UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934 (Amendment No.    )

Harley-Davidson, Inc.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

Notes:

Reg. (S) 240.14a-101.

SEC 1913 (3-99)

		Harley-Davidson, Inc. 3700 West Juneau Avenue Milwaukee, Wisconsin 53208 (414) 342-4680

March 29, 2019

Dear Fellow Shareholders,

In July we announced the More Roads to Harley-Davidson plan – an acceleration of our strategy to build the next generation of Harley-Davidson riders, grow motorcycling and return our business to growth through 2022. Our execution is on track, and we met or exceeded all stated plan milestones in 2018. We are energized that we’re getting new and different people to stand up and take notice of Harley-Davidson.

Our current riders remain deeply engaged in the brand and tell us they too are excited at the direction we are headed. It’s clear that the groundwork for an exciting future is being built in real time.

The More Roads to Harley-Davidson plan addresses the challenges of today and the opportunities ahead of us through three growth catalysts: new products, broader access and stronger dealers.

New Products

We continue to demonstrate our clear commitment to the passions and preferences of our current riders. Our 2019 motorcycles are hands down our best ever – we launched new models and debuted rider confidence, performance and infotainment features.

Our commitment to lead the electrification of motorcycling is also clear. In 2018, our first electric Harley-Davidson model, LiveWire™ made its debut, and we also provided a public glimpse of our broader electric portfolio.

Even before the first LiveWire™ is in the hands of the first owner, we are reaping the strategic value of this extraordinary motorcycle. The buzz is captivating and inspiring new people about what’s possible from Harley-Davidson and why riding is an exciting and emotionally charged activity filled with adrenaline and fun.

Broader Access

We are accelerating our progress to grow Harley-Davidson’s reach and relevance by aligning our efforts in an integrated way, to attract and increase value for new and different consumers and meet people where they are and how they want to engage.

In line with our plans to reach more urban dwellers and expand in emerging markets, 23 Harley-Davidson apparel stores were opened in high foot traffic areas throughout Asia in 2018. These stores offer a unique line of branded apparel, which we know is a gateway into Harley-Davidson. In our sample survey, over 75 percent of shoppers said it was their first visit to any Harley-Davidson store and over 60 percent were under 34 years old.

In 2018, we also launched eCommerce in the U.S. (Amazon) and in China (T-Mall) and enhanced our eCommerce store on H-D.com. In 2018, total eCommerce sales were up 32 percent.

We are building an integrated multi-channel retail experience that today’s consumers expect and providing consumers an inspiring and convenient way to connect with Harley-Davidson products.

Stronger Dealers

In an environment of rapidly increasing customer expectations, we and our dealers must be prepared. Our dealers are critical as they bring the spirit of Harley-Davidson motorcycling to life each and every day.

We are emphasizing dealer capabilities, and we significantly increased support and incentives under a performance framework. Part of this work includes creating conditions to enable dealer growth and improve the customer experience.

Stronger Dealers means optimizing our network composition, providing more meaningful support tailored to individual dealers’ needs and expanding our international footprint. In 2018, 56 international dealerships were opened.

		LETTER FROM CHIEF EXECUTIVE OFFICER

Building the Next Generation of Riders Globally

Underpinning all global efforts is our topline strategy to build the next generation of Harley-Davidson riders through 2027. We set 10-year objectives knowing this would be a long march to change the way people think about motorcycling. It requires our very best efforts, significant change, and it requires time. More Roads is our plan to accelerate our progress, and it includes clear deliverables through 2022.

Our capabilities in building and retaining new riders are improving, and our 2018 marketing investments engaged new and existing riders. We continued the momentum we started in 2017 and ended 2018 with over 52,000 more Harley-Davidson riders in the U.S.*

Looking forward, our efforts will intensify. We are on track with our new middleweight Adventure Touring and Streetfighter motorcycles planned to launch in 2020. The immense talent and capabilities of our teams continue to boldly expand how the look, sound and feel of Harley-Davidson motorcycles drive appeal with new types of people.

We will continue to lead with passion and focus, to disrupt the status quo and ignite a cultural movement for motorcycling, inspiring new people AND our current riders to join us all along the way.

On behalf of everyone at Harley-Davidson, thank you for your investment and continuing to ride with us.

Matthew S. Levatich President and Chief Executive Officer

*SOURCE: *IHS Markit Motorcycles in Operation (MIO) data for On-Highway and Dual purpose bikes in the U.S. as of Jan 1, 2019 compared to previous years of MIO back to 2002

		Harley-Davidson, Inc. 3700 West Juneau Avenue Milwaukee, Wisconsin 53208 (414) 342-4680

March 29, 2019

Dear Fellow Shareholder:

On behalf of the Board of Directors and management of Harley-Davidson, Inc., we invite you to attend the 2019 Annual Meeting of Shareholders to be held at 4:30 p.m., Central Daylight Time, on Thursday, May 9, 2019, at the Harley-Davidson Museum, 400 West Canal Street, Milwaukee, Wisconsin.

The accompanying Notice of Annual Meeting of Shareholders and Proxy Statement describe the formal business that the shareholders will transact at the Annual Meeting. During the Annual Meeting, there will also be a brief review of the business. When the business of the Annual Meeting is concluded, shareholders will have an opportunity to ask questions.

We are furnishing proxy materials to our shareholders via the internet. This process expedites the delivery of proxy materials, ensures that proxy materials remain easily accessible to shareholders and provides clear instructions for receiving materials and voting.

On March 29, 2019, we mailed our Notice of Internet Availability of Proxy Materials, which contains instructions for use of this process, including how to access our Proxy Statement and 2018 Annual Report on Form 10-K and how to vote via the internet, mail or telephone, or in person at our 2019 Annual Meeting of Shareholders. The Notice of Internet Availability of Proxy Materials contains instructions on how you may receive a printed copy of the Proxy Statement and 2018 Annual Report on Form 10-K.

We sincerely hope you will be able to attend our Annual Meeting. However, whether or not you are personally present, it is important that you vote your shares.

If you own shares through a broker, bank or other nominee, please vote your shares by providing your broker, bank or nominee with your voting instructions.

Thank you for your ongoing support of Harley-Davidson, Inc.

Sincerely yours,

Michael J. Cave Chairman of the Board

May 9, 2019

The 2019 Annual Meeting of Shareholders of Harley-Davidson, Inc. will be held at the Harley-Davidson Museum, 400 West Canal Street, Milwaukee, Wisconsin, on Thursday, May 9, 2019, at 4:30 p.m., Central Daylight Time, to vote on the items listed below.

HOW TO VOTE YOUR SHARES:   March 15, 2019 is the record date for determining shareholders entitled to notice of and to vote at the 2019 Annual Meeting and any adjournments or postponements of that meeting. If you held your shares as of the close of business on March 15, 2019, you can vote using one of the following methods:
		INTERNET You can vote your shares online at www.proxyvote.com.
		TELEPHONE In the U.S. or Canada, you can vote your shares toll-free. Check your proxy card or voting instruction form for the toll-free number.
		MAIL You can vote via mail by marking, dating, and signing your proxy card or voting instruction form and returning it in the postage-paid envelope provided.
		IN PERSON If you plan to vote in person at the meeting, you will need to request a ballot to vote your shares. In addition, if you own your shares through a bank, broker or other nominee, you will need to obtain a legal proxy issued in your name from your bank, broker or other nominee to vote at the meeting.

We urge you to submit your proxy as soon as possible. If the records of our transfer agent show that you own shares in your name or if you own shares through our Dividend Reinvestment Plan at the close of business on March 15, 2019, then you may vote (1) via the internet at http://www.proxyvote.com, (2) in person at the Annual Meeting, (3) by mail after first requesting a printed copy of the Proxy Statement, proxy card and Annual Report on Form 10-K and following the instructions set forth on the proxy card or (4) by telephone after reviewing the Proxy Statement and Annual Report on Form 10-K at http://www.proxyvote.com.

