SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrantþ
Filed by a Party other than the Registrant¨
Check the appropriate box:
¨ | Preliminary Proxy Statement |
þ | Definitive Proxy Statement |
¨ | Definitive Additional Materials |
¨ | Soliciting Material Pursuant to Rule 14a-12 |
¨ | Confidential, for the Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
ITT Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
þ | No fee required. |
¨ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
(1) | Title of each class of securities to which transaction applies: |
(2) | Aggregate number of securities to which transaction applies: |
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): |
(4) | Proposed maximum aggregate value of transaction: |
(5) | Total fee paid: |
¨ | Fee paid previously with preliminary materials. |
¨ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
(1) | Amount Previously Paid: |
(2) | Form, Schedule or Registration Statement No.: |
(3) | Filing Party: |
(4) | Date Filed: |
Notice of Annual Meeting | ||
& Proxy Statement | ||
ITT Corporation |
March 27, 20122013
Denise L. Ramos Chief Executive Officer and President | ITT Corporation
1133 Westchester Avenue White Plains, NY 10604-3543 |
Dear Fellow Shareholders:
Enclosed are the Notice of Annual Meeting and Proxy Statement for ITT’s 20122013 Annual Meeting of Shareholders. This year’s meeting is intended to address only the business included on the agenda. Details of the business to be conducted at the Annual Meeting are given in the accompanying Notice of Annual Meeting and Proxy Statement, which provides information required by applicable laws and regulations.
Your vote is important and we encourage you to vote whether you are a registered owner or a beneficial owner.
This year, in accordance with U.S. Securities and Exchange Commission rules, we are again using the Internet as our primary means of furnishing proxy materials to shareholders. Because we are using the Internet, most shareholders will not receive paper copies of our proxy materials. We will instead send these shareholders a notice with instructions for accessing the proxy materials and voting via the Internet. This notice also provides information on how shareholders may obtain paper copies of our proxy materials if they so choose. We believe use of the Internet makes the proxy distribution process more efficient, less costly and helps in conserving natural resources.
If you are the registered owner of ITT common stock, you may vote your shares by making a toll-free telephone call or using the Internet. Details of these voting options are explained in the Proxy Statement. If you choose to receive paper copies of our proxy materials, you can vote by completing and returning the enclosed proxy card by mail as soon as possible.
If you are a beneficial owner and someone else, such as your bank, broker or trustee is the owner of record, the owner of record will communicate with you about how to vote your shares.
Whether or not you plan to attend the Annual Meeting, please vote as soon as possible. If you are a registered owner of ITT common stock and do not plan to vote in person at the Annual Meeting, you may vote via the Internet, by telephone or, if you receive a paper proxy card in the mail, by mailing the completed proxy card. Voting by any of these methods will ensure your representation at the Annual Meeting. Your vote is important.
Sincerely,
March 27, 20122013
NOTICE OF 20122013 Annual Meeting
Time: | ||
Place: | ||
Items of Business: | 1. Election of the | |
2. Ratification of the appointment of Deloitte & Touche LLP as ITT’s Independent Registered Public Accounting Firm for | ||
3. | ||
4. To approve, in a non-binding vote,
5.
| ||
Who May Vote: | You can vote if you were a shareholder at the close of business on March | |
Annual Report to Shareholders and Annual Report on Form 10-K: | Copies of our | |
Mailing or Availability Date: | Beginning on or about March 27, | |
About Proxy Voting: | Your vote is important. Proxy voting permits shareholders unable to attend the Annual Meeting to vote their shares through a proxy. Most shareholders are unable to attend the Annual Meeting. By appointing a proxy, your shares will be represented and voted in accordance with your instructions. If you do not provide instructions on how to vote, the proxies will vote as recommended by the Board of Directors. Most |
shareholders will not receive paper copies of our proxy materials and can vote their shares by following the Internet voting instructions provided on the Notice of Internet Availability of Proxy Materials. If you are a registered owner and requested a paper copy of the proxy materials, you can vote your shares by proxy by |
completing and returning your proxy card or by following the Internet or telephone voting instructions provided on the proxy card. Beneficial owners who received or requested a paper copy of the proxy materials may vote their shares by submitting voting instructions by completing and returning their voting instruction form or by following the Internet or telephone voting instructions provided on the voting instruction form. You can change your voting instructions or revoke your proxy at any time prior to the Annual Meeting by following the instructions on pages 1 to 5 of this | ||
Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be held on Tuesday, May |
By order of the Board of Directors,
Burt M. Fealing | ||||||
Senior Vice President, | ||||||
General Counsel and Secretary |
Page | ||||
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4 | ||||
5 | ||||
5 | ||||
Stock Ownership of Directors, | 6 | |||
7 | ||||
8 | ||||
Item 2. Ratification of Appointment of the Independent Registered Public Accounting Firm | 13 | |||
16 | ||||
Item 4. Non-Binding Advisory Vote to Ratify Named Executive Officers’ Compensation | ||||
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21 | ||||
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22 | ||||
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20122013 Proxy Statement
Why did I receive these proxy materials? Beginning on or about March 27, 2012,2013, this Proxy Statement is being mailed or made available, as the case may be, to shareholders who were shareholders as of the March 16, 2012,13, 2013, the record date, as part of the Board of Directors’ solicitation of proxies for ITT’s 20122013 Annual Meeting and any postponements or adjournments thereof. This Proxy Statement and ITT’s 20112012 Annual Report to Shareholders and Annual Report on Form 10-K (which have been furnished to shareholders eligible to vote at the 20122013 Annual Meeting) contain information that the Board of Directors believes offers an informed view of ITT Corporation (herein referred to as “ITT” or the “Company”) and meets the regulations of the Securities and Exchange Commission (the “SEC”) for proxy solicitations.
Who is entitled to votevote?? You can vote if you owned shares of the Company’s common stock as of the close of business on March 16, 2012,13, 2013, the record date.
What items of business will I be voting on? You are voting on the following items of business, which are described on pages 8 to 23:19:
1. | Election of the |
2. | Ratification of the appointment of Deloitte & Touche LLP (“Deloitte”) as ITT’s Independent Registered Public Accounting Firm for |
3. | Approval of the material terms of the ITT Corporation Annual Incentive Plan for Executive Officers. |
4. | Approval, in a non-binding vote, of the 2012 compensation of our named executive officers (“NEOs”). |
5. |
To transact such other business as may properly come before the meeting. |
How do I vote? If you are a registered owner, you can either vote in person at the Annual Meeting or by proxy whether or not you attend the Annual Meeting. If you are a beneficial owner, you may vote by submitting voting instructions to your bank, broker, trustee or other nominee. If you are a beneficial owner and your shares are held in a bank or brokerage account, you will need to obtain a proxy, executed in your favor, from your bank or broker to be able to vote in person at the Annual Meeting. If you are a beneficial owner and your shares are held through any of the ITT savings plans for salaried or hourly employees, your shares cannot be voted in person at the Annual Meeting.
What are the proxy voting procedures? If you vote by proxy, you can vote by following the voting procedures on the proxy card. You may vote:
Ÿ | By the Internet, |
Ÿ | By Telephone, by calling from the United States, or |
Ÿ | By Mail. |
Why does the Board solicit proxies from shareholders? Since it is impractical for all shareholders to attend the Annual Meeting and vote in person, the Board of Directors recommends that you appoint the three people named on the accompanying proxy card to act as your proxies at the 20122013 Annual Meeting.
How do the proxies vote? The proxies vote your shares in accordance with your voting instructions. If you appoint the proxies but do not provide voting instructions, they will vote as recommended by the Board of Directors. If any other matters not described in this Proxy Statement are properly brought before the meeting for a vote, the proxies will use their discretion in deciding how to vote on those matters.
How many votes do I have? You have one vote for every share of ITT common stock that you own.
How does the Board of Directors recommend that I vote on the proposals? The Board of Directors recommends a vote FOR the election of each of the nominees of the Board of Directors (Item 1), FOR the ratification of the appointment of Deloitte as ITT’s Independent Registered Public Accounting Firm for 2012 (Item 2), FOR the approval of the material terms of the ITT Corporation Annual Incentive Plan for Executive Officers (Item 3), and FOR the approval of the 2012 compensation of our NEOs (Item 3), AGAINST the shareholder proposal requesting that the Company change its state of incorporation from Indiana to Delaware (Item 4), AGAINST the shareholder proposal requesting that the Company adopt a policy that, whenever possible, the Chairman of the Board of Directors be an independent director who has not previously served as an executive officer of the Company (Item 5) and AGAINST the shareholder proposal requesting that the Company amend, where applicable, its policies related to human rights (Item 6).
What if I change my mind? You can revoke your proxy at any time before it is exercised by mailing a new proxy card with a later date or casting a new vote by the Internet or telephone, as applicable. You can also send a written revocation to the Secretary at the address listed on the first page of the Proxy Statement. If you come to the Annual Meeting, you can ask that the proxy you submitted earlier not be used.
