SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
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SCHEDULE 14A INFORMATION
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| ¨ | Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2. |
Rockwell Automation, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
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Dear Shareowner:
You are cordially invited to attend our 20072008 Annual Meeting of Shareowners.
We will hold the annual meeting in the Imperial Ballroom at The Pfister Hotel, 424 East Wisconsin Avenue, Milwaukee, Wisconsin, USA on Wednesday, February 7, 2007,6, 2008, at 10 a.m. (Central Standard Time). At the meeting I will report on the Corporation’s activities and performance during the past fiscal year, and we will discuss and act on the matters described in the Proxy Statement. At this year’s meeting, you will have an opportunity to vote on the election of three directors and approve the selection ofwhether to:
elect two directors;
select Deloitte & Touche LLP as our independent registered public accounting firm. firm; and
approve our 2008 Long-Term Incentives Plan.
Shareowners will then have an opportunity to comment on or to inquire about the affairs of the Corporation that may be of interest to shareowners generally.
Your vote is important to us. Whether or not you plan to attend the meeting, please return your proxy card as soon as possible. You also have the option of voting via the Internet or by telephone.
If you plan to attend the meeting, please request an admittance card in one of the ways described on the last page of the Proxy Statement.
We sincerely hope that as many shareowners as can conveniently attend will do so.
We have enclosed the Proxy Statement for our 20072008 Annual Meeting of Shareowners and our 20062007 Annual Report. I hope you find them interesting and useful in understanding your company.
Sincerely yours,
Keith D. Nosbusch
Chairman and Chief Executive Officer
Rockwell Automation, Inc. |
| 1201 South Second Street, Milwaukee, Wisconsin 53204 |
To the Shareowners of
ROCKWELL AUTOMATION, INC.:
The 20072008 Annual Meeting of Shareowners of Rockwell Automation, Inc. will be held in the Imperial Ballroom at The Pfister Hotel, 424 East Wisconsin Avenue, Milwaukee, Wisconsin, USA on Wednesday, February 7, 2007,6, 2008, at 10 a.m. (Central Standard Time) for the following purposes:
| (a) | to elect |
| (b) | to |
| (c) | to vote on a proposal to approve our 2008 Long-Term Incentives Plan; and |
| (d) | to transact such other business as may properly come before the meeting. |
Only shareowners of record at the close of business on December 11, 200610, 2007 will be entitled to notice of, and to vote at, the meeting.
By order of the Board of Directors.
Douglas M. Hagerman
Secretary
December 14, 2006
Note: The Board of Directors solicits votes by the execution and prompt return of the
accompanying proxy in the enclosed return envelope or by use of the
Corporation’s telephone or Internet voting procedures.
Proxy Statement for 2008 Annual Meeting
INDEX
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| 32 | |
| 34 | ||
Option Exercises and | ||
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Appendix A: Rockwell Automation, Inc. Guidelines for Determining Director Independence | A-1 | |
Appendix B: Rockwell Automation, Inc. 2008 Long-Term Incentives Plan | B-1 |
Proxy Statement
20072008 ANNUAL MEETING
The 20072008 Annual Meeting of Shareowners of Rockwell Automation, Inc. will be held on February 7, 2007,6, 2008, for the purposes set forth in the accompanying Notice of 20072008 Annual Meeting of Shareowners. This proxy statement and the accompanying proxy which are first being sent to shareowners on or about December 21, 2006, are furnished in connection with the solicitation by the Board of Directors of proxies to be used at the meeting and at any adjournment of the meeting. We will refer to your company in this proxy statement as “we”, “us”, the “Corporation” or “Rockwell Automation”.
Distribution and Electronic Availability of Proxy Materials
This year we are taking advantage of the new Securities and Exchange Commission (SEC) rules that allow companies to furnish proxy materials to shareowners via the Internet. If you received a Notice of Internet Availability of Proxy Materials (Notice) by mail, you will not receive a printed copy of the proxy materials, unless you specifically request one. The Notice instructs you on how to access and review all of the important information contained in the proxy statement and annual report as well as how to submit your proxy over the Internet. If you received the Notice and would still like to receive a printed copy of our proxy materials, you should follow the instructions for requesting these materials included in the Notice.
We plan to mail the Notice to shareowners by December 24, 2007. We will continue to mail a printed copy of this proxy statement and form of proxy to certain shareowners and we expect that mailing to begin on December 24, 2007.
Shareowners Sharing the Same Address
The SEC’s rules permit us to deliver only one copy of the annual report and this proxy statement or the Notice to multiple shareowners who share the same address and have the same last name, unless we received contrary instructions from a shareowner. This delivery method, called “householding”, reduces our printing and mailing costs. Shareowners who participate in householding will continue to receive separate proxy cards.
We will deliver promptly upon written or oral request a separate copy of the annual report and proxy statement or Notice to any shareowner who received these materials at a shared address. To receive a separate copy, please write or call Rockwell Automation Shareowner Relations, 1201 South Second Street, Milwaukee, Wisconsin 53204, USA, telephone: +1-414-382-8410.
If you are a holder of record and would like to revoke your householding consent and receive a separate copy of the annual report and proxy statement or Notice in the future, please contact Broadridge Financial Solutions, Inc. (Broadridge), either by calling toll free at +1-800-542-1061 or by writing to Broadridge, Householding Department, 51 Mercedes Way, Edgewood, New York 11717, USA. You will be removed from the householding program within 30 days.
Any shareowners of record who share the same address and wish to receive only one copy of future Notices, proxy statements and annual reports for your household should contact Rockwell Automation Shareowner Relations at the address or telephone number listed above.
If you hold your shares in street name with a broker or other nominee, please contact them for information about householding.
What am I Voting On?voting on?
You will be voting on whether to:
elect two members of our Board of Directors;
approve the following:appointment of Deloitte & Touche LLP (D&T) as our independent registered public accounting firm for fiscal year 2008; and
approve our 2008 Long-Term Incentives Plan.
Who is Entitledentitled to Votevote at the Annual Meeting?
Only holders of record of the Corporation’s Common Stockour common stock at the close of business on December 11, 2006,10, 2007, the record date for the meeting, may vote at the Annual Meeting. Each shareowner is entitled to one vote for each share of our Common Stockcommon stock held on the record date. On December 11, 2006,10, 2007, we had outstanding 167,179,172149,254,392 shares of our Common Stock.
Who may Attendattend the Annual Meeting?
Shareowners as of the record date, or individuals holding their duly appointed proxies, may attend the Annual Meeting. Please note that if you hold your shares in street name through a broker or other nominee, (in street name), you will need to provide a copy of a brokerage statement reflecting your stock ownership as of the record date to be admitted to the Annual Meeting.
How Dodo I Vote My Shares?vote my shares?
All shareowners may vote in person at the Annual Meeting.Meeting or by proxy. If you hold your shares are held in street name, you should contact your broker or other nominee to obtain a broker’s proxy card and bring it, together with proper identification and your brokerage statement reflecting your stock ownership as of the record date, with you to the Annual Meeting, in order to vote your shares. shares at the meeting.
In addition you may vote:
for shareowners of record and participants in our savings plans and BNY Mellon Investor Services Program (dividend reinvestment and stock purchase plan), by completing, signing and returning the enclosed proxy card or direction card, or via the Internet or by telephone; or
for shares held in street name, by using the method directed by your broker or other nominee. You may vote over the Internet or by telephone if your broker or nominee makes those methods available, in which case they will provide instructions with your proxy materials.
How Will My Proxy Be Voted?will my proxy be voted?
If you duly complete, sign and return a proxy or use our telephone or Internet voting procedures to authorize the named proxies to vote your shares, your shares will be voted as specified. If your proxy card is signed but does not contain specific instructions, your shares will be voted as recommended by our Board of Directors.
For shareowners participating in our savings plans or in the BNY Mellon Investor Services Program (dividend reinvestment and stock purchase plan), the trustee or administering bank will vote the shares that it holds for a
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May I Revoke My Proxy?revoke or change my proxy?
For shareowners of record, whether you vote by mail, by telephone or via the Internet, you may revoke or change your proxy at any time before it is voted by:
delivering a written notice of revocation to the Secretary of the Corporation;
submitting a properly signed proxy card with a later date;
casting a later vote using the telephone or Internet voting procedures; or
voting in person at the Annual Meeting (except for shares held in the savings plans).
If your shares are held in street name, you must contact your broker or other nominee to revoke or change your proxy. Your proxy is not revoked simply because you attend the Annual Meeting.
Will My Votemy vote be Confidential?confidential?
It is our policy to keep confidential all proxy cards, ballots and voting tabulations that identify individual shareowners, except (i) as may be necessary to meet any applicable legal requirements, and,(ii) in the case of any contested proxy solicitation, as may be necessary to permit proper parties to verify the propriety of proxies presented by any person and the results of the voting.voting, and (iii) if a shareowner writes comments on the proxy card directed to our Board of Directors or management. Representatives of Broadridge Financial Solutions, Inc. will tabulate votes and act as the independent inspector of election at this year’s meeting. The independent inspector of election and any employees involved in processing proxy cards or ballots and tabulating the vote are required to comply with this policy of confidentiality.
How Many Votes are NeededWhat is required for there to Elect Directors and Approvebe a quorum at the SelectionAnnual Meeting?
The presence, in person or by proxy, of the holders of at least a majority of the shares of our Independent Registered Public Accounting Firm?common stock issued and outstanding on the record date for the Annual Meeting is necessary for a quorum in order to conduct business at the meeting.
How many votes are needed to approve each of the proposals?
Election of Directors.Directors. Directors are elected by a plurality of votes cast. This means that the threetwo nominees for election as directors who receive the greatest number of votes cast by the holders of our Common Stockcommon stock entitled to vote at the meeting a quorum being present, will become directors.
Majority Vote Policy.Policy. Our Guidelines on Corporate Governance set forth our policy if a director is elected by a plurality of votes cast but receives a greater number of votes “withheld” from his or her election than votes “for” such election. In an uncontested election, any nominee for director who receives more votes “withheld” than votes “for” his or her election must promptly tender his or her resignation to the Board. The Board Composition and Governance Committee will consider the resignation offer and make a recommendation to the Board of Directors. The Board will act on the tendered resignation within 90 days following certification of the election results. The Board Composition and Governance Committee, in making its recommendation, and the Board of Directors, in making its decision, may consider any factors or other information that it considers appropriate and relevant, including any stated reasons why the shareowners withheld votes from such director, the director’s tenure, the director’s qualifications, the director’s past and expected contributions to the Board, and the overall composition of the Board. Thereafter, weWe will promptly disclose the Board’s decision regarding whether to accept or reject the director’s resignation offer in aForm 8-K furnished to the Securities and Exchange Commission.SEC. If the Board rejects the tendered resignation or pursues any additional action, the disclosure will include the rationale behind the decision. Any director who tenders his or her resignation may not participate in the Board Composition and Governance Committee deliberations and recommendation or in the Board’s decision whether to accept or reject the resignation offer.
Selection of our Independent Registered Public Accounting Firm.Firm. An affirmative vote of the holders of a majority of the voting power of our Common Stockcommon stock present in person or represented by proxy and entitled to vote on the matter a quorum being present, is necessary to approve the proposal to approve the selection of D&T as our independent registered public accounting firm.
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Under Delaware law and our Restated Certificate of Incorporation and By-Laws, all votes entitled to be cast by shareowners present in person or represented by proxy at the meeting and entitled to vote on the subject matter, whether those shareowners vote “for”, “against” or abstain from voting, will be counted for purposes of determining the minimum number of affirmative votes required for approval of the proposal to approve the selection of D&T as our independent registered public accounting firm.firm and our 2008 Long-Term Incentives Plan. The shares of a shareowner who abstains from voting on a matter or whose shares are not voted by reasonbecause of a broker non-vote on a particular matter will be counted for purposes of determining whether a quorum is present at the meeting so long as the shareowner is present in person or represented by proxy. An abstention from voting on a matter by a shareowner present in person or represented by proxy at the meeting has no effect in the election of directors but has the same legal effect as a vote “against” the proposalproposals to approve the selection of D&T as our independent registered public accounting firm.firm and our 2008 Long-Term Incentives Plan. A broker non-vote on a matter has no effect in the election of directors or on the approval of the proposalproposals to approve the selection of D&T as our independent registered public accounting firm.
Can I Receive Electronic Accessreceive electronic access to Shareowner Materials?shareowner materials?
As noted above, under new SEC rules we are permitted to furnish proxy materials to shareowners via the Internet. However, we may choose to continue to provide printed copies to certain shareowners. If we send you printed copies, you can save the Corporationus printing and mailing costs by electing to access proxy statements, annual reports and related materials electronically instead of receiving these documents in print. To enroll for these services, please go towww.icsdelivery.com/rockwellautohttps://enroll1.icsdelivery.com/rok_/Default.aspxor visit our website atwww.rockwellautomation.com, click on the heading: “About Us”, then the heading: “Investor Relations”, then the heading “Shareowner Information, Transfer Agent & Dividends”. If you own your shares through a broker or other nominee, you may contact them directly to request electronic access.
You must have ane-mail account and access to a computer and the Internet and expect to have such access in the future to be eligible for electronic access to such materials. Selecting this option means that you will no longer receive a printed copy of our annual report and proxy statement unless you request one.
Your consent to electronic access will be effective until you revoke it. You may cancel your consent at no cost to you at any time by going towww.icsdelivery.com/rockwellautohttps://enroll1.icsdelivery.com/rok_/Default.aspxand following the instructions or by contacting your broker or other nominee.
We are a leading global provider of industrial automation power, control and information products and services.solutions that help manufacturers achieve a competitive advantage in their businesses. We were incorporated in 1996 in connection with a tax-free reorganization completed on December 6, 1996, pursuant to which we divested our former aerospace and defense business to The Boeing Company. In the reorganization, the former Rockwell International Corporation (RIC) contributed all of its businesses, other than the aerospace and defense business, to the Corporation and distributed all capital stock of the Corporation to RIC’s shareowners. Boeing then acquired RIC. RIC was incorporated in 1928. Our principal executive
office is located at 1201 South Second Street, Milwaukee, Wisconsin 53204.53204, USA. Our telephone number is(414) 382-2000 +1-414-382-2000 and our website is located atwww.rockwellautomation.com. Our Common Stockcommon stock trades on the New York Stock Exchange (NYSE) under the symbol ROK.
The following table shows, as of December 11, 2006, information with respect to thelists persons known to us, based on statements filed with the Securities and Exchange Commission (SEC) pursuant to Section 13(d) or 13(g) of the Securities Exchange Act of 1934 (Securities Exchange Act) or information otherwise furnished to us, to be the beneficial owners ofwho we believe beneficially owned more than 5% of our Common Stock.
| Percent of | ||||||||||
| Title of Class | Name and Address of Beneficial Owner | Shares | Class(1) | |||||||
| Common Stock | Fidelity Management Trust Company, as Trustee(2) 300 Puritan Way Marlborough, MA 01752 | 10,253,042 | (2) | 6.1 | % | |||||
Title of Class | Name and Address of Beneficial Owner | Shares | Percent of Class(1) | |||||||||
Common Stock | Massachusetts Financial Services Company | 11,768,240 | (2) | 7.0 | % | |||||||
500 Boylston Street Boston, MA 02116 | ||||||||||||
(1) | The percent of class owned has been computed |
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(2) | On February 8, 2007, Massachusetts Financial Services Company filed with the SEC a Schedule 13G in which it reported that it beneficially owned 11,768,240 shares of our common stock. The Schedule 13G states that Massachusetts Financial Services Company filed as an investment adviser and that some of the shares are also beneficially owned by certain non-reporting entities. |
Guidelines on Corporate Governance. The Board of Directors has adopted Guidelines on Corporate Governance, which are available atwww.rockwellautomation.com under the “Investor Relations” page under the link “About Us” then the heading “Corporate Governance”. The Guidelines contain general principles regarding the responsibilities and function of our Board and Board Committees.
Related Person Transactions. The Board of Directors adopted a written policy regarding how it will review and approve of related person transactions (as defined below), which is available atwww.rockwellautomation.com under the “Investor Relations” page under the link “About Us” then the heading “Corporate Governance”. The Board Composition and Governance Committee is responsible for administering this policy.
The policy defines a related person transaction as any transaction in which we are or will be a participant, in which the amount involved exceeds $120,000, and in which any director, director nominee, executive officer or more than 5% shareowner or any of their immediate family members has or will have a direct or indirect material interest. The policy sets forth certain transactions, arrangements and relationships not reportable under SEC rules that do not constitute related person transactions.
Under this policy, each director, director nominee and executive officer must report each proposed or existing transaction between us and that individual or any of that individual’s immediate family members to our general counsel. Our general counsel will assess and determine whether any transaction reported to him or of which he learns constitutes a related person transaction. If our general counsel determines that a transaction constitutes a related person transaction, he will refer it to the Board Composition and Governance Committee. The Committee will approve or ratify a related person transaction only if it determines that the transaction is in, or is not inconsistent with, the best interests of the Corporation and its shareowners. In determining whether to approve or ratify a related person transaction, the Committee will consider factors it deems appropriate, including:
the fairness to the Corporation;
whether the terms of the transaction would be on the same basis if a related person was not involved;
the business reasons for the Corporation to participate in the transaction;
whether the transaction may involve a conflict of interest;
the nature and extent of the related person’s and our interest in the transaction; and
the amount involved in the transaction.
There are no related person transactions to report in this proxy statement.
Potential Director Candidates. The Board Composition and Governance Committee is responsible for screening potential director candidates and recommending qualified candidates to the full Board.
The Committee, the Chairman and Chief Executive Officer or other members of the Board may identify a need to add new members to the Board or fill a vacancy on the Board. In that case, the Committee will initiate a search for qualified director candidates, seeking input from senior management and Board members, and to the extent it deems it appropriate, outside search firms. The Committee will evaluate qualified candidates and then make its recommendation to the Board.
In making its recommendations to the Board with respect to director candidates, the Committee considers various criteria set forth in our Board Membership Criteria (see Exhibit A to the Committee’s Charter), including experience, professional background, specialized expertise and concern for the best interests of shareowners as a whole. In addition, directors must be of the highest character and integrity, be free of conflicts of interest with the Corporation, and have sufficient time available to devote to the affairs of the Corporation. The Committee from time to time reviews with the Board our Board Membership Criteria.
The Committee will evaluate properly submitted shareowner recommendations under substantially the same criteria and in substantially the same manner as other potential candidates.
In addition to recommending director candidates to the Committee, shareowners may also nominate candidates for election to the Board at annual shareowner meetings by following the procedures set forth in our By-Laws. See “Shareowner Proposals for 2009 Annual Meeting” set forth later in this proxy statement.
Communications to the Board and Ombudsman. Shareowners and other interested parties may send communications to the Board, an individual director, the non-management directors as a group, or a Board Committee at the following address:
Rockwell Automation, Inc.
c/o Corporate Secretary
1201 South Second Street
Milwaukee, Wisconsin 53204, USA
Attn: Board of Directors
The Secretary will receive and process all communications before forwarding them to the addressee. The Secretary will forward all communications unless the Secretary determines that a communication is a business solicitation or advertisement, or requests general information about us.
In accordance with procedures approved by the Audit Committee, concerns about accounting, internal controls or auditing matters should be reported to the Ombudsman as outlined in our Standards of Business Conduct, which are available on our website atwww.rockwellautomation.com; please click on the heading: “About Us”, then the heading: “Who We Are”, then the heading: “Ethics”. The Ombudsman is required to report promptly to the Audit Committee all reports of questionable accounting or auditing matters that the Ombudsman receives. You may contact the Ombudsman by addressing a letter to:
Ombudsman
Rockwell Automation, Inc.
1201 South Second Street
Milwaukee, Wisconsin 53204, USA
You may also contact the Ombudsman by telephone at +1-800-552-3589 or +1-414-382-8599, e-mail atombudsman@rockwell.comor fax at +1-414-382-8485.
Executive Sessions. The non-management directors meet in executive session without any corporate officer or member of management in conjunction with regular meetings of the Board. A director designated by the non-management directors chairs the session. The non-management directors’ practice is to designate the Chairman of one of the Board Committees as chair, in part depending upon whether the principal items to be considered at the session are within the scope of the applicable Committee. The independent directors meet in executive session in connection with most regular meetings.
Our Restated Certificate of Incorporation provides that the Board of Directors will consist of three classes of directors serving staggered three-year terms that are as nearly equal in number as possible. One class of directors is elected each year with terms extending to the third succeeding Annual Meeting after election. The terms of Proxies properly submitted will be voted at the meeting, unless authority to do so is withheld, for the election of the ELECTION OF DIRECTORSfourthree directors expire at the 20072008 Annual Meeting, including Don H. Davis, Jr.,Kenneth F. Yontz, who will retirenot stand for re-election as a director immediately beforeat the 20072008 Annual Meeting. The Board has designatednominated the other threetwo directors, upon the recommendation of the Board Composition and Governance Committee, as nominees for election as directors at the 20072008 Annual Meeting with terms expiring at the 20102011 Annual Meeting. The Board also decreasedapproved a decrease in the number of directors from tennine to nineeight effective immediately before the 20072008 Annual Meeting.threetwo nominees specified inNominees for Election as Directors with Terms Expiring in 20102011below. If for any reason anyeither of thosethese nominees is not a candidate when the election occurs (which is not expected), proxies and shares properly authorized to be voted will be voted at the meeting for the election of a substitute nominee or, instead,nominee. Alternatively, the Board of Directors may reduce the number of directors.
For each director nominee and NOMINEES FOR ELECTION AS DIRECTORS WITH TERMS EXPIRING IN INFORMATION AS TOABOUT DIRECTOR NOMINEES FOR DIRECTORS AND CONTINUING DIRECTORS each continuing director, we have stated the nominee’s or continuing director’sperson’s name, age (as of December 14, 2006)2007) and principal occupation; the position, if any, with the Corporation; the period of service as a director of the Corporation (or a predecessor corporation); and other directorships held.20112010
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 | Bruce M. Rockwell Director Since 1969 Age 68 Retired Executive Vice President, Fahnestock & Co. Inc. (now part of Oppenheimer & Co., Inc.) (Investment Banking), member New York Stock Exchange. Mr. Rockwell joined First of Michigan Corporation (investment banking) in 1961, was elected Senior Vice President in 1983, and was named Vice Chairman, First of Michigan Division of Fahnestock & Co. Inc. in March 1998 following the acquisition of First of Michigan by Fahnestock & Co. He is past chairman of the Municipal Advisory Council of Michigan and past President of the Bond Club of Detroit. | ||
  | Joseph F. Toot, Jr. Director Since 1977 Age
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CONTINUING DIRECTORS WITH TERMS EXPIRING IN 2009 | |||
  | Betty C. Alewine Director Since 2000 Age Retired President and Chief Executive Officer, COMSAT Corporation (Global Satellite Services and Digital Networking Services and Technology).Ms. Alewine joined COMSAT in 1986 as Vice President of Sales and Marketing, and then served as the Vice President and General Manager and in 1994 as President of COMSAT International, the company’s largest operating unit. Ms. Alewine was named Chief Executive Officer of COMSAT in July 1996 and served in that position until the merger of COMSAT and Lockheed Martin Corporation in August 2000. Ms. Alewine is a director of the New York Life Insurance Company and The Brink’s Company. She also serves as a director or member of a number of civic and charitable organizations. | ||
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 | Verne G. Istock Director Since 2003 Age Retired Chairman and President, Bank One Corporation (now part of JPMorgan Chase & Co.) (Financial Holding Company). Mr. Istock served as Chairman of the Board of Bank One Corporation from October 1998, following completion of the merger of First Chicago NBD Corporation and Banc One Corporation, until October 1999, and as President of Bank One Corporation from October 1999 until September 2000. He served as Acting Chief Executive Officer of Bank One Corporation from December 1999 until March 2000. He served as Chairman of First Chicago NBD from 1996 to 1998 and as President and Chief Executive Officer of First Chicago | |
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 | David B. Speer Director Since 2003 Age Chairman and Chief Executive Officer, Illinois Tool Works Inc. (Engineered Components and Industrial Systems and Consumables). Mr. Speer joined Illinois Tool Works in 1978. In October 1995, he was elected Executive Vice President of worldwide construction products businesses and in 2003 assumed similar responsibilities for the company’s Wilsonart businesses. He was elected President of Illinois Tool Works in August 2004, Chief Executive Officer in August 2005 and Chairman in May 2006. Mr. Speer is a member of the Chicago Economic Club and also a director or member of a number of other business and community organizations. | |
CONTINUING DIRECTORS WITH TERMS EXPIRING IN 2010 | ||
| Barry C. Johnson, Ph.D. Director Since 2005 Age 64 Retired Dean, College of Engineering, Villanova University.Dr. Johnson served as Dean, College of Engineering, Villanova University from August 2002 until March 2006. He served as Chief Technology Officer of Honeywell International Inc. (diversified technology and manufacturing company) from July 2000 to April 2002. Before that, Dr. Johnson served as Corporate Vice President of Motorola, Inc. (global communications company) and Chief Technology Officer for that company’s Semiconductor Product Sector. Dr. Johnson also serves as a director of Cytec Industries Inc. and IDEXX Laboratories, Inc. | |
| William T. McCormick, Jr. Director Since 1989 Age 63 Retired Chairman of the Board and Chief Executive Officer, CMS Energy Corporation (Diversified Energy).Mr. McCormick served as Chairman of the Board and Chief Executive Officer of CMS Energy Corporation from November 1985 until May 2002. Before joining CMS, he had been Chairman and Chief Executive Officer of American Natural Resources Company (natural gas company) and Executive Vice President and a director of its parent corporation, The Coastal Corporation (energy holding company). | |
| Keith D. Nosbusch Director Since 2004 Age 56 Chairman of the Board, President and Chief Executive Officer. Mr. Nosbusch has been our Chairman of the Board since February 2005 and our President and Chief Executive Officer since February 2004. He served as Senior Vice President and President, Rockwell Automation Control Systems from November 1998 until February 2004. Mr. Nosbusch is a director of The Manitowoc Company, Inc. and serves as a director or member of a number of business, civic and community organizations. | |
The Board of Directors recommends that you vote “FOR” the election as directors of the threetwo nominees described above, which is presented as item (a).
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Our business is managed under the direction of the Board of Directors. The Board has established the Audit Committee, the Board Composition and Governance Committee, the Compensation and Management Development Committee and the Technology, Environmental and Social Responsibility Committee, whose principal functions are briefly described below. The duties and responsibilities of each committee are set forth in committee charters that are available on our website atwww.rockwellautomation.com; click on the heading: “About Us”, then the heading: “Investor Relations”, then the heading: “Corporate Governance”. The committee charters are also available in print to any shareowner upon request. In the 2006our 2007 fiscal year, the Board held nine meetings and acted on two occasions by written consent in lieu of a meeting. Average attendance by incumbent directors at Board
and committee meetings was 96%94%, and all of the directors attended 86% or more than 75% of the meetings of the Board and the committees on which they served. Directors are expected to attend the Annual Meeting of Shareowners. All directors attended the 20062007 Annual Meeting.