If you own shares in “street name” (that is, through a broker, bank or other nominee), we encourage you to provide voting instructions to your bank, broker or other nominee. Street name holders may also vote via telephone or the internet if their bank, broker or other nominee makes those methods available, in which case the bank, broker or other nominee will enclose the instructions along with this Proxy Statement.

By Order of the Board of Directors,

Harley-Davidson, Inc.

Paul Jones

Secretary

Milwaukee, Wisconsin

March 29, 2019

This overview provides information that you should consider before voting on the items presented at this year’s Annual Meeting of Shareholders. This overview does not contain all of the information that you should consider, and you should read the entire Proxy Statement carefully before voting.

				Item 1 To elect ten directors to the Board of Directors Our Board unanimously recommends that you vote “FOR” the election of all director nominees.

Director Nominees

AGE

DIRECTOR SINCE

INDEPENDENT

OTHER PUBLIC DIRECTORSHIPS

BOARD COMMITTEES

AFC

HRC

NCGC

SC

Troy Alstead Founder & CEO of Ocean5 Former COO & Former CFO of Starbucks Corp.

55

2017

x

Levi Strauss & Co.

x

R. John Anderson Retired Chief Executive Officer of Levi Strauss & Co.

68

2010

x

x

x

x

Michael J. Cave Chairman of the Board Retired Senior Vice President of The Boeing Company

58

2012

x

Aircastle Limited, Ball Corporation, Esterline Technologies Corporation

x

Allan Golston President, United States Program for the Bill & Melinda Gates Foundation

52

2017

x

Stryker Corporation

x

x

Matthew S. Levatich President and Chief Executive Officer, Harley-Davidson, Inc.

54

2015

Emerson Electric Co.

Sara L. Levinson Co-founder and Director, Katapult, Inc. Former President of NFL Properties, Inc.

68

1996

x

Macy’s, Inc.

x

x

x

N. Thomas Linebarger Chairman and Chief Executive Officer, Cummins Inc.

56

2008

x

Cummins Inc.

x

x

Brian R. Niccol Chief Executive Officer, Chipotle, Inc.

45

2016

x

Chipotle, Inc.

x

x

x

Maryrose T. Sylvester President and Chief Executive Officer, Current by GE

53

2016

x

x

x

Jochen Zeitz Co-Founder and Executive Chairman of B Team Former CEO & CFO of PUMA

55

2007

x

Wilderness Holdings Limited (1)

x

x

Member and Committee Chair

		3700 West Juneau Avenue Milwaukee, Wisconsin 53208

March 29, 2019

The Board of Directors of Harley-Davidson, Inc. requests the proxy accompanying this Proxy Statement for use at the 2019 Annual Meeting of Shareholders to be held at the Harley-Davidson Museum, 400 West Canal Street, Milwaukee, Wisconsin, on Thursday, May 9, 2019 at 4:30 p.m., Central Daylight Time, and at any adjournment or postponement of that meeting (the “Annual Meeting”).

We first mailed the Notice of Internet Availability of Proxy Materials to shareholders on March 29, 2019. The Notice of Internet Availability of Proxy Materials instructs shareholders and beneficial owners of our Common Stock on how they may access our proxy materials, which include our Proxy Statement and 2018 Annual Report on Form 10-K, via the internet. You will not receive a printed copy of the proxy materials unless you request to receive these materials by following the instructions we provide later in this Proxy Statement and in the Notice of Internet Availability of Proxy Materials. Instead, the Notice of Internet Availability of Proxy Materials will instruct you on how you may access and review all of the important information contained in the proxy materials. The Notice of Internet Availability of Proxy Materials also instructs how you may submit your proxy via the internet, mail or telephone, or in person at the Annual Meeting. If you received a Notice of Internet Availability of Proxy Materials by mail and would like to receive a printed copy of our proxy materials, you should follow the instructions we provide later in this Proxy Statement.

As used in this Proxy Statement, “we,” “our,” the “company” or “Harley-Davidson” refers to Harley-Davidson, Inc. We operate in two business segments: the motorcycles and related products segment and the financial services segment. “HDMC” refers to our motorcycles and related products segment subsidiaries, which include the companies that do business as “Harley-Davidson Motor Company.” “HDFS” generally refers to our financial services segment subsidiary, which includes Harley-Davidson Financial Services, Inc. and its subsidiaries.

PROPOSAL 1: ELECTION OF DIRECTORS

Shareholders will elect ten directors at the 2019 Annual Meeting. We have significantly refreshed our Board of Directors since the 2016 annual meeting of shareholders. Four of the director nominees – Ms. Sylvester and Messrs. Alstead, Golston and Niccol – became directors after the 2016 annual meeting of shareholders and before the 2017 annual meeting of shareholders.

Our Restated Articles of Incorporation provide for a Board of Directors that has between six and fifteen members. The Board determines the size from time to time by the vote of a majority of the current directors. The entire Board is elected annually. The Board currently consists of ten members with terms that expire at the Annual Meeting.

Our By-laws have a majority vote standard for the election of directors. Because this is an uncontested election, the number of votes cast favoring each director nominee’s election must exceed 50% of the total number of votes cast with respect to that nominee’s election, including any votes withheld, for shareholders to elect the nominee. If an incumbent director is not elected, such incumbent director must promptly tender his or her resignation to the Chairman promptly following certification of the shareholder vote. Promptly after the Chairman receives such resignation, the Nominating and Corporate Governance Committee will consider the resignation and recommend to the Board whether the Board should accept the tendered resignation or reject it. Any shares not voted, whether due to abstentions or broker non-votes, will not have an impact on the election of directors.

Unless you specify otherwise in your proxy, the persons you appointed will vote your shares “FOR” the Board of Directors’ nominees that we name below. If any nominee becomes unable to serve, the persons you appointed may vote your shares for another person that the Board designates.

				THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE FOLLOWING TEN NOMINEES OF THE BOARD OF DIRECTORS.

BIOGRAPHICAL INFORMATION, SKILLS AND QUALIFICATIONS

Summary of 2019 Director Skills, Qualifications, and Experience

The Board believes that all of the directors are highly qualified and have specific employment and leadership experiences, qualifications, and skills that qualify them for service on the Board, including significant experience leading business strategy. Our directors have diverse backgrounds, experience and board tenure, and possess many different and valuable skills and qualifications. This all supports the Board’s responsibility to drive strategy, assess performance, and engage with and challenge management.

Below is a matrix and definition of the experience, skills and qualifications the Board has identified as important for determining whether each nominee should serve on the Board in light of the company’s business and strategic direction. The matrix identifies the skills and qualifications that each director possesses. The section just below the matrix defines each of the skills and qualifications and describes why each skill and qualification is important. The biographies for each director describe in more detail the relevant experience, qualifications, attributes and skills of the director.

DIRECTOR TENURE:		DIRECTOR AGE:		DIRECTOR GENDER & RACE:

		SUMMARY OF 2019 DIRECTOR DIVERSITY

Nominees of the Board of Directors

PROPOSALS TO BE VOTED ON

PROPOSAL 2: APPROVAL, BY ADVISORY VOTE, OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS

Our shareholders may approve, on a non-binding, advisory basis, our named executive officer (“NEO”) compensation as disclosed in accordance with the executive compensation disclosure rules contained in Item 402 of SEC Regulation S-K. At our 2017 annual meeting, we held a non-binding, advisory shareholder vote on the frequency of future advisory shareholder votes on the compensation of our NEOs. Our shareholders expressed a preference that advisory shareholder votes on the compensation of our NEOs be held on an annual basis, and as previously disclosed, the company continued the policy to hold such votes annually. Accordingly, as required by Section 14A of the Securities Exchange Act of 1934, we are asking shareholders to approve, on an advisory basis, the compensation of our NEOs.

