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PROPOSAL 2 — ADVISORY VOTE ON EXECUTIVE COMPENSATION

At the 2011 and 2017 Annual Meetings, the Board recommended and our stockholders approved the annual submission of stockholder advisory votes on the compensation of the Company’s Named Executive Officers (“Named Executive Officers” or “NEOs”), which is commonly referred to as “Say-on-Pay.” Accordingly, the Company submits a Say-on-Pay vote to its stockholders on an annual basis. Although the Say-on-Pay vote is non-binding, the Board and the Compensation Committee will review the voting results and take them into consideration when making future decisions regarding the Company’s executive compensation programs.

The goal of the Company’s executive pay program is to align the interests of executives and stockholders and create long-term value for the Company’s stockholders. To this end, the compensation of the NEOs and certain other members of management, generally consists of four basic components, three of which are tied to performance against financial metrics and/or the market price of the Company’s stock:

For more information, please see “Compensation Discussion and Analysis: Overview — Executive Summary” and the discussion that follows.

For all of the NEOs, the annual cash bonus earned and the long term equity awards granted are tied to a mix of revenue, operating income, gross margin, working capital, earnings per share metrics and/or rTSR comparison — specific financial metrics that the Compensation Committee believes align to the creation of stockholder value. If a minimum threshold for a financial metric is not satisfied, no cash bonus is paid with respect to that metric, and the performance shares tied to that metric are forfeited. Similarly, stock options granted to the NEOs only have value if the share price of the Company’s stock appreciates from the date of grant.

Stockholders are urged to read the “Compensation Discussion and Analysis,” which discusses how the Company’s compensation policies and procedures implement the Company’s compensation philosophy, as well as the “2018 Summary Compensation Table” and other related compensation tables and the narrative disclosures that describe the compensation of the Company’s NEOs in fiscal year 2018. The “Compensation Discussion and Analysis” highlights in more detail how the compensation of the NEOs in fiscal year 2018 reflected our pay-for-performance philosophy and other key features of our executive compensation program that are designed to align the interests of the NEOs and stockholders. The Board and the Compensation Committee believe that the policies and procedures articulated in the “Compensation Discussion and Analysis” are effective in implementing the Company’s compensation philosophy and in achieving its goals, and that the compensation of the NEOs in fiscal year 2018 reflects and supports these compensation policies and procedures.

In accordance with Section 14A of the Securities Exchange Act (the “Exchange Act”), the Company is asking stockholders to indicate their approval of the compensation paid to the Company’s NEOs as described in this Proxy Statement. Accordingly, the Company is asking stockholders to vote “FOR” the following non-binding advisory resolution at the Annual Meeting:

“RESOLVED, that the compensation paid to the Company’s Named Executive Officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the compensation discussion and analysis, the compensation tables and any related material disclosed in this proxy statement, is hereby approved.”

The outcome of this advisory vote does not overrule any decision by the Company or the Board (or any committees thereof), create or imply any changes to the fiduciary duties of the Company or the Board (or any committees thereof), or create or imply any additional fiduciary duties for the Company or the Board (or any committees thereof).

THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THE COMPENSATION PAID TO THE COMPANY’S NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT PURSUANT TO THE COMPENSATION DISCLOSURE RULES OF THE SECURITIES AND EXCHANGE COMMISSION.

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PROPOSAL 3 — RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR

The Audit Review Committee is directly responsible for the appointment, compensation, retention and oversight of the independent auditor retained to audit the Company’s financial statements. The Audit Review Committee has appointed PricewaterhouseCoopers LLP (“PwC”) to serve as independent auditor to conduct an audit of the Company’s consolidated financial statements for the fiscal year ending December 31, 2019. Although PwC has audited the consolidated financial statements of the Company since 1995 (1987 for legacy firm Coopers Lybrand), the Audit Review Committee reviews and considers retaining an alternative independent auditor from time to time. Representatives of PwC are expected to be present at the Annual Meeting, will have the opportunity to make a statement at the Annual Meeting if they desire to do so, and are expected to be available to respond to appropriate questions.

In accordance with SEC rules and PwC policies, audit partners are subject to rotation requirements to limit the number of consecutive years of service an individual partner may provide audit service to the Company. For lead and concurring audit partners, the maximum number of consecutive years of service in that capacity is five years. In 2018, a new lead PwC engagement partner was designated commencing with the 2018 audit. The Audit Review Committee is directly involved in selecting the lead engagement partner of the independent auditor firm.

Appointment of the Company’s independent auditor is not required to be submitted to a vote of the stockholders of the Company for ratification. However, the Audit Review Committee has recommended that the Board submit this matter to the stockholders as a matter of good corporate practice. If the stockholders do not ratify the appointment, the Audit Review Committee will reconsider whether to retain PwC and may retain that firm, or another, without resubmitting the matter to the Company’s stockholders. Even if the appointment is ratified, the Audit Review Committee may, in its discretion, direct the appointment of different independent auditors at any time during the year if it determines that such a change would be in the best interests of the Company and the stockholders.

THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT AUDITOR FOR FISCAL YEAR 2019.

Principal Fees and Services

The following table presents fees for professional audit services for the audit of the Company’s annual consolidated financial statements for fiscal years ended December 31, 2018 and December 31, 2017, and fees for other services rendered by PwC during those periods:

Fee Category		Fiscal 2018				% of Total				Fiscal 2017				% of Total
Audit fees		$	2,307,600				98	%		$	1,523,700				80	%
Audit-related fees			50,000				2	%			350,000				19	%
Tax fees			0				0	%			25,000				1	%
All other fees			0				0	%			0				0	%
Total Fees		$	2,357,600				100	%		$	1,898,700				100	%

The increase in the 2018 audit fees compared to the 2017 audit fees relates primarily to fees incurred in 2018 in connection with the acquisition of Interface Performance Materials completed by the Company in that year.

Audit fees are related to services rendered in connection with the annual audit of the Company’s consolidated financial statements, including Sarbanes-Oxley Section 404 controls testing, the quarterly reviews of the consolidated financial statements included in the Company’s Quarterly Reports on Form 10-Q and international statutory audits. The majority of the work was performed by full-time, permanent employees of PwC. The “audit-related fees” incurred in 2018 relate primarily to work associated with the Company’s adoption of a new leasing accounting standard. The decrease in the “audit-related fees” incurred in 2018 compared to 2017 relates primarily to work associated with the Company’s adoption of a new revenue recognition accounting standard in 2017. Tax fees primarily relate to various tax-related consultations.

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The Audit Review Committee is responsible for fee negotiations with the independent auditor. All of the services described above were approved by the Audit Review Committee pursuant to policies and procedures that were established to comply with the SEC rules that require audit committee pre-approval of audit and non-audit services. On an ongoing basis, management communicates specific projects and categories of services for which advance approval of the Audit Review Committee is required. The Audit Review Committee reviews these requests and advises management and the independent auditor if the Audit Review Committee pre-approves the engagement of the independent auditor for such projects and services. On a periodic basis, the independent auditor reports to the Audit Review Committee the actual spending for such projects and services as compared with the approved amounts. The Audit Review Committee may delegate the ability to pre-approve audit and permitted non-audit services to a sub-committee or the Chair of the Audit Review Committee, provided that any such pre-approvals are reported at the next Audit Review Committee meeting.

The Audit Review Committee has considered whether the services provided by PwC, other than audit services, are compatible with maintaining that firm’s independence and has concluded that PwC is independent.

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CORPORATE GOVERNANCE

General

Pursuant to the Delaware General Corporation Law and the Company’s Bylaws, the Company’s business, property and affairs are managed by or under the direction of the Board. Members of the Board are kept informed of the Company’s business through discussions with the Chief Executive Officer and other officers, by reviewing materials provided to them, and by participating in meetings of the Board and its committees.

The Company is committed to good corporate governance practices and has adopted Corporate Governance Guidelines to provide a framework for the effective governance of the Company. The Corporate Governance Committee periodically reviews the Corporate Governance Guidelines and recommends changes, as appropriate, to the Board for approval.