Director Independence. Our Guidelines on Corporate Governance require that a substantial majority of the members of the Board be independent directors. For a director to be independent, the Board must affirmatively determine that the director has no direct or indirect material relationship with the Corporation. The Board has reviewed the independence of its members considering categorical standards adopted by the Boardestablished guidelines, which are contained in our Guidelines on Corporate Governance, to assist it in determining director independence in conformity with the New York Stock Exchange listing requirements. The full text of these guidelines is attached as Appendix A to this proxy statement.
After considering these guidelines, the independence criteria of the NYSE and any other commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships between the directors and the Corporation. Based on this review,Corporation, the Board has determined that none of the current directors, other than Mr. Nosbusch and Mr. Davis (who areis a current and former employees, respectively,employee of the Corporation), has a material relationship with the Corporation and each of our current directors (other than Mr. Nosbusch and Mr. Davis)Nosbusch) meets the independence requirements of the NYSE.
Committees of the Board Committees as chair, in part depending upon whether the principal items to be considered at the session are within the scope of the applicable Committee. The independent directors meet in executive session in connection with most regular meetings.
| Audit Committee | Board Composition & Governance Committee | Compensation & Management Development Committee | Technology, Environmental & Social Responsibility Committee | |||||
Members | Verne G. Istock * Barry C. Johnson David B. Speer Kenneth F. Yontz | William T. McCormick, Jr.* Verne G. Istock Joseph F. Toot, Jr. Kenneth F. Yontz | Joseph F. Toot, Jr.* Betty C. Alewine William T. McCormick, Jr. Bruce M. Rockwell | Bruce M. Rockwell* Betty C. Alewine Barry C. Johnson David B. Speer | ||||
Number of meetings in fiscal 2007 | 8 | 5 | 6, plus 3 actions taken by written consents | 2 |
| * | Chair |
Audit Committee. The members of the Audit Committee are Verne G. Istock (Chairman), Barry C. Johnson, David B. Speer and Kenneth F. Yontz. All members of the Audit Committee are non-employee directors who meet the independence and financial literacy standards and requirements of the NYSE and the SEC. The Audit Committee assists the Board in overseeing and monitoring the integrity of our financial reporting processes, our internal control and disclosure control systems, the integrity and audits of our financial statements, our compliance with legal and regulatory requirements, the qualifications and independence of our independent registered public accounting firm and the performance of our internal audit function and independent registered public accounting firm. The Committee’s duties and responsibilities are set forth in the Audit Committee Charter, and include: appointmentCharter. The main duties of the Committee are to appoint our independent registered public accounting firm, subject to shareowner approval; approval ofapprove all audit and audit-related fees and services and permitted non-audit fees and services of
7
Board Composition and Governance Committee. The members of the Board Composition and Governance Committee are William T. McCormick, Jr. (Chairman), Verne G. Istock, Joseph F. Toot, Jr. and Kenneth F. Yontz. The principal functions of the Board Composition and Governance Committee are to consider and recommend to the Board qualified candidates for election as directors of the Corporation, and to consider matters of corporate governance.governance, and administer
the Corporation’s related person transactions policy. The Committee annually assesses and reports to the Board on the performance of the Board of Directors as a whole and of the individual directors. The Committee also recommends to the Board the members of the committees of the Board and the terms of our Guidelines on Corporate Governance. All members of the Committee are independent directors as defined by the NYSE. The Committee met twice during the 2006 fiscal year.
Compensation and Management Development Committee. The members of the Compensation and Management Development Committee are Joseph F. Toot, Jr. (Chairman), Betty C. Alewine, William T. McCormick, Jr. and Bruce M. Rockwell. All members of the Committee are independent directors as defined by the NYSE and are not eligible to participate in any of our plans or programs administered by the Committee, except our 2003 and 1995 Directors Stock Plans. The principal functions of the Compensation and Management Development Committee are to evaluate the performance of our senior executives and plans for management succession and development, review the design and competitiveness of our compensation plans, review and approve salaries of corporate officers and review the salary plan for other executives who are direct reports to the Chief Executive Officer, review and approve corporate goals and objectives and administer our incentive, deferred compensation and long-term incentives plans pursuant to the terms of the respective plans. The Committee determines salaries, incentive compensation and long-term incentive awards for all corporate
8
| • | Role of Executive Officers.The Chief Executive Officer and certain other executives assist the Committee with its review of compensation of our corporate officers. See “Executive Compensation—Compensation Discussion and Analysis—Compensation Review Process” below. |
Role of Compensation Consultants. The Committee directly retained Towers Perrin as its outside compensation consultant. During fiscal 2007, Towers Perrin assisted the Committee with a comprehensive analysis of market data and its implications for pay at the Corporation, as well as various other compensation issues. See “Executive Compensation—Compensation Discussion and Analysis—Compensation Review Process” below.
Technology, Environmental and Social Responsibility Committee. The Technology, Environmental and Social Responsibility Committee reviews and assesses our technological activities as well as our policies and practices in the following areas: employee relations, with emphasis on diversity and inclusiveness; the protection and enhancement of the environment and energy resources; product integrity and safety; employee health and safety; and community and civic relations, including programs for and contributions to educational, cultural and other social institutions. TheAll members of the Committee met twice during the 2006 fiscal year.
Our director compensation program is designed to attract and retain qualified directors, fairly compensate directors for the Ombudsman as outlined in our Standardstime they must spend fulfilling their duties and align their compensation with the interests of Business Conduct, whichshareowners. Directors receive a combination of cash and equity awards. Directors who are available on our website atwww.rockwellautomation.com; please click on the heading: “About Us”, then the heading: “Who We Are”, then the heading: “Ethics”.employees do not receive compensation for their director service. The Ombudsman is required to report promptly to the Audit Committee all reports of questionable accounting or auditing matters that the Ombudsman receives. You may contact the Ombudsman by addressing a letter to:
9
| Retainer Fees | Grant Date | |||||||||||||||||||
| Retainer | Paid in | Retainer Fees | Present Value of | |||||||||||||||||
| Fees Paid | Restricted Shares | Paid in | Value of Annual | Stock Option | ||||||||||||||||
| Name | in Cash(2) | in Lieu of Cash(2) | Restricted Shares | Share Award(3) | Awards(4) | |||||||||||||||
| Betty C. Alewine | $ | 69,000 | — | $ | 27,000 | $ | 32,895 | $ | 30,870 | |||||||||||
| Don H. Davis, Jr. | 60,000 | — | 27,000 | 32,895 | 30,870 | |||||||||||||||
| Verne G. Istock | 76,500 | — | 27,000 | 32,895 | 30,870 | |||||||||||||||
| Barry C. Johnson | 68,000 | — | 27,000 | 32,895 | 30,870 | |||||||||||||||
| William T. McCormick, Jr | 72,000 | — | 27,000 | 32,675 | 30,870 | |||||||||||||||
| Bruce M. Rockwell | 74,750 | — | 27,000 | 32,675 | 30,870 | |||||||||||||||
| David B. Speer | 61,688 | $ | 8,813 | 27,000 | 32,895 | 30,870 | ||||||||||||||
| Joseph F. Toot, Jr. | 73,000 | — | 27,000 | 32,895 | 30,870 | |||||||||||||||
| Kenneth F. Yontz | 71,500 | — | 27,000 | 32,675 | 30,870 | |||||||||||||||
| 2007, which includes the following elements:
| ||
Committee Fees. Directors receive additional annual compensation for serving on committees of the Board. The fees are paid in cash in four installments on the first business day of each fiscal quarter. The fees for the Chair and for serving on certain committees are higher than others due to the greater work-load and responsibilities. Directors may elect to defer or receive restricted shares (or after November 7, 2007, restricted stock units) for all or any part of their committee fees as discussed below.
During the fiscal year 2006, cash dividends of $7,396; $733; $2,695; $492; $9,180; $9,180; $5,016; $9,022 and $5,908ended September 30, 2007, annual committee fees were paid onas follows:
| Audit Committee | Compensation & Management Development Committee | Board Composition & | Technology, Social Responsibility | |||||
Chair | $12,500 | $9,000 | $6,000 | $5,000 | ||||
Member | $ 7,500 | $6,000 | $4,000 | $3,000 |
Effective October 1, 2007, the restricted shares held by Ms. Alewine and Messrs. Davis, Istock, Johnson, McCormick, Rockwell, Speer, Toot and Yontz, respectively.
| Audit Committee | Compensation & Management Development Committee | Board Composition & | Technology, Social Responsibility | |||||
Chair | $25,000 | $16,000 | $12,000 | $10,000 | ||||
Member | $12,500 | $ 8,000 | $ 6,000 | $ 5,000 |
Equity Awards. Each non-employee director also receivesDirectors receive an annual grant of 500 shares of Common Stockcommon stock pursuant to the 2003 Directors Stock Plan immediately after our Annual Meeting of Shareowners (and for directors elected after the Annual Meeting, a pro-rated number of shares)shares are awarded upon election). On the same date, each non-employee director also receives an annual grant of options to purchase 1,500 shares of Common Stockcommon stock pursuant to the 2003 Directors Stock Plan (and for directors elected after the Annual Meeting, a pro-rated number of options).
In accordance withaddition, options to purchase 7,000 shares of our common stock are awarded under the 2003 Directors Stock Plan to each director upon his or her initial election to the Board.
All options awarded on Februaryvest 1 2006 (i) were granted at an exercise price of $65.35/3 per share, the closing market price on the date of grant, and (ii) become exercisable in three substantially equal installmentsyear beginning on the first second and third anniversariesanniversary of the grant date.
10
Other Awards and Benefits. We provide each director with life insurance in the amount of $100,000. During fiscal year 2006, we imputed income for life insuranceHowever, this benefit was discontinued in the amount of: $516; $762; $1,524; $792; $792; $1,524; $276; $2,472November 2007 and $792 to Ms. Alewine and Messrs. Davis, Istock, Johnson, McCormick, Rockwell, Speer, Toot and Yontz, respectively.
Directors mayare eligible to participate in a matching gift program under which we will match donations made to eligible educational, arts or cultural institutions. Gifts will be matched in any calendar year up to a maximum of $10,000.
Stock Ownership Requirement. Non-management directors are affiliated, including Illinois Tool Works Inc., of which Mr. Speer is Chairman and Chief Executive Officer. However, none of these transactions was material to either us or any of those organizations.
Fees Earned or ($) Stock ($) Change in ($) TOTAL ($) Betty C. Alewine Don H. Davis, Jr.(7) Verne G. Istock Barry C. Johnson William T. McCormick, Jr. Bruce M. Rockwell David B. Speer Joseph F. Toot, Jr. Kenneth F. Yontz (1) This column represents the amount of cash compensation earned in 2007 for Board and committee service. As described above, directors may elect to receive restricted stock in lieu of their cash retainer fees. (2) This column represents the expense we recognized for restricted and non-restricted stock awards for financial statement reporting purposes for the fiscal year in accordance with Statement of Financial Accounting Standard 123(R)Share-Based Payment (“SFAS 123(R)”), except that pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. Amounts in this column include awards granted in fiscal 2007 and in previous years. Amounts we recognized under SFAS 123(R) have been determined using the assumptions set forth in note 11, Share-Based Compensation, to our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2007. The amounts shown do not correspond to the actual value that may be realized by the directors. Each director received 500 shares of common stock under the 2003 Directors Stock Plan on February 7, 2007 (the date of our annual meeting) with a grant date fair value of $63.17 (calculated based on the closing price of our stock on the grant date ($63.17) for directors who elected to receive restricted shares) and $63.01 (calculated based on the average of the high and low prices of our stock on the grant date for directors who elected to receive non-restricted shares). On October 2, 2006 each director received 466 restricted shares with a grant date fair value of $27,000 in payment of the restricted stock portion of the annual retainer. (3) This column represents the expense we recognized for stock option awards for financial statement reporting purposes for the fiscal year in accordance with SFAS 123(R), except that pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. Amounts in this column include awards granted in fiscal 2007 and prior years. Amounts we recognized under SFAS 123(R) have been determined using the assumptions set forth in note 11, Share-Based Compensation, to our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2007. The amounts shown do not correspond to the actual value that may be realized by the directors. Each director received options for 1,500 shares pursuant to the 2003 Directors Stock Plan on February 7, 2007 with an aggregate grant date fair value of $29,715. (4) The aggregate number of stock and option awards outstanding as of September 30, 2007 for the non-employee directors were as follows: Stock (#) Betty C. Alewine Don H. Davis, Jr. Verne G. Istock Barry C. Johnson William T. McCormick, Jr. Bruce M. Rockwell David B. Speer Joseph F. Toot, Jr. Kenneth F. Yontz (5) Aggregate earnings in fiscal 2007 on the directors’ deferred cash compensation balances were $20,406 for Ms. Alewine and $22,056 for Mr. Yontz. We do not pay “above market” interest on non-qualified deferred compensation; therefore, this column does not include these amounts. (6) This column consists of the amount of premiums we paid for a $100,000 life insurance policy provided to all non-employee directors, cash dividends paid on restricted shares and, for Ms. Alewine and Messrs. Davis, McCormick, Toot and Yontz, the Corporation’s matching donations of $10,000, $3,405, $10,000, $5,000 and $10,000, respectively, under our matching gift program. The aggregate amount of perquisites and personal benefits provided to each non-employee director was less than $10,000. During fiscal 2007, on two occasions Board meetings were held as retreats at which we provided leisure activities for the directors and their spouses. The directors’ spouses generally are expected to attend Board retreats. (7) Mr. Davis retired as a director immediately before the 2007 Annual Meeting held on February 7, 2007. The Audit Committee assists the Board in overseeing and monitoring the integrity of the Corporation’s financial reporting Our Committee’s roles and responsibilities are set forth in a written Charter adopted by the Board, which is available on the Corporation’s website atwww.rockwellautomation.comunder the heading “About Us”, then the heading “Investor Relations”. We review and reassess the Charter annually, and more frequently as necessary to address any changes in NYSE corporate governance and SEC rules regarding audit committees, and recommend any changes to the Board for approval. Management is responsible for the Corporation’s financial statements and the reporting DIRECTOR COMPENSATION TABLEName
Paid In Cash(1)
Awards(2)(4) Option
Awards(3)(4)
($) Non-Equity
Incentive Plan
Compensation
($)
Pension Value
and
Non-qualified
Deferred
Compensation
Earnings(5) All Other
Compensation(6)
($) (a) (b) (c) (d) (e) (f) (g) (h) 69,000 58,505 24,338 0 0 20,589 172,432 21,333 27,000 0 0 0 4,538 52,871 76,500 58,505 24,338 0 0 5,539 164,882 70,500 58,505 49,217 0 0 1,967 180,189 72,000 58,948 29,715 0 0 18,745 179,408 71,000 58,948 29,715 0 0 14,477 174,140 70,500 58,505 24,338 0 0 7,282 160,625 73,000 58,505 29,715 0 0 24,642 185,862 71,500 58,948 24,338 0 0 19,528 174,314 Director
Awards * Option
Awards
(#) 8,684 17,000 0 3,000 ** 3,461 14,000 1,013 10,750 11,291 7,000 11,291 4,000 6,040 14,000 10,491 15,334 7,656 6,000 * Includes restricted stock paid as part of the annual retainer, restricted stock issued in lieu of annual grants of shares that directors elected to receive in the form of restricted stock and, for Mr. Speer, 2,579 shares that he elected to receive in lieu of annual retainer fees that otherwise would have been paid in cash. ** Does not include options for 1,200 shares that Mr. Davis received when he was our employee. process,processes, its internal control and disclosure control systems, the integrity and audits of its financial statements, the Corporation’s compliance with legal and regulatory requirements, the qualifications and independence of its independent registered public accounting firm and the performance of its internal audit function and independent registered public accounting firm.process,processes, including the system of internal control. Deloitte & Touche LLP (D&T), the Corporation’s independent registered public accounting firm, is responsible for expressing an opinion on the conformity of those audited financial statements11
Our Committee is responsible for overseeing the Corporation’s overall financial reporting process.processes. In fulfilling our responsibilities for the financial statements for fiscal year 2006,2007, we:
Reviewed and discussed the audited financial statements for the fiscal year ended September 30, 2007 with management and D&T;
Reviewed management’s assessment of the Corporation’s internal control over financial reporting and D&T’s report pursuant to Section 404 of the Sarbanes-Oxley Act;
Discussed with D&T the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, relating to the conduct of the audit; and
Received written disclosures and the letter from D&T regarding its independence as required by Independence Standards Board Standard No. 1. We also discussed with D&T its independence.
We reviewed and approved all audit and audit-related fees and services. For information on fees paid to D&T for each of the last two years, see “Proposal to Approve the Selection of Independent Registered Public Accounting Firm” on page 23.
We considered the non-audit services provided by D&T in fiscal year 20062007 and determined that engaging D&T to provide those services is compatible with and does not impair D&T’s independence.
In fulfilling our responsibilities, we met with the internal auditorsCorporation’s General Auditor and D&T, with and without management present, to discuss the results of their examinations, the evaluations of the Corporation’s internal control over financial reporting and the overall quality of the Corporation’s financial reporting. We considered the status of pending litigation, taxation matters and other areas of oversight relating to the financial reporting and audit processprocesses that we determined appropriate. We also met separately with the Corporation’s Chief Executive Officer, Chief Financial Officer, Controller, General Counsel and Ombudsman.
Based on our review of the audited financial statements and discussions with, and the reports of, management and D&T, we recommended to the Board that the audited financial statements be included in the Corporation’s Annual Report onForm 10-K for the fiscal year ended September 30, 20062007 for filing with the SEC.
The Audit Committee has selected D&T as auditorsthe independent registered public accounting firm of the Corporation for the fiscal year ending September 30, 2007,2008, subject to the approval of shareowners.
Audit Committee
Verne G. Istock,Chairman
Barry C. Johnson
David B. Speer
Kenneth F. Yontz
12
The following table shows the beneficial ownership, reported to us as of October 31, 2006,2007, of our Common Stock,common stock, including shares as to which a right to acquire ownership within 60 days exists (for example, through the exercise of stock options) of each director, each nominee for director, each executive officer listed in the table on page 1429 (named executive officers) and of suchthese persons and other executive officers as a group.
| Beneficial Ownership on October 31, 2006 | ||||||||||||||||
| Shares of | Total | Percent of | ||||||||||||||
| Name | Common Stock(1) | Options(2) | Shares(1) | Class(3) | ||||||||||||
| Betty C. Alewine | 10,659 | (4) | 12,500 | 23,159 | — | |||||||||||
| Don H. Davis, Jr. | 82,479 | (4,5) | 117,167 | 199,646 | — | |||||||||||
| Verne G. Istock | 10,361 | (4) | 9,500 | 19,861 | — | |||||||||||
| Barry C. Johnson | 1,763 | (4) | 2,583 | 4,346 | — | |||||||||||
| William T. McCormick, Jr. | 19,191 | (4) | 3,500 | 22,691 | — | |||||||||||
| Keith D. Nosbusch | 109,080 | (5,6) | 1,213,484 | 1,322,564 | — | |||||||||||
| Bruce M. Rockwell | 42,791 | (4) | — | 42,791 | — | |||||||||||
| David B. Speer | 8,440 | (4) | 9,500 | 17,940 | — | |||||||||||
| Joseph F. Toot, Jr. | 23,191 | (4) | 10,834 | 34,025 | — | |||||||||||
| Kenneth F. Yontz | 17,556 | (4) | 1,500 | 19,056 | — | |||||||||||
| Theodore D. Crandall | 33,063 | (5,6) | 192,921 | 225,984 | — | |||||||||||
| Steven A. Eisenbrown | 21,250 | (5,6) | 189,056 | 210,306 | — | |||||||||||
| James V. Gelly | 20,064 | (5,6) | 84,532 | 104,596 | — | |||||||||||
| Douglas M. Hagerman | 14,050 | (5,6) | 75,568 | 89,618 | — | |||||||||||
| All of the above and other executive officers as a group (25 persons) | 622,147 | (4,5,6) | 2,749,394 | 3,371,541 | 1.95 | % | ||||||||||
| Beneficial Ownership on October 31, 2007 | ||||||||||
Name | Shares of Common Stock(1) | Options(2) | Total Shares(1) | Percent of Class(3) | ||||||
Betty C. Alewine | 11,540 | (4) | 14,000 | 25,540 | — | |||||
Verne G. Istock | 12,242 | (4) | 11,000 | 23,242 | — | |||||
Barry C. Johnson | 2,644 | (4) | 5,666 | 8,310 | — | |||||
William T. McCormick, Jr. | 20,072 | (4) | 4,000 | 24,072 | — | |||||
Keith D. Nosbusch | 117,908 | (5,6) | 1,383,785 | 1,501,693 | — | |||||
Bruce M. Rockwell | 43,652 | (4) | 1,000 | 44,652 | — | |||||
David B. Speer | 9,321 | (4) | 11,000 | 20,321 | — | |||||
Joseph F. Toot, Jr. | 24,072 | (4) | 12,334 | 36,406 | — | |||||
Kenneth F. Yontz | 28,437 | (4) | 3,000 | 31,437 | — | |||||
Theodore D. Crandall | 37,904 | (5,6) | 220,554 | 258,458 | — | |||||
Steven A. Eisenbrown | 26,836 | (5,6) | 180,932 | 207,768 | — | |||||
Douglas M. Hagerman | 16,953 | (5,6) | 114,169 | 131,122 | — | |||||
John P. McDermott | 34,497 | (5,6) | 153,067 | 187,564 | — | |||||
James V. Gelly | 19,255 | (5,6) | 20,933 | 40,188 | — | |||||
Joseph D. Swann | 38,320 | 272,150 | 310,470 | — | ||||||
All of the above and other executive officers as a group (25 persons) | 573,207 | (4,5,6) | 2,845,242 | 3,418,449 | 2.25 | % | ||||
(1) | ||
Each person has sole voting and investment power with respect to the shares listed (either individually or with spouse) |
(2) | ||
Represents shares that may be acquired upon the exercise of outstanding stock options within 60 days. |
(3) | ||
The shares owned by each person, and by the group, and the shares included in the number of shares outstanding have been adjusted, and the percentage of shares owned (where such percentage exceeds 1%) has been computed, in accordance withRule 13d-3(d)(1) under the Securities Exchange Act. |
(4) | ||
Includes |
(5) | ||
Includes shares held under our savings |
(6) | ||
Includes |
13
Compensation Philosophy
Our long-term growth and performance strategy, depicted in the graphic below, reflectsseeks sustained organic growth through expanding our served markets and enhancing our market access. We have developed a strong productivity culture that has allowed us to reinvest in organic growth. We believe that our employees’ knowledge of our customers, their applications, and our technology is a key factor that makes this strategy work. We also believe that it is important to align the annualcompensation of our leadership with this strategy and therefore we choose the factors in our short and long-term compensation for serviceincentive plans, among other things, to focus the management team’s efforts in all capacitiesthe areas that measure and are critical to us for the fiscal years ended September 30, 2006, 2005,success of this strategy.