The vote on this proposal is not intended to address any specific element of compensation; rather, the vote relates to the compensation of our NEOs as disclosed in the “Compensation Discussion and Analysis” section and the accompanying executive compensation tables and narrative discussion contained in this Proxy Statement. The company asks that you support the compensation of our NEOs as so disclosed. Because your vote is advisory, it will not be binding on the Human Resources Committee, the Board or the company. However, the HR Committee will review the voting results and consider them when making future decisions regarding executive compensation.

We describe the individual elements that make up our total compensation more fully in the “Compensation Discussion and Analysis” section of this Proxy Statement. We believe our executive compensation programs are structured to best support our company and our business objectives.

Overall company performance in 2018 exceeded targeted levels for our short-term incentive plan with improvements in revenue, net income, and EPS, despite the challenging operating environment. Looking more broadly, there were many achievements for the Company in 2018, such as accomplishing all of the 2018 More Roads to Harley-Davidson milestones, a 20% increase in cash from operations, a net increase of over 52,000 new riders in the U.S., increased international sales and record operating income for HDFS.

This overall performance translated into an above target outcome under the short-term incentive plan. Payouts under the long-term incentive plan for the three-year performance share cycle that ended in 2018 were below target reflecting the ongoing decline in the U.S. industry. The Committee is comfortable that the outcomes under these plans reasonably reflect the balance of short- and long-term performance and that management is taking the right actions today to build a sustainable business for the future.

Accordingly, for the reasons we discuss above, the Board recommends that shareholders vote in favor of the compensation of our NEOs as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion.

The votes cast “for” this proposal must exceed the votes cast “against” this proposal for approval of the compensation of our NEOs, assuming that a quorum is present. For purposes of determining the vote regarding this proposal, abstentions and broker non-votes do not constitute a vote “for” or “against” the proposal and will be disregarded in the calculation of “votes cast.” Proxies solicited by the Board will be voted “FOR” approval of the compensation unless a shareholder specifies otherwise.

PROPOSALS TO BE VOTED ON

PROPOSAL 3: RATIFICATION OF THE SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Ernst & Young LLP, an independent registered public accounting firm, performed an audit of our consolidated financial statements for the fiscal year ended December 31, 2018 and the effectiveness of our internal control over financial reporting as of December 31, 2018. The Audit and Finance Committee is responsible for the appointment, compensation, retention and oversight of the independent auditors retained to audit our financial statements. The Audit and Finance Committee selected Ernst & Young LLP to serve as our independent registered public accounting firm for the 2019 fiscal year, and the committee is presenting this selection to shareholders for ratification. Ernst & Young LLP has served as our independent auditor since 1982. Representatives of Ernst & Young LLP will be present at the Annual Meeting to respond to shareholders’ questions and to make a statement, if they so desire.

If, prior to the Annual Meeting, Ernst & Young LLP declines to act as our independent registered public accounting firm or the Audit and Finance Committee does not want to use Ernst & Young LLP as our independent registered public accounting firm, the Audit and Finance Committee will appoint another independent registered public accounting firm. The Audit and Finance Committee will present any new independent registered public accounting firm for the shareholders to ratify at the Annual Meeting. If the shareholders do not ratify the engagement of Ernst & Young LLP at the Annual Meeting, then the Audit and Finance Committee will reconsider its selection of Ernst & Young LLP.

To ratify the selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019, the votes cast “for” this proposal must exceed the votes cast “against” it. For purposes of determining the vote regarding this proposal, abstentions and broker non-votes (if any) do not constitute a vote “for” or “against” the proposal and will be disregarded in the calculation of “votes cast.” Unless you specify otherwise in your proxy, the persons you have appointed will vote your shares “FOR” ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019.

During the fiscal year ended December 31, 2018, we hired Ernst & Young LLP to perform the annual audit and to provide audit-related and tax services. The Audit and Finance Committee Charter requires that the Audit and Finance Committee pre-approve all Ernst & Young LLP services. The Audit and Finance Committee also pre-approved all fees that we incurred for services that Ernst & Young LLP provided. The fees we incurred for services that Ernst & Young LLP provided during the past two years are listed in the following table.

Audit fees included fees for the audit of our consolidated financial statements and our internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002. This category also includes fees for audits provided in connection with government filings or services that generally only the principal auditor can reasonably provide to a client, such as comfort letters, procedures related to debt financing, consents and reviews of documents that we file with the SEC. Audit-related services included audits of employee benefit plans and consultation on accounting and internal control matters. Tax services included tax advice, planning, compliance and transaction consulting.

To assure continuing external auditor independence, the Audit and Finance Committee and its Chair considers whether there should be a regular rotation of the independent external audit firm, reviews and evaluates the lead audit partner and his or her team, and ensures the rotation of the lead audit partner and other audit personnel as required by applicable laws and regulations. The Audit and Finance Committee has procedures for pre-approving all audit and non-audit services that the independent registered public accounting firm provides. These procedures include reviewing and approving a budget for audit and permitted non-audit services. The budget includes a description of, and a budgeted amount for, particular categories of non-audit services that are recurring in nature and that we anticipate at the time we prepare the budget. In addition, the Audit and Finance Committee has established a policy that the fees we pay for non-audit services must be less than the fees we pay for audit and audit-related services. Audit and Finance Committee approval is required to exceed the budget amount for a particular category of non-audit services and to engage the independent registered public accounting firm for any non-audit services not included in the budget. For both types of pre-approval, the Audit and Finance Committee considers whether the services are consistent with the SEC’s rules on auditor independence. The Audit and Finance Committee also considers whether the independent registered public accounting firm is best positioned to provide the most effective and efficient service. The Audit and Finance Committee may delegate pre-approval authority to one or more members of the Audit and Finance Committee. The Audit and Finance Committee monitors the services that our independent

		PROPOSALS TO BE VOTED ON

registered public accounting firm provides and the actual fees we paid to the independent registered public accounting firm to ensure that the services are within the parameters that the Audit and Finance Committee has approved.

The members of the Audit and Finance Committee and the Board believe the continued retention of Ernst & Young LLP as our independent registered public accounting firm is in the best interests of the company and its shareholders.

				THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.

OTHER MATTERS TO COME BEFORE THE ANNUAL MEETING

The Board of Directors and management do not intend to bring any matters before the Annual Meeting other than those to which we referred in the Notice of Annual Meeting and this Proxy Statement. If any other matters come before the Annual Meeting, the persons named in the proxy cards intend to vote the shares that shareholders have authorized those persons to vote in accordance with their judgment on those matters. To bring business before an annual meeting, a shareholder must give written notice to our Secretary before the meeting and comply with the terms and time periods that our Restated Articles of Incorporation specify, as supplemented by our By-laws (see “Shareholder Proposals”). No shareholder has given written notice to our Secretary of his or her desire to bring business before the Annual Meeting in compliance with the terms and time periods in our Restated Articles of Incorporation and By-laws.

INDEPENDENCE OF DIRECTORS

The Board has affirmatively determined that Mses. Levinson and Sylvester and Messrs. Alstead, Anderson, Cave, Golston, Linebarger, Niccol and Zeitz qualify as independent directors under New York Stock Exchange rules. For additional information, please see the “Certain Transactions” section of this Proxy Statement.

BOARD COMMITTEES

The Board has four standing committees: the Audit and Finance Committee, the Human Resources Committee, the Nominating and Corporate Governance Committee and the Sustainability Committee. The Corporate Governance link at http://investor.harley-davidson.com contains the charter for each of the committees.

In November 2018, the Audit Committee reviewed its charter and recommended to the Board that no changes were necessary.

