IMPORTANT NOTICE REGARDING THE AVAILABILITY OF

PROXY MATERIALS FOR THE ANNUAL MEETING

TO BE HELD ON JULY 13, 2017:

The Notice of Annual Meeting, this Proxy Statement and

the Company’s 2016 Annual Report are available at www.proxyvote.com.

TABLE OF CONTENTS

ITEM 1 – ELECTION OF DIRECTORS			1
Director Nominees			2
CORPORATE GOVERNANCE			9
Corporate Governance Principles and Other Corporate Governance Documents			9
Director Independence			9
Board’s Role in Risk Management Oversight			9
Board’s Role in Succession Planning			10
Board Leadership Structure			10
Communication with the Board			10
Shareholder Outreach			11
Board Meetings and Committees			11
Audit Committee			11
Management Development and Compensation Committee			12
Nominating and Governance Committee			12
Other Committees			12
Compensation Committee Interlocks and Insider Participation			12
Certain Relationships and Related Party Transactions			13
Policy on Majority Voting in the Election of Directors			13
Shareholder-Recommended Director Candidates			14
MANAGEMENT			15
Directors and Executive Officers			15
COMPENSATION OF DIRECTORS			16
Director Compensation Table			17
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND DIRECTORS			18
Certain Beneficial Owners			18
Management and Directors			19
Directors – Aggregate Ownership			20
Stock Ownership Guidelines			21
ITEM  2 – RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			22

AUDIT COMMITTEE REPORT			23
FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			24
ITEM 3 – ADVISORY APPROVAL OF EXECUTIVE COMPENSATION			25
ITEM 4 – ADVISORY APPROVAL OF FREQUENCY OF VOTE ON EXECUTIVE COMPENSATION			26
COMPENSATION DISCUSSION AND ANALYSIS			27
COMPENSATION COMMITTEE REPORT			45
SUMMARY COMPENSATION TABLE			46
GRANTS OF PLAN BASED AWARDS			48
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END			49
OPTIONS EXERCISED AND STOCK VESTED			50
PENSION BENEFITS			51
NONQUALIFIED DEFERRED COMPENSATION			53
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL			54
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS			59
ADDITIONAL MEETING INFORMATION			60
OTHER BUSINESS			62
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE			63
SUBMISSION OF SHAREHOLDER PROPOSALS			63
ANNUAL REPORT ON FORM 10-K			64
INCORPORATION BY REFERENCE			64
SHAREHOLDER LIST			64
ANNEX A			A-1

 

ITEM 1 – ELECTION OF DIRECTORS

On the recommendation of the Nominating and Governance Committee (“Governance Committee”), our Board has nominated the ten directors listed below for election at the Annual Meeting. The nominees include nine independent directors, as determined by the Board in accordance with the New York Stock Exchange (“NYSE”) listing standards and our Corporate Governance Principles. The tenth nominee is our President and Chief Executive Officer (“CEO”), Victor D. Grizzle. Each nominee’s term would, if elected, run from the date of his or her election until our next annual shareholders’ meeting, or until his or her successor, if any, is elected or appointed. We have no reason to believe that any of the nominees will be unwilling or unable to serve if elected.

The Governance Committee performs an assessment of the qualifications and experience

needed to properly oversee the interests of the Company. In doing so, the Governance Committee believes that aligning director qualifications and skill sets with our business and strategy is essential to forming a board of directors that adds value for shareholders. While our Board does not have a formal diversity policy with respect to director nominations, it believes that a board of directors composed of individuals with diverse attributes and backgrounds enhances the quality of our Board’s deliberations and decisions. Our Board has an expansive view of diversity, going beyond the traditional concepts of race, gender and national origin, and emphasizing a diversity of viewpoints, educational backgrounds and professional experiences. Our Board believes that this diversity, coupled with strong personal and professional ethics, integrity and values, results in a board of

 

		AWI 2017 Proxy Statement						1

ITEM 1 – ELECTION OF DIRECTORS (CONTINUED)

directors that is well-qualified to guide the Company with good business judgment.

The Governance Committee expects each of the Company’s directors to have proven leadership, sound judgment, integrity and a commitment to the success of the Company. In evaluating director candidates and considering incumbent directors for nomination to the Board, the Governance Committee considers a variety of factors. These

include each nominee’s independence, financial literacy, personal and professional accomplishments, and experience in light of the needs of the Company. For incumbent directors, the factors also include past performance on our Board and contributions to their respective committees. Our Board is also particularly interested in maintaining a mix of skills and qualifications that include the following:

 

OUR BOARD RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE FOLLOWING NOMINEES:

ITEM 1 – ELECTION OF DIRECTORS (CONTINUED)

		STAN A. ASKREN Director since: 2008 Age: 56   Independent

Mr. Askren has been chairman and CEO of HNI Corporation (“HNI”), the second largest office furniture manufacturer in the world and the nation’s leading manufacturer and marketer of hearth products, since 2004, and president since 2003. Previously, he was executive vice president of HNI from 2001 to 2003. Mr. Askren has worked at HNI for 25 years, including as vice president of marketing, vice president of human resources, and as an executive vice president and president of HNI’s hearth products operating segment. Mr. Askren has also worked in several industries and previously held multiple executive management and general management positions with Emerson Electric, Thomson S.A. and HNI Corporation. Mr. Askren also serves on the boards of directors of Allison Transmission Holdings, Inc., a commercial duty automatic transmission and hybrid propulsion systems manufacturer (since 2015), the Business and Institutional Furniture Manufacturers Association (past chair) and the Iowa Business Council (past chair). Mr. Askren formerly served on the board of directors of the Iowa Heritage Foundation. Mr. Askren brings to our Board extensive operating, senior executive leadership, manufacturing, sales and distribution expertise, as well as valuable insights from his experience as a public company chief executive officer.