What is a “broker non-vote”? The New York Stock Exchange (“NYSE”) has rules that govern brokers who have record ownership of listed company stock held in brokerage accounts for their clients who beneficially own the shares. Under these rules, brokers who do not receive voting instructions from their clients have the discretion to vote uninstructed shares on certain matters (“discretionary matters”) but do not have discretion to vote uninstructed shares as to certain other matters (“non-discretionary matters”). A broker may return a proxy card on behalf of a beneficial owner from whom the broker has not received instructions that casts a vote with regard to discretionary matters but expressly states that the broker is not voting as to non-discretionary matters. The broker’s inability to vote with respect to the non-discretionary matters to which the broker has not received instructions from the beneficial owner is referred to as a “broker non-vote.” Under current NYSE interpretations, agenda Item 2, the ratification of Deloitte as the Company’s Independent Registered Public Accounting Firm, is considered a discretionary item. Your broker does not have discretion to vote your shares held in street name on Items 1, 3, 4, 5 or 6,4, each of which is considered a non-discretionary item. Under Indiana law, the law of the state where the Company is incorporated, broker non-votes and abstentions are counted to determine whether there is a quorum present.
There are sixfour formal items including the shareholder proposals, scheduled to be voted upon at the Annual Meeting as described on page 1. As of the date of this Proxy Statement, the Board of Directors is not aware of any business other than as described in this Proxy Statement that will be presented for a vote at the 20122013 Annual Meeting.
How many votes are required to elect Directors or approve a proposal?Directors? How many votes are required for another agenda itemitems to pass? The Restated Articles of Incorporation of ITT Corporation authorize the Company’s By-laws to provide for majority voting for Directors in uncontested elections, and such By-laws further provide that in uncontested elections, a Director nominee shall be elected by a majority of the votes cast. The By-laws provide that in uncontested elections, any Director nominee who fails to be elected by a majority, but who also is a Director at the time, shall promptly provide a written resignation, as a holdover Director, to the Chairman of the Board or the Secretary. The Nominating and Governance Committee (or the equivalent committee then in existence) shall promptly consider the resignation and all relevant facts and circumstances concerning any vote and the best interests of the Company and its shareholders. The Board will act on the Nominating and Governance Committee’s recommendation no later than its next regularly
scheduled Board meeting or within 90 days after certification of the shareholder vote, whichever is earlier, and the Board will promptly publicly disclose its decision and the reasons for its decision. This means that in an uncontested election, to be elected as a Director of ITT, each of the 10eight director candidates must receive a majority of votes cast.
Item 2, Item 3, Item 4, Item 5 and Item 64 of the proposed agenda items require that the votes cast in favor of the proposal exceed the votes cast against the proposal. Item 2 Item 3,and Item 4 Item 5 and Item 6 are advisory in nature and are non-binding. Item 3, the approval of the material terms of the ITT Corporation Annual Incentive Plan
for Executive Officers is subject to the approval requirements of Section 162(m) of the Internal Revenue Code, which requires the affirmative vote of a majority of the votes cast. Accordingly, abstentions will have no effect on the outcome of Item 3. Abstentions will also have no effect on the outcomes of Item 1, Item 2 Item 3, Item 4, Item 5 or Item 6.4. In addition, broker non-votes will have no effect on the outcomes of Item 1, Item 3 Item 4, Item 5 or Item 6.4.
How many shares of ITT stock are outstanding? As of March 16, 2012,13, 2013, the record date, 95,462,36392,069,285 shares of ITT common stock were outstanding.
How many holders of ITT outstanding shares must be present to hold the Annual Meeting? In order to conduct business at the Annual Meeting, it is necessary to have a quorum. To have a quorum, shareholders entitled to cast a majority of votes at the Annual Meeting must be present in person or by proxy.
How do I vote? With respect to agenda Items 1, 2, 3, 4, 5 and 6,4 you may vote for, against or abstain from voting.
What is the difference between a beneficial owner and a registered owner? If shares you own are held in an ITT savings plan for salaried or hourly employees, a stock brokerage account, bank or by another holder of record, you are considered the “beneficial owner” because someone else holds the shares on your behalf. If the shares you own are held in a Morgan Stanley Smith Barney account for restricted shares or registered in your name directly with The Bank of New York Mellon, our transfer agent, you are the registered owner and the “shareholder of record.”
How do I vote if I am a participant in ITT’s savings plans for salaried or hourly employees? If you participate in any of the ITT savings plans for salaried or hourly employees, your plan trustee will vote the ITT shares credited to your savings plan account in accordance with your voting instructions, except as otherwise provided in accordance with the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended.. The trustee votes the shares on your behalf because you are the beneficial owner, not the shareholder of record, of the savings plan shares. The trustee votes the savings plan shares for which no voting instructions are received (“Undirected Shares”) in the same proportion as the shares for which the trustee receives voting instructions, except as otherwise provided in accordance with ERISA. Under the savings plans, participants are “named fiduciaries” to the extent of their authority to direct the voting of ITT shares credited to their savings plan accounts and their proportionate share of Undirected Shares. By submitting voting instructions by telephone, the Internet or by signing and returning the voting instruction card, you direct the trustee of the savings plans to vote these shares, in person or by proxy at the Annual Meeting. ITT salaried or hourly plan participants should mail their confidential voting instruction card to Broadridge Financial Solutions, Inc. (“Broadridge”), acting as tabulation agent, or vote by telephone or Internet. Instructions must be received by Broadridge no later than 11:59 p.m. Eastern Time on May 3, 2012.2, 2013.
I participate in the ITT savings plan for salaried employees and am a shareholder of record of shares of ITT common stock. How many proxy cards will I receive? You will receive only one proxy card. Your savings plan shares and any shares you own as the shareholder of record, including ownership through the ITT Direct Purchase, Sale and Dividend Reinvestment Plan, will be set out separately on the proxy card.
How many shares are held by participants in the ITT employee savings plans? As of March 16, 2012,13, 2013, the record date, J.P. Morgan Chase, as the trustee for both the employee salaried savings plan and the hourly employee savings plans, held 400,507198,747 shares of ITT common stock (approximately 0.42%0.22% of the outstanding shares) for the salaried plan, and 87,68440,940 shares of ITT common stock (approximately 0.09%0.04% of the outstanding shares) for the hourly plans.
Who counts the votes? Is my vote confidential? Representatives of Broadridge count the votes. Representatives of Broadridge will act as Inspectors of Election for the 20122013 Annual Meeting. The Inspectors of Election monitor the voting and certify whether the votes of shareholders are kept in confidence in compliance with ITT’s confidential voting policy.
Who pays for the proxy solicitation cost? ITT pays the cost of soliciting proxies from registered owners. ITT has appointed Innisfree M&A Incorporated to help with the solicitation effort. ITT will pay Innisfree M&A Incorporated a fee of $25,000 to assist with the solicitation and reimburse brokers, nominees, custodians and other fiduciaries for their costs in sending proxy materials to beneficial owners.
Who solicits proxies? Directors, officers or other regular employees of ITT may solicit proxies from shareholders in person or by telephone, facsimile transmission or other electronic communication.
How does a shareholder submit a proposal for the 20132014 Annual Meeting? Rule 14a-8 ofunder the Securities Exchange Act of 1934 or the(the “Exchange Act,”Act”) establishes the eligibility requirements and the procedures that must be followed for a shareholder proposal to be included in a public company’s proxy materials. Under the rule, if a shareholder wants to include a proposal in ITT’s proxy materials for its next Annual Meeting, the proposal must be received by ITT at its principal executive offices on or before November 27, 2012,2013, and comply with eligibility requirements and procedures. An ITT shareholder who wants to present a matter for action at ITT’s next Annual Meeting, but chooses not to do so under Exchange Act Rule 14a-8, must deliver to ITT, at its principal executive offices, on or before November 27, 2012,2013, a written notice to that effect; provided, however, in the event that the date of the 20132014 Annual Meeting is changed by more than 30 days from the anniversary date of the 20122013 Annual Meeting, such notice must be received not later than 120 days calendar days prior to the 20132014 Annual Meeting or 10 calendar days following the date on which public announcement of the date of the annual meeting is first made. In either case, as well as for shareholder nominations for Directors, the shareholder must also comply with the requirements in the Company’s By-laws with respect to a shareholder properly bringing business before the Annual Meeting. (You can request a copy of the By-laws from the Secretary of ITT.)