The Board has three standing committees to assist the Board in executing its responsibilities: the Audit Review Committee, the Compensation Committee and the Corporate Governance Committee. In accordance with NYSE rules, each Committee is comprised solely of non-employee, independent Directors, within the meaning of the applicable NYSE rules. The Board has adopted a charter for each of the three standing committees, and the Company has a Code of Ethics and Business Conduct (the “Code”) applicable to all Directors, officers and employees. Links to the Corporate Governance Guidelines, each Committee’s charters and the Code can be found on Lydall’s website at www.lydall.com. All materials available at www.lydall.com are also available to stockholders in print without charge, upon written request to Lydall, Inc., One Colonial Road, Manchester, CT 06042-2378, Attention: Secretary.

Committees

The table below shows current membership and indicates the chairperson (*) for each of the standing Board committees.

Audit Review		Compensation		Corporate Governance
David G. Bills Kathleen Burdett* Matthew T. Farrell Suzanne Hammett S. Carl Soderstrom, Jr.		Kathleen Burdett James J. Cannon Matthew T. Farrell William D. Gurley* Suzanne Hammett		David G. Bills James J. Cannon Marc T. Giles William D. Gurley S. Carl Soderstrom, Jr.*

The Audit Review Committee assists the Board in fulfilling its responsibility to oversee the integrity of the Company’s financial reporting process. The duties and responsibilities of the Audit Review Committee include: overseeing the performance of the Company’s systems of internal accounting and financial controls; overseeing the Company’s internal audit function; reviewing and determining the outside auditor’s qualifications and independence; reviewing the Company’s process for monitoring compliance with applicable legal, regulatory and ethics programs; overseeing the procedures for employee complaints and concerns regarding questionable accounting or auditing matters; overseeing the annual independent audit of the Company’s financial statements; and preparing the Audit Review Committee Report required by the SEC to be included in the Company’s proxy statement.

The Audit Review Committee meets periodically with management to consider the adequacy of the Company’s internal controls and its financial reporting process, and reviews pending or threatened legal proceedings involving the Company and other material contingent liabilities. It also discusses these matters with the Company’s internal auditors, independent auditor, and appropriate Company financial and legal personnel. The Audit Review Committee reviews and approves the Company’s financial statements and discusses them with management and the independent auditors before those financial statements are publicly released or filed with the SEC.

The Audit Review Committee meets regularly in private session with the independent auditor, has the sole authority to retain and dismiss the independent auditor, pre-approves audit and non-audit services, and periodically reviews the independent auditor’s performance and independence from management. The independent auditor has unrestricted access to, and reports directly to, the Audit Review Committee.

The Audit Review Committee also reviews and approves the Company’s decision to enter into all swaps transactions, has adopted and reviews annually the policy relating to the Company’s use of the non-financial end-user exception (“Swaps Policy”) and reports to the Board annually on the Company’s compliance with the Swaps Policy.

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Audit Committee Financial Expert — The Board has determined that each member of the Audit Review Committee is “financially literate” within the meaning of the NYSE rules and is an “audit committee financial expert” as that term is defined under Item 407(d)(5)(ii) of Regulation S-K.

The Compensation Committee has responsibility for the Company’s compensation of management, incentive plans and programs. The duties and responsibilities of the Compensation Committee include: making recommendations to the Board regarding the Company’s incentive and equity-based compensation plans and non-CEO compensation policy; reviewing and approving the Company’s goals and objectives relevant to compensation (such as the goal of attracting and retaining highly qualified individuals and motivating individual performance leading to increased stockholder value); determining and approving the Chief Executive Officer’s annual compensation, including incentive awards; reviewing the Company’s Compensation Discussion and Analysis (“CD&A”) with management and, based upon such review, considering whether it will recommend to the Board that the CD&A be included in the Company’s proxy statement; preparing the Compensation Committee Report for inclusion in the annual proxy statement; approving all grants of stock awards pursuant to the Company’s stock incentive compensation plans; approving all employment agreements and compensation arrangements for the CEO, the Named Executive Officers and other direct reports of the CEO; reviewing whether risks associated with the Company’s compensation policies and practices are reasonably likely to have a material adverse effect on the Company; reviewing the form and amount of compensation for non-management Directors and recommending changes to the Board; and retaining or obtaining advice from compensation advisors after taking into consideration certain independence factors related to said compensation advisors.

The Corporate Governance Committee has responsibility for developing Board membership and overseeing corporate governance of the Company. The Corporate Governance Committee is responsible for: identifying individuals who are qualified to become Board members consistent with criteria approved by the Board; selecting and recommending to the Board the Director nominees for the next Annual Meeting; making recommendations to the Board as to the membership and chairperson of each standing committee; developing and recommending to the Board a set of corporate governance guidelines applicable to the Company designed to provide for effective and efficient governance of the Company; overseeing the evaluation of the Board; and providing guidance on matters relating to corporate governance.

Other duties and responsibilities of the Corporate Governance Committee include: assessing whether an incumbent director nominee who does not receive more votes “for” than “against” his or her election in an uncontested election should continue to serve as a director; reviewing annually the relationships between directors, the Company and members of management and recommending to the Board whether each director qualifies as “independent”; periodically reviewing the Board’s leadership structure to assess whether it is appropriate given the specific characteristics or circumstances of the Company; overseeing the development of a succession plan for the Chief Executive Officer; evaluating the Chief Executive Officer’s performance annually and overseeing the evaluation of the Company’s executive officers; and reviewing and approving all director and officer indemnification and insurance arrangements.

Nomination Process

The Corporate Governance Committee is responsible for identifying individuals who are qualified to be Directors, consistent with criteria approved by the Board, and selecting and recommending to the Board the Director nominees for each Annual Meeting. The Corporate Governance Committee evaluates the skills and expertise needed by the Board and the skills and expertise that are possessed by current Board members. The Corporate Governance Committee seeks persons of the highest ethical standards and proven integrity, and with demonstrated ability and sound judgment, to serve as members of the Board.

When considering candidates for Director, the Corporate Governance Committee takes into account a number of factors, including the following criteria approved by the Board: (i) whether the candidate is independent under the NYSE rules, the rules and regulations under the Exchange Act and the independence standards adopted by the Board; (ii) whether the candidate has skills and expertise needed by the Board; (iii) whether the candidate has demonstrated ability, sound judgment and good decision-making skills; (iv) whether the candidate has prior experience as a corporate Director; (v) whether the candidate has prior public company experience; (vi) whether the candidate has prior experience in global manufacturing companies; and (vii) the extent to which the candidate has other time commitments and obligations that might interfere with his or her duties and responsibilities as a Director. All members of the Audit Review Committee must meet the additional standards for independence applicable to members of an audit committee under Section 10A(m) of the Exchange Act and the NYSE rules

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and must satisfy the financial literacy requirements of the NYSE rules. At least one member of the Audit Review Committee must be an “audit committee financial expert,” as defined under rules promulgated by the SEC. All members of the Compensation Committee must meet the additional standards for independence applicable to members of a compensation committee under the NYSE rules.

Not all Directors need to fulfill all criteria; rather, the Corporate Governance Committee seeks candidates whose skills balance or complement the skills of other Board members.

No Director may sit on more than four boards of publicly-traded companies in addition to the board of the company by which he or she is employed.

The Corporate Governance Committee has not adopted a written policy with regard to the consideration of diversity when evaluating candidates for Director. However, in practice, the Corporate Governance Committee considers diversity of viewpoint, professional experience, education and skill in assessing candidates for the Board to ensure breadth of experience, knowledge and abilities within the Board. The Corporate Governance Committee does not assign specific weights to particular criteria that the Corporate Governance Committee reviews and no particular criterion is a prerequisite for the consideration of any prospective nominee.