		VICTOR D. GRIZZLE Director since: 2016 Age: 55

Mr. Grizzle was appointed as our President and Chief Executive Officer on March 30, 2016. Previously, Mr. Grizzle served as Executive Vice President and Chief Executive Officer of Armstrong Building Products, a business unit of Armstrong, since January 2011. Prior to joining Armstrong, Mr. Grizzle served as Group President of Global Engineered Support Structures Coatings & Tubing and President of International Division for Omaha at Valmont Industries, Inc., an infrastructure and agricultural equipment manufacturer, since January 2006. Prior to Valmont, he served as President of the Commercial Power Division of EaglePicher Corporation, a manufacturing and resource extractive company. Before that, Mr. Grizzle spent 16 years at General Electric Corporation, where he served as an American business leader for General Electric’s Silicones Division. As President and Chief Executive Officer, Mr. Grizzle provides our Board with significant insight regarding our operations, strategic planning and operational design. In addition, Mr. Grizzle brings to our Board broad leadership and business expertise, as well as comprehensive experience in global operations and manufacturing matters.

 

		AWI 2017 Proxy Statement						3

ITEM 1 – ELECTION OF DIRECTORS (CONTINUED)

		TAO HUANG Director since: 2010 Age: 54   Independent

Mr. Huang was previously the chief operating officer of Morningstar, Inc., a leading independent provider of investment research, until his retirement in December 2010. Mr. Huang spent almost 20 years with Morningstar, taking on increasing levels of responsibility from his start as an entry level technical programmer. He was named director of technology in 1992 and chief technology officer in 1996; he started Morningstar’s International Operation in 1998, held the position of president of International Division until 2000; he was promoted as the Company’s chief operating officer in October 2000 and served in this position until his retirement. Mr. Huang led Morningstar initiatives enabling significant growth, both organically and through acquisition, and oversaw continuous improvements in the operations of the firm’s core businesses. Mr. Huang is a founder and managing partner of Range Light, LLC, an investment firm (since 2012). Mr. Huang also serves on the board of directors of Equity Lifestyle Properties, Inc., a publicly-traded real estate investment trust (since 2015) and Principal Mutual Funds, an asset management firm (since 2013). Mr. Huang brings to our Board expertise developed from his experience in a data-intense and technology-driven organization managing growth and integration of acquisitions, as well as experience in international operations.

		LARRY S. MCWILLIAMS Director since: 2010 Age: 61   Independent

Mr. McWilliams was previously the president and chief executive officer of Keystone Foods, a producer of proteins, from May 2011 to May 2012. From May 2005 to October 2010, he served as a senior vice president at Campbell Soup Company and subsequently became the president of Campbell International, responsible for all of Campbell Soup’s business in Europe, Latin America and Asia Pacific. Mr. McWilliams joined Campbell Soup in March 2001 as senior vice president – sales and chief customer officer, overseeing the company’s relationships with its global retail partners. In April 2003, he assumed the position of president – North America Soup. Mr. McWilliams was named senior vice president and president – Campbell USA in March 2004. Prior to Campbell Soup, Mr. McWilliams held positions at Coca-Cola from 1995 to 2001 and the Pillsbury Company from 1993 to 1995. Mr. McWilliams also serves on the boards of directors of AFI (since April 1, 2016) and Bob Evans Farms, a full-service restaurant company (since 2014). Mr. McWilliams formerly served on the Board of Directors of Godiva Chocolatiers International, a privately held company and the Board of Governors of St. Joseph’s University Food Marketing Council and the Grocery Manufacturers’ Association’s Industry Affairs Council. Mr. McWilliams offers our Board senior executive leadership capabilities and experience, as well as extensive knowledge of sales, marketing, customer service relationships, international markets and distribution channels.

 

ITEM 1 – ELECTION OF DIRECTORS (CONTINUED)

		JAMES C. MELVILLE Director since: 2012 Age: 65   Independent

Mr. Melville is a member of the Minneapolis-based law firm of Kaplan, Strangis and Kaplan, P.A., where he has practiced in the corporate, governance, mergers and acquisitions, securities and financial areas since 1994. Prior to joining Kaplan, Strangis and Kaplan, P.A., Mr. Melville practiced with Dorsey and Whitney in their Minneapolis and London, England offices. Mr. Melville previously served as a member of our Board from September 2009 until July 2010 and now also serves on the board of directors of AFI (since April 1, 2016). Mr. Melville is active in numerous local and civic organizations and their boards. Mr. Melville served as an observer of our Board on behalf of the Armstrong World Industries, Inc. Asbestos Personal Injury Settlement Trust (the “Trust”) from August 2010 until February 2012. Mr. Melville brings to our Board extensive knowledge of the law, mergers and acquisitions, executive compensation, and corporate governance matters, as well as international experience and financial acumen. He has also gained intimate knowledge of the Company through his prior service on our Board and his prior role as a board observer for the Trust.

		JAMES J. O’CONNOR Director since: 2007 Age: 80   Independent

Mr. O’Connor is a retired chairman of the board of directors and chief executive officer of Unicom Corporation. Mr. O’Connor joined Commonwealth Edison Company in 1963, became president in 1977, a director in 1978 and chairman and chief executive officer in 1980. In 1994, Mr. O’Connor was also named chairman and chief executive officer of Unicom Corporation, which then became the parent company of Commonwealth Edison Company, from which he retired in 1998. Mr. O’Connor also serves on the board of directors of AFI (since April 1, 2016), and previously served on the boards of directors of the following companies: Trizec Properties, Inc. (2003 to 2006); Corning, Inc. (1984 to 2011); Smurfit – Stone Container Corporation (2000 to 2011); and United Continental Holdings, Inc. (1984 to 2012). Mr. O’Connor has a broad business background, having served in several chief and senior executive positions with large companies and on the boards of companies as diverse as a utility company, an industrial manufacturing company and an airline. Mr. O’Connor also brings to our Board extensive knowledge and expertise in senior executive leadership, management, and corporate governance and board practices of other major corporations.