The Board has determined that all members of the Audit and Finance Committee are independent and financially literate pursuant to New York Stock Exchange rules. The Board has also determined that Messrs. Alstead, Golston, Linebarger and Zeitz are audit committee financial experts within the meaning of the rules of the Securities and Exchange Commission (“SEC”). The section below under the heading “Audit and Finance Committee Report” discusses the functions of the Audit and Finance Committee and its activities during fiscal year 2018.

		CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS

In November 2018, the Human Resources Committee reviewed the Human Resources Committee Charter and recommended to the Board that no changes were necessary.

The Board of Directors has determined that all members of the Human Resources Committee are independent under New York Stock Exchange rules.

The Human Resources Committee has overall responsibility for reviewing total direct compensation (consisting of base salaries, short-term incentive compensation and long-term incentive compensation) for our senior leaders. In addition, the Human Resources Committee reviews other aspects of compensation, such as deferred compensation plans, retirement plans, and health and welfare plans.

The Human Resources Committee has the authority to engage the services of outside advisors, experts and others to assist it in performing its responsibilities. Since 2010, the Human Resources Committee has retained the services of Meridian Compensation Partners, LLC. Representatives of Meridian report to the Chair of the Human Resources Committee. On an annual basis, the Human Resources Committee reviews and approves the scope of Meridian’s services regarding executive compensation, Meridian’s performance and the fees related to work Meridian performed for the Human Resources Committee. The Human Resources Committee retains the right to terminate Meridian’s services at any time. Meridian’s primary responsibilities to the Human Resources Committee include providing:

The Human Resources Committee has considered all factors relevant to Meridian’s independence from management and determined that Meridian is independent and that Meridian’s performance of services raises no conflict of interest. The Human Resources Committee’s conclusion was based in part on a report that Meridian provided to the Committee intended to reveal any potential conflicts of interest.

Each November, the Human Resources Committee reviews executive compensation benchmarking data that Meridian prepares. The following February, the CEO proposes total target compensation, consisting of base salary, a target short-term incentive opportunity

CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS

and a target value of long-term incentive opportunity, for NEOs (except with respect to his or her own compensation) based on benchmark data as well as company and individual performance. The CEO’s recommendations are subject to the review and approval by the Human Resources Committee, which makes the final determination.

The Human Resources Committee establishes goals and objectives with the CEO and evaluates at least annually the performance of the CEO in light of these goals and objectives. The Human Resources Committee reviews and approves the total compensation of the CEO on an annual basis, including base salary, with input from all of the independent directors on the Board (who comprise the Nominating and Corporate Governance Committee) on the performance of the CEO in meeting his or her goals and objectives and concerning the CEO’s total compensation.

The Human Resources Committee annually approves several Short-Term Incentive Plans (“STIPs”) to motivate and reward the performance of employees of Harley-Davidson and its subsidiaries. The Human Resources Committee also reviews and approves target STIP opportunities for our executive leadership team, which is comprised of our CEO and executives who report directly to the CEO, including all NEOs. The Human Resources Committee approves grants of awards to the CEO and executives who report directly to the CEO, including all NEOs, and the CEO approves grants to other employees within parameters that the Committee has approved. The Human Resources Committee has authorized the CEO to make equity grants to employees in certain other instances (except to executives who report directly to the CEO, including all NEOs), including to help recruit a new employee or retain a current employee or to reward an employee for exceptional service or such other instance that the CEO believes is in the company’s best interest.

In November 2018, the Nominating and Corporate Governance Committee reviewed the Nominating and Corporate Governance Committee Charter and recommended to the Board that no changes were necessary.

		CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS

The Board has determined that all members of the Nominating and Corporate Governance Committee are independent under New York Stock Exchange rules.

The Nominating and Corporate Governance Committee Charter outlines the criteria for identifying and recommending new candidates to serve on the Board. In considering any potential candidate for the Board, the Nominating and Corporate Governance Committee considers the following qualifications:

The Nominating and Corporate Governance Committee’s Charter has long required the committee to consider diversity in its process of selecting director nominees. Specifically, the Nominating and Corporate Governance Committee evaluates each candidate for director on, among other things, the basis of the diversity that he or she would bring to the Board, including with respect to business and professional experiences, skills, ethnicity and gender. We believe this policy has been effective in creating a Board comprised of diverse members and that the composition of the current Board reflects the Nominating and Corporate Governance Committee’s consideration of diversity in its evaluation and nomination process.

During 2016, the Nominating and Corporate Governance Committee reviewed its succession planning process in light of certain directors who were approaching the retirement age specified in our Bylaws. A third-party search firm assisted the Nominating and Corporate Governance Committee with its recruitment efforts. The search firm recommended candidates that satisfied the Board’s criteria. The search firm also provided research and pertinent information regarding candidates, as the Committee requested. As a result of the succession planning process, four director candidates became new directors after the 2016 annual meeting and before the 2017 annual meeting. All such director candidates were recommended by the third-party search firm.

The Nominating and Corporate Governance Committee will consider candidates that shareholders recommend. Shareholders may recommend candidates for the Nominating and Corporate Governance Committee to consider by writing to the Nominating and Corporate Governance Committee in care of our Secretary, 3700 West Juneau Avenue, P.O. Box 653, Milwaukee, Wisconsin 53201-0653. The Nominating and Corporate Governance Committee’s policy regarding director candidates that shareholders recommend and the process for evaluating the nominees are as follows:

To enable the Nominating and Corporate Governance Committee to consider a shareholder recommendation in connection with the 2020 annual meeting of shareholders, we must receive the recommendation on or before November 30, 2019.

CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS

Submitting a shareholder recommendation to the Nominating and Corporate Governance Committee does not ensure that shareholders will have an opportunity to vote on the shareholder’s candidate because the Nominating and Corporate Governance Committee may determine not to recommend the candidate to the full Board or the full Board may determine not to recommend the candidate to shareholders. Any shareholder who wants to ensure that shareholders will have an opportunity to vote on the shareholder’s candidate may nominate the director candidate for the shareholders to vote on at the 2020 annual meeting of shareholders, in addition to recommending the candidate to the Nominating and Corporate Governance Committee, by giving proper written notice to our Secretary in advance of the 2020 annual meeting. To give that proper notice, a shareholder must comply with the terms and time periods of our Restated Articles of Incorporation as supplemented by our By-laws. Our Restated Articles of Incorporation state that a shareholder must give written notice that complies with the Restated Articles of Incorporation and By-laws to our Secretary not less than 60 days before the date in 2020 corresponding to the date we released this Proxy Statement to our shareholders. Because we anticipate mailing the Notice of Internet Availability of Proxy Materials on March 29, 2019, we must receive notice of a nomination for a director candidate for shareholders to consider at the 2020 annual meeting of shareholders no later than January 29, 2020. Even if a shareholder delivers a timely notice and otherwise complies with the terms and time periods of our Restated Articles of Incorporation and By-laws, we will not be obligated to name the shareholder’s candidate in our proxy materials.

The Nominating and Corporate Governance Committee is responsible for establishing, reviewing and revising compensation we pay to our directors. The Nominating and Corporate Governance Committee, working with management and third-party compensation consultants and reviewing benchmarked data from a comparator group of companies, determines director compensation that it believes is competitive with these companies. The Nominating and Corporate Governance Committee periodically reviews and revises, when necessary, the Director Compensation Policy, generally with the aid of a compensation consultant.

In February 2018, the Sustainability Committee reviewed the Sustainability Committee Charter and recommended to the Board that no changes were necessary.

The Sustainability Committee plays an integral role in providing oversight, advice and assistance to the Board and to the company’s management in developing, implementing and monitoring social and environmental policies, practices and strategies that will foster sustainable growth of the company on a global basis. We define sustainable growth as the ability to grow and operate our business by preserving and renewing the company’s heritage through global opportunities for shared value creation and inclusion. Sustainable growth is driven through leadership and continually challenging the company’s business model, strategies, processes, products, services and other capabilities to realize the substantial long-term value of the company, our heritage, our environment and our people.

		CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS

As part of providing oversight, advice and assistance to the Board in fostering sustainable growth, the Sustainability Committee assists the Board in ensuring that the company grows without increasing our environmental impact, which is consistent with the company’s current strategic plan and our long-term sustainability objective.

BOARD MEETINGS, ATTENDANCE, EXECUTIVE SESSIONS AND ANNUAL MEETING ATTENDANCE

In 2018, there were six meetings of the Board. All director nominees attended at least 75% of the meetings of the Board and the committees on which they served during 2018.

The Board met in executive sessions during all regularly scheduled in-person meetings, without management present, and plans to continue that practice going forward. The non-executive Chairman of the Board, Mr. Cave presided over these executive sessions.

Unless a director has a conflict in his or her schedule, we expect all directors to attend the Annual Meeting of Shareholders. All of our directors attended our 2018 Annual Meeting of Shareholders and were available to answer any shareholder questions.

LEADERSHIP STRUCTURE

Currently, our Board leadership structure includes a non-executive Chairman of the Board who is an independent director. Our Corporate Governance Policy gives the Board the flexibility and authority to modify this leadership structure as and when appropriate to best address the company’s current circumstances and to advance the best interests of all shareholders. Mr. Cave serves as our non-executive Chairman of the Board.

The Board currently believes that separating the CEO and Chairman roles will enable our CEO, Mr. Levatich, to focus on the business strategy and operations of the company, while an independent Chairman will provide the continuity of leadership of the Board necessary for the Board to fulfill its responsibilities.

THE BOARD’S ROLE IN THE OVERSIGHT OF RISK

While the Board has the ultimate responsibility for oversight of the risk management process, various committees of the Board have a role in the oversight of risk management. In particular, the Audit and Finance Committee focuses on financial risk, including the oversight of the systems of internal control over financial reporting, and it receives an assessment of the company’s systems to monitor and manage business risk from our independent registered public accounting firm. Internal audit regularly reviews risk management processes and internal controls with the Audit and Finance Committee. The Audit and Finance Committee also monitors cybersecurity risk and receives a report at each regular Audit and Finance Committee meeting on legal and compliance matters. In addition, the Human Resources Committee reviews our compensation programs for compensation risk as we describe further in the “Compensation Discussion and Analysis” section of this Proxy Statement. Risk management is an integral part of our annual strategic planning process. The entire Board reviews the strategic risk management plan at least annually.

SHAREHOLDER COMMUNICATION WITH THE BOARD

Shareholders and other parties interested in communicating with the Chairman of the Board or with non-management directors, including committee chairs, may do so by writing to such director, in care of our Secretary, 3700 West Juneau Avenue, P.O. Box 653, Milwaukee, Wisconsin 53201-0653. The Corporate Governance area on our investor relations website located at http://investor.harley-davidson.com lists the current members of the Board of Directors. We open and forward all mail to the director or directors specified in the communication.

POLICIES AND PROCEDURES GOVERNING RELATED PERSON TRANSACTIONS

In December 2002, our Nominating and Corporate Governance Committee adopted a written policy regarding transactions with related persons. The committee amended this policy, which we refer to as our Conflict of Interest Process for Directors, Executive Officers and other Employees, in December 2003.

Under the policy, conflict of interest issues for the CEO or any director shall be submitted to and reviewed by the Chair of the Nominating and Corporate Governance Committee. If the Chair of the Nominating and Corporate Governance Committee determines that an actual conflict of interest issue exists, then the entire Nominating and Corporate Governance Committee reviews the potential conflict of interest. If our Nominating and Corporate Governance Committee determines that an actual conflict exists, the Committee decides whether to waive the conflict or require the CEO or director to remove the conflict. Any conflicts that are waived by our Nominating and Corporate Governance Committee are promptly disclosed to our shareholders.

Any potential conflict that arises for any executive officer (other than our CEO and the Vice President and Chief Legal Officer) is reviewed by our Vice President and Chief Legal Officer. Any potential conflict that arises for our Vice President and Chief Legal Officer is reviewed by our CEO. When reviewing a potential conflict of interest, if the Vice President and Chief Legal Officer or CEO determines that a conflict of interest issue exists, the Chair of the Human Resources Committee reviews the issue. If the Chair of the Human Resources Committee agrees that a conflict of interest issue exists, then the entire Human Resources Committee reviews the issue. If the Human Resources Committee also agrees that a conflict exists, the Committee decides whether to waive the conflict or require the officer to remove the conflict. Any conflicts that are waived by our Human Resources Committee are promptly disclosed to our shareholders.

Any conflict of interest issue involving any other employee is reviewed by an attorney in our Legal Department. If the attorney believes that an actual conflict of interest issue exists, then the attorney submits the conflict of interest issue to our Vice President and Chief Legal Officer. If our Vice President and Chief Legal Officer determines that an actual conflict exists, then he decides what steps should be taken to resolve the conflict.

CERTAIN TRANSACTIONS

During 2018, there were no transactions with directors that would require disclosure under SEC rules. In determining whether directors are independent, the Board considered Mr. Linebarger’s role at Cummins Inc. Mr. Linebarger, a director, is the Chairman and Chief Executive Officer of Cummins Inc. During 2018, we continued a modest commercial relationship with Cummins, a relationship that existed before Mr. Linebarger joined the Board of Directors, under which we purchased exhaust parts and components from subsidiary companies of Cummins Inc. The transactions were negotiated on an arm’s-length basis and were below $120,000. Accordingly, the relationship does not prevent Mr. Linebarger from qualifying as an independent director and the Board considers Mr. Linebarger to be an independent director. Because Mr. Linebarger is the current Chair of the Nominating and Corporate Governance Committee, the entire Nominating and Corporate Governance Committee (excluding Mr. Linebarger) considered this relationship under our Conflict of Interest Process, and it determined that no actual conflict of interest issue exists as a result of the relationship.

COMPENSATION DISCUSSION & ANALYSIS

In this section:

In this report, we use the following abbreviations:

Letter from the Human Resources Committee

The Board and the Human Resources Committee at Harley-Davidson, Inc. are committed to providing shareholders with a thorough and comprehensible description of our executive compensation program and insight into how we govern compensation.

During 2018, our President and Chief Executive Officer, Matt Levatich, announced our More Roads to Harley-Davidson accelerated plan for growth, which supports our 2027 objectives with increased focus and strategic investment to reinvigorate our U.S. business while accelerating the pace of international growth. To successfully deliver on this plan, it is critical that our compensation program continues to:

Harley-Davidson is facing the realities of a challenging global industry environment and a domestic market that has been declining. While we know that market challenges persist, we are facing this head-on with drive, clarity in purpose and a plan we believe will deliver profitable growth for our shareholders. More than ever, this requires the Committee to be thoughtful as we set performance targets, to ensure that they reflect realistic yet aspirational long-term and sustainable growth prospects, without encouraging excessive or inappropriate risk-taking. This reality means that, in the near-term, our performance goals may not reflect growth year-over-year as we make the necessary investments to transition our business and deliver sustainable growth.

Against this backdrop, we engaged in shareholder outreach during 2018 to inform Committee discussions about changes to our compensation program. Through this shareholder outreach effort, we received support for our management team and compensation program, while also learning more about our shareholders’ perspectives. The outreach enabled us to better understand shareholders’ reasons for voting either for or against our say-on-pay resolution at the 2018 Annual Meeting.

We would like to highlight some of the key areas that the Committee focused on during 2018, which are further explained in the remainder of the Compensation Discussion & Analysis that follows.