Can a shareholder nominate Director Candidates? The Company’s By-laws permit shareholders to nominate Directors and present other business for consideration at the Annual Meeting. To make a Director nomination or present other business for consideration at the 20132014 Annual Meeting, you must submit a timely notice in accordance with the procedures described in the Company’s By-laws. To be timely, notice of Director nomination or any other business for consideration at the annual meeting must be received by our Secretary at our principal executive offices no less than 90 days nor more than 120 days prior to the date we released our proxy statement to shareholders in connection with last year’s annual meeting. Therefore, to be presented at our 20132014 Annual Meeting, such a proposal must be received on or after November 27, 2012,2013, but not later than December 27, 2012.2013. The nomination and notice must meet all other qualifications and requirements of the Company’s Corporate Governance Principles and Charterscommittee charters (the “Corporate Governance Principles”), By-laws and Regulation 14A of the Exchange Act. The nominee will be evaluated by the Nominating and Governance Committee of the Board using the same standards as it uses for all Director nominees. These standards are discussed in further detail below at Pages 26 to 27 under “Information about the Board of Directors-Director Selection and Composition.” No one may be nominated for election as a Director after he or she has reached 72 years of age. (You can request a copy of the nomination requirements from the Secretary of ITT.)
Householding of Proxy Materials
SEC rules permit companies and intermediaries such as brokers to satisfy delivery requirements for proxy statements and notices with respect to two or more shareholders sharing the same address by delivering a single proxy statement or a single notice addressed to those shareholders. This process, which is commonly referred to as “householding”,“householding,” provides cost savings for companies. Some
brokers household proxy materials, delivering a single proxy statement or notice to multiple shareholders sharing an address unless contrary instructions have been received from the affected shareholders. Once you have received notice from your broker that they will be householding
materials to your address, householding will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in householding and would prefer to receive a separate proxy statement or notice, please notify your broker. You can request prompt delivery of a copy of the Proxy Materials by writing to: Elizabeth O’Driscoll, Manager, Stock Administration, ITT Corporation, 1133 Westchester Ave., White Plains, NY 10604, by email at Elizabeth.O’Driscoll@itt.com or by calling 914-641-2000.(914) 641-2000.
We make available, free of charge on our website, all of our filings that are made electronically with the SEC, including Forms 10-K, 10-Q and 8-K. To access these filings, go to our website (www.itt.com) and click on “SEC Filings” under the “Investors” heading. Copies of our Annual Report on Form 10-K for the year ended December 31, 2011,2012, including financial statements and schedules thereto, filed with the SEC, are also available without charge to shareholders upon written request addressed to:
Corporate Secretary
ITT Corporation
1133 Westchester Ave.
White Plains, NY 10604
Internet Availability of Proxy Materials
In accordance with SEC rules, we are using the Internet as our primary means of furnishing proxy materials to shareholders. Because we are using the Internet, most shareholders will not receive paper copies of our proxy materials. We will instead send these shareholders a Notice of Internet Availability of Proxy Materials with instructions for accessing the proxy materials, including our proxy statement and annual report, and voting via the Internet. The Notice of Internet Availability of Proxy Materials also provides information on how shareholders may obtain paper copies of our proxy materials if they so choose.
The Board of Directors’ share ownership guidelines currently provide for share ownership levels at five times the annual cash retainer amount. Non-Management Directors receive a portion of their retainer in restricted stock or restricted stock units (“RSUs”), which are paid in shares when the RSUs vest. Non-Management Directors are encouraged to hold such shares until their total share ownership meets or exceeds the ownership guidelines.
Share ownership guidelines for corporate officers, first approved by ITT’s Board of Directors during 2001, are regularly reviewed. The guidelines specify the desired levels of Company stock ownership and encourage a set of behaviors for each officer to reach the guideline levels. The approved guidelines require share ownership expressed as a multiple of base salary for all corporate officers.
Specifically, the guidelines apply as follows: chief executive officer at five times annual base salary; chief financial officer and executive vice president at three times annual base salary; senior vice presidents and group presidents at two times annual base salary; and all other corporate vice presidents at one times annual base salary.set forth in the table below under the heading “Share Ownership Guideline Summary.” In achieving these ownership levels, shares owned outright, Company restricted stock and RSUs, shares held in the Company’s dividend reinvestment plan, shares owned in the ITT Salaried Investment and Savings Plan, and “phantom” shares held in a fund that tracks an index of the Company’s stock in the deferred compensation plan are considered.
To attain the ownership levels set forth in the guidelines, it is expected that any restricted shares that become unrestricted and all shares acquired through the exercise of stock options will be held, except, in all cases, to the extent necessary to meet tax obligations.
Compliance with the guidelines is monitored periodically. Non-Management Directors and Company officers are afforded a reasonable period of time to meet the guidelines. The Company has taken the individual tenure and share ownership levels of Non-Management Directors and corporate officers into account in determining compliance with the guidelines.
Share Ownership Guideline Summary
Non-Management Directors | 5 X Annual Cash Retainer Amount | |
CEO | 5 X Annual Base Salary | |
CFO and EVP | 3 X Annual Base Salary | |
Senior Vice Presidents | 2 X Annual Base Salary | |
Vice Presidents | 1 X Annual Base Salary |
Stock Ownership of Directors, and Executive Officers and Certain Shareholders
The following table shows the beneficial ownership of ITT common stock, as of January 31, 2012, of ITT common stock and options exercisable within 60 days2013, by each Director and nominee, by each of the executive officers named in the Summary Compensation Table on Page 72,NEOs, and by all Directors, nominees, and executive officers as a group.
The number of shares beneficially owned by each Non-Management Director or executive officer has been determined under the rules of the SEC, which provide that beneficial ownership includes any shares as to which a person has sole or shared voting or dispositive power, and any shares which the person would have the right to acquire beneficial ownership of within 60 days through the exercise of any stock option or other right. Unless otherwise indicated, each Non-Management Director or executive officer has sole dispositive and voting power, or shares those powers with his or her spouse.
Amount and Nature of Beneficial Ownership | ||||||||||||||||||||||
Name of Beneficial Owner | Title of Class ITT Common | Total Shares Beneficially Owned | ITT Common Shares | Options | Stock Units | Percentage of Class | ||||||||||||||||
Denise L. Ramos | Common Stock | 228,633 | 55,359 | 173,274 | — | * | ||||||||||||||||
Aris C. Chicles | Common Stock | | 99,525 | | | 18,504 | | | 81,021 | | — | * | ||||||||||
Thomas M. Scalera | Common Stock | | 36,379 | | 4,921 | 31,458 | — | * | ||||||||||||||
Robert J. Pagano, Jr. | Common Stock | 301,003 | 38,458 | | 262,545 | | — | * | ||||||||||||||
Munish Nanda | Common Stock | | 57,857 | | | 12,627 | | 45,230 | — | * | ||||||||||||
Steven R. Loranger(1) | Common Stock | | 566,432 | | 122,604 | 443,828 | — | * | ||||||||||||||
Gretchen W. McClain | Common Stock | 6,979 | 6,979 | — | — | * | ||||||||||||||||
David F. Melcher | Common Stock | 384 | 384 | — | — | * | ||||||||||||||||
Orlando D. Ashford | Common Stock | — | — | — | — | * | ||||||||||||||||
G. Peter D’Aloia | Common Stock | — | — | — | — | * | ||||||||||||||||
Donald DeFosset, Jr. | Common Stock | — | — | — | — | * | ||||||||||||||||
Christina A. Gold | Common Stock | 26,892 | 10,578 | 12,589 | 3,725 | * | ||||||||||||||||
Paul J. Kern | Common Stock | 7,155 | 508 | 4,049 | 2,598 | * | ||||||||||||||||
Frank T. MacInnis | Common Stock | 20,774 | 5,554 | 12,589 | 2,631 | * | ||||||||||||||||
Linda S. Sanford | Common Stock | 25,992 | 14,506 | 10,809 | 677 | * | ||||||||||||||||
Donald J. Stebbins | Common Stock | — | — | — | — | * |
Amount and Nature of Beneficial Ownership | Amount and Nature of Beneficial Ownership | |||||||||||||||||||||||||||||||||||||||||||
Name of Beneficial Owner | Title of Class ITT Common | Total Shares Beneficially Owned | ITT Common Shares | Options(1) | Stock Units | Percentage of Class | Title of Class | Total Shares Beneficially Owned | ITT Common Shares Owned | Options | Stock Units(1) | Percent of Class | ||||||||||||||||||||||||||||||||
Denise L. Ramos | Common Stock | 396,651 | 50,922 | 345,729 | — | * | ||||||||||||||||||||||||||||||||||||||
Aris C. Chicles | Common Stock | 108,719 | 16,253 | 92,466 | — | * | ||||||||||||||||||||||||||||||||||||||
Thomas M. Scalera | Common Stock | 57,801 | 4,260 | 53,541 | — | * | ||||||||||||||||||||||||||||||||||||||
Robert J. Pagano, Jr. | Common Stock | 172,436 | 31,563 | 140,873 | — | * | ||||||||||||||||||||||||||||||||||||||
Luca Savi | Common Stock | — | — | — | — | * | ||||||||||||||||||||||||||||||||||||||
Thomas F. Korber | Common Stock | 7,205 | — | 7,205 | — | * | ||||||||||||||||||||||||||||||||||||||
William E. Taylor | Common Stock | 108,373 | 11,501 | 96,872 | — | * | ||||||||||||||||||||||||||||||||||||||
Orlando D. Ashford | Common Stock | 1,992 | 1,992 | — | — | * | ||||||||||||||||||||||||||||||||||||||
G. Peter D’Aloia | Common Stock | 2,219 | — | — | 2,219 | * | ||||||||||||||||||||||||||||||||||||||
Donald DeFosset, Jr. | Common Stock | 2,219 | — | — | 2,219 | * | ||||||||||||||||||||||||||||||||||||||
Christina A. Gold | Common Stock | 24,497 | 14,743 | 4,260 | 5,494 | * | ||||||||||||||||||||||||||||||||||||||
Paul J. Kern | Common Stock | 9,342 | 4,817 | 4,525 | — | * | ||||||||||||||||||||||||||||||||||||||
Frank T. MacInnis | Common Stock | 19,260 | 12,369 | 4,260 | 2,631 | * | ||||||||||||||||||||||||||||||||||||||
Linda S. Sanford | Common Stock | 25,985 | 17,823 | 7,485 | 677 | * | ||||||||||||||||||||||||||||||||||||||
Donald J. Stebbins | Common Stock | 612 | 612 | — | — | * | ||||||||||||||||||||||||||||||||||||||
Markos I. Tambakeras | Common Stock | 22,715 | 10,126 | 12,589 | — | * | Common Stock | 13,964 | 6,479 | 7,485 | — | * | ||||||||||||||||||||||||||||||||
Richard P. Lavin(2) | Common Stock | — | — | — | — | * | ||||||||||||||||||||||||||||||||||||||
All Directors and Executive Officers as a Group | Common Stock | 1,624,484 | 330,248 | 1,284,605 | 9,631 | 1.70 | % | Common Stock | 1,149,492 | 200,193 | 936,059 | 13,240 | 1.25 | % |
* | Less than one percent |
(1) |
Schedule 13G Filings
(2) | Nominee for election in May 2013. |
Set forth below is information reported to the SEC on the most recently filed Schedule 13G byabout the following persons who beneficially owned more than 5% of ITT outstanding common stock.stock as of March 22, 2013. This information does not include holdings by the trustee with respect to individual participants in the ITT Salaried Investment and Savings Plan.