 

		AWI 2017 Proxy Statement						5

ITEM 1 – ELECTION OF DIRECTORS (CONTINUED)

		JOHN J. ROBERTS Director since: 2006 Age: 72   Independent

Mr. Roberts served as global managing partner for PricewaterhouseCoopers LLP from 1998 until his retirement in June 2002. Mr. Roberts held numerous positions at Coopers & Lybrand LLP from 1967 until its merger with Pricewaterhouse LLP in 1998. From 1994 to 1998, Mr. Roberts served as one of three members of the Office of the chairman of Coopers & Lybrand’s United States operations. Prior to that time, Mr. Roberts held other positions at Coopers & Lybrand, including deputy vice chairman, vice chairman and managing partner. While serving in various executive capacities at PricewaterhouseCoopers, Mr. Roberts performed and supervised audit, tax and business consultative services, and developed extensive expertise in public company audits and financial reporting matters. Mr. Roberts serves on the boards of directors and audit committees of the following companies: Safeguard Scientifics, Inc., a provider of capital as well as strategic, operational and management resources to growth-stage businesses (since 2003; also serves on the compensation committee and nomination and governance committee), the Pennsylvania Real Estate Investment Trust, a business trust with primary investment focus on retail shopping malls (since 2003; also serves on the compensation committee), and Vonage Holdings Corporation, a provider of communications services (since 2004; also serves as lead director). Mr. Roberts previously served on the board of directors of Sicor, Inc. (2002 to 2004) and served as a director of our former holding company, Armstrong Holdings, Inc. (2003 to 2006). Mr. Roberts brings to our Board an extensive public accounting background, financial expertise, experience as an accounting executive and as a board member of businesses in diverse industries, and risk management, strategic planning and corporate governance capabilities.

		GREGORY P. SPIVY Director since: 2014 Age: 48   Independent

Mr. Spivy is a Partner of ValueAct Capital. Prior to joining ValueAct Capital in September 2004, Mr. Spivy worked with Gryphon Investors, a private equity fund with $500 million in investments. Previously, Mr. Spivy was a Managing Director at Fremont Partners, a private equity firm. Prior to joining Fremont Partners, Mr. Spivy was a Director with The Bridgeford Group, and began his career in the mergers and acquisitions department of Lehman Brothers. Mr. Spivy is a director of Allison Transmission Holdings, Inc., a commercial duty automatic transmissions and hybrid propulsion systems manufacturer (since May 2015). Mr. Spivy is the former chairman of Seitel, Inc. (from 2006 to 2017), the former chairman of MSD Performance, Inc., and a former director of KAR Auction Services, Inc., MDS, Inc., MSC Software Corp. and PRA International. Mr. Spivy is also the Chair of the Board of Directors of Matriculate, a charitable organization dedicated to sending high-achieving, low-income high school students to college. Mr. Spivy brings to our Board his experience as a director of other public and private corporations, his advisory experience with ValueAct Capital’s portfolio companies, as well as his extensive financial services industry experience generally.

 

ITEM 1 – ELECTION OF DIRECTORS (CONTINUED)

		ROY W. TEMPLIN Director since: 2016 Age: 56   Independent

Mr. Templin served as Chairman of the Board of Directors of Con-Way Incorporated (NYSE:CNW), a multinational freight transportation and logistics company, from January 2014 until its acquisition by XPO Logistics Inc. in 2015. He previously served as Executive Vice President and Chief Financial Officer of Whirlpool Corporation (NYSE:WHR), a multinational manufacturer and marketer of home appliances, from 2004 to 2012, and as Vice President and Controller of Whirlpool Corporation from 2003 to 2004. Prior, he served as Vice President, Finance and Chief Accounting Officer of Kimball International, Inc. He currently serves on the Board of Trustees of the Goldman Sachs Mutual Funds. Mr. Templin brings to our Board extensive experience as a senior executive, public company board member and executive of manufacturing and distribution industries, as well as experience in risk management, strategic planning, finance, and mergers and acquisitions.

		CHERRYL T. THOMAS Director since: 2016 Age: 70   Independent

Ms. Thomas is President and Chief Executive Officer of Ardmore Associates, LLC, an engineering consulting firm, where she has been responsible for all financial, operational and management activities since 2003. Prior to founding Ardmore Associates, Ms. Thomas served as chairman of the board of the United States Railroad Retirement Board from 1998 until 2003, and as commissioner of the department of buildings of the city of Chicago from 1989 until 1994. Ms. Thomas serves on the boards of numerous local and civic organizations and foundations, including the Lyric Opera of Chicago (since 2007), the Chicago Zoological Society (since 2000), the Polk Bros Foundation (since 2009), the Brach Foundation (since 2015) and the Big Shoulders Foundation (since 2013). Ms. Thomas brings to our Board significant senior executive leadership experience, as well as relevant experience in manufacturing, distribution and risk management.

 

		AWI 2017 Proxy Statement						7

ITEM 1 – ELECTION OF DIRECTORS (CONTINUED)

CORPORATE GOVERNANCE

CORPORATE GOVERNANCE PRINCIPLES AND OTHER CORPORATE GOVERNANCE DOCUMENTS

Our Corporate Governance Principles include guidelines regarding the responsibilities, duties, service and qualifications of our Board, the determination of a director’s independence and any conflict of interests, Board access to management and independent advisors, director compensation and stock ownership requirements, Board committees and other matters relating to corporate governance. Our Corporate Governance Principles are available on our website under “About Us” and then “Governance” or at https://www.armstrongceilings.com/corporate/governance.html. Also available at the same location on our website are the charters of the Audit Committee, the Management Development and Compensation Committee (“Compensation Committee”), and the Governance Committee of the Board, the Armstrong Code of Business Conduct and the Armstrong Code of Ethics for Financial Professionals. Our website is not part of this proxy statement and references to our website address in this proxy statement are intended to be inactive textual references only.

DIRECTOR INDEPENDENCE

It is the policy of the Company that our Board consist of a majority of directors who are not employees and are independent under all applicable legal and regulatory requirements, including the independence requirements of the NYSE. For purposes of evaluating the independence of directors, in accordance with our Corporate Governance Principles, our Board will consider all relevant facts and circumstances in making an independence determination, and not merely from the standpoint of the director, but also from that of persons or organizations with which the director has an affiliation. Consistent with our Corporate Governance Principles, to be considered “independent,” the Governance Committee has established qualifications to assist in the determination, which either meet or exceed the independence requirements of the NYSE.

Our Board has determined that all of our directors, with the exception of Mr. Grizzle, our President and CEO, are independent under NYSE listing standards and our Corporate Governance Principles. In addition, our Board has further determined that each of the members of the Audit Committee, the Compensation Committee and the

Governance Committee are independent within the meaning of the NYSE listing standards, any applicable minimum standards required by the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and enhanced standards required for membership on such committees by our Bylaws, namely that directors serving on such committees meet the independence criteria under both NYSE rules and Rule 10A-3(b)(1) under the Exchange Act.