EXECUTIVE COMPENSATION

Highlights of the changes to our executive compensation program

Over the last 24 months, the Committee has approved a number of changes to the Harley-Davidson compensation program to ensure continued alignment with our evolving strategy, embrace the highest levels of good governance and incorporate feedback received from our shareholders. These changes represent an evolution of our program to support our strategy and purpose, underpinned by our pay-for-performance philosophy. We summarize them below.

The Committee decided to modify the mix of performance shares (from 67% to 60%) and restricted stock units (from 33% to 40%) following the removal of the second component of our short-term incentive plan in 2018, the Leadership STIP. In addition, with the removal of the Leadership STIP, the Committee increased the short-term incentive plan and long-term incentive plan targets to maintain market competitiveness, while remaining within the range we target, which resulted in greater emphasis on long-term incentives than in prior years.

The Committee is confident that these changes, which we believe are responsive to shareholder concerns and grounded in our More Roads to Harley-Davidson plan and purpose as an organization, enable us to incent, retain and reward our executives as we navigate the next chapter in our journey.

		EXECUTIVE COMPENSATION

Pay and performance in respect of 2018

Overall Company performance in 2018 exceeded targeted levels for our short-term incentive plan, despite the challenging operating environment HDMC delivered modest improvements in revenue and net income and 5.6% growth in EPS. A decline in HDMC’s operating income impacted net earnings, while HDFS saw record operating income. Looking more broadly, there were many achievements for the Company, such as accomplishing all of the 2018 More Roads to Harley-Davidson milestones, a 20% increase in cash from operations, a net increase of over 50,000 new riders in the U.S. and increased international sales.

This overall performance translated into an above target outcome under the short-term incentive plan with positive scores on three of the four measures. Payouts under the long-term incentive plan for the three-year performance share cycle that ended in 2018 were below target reflecting the ongoing decline in the U.S. industry. The Committee is comfortable that the outcomes under these plans reasonably reflect the balance of short- and long-term performance and that management is taking the right actions today to build a sustainable business for the future.

In addition to our normal incentive plans, the Committee approved a one-time award of 10,000 restricted stock units for Larry Hund, the President and Chief Operating Officer of HDFS. The Committee approved the award in February 2018 with a grant date fair value of $475,000, in recognition of his continued strong performance and to provide a retention incentive for Mr. Hund, given the importance of HDFS to our overall business strategy. The restricted stock units will cliff vest on the third anniversary. There is no accelerated vesting for retirement so Mr. Hund must be an active employee on the third anniversary of the grant to receive the award. The Committee made no other awards outside of our annual grants in 2018 to our Named Executive Officers.

Approval of Performance Goals for 2019 Incentive Plans

The Committee establishes meaningful goals for performance-based compensation including performance measures, measure weighting, thresholds, targets and maximums for incentive plan compensation. We set targets based on our operating plan and intend that they will drive our strategy. The Committee determined there was a reasonable likelihood that employees could achieve the goals and earn incentive compensation at the target performance level.

Looking to the future

The Committee believes that the executive compensation program changes it introduced in 2018, and those that it has approved for 2019, will ensure the continued alignment of our executives’ interests with sustainable long-term value creation for our shareholders, while retaining a team that understands our employees, dealers, and current and future enthusiasts. This focus remains grounded in our purpose and values as a company as we seek to build the next generation of riders globally, in a responsible way.

Collectively, our Named Executive Officers beneficially own Harley-Davidson shares with a value of about $35 million based on the closing price of our common stock on December 31, 2018 and they have a combined tenure of 85 years. While we appreciate that our current business climate is challenging for our shareholders, this team has a vested interest in the successful execution of our More Roads to Harley-Davidson plan, which the compensation program that we describe in the balance of this report reinforces. Beyond that, our team is committed to growing this company responsibly, with an eye to the long-term sustainability of our brand and planet.

We thank those shareholders that took the time to engage with us during the year; your constructive feedback was helpful. We welcome an ongoing dialogue as we look to the future.

On behalf of the Human Resources Committee,

Michael J. Cave

Human Resources Committee

Michael J. Cave, Chair

R. John Anderson

Sara L. Levinson

Brian R. Niccol

EXECUTIVE COMPENSATION

COMPENSATION DESIGN

Executive Compensation Philosophy

While we have announced an accelerated plan to support our 2027 objectives, we intend the cornerstone principles of our compensation philosophy, which focus on pay-for-performance, to be evergreen in nature.

Alignment with the More Roads to Harley-Davidson Plan

Our compensation philosophy is aligned with the More Roads to Harley-Davidson plan as we ensure the right performance measures and goals are reflected in our incentive plans and are relevant to plan participants. Our strategy is to build the next generation of riders globally, fostering the incredible feeling of personal freedom people get from riding a Harley-Davidson motorcycle. There are five key 2027 objectives that we have designed to support this strategy:

While the operating environment in our industry is facing challenges in the short-term, we are confident that our long-term strategy and the More Roads to Harley-Davidson plan sets us up for success. By focusing on attracting new and different people to the brand, riders and non-riders, by launching innovative new products that align with our purpose and by anticipating and meeting changing consumer demands, and doing so in a financially responsible manner, we believe we have an opportunity to bring the thrill of riding to an expanded consumer base over the long-term.

		EXECUTIVE COMPENSATION

Against that backdrop, the following performance measures were used in our incentive plans during 2018.

In conjunction with the More Roads to Harley-Davidson plan, the Committee undertook a strategic review of our performance measures during 2018. As a result of this review and shareholder feedback, the Committee approved the following changes which will take effect in 2019:

EXECUTIVE COMPENSATION

An Overview of our Executive Compensation Program

The Harley-Davidson executive compensation program comprises four core elements:

		EXECUTIVE COMPENSATION

Pay Mix

The majority of target compensation for our Named Executive Officers, including the CEO, is at-risk variable compensation, with a heavy use of equity-based compensation. This reflects the cornerstone principles of our compensation philosophy: pay-for-performance through the use of at-risk variable pay, use of equity compensation to align executives’ interests with those of our shareholders, and to encourage both outcomes and behaviors through the use of a mix of compensation elements. The following graphs set out the value of compensation elements assuming performance at target.

Note: Based on 2018 target compensation; other NEOs is an average across the NEOs other than the CEO.

Pay-for-Performance at Harley-Davidson

We have designed our compensation program such that compensation outcomes in years of strong performance should trend above target, while outcomes trend downward in years where performance is below expectations. There are a variety of factors that can impact this trend year-to-year, including, but not limited to, broad consumer and economic market factors, changes in global trade conditions, raw material and labor costs.

Based on outcomes, our incentive plans are working as designed and intended. Over the last five years, the outcomes under our financial incentive plans have been in line with performance:

As a result, our NEOs have realized pay that is lower than both their target compensation and the compensation that we have reported for them in the Summary Compensation Table.

EXECUTIVE COMPENSATION

While the Summary Compensation Table discloses the fair value of equity awards in accordance with the SEC requirements, the Summary Compensation Table values do not illustrate the alignment of pay with performance. Over the four-year period 2015 to 2018, the chart below compares the CEO’s annual realized pay (what he actually “earned”) to the CEO’s target pay (the pay opportunity available for achieving target performance). For the purpose of this chart, we have calculated each element of compensation as follows:

As the graphic shows, our CEO’s actual (or “realized”) compensation has consistently trended below target opportunities over his four years as CEO. We believe this demonstrates that our compensation program is designed appropriately and is effective at achieving our pay-for-performance objectives.

Overview of our Compensation Policies and Practices

Underpinning our compensation program, there are a number of policies and practices we have adopted to ensure we meet the high governance standards that our shareholders expect and that we expect of ourselves.

