year: options or SARs - 500,000 shares; performance-based stock awards or stock unit awards - 150,000 shares; stock units settled in cash are limited to an amount equal to the fair market value of 150,000 shares Terms/vesting provisions: Stock options and SARs have a maximum 10 year term. Minimum vesting requirements: Appreciation awards: 1 year; Full-value awards: 1 year; up to 5 percent of the plan's share reserve may be issued without a minimum vesting requirement Loans to participants: The plan does not allow the company to extend loans to participants. Performance criteria disclosed: Yes Treatment in a CIC: The vesting of time-based equity awards would be at the discretion of the plan administrator; performance awards would be settled at target. Publication Date: 4 May 2020 Page 31 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 Equity Ownership Profile Type Votes per share Issued Common Stock 1.00 16,556,950 Ownership - Common Stock Number of Shares % of Class Nierenberg Investment Management Co., Inc. 2,043,358 12.46 Fidelity Management & Research Co. LLC 1,471,468 8.97 Royce & Associates LP 1,208,781 7.37 Rutabaga Capital Management LLC 1,081,428 6.59 Dimensional Fund Advisors LP 1,066,814 6.51 Fondren Management LP 805,000 4.91 The Vanguard Group, Inc. 702,183 4.28 POKLUDA JAMES L III 587,883 3.59 Columbia Management Investment Advisers LLC 582,006 3.55 BlackRock Fund Advisors 493,717 3.01 Invenomic Capital Management LP 411,671 2.51 Balter Liquid Alternatives LLC 396,805 2.42 HALEY ROY W 350,000 2.13 Renaissance Technologies LLC 308,352 1.88 Franklin Mutual Advisers LLC 296,677 1.81 Ancora Advisors LLC 244,659 1.49 Raymond James & Associates, Inc. (Invt Mgmt) 238,362 1.45 Roumell Asset Management LLC 232,700 1.42 MICKLAS CHRISTOPHER M 212,298 1.30 GRAHAM NICOL G 187,636 1.14 © 2020 Factset Research Systems, Inc. All Rights Reserved. As of: 26 Mar 2020 Additional Information Meeting Location 10201 North Loop East Houston, Texas 77029 Meeting Time 8:30 a.m. Central Time Shareholder Proposal Deadline November 25, 2020 Security IDs 44244K109(CUSIP) Publication Date: 4 May 2020 Page 32 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.

 

 

 

 

Houston Wire & Cable Company (HWCC) Meeting Date: 11 May 2020 POLICY: United States Meeting ID: 1412348 ISS’ experienced research team provides comprehensive proxy analyses and complete vote recommendations for approximately 44,000 meetings annually in around 115 markets worldwide. With a team of approximately 300 research professionals, ISS aims to cover every holding within a client’s portfolio in both developed and emerging markets. Our Research Analysts are located in offices worldwide, offering local insight and global breadth. Research office locations include Berlin, Brussels, London, Manila, Mumbai, Norman, Paris, San Francisco, Singapore, Sydney, Tokyo, Toronto, and Rockville, Maryland. ISS has long been committed to engagement and transparency. For information on the policies applied in this research report, please see our Policy Gateway. Please use the ISS Help Center for questions on research reports, policy, and for requests for engagements. The issuer that is the subject of this analysis may have purchased self-assessment tools and publications from ISS Corporate Solutions, Inc. (formerly known as ISS Corporate Services, Inc. and referred to as “ICS”), a wholly-owned subsidiary of ISS, or ICS may have provided advisory or analytical services to the issuer in connection with the proxies described in this report. These tools and services may have utilized preliminary peer groups generated by ISS’ institutional research group. No employee of ICS played a role in the preparation of this report. If you are an ISS institutional client, you may inquire about any issuer's use of products and services from ICS by emailing disclosure@issgovernance.com. This proxy analysis and vote recommendation has not been submitted to, nor received approval from, the United States Securities and Exchange Commission or any other regulatory body. While ISS exercised due care in compiling this analysis, it makes no warranty, express or implied, regarding the accuracy, completeness or usefulness of this information and assumes no liability with respect to the consequences of relying on this information for investment or other purposes. In particular, the research and voting recommendations provided are not intended to constitute an offer, solicitation or advice to buy or sell securities nor are they intended to solicit votes or proxies. ISS is an independent company owned by entities affiliated with Genstar Capital (“Genstar”). ISS and Genstar have established policies and procedures to restrict the involvement of Genstar and any of Genstar’s employees in the content of ISS' analyses. Neither Genstar nor their employees are informed of the contents of any of ISS' analyses or recommendations prior to their publication or dissemination. The issuer that is the subject of this proxy analysis may be a client of ISS or ICS, or the parent of, or affiliated with, a client of ISS or ICS. One or more of the proponents of a shareholder proposal at an upcoming meeting may be a client of ISS or ICS, or the parent of, or affiliated with, a client of ISS or ICS. None of the sponsors of any shareholder proposal(s) played a role in preparing this report. ISS may in some circumstances afford issuers, whether or not they are clients of ICS, the right to review draft research analyses so that factual inaccuracies may be corrected before the report and recommendations are finalized. Control of research analyses and voting recommendations remains, at all times, with ISS. ISS makes its proxy voting policy formation process and summary proxy voting policies readily available to issuers, investors and others on its public website: http://www.issgovernance.com/policy. Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS. Publication Date: 4 May 2020 Page 33 Copyright © 2020 Institutional Shareholder Services Inc. All Rights Reserved. This proxy analysis and the information herein may not be reproduced or disseminated in whole or in part without prior written permission from ISS.