BOARD’S ROLE IN RISK MANAGEMENT OVERSIGHT

Our Board oversees the Company’s risk profile and management processes for assessing and managing risk, both as a full Board and through its committees, which meet regularly and report to the full Board. Management is charged with managing risk through robust internal policies and controls.

The Company has maintained an enterprise risk management program since 2005. Risk management is an integral part of the Company’s culture. Management’s role is to identify, mitigate, guide and review the efforts of our business units, consider whether the residual risks are acceptable, and approve plans to deal with serious risks. Our Board’s role in risk management is to review the performance and functioning of the Company’s overall risk management efforts and management’s establishment of appropriate systems for managing risk. Specifically, our Board reviews management’s:

 

•

processes to identify matters that create inappropriate risk to achieving our business plans;

 

•

processes to assess the likelihood and impact of such risks in order to prioritize them;

 

•

identification of major risks and how we define “major;”

 

•

identification of primary risk mitigation owners;

 

•

mitigation of major risks, and our view of the resulting residual risk; and

 

•

monitoring of major risks.

Management provides its feedback on business unit risks during periodic business reviews and annual strategic planning discussions. Senior management periodically meets with designated risk mitigation owners and assesses control measures. In addition, senior management

 

		AWI 2017 Proxy Statement						9

CORPORATE GOVERNANCE (CONTINUED)

regularly reevaluate the appropriateness of risk assessments and priorities. This process includes identifying risks that could prevent achievement of business goals or plans. Our internal audit group uses the resulting information as a basis for developing its audit plan.

Our Board reviews summary reports that assess the strategic, operational, infrastructure and external risks facing the Company. Each Board committee, consistent with its charter, assists our Board in overseeing the review of certain risks that are particularly within its purview, including as described in “BOARD MEETINGS AND COMMITTEES” below.

BOARD’S ROLE IN SUCCESSION PLANNING

Our Board is actively engaged and involved in talent management. Our Board reviews the Company’s “Organization Vitality” initiatives in support of its business strategy at least annually. This includes a detailed discussion of the Company’s global leadership bench and succession plans with a focus on key positions at the senior officer level, including CEO. During 2016, our Board and the Compensation Committee met on several occasions in furtherance of these initiatives. In addition, the committees of the Board regularly discuss the talent pipeline for specific critical roles. High potential leaders are given exposure and visibility to Board members through formal presentations and informal events. More broadly, our Board is regularly updated on key talent indicators for the overall workforce, including diversity, recruiting and development programs.

BOARD LEADERSHIP STRUCTURE

Our Bylaws and Corporate Governance Principles provide our Board with the flexibility to determine what leadership structure works best for us, including whether the same individual should serve as both our Chairman and our CEO. In February 2010, our Board determined to split the positions of Chairman and CEO. At that time, Mr. O’Connor, who had been independent Lead Director from February 2008 through February 2010, was named Chairman and continues to serve in that capacity. The split of these positions allows Mr. Grizzle, our President and CEO, to focus on managing the business, while Mr. O’Connor, as Chairman, oversees our Board’s functions. Our Board will continue to evaluate its leadership and governance

structure within the context of the specific needs of the business, current Board composition, and the best interests of Company shareholders.

Responsibilities of the Chairman include recruiting new Board members, overseeing the evaluation and compensation of the CEO, ensuring an appropriate succession plan, overseeing independent evaluation of risk, coordinating Board meeting schedules and agenda, chairing and leading the discussions at the meetings, and overseeing the annual performance evaluations of the Board, its committees and its individual members. The Chairman ensures information provided by management to the Board is sufficient for the Board to fulfill its duties and communicates with other directors on key issues and concerns outside of regularly scheduled meetings. The Chairman is also responsible for ensuring the effective functioning of the committees through appropriate delegation to, and membership of, the committees. Finally, the Chairman provides effective leadership for our independent directors to facilitate the independent oversight required by our Bylaws and Corporate Governance Principles, including by ensuring that:

 

•

a majority of our directors are independent;

 

•

all of the members of the Audit Committee, the Compensation Committee and the Governance Committee are independent directors; and

 

•

the Board meets at regularly scheduled executive sessions, outside of the presence of management. Mr. O’Connor, our Chairman, presides at these sessions.

In addition, each of the Board’s three standing committees regularly meet at similar executive sessions, at which the respective committee chairs preside.

COMMUNICATION WITH THE BOARD

Any person who wishes to communicate with the Board, nonemployee directors as a group, or individual directors, including the Chairman, may direct a written communication to the attention of the Corporate Secretary at the Company’s corporate offices at 2500 Columbia Avenue, Lancaster, Pennsylvania 17603. The Corporate Secretary will forward these communications to the intended recipient director(s), as appropriate. You may also send general messages to directors by email to directors@armstrongceilings.com. If you

 

CORPORATE GOVERNANCE (CONTINUED)

wish to send an email message to the Governance Committee, including a recommendation regarding a prospective director, please send the message to CorpGovernance@armstrongceilings.com. The Corporate Secretary will forward these messages, as appropriate.

SHAREHOLDER OUTREACH

The Company’s relationships with its shareholders and other stakeholders are a critical part of our corporate governance profile, and the Board recognizes the value of taking their views into account. Among other things, engagement with the Company’s shareholders and other stakeholders helps the Board and management to understand the larger context and impact of the Company’s operations, learn about expectations for our performance, assess emerging issues that may affect our business or other aspects of our operations, and shape policy.

In 2016, we initiated a formal shareholder outreach program to obtain investor perspectives on corporate governance, our executive compensation program, sustainability and other matters. On an annual basis, we intend to continue to solicit feedback from institutional investors, including asset managers, pension funds and social responsibility investors.

BOARD MEETINGS AND COMMITTEES

The Board met ten times during 2016, five of which were special meetings.

There are three standing committees of the Board: the Audit Committee, the Compensation Committee, and the Governance Committee, each described below.