When seeking candidates for Director, the Corporate Governance Committee may solicit suggestions from incumbent Directors, management or others. From time to time, the Corporate Governance Committee may also employ a search firm to identify appropriate candidates and perform screening interviews and reference checks for candidates who are then interviewed by the Corporate Governance Committee and presented to the Board, if appropriate.

Unless otherwise requested by the Corporate Governance Committee, a Director shall offer not to stand for re-election at any annual meeting that follows his or her seventieth birthday. In addition, a Director shall tender his or her resignation following any change in the Director’s employment status or principal position, or any other significant change in his or her personal circumstances. The Board may ask the Director not to resign, or may defer acceptance of the resignation. Mr. Gurley turned 70 on September 30, 2018 and offered not to stand for re-election at the Annual Meeting. After considering Mr. Gurley’s many contributions to the Board and his experiences in areas of critical importance to the Company, the Corporate Governance Committee recommended to the full Board that Mr. Gurley be asked to agree to stand for re-election at the Annual Meeting as a Director. The Board approved the recommendation of the Corporate Governance Committee, and Mr. Gurley agreed to continue to serve as a Director and to stand for re-election.

Nominations by Stockholders

The Corporate Governance Committee will consider in accordance with the criteria described above written proposals from stockholders for nominees for Director, provided such proposals meet the requirements set forth in the Company’s Bylaws. For a description of the procedures a stockholder must follow to nominate a person for election to the Board, please see “Stockholder Proposals and Director Nominations” below.

Leadership Structure

The Board, upon the recommendation of the Corporate Governance Committee, has determined that the roles of the Chair of the Board and the Chief Executive Officer should remain separated. Accordingly, the Board has appointed Marc T. Giles, an independent director within the meaning of NYSE rules, as the Chair of the Board. The Company has had a non-management, independent Chair since 1998. The Board and the Corporate Governance Committee believe this leadership structure continues to be appropriate for the Company at the present time because the bifurcated leadership structure:

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Independence Determination

The Board has concluded that David G. Bills, Kathleen Burdett, James J. Cannon, Matthew T. Farrell, Marc T. Giles, William D. Gurley, Suzanne Hammett, and S. Carl Soderstrom, Jr. (all of the current non-employee Directors) are “independent” for purposes of the applicable NYSE rules, that the members of the Audit Review Committee are also “independent” for purposes of Section 10A(m)(3) of the Exchange Act and that the members of the Compensation Committee are also “independent” under the enhanced independence rules of the NYSE for compensation committee members. The Board based its independence determinations in part on a review of the responses of the Directors to questions regarding employment and compensation history, affiliations, family and other relationships (which responses indicated that no relationships or transactions exist), together with an examination of those companies with whom the Company transacts business. Although the Board maintains categorical standards to assist in determining whether non-employee Directors are independent, given the absence of any relationships or transactions between non-employee Directors and the Company, the categorical standards were not used in connection with the Board’s determinations. The categorical standards are set forth in the Company’s Corporate Governance Guidelines (available on www.lydall.com).

Compensation Committee Interlocks and Insider Participation

During fiscal year 2018, the Compensation Committee consisted of Kathleen Burdett, James J. Cannon, Matthew T. Farrell, William D. Gurley and Suzanne Hammett. As discussed above, all members of the Compensation Committee are independent Directors under the enhanced independence rules of the NYSE for compensation committee members. No executive officer of the Company has served as a Director or a member of a compensation committee of another company where any member of the Compensation Committee is an executive officer.

Risk Oversight

The Board oversees the Company’s risk management processes directly and through its committees.

Management has adopted an ongoing risk management process that it uses to identify and assess Company risks. Periodically, management advises the Board and the appropriate Board committee(s) of the following:

The Board fulfills its oversight role by discussing with management the policies and practices utilized by management in assessing and managing risks and providing input on those policies and practices, through:

In addition, the Board may request regular reports directly from personnel of the Company responsible for oversight of particular risks within the Company. This process enables the Board and its committees to coordinate and supervise risk oversight, particularly with respect to risks that are overseen by different committees of the Board and different personnel within the Company.

The Company provides detailed risk factors impacting its business in its Annual Reports on Form 10-K and its Quarterly Reports on Form 10-Q filed with the SEC.

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Related Party Transactions

The Board is committed to upholding the highest legal and ethical conduct in fulfilling its responsibilities and recognizes that related party transactions can present a heightened risk of potential or actual conflicts of interest. Accordingly, as a general matter, the Company prefers to avoid related party transactions.

The Company follows a written policy for the review and prior approval by the Corporate Controller’s Department of all related party transactions. The policy includes a detailed process which requires a thorough review and documentation of any potential related party transactions before consummation. In addition, annually, the General Counsel obtains responses of the Directors and executive officers to questions as to whether a family member of a Director or executive officer is employed by the Company and whether a Director or executive officer has any other relationship with the Company. The Company compiles a list of those companies reported (if any) and compares it against the record of companies with whom the Company transacts business, noting the dollar amount of transactions with such companies, if any. The Company then provides a report to the members of the Audit Review Committee, which reviews the information.

The Company did not engage in any related party transactions requiring disclosure during fiscal year 2018 and none are currently proposed.

Board Attendance

During fiscal year 2018, the Board held ten meetings; the Audit Review Committee held six meetings; the Compensation Committee held six meetings; and the Corporate Governance Committee held five meetings. Each of the Directors attended at least 75% of the aggregate number of meetings of the Board and of each of the Board committees of which he or she was a member during fiscal year 2018. The Board’s practice is to meet in executive session without members of management present at every regularly scheduled Board meeting held in person and at special meetings as circumstances warrant. These sessions are presided over by the Chair of the Board.

A Board meeting is scheduled in conjunction with the Company’s Annual Meeting, and in accordance with the Corporate Governance Guidelines, all of the Director nominees are expected to attend the Annual Meeting. All Directors and nominees attended last year’s Annual Meeting.

Communications With Directors

Stockholders of Lydall and other parties may contact the Chair of the Board by email at: chairman@lydall.com and, if interested in communicating with the Board or any Director, may write to them at the following address:

Lydall, Inc.
One Colonial Road
Manchester, CT 06042

Communications are distributed to the Board, or to any individual Director, as appropriate, depending on the facts and circumstances outlined in the communication. In that regard, the Board has requested that certain items that are unrelated to the duties and responsibilities of the Board should be excluded, such as product inquiries and complaints, new product suggestions, resumes and other forms of job inquiries, surveys, and business solicitations or advertisements. In addition, material that is unduly hostile, threatening, illegal or similarly unsuitable will be excluded, with the provision that any communication that is filtered out must be made available to any non-management Director upon request.

Additional Disclosures

In accordance with NYSE rules, in the event that any member of the Audit Review Committee simultaneously serves on the audit committees of more than three public companies, the Board will assess whether such simultaneous service impairs the ability of such member to effectively serve as a member of the Audit Review Committee, and the Company will disclose such assessment either on or through the Company’s website or in its annual proxy statement or Annual Report on Form 10-K filed with the SEC. No member of the Company’s Audit Review Committee currently serves on the audit committees of more than three public companies.

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In addition, the Company will disclose, either on or through the Company’s website or in its annual proxy statement or Annual Report on Form 10-K filed with the SEC, any contributions by the Company to a tax exempt organization in which any non-management or independent Director serves as an executive officer if, within the preceding three years, contributions in any single fiscal year exceeded the greater of $1 million or 2% of such tax exempt organization’s consolidated gross revenues. No such contributions have been made by the Company to any such tax exempt organization.

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REPORT OF THE AUDIT REVIEW COMMITTEE

The Audit Review Committee (the “Committee”) operates under a written charter adopted and approved by the Board (the “Charter”). The Charter, which defines the functions and responsibilities of the Committee, is reviewed annually. A link to the Committee’s Charter can be found on www.lydall.com. The Committee has determined that its Charter and practices are consistent with the listing standards of the NYSE and the provisions of the Sarbanes-Oxley Act of 2002.

