Stephen Shafer

About Stephen Shafer

Stephen M. Shafer joined A. O. Smith as President and Chief Operating Officer on March 18, 2024, after 14 years at 3M, most recently serving as President of its Automotive and Aerospace Solutions Division; earlier roles included McKinsey & Company and Ford Motor Company focused on manufacturing, supply chain, and operational improvement . He holds an MBA from Harvard Business School and a B.S. in Industrial Engineering from Northwestern University and relocated to Milwaukee for the role . A. O. Smith’s executive pay design ties near-term incentives to corporate EBIT (80% weighting) and net sales (20%) and long-term awards to ROIC, ROE thresholds, and a three‑year water usage goal, aligning his compensation with profitability, growth, capital efficiency, and sustainability outcomes . Age not disclosed.

Past Roles

Organization	Role	Years	Strategic Impact
3M Company	President, Automotive & Aerospace Solutions Division; prior leadership roles in U.S. and China	2010–2024	Led global, innovation‑driven manufacturing businesses; deep operations experience
McKinsey & Company	Various roles	N/A	Manufacturing, supply chain, and operational improvement focus
Ford Motor Company	Various roles	N/A	Manufacturing and operations improvement focus

External Roles

Organization	Role	Years	Strategic Impact
None disclosed	—	—	—

Fixed Compensation

Component	2024 Value	Notes
Base salary set	$900,000	Above typical target range to reflect skills and expected contributions
Salary paid (partial year)	$712,500	Joined March 18, 2024
Target bonus % of base	100%	Set above target range; market median 118%
Actual annual incentive (paid)	$491,000	Prorated for 2024 service
2025 base salary	$931,500	3.5% increase vs 2024; ~138% of projected market median
Perquisite allowance	$0	New execs not eligible; program frozen/grandfathered
Relocation benefits	$382,556	Includes $58,293 tax equalization per policy

Performance Compensation

Metric	Weighting	Target	Actual/Payout Basis	Shafer 2024 Outcome	Vesting
Corporate EBIT	80%	$799.1M	Achievement vs target	68.1% achievement (corporate)	Annual cash paid after year end
Corporate Net Sales	20%	$4.0258B	Achievement vs target	72.7% achievement (corporate)	Annual cash paid after year end
Annual incentive (total)	—	100% of base	Corporate achievement blended	$491,000 paid; prorated for partial year	Paid after FY completion
Performance Cash Units	—	$1,050,000 target; $2,100,000 max (2024–2026)	ROIC over 3 years	Granted 2024; payout based on 2024–2026 ROIC	3‑yr performance/vesting
Performance Stock	—	5,200 target sh; 7,800 max sh (2024–2026)	Water usage goal over 3 years	Granted at $86.58 fair value (3/18/24)	3‑yr performance/vesting
Restricted Stock Units (RSUs)	—	40,425 units (incl. 17,325 regular + 23,100 special)	ROE threshold for vesting; time‑based	Grant date fair value $86.58 (3/18/24)	Vests March 18, 2027

Equity Ownership & Alignment

Item	Amount/Status
Common stock owned	0 shares
RSUs outstanding	40,425 units
Options	None
Unvested RSUs (vesting)	40,425 units vest 3/18/2027
Performance stock outstanding	5,200 target units (2024–2026 cycle)
Ownership guidelines	Executives must acquire/hold AOS stock; compliance assessed including unvested RSUs
Compliance status	In compliance (all NEOs except O’Brien)
Hedging/pledging	Prohibited for all directors/officers/employees
Deferred compensation	Registrant contrib. $39,617; year‑end balance $39,617

Employment Terms

Provision	Details
Employment agreement	No individual employment agreements for NEOs
Severance plan	Senior Leadership Severance Plan; requires non‑compete, non‑solicit, inventions assignment, confidentiality; release required
Qualifying termination (as of 12/31/24)	Severance $2,700,000; pro rata bonus $491,000; performance units $659,000; medical $20,955; outplacement $225,000; total $4,095,955
Change in control + qualifying termination	Severance $3,600,000; pro rata bonus $710,656; RSUs $727,119; performance units $86,000; performance stock $117,048; outplacement $27,940; modified gross‑up cutback (−$307,305); total $4,961,458; no excise tax gross‑up
Clawback	SEC/NYSE‑compliant clawback; applies globally to incentive compensation; includes additional discretionary recovery for detrimental conduct
Tax considerations	Compensation may not be deductible under IRC 162(m)

Board Governance

Current status: Stephen M. Shafer is not listed as a director or nominee on A. O. Smith’s Board in the 2025 Proxy; no committee roles disclosed for him .
Dual‑role implications: Not applicable for Shafer; the CEO (Kevin J. Wheeler) serves as management director and Chairman; the Board maintains a majority of independent directors and committee independence, with a Presiding Director role .

Investment Implications

Strong retention focus via special RSU grant: The one‑time $2,000,000 RSU grant to replace forfeited equity plus a sizable annual RSU grant (total 40,425 units vesting in 2027) reduces near‑term selling pressure and aligns him with multi‑year performance and ROE thresholds .
Pay aligned to profitability and growth levers: Annual incentive tied 80% to EBIT and 20% to net sales with corporate achievement at 69% for 2024; long‑term cash tied to ROIC and performance stock tied to sustainability goals (water usage), signaling balanced incentives across margin, growth, capital efficiency, and ESG .
Severance economics and CIC protections: Standardized plan with double‑trigger CIC benefits, cutback to avoid excise taxes, and no tax gross‑ups mitigates excessive parachute risk while ensuring retention in strategic events ($3.6M CIC severance plus equity acceleration components) .
Governance risk mitigants: Strict prohibition on hedging/pledging and an enhanced clawback policy reduce misalignment and restatement risk; share ownership guidelines with current compliance further support investor alignment .
Execution lens: Elevated base pay and LTI targets vs market median reflect expectations for operational execution; his background at 3M/McKinsey/Ford suggests operational improvement capability in manufacturing and supply chain—key to margin and ROIC targets embedded in incentives .