Each standing committee has a charter and consists solely of ‘independent’ or ‘outside’ directors who meet applicable independence standards required by the NYSE, the SEC, and the Internal Revenue Service, and under our Articles of Incorporation and Bylaws. Each committee reports to the Board regularly and evaluates the effectiveness of its performance annually. The membership of each committee is determined by the Board on the recommendation of the Governance Committee. The Company’s Corporate Governance Principles provide that (i) directors who are currently fully employed should not serve on

more than two other corporate boards and (ii) other directors should not serve on more than four other corporate boards. The Board, after considering the circumstances of Mr. Roberts’ service on three other public company audit committees, determined that such service does not impact his ability to effectively serve on the Audit Committee.

All director nominees who served on the Board during 2016 participated in over 75% of the meetings of the Board and meetings of the Committees on which they served. Board members are expected to attend annual meetings in person or virtually, via the Internet. All Board members serving at the time attended the annual meeting in 2016.

Audit Committee    The Audit Committee met six times during 2016, one of which was a special meeting. The members of the Audit Committee are John J. Roberts (Chair), Tao Huang, Larry S. McWilliams, Roy W. Templin and Cherryl T. Thomas. During 2016, Jeffrey Liaw and Richard E. Wenz also served as members of the Audit Committee until their resignation from the Board in connection with the separation of AFI. Under its charter, the Audit Committee:

 

•

oversees (i) auditing and accounting matters, including the selection, supervision and compensation of the Company’s independent registered public accounting firm and other independent auditors, (ii) the scope of the annual audits, non-audit services performed by the Company’s independent registered public accounting firm, and (iii) the Company’s accounting practices and internal accounting controls;

 

•

has sole authority to engage, retain and dismiss the independent registered public accounting firm;

 

•

reviews and discusses with management and our independent registered public accounting firm the annual audited financial statements and quarterly financial statements included in our SEC filings;

 

•

assists the Board in monitoring the integrity of the Company’s financial statements and the independent registered public accounting firm’s qualifications, independence and performance;

 

•

considers risks associated with overall financial reporting, legal compliance and disclosure processes; and

 

		AWI 2017 Proxy Statement						11

CORPORATE GOVERNANCE (CONTINUED)

•

supervises and reviews the effectiveness of the Company’s internal audit and compliance functions, and compliance by the Company with applicable legal and regulatory requirements.

Each member of the Audit Committee meets the NYSE and SEC financial literacy requirements. The Board has determined that each of Mr. Roberts and Mr. Templin qualifies as an “Audit Committee Financial Expert” as defined pursuant to the Exchange Act. The Audit Committee regularly meets independently with the Company’s internal and independent auditors, with the leaders of the Company’s compliance function, and with management.

Management Development and Compensation Committee    The Compensation Committee met ten times during 2016, five of which were special meetings. The members of the Compensation Committee are Stan A. Askren (Chair), Larry S. McWilliams, James C. Melville, Gregory P. Spivy and Roy W. Templin. During 2016, Michael F. Johnston also served as a member of the Compensation Committee until his resignation from the Board in connection with the separation of AFI, and James J. Gaffney also served as a member of the Compensation Committee until he retired from the Board in connection with the 2016 Annual Meeting. Under its charter, the Compensation Committee:

 

•

oversees the design of our executive compensation and benefit programs and employment practices;

 

•

administers and makes recommendations regarding our incentive and equity compensation plans;

 

•

reviews and approves corporate goals and individual objectives relevant to the compensation of the CEO and evaluates the CEO’s performance relative to those goals and objectives, and recommends CEO compensation to the independent directors based on the evaluation;

 

•

oversees the evaluation of the other executive officers and establishes their compensation levels in collaboration with the CEO;

 

•

reviews incentive compensation to confirm that such compensation does not encourage unnecessary risk-taking; and

 

•

monitors senior management succession planning.

Nominating and Governance Committee    The Governance Committee met five times during 2016. The members of the Governance Committee are James C. Melville (Chair), James J. O’Connor and John J. Roberts. During 2016, James J. Gaffney also served as chair and a member of the Governance Committee until he retired from the Board in connection with the 2016 Annual Meeting. Under its charter, the Governance Committee:

 

•

monitors the independence of nonemployee directors;

 

•

reviews and evaluates director candidates and makes recommendations to the Board concerning nominees for election as Board members;

 

•

establishes criteria for the selection of candidates to serve on the Board;

 

•

recommends directors for appointment to Board committees;

 

•

makes recommendations to the Board regarding corporate governance matters;

 

•

reviews and makes recommendations to the Board regarding the compensation of nonemployee directors;

 

•

oversees the Company’s director education and orientation programs; and

 

•

coordinates an annual self-evaluation of the performance of the Board and each committee through assistance from an independent, third-party advisor.

Other Committees    In addition to the three standing committees described above, members of the Board regularly meet on an ad hoc basis to discuss and approve matters through other committees that have been previously established by the Board. Such committees address such matters as capital allocation, refinancing, succession planning and crisis response. In connection with the separation of AFI, our Board had established and maintained an Implementation Committee to oversee the preparation and implementation initiatives for the transaction in 2015 and 2016.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

None of the members of the Compensation Committee has ever been an officer or employee of

 

CORPORATE GOVERNANCE (CONTINUED)

the Company or its subsidiaries, or had any relationship with the Company that requires disclosure under applicable SEC regulations.

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Any related party transaction that may arise is required to be reviewed and approved by the Governance Committee, who must have no connection with the transaction. Related party transactions would include transactions by the Company or any subsidiary with any director, director nominee, executive officer, shareholders owning more than 5% of the Company’s outstanding shares of common stock, per share par value $0.01 (“Common Stock”), or immediate family member of any of the foregoing, and transactions with businesses affiliated with any director or director nominee that meet the specifications in Item 404 of Regulation S-K under the Exchange Act. The Chair of the Governance Committee has authority to approve transactions involving sums less than the disclosure threshold set in Item 404. The material details of any such matters are required to be disclosed to the Governance Committee at its next regular meeting.

During 2016 and in connection with his appointment to the Board pursuant to a Nomination Agreement by and between the Company and ValueAct Capital, Mr. Spivy, a Partner of ValueAct Capital, received compensation at identical levels to our nonemployee director compensation program for his service on the Board. Following the expiration of the Nomination Agreement in 2016, Mr. Spivy was elected to the Board and continues to receive compensation pursuant to our nonemployee director compensation program. Mr. Spivy has directed that his cash retainers be directly paid to ValueAct Capital Management, L.P., and under an agreement with ValueAct Capital, Mr. Spivy is deemed to hold it for the benefit of ValueAct Capital Master Fund L.P., and indirectly for other members of the ValueAct Group.