		EXECUTIVE COMPENSATION

COMPENSATION GOVERNANCE

Compensation Oversight

The Human Resources Committee, which Michael J. Cave chairs, consists of four independent outside directors. During 2018, the Committee met four times and it has overall responsibility for approving the total direct compensation of our executive leadership team, which includes the CEO and all NEOs. In addition, the Committee reviews other aspects of compensation, such as our deferred compensation plans, retirement plans and health and welfare plans. The Committee is also involved in considering the results of an annual talent assessment and reviewing succession plans for leadership roles.

The Committee receives information and support from an independent advisor, as well as management, both of which impact the ultimate recommendations the Committee makes to the Board.

Shareholders can find additional information on the Committee on page 14 in the [Board of Directors – Corporate Governance section].

Use of an Independent Advisor

The Committee has the sole authority to engage the services of outside advisors, experts, and others to assist in performing its duties. Since 2010, the Committee has retained the services of Meridian Compensation Partners LLC to provide services and advice related to executive compensation. Each year, the Committee reviews and approves the scope and associated fees for Meridian’s services, and the subsequent performance. The primary areas of support Meridian provides include:

In accordance with SEC requirements, the Committee reviewed Meridian’s independence during the year, and confirmed that Meridian is independent and that no conflict of interest is present.

EXECUTIVE COMPENSATION

The Annual Process

The Committee approves an annual calendar each year, which sets out the items that it will address at each meeting. Across the four meetings, the Committee primarily reviews and approves items related to the CEO as well as broader executive officer compensation. Beyond that group, the Committee annually approves various incentive plans that apply more broadly across Harley-Davidson, which aligns our employees with the More Roads to Harley-Davidson plan, while also providing an opportunity for individual performance recognition. The Committee also reviews succession plans for the leadership team and reviews an annual talent assessment.

In the sub-sections that follow, we provide additional details on some of the most important aspects of the Committee’s work in 2018.

Shareholder Engagement

Harley-Davidson takes shareholder input and feedback seriously, and our senior management and Investor Relations regularly interact with our shareholders. Since the introduction of say-on-pay, Harley-Davidson has earned high levels of shareholder support with a vote averaging above 96%. While the majority of our shareholders also voted in favor of say-on-pay in 2018, the level of support dropped to 63%. Given this outcome on the say-on-pay vote, the Committee Chair, Chief Human Resources Officer, Investor Relations and Corporate Secretary launched an effort to understand the cause and any areas of concern related to our compensation program as expressed by shareholders. We targeted our largest shareholders representing approximately 50% of outstanding shares. We held telephonic meetings with shareholders who accepted our invitation to engage which represented approximately 25% of outstanding shares. We specifically focused on executive compensation.

In general, shareholders were supportive of our executive compensation philosophy, but did have questions about some aspects of how we set compensation and the overarching alignment of pay with performance. Many of the questions shareholders asked aligned with strategic reviews that were already underway, including the design of our variable compensation plans and the composition of our compensation peer group. The outreach also indicated we could improve the explanation of our decisions in our CD&A and highlight feedback we have acted on.

		EXECUTIVE COMPENSATION

Compensation Peer Group

On an annual basis, the Committee undertakes a review of the compensation peers that we use to provide insight into market competitive pay levels and practices. Defining a relevant compensation peer group is challenging, as we are the only publicly traded motorcycle company in the U.S., and one of only a handful globally. We use two comparator groups, reflecting the skills and experience we require in our leadership team:

Changes to the Peer Group for 2019

As part of our 2018 review, the Committee took the opportunity to assess our principles of peer group selection. While we remained confident that we were utilizing a peer group based on the right attributes, we determined that the group had become too large with a number of out-sized peers in comparison to the size and complexity of Harley-Davidson. The feedback we received from our shareholders in 2018 subsequently reinforced this approach.

As a result, the Committee revised the methodology and approach it took to construct the compensation benchmarking peer groups and approved new Manufacturing and Branded Peer Groups for 2019 reflecting the following decisions:

EXECUTIVE COMPENSATION

The tables below outline the 2018 peer group and the removals we made to the resulting 2019 peer group.

Managing Compensation-Related Risks

We design our compensation program with the understanding that while some degree of risk is necessary and appropriate, our compensation program should not encourage excessive or inappropriate risk. The Committee regularly monitors and evaluates our compensation policies and practices to ensure this is the case, and that they align with good governance practices.

The Committee annually undertakes a compensation risk assessment to establish whether our program is successfully achieving these objectives, while paying-for-performance. The 2018 review concluded that our compensation program, particularly our cash incentive plans and long-term incentives, appropriately balance risk, pay-for-performance and the desire to focus executives on specific financial and operational measures. The Committee believes our program does not encourage unnecessary or excessive risk-taking, nor does it create risks that are reasonably likely to have a material adverse effect on the Company.

We have adopted the following policies and agreements to further the goals of the executive compensation program and underpin our program with robust governance practices. The Committee believes these are appropriate and reflect the expectations of our shareholders while providing for clear alignment between the interests of executives and those of our shareholders.

Clawback

The Committee believes it makes good business sense to reserve the right to recoup previously paid compensation or adjust credited compensation in certain circumstances. It applies in the event that the Board of Directors or an appropriate Board Committee determines that any fraud or intentional misconduct by an executive officer was a contributing factor to Harley-Davidson having to

		EXECUTIVE COMPENSATION

restate any financial statements that we have filed with the SEC due to the Company’s material noncompliance with any financial reporting requirement under the securities laws. If that occurs, then the Board or the Committee may, in its discretion and to the extent permitted by governing law, require the Company to seek reimbursement or forfeiture of any eligible compensation paid or credited to or earned by such executive officer.

Compensation subject to forfeiture will be any bonuses paid or credited to, or any other incentive compensation earned by, an executive officer in excess of the amounts that would have been paid or credited to, or earned by, such executive officer during the three-year period preceding the date on which the company is required to prepare the restatement based directly on the restated financial results.

Stock Ownership Guidelines

To reinforce the link between the long-term interests of our executives and all stakeholders, including our shareholders, we require directors and executives to own a minimum amount of our common stock.

		The Committee annually reviews progress and compliance with the stock ownership guidelines, with a failure to meet or show sustained progress towards achievement resulting in the potential reduction in or restriction of future stock awards.   As of December 31, 2018, each NEO has met or exceeded their stock ownership guideline requirement.

Option repricing

Under our stock plan, the repricing or exchange of underwater stock options is prohibited.

Maximum caps and ability to reduce awards

Our annual cash incentive plans provide that the Committee may reduce awards that executives would otherwise earn by up to 50%, and there is a cap on all maximum cash payouts. Under our long-term incentive plan, there is a maximum cap on the level of vesting that can be achieved relative to the initial number of shares granted, although the value of awards remains subject to upward and downward movement in our share price.

Anti-hedging and pledging

Given certain forms of hedging and pledging protect the individual from the full risks associated with share ownership, directors and employees are prohibited from any hedging or pledging transactions with respect to Company securities. This maximizes the alignment of interests with our stakeholders and minimizes the risk of executives making decisions that are not in the sustainable long-term interests of Harley-Davidson.