Under the supervision of the Compensation and 2004,Management Development Committee of our Chief Executive Officer and our other four most highly compensated executive officers at September 30, 2006Board of Directors (the Named Officers):
| Annual Compensation | Long-Term Compensation | |||||||||||||||||||||||||||||||
| Awards | Payouts | |||||||||||||||||||||||||||||||
| Securities | ||||||||||||||||||||||||||||||||
| Underlying | ||||||||||||||||||||||||||||||||
| Restricted | Stock | Long-Term | ||||||||||||||||||||||||||||||
| Other Annual | Stock | Options | Incentive | All Other | ||||||||||||||||||||||||||||
| Name and Principal Position | Year | Salary | Bonus | Compensation(1) | Awards($)(2) | (Shares) | Payouts | Compensation(3) | ||||||||||||||||||||||||
| Keith D. Nosbusch | 2006 | $ | 896,154 | $ | 1,450,000 | $ | 55,418 | $ | 631,232 | (5) | 145,500 | — | $ | 23,746 | ||||||||||||||||||
| President and Chief | 2005 | 750,385 | 1,550,000 | 55,350 | — | 300,000 | — | 23,262 | ||||||||||||||||||||||||
| Executive | 2004 | 599,231 | 1,000,000 | 52,873 | 308,000 | (6) | 250,000 | — | 17,804 | |||||||||||||||||||||||
Officer(4) | ||||||||||||||||||||||||||||||||
| Theodore D. Crandall | 2006 | 411,154 | 452,000 | 45,446 | 157,808 | (5) | 36,300 | — | 11,844 | |||||||||||||||||||||||
| Senior Vice President, | 2005 | 349,308 | 440,000 | 44,120 | — | 70,000 | — | 10,822 | ||||||||||||||||||||||||
| Components and Packaged | 2004 | 290,770 | 320,000 | 42,196 | — | 55,000 | — | 8,723 | ||||||||||||||||||||||||
| Applications Group, Rockwell | ||||||||||||||||||||||||||||||||
Automation Control Systems(7) | ||||||||||||||||||||||||||||||||
| Steven A. Eisenbrown | 2006 | 421,154 | 325,000 | 40,200 | 191,624 | (5) | 43,600 | — | 11,428 | |||||||||||||||||||||||
| Senior Vice President, | 2005 | 357,001 | 450,000 | 35,846 | — | 80,000 | — | 9,657 | ||||||||||||||||||||||||
| Automation | 2004 | 290,771 | 340,000 | 35,994 | — | 65,000 | — | 7,440 | ||||||||||||||||||||||||
| Control and Information Group, | ||||||||||||||||||||||||||||||||
Rockwell Automation Control Systems(7) | ||||||||||||||||||||||||||||||||
| James V. Gelly | 2006 | 469,231 | 451,300 | 28,273 | 191,624 | (5) | 43,600 | — | 13,217 | |||||||||||||||||||||||
| Senior Vice President and | 2005 | 443,078 | 500,000 | 29,775 | — | 80,000 | — | 11,963 | ||||||||||||||||||||||||
Chief Financial Officer(8) | 2004 | 315,000 | 337,000 | (9) | 130,450 | (10) | 171,200 | (11) | 70,000 | — | 17,835 | |||||||||||||||||||||
| Douglas M. Hagerman | 2006 | 429,077 | 411,400 | 39,292 | 157,808 | (5) | 36,300 | — | 11,873 | |||||||||||||||||||||||
| Senior Vice President, | 2005 | 412,310 | 460,000 | 34,208 | — | 70,000 | — | 12,139 | ||||||||||||||||||||||||
General Counsel and Secretary(12) | 2004 | 189,235 | 180,000 | 4,253 | 163,450 | (13) | 40,000 | — | — | |||||||||||||||||||||||
14
| Individual Grants | ||||||||||||||||||||||||
| Number of | ||||||||||||||||||||||||
| Securities | Percentage of | |||||||||||||||||||||||
| Underlying | Total Options | |||||||||||||||||||||||
| Options | Granted to | Exercise or | Grant Date | |||||||||||||||||||||
| Granted | Employees in | Base Price | Expiration | Present | ||||||||||||||||||||
| Name | Grant Date | (Shares)(1) | Fiscal 2006 | (Per Share) | Date | Value(2) | ||||||||||||||||||
| Keith D. Nosbusch | 11/07/05 | 145,500 | 9.28 | % | $ | 56.36 | 11/07/15 | $ | 2,541,885 | |||||||||||||||
| Theodore D. Crandall | 11/07/05 | 36,300 | 2.31 | 56.36 | 11/07/05 | 634,161 | ||||||||||||||||||
| Steven A. Eisenbrown | 11/07/05 | 43,600 | 2.78 | 56.36 | 11/07/15 | 761,692 | ||||||||||||||||||
| James V. Gelly | 11/07/05 | 43,600 | 2.78 | 56.36 | 11/07/15 | 761,692 | ||||||||||||||||||
| Douglas M. Hagerman | 11/07/05 | 36,300 | 2.31 | 56.36 | 11/07/15 | 634,161 | ||||||||||||||||||
| Dividend | Interest | |||||||||||||||
| Grant Date | Volatility | Yield | Rate | Expected Life (Years) | ||||||||||||
| 11/07/05 | .32 | 1.56 | % | 4.33 | % | 5.3 | ||||||||||
15
| Number of Shares, | Estimated Future Payouts | |||||||||||||||||||
| Units or Other | Performance or Other | Under Non-Stock Price-Based Plans(1) | ||||||||||||||||||
| Name | Rights (#) | Period Until Payout | Threshold (#) | Target (#) | Maximum (#) | |||||||||||||||
| Keith D. Nosbusch | 25,800 | 10/1/05-9/30/08 | 0 | 25,800 | 51,600 | |||||||||||||||
| Theodore D. Crandall | 6,500 | 10/1/05-9/30/08 | 0 | 6,500 | 13,000 | |||||||||||||||
| Steven A. Eisenbrown | 7,700 | 10/1/05-9/30/08 | 0 | 7,700 | 15,400 | |||||||||||||||
| James V. Gelly | 7,700 | 10/1/05-9/30/08 | 0 | 7,700 | 15,400 | |||||||||||||||
| Douglas M. Hagerman | 6,500 | 10/1/05-9/30/08 | 0 | 6,500 | 13,000 | |||||||||||||||
| Number of Unexercised | Value of Unexercised | |||||||||||||||||||||||
| Shares | Options Held at | In-the-Money Options Held | ||||||||||||||||||||||
| Acquired on | Value | September 30, 2006 | at September 30, 2006(1) | |||||||||||||||||||||
| Name | Exercise | Realized | Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||||||||||
| Keith D. Nosbusch | — | $ | — | 1,014,985 | 428,835 | $ | 38,581,277 | $ | 5,520,700 | |||||||||||||||
| Theodore D. Crandall | 64,935 | 3,601,789 | 139,155 | 101,301 | 4,520,937 | 1,282,270 | ||||||||||||||||||
| Steven A. Eisenbrown | 78,915 | 4,003,251 | 126,190 | 118,601 | 3,962,490 | 1,490,800 | ||||||||||||||||||
| James V. Gelly | 30,000 | 1,005,153 | 43,332 | 120,268 | 776,308 | 1,389,956 | ||||||||||||||||||
| Douglas M. Hagerman | 9,863 | 359,588 | 40,136 | 96,301 | 766,510 | 1,064,650 | ||||||||||||||||||
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The following table highlights the principal purposepurposes of the perquisite package is to aid in the attraction and retentionmain elements of high quality executives.
| Attraction & Retention | Pay for Performance | |||||||
| Current Year Financial & Operational Performance | Long-Term Financial Performance | Creation of Shareowner Value | ||||||
Base Salary | X | X | ||||||
Annual Incentive Compensation | X | X | X | |||||
Long-Term Incentives | X | X | X | |||||
Perquisites | X | |||||||
Pension Plans | X | |||||||
The quality of the Corporation’sour leadership impacts itshas a direct impact on our performance, and therefore thea major purpose of our compensation policies and programs including base salary, is to attract and retain and motivate high quality executives. As such, we set base salaries generally at the median of other major U.S. industrial companies. Increases in base salary are a function of the individual executive’s personal performance, the market value for their position and the executive’s expected future contributions and leadership.
2007 Total Direct Compensation Mix
| * | Average mix for other named executive officers (NEOs) excluding Mr. Swann. |
Compensation Review Process
We evaluate and take into account market data in setting each element of our corporate officers’ compensation. As we do not believe that a peer group of companies directly comparable to us exists, we instead participate in and use the results of the database of executive compensation surveys of major companies (the Major Companies) provided by Towers Perrin and Hewitt Associates (collectively, the Survey Providers). The Towers Perrin database includes data for over 800 companies and the Hewitt Associates database includes data for over 700 companies. In setting compensation levels for each element of pay, we analyze data relating to the Major Companies using regression analyses developed by the Survey Providers based on our sales. The market data analysis is typically the starting point for, and a significant factor in, our compensation determinations, but is not the only factor as grantswe also consider the scope of stock options,the individual corporate officer’s responsibilities and more subjective factors, such as the Compensation Committee’s (and the CEO’s in the case of other corporate officers) assessment of the corporate officer’s individual performance shares and restricted stock.
17
We also review the amounts held fromof prior equity grants held by our corporate officers, but do not take these values into account in determining future long-term incentive grants for the following reasons: (i)
we want to encourage long-term holding of equity grants, rather than encourage early sales in order to receive future grants; (ii)
we have share ownership guidelines for our corporate officers that we believe provide the appropriate balance in retaining equity to align the financial interests of our corporate officers with those of our shareowners; (iii)
our corporate officers are not allowed to exercisesell equity, net of taxes, if they are not atabove our ownership guidelines; and (iv)
we want to continue to provide additional rewardsincentives for increasing shareowner value.
In making determinations and recommendations regarding each of our corporate officers’ base salaries, annual incentive compensation consulting firm that is directly accountable to us, to provide advice and market information that we use in fulfilling our duties. Based on our reviews, we foundlong-term incentives, the total compensation of Mr. NosbuschCompensation Committee and the Named Officers, as well as the potential payoutsCEO also consider internal comparisons to Mr. Nosbusch and the Named Officers in termination, change of control and retirement scenarios, in the aggregate, to be reasonable and consistent with our executive compensation philosophy.
Role of allManagement. The Compensation Committee assesses the performance of the CEO and sets the CEO’s compensation in executive session without the CEO present. The CEO reviews the performance of our other corporate officers, including the Chief Executive Officer,named executive officers, with the Compensation Committee and reviewed an annual salary planmakes recommendations regarding each element of their compensation for the Compensation Committee’s review and approval. The Compensation Committee and the CEO are assisted in their review by Towers Perrin, the Senior Vice President, Human Resources and the Vice President, Compensation & Benefits. The other executivesnamed executive officers do not play a role in senior management positions, neartheir own compensation determination other than discussing their performance with the beginningCEO.
Elements of Compensation
Base Salary
We set base salaries for our corporate officers generally at the median of the 2006Major Companies, using regression analyses developed by the Survey Providers based on our sales. However, the Compensation Committee may deviate from the median in setting base salaries based on the scope of the individual’s responsibilities and more subjective factors, such as the Compensation Committee’s (and the CEO’s in the case of other corporate officers) assessment of the corporate officer’s individual performance and expected future contributions and leadership. The Compensation Committee reviews base salaries for our corporate officers every year.
Annual Incentive Compensation
Our annual incentive compensation plans (ICP) are designed to reward our executives for achieving Corporation and business segment results and for individual performance. Under our ICP, we establish for each executive at the start of each fiscal year.
In the early part of each fiscal year, we reviewthe CEO reviews with the Chief Executive OfficerCompensation Committee, and the Corporation’sCompensation Committee establishes, financial and operating goals for the fiscal year.year for purposes of our ICP. These include goals include:
measurable financial and operating goals as well as long-termwith respect to our overall performance;
for certain corporate officers engaged in our business segments, measurable financial goals with respect to the performance of those business segments;
individual and leadership goals that in part require more subjective assessments. assessments; and
a threshold for any payments to be made under our ICP.
Each year, the Compensation Committee allocates a weighting of the target incentive compensation among the various goals that it establishes. For certain of these goals, participants do not receive any credit under our ICP unless the results for those goals exceed our prior year’s financial performance.
After the end of the fiscal year, wethe Compensation Committee and the CEO evaluate our performance and the Corporation’s performance of our business segments and consider the results together withagainst the contributions made bypre-established goals. As a starting point, target amounts under our ICP are generally earned if we achieve our financial and operating goals set for the year, above-target amounts are earned for superior performance and below-target amounts are earned if we fail to achieve these goals. Awards to each corporate officer under our ICP may be adjusted based on the Compensation Committee’s assessment (and except in the case of the CEO, based on the CEO’s recommendation) as to the individual’s achievement of individual goals and objectives and certain more subjective assessments of leadership acumen and the levels of responsibility of the individual executivesindividual’s expected future contributions. Accordingly, while achieving our financial and operating goals is extremely important in awardingdetermining our annual incentive compensation, the Compensation Committee maintains discretion to adjust annual incentive compensation upward or downward, notwithstanding achievement of these goals. For 2007, the Compensation Committee determined in the early part of the year that no payments were to be made under our ICP Plans. if the earnings per share performance was below the previous year’s results. In addition, under our Annual Incentive Compensation Plan for Senior Executive Officers (“Senior ICP”), which applies to the CEO and our four other most highly compensated corporate officers, annual incentive compensation payments to those corporate officers in total may not exceed 1% of our applicable net earnings (as defined in that plan) with the CEO’s maximum payment not to exceed 35% of the available funds, and each of the other four corporate officers maximum payouts not to exceed 15% of the available funds.
The annual incentive compensation for executives responsible forMessrs. Nosbusch, Hagerman and McDermott was based upon our overall performance and the management of business groups is largely determined by the extent to which the respective business group achieves goals established at the beginning of each year tailored to the particular business group. Annual incentivesannual incentive compensation for Messrs. Nosbusch,Crandall and Eisenbrown was based upon a combination of our overall performance and the performance of their segments. The annual incentive compensation for Mr. Gelly
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The following table shows our principal 2007 financial goals used for determining awards under our ICP for fiscal 2007 and our performance against those goals:
| ICP FACTORS | |||||||||||||||||||||||
| Sales(1) | EPS or EBITDA(2) | Return on Invested Capital(4) | Free Cash Flow(5) | ||||||||||||||||||||
| Goal | Performance | Goal(3) | Performance(3) | Goal | Performance | Goal | Performance(5) | ||||||||||||||||
Corporation | $ | 4,900 million | $ | 4,865 million | $3.70 | $3.96 | 23.4% | 24.1 | % | $ | 636 million | $ | 555 million | ||||||||||
Architecture & Software | $ | 2,203 million | $ | 2,178 million | |||||||||||||||||||
Control Products & Solutions | $ | 2,697 million | $ | 2,687 million | |||||||||||||||||||
Power Systems(6) | $ | 331 million | $ | 339 million | $ | 68 million | $ | 71 million | 4.2% | 4.5 | % | $ | 46 million | $ | 37 million | ||||||||
The Committee viewed the 2007 goals as aggressive goals that would be challenging to achieve in light of business conditions. Our sales goal for the Corporation’s continuing operations reflects an increase of 8% over fiscal 2006 actual performance. Our goals for EPS, EBITDA, ROIC and Free Cash Flow required substantial increases compared to fiscal 2006 actual performance. To meet these goals, our executives had to execute effectively our business strategy, including growth and productivity initiatives. Accordingly, the Committee viewed our 2007 performance against its principal 2006 financial goals:
| Performance Measure | Goal | Performance Achieved | ||
| Revenue | $5.3 billion | $5.6 billion | ||
| Earnings per share from continuing operations before accounting change | $3.05 | $3.49 | ||
Free cash flow(1) | $280 million | $324 million | ||
Return on invested capital(2) | 20.0% after-tax | 22.2% after-tax |
(1) | Sales for the Corporation are for continuing operations only and exclude the effect of changes in currency exchange rates ($89.5 million) and acquisitions ($49.6 million). Sales for Architecture & Software exclude the effect of changes in currency exchange rates ($43.8 million). Sales for Control Products & Solutions exclude the effect of changes in currency exchange rates ($45.7 million) and acquisitions ($49.6 million). We determine the effect of changes in currency exchange rates for this internal performance measure by translating the respective period’s sales using currency exchange rates that were incorporated into our 2007 annual operating plan. We determine the effect of acquisitions by excluding sales in the current year for which there are no sales in the prior year. |
| Rockwell Automation was measured on earnings per share (EPS). Power Systems was measured on earnings before interest, taxes, depreciation and amortization and other non-cash charges (EBITDA). |
(3) | The $3.70 goal was diluted earnings per share from continuing operations excluding special charges and the effect of acquisitions and including Power Systems net income from operations prior to the divestiture. The Corporation’s earnings per share performance amount of $3.96 is calculated as follows: (a) diluted earnings per share from continuing operations of $3.53, plus (b) special charges recorded during 2007 of $0.17 per diluted share, plus (c) Power Systems operating results for the four months ended January 31, 2007 of $0.26 per diluted share. Acquisitions had no significant effect on diluted earnings per share. |
(4) | For a complete definition and explanation of our calculation of return on invested capital, see Supplemental Financial Information on page 54. |
(5) | We |
(6) | Power Systems goals are based upon four months of the fiscal 2007 annual operating plan. The plan was pro-rated to reflect the period of time that Power Systems was part of Rockwell Automation. Sales performance of $339 million excludes the effect of changes in currency exchange rates ($1.6 million). We determine the effect of changes in currency exchange rates for this internal performance measure by | |
Long-Term Incentives—In fiscal 2006,
The principal purposes of our long-term incentives are to reward management for senior executives were provided throughcreating shareowner value and to align the interests of management with shareowners. Our long-term incentive awards are designed to reward the increase in both absolute and relative shareowner value. Our annual long-term incentive awards include a combination of stock options, performance shares and restricted stock. Stock
We grant annual long-term incentive awards with an aggregate anticipated value that is generally set between the 50th and 75th percentile of the Major Companies using the Towers Perrin executive compensation database, using a regression analysis developed by Towers Perrin based on our sales (the Hewitt Associates executive compensation database does not provide a regression analysis on long-term equity incentives). We calculate the number of options were worth approximately5/8and shares based on the anticipated value of these grants using the 90 day average of our stock price prior to the September 1 before the grant. We use this approach to avoid single day anomalies in our stock price when determining the anticipated value of the long-term incentive grants. Actual value of the grants to our executives may be different, either up or down, based upon the stock price on the day of the grant, and the ultimate amount realized by the executives from the grants. We generally make long-term incentive grants near the beginning of each fiscal year at the same time the Compensation Committee performs our annual management performance evaluation and takes other compensation actions. Annual equity grants for corporate officers occur on the same dates as our annual equity grants for our other professional and managerial employees, which in fiscal 2007 was the date of the Compensation Committee’s December meeting. As the grant date for our annual long-term incentive awards generally occurs at a
Compensation Committee meeting held in the first quarter of our fiscal year, the grant date is effectively set approximately one year in advance when all Compensation Committee meetings for the next year are scheduled. We do not grant equity awards in anticipation of the release of material nonpublic information. Similarly, we do not time the release of information based on equity award grant dates.
The CEO recommends to the Compensation Committee the equity grants for other executives, and the Compensation Committee approves all equity grants for executives. We also at times award equity grants to new executives as they are hired or recently promoted executives during the year. These grants are approved by the Compensation Committee, and the grant date is the later of the date the Compensation Committee approves the grant or the start date of the new executive.
In fiscal 2007, our equity grants to vice presidents and above had three components. We targeted stock options at approximately 5/8 of the anticipated value of the long-term incentive grant, performance shares at approximately1/ 1/4 of the anticipated value of the grant and restricted stock at approximately1/ 1/8 of the anticipated value of the grant. We determined thethis allocation of equity vehicles based upontaking into account a review of approximately 270 proxy statements of Fortune 500 companies that had been filed as of March 31, 2007. This review was conducted by Towers Perrin. Compared to this review, we grant a greater percentage of our long-term incentives as stock options and performance shares than market practices and our beliefpractice because we believe that a greater proportion of long-term incentives should depend on an increase in shareowner value, both absolute and relative to other companies in the S&P 500 Index.
Options: We believe that stock options are an appropriate vehicle to reward management for increases in shareowner value, as they provide no value if share price does not increase. Our stock option grants vest in 1/3 increments at one, two and three years from the grant date and have a greaterten year life. The exercise price of all stock option grants is the fair market value of our stock at the close of trading on the date of the grant. Our long-term incentive plan does not allow us to reprice stock options. During fiscal year 2007, stock options equal to approximately 0.7% of the average outstanding shares during the year were granted to executives and other employees. Total options outstanding at the end of the 2007 fiscal year were approximately 4.9% of outstanding shares. The Compensation Committee takes these figures into account when determining the annual option grant.
Performance Shares: Performance shares are designed to reward management for our relative performance link thancompared to the general market practice.performance of companies in the S&P 500 Index over a three-year period. The payout in respect of performance shares granted in November 2005, December 2006 and December 20062007 will be made in shares of our Common Stockcommon stock or cash, and will range from zero to 200% of the target based on the Corporation’sour total shareowner return compared to the performance of companies in the S&P 500 Index over a three-year period. The payouts will be at zero, the target amount and the maximum amount if our total shareowner return is equal to or less than the 30th percentile, equal to the 60th percentile and equal to or greater than the 75th percentile of the total shareholder return of companies in the S&P 500 Index, respectively, over the applicable three-year period, with the payout interpolated for results between those percentiles. Long-term incentives for mid-level executives
Restricted Stock: We grant restricted shares primarily in fiscal 2006 were provided through stock option grants. All equity grants wereorder to retain high quality executives. Accordingly, restricted shares generally made neardo not vest until three years after the beginninggrant date.
Perquisites
The principal purpose of the fiscal year.our perquisite package is to attract and retain high quality corporate officers. During fiscal year 2006, stock options equal2007, our corporate officers received a limited perquisite package that included an automobile allowance, social and country club memberships, financial counseling services, personal liability insurance, tickets to approximately 0.9%cultural and sporting events, recreational activities at Board retreats, spouse travel and recreational activities at Board retreats and annual physical. However, effective October 1, 2007, we discontinued the automobile allowance, social and country club membership and financial counseling services for all corporate officers. The CEO did not receive any of outstanding shares were granted to senior and middle-management executives and other employees. Total options outstanding at the end of the 2006these discontinued
perquisites during fiscal year were approximately 5.2% of outstanding shares.2007. The Compensation Committee takes these figurestook into account whenthe discontinuation of these perquisites in determining our corporate officers’ base salaries for 2008.
Other
With regard to other benefits, our corporate officers do not receive anything different than other eligible U.S. salaried employees. They participate on the annual grant for executives.same basis as other eligible U.S. salaried employees in:
our health and welfare plans, pension plan and 401(k) savings plan;
our non-qualified pension and savings plans; these plans use the same formulas as our qualified plans and provide benefits that may not be paid under our qualified plans due to Internal Revenue Code limitations; and
our deferred compensation plan; this plan offers investment measurement optionsand/or restricted stock awards similar to those in connection with promotions or as new hires.our 401(k) savings plan and does not have any guaranteed rates of return.
Compensation Deductibility—
Internal Revenue Code Section 162(m) provides that publicly held companieswe may not deduct in any taxable year compensation in excess of one million dollars paid in that year to its Chief Executive Officerour chief executive officer and itsour other four most highly compensated executive officers unless the compensation is “performance based”. Grants of stock options, performance shares and awards under our Annual Incentive Compensation Plan for Senior Executive Officers are considered “performance based” compensation. Since we retain discretion with respect to basecompensation for this purpose. Base salaries, restricted stock awards and other annual incentive compensation awards those elements woulddo not qualify as “performance based” compensation for these purposes. Wethis purpose. With the exception of the Power Systems divestiture bonus to Mr. Swann and restricted stock granted to Mr. Nosbusch, we do not anticipate that any portion of theour fiscal year 20062007 compensation to the Named Officersnamed executive officers will exceed the deductibility limitations of Section 162(m).
Change of Control and Severance Agreements
We do not have employment contracts with any corporate officers. However, we had change of control agreements with Messrs. Nosbusch and Hagerman, which expired on September 30, 2007, and with Mr. Gelly, which terminated when he resigned as CFO in April 2007. In November 2007, we entered into new change of control agreements with Messrs. Nosbusch, Crandall, Eisenbrown, Hagerman and McDermott and certain other corporate officers. There are two main purposes of these agreements.
First, they provide protection for the executive officers who would negotiate any potential acquisitions of the Corporation, thus encouraging them to negotiate a good outcome for shareowners, without concern about their continued employment after an acquisition.
Second, the agreements seek to ensure continuity of business operations during times of potential uncertainty by removing the incentive to seek other employment in anticipation of a possible change of control.
In short, they seek to ensure that we may rely on key executives to continue to manage our business consistent with our best interests and the best interests of our shareowners despite concerns for personal risks. For a description of these change of control agreements, see “Potential Payments Upon Termination or Change of Control” below.
In the case of terminations other than those to which our change of control agreements apply, we have no severance agreements in place. However, in the past we have at times entered into severance agreements with executives upon termination of their employment with the terms and conditions depending upon the individual circumstances of the termination, the transition role we expect from the executive and our best interests.
In April 2007, Mr. Gelly resigned as CFO. In light of the transition role we expected from Mr. Gelly and our desire to obtain his agreement not to compete and not to solicit our employees, we negotiated a severance agreement with him. Mr. Gelly remained our employee until September 30, 2007, and was available to provide advice and counsel to Mr. Crandall and Mr. Nosbusch on an as requested basis. Under his severance agreement, we agreed to:
continue to pay Mr. Gelly his base salary and provide continuing benefits through September 30, 2007;
pay Mr. Gelly one year’s annual base salary at the rate of $495,000 as severance pay;
pay Mr. Gelly an annual bonus for fiscal year 2007 under our ICP;
accelerate the vesting of stock options to purchase 76,667 shares of our common stock held by Mr. Gelly that were scheduled to vest between November 7, 2007 and December 6, 2008;
accelerate the vesting of 5,800 shares of restricted stock that were scheduled to vest on November 7, 2008 and December 6, 2009;
continue Mr. Gelly’s automobile allowance and other executive perquisites through September 30, 2007; and
provide outplacement for up to one year.
Under Mr. Gelly’s agreement, any shares of our common stock acquired upon exercise of the accelerated stock options and pursuant to the vesting of the restricted stock awards will be held in escrow by us until December 31, 2007 and subject to forfeiture if Mr. Gelly does not satisfy his obligations under this agreement through that date. In addition, as a condition to receiving the benefits described above, Mr. Gelly agreed:
to abide by our insider trading policies and stock trading protocols;
to certain non-disparagement, non-solicitation and confidentiality provisions; and
not to compete with us in any deductibility limitationsbusinesses about which Mr. Gelly received our confidential information or trade secrets through May 1, 2009.
Executive Stock Ownership
We believe our focus on “pay for performance” is sharpened by aligning closely the financial interests of our corporate officers with those of shareowners. Accordingly, we have set the following minimum ownership guidelines for corporate officers. These guidelines must be met within 5 years after becoming a corporate officer.
Common Stock (multiple of base salary) | ||
Chief Executive Officer | 5 | |
Senior Vice Presidents | 3 | |
Other Corporate Officers | 1.5 |
Shares owned directly (including restricted shares) or through our savings plans (including share equivalents under Section 162(m).
19our non-qualified savings plans) and the after-tax value of vested unexercised stock options are considered in determining whether a corporate officer meets the guidelines, except that no more than 50% of the guidelines can be met by the after-tax value of unexercised vested stock options. At September 30, 2007, the 15 corporate officers subject to the guidelines owned an aggregate of 371,103 shares (including share equivalents under our non-qualified savings plans) of our common stock, with an aggregate market value of $25.8 million at September 30, 2007. As of September 30, 2007, 13 corporate officers met the guidelines. The 2 corporate officers who did not meet the guidelines
became corporate officers within the past year and thus are within the transition period for meeting the guidelines. If a corporate officer subject to the guidelines does not make appropriate progress to meet the guidelines, the corporate officer’s future long-term incentive grants may be adversely affected.
Mr. Nosbusch’s base salary was increased to $925,000$1,000,000 from $800,000$925,000 in December 2005.2006. His total annual cash compensation continues to depend substantiallysignificantly on annual incentive compensation tied to ourthe Compensation Committee’s assessment of his and our performance. The Compensation Committee considers the Corporation’s performance.
Near the beginning of fiscal 2006,2007, we granted to Mr. Nosbusch options for 145,500115,400 shares, 11,2008,700 restricted shares and 25,80020,400 performance shares, consistentshares. Consistent with our executive compensation philosophy. We considered philosophy, the anticipated value of this grant was between the 50th and 75th percentile of long-term incentives grants to CEOs of the Major Companies using the regression analysis developed by Towers Perrin based on our sales. In determining these grants, the Compensation Committee considered:
information on Mr. Nosbusch’s total compensation compared to the total compensation of chief executive officers, including the value of long-term incentives, of the Major Companies in the Towers Perrin executive compensation database, using a regression analysis developed by Towers Perrin based on our sales. The data showed that Mr. Nosbusch’s total compensation and long-term incentives compensation are consistent with our compensation philosophy and are largely based on performance;
internal comparisons with the other major U.S. industrial companies; named executive officers. Mr. Nosbusch’s pay relative to the other named executive officers is in line with the survey data of CEOs to other named executive officers of the Major Companies using the regression analyses developed by the Survey Providers. Mr. Nosbusch’s pay relative to the other named executive officers reflects his greater level of responsibility and accountability;
historical information regarding hisMr. Nosbusch’s long-term compensation opportunities. This information indicated that Mr. Nosbusch’s long-term compensation opportunities as well as have yielded significant realized and unrealized value for Mr. Nosbusch, particularly with respect to equity awards. The value is a product of Mr. Nosbusch’s long service to the Corporation, the fact that he has held his equity awards rather than cashing them in, and most importantly, the significant return to shareowners who have benefited along with Mr. Nosbusch. We believe this is in line with the creation of shareowner value objective of our pay for performance philosophy; and
Mr. Nosbusch’s past and expected future contributions to the Corporation’sour long-term performance. The Committee concluded that Mr. Nosbusch has contributed significantly to our growth and profitability and is expected to continue to contribute to our success for the benefit of shareowners, customers, and other stakeholders.
In determining Mr. Nosbusch’s annual incentive compensation for 2006, we2007, the Compensation Committee concluded that under his leadership in 2006 the Corporation2007 we had strong financial and operating performance. In addition, wethe Compensation Committee recognized the substantial21.7% total return to shareowners during the 20062007 fiscal year, which resultedyear. The Committee also considered:
the payout earned due solely to our performance compared to pre-established financial goals;
Mr. Nosbusch’s personal performance and our performance in an increase in market capitalizationlight of $615 million (seewhat the Shareowner Return Performance PresentationCommittee viewed as difficult goals;
information on Page 21). Based on the foregoing, we awarded Mr. Nosbusch $1,450,000 inNosbusch’s annual incentive compensation.