POLICY ON MAJORITY VOTING IN THE ELECTION OF DIRECTORS

In February 2017, our Board adopted a Policy on Majority Voting as one of our Corporate Governance Principles. The Policy provides that in an uncontested election of directors, any nominee

who receives a greater number of votes “withheld” from his or her election than votes “for” his or her election will, within 10 business days following the certification of the shareholder vote, tender his or her written resignation to the Board. Such tendered resignation will be considered by the Governance Committee taking into account any factors or other information it considers appropriate and relevant and, within 60 days following the date of the shareholders’ meeting at which the election occurred, will make a recommendation to the Board concerning the acceptance or rejection of such resignation. The Board will take formal action on the Governance Committee’s recommendation no later than 90 days following the date of the shareholders’ meeting at which the election occurred. The Board will consider the information, factors and alternatives considered by the Governance Committee and such additional factors, information and alternatives as the Board deems relevant.

Following the Board’s decision on the Governance Committee’s recommendation, the Company, within four business days after such decision is made, will publicly disclose, in a Form 8-K filed with the SEC, the Board’s decision, and, if applicable, the Board’s reasons for rejecting the tendered resignation. A director whose resignation is accepted by the Board may not be re-appointed to fill the vacancy created by his or her resignation.

No director who is required to tender his or her resignation shall participate in the Governance Committee’s deliberations or recommendation, or in the Board’s deliberations or determination, with respect to accepting or rejecting his or her resignation as a director. If a majority of the members of the Governance Committee are required to tender their resignations, then the independent directors who are not required to tender their resignations will appoint an ad hoc Board committee from amongst themselves, consisting of such number of directors as they may determine to be appropriate, solely for the purpose of considering and making a recommendation to the Board with respect to the tendered resignations. If such ad hoc committee would have been created but fewer than three directors would be eligible to serve on it, then the entire Board (other than the director whose resignation is being considered) will make the determination to accept or reject the tendered resignation without any recommendation from the Committee and without the creation of an ad hoc committee.

 

		AWI 2017 Proxy Statement						13

CORPORATE GOVERNANCE (CONTINUED)

SHAREHOLDER-RECOMMENDED DIRECTOR CANDIDATES

The Governance Committee will consider director candidates nominated by shareholders. The procedures for recommending candidates are posted at https://www.armstrongceilings.com/corporate/nominating-governance-committee.html. Shareholders who wish to suggest individuals for service on the Board are requested to review Article II, Section 4 of our Bylaws and supply the information required in (a) through (k) of that

Section in a written request to the Corporate Secretary at the Company’s corporate offices at 2500 Columbia Avenue, Lancaster, Pennsylvania 17603.

When evaluating the candidacy of nominees proposed by shareholders, the Governance Committee may request additional information as it may consider reasonable to determine the proposed nominee’s qualifications to serve as a member of the Board.

 

MANAGEMENT

		AWI 2017 Proxy Statement						15

COMPENSATION OF DIRECTORS

In establishing compensation for our nonemployee directors, including the overall value of compensation and the mix of cash and equity, the Board analyzes competitive market data and any underlying director compensation trends generally, and compares our program to those of similarly sized companies in comparable industries. The Board is compensated through a combination of annual retainers and equity grants in the form of stock units. The Board believes that this level of compensation supports the Company’s ability to attract directors with suitable backgrounds and experiences. A director who is an officer or employee of the Company or its subsidiaries is not compensated for service on the Board or on any committee of the Board.

In connection with the separation of AFI in 2016, the Governance Committee reviewed the

compensation program for nonemployee directors, including the 2008 Directors’ Stock Unit Plan, as amended (the “2008 Directors Stock Unit Plan”) and the then-proposed 2016 Directors’ Stock Unit Plan, as amended (the “2016 Directors Stock Unit Plan”). The review included an analysis of competitive market data and any underlying director compensation trends with assistance from an independent compensation consultant. Following that review, and a recommendation by the Governance Committee, the Board approved a decrease of $10,000 for the annual retainer fee (cash) for the Chair and a decrease of $20,000 for the annual retainer fee (equity) for the Chair, each effective as of April 1, 2016.

The 2016 Directors Stock Unit Plan was approved by the Company’s shareholders at the 2016 Annual Meeting.

 

COMPENSATION OF DIRECTORS (CONTINUED)

Annual grants for the equity portion of the retainer are effective as of the first business day following the date of the Annual Meeting, and the amount of

each grant is determined by the NYSE closing price of our shares of Common Stock on that date.

 

		AWI 2017 Proxy Statement						17

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND DIRECTORS

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND DIRECTORS (CONTINUED)

		AWI 2017 Proxy Statement						19

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND DIRECTORS (CONTINUED)

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND DIRECTORS (CONTINUED)

Stock Ownership Guidelines

In accordance with our Corporate Governance Principles, each nonemployee director must acquire and then hold until six months following the end of his service, phantom units and/or shares of Common Stock equal in value to three times the director’s annual retainer at the time he or she joined the Board. Directors endeavor to reach that level of ownership within five years of joining the

Board. With the exception of Mr. Spivy, Mr. Templin, and Ms. Thomas, all of the current directors have achieved this ownership requirement. As an officer of the Company, Mr. Grizzle is not subject to the stock ownership guidelines for nonemployee directors. Mr. Spivy, Ms. Thomas and Mr. Templin first became eligible to participate in the nonemployee director compensation program in December 2014, April 2016 and September 2016, respectively.

 

		AWI 2017 Proxy Statement						21

ITEM 2 – RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee selected KPMG LLP to audit our consolidated financial statements and our internal control over financial reporting for 2017. In accordance with past practice, this selection will be presented to the shareholders for ratification at the Annual Meeting; however, consistent with the requirements of the Sarbanes-Oxley Act of 2002, the Audit Committee has ultimate authority in respect of the selection of our independent

registered public accounting firm. The Audit Committee may reconsider its selection if the appointment is not ratified by the shareholders.