EXECUTIVE COMPENSATION

2018 Compensation Decisions and Outcomes

An Overview of Performance in 2018

During 2018, revenue, net income and EPS were up compared to 2017 despite a very challenging environment.   HDMC’s operating income was down behind significant investment in our manufacturing optimization plan, incremental tariffs and the expense of recalls. HDFS saw record results with operating income up 5.8%.   Other strategic achievements and areas of progress included the following:   •    All 2018 milestones under the More Roads to Harley-Davidson plan were achieved,   •    Cash from operations was up over $200 million, a 20% increase over 2017;   •    Our manufacturing optimization remained on track, with 2018 costs lower than originally expected;   •    There were over 50,000 more H-D riders in the U.S. at the end of 2018;   •    HDFS continued to contribute to new rider growth, with the launch of new products focused on providing financing to first-time buyers;   •    International retail generated modest growth, at 0.4%, with 9.8% growth in emerging markets;   •    56 international dealerships were opened, providing us more opportunities to connect with the global consumer;   •    There was continued growth in our online and e-commerce sales, with double-digit growth in sales on H-D.com and online retail introductions on Amazon in the U.S. and China’s T-Mall;   •    Expanded marketing efforts focused on growing our brand among targeted demographics in both live and digital forums;   •    HDFS continued to support the sales of Harley-Davidson motorcycles, with a record share of the U.S. retail finance market;   Overall, this performance resulted in above target outcome under the short-term incentive plan with positive scores on three of the four measures. Net income lagged the target but exceeded the threshold expectation despite the decline that the U.S. industry has been experiencing. Performance share plan awards related to the 2016 through 2018 performance period vested below target at 66.3% of target. This reflected below target performance on two of the three measures and on-target performance with respect to the third.

Our Named Executive Officers in 2018

In 2018, the following individuals were identified as our Named Executive Officers (NEOs):

		EXECUTIVE COMPENSATION

We explain the compensation of these NEOs in 2018 in the following sections and in the Summary Compensation Table that follows.

Base Salary

The Committee undertakes an annual review of NEO salaries to determine whether salaries should be adjusted. In making this determination, the Committee considers a broad range of factors when setting salary including market levels in our compensation peer group around median, individual performance, experience, job scope, impact, accomplishments, general business performance and economic conditions.

In light of the combined business performance and economic climate, the Committee determined that there would be no increases to NEO salaries in 2018.

2018 Short-Term Incentive Plan

For 2018, the Committee approved a revised approach to our short-term incentive plan, which assesses performance under a single plan against clearly measurable financial and strategic measures.

If we did not achieve the minimum level of performance, then there would be no payout. If we achieved the minimum level of performance, then the threshold payout was 50% of the target opportunity; performance at or above the upper end of performance goals would result in a payout of 200% of the target opportunity.

In February 2018, as part of the annual target setting process, the Committee reviewed and approved the amount of compensation that we would pay to each NEO under the short-term incentive plan, expressed as a percentage of his or her base salary if the actual company performance resulted in a payout at target for 2018. With the removal of the Leadership STIP, the Committee increased the short-term incentive plan and long-term incentive plan targets to maintain market competitiveness within the range of plus or minus 20% of the 50^th percentile, which resulted in greater emphasis on long-term incentives than in prior years. The Committee approved the following target bonus opportunities for the NEOs with respect to 2018 performance.

EXECUTIVE COMPENSATION

2018 Performance Measures and Achievements

The 2018 short-term incentive plan was based on performance in four areas:

If Harley-Davidson did not achieve a minimum level of net income of at least $409 million, then no payouts, regardless of performance under other financial measures, would be made. In 2018, net income of $552.7 million exceeded the threshold. Performance with respect to the other measures was as follows:

In light of the decline in our stock price in 2018, the Committee carefully considered whether the outcome under this plan and the performance that it rewarded was appropriate. The Committee concluded that the strong strategic achievements coupled with the Company’s ability to maintain the financial health of the business in an extremely challenging environment sufficiently warranted the payout that was earned under the plan.

This resulted in an overall payout of 135.1% of target.

		EXECUTIVE COMPENSATION

2018 Long-Term Incentive Awards

Equity-based awards provide a direct alignment of interests with our shareholders, given the exposure to upward and downward movement in Harley-Davidson’s share price over the long-term. For our executive officers, we make long-term incentive awards in the form of two types of equity-based awards that enable the Committee to achieve a combination of objectives.

The Committee determined each NEO’s target value of long-term incentive opportunity, which we express as a percentage of base salary, based on the competitive market 50th percentile plus or minus 20%. Accordingly, with input from Meridian, the Committee approved an increase in the CEO’s target value from 455% of base salary to 485% of base salary for 2018. Based on recommendations from Mr. Levatich informed by competitive market data, we increased Mr. Olin’s target for 2018 from 239% of base salary to 260% of base salary; Ms. Kumbier’s target value for 2018 from 220% of base salary to 240% of base salary; Mr. Hund’s target for 2018 from 215% of base salary to 235% of base salary and Mr. Jones’s target for 2018 from 165% of base salary to 185% of base salary.

We converted the target value of long-term incentive opportunity for each NEO into an award of performance shares and an award of restricted stock units. For this conversion, we valued each performance share and each restricted stock unit at an amount equal to the closing price of a share of our stock on the date of grant.

The Committee decided to modify the mix of performance shares (from 67% to 60%) and restricted stock units (from 33% to 40%) following the removal of the second component of our short-term incentive plan in 2018, the Leadership STIP. In addition, with the removal of the Leadership STIP, the Committee increased the short-term incentive plan and long-term incentive plan targets to maintain market competitiveness, while still remaining within the range we target, which resulted in greater emphasis on long-term incentives than in prior years. The chart below shows the transfer of the value of the Leadership STIP with one-third moving to the short-term incentive plan and two-thirds moving to the long-term incentive plan.

2018 Performance Share Awards

Performance shares allow the executive to earn a specified number of shares of our common stock at the end of the three-year performance period (2018 through 2020) that will range between 0% and 200% of the initial shares awarded. As a result, the number of performance shares an NEO earns is based on company performance, and the value that the NEO realizes is tied to the stock price when the shares vest at the end of the performance period. To the extent awards vest, the participant will also receive the accumulated dividends that have accrued over the performance period, in direct proportion to the number of performance shares that actually vest.

EXECUTIVE COMPENSATION

Why we use Net Income in both the short-term and long-term incentive plan

We use net income as a measure in both the short-term incentive plan and the long-term incentive plan because we believe it is a driver of shareholder value. The Committee establishes meaningful goals for performance-based compensation including performance measures, measure weighting and thresholds, targets and maximums for incentive plan compensation. We set targets based on our operating plan and intend that they will drive our strategy.

2018 Restricted Share Awards

Restricted stock unit awards allow the executive to earn a specified number of shares of our common stock at the end of a restricted period. Awards vest in three equal installments on the first, second and third anniversaries of the grant date subject to continued employment. During the vesting period, the recipient is eligible to receive dividend equivalents on a real-time basis in the same amount as dividends that are declared and paid quarterly on each share of our stock. The Committee believes that restricted stock unit awards complement our use of performance shares by providing an effective and valuable tool to attract and retain executives.

Under the vesting rules, a recipient who has reached the age of 55, is eligible for retirement and retires from the Company will have all awards that were granted 12 or more months prior to the date of retirement vested upon retirement.

In determining the number of restricted stock units to be granted, the Committee takes into account individual performance ratings for the prior year. We grant restricted stock units to an executive in a year only if he or she met or exceeded objective and subjective performance standards that applied to him or her in the preceding year. For purposes of the 2018 grants, the Committee determined that all NEOs met or exceeded applicable performance standards in 2017.

2018 Retention Awards

From time-to-time, the Committee deems it necessary to consider the grant of awards outside of our annual grants. During February 2018, the Committee granted 10,000 restricted stock units for Lawrence Hund, the President and Chief Operating Officer of HDFS. The Committee approved the award with a grant date fair value of $475,000. The Committee approved it as an incentive to Mr. Hund, in recognition of his continued strong performance and to provide a retention incentive for Mr. Hund, given the importance of HDFS to our overall business strategy. The restricted stock units will cliff vest on the third anniversary of the grant date with no acceleration should Mr. Hund choose to retire before then, so Mr. Hund must be an active employee on the third anniversary of the grant to receive the award.

Payout of the 2016 Performance Share Awards

In 2016, the Committee approved grants of performance shares which, subject to performance, were eligible for vesting in a range between 0% and 300% of the initial award amount. For subsequent awards, we decreased the maximum opportunity to 200%.