Name and address of beneficial owner | Amount and nature of beneficial ownership | Percent of Class | Amount and nature of beneficial ownership | Percent of Class | ||||||||||||
Barrow, Hanley, Mewhinney & Strauss, LLC(1) | 6,506,226 | 7.01 | % | 6,269,460 | 6.76 | % | ||||||||||
2200 Ross Avenue, 31st Floor Dallas, TX 75201-2761 | ||||||||||||||||
BlackRock, Inc.(2) | 5,055,203 | 5.46 | % | 5,023,933 | 5.42 | % | ||||||||||
40 East 52nd Street, New York , NY 10022 | ||||||||||||||||
40 East 52nd Street New York, NY 10022 | ||||||||||||||||
The Vanguard Group(3) | 4,710,062 | 5.10 | % | |||||||||||||
100 Vanguard Blvd. Malvern, PA 19355 |
(1) | As reported on Schedule |
(2) | As reported on Schedule 13G filed |
(3) | As reported on Schedule 13G filed on February 13, 2013, The Vanguard Group has sole voting power with respect to 66,661 shares, no shared voting power with respect to any shares, sole dispositive power with respect to 4,648,001 shares, and shared dispositive power with respect to 62,061 shares. |
Equity Compensation Plan Information
The following sets forth information concerning the shares of common stock that may be issued under equity compensation plans as of December 31, 2012.
Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans | |||||||||
Equity Compensation Plans Approved by Security Holders(1)(2) | 5,545,790 | (3) | 18.46 | (4) | 40,959,280 | (5) | ||||||
Equity Compensation Plans Not Approved by Security Holders | — | — | — | |||||||||
Total | 5,545,790 | 18.46 | 40,959,280 |
(1) | Equity compensation plans approved by shareholders include the 1994 ITT Incentive Stock Plan, the 1996 Plan, the 2002 ITT Stock Option Plan for Non-Employee Directors, the ITT Amended and Restated 2003 Equity Incentive Plan and the 2011 Omnibus Incentive Plan. |
(2) | Since the approval of the 2011 Omnibus Incentive Plan, no additional awards, including awards of restricted stock, will be granted under the other plans referred to in footnote (1) above. Under |
the 2011 Omnibus Incentive Plan currently in effect, restricted stock and restricted stock units may be awarded up to a maximum aggregate grant of 1,875,441 shares or units in any one plan year to any one participants. |
(3) | The weighted-average remaining contractual life of the total number of outstanding options was 4.2 years as disclosed in Note 17 to the Consolidated Financial Statements in the Company’s 2012 Annual Report on Form 10-K. |
(4) | The weighted-average exercise price pertains only to 4,348,874 outstanding options and not to outstanding restricted stock shares or units, which by their nature have no exercise price. |
(5) | As of December 31, 2012, the number of shares available for future issuance under the 2011 Omnibus Incentive Plan with respect to restricted stock and restricted stock unit awards was approximately 18,073,922, which is included in the 40,959,280 disclosed above. |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires that the Company’s directors and executive officers, and directors, and any persons beneficially owning more than 10% of a registered class of the Company’s equity securities, file reports of ownership and changes in ownership with the SEC within specified time periods. To the Company’s knowledge, based upon a review of the copies of the reports furnished to the Company and written representations that no other reports were required, all filing requirements were satisfied in a timely manner for the year ended December 31, 2011.2012.
Proposals to be Voted on at the 20122013 Annual Meeting
Item 1. Election |
The Board of Directors has nominated 10eight individuals for election as Directors at the 20122013 Annual Meeting. If unforeseen circumstances arise before the 20122013 Annual Meeting and a nominee becomes unable to serve, the Board of Directors could reduce the size of the Board or nominate another candidate for election. If the Board nominates another candidate, the proxies could use their discretion to vote for that nominee. Each Director elected at the 20122013 Annual Meeting will be elected to serve as a Director until ITT’s next Annual Meeting.
The Board of Directors recommends that you vote FOR the election of each of the following 10eight nominees:
Denise L. Ramos Chief Executive Officer and President, ITT Corporation |
Director Biographical Information:Ms. Ramos, 55,56, was appointed Chief Executive Officer and President and elected a Director of ITT on October 31, 2011. She previously served as Senior Vice President and Chief Financial Officer of ITT. Ms. Ramos has greater than twenty20 years of business and financial experience acquired at Atlantic Richfield Company (ARCO). During her tenure at ARCO, she served in a number of increasingly responsible finance positions, including Corporate General Auditor and Assistant Treasurer. In addition, Ms. Ramos has five years of experience at Yum! Brands, Inc., where she was Senior Vice President and Corporate Treasurer for Yum! and Chief Financial Officer for the U.S. division of KFC Corporation. Prior to joining ITT in 2007, MsMs. Ramos served as Chief Financial Officer for Furniture Brands International. Ms. Ramos holds a Master of Business Administration in Finance from the University of Chicago and attended Purdue University’s economic honors program.
Director Experience, Qualifications, Attributes or Skills Relevant to Board Membership:
Ms. Ramos’s unique background combines more than two decades in the oil and gas industry with significant retail and customer-centric experience. She has extensive operational and manufacturing experience with industrial companies and, in particular, she has intimate knowledge of the Company’s business and operations having served as our Chief Financial Officer since 2007. Ms. Ramos is on the Board of Trustees for the Manufacturers Alliance for Productivity and Innovation and was recently included in the Top 100 Women Leaders in Science, Technology, Engineering, and Math publication by STEMconnector.
Directorships at Public Companies for the Preceding Five Years:Ms. Ramos has been a Director of ITT since October 31, 2011.
Frank T. MacInnis Chairman and former Chief Executive Officer, EMCOR Group, Inc., one of the world’s largest providers of electrical and mechanical construction, |
Director Biographical Information:Mr. MacInnis, 65,66, is currently Chairman of the Board and was Chief Executive Officer of EMCOR Group, Inc. from April 1994 to January 2011. He was also
President of EMCOR from April 1994 to April 1997. Mr. MacInnis is Chairman of the Board and a Directordirector of ComNet Communications, LLC Gilbane, Inc., and The Williams Companies, Inc. He also serves on the Board of Directors of Gilbane, Inc. Mr. MacInnis received an undergraduate degree from The University of Alberta and is a graduate of The University of Alberta Law School, Alberta, Canada.