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ICP awards for other named executive officers.
The cumulative total returns on Rockwell Automation Common Stockcommon stock and each indexthe S&P 500 Index as of each September 30,2001-2006 2002-2007 plotted in the above graph are as follows:
| 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | |||||||||||||||||||
| Rockwell Automation* | $ | 100.00 | $ | 114.71 | $ | 190.48 | $ | 286.37 | $ | 397.31 | $ | 442.67 | ||||||||||||
| S&P Composite—500 | 100.00 | 79.51 | 98.91 | 112.63 | 126.43 | 140.08 | ||||||||||||||||||
| S&P Electrical Components & Equipment | 100.00 | 90.78 | 125.32 | 154.72 | 192.63 | 223.00 | ||||||||||||||||||
| Cash dividends per common share | 0.93 | 0.66 | 0.66 | 0.66 | 0.78 | 0.90 | ||||||||||||||||||
| 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | |||||||||||||
Rockwell Automation* | $ | 100.00 | $ | 166.06 | $ | 249.65 | $ | 346.37 | $ | 385.92 | $ | 469.84 | ||||||
S&P 500 Index | 100.00 | 124.40 | 141.65 | 159.01 | 176.17 | 205.13 | ||||||||||||
Cash dividends per common share | 0.66 | 0.66 | 0.66 | 0.78 | 0.90 | 1.16 | ||||||||||||
| * | Includes the reinvestment of all dividends in our common stock |
We believe the reinvestmentoutstanding return to shareowners shown in this graph indicates that our pay-for-performance philosophy and our emphasis on long-term incentives have served well the interests of all dividendsshareowners.
Based on the foregoing, Mr. Nosbusch was awarded $1,100,000 in annual incentive compensation, which was 110% of his target incentive and a 10% increase to the award that was earned due solely to our Common Stock.performance compared to pre-established financial goals.
Compensation of Other Named Executive Officers
In determining the compensation for Messrs. Crandall, Eisenbrown, Gelly, Hagerman, and McDermott we considered:
the market data for their positions;
21
internal equity between each named executive officer and our other corporate officers; and
our performance and the performance of their organizations (where applicable) as well as their performance compared to their operating and leadership objectives.
In December 2006, the base salaries for Messrs. Crandall, Eisenbrown and Gelly were increased to $495,000, Mr. Hagerman to $450,000, and Mr. McDermott to $400,000. Mr. Swann did not receive any increase to base salary in 2007 as he had announced his intention to retire during the first half of the year.
At the beginning of fiscal 2007, Messrs. Crandall, Eisenbrown and Gelly were granted options for 31,400 shares, 2,400 restricted shares and 5,600 performance shares. Messrs. Hagerman and McDermott were granted options for 25,100 shares, 1,900 restricted shares and 4,500 performance shares. Consistent with our executive compensation philosophy, in determining these grants, we considered:
information on the corporate officers’ total compensation compared to the compensation of similar positions at the Major Companies in the Towers Perrin executive compensation database, using a regression analysis developed by Towers Perrin based on our sales;
internal comparisons with other corporate officers;
historical information regarding their long-term compensation opportunities; and
past and expected future contributions to our long-term performance.
Mr. Swann did not receive a long-term incentive grant in fiscal 2007 as he had announced his intention to retire during the first half of the year.
In determining the annual ICP payouts for Messrs. Crandall, Eisenbrown, Hagerman and McDermott, we considered our performance relative to our financial and operating goals, the individual corporate officer’s achievement of individual goals and objectives and certain more subjective assessments of leadership acumen and the individual’s expected future contributions, and for Messrs. Crandall, Eisenbrown and McDermott, the performance of their respective organizations. In December 2007, they were awarded the following bonuses:
| ICP Payout | Percent of Target | Increase in Award Above Award that was Earned Due Solely to Performance Compared to Pre-established Financial Goals | |||||||
Theodore D. Crandall | $ | 350,000 | 113 | % | 12 | % | |||
Steven A. Eisenbrown | $ | 311,000 | 102 | % | 2 | % | |||
Douglas M. Hagerman | $ | 300,000 | 106 | % | 6 | % | |||
John P. McDermott | $ | 225,000 | 90 | % | 0 | % | |||
In addition to the considerations discussed above, Mr. Crandall’s ICP payout was increased to recognize his performance as interim CFO, Mr. Eisenbrown’s ICP payout was increased to reflect the progress we have made on our process initiative and Mr. Hagerman’s ICP payout was increased to reflect his leadership of our compliance initiatives and his role in the Power Systems divestiture.
Based on his severance agreement, the ICP payout for Mr. Gelly was $310,600, which was 100% of his target incentive.
Mr. Swann received an ICP payout related to the performance of the Power Systems business for the four months that it was part of Rockwell Automation. Based on that performance, which exceeded most of the goals we established for that business, Mr. Swann’s bonus was $88,200 or 126% of his target incentive. There was no increase in Mr. Swann’s award from the award that was earned due solely to performance compared to pre-established financial goals. In addition, Mr. Swann received a bonus for the divestiture of the Power Systems business under an incentive bonus agreement we entered into with Mr. Swann before the sale. Based on the $1.8 billion dollar purchase price and Mr. Swann’s role in the sale, he received the maximum payout under that agreement of $6 million.
The following table sets forth the total compensation earned by each of the named executive officers for the fiscal year ended September 30, 2007.
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock ($) | Option ($) | Non-Equity Incentive Plan Compensation(3) | Change in Pension Value and ($) | All Other ($) | TOTAL ($) | ||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | ||||||||||
| Keith D. Nosbusch | 2007 | 982,692 | 0 | 1,343,233 | 2,151,801 | 1,100,000 | 2,050,625 | 68,093 | 7,696,444 | ||||||||||
President & Chief Executive Officer | |||||||||||||||||||
| Theodore D. Crandall | 2007 | 478,846 | 0 | 342,111 | 763,896 | 350,000 | 254,082 | 66,281 | 2,255,216 | ||||||||||
Senior Vice President & Chief Financial Officer(6) | |||||||||||||||||||
| Steven A. Eisenbrown | 2007 | 481,154 | 0 | 378,679 | 592,792 | 311,000 | 364,129 | 64,186 | 2,191,940 | ||||||||||
Senior Vice President | |||||||||||||||||||
| Douglas M. Hagerman | 2007 | 446,077 | 0 | 343,435 | 711,848 | 300,000 | 68,829 | 60,748 | 1,930,937 | ||||||||||
Senior Vice President, General Counsel & Secretary | |||||||||||||||||||
| John P. McDermott | 2007 | 394,231 | 0 | 293,140 | 509,200 | 225,000 | 164,692 | 63,116 | 1,649,379 | ||||||||||
Senior Vice President | |||||||||||||||||||
| James V. Gelly | 2007 | 521,798 | 0 | 183,179 | 1,022,592 | 310,600 | 0 | 653,674 | 2,691,843 | ||||||||||
Senior Vice President & Chief Financial Officer(7) | |||||||||||||||||||
| Joseph D. Swann | 2007 | 151,038 | 6,000,000 | 63,708 | 66,022 | 88,200 | (46,263 | ) | 30,361 | 6,353,066 | |||||||||
Senior Vice President & President, Power Systems(8) | |||||||||||||||||||
(1) | This column represents the expense we recognized for all outstanding restricted stock and performance shares for financial statement reporting purposes for the fiscal year in accordance with SFAS 123(R), except that pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. Amounts in this column include awards granted in fiscal 2007 and in previous years. Amounts we recognized under SFAS 123(R) have been determined using the assumptions set forth in note 11, Share-Based Compensation, to our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2007. The amounts shown do not correspond to the actual value that may be realized by the named executive officers. For additional information on awards made in the fiscal year, see the Grants of Plan-Based Awards Table and Outstanding Equity Awards Table below. |
(2) | This column represents the expense we recognized for outstanding stock option awards for financial statement reporting purposes for the fiscal year in accordance with SFAS 123(R), except that pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. Amounts in this column include awards granted in fiscal 2007 and in previous years. Since Messrs. Nosbusch, Eisenbrown and McDermott are eligible for retirement, under SFAS 123(R) their options have been expensed over the 12-month period from the date of grant as opposed to being expensed over the vesting period of the award. Amounts we recognized under SFAS 123(R) have been determined using the assumptions set forth in note 11, Share-Based Compensation, to our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2007. The amounts shown do not correspond to the actual value that may be realized by the named executive officers. For additional information on options granted in the fiscal year, see the Grants of Plan-Based Awards Table and Outstanding Equity Awards Table below. |
(3) | This column represents amounts paid under our ICP for services performed in fiscal 2007. For more information about our ICP, see the Compensation Discussion and Analysis and Grants of Plan-Based Awards Table below. |
(4) | We do not pay “above market” interest on non-qualified deferred compensation; therefore, this column reflects changes in pension values only. For all the named officers except Mr. Swann, the changes in pension value amounts represent the difference between the September 30, 2006 and September 30, 2007 present value of the named executive officers’ accrued pension benefit at age 65 under our qualified and non-qualified pension plans. For Mr. Swann, the change in pension value amount was determined as the value at his actual retirement |
date, before receiving any payments, less the value of the accrued benefits as of the June 30, 2006 measurement date. The value at retirement for Mr. Swann reflects the actual payment option he elected at February 1, 2007 as opposed to the single life annuity assumed at June 30, 2006. For additional information, including the assumptions used to calculate these amounts, see the Pension Benefits Table below. |
(5) | This column represents our matching contributions for the named executive officers under our savings plans, the amount of tax gross-ups paid to the named executive officers, the incremental cost to Rockwell Automation of perquisites received by the named executive officers, severance payments received by the named executive officers, and outplacement fees paid by Rockwell Automation for the benefit of the named executive officers. For additional information, see the All Other Compensation Table below. |
(6) | Mr. Crandall was named Chief Financial Officer on an interim basis on April 4, 2007 and on a permanent basis on October 13, 2007. |
(7) | Mr. Gelly resigned as Senior Vice President and Chief Financial Officer on April 4, 2007. |
(8) | Mr. Swann retired on January 31, 2007. |
At its December 2007 meeting, the Compensation Committee increased the base salaries for Messrs. Nosbusch, Crandall, Eisenbrown, Hagerman and McDermott to $1,040,000, $542,900, $536,900, $493,500 and $447,600, respectively. These new salaries will be in effect for the first pay date in January 2008.
ALL OTHER COMPENSATION TABLE
The following table describes each element of the All Other Compensation column in the Summary Compensation Table.
| Name | Value of $ | Tax Gross-up $ | Dividends on $ | Perquisites(4) $ | Severance(5) $ | TOTAL $ | ||||||
Keith D. Nosbusch | 32,619 | 2,092 | 23,461 | 9,920 | 0 | 68,093 | ||||||
Theodore D. Crandall | 14,814 | 8,251 | 5,336 | 37,880 | 0 | 66,281 | ||||||
Steven A. Eisenbrown | 13,794 | 6,200 | 6,206 | 37,986 | 0 | 64,186 | ||||||
Douglas M. Hagerman | 14,382 | 4,142 | 7,801 | 34,423 | 0 | 60,748 | ||||||
John P. McDermott | 12,260 | 7,340 | 4,669 | 38,847 | 0 | 63,116 | ||||||
James V. Gelly | 15,260 | 1,682 | 11,252 | 30,480 | 595,000 | 653,674 | ||||||
Joseph D. Swann | 4,749 | 2,894 | 812 | 21,906 | 0 | 30,361 |
(1) | This column includes our matching contributions to the named executive officers’ 401(k) savings plan and non-qualified savings plan accounts. |
(2) | This column represents amounts reimbursed to the named executive officers for the payment of taxes related to financial counseling services, social and country clubs and FICA tax due on Corporation matching contributions to the non-qualified savings plan. The incremental cost to Rockwell Automation of financial counseling services and social and country clubs is reported in the Perquisites column of this table. |
(3) | This column represents cash dividends paid on restricted shares held by the named executive officers that were not factored into the grant date fair value of the restricted shares. |
(4) | This column represents the total amount of perquisites provided to the named executive officers, none of which exceeded the greater of $25,000 or 10% of the sum of the total amount of these perquisites. The Corporation values perquisites based on the incremental cost to the Corporation for the benefit. The following table describes the perquisites received by each of the named executive officers. |
| Name | Annual Executive Physical Exam | Personal Liability Insurance | Recreational Activities Provided to Officer and Spouse at Board Meetings Held As Retreats | Spouse Travel to Board Retreats(c) | Social and Country Club Dues | Financial Counseling Services | Automobile Allowance | Tickets to Cultural and Sporting Events (Including Food and Beverage) | Supple- mental Dental and Vision Care Insurance | |||||||||
Keith D. Nosbusch(b) | X | X | X | X | ||||||||||||||
Theodore D. Crandall(b) | X | X | X | X | X | X | X | |||||||||||
Steven A. Eisenbrown(b) | X | X | X | X | X | X | X | |||||||||||
Douglas M. Hagerman(a) | X | X | X | X | X | X | X | X | ||||||||||
John P. McDermott(b) | X | X | X | X | X | X | ||||||||||||
James V. Gelly | X | X | X | X | ||||||||||||||
Joseph D. Swann(a) | X | X | X | X | X | X | X | |||||||||||
(a) | Spouse attended one Board retreat |
(b) | Spouse attended two Board retreats |
(c) | Spouse use of corporation aircraft and/or reimbursement of spouse commercial air travel to attend Board meetings held as retreats |
(5) | This column represents the severance earned and outplacement fees paid by Rockwell Automation per Mr. Gelly’s separation agreement. |
GRANTS OF PLAN-BASED AWARDS TABLE
The following table provides information about equity and non-equity awards made to the named executive officers in fiscal 2007.
| Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | All Other of Shares (#) | All Other Option Awards(5): Number of Securities Underlying Options (#) | Exercise or Base Price of Awards(6) | Grant Date Fair of Stock and Awards | |||||||||||||||||||||
| Name | Grant Type | Grant Date | Compensation Committee Approval Date(3) | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | |||||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | (k) | (l) | |||||||||||||||
| Keith D. Nosbusch | Incentive Compensation | 12/6/2006 | 12/6/2006 | 0 | 1,000,000 | 2,000,000 | ||||||||||||||||||||
| Performance Shares | 12/6/2006 | 12/6/2006 | 0 | 20,400 | 40,800 | 1,473,696 | ||||||||||||||||||||
| Restricted Shares | 12/6/2006 | 12/6/2006 | 8,700 | 553,233 | ||||||||||||||||||||||
| Stock Options | 12/6/2006 | 12/6/2006 | 115,400 | 63.59 | 2,311,462 | |||||||||||||||||||||
| Theodore D. Crandall | Incentive Compensation | 12/6/2006 | 12/6/2006 | 0 | 309,375 | 618,750 | ||||||||||||||||||||
| Performance Shares | 12/6/2006 | 12/6/2006 | 0 | 5,600 | 11,200 | 404,544 | ||||||||||||||||||||
| Restricted Shares | 12/6/2006 | 12/6/2006 | 2,400 | 152,616 | ||||||||||||||||||||||
| Stock Options | 12/6/2006 | 12/6/2006 | 31,400 | 63.59 | 628,942 | |||||||||||||||||||||
| Steven A. Eisenbrown | Incentive Compensation | 12/6/2006 | 12/6/2006 | 0 | 309,375 | 618,750 | ||||||||||||||||||||
| Performance Shares | 12/6/2006 | 12/6/2006 | 0 | 5,600 | 11,200 | 404,544 | ||||||||||||||||||||
| Restricted Shares | 12/6/2006 | 12/6/2006 | 2,400 | 152,616 | ||||||||||||||||||||||
| Options | 12/6/2006 | 12/6/2006 | 31,400 | 63.59 | 628,942 | |||||||||||||||||||||
| Douglas M. Hagerman | Incentive Compensation | 12/6/2006 | 12/6/2006 | 0 | 281,250 | 562,500 | ||||||||||||||||||||
| Performance Shares | 12/6/2006 | 12/6/2006 | 0 | 4,500 | 9,000 | 325,080 | ||||||||||||||||||||
| Restricted Shares | 12/6/2006 | 12/6/2006 | 1,900 | 120,821 | ||||||||||||||||||||||
| Stock Options | 12/6/2006 | 12/6/2006 | 25,100 | 63.59 | 502,753 | |||||||||||||||||||||
| John P. McDermott | Incentive Compensation | 12/6/2006 | 12/6/2006 | 0 | 250,000 | 500,000 | ||||||||||||||||||||
| Performance Shares | 12/6/2006 | 12/6/2006 | 0 | 4,500 | 9,000 | 325,080 | ||||||||||||||||||||
| Restricted Shares | 12/6/2006 | 12/6/2006 | 1,900 | 120,821 | ||||||||||||||||||||||
| Stock Options | 12/6/2006 | 12/6/2006 | 25,100 | 63.59 | 502,753 | |||||||||||||||||||||
| James V. Gelly | Incentive Compensation | 12/6/2006 | 12/6/2006 | 0 | 309,375 | 618,750 | ||||||||||||||||||||
| Performance Shares | 12/6/2006 | 12/6/2006 | 0 | 5,600 | 11,200 | 404,544 | ||||||||||||||||||||
| Restricted Shares | 12/6/2006 | 12/6/2006 | 2,400 | 152,616 | ||||||||||||||||||||||
| Stock Options | 12/6/2006 | 12/6/2006 | 31,400 | 63.59 | 628,942 | |||||||||||||||||||||
| Joseph D. Swann(7) | Incentive Compensation | 12/6/2006 | 12/6/2006 | 0 | 210,000 | 420,000 | ||||||||||||||||||||
(1) | These columns show the potential value of the cash payout for each named executive officer under the ICP for fiscal 2007 if the target and maximum goals are met. There is established for each named executive officer at the start of the year an incentive compensation target equal to a percentage of the individual’s base salary. Actual incentive compensation payments under the plan may be higher or lower than the incentive compensation target based on financial, operating and individual performance. Additional information about these performance measures is included in the CD&A. The Compensation and Management Development Committee has discretion to change the amount of any award irrespective of whether the measures are met. Generally, our earnings per share must exceed a minimum threshold for any payments to be made under the plan. For fiscal year 2008, ICP targets as a percentage of base salary remain unchanged from fiscal year 2007 and are 100% for Mr. Nosbusch and 62.5% for each of Messrs. Crandall, Eisenbrown, Hagerman and McDermott. |
(2) | These columns show the threshold, target and maximum payouts under performance shares awarded pursuant to our 2000 Long-Term Incentives Plan during fiscal year 2007. The payout in respect of these performance shares will be made in shares of our common stock and/or cash (generally calculated based on the closing price of our common stock on the trading day before the payout), in an amount determined based on the total shareowner return of our common stock, assuming reinvestment of all dividends, compared to the performance of companies in the S&P 500 Index for the period from October 1, 2006 to September 30, 2009, if the individual continues as an employee until the third anniversary of the grant date (subject to provisions relating to the grantee’s death, disability, termination of employment or retirement or a change of control of the Corporation). The payouts will be at zero, the target amount and the maximum amount if our shareowner return is equal to or less than the 30th percentile, equal to the 60th percentile and equal to or greater than the 75th percentile of the total shareholder return of companies in the S&P 500 Index, respectively, over the applicable three-year period, with the payout interpolated for results between those percentiles. The potential value of a payout will fluctuate with the market value of our common stock. The grant date fair value of these awards was $72.24 per share computed in accordance with SFAS 123(R) and the assumptions set forth in note 11, Share-Based Compensation, to our audited financial statements included in our annual report on Form 10-K for the fiscal year ended September 30, 2007. |
(3) | In fiscal 2007 annual equity grants were made at the Compensation and Management Development Committee meeting held on December 6, 2006. |
(4) | This column shows the number of shares of restricted stock granted in fiscal 2007 to the named executive officers under the Corporation’s 2000 Long-Term Incentives Plan. The restricted stock vests on December 6, 2009 (three years from the grant date), provided the individual is still employed by the Corporation on that date. Restricted stock owners are entitled to any cash dividends paid, but are not entitled to any dividends paid in shares until the restricted shares vest. The grant date fair value of these awards was $63.59 per share computed in accordance with SFAS 123(R) and the assumptions set forth in note 11, Share-Based Compensation, to our audited financial statements included in our annual report on Form 10-K for the fiscal year ended September 30, 2007. |
(5) | This column shows the number of stock options granted in fiscal 2007 to the named executive officers under our 2000 Long-Term Incentives Plan. The options vest and become exercisable in three substantially equal installments beginning on December 6, 2007, one year after the grant date. The grant date fair value of these awards computed in accordance with SFAS 123(R) was $20.03 per share. This amount was calculated using the Black-Scholes pricing model and the assumptions set forth in note 11, Share-Based Compensation, to our audited financial statements included in our annual report on Form 10-K for the fiscal year ended September 30, 2007. |
(6) | This column shows the exercise price for stock options granted, which was the closing price of our common stock on December 6, 2006, the grant date of the options. |
(7) | Mr. Swann did not receive any equity awards in fiscal 2007 as he had announced his intention to retire during the first half of the year. |
The Compensation Committee approved the following equity awards for the named executive officers at its December 2007 meeting:
Name | Options | Performance Shares | Shares of Restricted Stock | |||
Keith D. Nosbusch | 130,500 | 21,100 | 9,000 | |||
Theodore D. Crandall | 35,500 | 5,800 | 2,500 | |||
Steven A. Eisenbrown | 35,500 | 5,800 | 2,500 | |||
Douglas M. Hagerman | 28,400 | 4,600 | 2,000 | |||
John P. McDermott | 28,400 | 4,600 | 2,000 |
The grants were effective December 5, 2007, the day of the Compensation Committee meeting, and the exercise price of the options is the closing price of our common stock on that date. The performance shares and restricted stock grants are substantially the same as the grants made in fiscal year 2007. See footnotes 2 and 3 above.