A representative of KPMG LLP will be in attendance at the Annual Meeting to respond to appropriate questions and will be afforded the opportunity to make a statement at the meeting, if he or she desires to do so.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF KPMG LLP.

AUDIT COMMITTEE REPORT

		AWI 2017 Proxy Statement						23

FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

ITEM 3 – ADVISORY APPROVAL OF EXECUTIVE COMPENSATION

The Company is seeking your advisory vote on our executive compensation program. The Company asks that you support the compensation of our named executive officers as disclosed in the Compensation Discussion and Analysis section and the accompanying tables contained in this Proxy Statement. Because your vote is advisory, it will not be binding on the Board or the Company. However, the Board will review the voting results and take them into consideration when making future decisions regarding executive compensation.

The Company has in the past sought approval from shareholders regarding the incentive plans that we use to motivate, retain, and reward our executives. Those incentive plans, including the 2011 Long-Term Incentive Plan and the 2016 Long-Term Incentive Plan, make up a majority of the pay that the Company provides to our executives. Over the years, the Company has made a number of changes to its disclosures concerning executive compensation, as well as to its executive compensation programs, in response to shareholder input, including a number of enhancements mentioned in this proxy statement.

Our executive compensation program has played a material role in our ability to drive strong financial results and attract and retain a highly experienced, successful team to manage our company. Fiscal year 2016 was a significant year for our company, as we completed the separation of our Resilient Flooring and Wood Flooring segments into a separate and independent public company, Armstrong Flooring, Inc. We also celebrated our first year as a stand-alone ceilings and wall systems company, with the resources to develop and execute a strategic plan designed to create additional shareholder value.

We believe that our executive compensation program, which was modified by our Compensation Committee in connection with the separation, is structured appropriately to support our company and our business objectives, particularly our post-separation structure and strategies.

Our Compensation Committee has developed and maintained a compensation program that is intended to: align executive interests with shareholders’ interest; link pay and performance by placing a significant portion of compensation “at risk” based on performance against pre-established goals; and provided a competitive level of compensation globally to enable access to high-quality executives in a competitive way.

As reflected in the total shareholder return components of our new program, if the value we deliver to our shareholders increases, so does the compensation we deliver to our executives.

We maintain strong corporate governance over our executive pay programs. We closely monitor the compensation programs and pay levels of executives from companies of similar size and complexity, so that we may ensure that our compensation programs are within the norm of a range of market practices

Our Compensation Committee, our Chief Executive Officer, and our head of Human Resources engage in a rigorous talent review process annually to address succession and executive development for our CEO and other key executives.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE COMPANY’S COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THE COMPENSATION DISCUSSION AND ANALYSIS SECTION AND THE ACCOMPANYING COMPENSATION TABLES CONTAINED IN THIS PROXY STATEMENT

		AWI 2017 Proxy Statement						25

ITEM 4 – ADVISORY APPROVAL OF FREQUENCY OF VOTE ON EXECUTIVE COMPENSATION

The Company is seeking your advisory vote on the frequency of future shareholder advisory votes on our executive compensation program. In particular, we are asking whether the advisory vote should occur every year, every two years or every three years. The Company asks that you support a frequency period of every year (an annual vote) for future non-binding shareholder votes on compensation of our named executive officers.

A shareholder advisory vote on executive compensation is important to the Company. We appreciate the past approval of our incentive pay programs by our shareholders, which have historically occurred every three years. We believe

that this approach serves both our company and our shareholders well, ensuring a direct alignment between executive compensation and financial performance results. Setting a one year period for holding this shareholder vote will enhance shareholder communication by providing a clear, simple means for the Company to obtain information on investor sentiment about our executive compensation philosophy. We also believe that an advisory vote every year will be the most effective timeframe for the Company to respond to shareholders’ feedback and provide the Company with sufficient time to engage with shareholders to understand and respond to the vote results.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR A FREQUENCY OF “ONE YEAR” FOR FUTURE NON-BINDING SHAREHOLDER VOTES ON COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS

COMPENSATION DISCUSSION AND ANALYSIS

EXECUTIVE SUMMARY

Business Overview

We are a leading global producer of ceiling and wall systems and, prior to April 1, 2016, flooring products, for use primarily in the construction and renovation of residential, commercial and institutional buildings. We design, manufacture and sell ceiling and wall systems (primarily mineral fiber, fiberglass wool and metal) and, prior to April 1, 2016, flooring products (primarily resilient and wood) around the world.

Fiscal year 2016 was a transformational year for our company that included separation of our legacy Resilient Flooring and Wood Flooring businesses. Effective April 1, 2016, we separated Armstrong Flooring, Inc. (“AFI”), resulting in two independent, publicly-traded companies, the Company and AFI, with AFI owning and operating the Resilient Flooring and Wood Flooring business and the Company continuing to own and operate the Building Products (Ceilings) business.

The separation provided our Board with the opportunity to design and implement compensation programs more appropriate to the goals, objectives and performance of our business as an independent company. Accordingly, our Compensation Committee designed and approved new executive compensation plans with performance-based features to establish strong incentives for performance and growth of our newly-independent company. The new plans were designed to directly link compensation to meaningful improvement in company performance. In addition, in connection with the closing of the separation, the Compensation Committee approved one-time Long-Term Incentive (“LTI”) awards to our most senior executives, namely Messrs. Grizzle, MacNeal, Cookson and Chiappone, who are most

able to drive strategic decision-making. These special awards were designed at three-times their respective individual LTI targets, representing the combination of an annual award at LTI target, which may be replicable over time, plus a one-time, special LTI award at two-times LTI target intended to motivate and compensate for accelerating performance as an independent, standalone company. These LTI grants are expected to encourage and promote business practices that will produce sustainable increases in shareholder value.

Our 2016 LTI plan is primarily composed of performance-based restricted stock units (“PSU”), with performance based on the metrics of absolute total shareholder return (“Absolute TSR”) and Cumulative Free Cash Flow. Our Compensation Committee selected Absolute TSR as a metric in our LTI plan, because we believe it best represents and captures shareholder value creation (particularly as compared to other financial metrics), while providing senior management with the enhanced flexibility and levers needed to drive meaningful performance changes. Our Compensation Committee selected Free Cash Flow as a metric in the LTI plan, because we believe Free Cash Flow will create a strong alignment with performance activities and growth over the performance period. The plan has a three-year performance period to allow a reasonable timeframe for value creation, challenging targets with substantial upside for breakout performance and a payout scale that defines meaningful hurdles on the way to breakout performance. These plan features and others described in more detail in the body of this Compensation Discussion and Analysis are all designed to strongly align the interests of management and shareholders, and to provide strong incentives for performance and growth consistent with our strategic plan.