Director Experience, Qualifications, Attributes or Skills Relevant to Board Membership:
Mr. MacInnis has greater than 25 years of broad-based experience as a Chief Executive Officer of a leading, publicly held, international mechanical and electrical construction, energy infrastructure, and facilities services provider. Mr. MacInnis provides knowledgeable leadership and insight into the many commercial and defense markets served by the Company and has a strong corporate and finance background. He is also a Director of EMCOR Group, Inc., providing additional relevant experience.
Directorships at Public Companies for the Preceding Five Years:Mr. MacInnis has been a Director of ITT since 2001. He was elected Chairman of the Board of ITT on October 31, 2011. Mr. MacInnis has been Chairman of the Board and a Directordirector of EMCOR Group, Inc. since 1994 and a Director of The Williams Companies, Inc. since 1998. He was elected Chairman of the Board of The Williams Companies, Inc. in May 2011. In December 2011, Mr. MacInnis joined the Board of Directors of Gilbane, Inc., a real estate development and construction company.
Orlando D. Ashford
Mercer |
Director Biographical Information:Mr. Ashford, 43,44, is the President of the Talent business segment at Mercer. Previously, Mr. Ashford was the Senior Vice President, Chief Human Resources and Communications Officer for Marsh & McLennan Companies. Previously, heIn 2008, Mr. Ashford served as Group Director of Human Resources for Eurasia and Africa for the Coca-Cola Company and Vice President of Global Human Resources Strategy and Organizational Development for Motorola Inc. He has also held leadership positions with Mercer Delta Consulting, Ameritech and Andersen Consulting. Mr. Ashford holds a Bachelor of Science in Organizational Leadership and a Master of Science in Industrial Technology, both from Purdue University.
Director Experience, Qualifications, Attributes or Skills Relevant to Board Membership:
Mr. Ashford has significant experience in multinational organizations, providing experience and skills relevant to the Company’s international sales infrastructure. In 2010 and 2012, Mr. Ashford was named by Savoy magazine as one of the “100 Most Influential Blacks in Corporate America.” In 2011 and 2012, Uptown Professional named him one of the top 100 executives in corporate America. Mr. Ashford is also on the Board of Directors for the Executive Leadership Council and for ROADS Charter High School. He also serves on advisory boards for Purdue University School of Technology and the NFL Players Association and The Ladders.Association. Mr. Ashford also currently serves on the Board of Directors of Streetwise Partners.
Directorships at Public Companies for the Preceding Five Years:Mr. Ashford currently serves on the Boardhas served as a Director of Directors of Streetwise Partners.ITT since December 12, 2011.
Peter D’Aloia Former Senior Vice President and Chief Financial Officer, American Standard Companies, Inc. |
Director Biographical Information:Mr. D’Aloia, 67,68, served as Senior Vice President and Chief Financial Officer of American Standard Companies Inc., a position he held since 2000, before retiring in 2008. Before joining American Standard, Mr. D’Aloia worked for Honeywell where he most recently served as Vice President—Business Development. He spent 27 years with Honeywell’s predecessor company, AlliedSignal, in diverse finance management positions. During his career with AlliedSignal, he served as Vice President—Taxes; Vice President and Treasurer; Vice President and Controller; and Vice President and Chief Financial Officer for the Engineered Materials Sector. Early in his career, he worked as a tax attorney for the accounting firm Arthur Young and Company.
Director Experience, Qualifications, Attributes or Skills Relevant to Board Membership:
Mr. D’Aloia holds a law degree from St. John’s University, and a Master of ScienceLaws (LLM) in taxation from New York University Law School and a Bachelor of ArtsScience degree in accounting from New York University. Mr. D’Aloia has significant executive management experience gained as an executive officer, strong international experience and financial expertise. Mr. D’Aloia has also served as a Director indirector of other public companies, providing additional relevant experience.
Directorships at Public Companies for the Preceding Five Years:Mr. D’Aloia has served as a Director of ITT since October 31, 2011. Mr. D’Aloia is also a board member and managing director of Ascend Performance Materials, Inc. He alsoIn addition, he currently serves on the boards of FMC Corporation and WABCO Holdings, Inc. and he formerly served on the Board of AirTran Airways, Inc.
Donald DeFosset, Jr. Former Chairman, James Hardie Industries N.V. |
Director Biographical Information:Donald DeFosset, Jr., 63,64, retired in 2005 as Chairman, President and Chief Executive Officer of Walter Industries, Inc., a diversified company with principal operating businesses in homebuilding and home financing, water transmission products and energy services. Mr. DeFosset served since November 2000 as President and Chief Executive Officer, and since March 2002 as Chairman, of Walter Industries. Previously, he was Executive Vice President and Chief Operating Officer of Dura Automotive Systems, Inc. (“Dura”), a global supplier of engineered systems, from October 1999 through June 2000. Before joining Dura, Mr. DeFosset served as a Corporate Executive Vice President, President of the Truck Group and a member of the Office of Chief Executive Officer of Navistar International Corporation from October 1996 to August 1999.
Director Experience, Qualifications, Attributes or Skills Relevant to Board Membership:
Mr. DeFosset holds a Master of Business Administration from Harvard Business School and a Bachelor of Science degree in industrial engineering from Purdue University. Mr. DeFosset has significant experience as a chief executive of a large diversified industrial company and as a senior executive of an international machinery manufacturer. Mr. DeFosset has also served as a Director indirector of other public companies, providing additional relevant experience.
Directorships at Public Companies for the Preceding Five Years:Mr. DeFosset has served as a director of ITT since October 31, 2011. Mr. DeFosset also serves as a Director of National Retail Properties Inc., Regions Financial Corporation and EnPro Industries,Terex Corporation, Inc. Previously, Mr. DeFosset served as a Director of EnPro Industries, Inc. from 2008-2011 and of James Hardie Industries N.V. from 2006 through 2008.
Christina A. Gold Former President, Chief Executive Officer and Director, The Western Union Company, Inc. |
Director Biographical Information:Mrs. Gold, 64,65, was President and Chief Executive Officer of The Western Union Company, a leading company in global money transfer, from September 2006 to September 2010. From May 2002 to September 2006, Mrs. Gold was President of Western Union Financial Services, Inc. and Senior Executive Vice President of Western Union’s parent company, First Data Corporation. From October 1999 to May 2002, she was Chairman, President and Chief Executive Officer of Excel Communications, Inc. Mrs. Gold served as President and Chief Executive Officer of The Beaconsfield Group from March 1998 to October 1999. From 1997 to 1998,
Mrs. Gold was Executive Vice President of Global Development of Avon Products, Inc., and from 1993 to 1997, she was President of Avon North America. Mrs. Gold is a graduate of Carleton University, Ottawa, Canada. She is a board member of the Safe Water Network.
Director Experience, Qualifications, Attributes or Skills Relevant to Board Membership:
Mrs. Gold has extensive experience as the Chief Executive Officer of a public company with wide-rangingwide ranging global leadership, management and marketing experience. She was recognized in 2003, 2006, 2008 and 2009 byFortunemagazine as one of America’s 50 Most Powerful Women in Business and byForbesmagazine on its “100 Most Powerful Women” list in 2007, 2008, and 2009.BusinessWeekalso named her as one of the top 25 U.S. managers in 1996. She served as Director of The Western Union Company from October 2006 to September 2010.
Directorships at Public Companies for the Preceding Five Years:Mrs. Gold has beenserved as a Director of ITT since 1997 and as a Director of New York Life Insurance Company, a mutual company, since 2001. Mrs. Gold previously served as a Director of Torstar Corporation, a broad-based Canadian media company, providing additional relevant experience.company. She served as a Director of The Western Union Company from October 2006 to September 2010. Mrs. Gold was elected a Director of Exelis Inc. on October 31, 2011.2011; as part of the transaction process for the separation of the Xylem Inc. and Exelis Inc. businesses from ITT, Mrs. Gold has agreed to resign as a director of Exelis Inc. with effect from the date of the election of her replacement at Exelis Inc.’s annual shareholders meeting.
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Director Biographical Information: General Kern, 66, has served asMr. Lavin, 61, was a Senior Counselor to the Cohen Group since January 2005. He served as Presidentgroup president of Caterpillar, Inc. for Construction Industries and Chief Operating Officer of AM General LLC from August 2008 to January 2010.Growth Markets. In November 2004, General Kern retired from the U.S. Army as Commanding General, Army Materiel Command (AMC). General Kern graduated from the U.S. Military Academy at West Point. He holds masters degrees in both civil and mechanical engineering from the University of Michigan, and he2009, Mr. Lavin was a Senior Security Fellow at the John F. Kennedy School at Harvard University. General Kern serves onappointed to the Board of Directors of CoVant Technologies LLC,USG Corporation, a leading building products company. He is also a member of the Board of Directors of the U.S. China Business Council, U.S. India Business Council and AT Solutions, a subsidiary of CoVant Technologies. General Kernthe U.S. Korea Business Council. He is a member of the Defense ScienceThe Conference Board and National Academythe Chicago Council of Engineering.