The following table provides information about equity awards made to the named executive officers that are outstanding as of September 30, 2007. Number of Securities EXERCISABLE (#) Number of Securities UNEXERCISABLE Equity Incentive Plan Number of Securities (#) Option ($) Number of (#) Market Value of ($) Equity Incentive Plan Number (#) Equity Incentive Plan Market or Value of Units or Other Rights That Not Vested(3) Keith D. Nosbusch Theodore D. Crandall Steven A. Eisenbrown Douglas M. Hagerman John P. McDermott James V. Gelly Joseph D. Swann (1) All options vest 1/3 per year beginning on the first anniversary of the grant date (subject to provisions relating to the grantee’s death, disability, termination of employment or retirement or a change of control), except that we accelerated the vesting of options for 20,933 shares held by Mr. Gelly pursuant to his severance agreement with the Corporation. See “Executive Compensation—Compensation Discussion and Analysis—Change of Control and Severance Agreements”. (2) All restricted stock vests in full on the third anniversary of the grant date (subject to provisions relating to the grantee’s death, disability, termination of employment or retirement or a change of control), except that we accelerated the vesting of 5,800 restricted shares held by Mr. Gelly pursuant to his severance agreement with the Corporation. Mr. Gelly’s shares are being held in escrow by us until December 31, 2007. See “Executive Compensation—Compensation Discussion and Analysis—Change of Control and Severance Agreements”. (3) The market value of the stock awards is based on the closing market price of our common stock as of September 30, 2007, which was $69.51. (4) This column shows the target number of performance shares outstanding. The payout can be from 0 to 200% of the target as described in footnote 2 to the Grants of Plan Based Awards table. All performance shares will be earned on the third anniversary of the grant date (subject to provisions relating to the grantee’s death, disability, termination of employment or retirement or a change of control). OPTION EXERCISES AND STOCK VESTED TABLE The following table provides additional information about stock option exercises and shares acquired upon the vesting of stock awards, including the value realized, during the fiscal year ended September 30, 2007 by the named executive officers. Name Number of Shares Acquired on (#) Value Realized on Exercise ($) Number of Shares Acquired on (#) Value Realized on Vesting ($) Keith D. Nosbusch Theodore D. Crandall Steven A. Eisenbrown Douglas M. Hagerman John P. McDermott James V. Gelly Joseph D. Swann The following table shows the Number of Years (#) Present Value of ($) Payments During Last ($) Keith D. Nosbusch Rockwell Automation Pension (Non-Qualified) Plan Theodore D. Crandall Rockwell Automation Pension (Non-Qualified) Plan Steven A. Eisenbrown Rockwell Automation Pension (Non-Qualified) Plan Douglas M. Hagerman Rockwell Automation Pension (Non-Qualified) Plan John P. McDermott Rockwell Automation Pension (Non-Qualified) Plan James V. Gelly Rockwell Automation Pension (Non-Qualified) Plan Joseph D. Swann Rockwell Automation Pension (Non-Qualified) Plan (1) These amounts have been determined using the assumptions set forth in note 12, Retirement Benefits, to our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2007, and represent the accumulated benefit obligation for benefits earned to date, based on age, service and earnings through the measurement date of June, 30, 2007. The named executive officers participate in two pension plans: the Rockwell Automation Pension (Qualified) Plan (the “Qualified Pension Plan”), which is qualified under the Internal Revenue Code, and the Rockwell Automation Pension (Non-Qualified) Plan (the “Non-Qualified Pension Plan”), which is an unfunded, non-tax-qualified plan. The Qualified Pension Plan provides retirement benefits to nearly all U.S. employees of the Corporation. The Non-Qualified Pension Plan provides benefits that may not be paid from the Qualified Pension Plan due to limitations imposed by the Internal Revenue Code on qualified plan benefits. Non-Qualified Pension Plan benefits are provided to any U.S. salaried employee whose benefits are affected by these limits. Our policy with respect to funding our pension obligations is to fund at least the minimum amount required by applicable laws and governmental regulations. We maintain a rabbi trust for our non-qualified plans, including the Non-Qualified Pension Plan, which we will fund in the event there is a change of control of the Corporation. Benefits provided by both the Qualified Pension Plan and the Non-Qualified Pension Plan have the same requirements for vesting, which occurs at five years of service. Benefits in both plans are determined using the same formula. Named executive officers do not receive any additional service or other enhancements in determining the form, timing or amount of their benefits. Normal Retirement Benefits Normal retirement benefits are payable at age 65 with five years of service. Early Retirement with Reduced Benefits Reduced early retirement benefits are payable at either: age 55 with 10 years of service; or 75 points (age plus credited service equals 75). The reduction in the early retirement benefit is determined using an actuarial equivalence with the applicable interest rate and mortality table similar to those used for social security purposes. Currently, Messrs. Eisenbrown and McDermott have met the eligibility requirements for early retirement with a reduced benefit. Grandfathered Early Retirement with Unreduced Benefits Before January 1, 2006, employees could receive unreduced early retirement benefits if they retired before age 62 with 95 points or more (age plus credited service is equal to or greater than 95). Employees with 85 points or more at January 1, 2006 were grandfathered and thus are still eligible for these unreduced early retirement benefits. Mr. Nosbusch had more than 85 points at January 1, 2006. Grandfathered Corporate Staff as a Result of the Rockwell Collins Spin Employees of the Corporation hired before January 1, 1993, who were part of our corporate staff at the time of the spin-off of our former Rockwell Collins avionics and communications business on June 29, 2001 are entitled to the benefits under our corporate retirement plan existing at June 29, 2001 if they are higher than our current pension plan. Mr. Nosbusch currently meets the requirements for an unreduced pension benefit under our corporate retirement plan existing at June 29, 2001 (55 years of age and 85 points (age plus credited service equals 85)). If he continues in our employment until he has 95 points (which would occur in 2010, he will at that time also meet the eligibility requirements to retire with an unreduced pension benefit, before age 62, under our existing pension plan. Similar to other grandfathered employees, if this occurs, Mr. Nosbusch may opt for the better of the benefits available under either of the two plans, having qualified for a full benefit under both. Pension Plan Formula Pension plan benefits are payable beginning at a named executive officer’s normal retirement date and are determined by the following formula: Two-thirds (66-2/3%) of the participant’s average monthly earnings that are not in excess of the social security earning limits; Multiplied by a fraction, not to exceed 1.00, the numerator of which is the participant’s years of credited service, including fractional years, and the denominator of which is thirty-five (35); Plus 1.50% of the participant’s average monthly earnings in excess of the social security earnings limit times the participant’s years of credited service up to 35 years; Plus 1.25% of the participant’s average monthly earnings in excess of the social security earnings limit times the participant’s years of credited service over 35 years; Less 50% of primary social security times the participant’s years of credited service (up to 35 years of service) divided by 35. Average monthly earnings represent the monthly average of the participant’s pensionable earnings for the highest five calendar years during the last ten calendar years while the participant was actively employed. A participant’s earnings used for calculating pension plan benefits (pensionable earnings) include base salary and annual incentive compensation awards. Awards of stock options, restricted stock, performance shares, performance-based long term cash awards and all other cash awards are not considered when determining pension benefits. Messrs. Eisenbrown and Crandall are also eligible to participate in our Supplemental Retirement Plan for Certain Senior Executives, which is a closed plan. However, their benefit under that plan will be zero. Disability Pension Benefits Disability pension benefits are available under the Qualified Pension Plan and the Non-Qualified Pension Plan to active employees before age 65 upon total and permanent disability if the participant has at least 15 years of credited service or at least 10 years of credited service with 70 points or more (age plus credited service is equal to or greater than 70). The benefit is generally calculated in the same manner as the normal retirement benefit. Pension Benefits Payable to Beneficiaries Upon Death of a Participant Pension benefits under the Qualified Pension Plan and the Non-Qualified Pension Plan are payable to the participant’s beneficiaries upon the death of the participant while eligible for normal or early retirement. The surviving spouse will receive a monthly lifetime benefit calculated as if the participant retired and elected the 50% surviving spouse option. If the participant dies after starting to receive benefits, the benefit payments are processed in accordance with the benefit option selected. If the retiree has started pension benefit payments, the beneficiary is also eligible for a lump sum death benefit equal to $150 per year of credited service up to $5,250. If the participant dies before he or she is eligible for early retirement, pension benefits will begin in the month following the date the participant would have attained earliest retirement date; otherwise they will begin in the month following the date of death. NON-QUALIFIED DEFERRED COMPENSATION The following table provides information on our non-qualified defined contribution and other non-qualified deferred compensation plans in which all eligible U.S. salaried employees, including the named executive officers, participate, which consist of the following: Rockwell Automation Non-Qualified Savings Plan (the “Non-Qualified Savings Plan”): Our U.S. salaried employees, including the named executive officers, whose earnings exceed certain applicable federal limitations on compensation that may be recognized under the Rockwell Automation Retirement Savings Plan for Salaried Employees (the “Qualified Savings Plan”) are entitled to defer earnings on a Rockwell Automation Deferred Compensation Plan (the “Deferred Compensation Plan”): U.S. salaried employees whose base salary is at least $125,000 in 2007, including the named executive officers, may elect annually to defer up to 50% of base salary and up to 100% of their annual incentive compensation award to the Deferred Compensation Plan. Matching. For participants who defer base salary to the plan, we provide a matching contribution equal to what we would have contributed to the Qualified Savings Plan or Non-Qualified Savings Plan for the deferred amounts. Deferral elections. For contributions before 2005: Participants could opt to receive the deferred amounts either at retirement or on a Contributions after January 1, 2005: Participants may elect either a Timing of distributions. For contributions before 2005: We make distributions within the first 60 days of a calendar year. For contributions after January 1, 2005: We make distributions in Earnings on deferrals. Participants select investment measurement options, including hypothetical mutual fund investments that correspond to OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END OPTION AWARDS(1) STOCK AWARDS Name Grant
Date
Underlying
Unexercised
Options
Underlying
Unexercised
Options
(#)
Awards:
Underlying
Unexercised
Unearned
Options
Exercise
Price Option
Expiration
Date
Shares or
Units of
Stock
That Have
Not
Vested(2)
Shares
or Units
of Stock
That
Have
Not
Vested(3)
Awards:
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested(4)
Awards:
Payout
Unearned
Shares,
Have
($) (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) 12/6/2006 0 115,400 63.5900 12/6/2016 8,700 604,737 20,400 1,418,004 11/7/2005 48,499 97,001 56.3600 11/7/2015 11,200 778,512 25,800 1,793,358 11/8/2004 199,999 100,001 43.9000 11/8/2014 2/5/2004 100,000 30.8000 2/5/2014 10/6/2003 150,000 27.7500 10/6/2013 10/7/2002 125,000 15.5000 10/7/2012 10/1/2001 117,600 13.4000 10/1/2001 10/2/2000 301,097 11.6038 10/2/2010 10/4/1999 154,623 20.3490 10/4/2009 12/6/2006 0 31,400 63.5900 12/6/2016 2,400 166,824 5,600 389,256 11/7/2005 12,099 24,201 56.3600 11/7/2015 2,800 194,628 6,500 451,815 11/8/2004 46,666 23,334 43.9000 11/8/2014 10/6/2003 55,000 27.7500 10/6/2013 10/4/1999 60,889 20.3490 10/4/2009 12/6/2006 0 31,400 63.5900 12/6/2016 2,400 166,824 5,600 389,256 11/7/2005 14,533 29,067 56.3600 11/7/2015 3,400 236,334 7,700 535,227 11/8/2004 53,332 26,668 43.9000 11/8/2014 10/6/2003 61,400 0 27.7500 10/6/2013 12/6/2006 0 25,100 63.5900 12/6/2016 1,900 132,069 4,500 312,795 11/7/2005 12,099 24,201 56.3600 11/7/2015 2,800 194,628 6,500 451,815 11/8/2004 45,200 23,334 43.9000 11/8/2014 5/1/2004 13,070 0 32.6900 5/1/2014 12/6/2006 0 25,100 63.5900 12/6/2016 1,900 132,069 4,500 312,795 11/7/2005 10,899 21,801 56.3600 11/7/2015 2,600 180,726 5,800 403,158 11/8/2004 39,999 20,001 43.9000 11/8/2014 10/6/2003 60,000 0 27.7500 10/6/2013 10/4/1999 2,902 0 20.3490 10/4/2009 12/6/2006 20,933 0 63.5900 12/6/2016 2,400 166,824 11/7/2005 3,400 236,334 0 11/7/2005 11,516 24,201 56.3600 1/31/2012 1,150 79,937 2,669 185,522 11/8/2004 51,866 26,668 43.9000 1/31/2012 10/6/2003 86,400 27.7500 1/31/2012 10/7/2002 83,600 15.5000 1/31/2012 OPTION AWARDS STOCK AWARDS
Exercise
Vesting (a) (b) (c) (d) (e) 50,000 2,449,173 10,000 619,700 18,267 652,816 — — 59,791 1,632,977 — — 18,533 550,198 5,000 303,800 24,685 986,335 — — 163,600 3,027,476 5,000 299,000 2,516 98,337 1,150 70,392 earnings are provided under the Deferred Compensation Plan.estimated annualpresent value of accumulated benefits payable to the named executive officers under the Rockwell Automation Pension (Qualified) Plan and Rockwell Automation Pension (Non-Qualified) Plan based on the assumptions described in Footnote 1 to the Table.Name Plan Name
Credited Service
Accumulated
Benefit
Fiscal Year(a) (b) (c) (d) (e) Rockwell Automation Pension (Qualified) Plan 33 996,041 — 33 7,599,633 — Rockwell Automation Pension (Qualified) Plan 21 292,125 — 21 639,292 — Rockwell Automation Pension (Qualified) Plan 32 517,835 — 32 1,109,836 — Rockwell Automation Pension (Qualified) Plan 3 34,150 — 3 109,436 — Rockwell Automation Pension (Qualified) Plan 27 327,101 — 27 452,315 — Rockwell Automation Pension (Qualified) Plan 4 — — 4 — — Rockwell Automation Pension (Qualified) Plan 37 839,561 46,426 37 1,938,127 107,175 straight life annuitypre-tax basis to the Named Officers,Non-Qualified Savings Plan. Corporation matching contributions that cannot be made to the Qualified Savings Plan due to applicable federal tax limits are also made to the Non-Qualified Savings Plan. Under the Qualified Savings Plan, we match at a rate of 50% up to 6% of the employee’s eligible earnings contributed to the Plan, subject to a maximum amount of earnings under applicable federal tax regulations of $220,000 in 2006 and $225,000 in 2007. Earnings under the Non-Qualified Savings Plan are credited to participant accounts on a daily basis in the same manner as under the Qualified Savings Plan. Investment options are selected by the participant, may be changed daily, and include the same mutual fund and Corporation stock investments that are offered by the Qualified Savings Plan. No preferential interest or earnings and yearsare provided under the Non-Qualified Savings Plan. Account balances under the Non-Qualified Savings Plan are distributed in a lump-sum cash payment within 60 days after the end of service classifications indicated, under our retirement plans that cover most officers and otherthe month occurring six months after the employee terminates employment or retires.non-contributory basis. Such benefits reflectspecific date.reductionlump sum distribution at termination of employment or installment distributions for up to recognize15 years following retirement. Participants may make a one-time change of distribution election or timing (at least one year before retirement), provided that the changed distribution cannot begin until five years after the original distribution date.part our costJuly of Social Security benefits relatedthe plan year following termination or retirement.service for us. Our plans also provide forthose offered by the payment of benefitsQualified Savings Plan. Investment measurement options may be changed daily. Earnings are credited to an employee’s surviving spouseparticipant accounts on a daily basis in the same manner as under the Qualified Savings Plan. No preferential interest or other beneficiary.
| Average | ||||||||||||||||||||||||||||||||||
| Annual | Years of Credited Service | |||||||||||||||||||||||||||||||||
Earnings(1) | 5 Years | 10 Years | 15 Years | 20 Years | 25 Years | 30 Years(2) | 35 Years | 40 Years | ||||||||||||||||||||||||||
| $ 250,000 | $ | 17,442 | $ | 34,884 | $ | 52,327 | $ | 69,769 | $ | 87,211 | $ | 104,653 | $ | 122,095 | $ | 136,470 | ||||||||||||||||||
| 500,000 | 36,192 | 72,384 | 108,577 | 144,769 | 180,961 | 217,153 | 253,345 | 283,345 | ||||||||||||||||||||||||||
| 750,000 | 54,942 | 109,884 | 164,827 | 219,769 | 274,711 | 329,653 | 384,595 | 430,220 | ||||||||||||||||||||||||||
| 1,000,000 | 73,692 | 147,384 | 221,077 | 294,769 | 368,461 | 442,153 | 515,845 | 577,095 | ||||||||||||||||||||||||||
| 1,500,000 | 111,192 | 222,384 | 333,577 | 444,769 | 555,961 | 667,153 | 778,345 | 870,845 | ||||||||||||||||||||||||||
| 2,000,000 | 148,692 | 297,384 | 446,077 | 594,769 | 743,461 | 892,153 | 1,040,845 | 1,164,595 | ||||||||||||||||||||||||||
| 2,500,000 | 186,192 | 372,384 | 558,577 | 744,769 | 930,961 | 1,117,153 | 1,303,345 | 1,458,345 | ||||||||||||||||||||||||||
| 3,000,000 | 223,692 | 447,384 | 671,077 | 894,769 | 1,118,461 | 1,342,153 | 1,565,845 | 1,752,095 | ||||||||||||||||||||||||||
| Earnings | Benefits | |||
| $1,000,000 | $ | 469,798 | ||
| 1,500,000 | 707,298 | |||
| 2,000,000 | 944,798 | |||
| 2,500,000 | 1,182,298 | |||
| 3,000,000 | 1,419,798 | |||
Rockwell Automation Deferred Compensation Plan (the “Old Plan”): Of the named executive officers, only Mr. Crandall participates in the Old Plan, which is a closed plan. Participants were only permitted to defer incentive compensation to this plan. Earnings are credited to participant accounts in the same manner as under the Qualified Savings Plan. Distributions are made annually in January; however, if a participant is considered a “key employee” under the terms of the Internal Revenue Code, there may be a six-month delay in the commencement of 1986, as amended, limitdistributions. The plan provides an interest rate that is one-twelfth of the annual benefitsinterest rate for quarterly compounding that may be paid from a tax-qualified retirement plan. As permitted by the Employee Retirement Income Security Act of 1974, we have a nonqualified supplemental pension plan that authorizes the payment out of our general funds of any benefits calculated under provisionsis 120% of the applicable retirement planFederal long-term monthly rate for the three-month period ending on the last day of each calendar year quarter. The interest is applied quarterly.
We maintain a rabbi trust for our non-qualified plans, including the Non-Qualified Savings Plan and deferred compensation plans, which we will fund in the event there is a change of control of the Corporation.
NON-QUALIFIED DEFERRED COMPENSATION TABLE
| Name | Executive ($) | Registrant ($) | Aggregate ($) | Aggregate ($) | Aggregate ($) | |||||
| (a) | (b) | (c) | (d) | (e) | (f) | |||||
Keith D. Nosbusch | 65,785 | 24,669 | 142,699 | — | 823,501 | |||||
Theodore D. Crandall | 21,614 | 8,064 | 45,881 | — | 492,041 | |||||
Steven A. Eisenbrown | 79,366 | 7,044 | 131,958 | — | 1,039,067 | |||||
Douglas M. Hagerman | 202,597 | 7,132 | 127,826 | — | 1,000,705 | |||||
John P. McDermott | 26,077 | 5,510 | 15,173 | — | 181,173 | |||||
James V. Gelly | 17,019 | 8,510 | 23,781 | — | 178,748 | |||||
Joseph D. Swann | 9,046 | 3,392 | 103,316 | 728,302 | 0 |
(1) | These amounts include contributions made by each named executive officer to the Non-Qualified Savings Plan and by Messrs. Hagerman and Eisenbrown to the Deferred Compensation Plan. |
(2) | These amounts represent Corporation contributions under the Non-Qualified Savings Plan and, for Mr. Eisenbrown, under the Deferred Compensation Plan. Corporation contributions under the Deferred Compensation Plan are made for deferrals of base salary only. Only Mr. Eisenbrown elected to defer base salary to the Deferred Compensation Plan in 2007. These amounts are also reported as part of the “All Other Compensation” column in the Summary Compensation Table above and as part of the “Value of Company Contributions to Savings Plans” column in the All Other Compensation Table above. |
(3) | These amounts include earnings and interest provided on current contributions and existing balances, including the change in value of the underlying investment options in which the named executive officer is deemed to be invested. Messrs. Nosbusch, McDermott and Swann have earnings only under the Non-Qualified Savings Plan. Messrs. Gelly, Hagerman and Eisenbrown have earnings under the Non-Qualified Savings Plan and the Deferred Compensation Plan. Mr. Crandall has earnings under the Non-Qualified Savings Plan, the Deferred Compensation Plan and the Old Plan. |
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
The tables and narrative below describe and quantify compensation that may be abovewould become payable to the limitsnamed executive officers under these sections.
First, they provide protection for the executive officers who would negotiate any potential acquisitions of the Corporation, thus encouraging them to negotiate a good outcome for shareowners, without concern about their continued employment after an acquisition.
Second, the agreements are intendedseek to provide forensure continuity of managementbusiness operations during times of potential uncertainty by removing the incentive to seek other employment in anticipation of a possible change of control.
In short, they seek to ensure that we may rely on key executives to continue to manage our business consistent with our best interests and the best interests of our shareowners despite concerns for personal risks. In addition, in the eventpast we at times have entered into severance arrangements with executive officers upon termination of their employment, with the terms and conditions depending on the individual circumstances of the termination, the transition role we expect from the executive and our best interests. The information set forth below does not include payments and benefits to the extent they are provided on a non-discriminatory basis to salaried employees upon termination of employment, including unused vacation pay, distributions of balances under savings and deferred compensation plans and accrued pension benefits. The information set forth below also does not include any payments and benefits that may be provided under severance arrangements that may be entered into with any named executive officer upon termination of their employment.
We had change of control.control agreements with Messrs. Nosbusch and Hagerman, which expired on September 30, 2007, and with Mr. Gelly, which terminated in connection with his resignation as CFO in April 2007.
In November 2007, we entered into change of control agreements with Messrs. Nosbusch, Crandall, Eisenbrown, Hagerman and McDermott, and certain other corporate officers. Each agreement becomes effective if there is a “change of control” of the Corporation before September 30, 2007.2010. Each agreement provides for the continuing employment of the executive for threetwo years after the change of control on conditions no less favorable than those in effect before the change of control. If the executive’s employment is terminated by us without “cause” or if the executive terminates his employment for “good reason” within that threetwo year period, the executive is entitled to to:
severance benefits equal to threetwo times (three times in the case of Mr. Nosbusch) his annual compensation, including bonus;
prorated annual bonus and at termination;
continuation of other benefits and perquisites for three years. In addition, iftwo years (three years in the executive terminates his own employment for anycase of Mr. Nosbusch);
22
immediate vesting of all options, restricted stock and performance shares; and
In addition, in the change of control agreements, the executives agreed to certain confidentiality provisions.
Under the change of control agreements, a change of control would include any of the following events:
any “person”, as defined in Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, acquires 20 percent or more of our outstanding voting securities;
a majority of our directors are replaced by persons who are not endorsed by a majority of our directors;
we are involved in a reorganization, merger, sale of assets or other business combination that results in our non-qualified supplemental pension plan, supplemental savings plan and deferred compensation plan. These non-qualified plans are availableshareowners owning 50% or less of our outstanding shares or the outstanding shares of the resulting entity; or
shareowners approve a liquidation or dissolution of the Corporation.
The following table provides details with respect to potential post-employment payments for the named executive officers under our change of control agreements entered into in November 2007 in the event of separation due to a change of control of the Corporation assuming a termination covered by the change of control agreement occurred on the same terms to certain other salaried employees. We have established a master rabbi trust relating to these non-qualified plans. The master rabbi trust requires that,September 30, 2007.
| Name | Severance ($) | Prorated ($) | Cost of Benefit ($) | Other ($) | Outplacement ($) | Excise Tax ($) | Total Benefit to ($) | |||||||
Keith D. Nosbusch | 6,000,000 | 1,550,000 | 31,746 | 27,089 | 100,000 | 0 | 7,708,835 | |||||||
Theodore D. Crandall | 1,608,750 | 452,000 | 17,756 | 9,554 | 100,000 | 0 | 2,188,060 | |||||||
Steven A. Eisenbrown | 1,608,750 | 450,000 | 17,824 | 10,956 | 100,000 | 0 | 2,187,530 | |||||||
Douglas M. Hagerman | 1,462,500 | 460,000 | 17,810 | 12,260 | 100,000 | 0 | 2,052,570 | |||||||
John P. McDermott | 1,300,000 | 255,000 | 17,415 | 9,554 | 100,000 | 0 | 1,681,969 |
(1) | In the year of termination, the executive is entitled to receive a prorated ICP payout based on the highest ICP payout in the previous three years. |
(2) | Estimate (actual value not specified). |
(3) | Equals total of all compensation and benefits, not including value of equity awards. |
In addition, upon a change of control, we fund the trust infollowing would occur with respect to outstanding equity-based awards under our long-term incentives plans:
all outstanding stock options would become fully exercisable;
the restrictions on all shares of restricted stock would lapse; and
grantees of performance shares would be entitled to a cash amountperformance share payout equal to 100% of the unfunded accrued liabilities of these non-qualified plans astarget shares.
The following represents the intrinsic value of such time.
Equity Awards (Intrinsic value)(1)
| Name | Unvested Stock ($) | Restricted ($) | Performance ($) | |||
Keith D. Nosbusch | 4,810,760 | 1,383,249 | 3,211,362 | |||
Theodore D. Crandall | 1,101,715 | 361,452 | 841,071 | |||
Steven A. Eisenbrown | 1,251,087 | 403,158 | 924,483 | |||
Douglas M. Hagerman | 1,064,419 | 326,697 | 764,610 | |||
John P. McDermott | 947,501 | 312,795 | 715,953 |
(1) | Values equity awards based on the fiscal year end stock price of $69.51. |
The following table sets forth the treatment of equity-based awards upon termination of employment for the following reasons:
| Reason | Options | Restricted Stock | Performance Shares | |||
| Voluntary—Other than retirement | Vested—can be exercised until the earlier of (i) 3 months after the employee’s last date on payroll or (ii) the date the option expires Unvested—forfeited | Unearned shares forfeited | Unearned shares forfeited | |||
| Voluntary—Retirement | Vested—can be exercised until the earlier of (i) 5 years after retirement or (ii) the date the option expires Unvested—If retirement occurs 12 months or more after grant date, unvested options continue to vest; otherwise forfeited | If retirement occurs 12 months or more after grant date and before the end of the restriction period, pro rata shares earned at the end of the restriction period. If retirement occurs before 12 months after the grant date, all unearned shares forfeited | If retirement occurs 12 months or more after grant date and before the end of the performance period, pro rata shares earned at the end of the performance period. If retirement occurs before 12 months after the grant date, all unearned shares forfeited | |||
| Involuntary—Cause | Vested—forfeited Unvested—forfeited | Unearned shares forfeited | Unearned shares forfeited | |||
| Involuntary—Not for cause | Vested—can be exercised until the earlier of (i) 3 months after the employee’s last date on payroll or (ii) the date the option expires Unvested—continue to vest during salary continuation period; if vesting occurs in that period, can be exercised until the earlier of (i) 3 months after the employee’s last date on payroll or (ii) the date the option expires; remaining unvested options forfeited | Unearned shares forfeited | If the performance conditions are met during the salary continuation period, shares are earned; otherwise shares are forfeited | |||
| Death | All options vest immediately and can be exercised until the earlier of (i) 3 years after death or (ii) the date the option expires | All restrictions lapse | Shares earned on a pro rata basis at the end of the performance period | |||
| Disability | Vested—can be exercised until the earlier of (i) 3 months after the employee’s last date on payroll or (ii) the date the option expires Unvested—continue to vest during salary continuation period; if vesting occurs in that period, can be exercised until the earlier of (i) 3 months after the employee’s last date on payroll or (ii) the date the option expires; remaining unvested options forfeited | If disability continues for more than 6 months, all restrictions lapse | If disability continues for more than 6 months, pro rata shares earned at the end of the performance period | |||
In connection with Mr. Gelly’s resignation as CFO in April 2007 and in light of the transition role we expected from Mr. Gelly and our desire to obtain his agreement not to compete and not to solicit our employees, we negotiated a severance agreement with him. For a description of Mr. Gelly’s severance agreement, see “Executive Compensation—Compensation Discussion and Analysis”. The following table quantifies the value of payments related to Mr. Gelly’s severance agreement entered into on May 21, 2007.
| Shares Accelerated (#) | Option Grant ($) | Price at 5/21/2007 ($) | Value(1) ($) | |||||
Severance | 495,000 | |||||||
Annual Incentive Compensation | 310,600 | |||||||
Options: | ||||||||
December 6, 2006 Grant | 20,933 | 63.59 | 64.29 | 14,653 | ||||
November 7, 2005 Grant | 29,067 | 56.36 | 64.29 | 230,501 | ||||
November 8, 2004 Grant | 26,667 | 43.90 | 64.29 | 543,740 | ||||
Restricted Shares: | ||||||||
November 7, 2005 Grant | 3,400 | 64.29 | 218,586 | |||||
December 6, 2006 Grant | 2,400 | 64.29 | 154,296 | |||||
Outplacement Assistance | 100,000 | |||||||
Total | 2,067,376 |
(1) | Amount for options is calculated by multiplying the number of option shares by the difference between the exercise price of the option and the closing price of our common stock on May 21, 2007. Amount for restricted stock is calculated by multiplying the number of restricted shares by the closing price of our common stock on May 21, 2007. |
Mr. Swann retired in January 2007. For a description of bonuses we paid to Mr. Swann in connection with the divestiture of the Power Systems business, see “Executive Compensation—Compensation Discussion and Analysis”. The treatment of Mr. Swann’s outstanding equity-based awards is described under the table above under the caption “Voluntary—Retirement”.
The Compensation and Management Development Committee has reviewed and discussed with management the Compensation Discussion and Analysis prepared by management and contained in this proxy statement. Based on this review and discussion, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement. Compensation and Management Development Committee Joseph F. Toot, Jr.,Chairman Betty C. Alewine William T. McCormick, Jr. Bruce M. Rockwell INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Audit Committee has selected the firm of D&T as our independent registered public accounting firm for the fiscal year ending September 30, Before the Audit Committee selected D&T, it carefully considered the independence and qualifications of that firm, including their performance in prior years and their reputation for integrity and for competence in the fields of accounting and auditing. We expect that representatives of D&T will Audit Fees The following table sets forth the aggregate fees for services provided by D&T for the fiscal years ended September 30, Audit Fees Integrated Audit of Consolidated Financial Statements and Internal Control over Financial Reporting Statutory Audits Audit-Related Fees Employee Benefit Plan Audits and Other Audits Divestiture Related Audit Services Enterprise Resource Planning Internal Control Review Other Audit—Related Fees Tax Fees Compliance All Other Fees Total The Audit Committee considered and determined that the Audit Committee Pre-Approval Policies and Procedures The Audit Committee is responsible for COMPENSATION COMMITTEE REPORT2007,2008, subject to the approval of the shareowners. D&T, and its predecessors, have acted as our independent registered public accounting firm since 1934.be present atattend the Annual Meeting to respond toanswer appropriate questions and to make a statement if they desire to do so.20062007 and 20052006 (in millions), all of which were approved by the Audit Committee: Year Ended September 30, 2006 2005 Audit Fees Integrated Audit of Consolidated Financial Statements and Internal Control over Financial Reporting $ 3.8 — Annual Audit — $ 2.7 Sarbanes-Oxley Internal Control over Financial Reporting Attestation — 1.2 Statutory Audits 1.6 1.4 Audit-Related Fees Employee Benefit Plan Audits and Other Audits 0.3 0.3 Divestiture Related Audit Services 1.1 — Enterprise Resource Planning Internal Control Review 0.2 — Tax Fees Compliance — 0.2 Other Consulting — — All Other Fees — — Total $ 7.0 $ 5.8 Year Ended
September 30, 2007 2006 $ 3.45 $ 3.80 1.60 1.60 0.10 0.30 0.40 1.10 — 0.20 0.07 — 0.04 0.01 — — $ 5.66 $ 7.01 provision of non-audit services provided by D&T waswere compatible with maintaining the firm’s independence.the appointmentappointing and compensation of,compensating and oversight ofoverseeing the work performed by ourD&T and other independent registered public accounting firm.firms. The Audit Committee pre-approves all audit23
The Audit Committee annually approves the scope and fee estimates for the year-end audit, statutory audits and employee benefit plan audits to be performed by our independent registered public accounting firm for the next fiscal year. With respect to other permitted services to be performed by our independent registered public accounting firm, management defines and presents specific projects for which the advance approval ofby the Audit Committee is requested.Committee. The Audit Committee pre-approves specific engagements and projects on a fiscal year basis, subject to individual project thresholds and annual thresholds. At each Audit Committee meeting, theThe Corporation’s Controller reports to the Audit Committee regarding the aggregate fees charged by ourD&T and other independent registered public accounting firmfirms compared to the pre-approved amounts.