During 2018, all Directors who served on the Committee were “independent” for purposes of the NYSE rules and Section 10A(m)(3) of the Exchange Act. The Board has determined that none of the Committee members has a relationship with the Company that may interfere with his/her independence from the Company and its management, and that each member is an “audit committee financial expert” as defined by the SEC.

Periodically, the Committee meets with management to consider the adequacy of the Company’s internal controls and the objectivity and appropriateness of its financial reporting. The Committee also discusses these matters with PwC, the Company’s independent auditors, appropriate Company financial personnel, and internal auditors, both separately and jointly. Independent and internal auditors of the Company have unrestricted access to the Committee.

Management has primary responsibility for the Company’s financial statements and the overall reporting process, including the Company’s system of internal controls. The independent auditors audit the annual financial statements prepared by management, express an opinion as to whether those financial statements fairly present the financial position, results of operations and cash flows of the Company in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”), and discuss with the Committee the Company’s significant accounting policies, accounting estimates and management judgments reflected in the financial statements, audit adjustments arising from the audit, and other matters in accordance with Auditing Standard No. 1301 (Communications with Audit Committees) as adopted by the Public Company Accounting Oversight Board (“PCAOB”).

The Committee reviewed the Company’s audited financial statements for the fiscal year ended December 31, 2018, and met with both management and PwC to discuss those financial statements. Management has represented to the Committee that the financial statements were prepared in accordance with U.S. GAAP. PwC has reported to the Committee that such financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of the Company in accordance with U.S. GAAP.

At each regularly scheduled Committee meeting during 2018, the Committee monitored and discussed with management and PwC the status of the Company’s compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. The Committee also reviewed and discussed with PwC and management their reports and attestations on internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002.

The Committee annually reviews PwC’s independence and performance in connection with the determination to retain PwC. PwC has provided to the Committee the written disclosures and the letter required by PCAOB’s Ethics and Independence Rule 3526 (Communication with Audit Committees Concerning Independence), and the Committee discussed and confirmed with PwC their independence. As a result of their evaluation, the Committee has concluded that PwC has the ability to provide the necessary expertise to audit the Company’s businesses on a global basis, and the Committee approved the appointment of PwC as Lydall’s independent registered public accounting firm for 2019.

Based on the foregoing, the Committee has recommended to the Board, and the Board approved, that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

David G. Bills
Kathleen Burdett, Chair
Matthew T. Farrell
Suzanne Hammett
S. Carl Soderstrom, Jr.

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COMPENSATION DISCUSSION AND ANALYSIS

Overview — Executive Summary

The goal of the Company’s executive pay program is to align the interests of executives and stockholders and create long-term value for the Company’s stockholders. To this end, the 2018 compensation of the Named Executive Officers (“NEOs”) primarily consisted of four basic components, three of which were tied to performance against financial metrics and/or the market price of the Company’s stock:

Our executive compensation structure is designed to achieve the Company’s short-term and long-term financial and operational objectives and to align the interests of stockholders and executives. In that respect, the actual 2018 compensation of the NEOs reflects the philosophy of making a substantial portion of each executive’s compensation variable depending on the Company’s performance.

The chart below shows the 2018 compensation pay mix for the CEO.

The CEO compensation pay mix is calculated based on (1) 2018 Base Salary, (2) 2018 Cash Bonus paid in March 2019, and (3) 2018 Long-Term Incentive grants made on December 8, 2017.

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Key Compensation Decisions

The following highlights the key decisions made by the Compensation Committee related to 2018 compensation for the NEOs:

The performance-based restricted stock awards (three-year) granted on December 4, 2015 with vesting tied to achievement of the required year-end 2018 threshold level of earnings per share from continuing operations did not vest since adjusted earnings per share were $2.22, compared to a threshold payout target of $2.30 (for more details, see discussion below under “Payouts of Prior Awards Based on 2018 Performance”).

At the request of the Compensation Committee, management conducted its annual assessment of the risk profile of the Company’s compensation programs in February 2019. As a result of this review, the Compensation Committee believes that the Company’s compensation policies do not encourage excessive and unnecessary risk-taking, and that the level of risk that these policies and practices do encourage is not reasonably likely to have a material adverse effect on the Company.

Compensation Objectives

Create Incentives that Motivate Performance

The key elements of executive compensation that depend on the Company’s financial and operating performance include:

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Align Management and Stockholder Interests

The Compensation Committee provides compensation and adopts policies designed to align the interests of executives with those of the stockholders. These include:

Attract, Motivate and Retain Executives

The Committee strives to attract, motivate and retain executive officers by:

Implementing Compensation Objectives

Overseeing Executive Compensation Programs

The Compensation Committee has been appointed by the Board to oversee matters relating to executive compensation. Reporting to the Board, the Committee has overall responsibility for the Company’s compensation and incentive plans and programs. The Committee may form, and delegate authority to, subcommittees when appropriate. If the Committee delegates any function to one or more members of the Committee for any purpose, those members shall report any action taken to the full Committee at its next meeting. For a more detailed description of the Committee’s responsibilities and its composition, please see the discussion under the heading “Corporate Governance — Committees” in this Proxy Statement.

Determining Compensation

The Compensation Committee determines and approves the Chief Executive Officer’s compensation and approves the compensation for each of the other NEOs based upon the recommendations of the Chief Executive Officer. From time-to-time, the Committee engages independent compensation consultants to provide market and competitive information to assist it in understanding the competitive landscape for all of the NEOs and in developing compensation programs for them.

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In determining compensation for the NEOs for fiscal year 2018, including the grant of stock options and PSAs in December 2017, the Committee considered the following:

In addition, the Committee reviews compensation data (which summarize current and historical compensation of each NEO) and an accumulated wealth analysis (which summarizes the long-term equity-based compensation accumulated by each NEO over the past five years). The Committee also evaluates each individual’s total compensation compared with other executives within the organization.

The Committee does not assign specific weights to any of these factors described above and, ultimately, the Committee’s compensation decisions are subjectively reached based on the Committee’s business judgment.

Periodically throughout the year, the Committee discusses the philosophy for overall compensation, reviews and discusses adequacy and appropriateness of the structure of compensation, considers whether to modify compensation and the relative mix of compensation elements and, on occasion, makes changes to compensation that it deems appropriate.

Role of Management

The Chief Executive Officer assists the Committee with respect to the compensation packages for the NEOs other than himself. This assistance includes making recommendations regarding salary and incentive compensation levels based on management’s review of performance, achievement of goals and objectives, and competitive market information. Executive officers do not play a role in their own compensation determinations or that of others (except that the Chief Executive Officer is directly involved, with the support of senior leaders in the Human Resources Department, in the compensation determinations of other executive officers), except to discuss their own respective individual performance with the Chief Executive Officer. The final approval of compensation for the executive officers is performed in private session, with no executive officer (including the CEO) attending. No executive officer is involved in determining Director compensation.

Role of Consultants

The Committee considers information and advice obtained from its compensation consultant, Meridian Compensation Partners LLC (“Meridian”), in determining the compensation packages for the NEOs and all directors who are not employees of Lydall (the “Non-Employee Directors”). Meridian is retained directly by the Committee. The Committee has determined that no conflicts of interest exist between the Company and Meridian based on SEC Rule 10C-1(b)(4) and the corresponding NYSE independence factors regarding compensation advisor independence.

In September 2016 and September 2018, the Committee commissioned and received an Executive Compensation Analysis report from Meridian (the “2016 Analysis” and the “2018 Analysis”). Among other factors, inputs from the 2016 Analysis were considered for setting NEO compensation for 2018 and the 2018 Analysis was considered for setting NEO compensation for 2019. For the 2016 Analysis and 2018 Analysis, Meridian used data from Aon Hewitt TCM survey and the Willis Towers Watson CDB General Industry Executive Compensation Survey (“Willis Towers Watson”) from the respective years. The Aon Hewitt data used for 2016 Analysis was based on companies with revenue between $200 million and $1.5 billion. The Aon Hewitt data used for 2018 analysis was based on companies with revenue between $500 million and $2.0 billion for Corporate positions and comparable revenue sizes for the Business Unit positions. The Willis Towers Watson data was regressed to reflect companies and business units of Lydall’s size.