Global Affairs. He serves on the International Advisory Council of Guanghua School of Management at Peking University and is on the Board of Trustees at Bradley University. Mr. Lavin has a bachelor’s degree from Western Illinois University and law degrees from both Creighton University and Georgetown University.
Director Experience, Qualifications, Attributes or Skills Relevant to Board Membership: General Kern
Mr. Lavin has extensive international strategic businessexperience in Asian and defense-related experience. General Kern has demonstrated leadershipLatin American operations and management experience during his 37-year career withwas a product manager in Track-Type Tractors. Before becoming a group president, he was most recently Vice President of manufacturing operations for the U.S. Army. He is a leading figure on defense transformation,Asia Pacific Division, serving as chairman of Shin Caterpillar Mitsubishi Ltd. (SCM) – now Caterpillar Japan Ltd. (CJL) – and chairman of Caterpillar (China) Investment Co., Ltd. Mr. Lavin had administrative responsibility for manufacturing operations in the region, including facilities in China, India and Indonesia. Mr. Lavin was director of Corporate Labor and Human Relations and director of Compensation and Benefits, as well as a highly decorated combat veteran, and achieved recognized prominence as a four-star general with the U.S. Army. General Kern spearheaded Army efforts to direct supply chain improvement efforts, modernize weapons systems and maintain field readiness, while still controlling costs.vice president of Caterpillar’s Human Services Division. He is also a Directordirector of iRobotUSG Corporation, providing additional relevant experience, and a member of the Defense Science Board and National Academy of Engineering.experience.
Directorships at Public Companies for the Preceding Five Years: General Kern
Mr. Lavin has been a Director of ITT Corporation since August 2008. He has served as a Director of iRobot Corporation since 2006. General Kern was a Director of EDO Corporation from 2005 through 2007. He was a Director of Anteon Corporation from 2005 until 2006 when it was sold to General Dynamics. General Kern was elected a Director of Exelis Inc. on October 31, 2011.
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Director Biographical Information: Ms. Sanford, 59, was named Senior Vice President, Enterprise Transformation, IBM in January 2003. Previously, she was Senior Vice President and Group Executive, IBM Storage Systems Group, responsible for development of IBM’s Enterprise Storage Server and other storage-related hardware and software. She also has held positions as General Manager, IBM Global Industries, and General Manager of IBM’s S/390 Division. Ms. Sanford is a member of the Women in Technology International Hall of Fame and the National Academy of
Engineers. She is on the Board of Trustees of St. John’s University, Rensselaer Polytechnic Institute and the State University of New York, serves on the Board of Directors of Partnership for New York City and is a member ofUSG Corporation from November 2009 to the Board of Directors for the Business Council of New York State, Inc. Ms. Sanford is a graduate of St. John’s University and earned a Master of Science degree in operations research from Rensselaer Polytechnic Institute.
Director Experience, Qualifications, Attributes or Skills Relevant to Board Membership: Ms. Sanford has extensive global management and operational experience in information technology and high-technology companies. Ms. Sanford has run many large businesses within IBM and currently leads IBM’s Enterprise Transformation. In that role, Ms. Sanford is responsible for working to transform core business processes, create an IT infrastructure to support those processes, and help create a culture that recognizes the value of continual transformation. Ms. Sanford has also been named one of the 50 Most Influential Women in Business byFortune magazine, one of the Top Ten Innovators in the Technology Industry byInformation Week magazine, and one of the Ten Most Influential Women in Technology byWorking Woman magazine. She is a senior officer in a large publicly traded company, providing additional relevant experience. In addition, Ms. Sanford’s experience in analytics and information technology is particularly relevant for understanding ITT’s businesses.
Directorships at Public Companies for the Preceding Five Years: Ms. Sanford has been a Director of ITT since 1998.present.
Donald J. Stebbins Former Chairman, Chief Executive Officer and President, Visteon Corporation, a leading global supplier of innovative climate, interior, electronic and lighting products for vehicle manufacturers |
Director Biographical Information:Mr. Stebbins, 54,55, served as the Chairman of Visteon Corporation from December 2008 through August 2012 and as the Chief Executive Officer from June 2008 through August 2012. Mr. Stebbins joined Visteon in June 2005 as the President and Chief Operating Officer, was named Chief Executive Officer on June 1, 2008 and elected Chairman effective December 1, 2008.Officer. Prior to joining Visteon, he was President and Chief Operating Officer of Lear Corporation’s operations in Europe, Asia and Africa. Before that, he was President and Chief Operating Officer of Lear Corporation’s operations in the Americas. Before joining Lear in 1992, Mr. Stebbins held positions at Bankers Trust Co. and Citibank.
Director Experience, Qualifications, Attributes or Skills Relevant to Board Membership:
Mr. Stebbins has more than 20 years of leadership experience in global operations and finance, including 13 years in senior leadership positions with Lear before joining Visteon.
Directorships at Public Companies for the Preceding Five Years:Mr. Stebbins has served on Visteon’s Boardas a Director of DirectorsITT since December 2006.March 1, 2012. He also currently serves on the board of WABCO Holdings, Inc.
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Director Biographical Information: Mr. Tambakeras, 61, and he served as Chairman of theon Visteon’s Board of Directors Kennametal, Inc. from July 1, 2002,December 2006 until December 31, 2006. He was also President and Chief Executive Officer of Kennametal from July 1999 through December 2005. From 1997 to 1999, Mr. Tambakeras served as President, Industrial Controls Business, for Honeywell Incorporated. Mr. Tambakeras serves on the Board of Trustees of Loyola Marymount University and he is also a trustee of Arizona State University and has served for two years on the President’s Council on Manufacturing. Mr. Tambakeras received a Bachelor of Science degree from the University of Witwatersrand, Johannesburg, South Africa, and a Master of Business Administration degree from Loyola Marymount University, Los Angeles, CA.August 2012.
Director Experience, Qualifications, Attributes or Skills Relevant to Board Membership: Mr. Tambakeras has strong strategic and global operational industrial experience, having worked in increasingly responsible positions in several manufacturing companies, including leadership positions in South Africa and the Asia-Pacific area. Mr. Tambakeras has an extensive background in international operations, providing experience and skills relevant to the Company’s global sales and manufacturing infrastructure. He was previously the ChairmanItem 2. Ratification of Appointment of the Board of Trustees of the Manufacturers Alliance/MAPI, which is the manufacturing industry’s leading executive development and business research organization. Mr. Tambakeras was a Director of Parker Hannifin Corporation, providing additional relevant experience.Independent Registered Public Accounting Firm
Directorships at Public Companies for the Preceding Five Years: Mr. Tambakeras has been a Director of ITT since 2001. Previously, Mr. Tambakeras was a Director of Kennametal, Inc. from July 1999 through December 2006. Mr. Tambakeras has served on the Board of Parker Hannifin Corporation from 2005 through 2011 and served as a Director of the Board of Newport Corporation from May 2008 through December 2009. Mr. Tambakeras was elected the non-Executive Chairman of Xylem Inc. on October 31, 2011.
The Board of Directors has appointed Deloitte as ITT’s independent registered public accounting firm for 2012.2013. Shareholder ratification is not required for making such appointment for the fiscal year ending December 31, 2012,2013, because the Audit Committee has responsibility for the appointment of our independent registered public accounting firm. The appointment is being submitted for ratification with a view toward soliciting the opinion of shareholders, which opinion will be taken into consideration in future deliberations. No determination has been made as to what action the Board of Directors or the Audit Committee would take if shareholders do not ratify the appointment. Deloitte is a registered public accounting firm regulated by the Public Company Accounting Oversight Board (“PCAOB”). Representatives of Deloitte attended all regularly scheduled meetings
of the Audit Committee during 2011.2012. The Audit Committee annually reviews and considers Deloitte’s performance of the Company’s audit. Performance factors reviewed include Deloitte’s:
Ÿ | Independence |
Ÿ | Experience |
Ÿ | Technical capabilities |
Ÿ | Client service assessment |
Ÿ | Responsiveness |
Ÿ | Financial strength |
Ÿ | Industry insight |
Ÿ | Leadership |
Ÿ | Non-audit services |
Ÿ | Management structure |
Ÿ | Peer review program |
Ÿ | Commitment to quality report |
Ÿ | Appropriateness of fees charged |
Ÿ | Compliance and ethics |
The Audit Committee also reviewed the terms and conditions of Deloitte’s engagement letter including an agreement between the Company and Deloitte to submit disputes between Deloitte and the Company to a dispute resolution process and to limit awards based on punitive or exemplary damages under the dispute resolution procedures.process.
The Audit Committee discussed these considerations as well as Deloitte’s fees and services with Deloitte and Company management. The Audit Committee also determined that any non-audit services (services other than those described in the annual audit services engagement letter) provided by Deloitte were permitted under the rules and regulations concerning auditor independence promulgated by the SEC and rules promulgated by the PCAOB in Rule 3526. Representatives of Deloitte will be present at the 20122013 Annual Meeting to answer questions. Representatives of Deloitte also will have the opportunity to make a statement if they desire to do so.