 

		AWI 2017 Proxy Statement						27

COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

Victor D. Grizzle President and CEO

Brian L. MacNeal Senior Vice President and CFO

David S. Cookson Senior Vice President, Americas

Mark A. Hershey Senior Vice President, General Counsel and Chief Compliance Officer

Ellen R. Romano Senior Vice President, Human Resources

Matthew J. Espe President and CEO⁽²⁾

David S. Schulz Senior Vice President and CFO⁽³⁾

Separation and Executive Leadership

Our NEOs and other members of our senior leadership team have significant relevant experience in the ceilings and wall solutions business. In connection with the separation, our Board approved a new management team with the skills and experience to take advantage of organic and inorganic growth opportunities around the globe.

2016 Compensation and Performance Highlights

As a result of the separation, 2016 was a transitional year for short-term and long-term compensation, both in terms of compensation actions relating specifically to the separation and in the design of our programs. We placed significant emphasis on driving operational results within our businesses during this transition phase, while also executing on the separation.

Our Compensation Committee designed our annual incentive plan for 2016 to place specific emphasis on the Company’s ability to generate cash by using Free Cash Flow (“FCF”) as the metric for global Company results and cash conversion for regional results. FCF was selected to create strong alignment with performance activities and growth. Generating cash allows us to invest in growth initiatives and increase the value of our business.

Cash Conversion was selected as a regional operation metric and focuses on components of FCF. FCF is defined to be cash flow from operations minus cash flow used in investing activities. Cash Conversion is defined as the cash remaining when capital expenditures for property, plant and equipment are subtracted from earnings before interest, taxes, depreciation, and amortization (EBITDA). Recognizing the challenges and needs associated with separation and the transition to a standalone, independent company, our Compensation Committee specifically identified and selected cash metrics as the basis for the 2016 annual incentive plan. These measures align to key elements of our operating plan and financial goals, including enhanced revenue, manufacturing productivity and competitive sales, general, and administrative expense, and are strong indicators of our overall operating performance.

To further align the interest of executives with shareholders, our Compensation Committee designed our long-term incentive plan for 2016 to include PSU grants for all the NEOs, which were tied to Absolute TSR and FCF. In connection with the separation and base salary reductions described below, Mr. Hershey and Ms. Romano also received retention grants in the form of restricted stock units (“RSUs”). For more information concerning these awards, see “2016

Compensation Design and Outcomes – Other LTI

 

COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

Awards – Long-Term Performance and Retention” on page 40.

Fiscal year 2016 key performance highlights included:

 

•

Adjusted EBITDA:    Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”)* of $319 million on an ongoing standalone basis was consistent with our external guidance, as margins expanded 130 bps on a comparable basis from the prior year. The core value drivers of our business enabled the improvement, as increases in average unit value, lower manufacturing and input costs and another record earnings year from our WAVE joint venture drove results.

 

•

Consolidated Net Sales:    Consolidated constant currency net sales increased 2% compared to 2015. Constant currency sales in the Americas increased 4.3% over the prior year with volumes growing 2.5%. Constant currency sales also improved 1.6% in the Pacific Rim.

 

•

Free Cash Flow:    $117 million of FCF exceeded the high end of our guidance range of $100 million.

 

•

Adjusted EPS: Adjusted earnings per share of $2.34 increased 36% on a comparable basis versus the prior year.

 

•

Investments:    Execution on planned investments in our Marietta, Pennsylvania and Pontarlier, France ceilings plants proceeded on schedule and within budget.

 

•

Business Development:    We acquired Tectum, Inc., an Ohio-based manufacturer of acoustical wall systems.

 

•

Share Repurchase:    We implemented a $150 million share repurchase program and, through December 31, 2016, repurchased 1.1 million shares of our common stock, approximately 2% of our public float.

 

•

Cost Reduction:    Given challenging market conditions in our international markets, we proactively initiated cost reduction actions that included idling one of our two ceilings plants in China and implemented SG&A cost containment actions in both EMEA (Europe, Middle East and Africa) and the Pacific Rim. As a result of these actions, Adjusted EBITDA improved in our international businesses by $5 million, up almost 30% from the prior year.

Please also see our Company’s Consolidated Financial Statements in our Annual Report on Form 10-K filed on February 27, 2017.

 

*	Continuing operations basis, excludes non-cash pension expense. Please refer to Annex A for a reconciliation of Adjusted EBITDA to U.S. GAAP.

Post-Separation Shareholder Engagement

Following the separation of AFI, in addition to our regular investor relations activities, we engaged in a formal shareholder outreach program to obtain detailed investor perspectives on corporate governance, our executive compensation program, sustainability and other matters. We intend to continue to solicit feedback from shareholders through more outreach initiatives. In 2016, we engaged in outreach dialogues over the course of the year with shareholders representing approximately 30% of our shares outstanding at time of outreach. The outreach discussions were conducted by Mr. Hershey and Ms. Romano.

2017 Priorities

For 2017, our key priorities include:

 

•

Revenue:    Driving revenue growth by leveraging our existing global capabilities and focusing on an expanded ceilings solutions market.

 

•

Capabilities:    Enhancing our manufacturing capabilities and expanding our Americas commercial sales resources to align with broader market opportunities.

 

•

International:    Improving profitability of our international businesses.

 

•

Capital Improvements:    Continuing to pursue productivity, efficiency and working capital improvements in our manufacturing operations.

 

•

Capital Allocation:    Allocating capital to high return opportunities while optimizing FCF.

Our Executive Compensation Philosophy, Objectives, Elements and Characteristics

Compensation Philosophy and Objectives

Our long-term success and growth depend on highly capable global leaders with appropriate experience and skills to deliver our strategy in a volatile and challenging market environment. Our executive compensation program is designed to

 

		AWI 2017 Proxy Statement						29

COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)