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The 2016 Analysis and the 2018 Analysis described above were used by the Committee to supplement its general understanding of current compensation practices. The Committee does not target payment for any compensation element or total compensation to any specified level of the companies included in the survey data. The Committee does not have any policies for allocating between long-term and currently paid-out compensation, between cash and non-cash compensation, among different forms of non-cash compensation, or among different forms of long-term awards.

Elements of Compensation

As noted above, the 2018 compensation for the NEOs consisted of base salary, eligibility for an annual cash performance bonus under the AIP Program, long-term equity incentive awards and other compensation, including benefits and perquisites. Each element of compensation is explained below.

Base Salary

Adjustments were made to increase the base salaries of the NEOs for 2018 ranging from 1.5% to 6.3% as shown in more detail in the table below. In making these adjustments, the Committee took into consideration the factors described above under “Determining Compensation.”

Except for Mr. Gonzales, who joined the Company in 2018, all adjustments to NEO base salaries were approved by the Committee at a regularly scheduled meeting of the Committee held on December 8, 2017 and were effective as of December 26, 2017.

The base salaries of the NEOs and the percentage increases for 2018 were as follows:

Name		Base Salary for 2017				Percentage Increase				Base Salary for 2018
Dale G. Barnhart		$	620,000				1.5	%		$	629,300
Randall B. Gonzales(1)			N/A				N/A			$	390,000
Chad A. McDaniel		$	315,000				6.3	%		$	335,000
Paul A. Marold, Jr.		$	335,000				4.5	%		$	350,000
Scott M. Deakin		$	420,000				2.0	%		$	428,400
Joseph A. Abbruzzi		$	320,000				3.1	%		$	330,000

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Annual Incentive Performance Program (“AIP Program”)

The Company’s AIP Program, determination of eligibility and amount of the cash performance bonus payable to each of the NEOs is described below:

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The Target Bonus Percentage, Target Bonus Amount, Combined AIP Bonus Payout Factor and Final AIP Payout amount for each of the NEOs for 2018 are shown in the following table:

AIP Table 1

Name		Target Bonus Percentage				Target Bonus Amount				Combined AIP Bonus Payout Factor				Final AIP Payout
Dale G. Barnhart			100%				629,300				28.3	%		$	177,777
Randall B. Gonzales			60%				184,500				28.3	%		$	52,121
Chad A. McDaniel			50%				167,500				28.3	%		$	47,319
Paul A. Marold, Jr.(1)			40%				140,000				37.1	%		$	51,954
Scott M. Deakin(2)			60%				257,040				38.7	%		$	99,346
Joseph A. Abbruzzi(3)			40%				132,000				23.7	%		$	31,218

The Performance Metrics selected by the Committee for 2018 and as defined in the AIP Program are:

AIP Table 2

Performance Metric		Metric Definition
Operating Income			Operating income from continuing operations of the Company for the performance period, as set forth in the audited financial statements of the Company
Working Capital			(a) the average of twelve months working capital (defined as trade accounts receivable, including other tooling receivables, plus inventory minus accounts payable); divided by (b) the twelve months net sales from continuing operations.
Gross Margin			Percentage resulting from (a) the excess, if any, of net sales from continuing operations over cost of sales from continuing operations, divided by (b) net sales from continuing operations
Revenue			Total net sales, adjusted to exclude foreign exchange fluctuations

The Performance Metric Targets, actual performance results and AIP Bonus Payout Factor for 2018, each on a consolidated basis, are shown in the following table:

AIP Table 3

Performance Metric		Performance Metric Targets(1)				Actual Performance Results(1)				AIP Bonus Payout Factor				Combined AIP Bonus Payout Factor(2)
Operating Income			$67,781,000				$52,199,000				0	%
Working Capital			18.7%				21.2%				0	%			28.3%
Gross Margin			22.9%				19.3%				0	%
Revenue			$754,675,000				$764,144,000				113	%

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The 2018 AIP Performance Metrics, their relative weights and the performance and payout ranges, each on a consolidated basis, are shown in the following table:

AIP Table 4

Performance Metric		Weight				Threshold(1)								Target								Maximum(1)
						Performance				Payout				Performance				Payout				Performance				Payout
Operating Income			25%				90%				50%				100%				100%				110%				200%
Working Capital			25%				+150 Basis Points				50%				Target Basis Points				100%				-100 Basis Points				200%
Gross Margin			25%				-100 Basis Points				50%				Target Basis Points				100%				+100 Basis Points				200%
Revenue			25%				95%				50%				100%				100%				110%				200%

Long-Term Equity Incentive Awards

The Committee believes that executives and other employees who are in a position to make a substantial contribution to the long-term success of the Company and to build stockholder value should have a significant equity stake in the Company. The Company uses equity grants to focus on the retention of executive officers and to enhance the alignment of the interests of executive officers with the goals of improving Company profitability and advancing stockholder interests over the long term.

Grants Made as Part of 2018 Compensation

The Company awarded stock options and PSAs to the NEOs as part of their 2018 compensation. Except for an award made to Mr. Gonzales who was hired in March 2018, no time-based restricted stock awards (“RSAs”) were made as part of the 2018 compensation packages for the NEOs, as the Committee has decided to limit the use of RSAs to special circumstances — such as recognition for extraordinary efforts, hiring or retention awards. The Committee approved the following equity awards for the NEOs as part of their 2018 compensation package. The amounts of awards were subjectively determined by the Committee based on the factors described above under “Determining Compensation.”

		Threshold(1)				Target				Maximum(1)
Earnings per share Achievement			80%				100%				120%
Payout Factor (% of PSA vesting)			50%				100%				150%

To the extent earnings per share targets are achieved, these PSAs will vest immediately upon such certification by the Committee. The Company has not disclosed the specific fiscal year 2020 earnings per share target because it represents confidential, commercially-sensitive information that the Company does not disclose to the public and that could cause competitive harm if known in the marketplace. Both earnings per share and the factors that influence earnings per share, such as revenue and efforts to control costs, are inherently competitive and if disclosed would provide valuable insight into areas of focus for the Company. The Committee set the 2020 earnings per share target for the PSAs at a level that it believed would be challenging but possible for the Company to achieve.

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The following is a summary of the long-term incentive awards made to the NEOs on the dates indicated as part of their 2018 compensation:

Name		Time-Based Stock Option Awards (December 8, 2017)								PSAs (December 8, 2017)								RSAs (March 12, 2018)								Total Value of Grants(1) ($)
		Number of Shares				Grant Date Fair Value(1)				Number of Shares at Target				Grant Date Fair Value(1)				Number of Shares				Grant Date Fair Value(1)
Dale G. Barnhart			41,880			$	750,071				14,465			$	750,010											$	1,500,081
Randall B. Gonzales(2)			11,180			$	195,091				3,955			$	195,179				8,106			$	400,031			$	790,301
Chad A. McDaniel			9,075			$	162,533				3,135			$	162,550											$	325,083
Paul A. Marold, Jr.			8,380			$	150,086				2,895			$	150,106											$	300,192
Scott M. Deakin			13,265			$	237,576				4,585			$	237,732											$	475,308
Joseph A. Abbruzzi			8,380			$	150,086				2,895			$	150,106											$	300,192

Specifically, with respect to the equity awards granted to the CEO in connection with his 2018 compensation, the Committee considered the Company’s strong performance, the CEO’s continued contributions relative to the ongoing execution of the Company’s strategic transformation, and other accomplishments in deciding to make equity awards totaling approximately $1.5 million.