Independent Registered Public Accounting Firm Fees
Aggregate fees billed to the Company for the fiscal years ended December 31, 20112012 and 20102011 represent fees billed by the member firms of Deloitte Touche Tohmatsu, and their respective affiliates. The increased fees for 2011 as compared to 2010 reflect the increased services in connection with executing our recently completed spin-offs (the “Separation”) of Exelis Inc. (“Exelis”), our Defense and Information Solutions business, and Xylem Inc. (“Xylem”), our water-related business.
Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||
2011 | 2010 | 2012(1) | 2011 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Audit Fees | $ | 4,347 | $ | 8,423 | $ | 3,995 | $ | 4,347 | ||||||||
Audit-Related Fees | 14,714 | 2,745 | 571 | 14,714 | ||||||||||||
Tax Fees | ||||||||||||||||
Tax Compliance Services | 2,470 | 1,448 | 464 | 2,470 | ||||||||||||
Tax Planning Services | 4,888 | 501 | 169 | 4,888 | ||||||||||||
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Total Tax Services | 7,358 | 1,949 | 633 | 7,358 | ||||||||||||
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All Other Fees | 11,508 | 1,500 | 0 | 11,508 | ||||||||||||
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Total | $ | 37,927 | $ | 14,617 | $ | 5,199 | $ | 37,927 | ||||||||
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(1) | Fees for 2012 reflect amounts billed to date. The Company expects to pay additional fees relating to the 2012 audit, but the amount of such additional fees has not yet been determined. |
(2) | Fees for audit services billed in |
Ÿ | Audit of the Company’s annual financial statements and internal control over financial reporting; |
Ÿ | Reviews of the Company’s quarterly financial statements; |
Ÿ | Statutory and regulatory audits, consents and other services related to SEC matters; and |
Ÿ | Financial accounting and reporting consultations. |
Fees for audit-related services billed in 2011 primarily related to audit work performed on the |
Ÿ | Employee benefit plan audits; |
Ÿ | Audits and other attest work related to acquisitions; |
Ÿ | Internal control advisory services; and |
Ÿ | Other miscellaneous attest services. |
Fees for tax services billed in |
Ÿ | Tax compliance services are services rendered, based upon facts already in existence or transactions that have already occurred, to document, compute and obtain government approval for amounts to be included in tax filings consisting primarily of: |
i. | Federal, foreign, state and local income tax return assistance; |
ii. | Internal Revenue Code and foreign tax code technical consultations; and |
iii. | Transfer pricing analyses. |
Ÿ | Tax planning services are services and advice rendered with respect to proposed transactions or services that alter the structure of a transaction to obtain an anticipated tax result. Such services consisted primarily of: |
i. | Tax advice related to the tax-free nature of the |
ii. | Tax advice related to intra-group restructuring. |
Fees for other services in 2011 consisted of consulting services in connection with the Company’s value-based commercial excellence programs and advice related to a financial information technology separation. |
Pre-Approval of Audit and Non-Audit Services
The Audit Committee pre-approves audit services provided by Deloitte. The Audit Committee has also adopted a policy on pre-approval of permitted non-audit services provided by Deloitte and certain permitted non-audit services provided by outside internal audit service providers. The purpose of the policy is to identify thresholds for services, project amounts and circumstances where Deloitte and any outside internal audit service providers may perform permitted non-audit services. A second level of review and approval by the Audit Committee is required when such permitted non-audit services, project amounts or circumstances exceed the specified amounts.
The Audit Committee has determined that, where practical, all permitted non-audit services shall first be placed for competitive bid prior to selection of a service provider. Management may select the party deemed best suited for the particular engagement, which may or may not be Deloitte. Providers other than Deloitte shall be preferred in the selection process for permitted non-audit service-related work. The policy and its implementation are reviewed and reaffirmed on a regular basis to assure conformance with applicable rules.
The Audit Committee has approved specific categories of audit, audit-related and tax services incremental to the normal auditing function, which Deloitte may provide without further Audit Committee pre-approval. These categories include, among others, the following:
1. | Due diligence, closing balance sheet audit services, purchase price dispute support and other services related to mergers, acquisitions and |
2. | Employee benefit advisory services, independent audits and preparation of tax returns for the Company’s defined contribution, defined benefit, and health and welfare benefit plans, preparation of the associated tax returns or other employee benefit advisory |
3. | Tax compliance and certain tax planning and advice |
4. | Accounting consultations and support related to generally accepted accounting principles (“GAAP”) or government contract compliance. |
The Audit Committee has also approved specific categories of audit-related services, including the assessment and review of internal controls and the effectiveness of those controls, which outside internal audit service providers may provide without further approval.
If fees for any pre-approved non-audit services provided by either Deloitte or any outside internal audit service provider exceed a pre-determined threshold during any calendar year, any additional proposed non-audit services provided by that service provider must be submitted for second-level approval by the Audit Committee. Other audit, audit-related and tax services which have not been pre-approved are subject to specific prior approval. The Audit Committee reviews the fees paid or committed to Deloitte on at least a quarterly basis.
The Company may not engage Deloitte to provide the services described below:
1. | Bookkeeping or other services related to the accounting records or financial statements of the |
2. | Financial information systems design and |
3. | Appraisal or valuation services, fairness opinions or contribution-in-kind |
4. | Actuarial |
5. | Internal audit outsourcing |
6. | Management functions or human resources |
7. | Broker-dealer, investment adviser or investment banking |
8. | Legal services and other expert services unrelated to the audit. |
Employees of Deloitte who are senior manager level or above, including lead or concurring partners and who have been involved with the Company in the independent audit, shall not be employed by the Company in any capacity for a period of five years after the termination of their activities on the Company account.
The Board of Directors recommends you vote FOR the ratification of the appointment of the Company’s Independent Registered Public Accounting Firm.
Item 3. | Approval of the Material Terms of the ITT Corporation Annual Incentive Plan for Executive Officers |
We request that shareholders approve the material terms of the ITT Corporation Annual Incentive Plan for Executive officers, as amended and restated on March 5, 2013. Approval of these material terms will permit the Company to provide tax-deductible incentive awards under the plan.
Section 162(m) of the Internal Revenue Code places a limit of $1,000,000 on the amount we may deduct in any one year for compensation paid to our principal executive officer and our three other most highly-compensated executive officers other than our principal financial officer. There is, however, an exception to this limit for certain performance-based compensation. Awards made pursuant to the plan may constitute performance-based compensation and thereby avoid the deductibility limitation of Section 162(m).
To continue to qualify for this exception, the shareholders must reapprove the material terms of the performance goals of the plan every five years. In addition, if changes are made to the material terms of the performance goals, shareholder approval must be obtained. In 2013, our Compensation and Personnel Committee (the “Compensation Committee”) approved certain technical clarifications to the plan and one amendment to a material term of the plan, subject to shareholder approval at the 2013 Annual Meeting. The amendment allows the Compensation Committee to base awards on the size of the Company’s profit margins, whereas previously the plan had only allowed the Compensation Committee to base awards on the maintenance or improvement of the Company’s profit margins.
We are now submitting the material terms of the plan, as amended and restated, for approval at the 2013 Annual Meeting. If this proposal is not approved by shareholders, we will continue to grant awards under the plan, but certain awards to executive officers will not qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code and will therefore not be fully tax deductible.
Following is a description of the material terms of the plan, as amended and restated and approved by the Compensation Committee at its March 5, 2013 meeting. The description of the plan is qualified in its entirety by the actual provisions of the plan, which are attached to this Proxy Statement as Appendix B.
Plan History. The Annual Incentive Plan for Executive Officers was originally adopted by our Board in 1997 and approved by the shareholders at the annual meeting held May 15, 1997. The plan was amended and restated as of July 13, 2004 to amend the definition of an acceleration event to include mergers where ITT is the surviving entity, but not the initiator of a transaction. This amendment did not require shareholder approval. The plan was again amended and restated as of February 15, 2008 to expand the group of employees who are eligible to participate in the plan, expand the types of performance measures that can be used for awards, and to increase the plan’s limitation on the amount that can be paid under the plan to a participant during a specified period. This amendment was approved by the shareholders at the annual meeting held on May 13, 2008. The plan was again amended and restated as of October 4, 2011 to amend the definition of an acceleration event to provide that the consummation of certain transactions, rather than shareholder approval of such transactions, is necessary to constitute an acceleration event. This amendment did not require shareholder approval. The plan was previously known as the ITT Industries 1997 Annual Incentive Plan for Executive Officers. The plan has been renamed the ITT Corporation Annual Incentive Plan For Executive Officers.