The Board of Directors recommends that you vote “FOR” the proposal to approve the selection of D&T as our independent registered public accounting firm, which is presented as item (b).
PROPOSAL TO APPROVE 2008 LONG-TERM INCENTIVES PLAN
A proposal will be presented at the meeting to approve our 2008 Long-Term Incentives Plan (the 2008 Plan), which was adopted by our Board of Directors on December 5, 2007, subject to approval by our shareowners. The complete text of the 2008 Plan is set forth in Appendix B to this proxy statement, and shareowners are urged to review it together with the following information about certain material features of the 2008 Plan, which is qualified by reference to Appendix B. The 2008 Plan would replace our 2000 Long-Term Incentives Plan (the 2000 Plan), which was previously approved by our shareowners.
The 2008 Plan includes the following features:
Sets the maximum number of shares of our common stock (shares) available for delivery pursuant to the 2008 Plan at 4.1 million plus any shares remaining available for delivery pursuant to the 2000 Plan as of the date of approval of the 2008 Plan by our shareowners;
Allows flexibility to grant a variety of awards to employees and prospective employees, including stock options, stock appreciation rights, restricted stock, restricted stock units, performance units and performance shares;
Limits the maximum number of shares that can be awarded to a single participant for certain awards during any fiscal year;
Limits the maximum amount of cash payable with respect to performance units to a single participant during any performance period;
Requires that stock options and stock appreciation rights be granted with an exercise price that is at least the fair market value of the shares on the date of grant; and
Requires shareowner approval for any amendment that increases the number of shares available for delivery pursuant to the 2008 Plan, materially increases the benefits accruing to participants under the 2008 Plan, or otherwise, to the extent such approval is necessary to comply with any tax or regulatory requirement that applies to the 2008 Plan, including requirements of the New York Stock Exchange.
No awards have been made under the 2008 Plan. As of December 10, 2007, there were outstanding options to purchase 8,119,208 shares, 210,417 shares of restricted stock and 326,621 performance shares (for which up to 653,242 shares could be delivered in payment) under the 2000 Plan. Outstanding awards under the 2000 Plan will continue in accordance with the terms and conditions of those awards and the 2000 Plan. As of December 10, 2007, there were 3,037,498 shares remaining available for delivery pursuant to the 2000 Plan. If shareowners approve the 2008 Plan, no further grants will be made under the 2000 Plan.
As of December 10, 2007, there were outstanding options to purchase 471,471 shares and no shares of restricted stock under our 1995 Long-Term Incentives Plan, options to purchase 72,750 shares and 34,912 shares of restricted stock under our 2003 Directors Stock Plan, options to purchase 4,334 shares and 5,600 shares of restricted stock under our 1995 Directors Stock Plan and options to purchase 14,000 shares and 22,463 shares of restricted stock under Board resolutions. Outstanding awards will continue in accordance with the terms and conditions of those awards and those plans. As of December 10, 2007, there were 367,799 shares remaining available for delivery pursuant to the 2003 Directors Stock Plan.
As of December 10, 2007, in the aggregate there were outstanding options to purchase 8,681,763 shares, with a per share weighted average exercise price of $43.49 and weighted average remaining term of 6.9 years, and 926,634 shares subject to full-value awards (consisting of 273,392 shares of restricted stock and 326,621 performance shares (for which up to 653,242 shares could be delivered in payment)).
The number of shares that may be delivered under the 2008 Plan may not exceed 4.1 million plus any shares remaining available for delivery under the 2000 Plan as of the date of shareowner approval of the 2008 Plan. The number of shares that may be delivered under the 2008 Plan in respect of awards
other than options and stock appreciation rights may not exceed 1.4 million. In addition, under the 2008 Plan, (i) no more than 1.4 million shares may be granted in the form of restricted stock or delivered in payment of restricted stock units or performance shares; and (ii) stock appreciation rights (SARs) may not be granted with respect to more than 100,000 shares. No single participant may receive in any fiscal year, under the 2008 Plan or any other plan:
stock options, stock appreciation rights or any combination thereof covering more than 650,000 shares; or
shares of restricted stock, restricted stock units, performance shares or any combination thereof (with restricted stock units and performance shares measured by the number of shares deliverable in payment thereof) covering more than 250,000 shares.
In addition, the maximum amount that may be paid to any one participant with respect to performance units under the 2008 Plan may not exceed $5 million for any one performance period.
Shares to be delivered under the 2008 Plan may be either authorized but unissued shares or treasury shares. On November 30, 2007, the closing price of our common stock as reported in the New York Stock Exchange Composite Transactions was $67.89.
The 2008 Plan will be administered by the Compensation and Management Development Committee (the Committee). In order to meet the requirements of Internal Revenue Code Section 162(m), no member of the Committee who is not an “outside director” as defined for purposes of that section will participate in the Committee’s action on proposed grants under the 2008 Plan. In addition, no member of the Committee who is not a “non-employee director” as defined in Rule 16b-3(b)(3)(i) under the Securities Exchange Act of 1934, as amended, will participate in the Committee’s action on proposed grants under the 2008 Plan.
The persons to whom grants are made under the 2008 Plan will include our and our subsidiaries’ employees, leased employees, consultants and prospective employees selected from time to time by the Committee in its sole discretion. In selecting participants and determining the type and amount of their grants, the Committee may consider recommendations of an independent compensation consultant and our Chairman and Chief Executive Officer and will take into account such factors as the participant’s level of responsibility, performance, performance potential, level and type of compensation, market data and potential value of previous grants.
The 2008 Plan permits grants to be made from time to time as stock options, which may be incentive stock options eligible for special tax treatment or non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance units or performance shares. Any of these types of awards (except stock options or stock appreciation rights, which are always performance-based) may be granted as performance compensation awards intended to qualify as performance-based compensation for purposes of Section 162(m), except that no performance compensation awards may be granted to prospective employees, leased employees or consultants. In addition, the 2008 Plan authorizes us to establish supplementary plans for employees and prospective employees subject to the tax laws of countries outside the United States.
Because it is within the discretion of the Committee to determine which employees will receive grants under the 2008 Plan and the type and amount thereof, these matters cannot be specified at present. Therefore, the benefits and amounts that will be received or allocated under the 2008 Plan are not otherwise determinable at this time, and we have not included a table reflecting such benefits or awards. While all of our and our subsidiaries’ approximately 20,000 employees and prospective employees who have been extended offers of employment are eligible under the terms of the 2008 Plan to receive grants under the 2008 Plan, it is presently contemplated that grants under this plan will be made primarily to senior and middle managers and other professionals, including Mr. Nosbusch and the other named executive officers as well as prospective employees who may become employed in such positions. Please see “Executive Compensation” above for information regarding long-term incentive grants or awards to named executive officers.
TYPES OF AWARDS
The 2008 Plan authorizes grants to participants of stock options, which may be incentive stock options eligible for special tax treatment or non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance units and performance shares.
| • | Stock Options. Under the provisions of the 2008 Plan authorizing the grant of stock options: |
| n | the exercise price of an option may not be less than the fair market value of the shares on the date of grant; |
| n | stock options may not be exercised after ten years from the date of grant; |
| n | the aggregate fair market value (determined as of the date the option is granted) of shares for which any employee may be granted incentive stock options, which are exercisable for the first time in any calendar year, may not exceed the maximum amount permitted under the Internal Revenue Code (presently $100,000); and |
| n | when a participant exercises a stock option, the option exercise price may be paid in full in cash, or at the discretion of the Committee, in shares, by withholding of shares for which the option is exercisable or in a combination of the foregoing. |
Generally, we expect that options will vest in three substantially equal annual installments beginning one year from the grant date.
| • | Stock Appreciation Rights. Under the provisions of the 2008 Plan authorizing the grant of stock appreciation rights: |
| n | the grant price of a stock appreciation right may not be less than the fair market value of the shares covered by the stock appreciation right at the date of grant; and |
| n | stock appreciation rights may not be exercised after ten years from the date of grant. |
The 2008 Plan permits the grant of stock appreciation rights related to a stock option (a tandem SAR), either at the time of the option grant or thereafter during the term of the option, or the grant of stock appreciation rights separate and apart from the grant of an option (a freestanding SAR). Stock appreciation rights entitle the grantee, upon exercise of such rights (and, in the case of tandem SARs, upon surrender of the related option to the extent of an equivalent number of shares), to receive a payment equal to the excess of the fair market value (on the date of exercise) of the number of shares covered by the portion of the rights being exercised over the grant price of the rights applicable to such shares. Payments upon the exercise of stock appreciation rights may be made in cash, in shares (valued at the fair market value of the shares on the date of exercise) or partly in cash and partly in shares, as the Committee may determine.
| • | Restricted Stock. The Committee may grant shares subject to specified restrictions, including continued employment for a specified time or achievement of one or more specific goals with respect to our performance or the performance of one of our business units or the participant over a specified period of time. Grants of restricted stock are subject to forfeiture if the prescribed conditions are not met. During the restricted period, shares of restricted stock have all the attributes of outstanding shares, but the Committee may provide that dividends and any other distributions on the shares not be paid or be accumulated or reinvested in additional shares during the restricted period. When shares of restricted stock are no longer subject to forfeiture, certificates for the shares will be delivered to the grantee. |
| • | Restricted Stock Units. The Committee may grant restricted stock units entitling participants to receive at a specified future date an amount based on the fair market value of a specified number of shares on the payout date, subject to specified restrictions, including continued employment for a specified time or achievement of one or more specific goals with respect to our performance or the performance of one of our business units or the participant. Participants holding restricted stock units have no ownership interest in any shares to which the restricted stock units relate until |
payment is actually made in shares. The Committee may provide that restricted stock units may accumulate dividend equivalents in cash or in share equivalents held subject to terms and conditions established by the Committee. Restricted stock units that become payable may be settled in shares, in cash based on the fair market value of the shares underlying the restricted stock units when the payout occurs or partly in cash and partly in shares. |
| • | Performance Units. The Committee may grant performance units denominated in cash, the amount of which is based on the achievement of one or more specific goals with respect to our performance or the performance of one of our business units or the participant. Earned payouts of performance units will be paid in cash, in shares valued at the fair market value of the shares when the payout occurs or partly in cash and partly in shares. Earned payouts may not exceed $5 million for any one performance period for any one participant. |
| • | Performance Shares. The Committee may grant performance shares entitling participants to receive at a specified future date an amount based on the fair market value of a specified number of shares on the payout date, subject to specified restrictions, including continued employment for a specified time or achievement of one or more specific goals with respect to our performance or the performance of one of our business units or the participant. Participants holding performance shares have no ownership interest in any shares to which the performance shares relate until payment is actually made in shares. The Committee may provide that performance shares may or may not accumulate dividend equivalents in cash or in share equivalents held subject to terms and conditions established by the Committee. Performance shares that become payable may be settled in shares, in cash based on the fair market value of the shares underlying the performance shares when the payout occurs or partly in cash and partly in shares. |
The Committee may designate any award (other than a grant of stock options or stock appreciation rights, which are always performance-based) at the time of its grant as a performance compensation award to qualify payment of the award under Section 162(m) of the Internal Revenue Code, except that no performance compensation awards may be granted to prospective employees, leased employees or consultants. If the Committee does so, it must establish a performance period, performance measures, performance goals and performance formulas for the award within 90 days after the beginning of the performance period. The Committee may not adjust the performance period, performance measures, performance goals or performance formulas unless after any such adjustment the award would continue to qualify as performance-based compensation under Section 162(m). Under the 2008 Plan, performance measure is defined as one or more of the following selected by the Committee to measure performance: basic or diluted earnings per share; revenue; sales; operating income; earnings before or after interest, taxes, depreciation or amortization; return on capital; return on invested capital; return on equity; return on assets; return on net assets; return on sales; cash flow; operating cash flow; free cash flow; working capital; stock price; or total shareowner return.
The 2008 Plan permits the Committee to prescribe in the award agreement for each grant any other terms and conditions of that grant, including the timing of exercisability or vesting of awards and the treatment of awards upon termination of a participant’s employment. Under the 2008 Plan, awards may not be granted after the tenth anniversary of approval of the 2008 Plan by our shareowners.
TAX MATTERS
The following is a general summary of certain United States federal income tax consequences of awards made under the 2008 Plan, based upon the laws presently in effect, and is intended for the information of our shareowners considering how to vote with respect to the proposal. It is not intended as tax guidance to participants in the 2008 Plan. The discussion does not take into account a number of considerations that may apply in light of the circumstances of a particular participant. The income tax consequences under foreign, state and local tax laws may differ.
| • | Incentive Stock Options. The grant of an incentive stock option will not result in any immediate tax consequences to us or the optionee. An optionee will not recognize taxable income, and we |
will not be entitled to any deduction, upon the timely exercise of an incentive stock option, but the excess of the fair market value of the shares acquired over the option exercise price will be an item of tax preference for purposes of the alternative minimum tax. If the optionee holds the shares acquired for at least one year (and two years after the option was granted), gain or loss recognized on the subsequent disposition of the shares will be treated as long-term capital gain or loss. Capital losses of individuals are deductible only against capital gains and a limited amount of ordinary income. In the event of an earlier disposition, the optionee will recognize ordinary taxable income in an amount equal to the lesser of (i) the excess of the fair market value of the shares on the date of exercise over the option exercise price; or (ii) if the disposition is a taxable sale or exchange, the amount of any gain recognized. Upon such a disqualifying disposition, we will be entitled to a deduction in the same amount and at the same time as the optionee recognizes ordinary taxable income. |
| • | Non-qualified Stock Options. The grant of a non-qualified stock option will not result in any immediate tax consequences to us or the optionee. Upon the exercise of a non-qualified stock option, the optionee will recognize ordinary taxable income, and we will be entitled to a deduction, equal to the difference between the option exercise price and the fair market value of the shares acquired at the time of exercise. |
| • | Stock Appreciation Rights. The grant of either a tandem SAR or a freestanding SAR will not result in any immediate tax consequences to us or the grantee. Upon the exercise of either a tandem SAR or a freestanding SAR, any cash received and the fair market value on the exercise date of any shares received will constitute ordinary taxable income to the grantee. We will be entitled to a deduction in the same amount and at the same time. |
| • | Restricted Stock. An employee normally will not recognize taxable income upon an award of restricted stock, and we will not be entitled to a deduction, until the restrictions terminate. When the restrictions terminate, the employee will recognize ordinary taxable income equal to the fair market value of the shares at that time, plus the amount of any dividends and interest thereon to which the employee then becomes entitled. However, an employee may elect to recognize ordinary taxable income in the year the restricted stock is awarded equal to its fair market value at that time, determined without regard to the restrictions. We will be entitled to a deduction in the same amount and at the same time as the employee recognizes income, subject to the limitations of Section 162(m). |
| • | Restricted Stock Units. The grant of a restricted stock unit will not result in any immediate tax consequences to us or the grantee. Upon payment of a restricted stock unit, the grantee will recognize ordinary taxable income in an amount equal to the fair market value of the shares or cash received at that time. We will be entitled to a deduction in the same amount and at the same time, subject to the limitations of Section 162(m). |
| • | Performance Units. Any cash and the fair market value of any shares received in connection with the grant of a performance unit under the 2008 Plan will constitute ordinary taxable income to the employee in the year in which paid, and we will be entitled to a deduction in the same amount and at the same time, subject to the limitations of Section 162(m). |
| • | Performance Shares. The grant of a performance share will not result in any immediate tax consequences to us or the grantee. Upon payment of a performance share, the grantee will recognize ordinary taxable income in an amount equal to the fair market value of the shares or cash received. We will be entitled to a deduction in the same amount and at the same time, subject to the limitations of Section 162(m). |
| • | Payouts of Performance Compensation Awards. The designation of an award of restricted stock or the grant of a restricted stock unit, performance unit or performance share as a performance compensation award will not change the tax treatment described above to an employee who receives such an award or grant. Such a designation will, however, enable an award or grant to qualify as performance-based compensation not subject to the $1 million limitation on deductible compensation under Section 162(m). |
We withhold applicable taxes from amounts paid in satisfaction of an award. The amount of the withholding will generally be determined with reference to the closing price of the shares as reported by the New York Stock Exchange on the date of determination. Under the 2008 Plan, the amount of withholding in respect of options exercised through the cashless method in which shares are immediately sold may be determined by reference to the price at which the shares are sold.
OTHER
In the event of any change in or affecting our outstanding shares as a result of a stock dividend, stock split, merger, consolidation, recapitalization, reorganization, combination or exchange of shares or other similar corporate changes or an extraordinary dividend in cash, securities or other property, our Board of Directors will make appropriate amendments to or adjustments in the 2008 Plan or grants made thereunder. Equitable adjustments to outstanding awards will ensure that the intrinsic value of each outstanding award under the 2008 Plan immediately after such events is equal to the intrinsic value of each outstanding award immediately before such events. These actions will include, as applicable, changes in the number of shares remaining available for delivery under the 2008 Plan, the maximum number of shares that may be granted or delivered as or in payment of awards to any single participant, the number of shares subject to outstanding awards, the option exercise price under outstanding options and the grant price under outstanding stock appreciation rights, and accelerating the vesting of outstanding awards.
Our Board of Directors may at any time amend, suspend or terminate the 2008 Plan and the Committee may at any time alter or amend any or all awards under the 2008 Plan to the extent permitted by applicable law. No such action may, however (except in making amendments and adjustments as described in the preceding paragraph):
without the consent of the person affected, impair the rights of the holder of any award; or
without the approval of shareowners, increase the number of shares available for delivery pursuant to the 2008 Plan, or materially increase the benefits accruing to participants under the 2008 Plan, or otherwise be effective to the extent that shareowner approval is necessary to comply with any tax or regulatory requirement that applies to the 2008 Plan, including requirements of the New York Stock Exchange.
Under present tax and regulatory requirements, shareowner approval would be required, among other things, to change the class of persons eligible to receive incentive stock options under the 2008 Plan. In no event (except in making amendments and adjustments as described above) may our Board of Directors or the Committee reprice underwater stock options or stock appreciation rights (those whose exercise price is greater than the fair market value of the shares covered by the options or stock appreciation rights) by reducing the exercise price, canceling the awards and granting replacement awards, repurchasing the award for cash, or otherwise.
The 2008 Plan provides that, except as otherwise determined by the Committee at the time of grant of an award, upon a change of control (which the 2008 Plan defines as provided in Article III, Section 13(I)(1) of our By-Laws):
all outstanding stock options and stock appreciation rights will become vested and exercisable;
all restrictions on restricted stock will lapse;
all performance goals applicable to awards will be deemed achieved at levels determined by the Committee and all other terms and conditions met;
all performance units, restricted stock units and performance shares will be paid out as promptly as practicable; and
all other awards will be delivered or paid.
The Board of Directors recommends that you vote “FOR” the proposal to approve our 2008 Long-Term Incentives Plan, which is presented as item (c).
The Board of Directors does not know of any other matters that may be presented at the meeting. OurBy-Laws required notice by November 3, 20069, 2007 for any matter to be brought before the meeting by a shareowner. In the event of a vote on any matters other than those referred to in the accompanying Notice of 20072008 Annual Meeting of Shareowners, proxies in the accompanying form will be voted in accordance with the judgment of the persons voting such proxies.
Section 16(a) of the Securities Exchange Act requires our executive officers and directors, and persons who own more than ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC and the NYSE. Based on our review of the copies of such forms that we have received and written representations from certain reporting persons confirming that they were not required to file Forms 5 for specified fiscal years, we believe that all our executive officers, directors and greater than ten percent beneficial owners complied with applicable SEC filing requirements during fiscal SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE2007.2006.
Our Annual Report to Shareowners, including the Annual Report onForm 10-K and financial statements, for the fiscal year ended September 30, ANNUAL REPORT A copy of our Annual Report is available on the Internet as set forth in the Notice of Internet Availability of Proxy Materials.2006,2007, was mailed to shareowners with this proxy statement to shareowners who received a printed copy of this proxy statement.
We will send a copy of our Annual Report on Form 10-K to any shareowner without charge upon written request addressed to:
Rockwell Automation, Inc.
Shareowner Relations, E-7F19
1201 S. Second Street
Milwaukee, Wisconsin 53204, USA
+1-414-382-8410
If a shareowner wants to submit a proposal for possible inclusion in our proxy statement SHAREOWNER PROPOSALS FOR 2009 ANNUAL MEETING IN 2008To be eligibleshareowner proposals for the 20082009 Annual Meeting of Shareowners, the proposal must be received on or before August 16, 2007 by the Office of the Secretary at our Global Headquarters,global headquarters, 1201 South Second Street, Milwaukee, Wisconsin 53204.53204, USA by August 16, 2008. In addition, our By-Laws require a shareowner desiring to propose any matter for consideration of the shareowners at the 20082009 Annual Meeting of Shareowners to notify the Corporation’s Secretary in writing at the address listed in the preceding sentence on or after October 10, 20072008 and on or beforethrough November 9, 2007.2008. If the number of directors to be elected to the Board at the 2008 Annual Meeting of Shareowners is increased and we do not make a public announcement naming all of the nominees for director or specifying the increased size of the Board on or before October 30, 2007,2008, a shareowner proposal with respect to nominees for any new position created by such increase will be considered timely if received by our Secretary not later than the tenth day following our public announcement of the increase.24
(800) 542-1061 or by writing to ADP, Householding Department, 51 Mercedes Way, Edgewood, New York 11717. You will be removed from the householding program within 30 days of receipt of the revocation of your consent.
We will bear the cost of the solicitation of proxies. In addition toWe are soliciting proxies by mail, e-mail ande-mail, proxies through notice of Internet availability of the proxy materials. Proxies also may be solicited personally, or by telephone or facsimile, by a few of our regular employees without additional compensation. In addition, we have hired Morrow & Co., LLC for $8,000 plus associated costs and expenses, to assist in the solicitation. We will reimburse brokers and other persons holding stock in their names, or in the names of nominees, for their expenses for forwarding proxy materials to principals and beneficial owners and obtaining their proxies.
This proxy statement contains information regarding (a) (b) average invested capital for the year, calculated as a five quarter rolling average using the sum of short-term debt, long-term debt, shareowners’ equity, cumulative impairments of goodwill and intangibles required under SFAS No. 142, and accumulated amortization of goodwill and other intangible assets, minus cash and cash equivalents, multiplied by; (c) one minus theSUPPLEMENTAL FINANCIAL INFORMATIONreturn on invested capitalReturn On Invested Capital (ROIC), which is a non-GAAP financial measure. Management believesWe believe that ROIC is useful to investors as a measure of performance and of the effectiveness of the use of capital in our operations. Management usesWe use ROIC as one measure to monitor and evaluate our performance. Our measure of ROIC is likely to differ from that used by other companies. We define ROIC as the percentage resulting from the following calculation:Incomeincome from continuing operations before accounting change if any, and income from Power Systems discontinued operating activities, before non-operating gains or losses, special charges, interest expense, income tax provision, and purchase accounting depreciation and amortization, divided by; adjusted effective tax rate for the period, the adjusted effective tax rate is calculated by excluding the effect of separately reported tax items in continuing operations.25
| Year Ended | ||||||||
| September 30, | ||||||||
| 2006 | 2005 | |||||||
(a) Return | ||||||||
| Income from continuing operations before cumulative effect of accounting change | $ | 628.1 | $ | 518.4 | ||||
| Interest expense | 58.4 | 45.8 | ||||||
| Income tax provision | 263.3 | 218.6 | ||||||
| Purchase accounting depreciation and amortization | 13.3 | 14.7 | ||||||
| Gain on sale of investment | (19.9 | ) | — | |||||
Return | 943.2 | 797.5 | ||||||
(b) Average Invested Capital | ||||||||
| Short-term debt | 115.6 | 0.4 | ||||||
| Long-term debt | 746.9 | 752.2 | ||||||
| Shareowners’ equity | 1,691.9 | 1,870.1 | ||||||
| Impairments of goodwill and intangibles | 108.0 | 108.0 | ||||||
| Accumulated amortization of goodwill and intangibles | 682.5 | 659.7 | ||||||
| Cash and cash equivalents | (353.2 | ) | (471.7 | ) | ||||
Average invested capital | 2,991.7 | 2,918.7 | ||||||
(c) Adjusted Effective Tax Rate | ||||||||
| Income tax provision | 263.3 | 218.6 | ||||||
| Separately reported tax items in continuing operations | — | 19.7 | ||||||
Income tax provisions before separately reported tax items in continuing operations | 263.3 | 238.3 | ||||||
Income from continuing operations before income taxes and cumulative effect of accounting change | $ | 891.4 | $ | 737.0 | ||||
Adjusted effective tax rate | 29.5 | % | 32.3 | % | ||||
(a) / (b) * (1–c) Return On Invested Capital | 22.2 | % | 18.5 | % | ||||
| Year Ended September 30, | ||||||||
| 2007 | 2006 | |||||||
(a) Return | ||||||||
Income from continuing operations before cumulative effect of accounting change | $ | 569.3 | $ | 529.3 | ||||
Income from Power Systems discontinued operating activities | 42.3 | 98.8 | ||||||
Interest expense(1) | 63.8 | 58.4 | ||||||
Income tax provision(1) | 246.6 | 263.3 | ||||||
Purchase accounting depreciation and amortization(1) | 16.9 | 13.3 | ||||||
Special charges | 43.5 | — | ||||||
Gain on sale of investment | — | (19.9 | ) | |||||
Return | 982.4 | 943.2 | ||||||
(b) Average Invested Capital | ||||||||
Short-term debt | 404.0 | 115.6 | ||||||
Long-term debt | 544.3 | 746.9 | ||||||
Shareowners’ equity | 1,959.9 | 1,691.9 | ||||||
Impairments of goodwill and intangibles | 43.2 | 108.0 | ||||||
Accumulated amortization of goodwill and intangibles | 632.5 | 682.5 | ||||||
Cash and cash equivalents | (678.8 | ) | (353.2 | ) | ||||
Average invested capital | 2,905.1 | 2,991.7 | ||||||
(c) Effective Tax Rate | ||||||||
Income tax provision(1) | 246.6 | 263.3 | ||||||
Income from continuing operations and discontinued operating activities before income taxes and cumulative effect of accounting charge | $ | 858.2 | $ | 891.4 | ||||
Effective tax rate | 28.7 | % | 29.5 | % | ||||
(a) / (b) * (1–c) Return On Invested Capital | 24.1 | % | 22.2 | % | ||||
(1) | Includes amounts related to both continuing and discontinued operations. |
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREOWNERS TO BE HELD ON FEBRUARY 6, 2008
This proxy statement and 2007 Annual Report, including the annual report on Form 10-K for our fiscal year ended September 30, 2007, are available to you on the Internet atwww.investorEconnect.com.