The time-based stock option awards and PSAs granted to the NEOs in December 2017 are reflected in the “Summary Compensation Table” as 2017 compensation because these awards were actually granted in 2017 (except for Mr. Gonzales), even though they relate to the 2018 compensation packages for the NEOs. For the same reason, these awards were reflected in last year’s proxy statement in the table titled “Grants of Plan-Based Awards for 2017.” The amounts reported in the Stock Awards and Option Awards columns of the “Fiscal Year 2018 Summary Compensation Table” relate to the PSAs and stock options granted by the Company in December 2018 as a component of 2019 compensation. These awards, which are described below in “Fiscal 2019 Executive Compensation,” are reflected in the table titled “Grants of Plan-Based Awards for 2018.”

The Company does not have a program, plan or practice to select equity grant dates in connection with the release of favorable or negative news. The Company generally grants equity awards at the regularly scheduled December meeting of its Board. With respect to 2018 compensation, stock option grants were made and PSAs and RSAs were awarded to the NEOs at a meeting of the Compensation Committee on December 8, 2017. See “Fiscal 2019 Executive Compensation Components” below for a discussion of the timing of equity grants with respect to 2019 compensation.

Payouts of Prior Awards Based on 2018 Performance

The 2018 earnings per share (“EPS”) target for the PSAs granted in 2015 was set at $2.87 by the Committee. On February 15, 2019, the Committee determined that the 2018 EPS was below the threshold level performance of $2.30, as actual adjusted EPS for 2018 was $2.22. Accordingly, none of the PSAs awarded to the NEOs that were based on the 2018 EPS target vested.

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Adjustment or Recovery of Awards

The Company has included provisions relating to the clawback or recoupment of compensation in several of its plans.

Under the Amended and Restated Lydall 2003 Stock Incentive Compensation Plan (the “2003 Stock Plan”), any award recipient who breaches his or her non-competition, non-interference, non-solicitation or confidentiality obligations to the Company may be obligated, subject to the Committee’s sole discretion, to return to the Company the economic value of any award that was realized or obtained by the recipient at any time during the six-month period prior to the date the recipient’s employment with the Company terminated. Additionally, the Committee may annul any award granted under the 2003 Stock Plan if the recipient’s employment is terminated for cause and, in such event, the Committee may, in its sole discretion, require the recipient to return to the Company the economic value of any award that was realized or obtained by the recipient at any time during the six-month period prior to the date the recipient’s employment with the Company terminated. Although the 2003 Stock Plan expired on October 24, 2012 and no further awards may be granted subsequent to that date, outstanding awards granted under the 2003 Stock Plan remain in effect and are subject to the above-described recovery provisions.

Awards under the Lydall, Inc. 2012 Stock Incentive Plan (the “2012 Stock Plan”), approved by stockholders at the 2012 Annual Meeting, are subject to the forfeiture and recoupment provisions of the 2012 Stock Plan, which provides that if the Plan Administrator (as defined in the 2012 Stock Plan) determines in good faith that a participant has engaged in fraudulent conduct relating to the Company, then such participant’s outstanding awards shall be forfeited and, with respect to the year in which such fraudulent conduct occurred, the participant will be required to reimburse the Company for the economic value that was realized by such participant that was based on or resulted from such fraudulent conduct. In addition, any award shall be subject to recoupment as required by the applicable provisions of any law (including the clawback provisions added by the Dodd-Frank Act), government regulation or stock exchange listing requirement (and any policy adopted by the Company pursuant to any such law, government regulation or stock exchange listing requirement).

The AIP Program provides that cash bonus payments are subject to recoupment if the Committee determines that a participating employee committed wrongdoing that contributed to a material misstatement, intentional or gross misconduct, a breach of a fiduciary duty to the Company or its stockholders, or fraud. In addition, at its discretion, the Committee may require a participating employee to disgorge and repay any bonus received based upon financial statements that are later restated, other than restatements due solely to facts external to the Company, such as a change in accounting principles or a retroactive change in law. Cash bonus payments also may be recouped in accordance with the applicable provisions of any law, regulation, stock exchange listing requirement or Company policy.

Other Compensation

Severance and Change in Control Agreements — Each of the NEOs have entered into agreements with the Company that provide for payment under specified conditions after a change in control of the Company (which, for Mr. Deakin, would include a change in control of the Thermal Acoustical Solutions business segment) or upon the executive’s termination under certain circumstances, as described under “Executive Compensation — Potential Payments Upon Termination or Change-In-Control.” In exchange for and immediately prior to the receipt of the termination benefits provided for under these agreements, the NEOs are required to execute and deliver a general release of all claims in favor of the Company. As a general practice, the Company enters into change of control agreements with key members of management to ensure that they are incentivized to act in the best interests of the Company’s stockholders in the event of a prospective or actual change in control and to enhance executive retention.

401(k) Defined Contribution Plan — The Company provides a tax-qualified defined contribution retirement plan to eligible non-union and union employees, including NEOs, in the form of a 401(k) savings plan. For non-union participants, the Lydall 401(k) Plan provides that the Company make a matching contribution based on participant salary deferrals to the 401(k) plan, subject to IRS limits. The compensation eligible for the matching contribution includes any cash bonuses, but excludes the value of any equity compensation. In 2018, the Company provided matching contributions to the 401(k) plan for the NEOs at the rates of 100% of the first 3% of salary deferral by a participant, plus 50% of the next 2% of salary deferral by a participant.

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Health & Welfare Plans — The Company offers a health care plan that provides medical, dental, prescription drug, and vision coverage to its employees, including the NEOs. The Company also offers fitness reimbursement up to $500 to its employees and “Wellness” incentives up to $1,000 to its employees who participate in Lydall’s medical plan, including the NEOs.

Perquisites — The Company primarily provides perquisites to NEOs for relocation expenses, tax gross-ups for relocation expenses, car allowances (including gas usage), and on occasion, tax assistance and other minimal expense reimbursements that are ancillary to a business purpose. Perquisites awarded to the NEOs in 2018 are disclosed in the “All Other Compensation” column of the Summary Compensation Table.

All NEOs are currently covered under an Executive Life Program and an Executive Disability Insurance Program. The programs provide for life insurance benefits at four times base salary for the Chief Executive Officer and three times base salary for the other NEOs, and annual executive disability proceeds at a target level of 100% of an NEOs base salary, in each case up to applicable insurance limits (including individual insurability). The full amount of the premiums paid by the Company for these benefits is reflected in the “All Other Compensation” column of the Summary Compensation Table below. If an NEO died or became disabled on December 31, 2018, the NEO would have been eligible for the benefits set forth in the table below:

Name		Executive Life Proceeds ($)				Annual Executive Disability Proceeds ($)(1)
Dale G. Barnhart		$	2,517,200			$	180,000
Randall B. Gonzales		$	1,215,000			$	172,500
Chad A. McDaniel		$	1,110,000			$	52,500
Paul A. Marold, Jr.		$	1,081,500			$	180,000
Scott M. Deakin		$	1,311,000			$	172,500
Joseph A. Abbruzzi		$	1,020,000			$	36,000

Fiscal 2019 Executive Compensation Components

At the Company’s annual meeting of stockholders held in April 2018, 98.4% of the votes cast on the Say-on-Pay proposal were voted in favor of the proposal. The Compensation Committee believes this affirms stockholders’ support of the Company’s approach to executive compensation, and maintained this general approach in 2018. The Compensation Committee will continue to consider the annual vote results for the Company’s Say-on-Pay proposals when making future compensation decisions for the NEOs.

The 2019 compensation for the NEOs consists of elements explained in the “Overview — Executive Summary” section above. Compensation for 2019 was subjectively determined based on the factors described above under “Determining Compensation.”

Adjustments were made to increase the base salaries of the NEOs for 2019 ranging from 0% to 10.4% based on the factors discussed under the section “Determining Compensation” above (Mr. Barnhart received no increase to his base salary in light of the performance in 2018). The 2019 base salaries of the NEOs, effective December 24, 2018, are as follows:

Employee Name		Base Salary for 2019				Target Bonus Percentage
Dale G. Barnhart		$	629,300				100%
Randall B. Gonzales		$	405,000				60%
Chad A. McDaniel		$	370,000				55%
Paul A. Marold, Jr.		$	360,500				45%
Scott M. Deakin		$	437,000				60%
Joseph A. Abbruzzi		$	340,000				45%

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The 2019 AIP Target Bonus Percentages of the NEOs are shown above. AIP Target Bonus were increased from 50% to 55% for Mr. McDaniel, 40% to 45% for Mr. Marold and Mr. Abbruzzi. The Compensation Committee did not make any program design changes to the 2019 AIP Program.

In December 2018, the Compensation Committee,

Similar to the awards made in connection with the compensation packages for 2018, the December 2018 time-based stock option awards vest in equal installments over four years. Vesting of PSAs will be determined upon certification by the Committee that the Company has achieved 3-year rTSR during the performance period from January 2019 through December 2021.

The performance and payout range for the PSAs is shown below:

The following is a summary of the time-based stock option awards and the PSAs that were granted to the NEOs on December 7, 2018 as part of 2019 compensation:

Name		Time-Based Stock Option Award(1)								PSAs								Total Grant Date Fair Value(2)
		Number of Shares				Grant Date Fair Value(2)				Number of Shares at Target				Grant Date Fair Value(2)
Dale G. Barnhart			82,805			$	600,336				29,765			$	670,903			$	1,271,239
Randall B. Gonzales			31,055			$	225,149				11,165			$	251,659			$	476,808
Chad A. McDaniel			27,605			$	200,136				9,925			$	223,710			$	423,846
Paul A. Marold, Jr.			22,430			$	162,618				8,065			$	181,785			$	344,403
Scott M. Deakin			13,805			$	100,086				4,965			$	111,911			$	211,997
Joseph A. Abbruzzi			22,430			$	162,618				8,065			$	181,785			$	344,403

Specifically, with respect to the equity awards granted to the CEO in connection with his 2019 compensation, the Committee considered the Company’s performance, the CEO’s continued contributions relative to the ongoing execution of the Company’s strategic transformation (including the acquisition of Interface Performance Materials), and other aspects of the Company’s accomplishments in deciding to make equity awards totaling approximately $1.3 million.

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While the stock options and PSAs reflected in the table above related to each NEO’s compensation package for 2019, they are reflected in the Summary Compensation Table as a 2018 compensation item and in the table titled “Grants of Plan-Based Awards For 2018” because they were granted or awarded in 2018.

Stock Ownership; Prohibitions on Hedging and Pledging

The Board has developed and implemented stock ownership guidelines that cover Non-Employee Directors and certain senior executive officers, including the NEOs. The stock ownership guidelines are designed to link the personal financial interests of the covered individuals to the Company’s success and better align their interests with the interests of the Company’s stockholders.

The Stock Ownership guideline for the Non-Employee Directors and the NEOs are as follows:

Position		Minimum Stock Ownership Amount
Non-Employee Directors		4 × Annual stock retainer
CEO		4 × Annual Base Salary
CFO		2 × Annual Base Salary
Other NEOs		1 × Annual Base Salary

The Company’s Corporate Governance Guidelines establish share ownership guidelines for Non-Employee Directors (the “Non-Employee Director Ownership Guidelines”). Under the Non-Employee Director Ownership Guidelines, each of the Company’s Non-Employee Directors should acquire and hold shares of the Company’s Common Stock having a fair market value (determined as set forth below) equal to the Minimum Stock Ownership Amount shown in the table above. For purposes of determining whether a Non-Employee Director’s stock ownership amount satisfies the applicable Minimum Stock Ownership Amount for such Non-Employee Director, the fair market value of the Company’s Common Stock shall be the average closing price of the Company’s Common Stock over the 365-day period beginning with January 1, 2017, as reported by the New York Stock Exchange. The Minimum Stock Ownership Amount will be recalibrated every three (3) years after January 1, 2017, based on the then current annual stock retainer of the Non-Employee Directors and the average closing stock price of the Company’s Common Stock over the preceding 365-day period. The Minimum Stock Ownership Amount should be achieved within the later of: (i) five years from the date of the original adoption of the Guidelines (which was February 23, 2006); (ii) five years from the date a person is first elected a Non-Employee Director of the Company (unless a waiver is granted by the Compensation Committee; or (iii) as to any increased stock ownership level resulting from an increase in the annual stock retainer, five years from the date of such increase. Currently, all of the Company’s Non-Employee Directors own a sufficient number of the Company’s shares to meet the applicable Minimum Stock Ownership Amount established by the Non-Employee Director Ownership Guidelines.

Under the Company’s Stock Ownership Guidelines for Senior Executive Officers (the “Officer Ownership Guidelines”), the targeted stock ownership amount for each covered individual will be determined as of the later of January 1, 2014 or the date such individual first becomes subject to the Officer Ownership Guidelines (the “Date of Determination”) and will be based on the individual’s annual base salary in effect as of such date. For purposes of determining whether a covered individual’s stock ownership amount satisfied the Officer Ownership Guidelines, the fair market value of the Company’s Common Stock will be equal to the average closing price of the Company’s Common Stock over the 365-day period immediately preceding the Date of Determination. The deadline to achieve compliance with the Officer Ownership Guidelines is the later of December 31, 2014 or the date which is five (5) years after each individual was appointed to the executive officer position. The targeted stock ownership amount for each individual will be recalibrated every three (3) years after January 1, 2014 based on the then current base salary of each officer and the average closing price of the Company’s Common Stock over the preceding 365-day period. Once achieved, ownership of the applicable targeted amount of stock must be maintained for as long as an individual is covered by the Officer Ownership Guidelines. Currently, the Chief Executive Officer owns, and the remaining NEOs own or are on track to own, a sufficient number of the Company’s shares to meet the applicable stock ownership levels established by the Officer Ownership Guidelines.

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Qualifying ownership interests for purposes of the Officer Ownership Guidelines include:

The Company’s Securities Law Compliance policy has long prohibited Directors and Executive Officers from engaging in hedging activities involving Lydall securities. Historically, pledging of Lydall stock or entering into margin loans involving Lydall stock had been discouraged, but not prohibited. In 2018, the Company amended its Securities Law Compliance policy to prohibit Directors and Executive Officers from entering into margin loans involving Lydall securities or otherwise pledging Lydall securities. None of the Company’s Directors or NEOs has any Lydall securities pledged or involved in margin loans, nor did they throughout all of 2018.

Tax Deductibility of Compensation

Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), limits the deductibility of compensation in excess of $1 million paid to specified executive officers of public companies, unless certain specific and detailed criteria are satisfied. The Committee considers the anticipated tax treatment to the Company and the executive officers in its review and establishment of compensation programs and payments. However, to ensure that the Committee maintains the flexibility to structure executive compensation in ways that best promote the interests of the Company and in light of recent tax law changes, the Committee will not necessarily seek to limit executive compensation to that deductible under Section 162(m) of the Code.

The exemption from Section 162(m)’s deduction limit for performance-based compensation has been repealed by the Tax Cuts and Jobs Act (“TCJA”), effective for taxable years beginning after December 31, 2017, such that compensation paid to our covered executive officers (including, now, our Chief Financial Officer) in excess of $1 million will not be deductible for tax years beginning with 2018, unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017. Such arrangements, now applicable to the Company’s 2016 and pre-November 2, 2017 performance-based awards, are grandfathered and may still be subject to the deduction.

Compensation Committee Report on Executive Compensation

The Compensation Committee (the “Committee”) is composed of Independent Directors, as defined under applicable NYSE rules, Rule 16b-3 of the Exchange Act and Section 162(m) of the Code. The Committee was appointed by the Board and chartered to oversee and approve the compensation and incentive programs of Lydall executive officers and Directors and to review all other incentive programs of the Company. The Committee has reviewed and discussed the Compensation Discussion and Analysis with management and, based on such review and discussion, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

Kathleen Burdett
Matthew T. Farrell
James J. Cannon
William D. Gurley, Chair
Suzanne Hammett

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EXECUTIVE COMPENSATION TABLES

Fiscal Year 2018 Summary Compensation Table

The following table shows the compensation awarded to, earned by or paid to the Named Executive Officers for the fiscal years 2018, 2017 and 2016.