To view this material, have your 12-digit control number from your proxy card available.
The Annual Meeting (for shareowners as of the December 10, 2007 record date) will be held on February 6, 2008, at 10:00 a.m. CST at The Pfister Hotel, 424 East Wisconsin Avenue, Milwaukee, Wisconsin 53202, USA.
For directions to the Annual Meeting and to vote in person, please call Shareowner Relations at +1-414-382-8410.
Shareowners will vote on the following proposals at the Annual Meeting:
| 1. | The election of Bruce M. Rockwell and Joseph F. Toot, Jr. as directors; |
| 2. | The approval of the selection of Deloitte & Touche, LLP as our independent registered public accounting firm for fiscal year 2008; and |
| 3. | The approval of our 2008 Long-Term Incentives Plan. |
The Board of Directors recommends that you vote for the election of the named directors, and the proposals to approve Deloitte & Touche and our 2008 Long-Term Incentives Plan.
December 14, 20062007
ROCKWELL AUTOMATION, INC.
GUIDELINES FOR DETERMINING DIRECTOR INDEPENDENCE
Excerpt from Rockwell Automation’s Board of Directors Guidelines on Corporate Governance
A director will not be independent if:
the director is, or has been within the last three years, employed by the Corporation, or an immediate family member of the director is, or has been within the last three years, an executive officer of the Corporation (provided, that employment of a director as an interim Chairman, CEO or other executive officer of the Corporation shall not disqualify a director from being considered independent following that employment);
26
the director or an immediate family member of the director received more than $100,000 in direct compensation from the Corporation during any twelve-month period within the last three years, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided, that such compensation for prior service is not contingent in any way on continued service); provided that compensation received by the director for former service as an interim Chairman, CEO or other executive officer of the Corporation and compensation received by an immediate family member of the director for service as an employee (other than an executive officer) of the Corporation need not be considered in determining independence;
the director is a current partner or employee of the Corporation’s independent registered public accounting firm or internal auditor, or an immediate family member of the director is a current employee of its independent registered public accounting firm or internal auditor and participates in the firm’s or auditor’s audit, assurance or tax compliance (but not tax planning) practice, or the director or an immediate family member of the director was within the last three years (but is no longer) a partner or employee of the independent registered public accounting firm or internal auditor and personally worked on the Corporation’s audit within that time;
the director or an immediate family member of the director is, or has been within the last three years, an executive officer of another company where any of the Corporation’s current executive officers at the same time serves or served on the compensation committee of the board of directors of such other company; or
the director is a current employee, or an immediate family member of the director is a current executive officer, of another company that has made payments to, or received payments from, the Corporation for property or services in an amount that, in any of the last three fiscal years of the other company, exceeds the greater of $1 million or two percent of the consolidated gross revenues of the other company.
Any one or more of the following relationships, whether individually or in any combination, will be considered immaterial and would not, in and of themselves, impair the director’s independence:
| 1. | the director is an executive officer, employee or general partner, or an immediate family member of the director is an executive officer or general partner, of another company or entity that has made payments to, or received payments from, the Corporation for property or services in an amount that does not exceed, in any of the last three fiscal years of the other company or entity, the greater of $1 million or two percent of the consolidated gross revenues of the other company or entity; |
Indebtedness
| 2. | the director is an executive officer, employee or general partner, or an immediate family member of the director is an executive officer or general partner, of another company or entity |
that is indebted to the Corporation, or to which the Corporation is indebted, and the total amount of either company’s (or entity’s) indebtedness to the other at the end of the last completed fiscal year is less than two percent of the other company’s or entity’s total consolidated assets; |
Charitable Contributions
| 3. | the director is an executive officer or employee, or an immediate family member of the director is an executive officer, of a charitable organization, and the Corporation’s discretionary charitable contributions to the organization (i.e., other than contributions made under the Corporation’s matching gifts program) do not exceed, in any of the last three fiscal years of the charitable organization, the greater of $1 million or two percent of that organization’s total consolidated gross revenues; |
Directorships
| 4. | the director or an immediate family member of the director is a director, advisory director or trustee (or serves in a similar position) of another company, entity or charitable organization that engages in any transactions (including indebtedness transactions), or has any other relationships, with the Corporation (including any contributions by the Corporation to any such charitable organization); |
Less Than 10% Equity Interest
| 5. | the director and the immediate family members of the director directly or indirectly own, in the aggregate, less than a 10% equity interest in another company or entity that engages in any transactions (including indebtedness transactions), or has any other relationships, with the Corporation; |
Other
| 6. | an immediate family member of the director is an employee (but not an executive officer) of another company, entity or charitable organization that engages in any transactions (including indebtedness transactions), or has any other relationships, with the Corporation (including any contributions by the Corporation to any such charitable organization); |
| 7. | a family member (other than an immediate family member) of the director serves in any capacity with the Corporation; or |
| 8. | a family member (other than an immediate family member) of the director serves in any capacity with, or owns any equity interest in, another company, entity or charitable organization that engages in any transactions (including indebtedness transactions), or has any other relationships, with the Corporation (including any contributions by the Corporation to any such charitable organization). |
Notwithstanding the foregoing, the Board may determine that a director who has a relationship that exceeds the limits described in the immediately preceding paragraph (but only to the extent that the Board determines that the director does not have any direct or indirect material relationship with the Corporation and any such relationship does not constitute a bar to independence under NYSE listing requirements) is nonetheless independent. The Corporation will explain in its next Proxy Statement the basis for any such determination.
For purposes of these Guidelines, the term “immediate family member” includes an individual’s spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law, and anyone (other than domestic employees) who shares the individual’s home.
The ownership of a substantial amount of stock in the Corporation shall not in itself be a basis for a determination that a director is not independent.
The Board will undertake an annual review of the independence of all non-employee directors.
ROCKWELL AUTOMATION, INC.
2008 LONG-TERM INCENTIVES PLAN
Section 1: Purpose
The purpose of the Plan is to promote the interests of the Corporation and its shareowners by providing incentive compensation opportunities to assist in (i) attracting, motivating and retaining Employees and Prospective Employees and (ii) aligning the interests of Employees and Prospective Employees participating in the Plan with the interests of the Corporation’s shareowners.
Section 2: Definitions
As used in the Plan, the following terms shall have the respective meanings specified below.
| a. | “Award”means an award granted pursuant to Section 4. |
| b. | “Award Agreement” means a document described in Section 6 setting forth the terms and conditions applicable to an Award granted to a Participant. |
| c. | “Board of Directors”means the Board of Directors of the Corporation, as it may be comprised from time to time. |
| d. | “Change of Control” means any of the following: |
| (i) | The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of common stock of the Corporation (the “Outstanding Rockwell Common Stock”) or (B) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the “Outstanding Rockwell Voting Securities”);provided, however, that for purposes of this subparagraph (i), the following acquisitions shall not constitute a Change of Control: (w) any acquisition directly from the Corporation, (x) any acquisition by the Corporation, (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any corporation controlled by the Corporation or (z) any acquisition pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 2(d); or |
| (ii) | Individuals who, as of October 1, 2007, constitute the Board of Directors (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors;provided, however, that any individual becoming a director subsequent to that date whose election, or nomination for election by the Corporation’s shareowners, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or |
| (iii) | Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Corporation or the acquisition of assets of another entity (a “Corporate Transaction”), in each case, unless, following such Corporate Transaction, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Rockwell Common Stock and Outstanding Rockwell Voting Securities immediately prior to such Corporate Transaction beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation |
which as a result of such transaction owns the Corporation or all or substantially all of the Corporation’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Rockwell Common Stock and Outstanding Rockwell Voting Securities, as the case may be, (B) no Person (excluding any employee benefit plan (or related trust) of the Corporation or such corporation resulting from such Corporate Transaction) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Corporate Transaction and (C) at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Corporate Transaction; or |
| (iv) | Approval by the Corporation’s shareowners of a complete liquidation or dissolution of the Corporation. |
| e. | “Code” means the Internal Revenue Code of 1986, as amended from time to time. |
| f. | “Committee” means the Compensation and Management Development Committee of the Board of Directors, as it may be comprised from time to time. |
| g. | “Corporation”means Rockwell Automation, Inc. and any successor thereto. |
| h. | “Covered Employee” means a covered employee within the meaning of Code Section 162(m)(3). |
| i. | “Dividend Equivalent”means an amount equal to the amount of cash dividends payable with respect to a share of Stock after the date specified in an Award Agreement with respect to an Award settled in Stock or an Award of Restricted Stock Units or Performance Shares;provided,however, that no Dividend Equivalents shall be paid in respect of Awards of Options or SARs. |
| j. | “Employee”means an individual who is an employee or a leased employee of, or a consultant to, the Corporation or a Subsidiary, but excludes members of the Board of Directors who are not also employees of the Corporation or a Subsidiary. |
| k. | “Exchange Act”means the Securities Exchange Act of 1934, and any successor statute, as it may be amended from time to time. |
| l. | “Executive Officer”means an Employee who is an executive officer of the Corporation as defined in Rule 3b-7 under the Exchange Act as it may be amended from time to time. |
| m. | “Fair Market Value” means the closing sale price of the Stock as reported in the New York Stock Exchange—Composite Transactions (or if the Stock is not then traded on the New York Stock Exchange, the closing sale price of the Stock on the stock exchange or over-the-counter market on which the Stock is principally trading) on the date of a determination (or on the next preceding day the Stock was traded if it was not traded on the date of a determination). |
| n. | “Incentive Stock Option”means an Option (or an option to purchase Stock granted pursuant to any other plan of the Corporation or a Subsidiary) intended to comply with Code Section 422. |
| o. | “Non-Qualified Stock Option” means an Option that is not an Incentive Stock Option. |
| p. | “Option”means an option to purchase Stock granted pursuant to Section 4(a). |
| q. | “Participant” means any Employee or Prospective Employee who has been granted an Award. |
| r. | “Performance Formula” means, for a Performance Period, one or more objective formulas or standards established by the Committee for purposes of determining whether or the extent to which an Award has been earned based on the level of performance attained with respect to one or more Performance Goals. Performance Formulas may vary from Performance Period to Performance Period and from Participant to Participant and may be established on a stand-alone basis, in tandem or in the alternative. |
| s. | “Performance Goal”means the level of performance, whether absolute or relative to a peer group or index, established by the Committee as the performance goal with respect to a Performance Measure. Performance Goals may vary from Performance Period to Performance Period and from Participant to Participant and may be established on a stand-alone basis, in tandem or in the alternative. |
| t. | “Performance Measure”means one or more of the following selected by the Committee to measure the performance of the Corporation, a business unit (which may but need not be a Subsidiary) of the Corporation or both for a Performance Period: basic or diluted earnings per share; revenue; sales; operating income; earnings before or after interest, taxes, depreciation or amortization; return on capital; return on invested capital; return on equity; return on assets; return on net assets; return on sales; cash flow; operating cash flow; free cash flow; working capital; stock price; and total shareowner return. Each such measure, to the extent applicable, shall be determined in accordance with generally accepted accounting principles as consistently applied by the Corporation and, if so determined by the Committee at the time the Award is granted and to the extent permitted under Code Section 162(m), adjusted to omit the effects of extraordinary items, gain or loss on the disposal of a business, unusual or infrequently occurring events and transactions and cumulative effects of changes in accounting principles. Performance Measures may vary from Performance Period to Performance Period and from Participant to Participant and may be established on a stand-alone basis, in tandem or in the alternative. |
| u. | “Performance Period” means one or more periods of time (of not less than one fiscal year of the Corporation), as the Committee may designate, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s rights in respect of an Award. |
| v. | “Performance Share” means an Award denominated in Stock granted pursuant to Section 4(f). |
| w. | “Performance Unit” means an Award denominated in cash granted pursuant to Section 4(e). |
| x. | “Plan” means this 2008 Long-Term Incentives Plan as adopted by the Corporation and in effect from time to time. |
| y. | “Prior Plan” means the Rockwell Automation, Inc. 2000 Long-Term Incentives Plan, as amended. |
| z. | “Prospective Employee” means an individual who at the time of the grant of an Award has been extended an offer of employment with the Corporation or a Subsidiary but who has not yet accepted said offer and become an Employee. |
| aa. | “Restricted Stock” means an Award of Stock subject to restrictions granted pursuant to Section 4(c). |
| bb. | “Restricted Stock Unit” means an Award denominated in Stock granted pursuant to Section 4(d). |
| cc. | “SAR” means a stock appreciation right granted pursuant to Section 4(b). |
| dd. | “Section 409A” means Code Section 409A, including any regulations and other guidance issued thereunder by the Department of the Treasury and/or the Internal Revenue Service. |
| ee. | “Stock” means shares of Common Stock, par value $1 per share, of the Corporation or any security of the Corporation issued in substitution, exchange or lieu thereof. |
| ff. | “Subsidiary” means (i) any corporation or other entity in which the Corporation, directly or indirectly, has ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation or other entity and (ii) any corporation or other entity in which the Corporation has a significant equity interest and which the Committee has determined to be considered a Subsidiary for purposes of the Plan. |
Section 3: Eligibility
The Committee may grant one or more Awards to any Employee or Prospective Employee designated by it to receive an Award.
Section 4: Awards
The Committee may grant any one or more of the following types of Awards, and any such Award may be granted by itself, together with another Award that is linked and alternative to the Award with which it is granted or together with another Award that is independent of the Award with which it is granted:
| a. | Options.An Option is an option to purchase a specified number of shares of Stock exercisable at such time or times and subject to such terms and conditions as the Committee may determine consistent with the provisions of the Plan, including the following: |
| (i) | The exercise price per share of an Option shall not be less than 100% of the Fair Market Value on the date the Option is granted, and no Option may be exercisable more than 10 years after the date the Option is granted. |
| (ii) | The exercise price of an Option shall be paid in cash or, at the discretion of the Committee, in Stock valued at the Fair Market Value on the date of exercise, by withholding shares of Stock for which the Option is exercisable valued at the Fair Market Value on the date of exercise or through any combination of the foregoing. |
| (iii) | No fractional shares of Stock will be issued or accepted. The Committee may impose such other conditions, restrictions and contingencies with respect to shares of Stock delivered pursuant to the exercise of an Option as it deems desirable. |
| (iv) | Incentive Stock Options shall be subject to the following additional provisions: |
| A. | No grant of Incentive Stock Options to any one Employee shall cover a number of shares of Stock whose aggregate Fair Market Value (determined on the date the Option is granted), together with the aggregate Fair Market Value (determined on the respective date of grant of any Incentive Stock Option) of the shares of Stock covered by any Incentive Stock Options that have been previously granted under the Plan or any other plan of the Corporation or any Subsidiary and that are exercisable for the first time during the same calendar year, exceeds $100,000 (or such other amount as may be fixed as the maximum amount permitted by Code Section 422(d));provided, however, that, if such limitation is exceeded, the Incentive Stock Options granted in excess of such limitation shall be treated as Non-Qualified Stock Options. |
| B. | No Incentive Stock Option may be granted under the Plan after December 5, 2017. |
| C. | No Incentive Stock Option may be granted to any Participant who on the date of grant is not an employee of the Corporation or a corporation that is a subsidiary of the Corporation within the meaning of Code Section 424(f). |
| b. | Stock Appreciation Rights (SARs). A SAR is the right to receive a payment measured by the excess of the Fair Market Value of a specified number of shares of Stock on the date on which the Participant exercises the SAR over the grant price of the SAR determined by the Committee, which shall be exercisable at such time or times and subject to such terms and conditions as the Committee may determine consistent with the provisions of the Plan, including the following: |
| (i) | The grant price of a SAR shall not be less than 100% of the Fair Market Value of the shares of Stock covered by the SAR on the date the SAR is granted, and no SAR may be exercisable more than 10 years after the date the SAR is granted. |
| (ii) | SARs may be (A) freestanding SARs or (B) tandem SARs granted in conjunction with an Option, either at the time of grant of the Option or at a later date, and exercisable at the Participant’s election instead of all or any part of the related Option. |
| (iii) | The payment to which the Participant is entitled on exercise of a SAR may be in cash, in Stock valued at the Fair Market Value on the date of exercise or partly in cash and partly in Stock (as so valued), as the Committee may determine. |
| c. | Restricted Stock. Restricted Stock is Stock that is issued to a Participant subject to such restrictions on transfer and such other restrictions on incidents of ownership as the Committee may determine, which restrictions shall lapse at such time or times or upon the occurrence of such event or events as the Committee may determine, including but not limited to the achievement, over a specified period of time, of one or more specific goals with respect to performance of the Corporation, a business unit (which may but need not be a Subsidiary) of the Corporation or that Participant. Subject to the specified restrictions, the Participant as owner of those shares of Restricted Stock shall have the rights of the holder thereof, except that the Committee may provide at the time of the Award that any dividends or other distributions paid with respect to that Stock while subject to those restrictions shall not be payable or shall be accumulated, with or without interest, or reinvested in Stock and held subject to the same restrictions as the Restricted Stock and such other terms and conditions as the Committee shall determine. Shares of Restricted Stock shall be registered in the name of the Participant and, at the Corporation’s sole discretion, shall be held in book entry form subject to the Corporation’s instructions or shall be evidenced by a certificate, which shall bear an appropriate restrictive legend, shall be subject to appropriate stop-transfer orders and shall be held in custody by the Corporation until the restrictions on those shares of Restricted Stock lapse. |
| d. | Restricted Stock Unit. A Restricted Stock Unit is an Award of a right to receive at a specified future date an amount based on the Fair Market Value of a specified number of shares of Stock on the payout date, subject to such terms and conditions as the Committee may establish, including but not limited to the achievement, over a specified period of time, of one or more specific goals with respect to performance of the Corporation, a business unit (which may but need not be a Subsidiary) of the Corporation or the Participant to whom the Restricted Stock Units are granted. Restricted Stock Units that become payable in accordance with their terms and conditions shall be paid out in Stock, in cash based on the Fair Market Value of the Stock underlying the Restricted Stock Units on the payout date (or at the sole discretion of the Committee, the day immediately preceding that date) or partly in cash (as so based) and partly in Stock, as the Committee may determine. Any person who holds Restricted Stock Units shall have no ownership interest in any shares of Stock to which such Restricted Stock Units relate until and unless payment with respect to such Restricted Stock Units is actually made in shares of Stock. The Committee may provide for no deemed accumulation of Dividend Equivalents or for the deemed accumulation of Dividend Equivalents in cash, with or without interest, or the deemed reinvestment of Dividend Equivalents in Stock held subject to the same conditions as the Restricted Stock Unit and/or such other terms and conditions as the Committee shall determine. |
| e. | Performance Units. A Performance Unit is an Award denominated in cash, the amount of which may be based on the achievement, over a specified period of time, of one or more specific goals with respect to performance of the Corporation, a business unit (which may but need not be a Subsidiary) of the Corporation or the Participant to whom the Performance Units are granted. The amount that may be paid to any one Participant with respect to Performance Units shall not exceed $5 million for any one Performance Period. Performance Units that become payable in accordance with their terms and conditions shall be paid out in cash, in Stock valued at the Fair Market Value on the payout date (or at the sole discretion of the Committee, the day immediately preceding that date) or partly in cash and partly in Stock (as so valued), as the Committee may determine. |
| f. | Performance Shares. A Performance Share is an Award of a right to receive at a specified future date an amount based on the Fair Market Value of a specified number of shares of Stock on the payout date, subject to such terms and conditions as the Committee may establish, including but not limited to the achievement, over a specified period of time, of one or more |
specific goals with respect to performance of the Corporation, a business unit (which may but need not be a Subsidiary) of the Corporation or the Participant to whom the Performance Shares are granted. Performance Shares that become payable in accordance with their terms and conditions shall be paid out in Stock, in cash based on the Fair Market Value of the Stock underlying the Performance Shares on the payout date (or at the sole discretion of the Committee, the day immediately preceding that date) or partly in cash (as so based) and partly in Stock, as the Committee may determine. Any person who holds Performance Shares shall have no ownership interest in any shares of Stock to which such Performance Shares relate until and unless payment with respect to such Performance Shares is actually made in shares of Stock. The Committee may provide for no deemed accumulation of Dividend Equivalents or for the deemed accumulation of Dividend Equivalents in cash, with or without interest, or the deemed reinvestment of Dividend Equivalents in Stock held subject to the same conditions as the Performance Shares and/or such other terms and conditions as the Committee shall determine. |
| g. | Performance Compensation Awards. |
(i) | The Committee may, at the time of grant of an Award (other than an Option or SAR) designate such Award as a “Performance Compensation Award” in order that such Award constitute qualified performance-based compensation under Code Section 162(m);provided, however, that no Performance Compensation Award may be granted to a Prospective Employee or an Employee who on the date of grant is a leased employee of, or a consultant to, the Corporation or a Subsidiary. With respect to each such Performance Compensation Award, the Committee shall (on or before the 90th day of the applicable Performance Period or such other period as may be required by Code Section 162(m)) establish, in writing, a Performance Period, Performance Measure(s), Performance Goal(s) and Performance Formula(s). Once established for a Performance Period, such items shall not be amended or otherwise modified if and to the extent such amendment or modification would cause the compensation payable pursuant to the Award to fail to constitute qualified performance-based compensation under Code Section 162(m). |
| (ii) | A Participant shall be eligible to receive payment in respect of a Performance Compensation Award only to the extent that the Performance Goal(s) for that Award are achieved and the Performance Formula as applied against such Performance Goal(s) determines that all or some portion of such Participant’s Award has been earned for the Performance Period. As soon as practicable after the close of each Performance Period, the Committee shall review and determine whether, and to what extent, the Performance Goal(s) for the Performance Period have been achieved and, if so, determine the amount of the Performance Compensation Award earned by the Participant for such Performance Period based upon such Participant’s Performance Formula. The Committee shall then determine the actual amount of the Performance Compensation Award to be paid to the Participant and, in so doing, may in its sole discretion decrease, but not increase, the amount of the Award otherwise payable to the Participant based upon such performance. The maximum Performance Compensation Award for any one Participant for any one Performance Period shall be determined in accordance with Sections 4(e) and 5(g), as applicable. |
| h. | Deferrals. The Committee may require or permit Participants to defer the issuance or vesting of shares of Stock or the settlement of Awards under such rules and procedures as it may establish under the Plan. The Committee may also provide that deferred settlements include the payment or crediting of interest on the deferral amounts or the payment or crediting of Dividend Equivalents on deferred settlements in shares of Stock. Notwithstanding the foregoing, no deferral will be permitted if it will result in the Plan becoming an “employee pension benefit plan” under Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), that is not otherwise exempt under Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. In addition, notwithstanding the foregoing, it is the intent of the Corporation that any deferral made under this Section 4(h) shall (A) satisfy the requirements for exemption under Section 409A or (B) satisfy the requirements of Section 409A. |
| i. | Other Section 409A Provisions. In addition to the provisions related to the deferral of Awards under the Plan set forth in Section 4(h) and notwithstanding any other provision of the Plan to the contrary, the following provisions shall apply to Awards: |
| (i) | To the extent not otherwise set forth in the Plan, it is the intent of the Corporation that the Award Agreement for each Award shall set forth (or shall incorporate by reference to the Corporation’s Deferred Compensation Plan) such terms and conditions as are necessary to (A) satisfy the requirements for exemption under Section 409A or (B) satisfy the requirements of Section 409A. |
| (ii) | Without limiting the generality of the foregoing, it is the intent of the Corporation that any payment of dividends on Restricted Stock or any payment of Dividend Equivalents on Restricted Stock Units or Performance Shares shall (A) satisfy the requirements for exemption under Section 409A or (B) satisfy the requirements of Section 409A, including without limitation, to the extent necessary, the establishment of a separate written arrangement providing for the payment of such dividends or Dividend Equivalents. |
| (iii) | Notwithstanding any other provision of the Plan to the contrary, the Corporation makes no representation that the Plan or any Award will be exempt from or comply with Section 409A and makes no undertaking to preclude Section 409A from applying to the Plan or any Award. |
Section 5: Stock Available under Plan
| a. | Subject to the adjustment provisions of Section 9 and the provisions of this Section 5, the aggregate number of shares of Stock available for delivery pursuant to the Plan shall be 4.1 million plus any shares of Stock remaining available for delivery pursuant to the Prior Plan as of the date of approval of the Plan by the Corporation’s shareowners, of which no more than 1.4 million shares of Stock may be available for delivery pursuant to Awards granted in any form provided for under the Plan other than Options or SARs. In addition, subject to the adjustment provisions of Section 9, (i) no more than 1.4 million shares of Stock shall be granted in the form of Restricted Stock or delivered in payment of Restricted Stock Units or Performance Shares; and (ii) SARs shall be granted with respect to no more than 100,000 shares of Stock. |
| b. | For purposes of this Section 5, if an Award (other than a Dividend Equivalent) is denominated in shares of Stock, the number of shares of Stock covered by such Award, or to which such Award relates (or in the case of Restricted Stock Units or Performance Shares, the maximum number of shares of Stock deliverable pursuant thereto), shall be counted on the date of grant of such Award against the aggregate number of shares of Stock available for delivery pursuant to the Plan. |
| c. | For purposes of this Section 5, Dividend Equivalents denominated in shares of Stock, dividends on Restricted Stock receivable in shares of Stock and Awards not denominated, but potentially payable, in shares of Stock shall be counted against the aggregate number of shares of Stock available for delivery pursuant to the Plan in such amount and at such time as the Dividend Equivalents, dividends and such Awards are settled in shares of Stock. |
| d. | For purposes of this Section 5, notwithstanding anything herein to the contrary, Awards that operate in tandem with (whether granted simultaneously with or at a different time from), or that are substituted for, other Awards or awards granted under the Prior Plan may only be counted once against the aggregate number of shares available for delivery pursuant to the Plan, and the Committee shall adopt procedures, as it deems appropriate, in order to avoid double counting. |
| e. | For purposes of this Section 5, notwithstanding anything herein to the contrary (other than as provided in the following sentence), (i) any shares of Stock covered by or related to Awards or awards granted under the Prior Plan that terminate by expiration, forfeiture, cancellation, or otherwise without the issuance or delivery of such shares of Stock, are settled in cash in lieu of |
shares of Stock, or are exchanged with the Committee’s permission, prior to the issuance of shares of Stock, for Awards not involving shares of Stock, shall be available again for delivery pursuant to the Plan and (ii) with respect to any Award described in Section 5(b), upon exercise, settlement or payment thereof with shares of Stock in an amount less than the number of shares of Stock counted on the date of grant against the aggregate number of shares of Stock available for delivery pursuant to the Plan, a number of shares of Stock equal to such deficit shall be available again on the date of such exercise, settlement or payment for delivery pursuant to the Plan. Notwithstanding the foregoing, (x) shares of Stock that are delivered to or withheld by the Corporation to pay all or any portion of the exercise price or withholding taxes under Awards or awards granted under the Prior Plan shall not be made available again for delivery pursuant to the Plan and (y) there shall be no adjustment to the number of shares of Stock available for delivery pursuant to the Plan upon the exercise or settlement of SARs in whole or in part in shares of Stock, regardless of the number of shares of stock issued or delivered in connection with such exercise or settlement. |
| f. | For purposes of this Section 5, any shares of Stock that are delivered by the Corporation, and any Awards that are granted by, or become obligations of, the Corporation, through the assumption by the Corporation or a Subsidiary of, or in substitution for, outstanding awards previously granted by an acquired company, shall not be counted against the aggregate number of shares of Stock available for delivery pursuant to the Plan. |
| g. | Subject to the adjustment provisions of Section 9, no single Participant shall receive Awards, in any fiscal year of the Corporation, in the form of (i) Options or SARs that would result in the number of shares of Stock that relate to Options, SARs and options to purchase Stock or stock appreciation rights under any other plan of the Corporation or a Subsidiary granted to such Participant during such fiscal year exceeding 650,000 shares; and (ii) Restricted Stock, Restricted Stock Units or Performance Shares that would result in the number of shares of Stock granted as Restricted Stock, deliverable in payment of Restricted Stock Units or Performance Shares granted and granted as restricted stock or deliverable in payment of restricted stock units or performance shares granted under any other plan or program of the Corporation or a Subsidiary to such Participant during such fiscal year exceeding 250,000 shares. |
| h. | The Stock that may be delivered on grant, exercise or settlement of an Award under the Plan may consist, in whole or in part, of shares held in treasury or authorized but unissued shares. At all times the Corporation will reserve and keep available a sufficient number of shares of Stock to satisfy the requirements of all outstanding Awards made under the Plan. |
Section 6: Award Agreements
Each Award under the Plan shall be evidenced by an Award Agreement. Each Award Agreement shall set forth the terms and conditions applicable to the Award, including but not limited to (i) provisions for the time at which the Award becomes exercisable or otherwise vests; (ii) provisions for the treatment of the Award in the event of the termination of a Participant’s status as an Employee; (iii) any special provisions applicable in the event of an occurrence of a Change of Control, as determined by the Committee consistent with the provisions of the Plan; and (iv) in the Committee’s sole discretion, any additional provisions as may be necessary to (A) satisfy the requirements for exemption under Section 409A or (B) satisfy the requirements of Section 409A.
Section 7: Amendment and Termination
The Board of Directors may at any time amend, suspend or terminate the Plan, in whole or in part;provided, however, that, without the approval of the shareowners of the Corporation, no such action shall (i) increase the number of shares of Stock available for delivery pursuant to the Plan as set forth in Section 5 (other than adjustments pursuant to Section 9), or (ii) materially increase the benefits accruing to Participants under the Plan, or otherwise be effective to the extent that such approval is necessary to
comply with any tax or regulatory requirement applicable to the Plan, including applicable requirements of the New York Stock Exchange; andprovided, further, that, subject to Section 9, no such action shall impair the rights of any holder of an Award without the holder’s consent. The Committee may, subject to the Plan, at any time alter or amend any or all Award Agreements to the extent permitted by applicable law;provided, however, that, subject to Section 9, no such alteration or amendment shall impair the rights of any holder of an Award without the holder’s consent. Notwithstanding the foregoing, neither the Board of Directors nor the Committee shall (except pursuant to Section 9) amend the Plan or any Award Agreement to reprice any Option or SAR whose exercise price is above the then Fair Market Value of the Stock subject to the Award, whether by decreasing the exercise price, canceling the Award and granting a substitute Award, repurchasing the Award for cash, or otherwise.
Section 8: Administration
| a. | The Plan and all Awards shall be administered by the Committee. |
| b. | Any member of the Committee who, at the time of any proposed grant of one or more Awards, is not both an “outside director” as defined for purposes of Code Section 162(m) and a “Non-Employee Director” as defined in Rule 16b-3(b)(3)(i) under the Exchange Act shall abstain from and take no part in the Committee’s action on the proposed grant. |
| c. | The Committee shall have full and complete authority, in its sole and absolute discretion, (i) to exercise all of the powers granted to it under the Plan, (ii) to construe, interpret and implement the Plan and any related document, (iii) to prescribe, amend and rescind rules relating to the Plan, (iv) to make all determinations necessary or advisable in administering the Plan, and (v) to correct any defect, supply any omission and reconcile any inconsistency in the Plan. The actions and determinations of the Committee on all matters relating to the Plan and any Awards will be final and conclusive. The Committee’s determinations under the Plan need not be uniform and may be made by it selectively among Employees or Prospective Employees who receive, or who are eligible to receive, Awards under the Plan, whether or not such persons are similarly situated. |
| d. | The Committee and others to whom the Committee has delegated such duties shall keep a record of all their proceedings and actions and shall maintain all such books of account, records and other data as shall be necessary for the proper administration of the Plan. |
| e. | The Corporation shall pay all reasonable expenses of administering the Plan, including but not limited to the payment of professional fees. |
| f. | It is the intent of the Corporation that the Plan and Awards hereunder satisfy, and be interpreted in a manner that satisfy: (i) in the case of Participants who are or may be Executive Officers, the applicable requirements of Rule 16b-3 under the Exchange Act, so that such persons will be entitled to the benefits of Rule 16b-3, or other exemptive rules under Section 16 of the Exchange Act, and will not be subjected to avoidable liability under Section 16(b) of the Exchange Act; (ii) in the case of Performance Compensation Awards to Covered Employees, the applicable requirements of Code Section 162(m); and (iii) either the requirements for exemption under Section 409A or the requirements of Section 409A. If any provision of the Plan or of any Award Agreement would otherwise frustrate or conflict with the intent expressed in this Section 8(f), that provision to the extent possible shall be interpreted and deemed amended so as to avoid such conflict. To the extent of any remaining irreconcilable conflict with such intent and to the extent legally permitted, such provision shall be deemed void as to the applicable Participant. |
| g. | The Committee may appoint such accountants, counsel, and other experts as it deems necessary or desirable in connection with the administration of the Plan. |
| h. | The Committee may delegate, and revoke the delegation of, all or any portion of its authority and powers under the Plan to the Chief Executive Officer of the Corporation, except that the Committee may not delegate any discretionary authority with respect to Awards granted to the |
Chief Executive Officer of the Corporation or substantive decisions or functions regarding the Plan or Awards to the extent inconsistent with the intent expressed in Section 8(f) or to the extent prohibited by applicable law. |
Section 9: Adjustment Provisions
| a. | In the event of any change in or affecting the outstanding shares of Stock by reason of a stock dividend or split, merger or consolidation (whether or not the Corporation is a surviving corporation), recapitalization, reorganization, combination or exchange of shares or other similar corporate changes or an extraordinary dividend in cash, securities or other property, the Board of Directors shall make such amendments to the Plan and outstanding Awards and Award Agreements and make such equitable and other adjustments and take such actions thereunder as are applicable under the circumstances. Such equitable adjustments as they relate to outstanding Awards shall be required to ensure that the intrinsic value of each outstanding Award immediately after any of the aforementioned events is equal to the intrinsic value of each outstanding Award immediately prior to any of such aforementioned events. Such amendments, adjustments and actions shall include, without limitation, as applicable, changes in the number of shares of Stock then remaining available for delivery pursuant to the Plan, the maximum number of shares of Stock that may be granted or delivered as or in payment of Awards to any single Participant pursuant to the Plan, including those that are then covered by outstanding Awards, the number of shares of Stock subject to outstanding Awards, the Option exercise price under outstanding Options and the SAR grant price under outstanding SARs, and accelerating the vesting of outstanding Awards. |
| b. | The existence of the Plan and the Awards granted hereunder shall not affect or restrict in any way the right or power of the Board of Directors or the shareowners of the Corporation to make or authorize any adjustment, recapitalization, reorganization or other change in its capital structure, any merger or consolidation of the Corporation, any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Stock or the rights thereof, the dissolution or liquidation of the Corporation or any sale or transfer of all or any part of its assets or business, any dividend of Stock, cash, securities or other property, or any other corporate act or proceeding. |
Section 10: Miscellaneous
| a. | Change of Control. Except as otherwise determined by the Committee at the time of the grant of an Award, and except as is necessary to satisfy the requirements for exemption under Section 409A or the requirements of Section 409A (in which event, the Committee may determine to modify the definition of Change of Control in order to satisfy such requirements), upon a Change of Control, all outstanding Options and SARs shall become vested and exercisable; all restrictions on Restricted Stock shall lapse; all performance goals applicable to Awards shall be deemed achieved at levels determined by the Committee and all other terms and conditions met; all Performance Units, Restricted Stock Units and Performance Shares shall be paid out as promptly as practicable; and all other Awards shall be delivered or paid. |
| b. | Nonassignability. Except as otherwise provided by the Committee, no Award shall be assignable or transferable except by will or by the laws of descent and distribution;provided,however, that under no circumstances shall an Award be transferrable for value or consideration to the Participant. |
| c. | Other Payments or Awards. Nothing contained in the Plan shall be deemed in any way to limit or restrict the Corporation or a Subsidiary from making any award or payment to any person under any other plan, arrangement or understanding, whether now existing or hereafter in effect. |
| d. | Payments to Other Persons.If payments are legally required to be made to any person other than the person to whom any payment is provided to be made under the Plan, then payments shall be made accordingly;provided however, to the extent that such payments would cause |
an Award to fail to satisfy the requirements for exemption under Section 409A or the requirements of Section 409A, the Committee may determine in its sole discretion not to make such payments in such manner. Any such payment shall be a complete discharge of the liability hereunder. |
| e. | Unfunded Plan. The Plan shall be unfunded. No provision of the Plan or any Award Agreement shall require the Corporation or a Subsidiary, for the purpose of satisfying any obligations under the Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor shall the Corporation or a Subsidiary maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for such purposes. Participants shall have no rights under the Plan other than as unsecured general creditors of the Corporation or a Subsidiary, except that insofar as they may have become entitled to payment of additional compensation by performance of services, they shall have the same rights as other employees under generally applicable law. |
| f. | Limits of Liability. Any liability of the Corporation or a Subsidiary to any Participant with respect to an Award shall be based solely upon contractual obligations created by the Plan and the Award Agreement related thereto. Neither the Corporation or its Subsidiaries, nor any member of the Board of Directors or of the Committee, nor any other person participating in any determination of any question under the Plan, or in the interpretation, administration or application of the Plan, shall have any liability to any party for any action taken, or not taken, in good faith under the Plan. |
| g. | Rights of Employees and Prospective Employees.Status as an eligible Employee or Prospective Employee shall not be construed as a commitment that any Award shall be made under the Plan to such eligible Employee or Prospective Employee or to eligible Employees or Prospective Employees generally. Nothing contained in the Plan or in any Award Agreement shall confer upon any Employee or Prospective Employee any right to continue in the employ or other service of the Corporation or a Subsidiary or constitute any contract of employment or limit in any way the right of the Corporation or a Subsidiary to change such person’s compensation or other benefits or to terminate the employment or other service of such person with or without cause. A transfer of an Employee from the Corporation to a Subsidiary, or vice versa, or from one Subsidiary to another, and a leave of absence, duly authorized by the Corporation, shall not be deemed a termination of employment or other service;provided, however, that, to the extent that Section 409A is applicable to an Award, Section 409A’s definition of “separation of service”, to the extent contradictory, may apply to determine when a Participant becomes entitled to a distribution upon termination of employment. |
| h. | Rights as a Shareowner.A Participant shall have no rights as a shareowner with respect to any Stock covered by an Award until the date the Participant becomes the holder of record thereof. Except as provided in Section 9, no adjustment shall be made for dividends or other rights, unless the Award Agreement specifically requires such adjustment. |
| i. | Withholding.Applicable taxes, to the extent required by law, shall be withheld in respect of all Awards. A Participant may satisfy the withholding obligation by paying the amount of any taxes in cash or, with the approval of the Committee, shares of Stock may be delivered to the Corporation or deducted from the payment to satisfy the obligation in full or in part. The amount of the withholding and the number of shares of Stock to be delivered to the Corporation or deducted in satisfaction of the withholding requirement shall be determined by the Corporation with reference to the Fair Market Value of the Stock when the withholding is required to be made;provided, however, that the amount of withholding to be paid in respect of Options exercised through the cashless method in which shares of Stock for which the Options are exercised are immediately sold may be determined by reference to the price at which said shares are sold. The Corporation shall have no obligation to deliver any Stock pursuant to the grant or settlement of any Award until it has been reimbursed for all required withholding taxes. |
| j. | Section Headings.The section headings contained herein are for the purpose of convenience |
only, and in the event of any conflict, the text of the Plan, rather than the section headings, shall control. |
| k. | Construction. In interpreting the Plan, the masculine gender shall include the feminine, the neuter gender shall include the masculine or feminine, and the singular shall include the plural unless the context clearly indicates otherwise. Any reference to a statutory provision or a rule under a statute shall be deemed a reference to that provision or any successor provision unless the context clearly indicates otherwise. |
| l. | Invalidity. If any term or provision contained herein or in any Award Agreement shall to any extent be invalid or unenforceable, such term or provision will be reformed so that it is valid, and such invalidity or unenforceability shall not affect any other provision or part thereof. |
| m. | Applicable Law. The Plan, the Award Agreements and all actions taken hereunder or thereunder shall be governed by, and construed in accordance with, the laws of the State of Delaware without regard to the conflict of law principles thereof. |
| n. | Compliance with Laws.Notwithstanding anything contained in the Plan or in any Award Agreement to the contrary, the Corporation shall not be required to sell, issue or deliver shares of Stock hereunder or thereunder if the sale, issuance or delivery thereof would constitute a violation by the Participant or the Corporation of any provisions of any law or regulation of any governmental authority or any national securities exchange; and as a condition of any sale or issuance the Corporation may require such agreements or undertakings, if any, as the Corporation may deem necessary or advisable to assure compliance with any such law or regulation. |
| o. | Supplementary Plans. The Committee may authorize supplementary plans applicable to Employees or Prospective Employees subject to the tax laws of one or more countries other than the United States and providing for the grant of Non-Qualified Stock Options, SARs, Restricted Stock, Restricted Stock Units, Performance Units or Performance Shares to such Employees or Prospective Employees on terms and conditions, consistent with the Plan, determined by the Committee, which may differ from the terms and conditions of other Awards pursuant to the Plan for the purpose of complying with the conditions for qualification of Awards for favorable treatment under foreign tax laws. Notwithstanding any other provision hereof, Options granted under any supplementary plan shall include provisions that conform with Sections 4(a)(i), (ii) and (iii); SARs granted under any supplementary plan shall include provisions that conform with Section 4(b); Restricted Stock granted under any supplementary plan shall include provisions that conform with Section 4(c); Restricted Stock Units granted under any supplementary plan shall include provisions that conform with Section 4(d); Performance Units granted under any supplementary plan shall include provisions that conform with Section 4(e) and Performance Shares granted under any supplementary plan shall include provisions that conform with Section 4(f). |
| p. | Effective Date and Term.The Plan was adopted by the Board of Directors on December 5, 2007 and will become effective upon approval by the Corporation’s shareowners. The Plan shall remain in effect until all Awards under the Plan have been exercised or terminated under the terms of the Plan and applicable Award Agreements;provided, however, that Awards under the Plan may be granted only within ten (10) years from the effective date of the Plan. |
ADMISSION TO THE 20072008 ANNUAL MEETING
An admission card (or other proof of stock ownership) and proper identification will be required for admission to the Annual Meeting of Shareowners in Milwaukee, Wisconsin on February 7, 2007.6, 2008. If you plan to attend the Annual Meeting, please be sure to request an admittance card by:
| • | marking the appropriate box on the proxy card and mailing the card using the enclosed envelope; | ||
indicating your desire to attend the meeting through our Internet voting procedure; or
calling our Shareowner Relations line at +1-414-382-8410.
An admission card will be mailed to you if:
your Rockwell Automation shares are registered in your name; or
| • | |||
your Rockwell Automation shares are held in the name of a broker or other nominee and you provide written evidence of your stock ownership as of the December |
Your admission card will serve as verification of your ownership.
1201 SOUTH SECOND STREET
MILWAUKEE, WI 53204
VOTE BY INTERNET -http://www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time on February 4, 2007.5, 2008. Have your proxy and direction card in hand when you access the websiteweb site and follow the instructions to obtain your records and to create an electronic voting instruction form.
VOTE BY PHONE - 1-800-690-6903 (For US Shareowners Only)
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time on February 4, 2007.5, 2008. Have your proxy and direction card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy and direction card and return it in the enclosed postage-paid envelope we have provided or return it to Rockwell Automation, Inc., c/o ADP,Broadridge, 51 Mercedes Way, Edgewood, NY 11717 by February 3, 2007.
NOTE: If you transmit your voting instructions by Internet or telephone, you DO NOT NEED TO MAIL BACK your proxy and direction card. Your Internet or telephone instructions will authorize the named proxies in the same manner as if you returned a signed proxy and direction card.
THANK YOU FOR VOTING.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | ROKAU1 | KEEP THIS PORTION FOR YOUR RECORDS | ||
| THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. | DETACH AND RETURN THIS PORTION ONLY | |||
| ROCKWELL AUTOMATION, INC. | ||||||||||||||||||||||||||||
The Board of Directors recommends a vote FOR each of the Nominees listed below. | ||||||||||||||||||||||||||||
| Vote On Directors | For | Withhold | For All | To withhold authority to vote for any individual | ||||||||||||||||||||||||
| All | All | Except | nominee(s), mark “For All Except” and write | |||||||||||||||||||||||||
(A). | To elect as directors of Rockwell Automation, Inc. the | number(s) of the nominee(s) on the line below. | ||||||||||||||||||||||||||
nominees listed below: | ||||||||||||||||||||||||||||
| NOMINEES: | ||||||||||||||||||||||||||||
| ¨ | ¨ | ¨ | ||||||||||||||||||||||||||
| 01) | Bruce M. Rockwell | |||||||||||||||||||||||||||
| 02) | Joseph F. Toot, Jr. | |||||||||||||||||||||||||||
| The Board of Directors recommends a vote FOR proposals B and C. | For | Against | Abstain | |||||||||||||||||||||||||
| Vote On Proposals | ¨ | ¨ | ¨ | |||||||||||||||||||||||||
| (B). | To approve the selection of Deloitte & Touche LLP as the Company’s independent registered public accounting firm. | |||||||||||||||||||||||||||
| (C). | To approve the Rockwell Automation, Inc. 2008 Long-Term Incentives Plan. | ¨ | ¨ | ¨ | ||||||||||||||||||||||||
| In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting. | ||||||||||||||||||||||||||||
| For address changes and/or comments, please check this box ¨ | ||||||||||||||||||||||||||||
| and write them on the back where indicated. | ||||||||||||||||||||||||||||
| Please indicate if you plan to attend this meeting. | ¨ | ¨ | ||||||||||||||||||||||||||
| Yes | No | |||||||||||||||||||||||||||
| Signature [PLEASE SIGN WITHIN BOX] | Signature (Joint Owners) | Date | ||||||||||||||||||||||||||
ROCKWELL AUTOMATION, INC.
ANNUAL MEETING OF SHAREOWNERS
WEDNESDAY, FEBRUARY 6, 2008
10:00 AM CST
THE PFISTER HOTEL
424 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN
YOUR VOTE IS IMPORTANT!
YOU CAN VOTE BY INTERNET, TELEPHONE OR MAIL. SEE THE
INSTRUCTIONS ON THE OTHER SIDE OF THIS PROXY CARD.
IF YOU DID NOT RECEIVE PAPER COPIES OF THE ROCKWELL AUTOMATION
PROXY STATEMENT AND ANNUAL REPORT BECAUSE YOU
CONSENTED TO VIEW THEM ON THE
INTERNET, GO TO THE FOLLOWING INTERNET ADDRESS:
PROXY STATEMENT AND ANNUAL REPORT: www.investorEconnect.com
FOLD AND DETACH HERE
PROXY CARD ROCKWELL AUTOMATION, INC. SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints Verne G. Istock, William T. McCormick, Jr. and Douglas M. Hagerman, jointly and severally, proxies, with full power of substitution, to vote shares of common stock which the undersigned is entitled to vote at the Annual Meeting of Shareowners to be held at The Pfister Hotel, 424 East Wisconsin Avenue, Milwaukee, Wisconsin, on February 6, 2008 or any postponement or adjournment thereof. SUCH PROXIES ARE DIRECTED TO VOTE AS SPECIFIED OR, IF NO SPECIFICATION IS MADE, “FOR” THE ELECTION OF THE TWO NOMINEES PROPOSED FOR ELECTION AS DIRECTORS WITH TERMS EXPIRING AT THE ANNUAL MEETING IN 2011 and “FOR” PROPOSALS (B) AND (C), AND TO VOTE IN ACCORDANCE WITH THEIR DISCRETION ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING. TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS’ RECOMMENDATIONS, JUST SIGN AND DATE; NO BOXES NEED TO BE CHECKED. | ||||||||||||||
| Address Changes/Comments: | ||||||||||||||
(continued and to be dated and signed on the other side) | ||||||||||||||
ROCKWELL AUTOMATION, INC.
1201 SOUTH SECOND STREET
MILWAUKEE, WI 53204
VOTE BY INTERNET -www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time on February 3, 2008. Have your direction card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time on February 3, 2008. Have your direction card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your direction card and return it in the postage-paid envelope we have provided or return it to Rockwell Automation, Inc., c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717 by February 2, 2008.
NOTE: If you transmit your voting instructions by Internet or telephone, you DO NOT NEED TO MAIL BACK your direction card. Your Internet or telephone instructions will authorize the trustee in the same manner as if you returned a signed direction card.
THANK YOU FOR VOTING
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | ROKAU3 | KEEP THIS PORTION FOR YOUR RECORDS | ||
| THIS DIRECTION CARD IS VALID ONLY WHEN SIGNED AND DATED. | DETACH AND RETURN THIS PORTION ONLY | |||
| ROCKWELL AUTOMATION, INC. | ||||||||||||||||||||||||||
The Board of Directors recommends a vote FOR each of the Nominees listed below. | ||||||||||||||||||||||||||
| Vote On Directors | For | Withhold | For All | To withhold authority to vote for any individual | ||||||||||||||||||||||
| All | All | Except | nominee(s), mark “For All Except” and write the | |||||||||||||||||||||||
(A). | To elect as directors of Rockwell Automation, Inc. the | number(s) of the nominee(s) on the line below. | ||||||||||||||||||||||||
nominees listed below: | ||||||||||||||||||||||||||
| NOMINEES: | ||||||||||||||||||||||||||
| ¨ | ¨ | ¨ | ||||||||||||||||||||||||
| 01) | Bruce M. Rockwell | |||||||||||||||||||||||||
| 02) | Joseph F. Toot, Jr. | |||||||||||||||||||||||||
| The Board of Directors recommends a vote FOR proposals B and C. | For | Against | Abstain | |||||||||||||||||||||||
| Vote On Proposals | ¨ | ¨ | ¨ | |||||||||||||||||||||||
| (B). | To approve the selection of Deloitte & Touche LLP as the Company’s independent registered public accounting firm. | |||||||||||||||||||||||||
| (C). | To approve the Rockwell Automation, Inc. 2008 Long-Term Incentives Plan. | ¨ | ¨ | ¨ | ||||||||||||||||||||||
| In their discretion, the trustees are authorized to vote upon such other business as may properly come before the meeting. | ||||||||||||||||||||||||||
| For address changes and/or comments, please check this box ¨ | ||||||||||||||||||||||||||
| and write them on the back where indicated. | ||||||||||||||||||||||||||
| Please indicate if you plan to attend this meeting. | ¨ | ¨ | ||||||||||||||||||||||||
| Yes | No | |||||||||||||||||||||||||
| Date | ||||||||
ROCKWELL AUTOMATION, INC.
ANNUAL MEETING OF SHAREOWNERS
WEDNESDAY, FEBRUARY 6, 2008
10:00 AM CST
THE PFISTER HOTEL
424 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN
YOUR VOTE IS IMPORTANT!
YOU CAN VOTE BY INTERNET, TELEPHONE OR MAIL. SEE THE
INSTRUCTIONS ON THE OTHER SIDE OF THIS DIRECTION CARD.
IF YOU DID NOT RECEIVE PAPER COPIES OF THE ROCKWELL AUTOMATION
PROXY STATEMENT AND ANNUAL REPORT BECAUSE YOU
CONSENTED TO VIEW THEM ON THE
INTERNET, GO TO THE FOLLOWING INTERNET ADDRESS:
PROXY STATEMENT AND ANNUAL REPORT: www.investorEconnect.com
FOLD AND DETACH HERE
DIRECTION CARD ROCKWELL AUTOMATION, INC. SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS TO: FIDELITY MANAGEMENT TRUST COMPANY, TRUSTEE AND COMPUTERSHARE TRUST COMPANY, TRUSTEE You are hereby directed to vote, with respect to the proposals listed on the other side of this Direction Card, the number of shares of Rockwell Automation common stock held for this account in the savings plans of Rockwell Automation, Inc. (Rockwell Automation Retirement Savings Plan for Salaried Employees, Rockwell Automation Retirement Savings Plan for Hourly Employees, Rockwell Automation Savings and Investment Plan for Represented Hourly Employees and Rockwell Automation Retirement Savings Plan for Represented Hourly Employees) and/or the United Space Alliance Employee Stock Purchase Plan at the Annual Meeting of Shareowners of Rockwell Automation, Inc. to be held at The Pfister Hotel, 424 East Wisconsin Avenue, Milwaukee, Wisconsin, on February 6, 2008, and at any postponement or adjournment thereof, as follows: TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS’ RECOMMENDATIONS, CHECK THE BOXES “FOR” EACH PROPOSAL LISTED, THEN SIGN, DATE AND RETURN THIS CARD BY FEBRUARY 2, 2008. If you do not provide voting directions by February 2, 2008, the shares attributable to this account in savings plans of Rockwell Automation or the United Space Alliance Employee Stock Purchase Plan will not be voted. | ||||||
| Address Changes/Comments: | ||||||
| not receive your comments.) | ||||||
(continued and to be dated and signed on the other side) | ||||||