Name and Principal Position (a)		Year (b)				Salary ($) (c)				Bonus(3) ($) (d)				Stock Awards(4) ($) (e)				Option Awards(5) ($) (f)				Non-Equity Incentive Plan Compensation(6) ($) (g)				Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (h)				All Other Compensation(7) ($) (i)				Total ($) (j)
Dale G. Barnhart, President and Chief Executive Officer			2018				631,720								670,903				600,336				177,777								71,241				2,151,977
			2017				620,179				—				750,010				750,071				575,856				—				73,873				2,769,989
			2016				594,815				—				600,270				600,122				740,000				—				70,799				2,606,006
Randall B. Gonzales, Executive Vice President & CFO(1)			2018				316,846				67,071				846,869				420,240				52,121								114,820				1,817,967
Chad A. McDaniel, Senior Vice President, General Counsel and Chief Administrative Officer			2018				337,096								223,710				200,136				47,319								36,758				845,019
			2017				315,384				—				162,550				162,533				131,657				—				36,363				808,488
			2016				302,427				—				300,456				—				150,500				—				36,065				789,448
Paul A. Marold, Jr., President – Performance Materials			2018				351,589								181,785				162,618				51,954								44,023				791,969
			2017				335,289				—				150,106				150,086				125,022				—				42,989				803,492
			2016				287,692				140,000				425,470				250,203				162,405				—				62,404				1,328,174
Scott M. Deakin, President – Thermal Acoustical Solutions(2)			2018				430,246								111,911				100,086				99,346								45,186				786,775
			2017				420,162				—				437,867				237,576				234,058				—				44,936				1,374,599
			2016				403,892				—				450,042				—				301,500				—				46,910				1,202,344
Joseph A. Abbruzzi, President – Technical Nonwovens			2018				331,500								181,785				162,618				31,218								38,536				745,657
			2017				320,192				—				150,106				150,086				177,638				—				52,309				850,332
			2016				311,877				—				300,456				—				110,091				—				87,571				809,995

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Grants of Plan-Based Awards For 2018

The following table provides information regarding stock options, equity incentive awards and cash incentive awards granted during 2018 to the Named Executive Officers.

Name (a)		Grant Date(1) (b)				Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(2)												Estimated Future Payouts Under Equity Incentive Plan Awards(3)												All Other  Stock Awards: Number of Shares of Stock or Units(4) (#) (i)				All Other  Option Awards: Number of Securities Underlying Options(5) (#) (j)				Exercise or  Base Price of Option Awards(6) ($/share) (k)				Grant Date  Fair Value of Stock and Option Awards(7) ($) (l)
						Threshold ($) (c)				Target ($) (d)				Maximum ($) (e)				Threshold (#) (f)				Target (#) (g)				Maximum (#) (h)
Dale G. Barnhart							78,663				629,300				1,258,600
			12/07/18																14,883				29,765				44,648																670,903
			12/07/18																																82,805				20.16				600,336
Randall B. Gonzales							23,063				184,500				369,000
			12/07/18																5,583				11,165				16,748																251,659
			12/07/18																																31,055				20.16				225,149
			03/12/18																												8,106												400,031
			03/12/18																																11,180				49.35				195,091
			03/12/18																1,978				3,955				5,933																195,179
Chad A. McDaniel							20,938				167,500				335,000
			12/07/18																4,963				9,925				14,888																223,710
			12/07/18																																27,605				20.16				200,136
Paul A. Marold, Jr.							17,500				140,000				280,000
			12/07/18																4,033				8,065				12,098																181,785
			12/07/18																																22,430				20.16				162,618
Scott M. Deakin							32,130				257,040				514,080
			12/07/18																2,483				4,965				7,448																111,911
			12/07/18																																13,805				20.16				100,086
Joseph A. Abbruzzi							16,500				132,000				264,000
			12/7/18																4,033				8,065				12,098																181,785
			12/7/18																																22,430				20.16				162,618

37

Outstanding Equity Awards at Fiscal Year-End 2018

The following table lists outstanding equity awards for each Named Executive Officer as of December 31, 2018.

						Option Awards(1)																Stock Awards(2)
Name (a)		Date of Grant				Number of Securities Underlying Unexercised Options (#) Exercisable (b)				Number of Securities Underlying Unexercised Options (#) Unexercisable (c)				Option Exercise Price ($) (e)				Option Expiration Date (f)				Number of Shares or Units of Stock That Have Not Vested (#) (g)				Market Value  of Shares or Units of Stock That Have Not Vested ($) (h)(3)				Equity  Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (i)(4)				Equity  Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) (j)(5)
Dale G. Barnhart			12/09/10				7,500	*							7.80				12/09/20
			12/19/11				12,500	*							8.94				12/19/21
			12/05/12				17,315	*							13.29				12/05/22
			12/06/13				23,529	*							16.98				12/06/23
			12/05/14				46,400	*							27.96				12/05/24
			12/04/15				29,475				9,825				36.74				12/04/25												16,340				331,865
			12/09/16				11,567				11,568				64.20				12/09/26												9,350				189,899
			12/08/17				10,470				31,410				51.85				12/08/27												14,465				293,784
			12/07/18								82,805				20.16				12/07/28												29,765				604,527
Randall B. Gonzales			03/12/18								11,180				49.35				03/12/28				8,106	(6)			164,633				3,955				80,326
			12/07/18								31,055				20.16				12/07/28												11,165				226,761
Chad A. McDaniel			12/06/13				1,138	*							16.98				12/06/23
			12/05/14				5,250	*							27.96				12/05/24
			12/04/15				4,500				2,250				36.74				12/04/25												3,750				76,163
			12/09/16																				2,340	(7)			47,525				2,340				47,525
			12/08/17				2,268				6,807				51.85				12/08/27												3,135				63,672
			12/07/18								27,605				20.16				12/07/28												9,925				201,577
Paul A. Marold, Jr.			02/18/16				5,700				5,700				27.15				02/18/26				2,766	(7)			56,177				4,610				93,629
			12/09/16				2,410				2,410				64.20				12/09/26												1,950				39,605
			12/08/17				2,095				6,285				51.85				12/08/27												2,895				58,797
			12/07/18								22,430				20.16				12/07/28												8,065				163,800
Scott M. Deakin			12/04/15				9,825				3,275				36.74				12/04/25												5,450				110,690
			12/09/16																				3,505	(7)			71,187				3,505				71,187
			10/26/17																				3,395	(8)			68,952
			12/08/17				3,316				9,949				51.85				12/08/27												4,585				93,121
			12/07/18								13,805				20.16				12/07/28												4,965				100,839
Joseph A. Abbruzzi			12/05/14				2,625	*							27.96				12/05/24
			12/04/15				2,050				2,050				36.74				12/04/25												3,410				69,257
			12/09/16																				2,340	(7)			47,525				2,340				47,525
			12/08/17				2,095				6,285				51.85				12/08/27												2,895				58,797
			12/07/18								22,430				20.16				12/07/28												8,065				163,800

38

Option Exercises and Stock Vested For 2018

The following table shows stock option exercises and vesting of restricted stock awards by the NEOs during 2018, including the aggregate value of gains on the date of exercise and stock acquired on vesting and the value realized on vesting.

		Option Awards								Stock Awards
Name (a)		Number of Shares Acquired on Exercise (#)(b)				Value Realized on Exercise ($)(c)				Number of Shares Acquired on Vesting(1) (#)(d)				Value Realized on Vesting(2) ($)(e)
Dale G. Barnhart			0			$	0				25,710			$	1,140,239
Randall B. Gonzales			0			$	0				0			$	0
Chad A. McDaniel			0			$	0				5,875			$	260,556
Paul A. Marold, Jr.			0			$	0				3,684			$	163,201
Scott M. Deakin			0			$	0				5,000			$	205,500
Joseph A. Abbruzzi			5,713			$	110,199				5,875			$	260,556