Purpose of the Plan. The primary purpose of the plan is to provide incentive compensation in the form of short-term cash incentives for achievement of specific pre-established performance objectives and to continue to motivate participating executive officers to achieve their business goals, while tying a portion of their compensation to measures affecting shareholder value. It is intended that awards under the plan qualify as “performance-based compensation” for purposes of Section 162(m) of the Internal Revenue Code so that we can fully deduct the incentive awards paid under the plan as business expenses for federal income tax purposes.
Eligibility. The plan limits eligibility to our executive officers. For this purpose, the term “executive officers” is defined by reference to the definition of executive officer in Rule 3b-7 under the Securities Exchange Act of 1934, which defines executive officers as the president, any vice president of the company in charge of a principal business unit, division or function (such as sales,
administration or finance), any other officer who performs a policy making function or any other person who performs similar policy making functions for the company. Executive officers of subsidiaries may be deemed executive officers of the company if they perform such policy making functions for the company.
Not all individuals who are eligible to participate actually receive awards under the plan. Our Compensation Committee selects from the eligible group those to whom awards will be made.
Awards are based on performance against pre-established targets expressed as an objective formula over the performance period and are subject to negative discretion.
Plan Administration. The plan is administered and interpreted by our Compensation Committee. The committee approves the participants for any particular performance period, the applicable performance targets and the other key terms of the awards. To the extent permitted by law and the provisions of the plan, the committee may delegate to any officer or employee of the company authority to administer and interpret procedural aspects of the plan.
Description of Awards. Incentive awards under the plan are based upon performance measured against pre-established performance targets over a specified performance period. The performance period used for awards is generally the calendar year; however, the committee may approve a different period. Within the first ninety days of the applicable performance period or, if sooner, prior to the time twenty-five percent of the relevant performance period has elapsed, the committee must establish, in writing, the performance targets applicable to each participant with respect to that performance period. The performance targets are based upon one or more performance measures and are expressed as an objective formula to be used in calculating the amount of the incentive award the participant will be eligible to receive at various levels of achievement. Performance targets are established at the discretion of the committee and can be expressed in absolute terms, as a goal relative to performance in prior periods, as a goal compared to the performance of comparable companies or an index covering multiple companies or in such other way as the committee prescribes.
Performance Measures. Performance measures are based upon one or more of the following factors: consolidated earnings before or after taxes, net income, operating income, earnings per share, book value per share, return on shareholders’ equity, expense management, return on investment, improvements in capital structure, profitability of an identifiable business unit or product, profit margins, stock price, market share, revenues or sales (including organic revenue), costs, cash flow, working capital, return on assets, total shareholder return, return on invested or total capital and economic value added.
In addition, the following additional performance measures may also be used to the extent consistent with the requirements of Section 162(m) of the Internal Revenue Code: negotiating transactions or sales, implementation of company policy, development of long-term business goals or strategic plans, negotiation of significant corporate transactions, meeting specified market penetration goals, productivity measures, geographic business expansion goals, cost targets, customer satisfaction or employee satisfaction goals, goals relating to merger synergies, management of employment practices and employee benefits, or supervision of litigation and information technology, and goals relating to acquisitions or divestitures of subsidiaries and/or other affiliates or joint ventures; provided, however, that the measurement of any such performance measures must be objectively determinable.
The committee may not increase the amount payable to a participant under the plan. It may, however, reduce or totally eliminate the amount if deemed appropriate to reflect the participant’s performance or unanticipated factors during the performance period.
The terms of the awards may vary from year to year and from participant to participant.
Certification of Awards. Following each performance period, the committee must certify in writing the degree to which the performance targets for each performance period have been achieved and the applicable amount to which the participant might be entitled.
Limitation on Award Amounts. The plan limits the amount that can be paid with respect to awards to any one participant in any one calendar year to $8,000,000.
Payment of Awards. If an award is earned, payment is made in cash as soon as practicable, and in any event no later than 2 and 1/2 months, after the end of the performance period. In the event of death, payment may be made to the participant’s estate. Amounts payable may be prorated or eliminated, at the discretion of the committee, in the event that the participant is not an employee on the last day of the performance period. The plan provides that, upon the occurrence of a change of control, payments will be made in cash promptly at the target achievement level for the entire performance period.
Amendment and Termination of the Plan. The plan may be amended, modified or terminated by the Board, provided that no amendment, modification or termination that adversely affects outstanding awards may be made without consent of the participant holding the award.
Indemnification. The plan provides that the company will indemnify and hold harmless committee and Board members against, and from, any loss, cost, liability or expense that may be imposed upon or incurred by them in connection with or resulting from claims, actions, suits or proceedings relating to their involvement with the plan.
Future Awards. Since the determination of whether awards will be made and, if awards are made, the selection of plan participants and the key terms of awards, including performance targets, performance periods and performance measures are established each year in the discretion of our Compensation Committee, it cannot be determined at this time what amounts, if any, will be paid in the future.
Awards Contingent Upon Shareholder Approval. Awards made in 2013 must be made contingent upon shareholder approval of the material terms of the plan at the 2013 Annual Meeting in order to qualify as performance-based compensation for purposes of Section 162(m) of the Internal Revenue Code. Accordingly, the Compensation Committee has made its approval of awards with respect to 2013 for certain officers that might be subject to Section 162(m) contingent upon shareholder approval of the material terms of the plan at the 2013 Annual Meeting.
Board of Directors Recommendation.
The Board believes that it is in the best interests of ITT Corporation and its shareholders to receive the full income tax deduction for performance-based compensation paid under the plan. The Board is therefore asking the shareholders to approve, for purposes of Section 162(m) of the Internal Revenue Code, the material terms of the plan set forth above. The complete text of the plan is set forth as Appendix B hereto.
Approval of the material terms of the plan for purposes of Section 162(m) requires the affirmative vote of a majority of votes cast. Abstentions and broker non-votes will have no effect. Under the laws of the State of Indiana, the matter is approved if the votes cast in favor of the proposal exceed the votes cast against the proposal. Neither abstentions nor broker non-votes have any effect on the votes required under Indiana law.
Item 4. | Non-Binding Advisory Vote to Ratify Named Executive Officers’ 2012 Compensation |
In accordance with the requirements of Section 14A of the Exchange Act (which was added by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”)) and the related rules of the SEC, we are including in these proxy materials a separate resolution subject to shareholder vote to approve, in a non-binding vote, the 2012 compensation of our NEOs as disclosed on Pages 42 to 102.later in this Proxy Statement in the Compensation Discussion and Analysis. The current frequency of non-binding
advisory votes on executive compensation is an annual vote, and we anticipate that the next vote will be at next year’s annual meeting. The text of the resolution in respect of Proposal No. 34 is as follows:
“RESOLVED, that the compensation paid to the Company’s NEOsnamed executive officers as disclosed in this Proxy Statement pursuant to the rules of the SEC, including the Compensation Discussion and Analysis, compensation tables and any related narrative discussion, is hereby APPROVED.”
In considering their vote, shareholders may wish to review with care the information on the Company’s compensation policies and decisions regarding the NEOs presented in Compensation Discussion and Analysis on pages 43 to 102.elsewhere in this proxy statement.
In particular, shareholders should note that the Company’s Compensation and Personnel Committee (the “Compensation Committee”) bases its executive compensation decisions on the following:
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While the results of the vote are advisory in nature, the Board of Directors intends to carefully consider the results of the vote.
The Board of Directors recommends that you vote FOR the approval of the 2012 compensation of our named executive officers.
John Chevedden, 2215 Nelson Ave., No. 205, Redondo Beach, CA 90278 has notified us that he intends to present the following proposal at this year’s meeting:
4 — Reincorporate In Delaware
Resolved, shareholders urge our board of directors to take the necessary steps (excluding those that may be taken only by shareholders) to change our company’s jurisdiction of incorporation from Indiana to Delaware.
Our company is currently incorporated in Indiana. The Indiana Business Corporation Law is less shareholder-friendly than Delaware’s corporation code — especially following recent Indiana amendments — and Delaware incorporation would benefit shareholders. Recent legislation moves Indiana corporate law in the wrong direction, toward greater director entrenchment and away from giving shareholders power over corporate ground rules.
One example of the advantage of reincorporation in Delaware is that shareholders would have the potential to act by written consent by less than a unanimous vote.
The merit of this reincorporation proposal should also be considered in the context of the opportunity for additional improvement in our company’s 2011 reported corporate governance in order to more fully realize our company’s potential:
The Corporate Library, an independent investment research firm downgraded our company to “D” with “High Governance Risk” and “Very High Concern” in executive pay — $12 million for our CEO Steven Loranger.
Mr. Loranger’s 2010 pension increase came to more than $2.6 million. Two-thirds of long-term executive pay consisted of stock options and restricted stock, both of which simply vest after time. To be effective, equity given to executives for long-term incentive pay should include performance-vesting features. The remaining one-third of long-term executive pay consisted of a target cash
award. Not only did these awards pay out for sub-median performance, but long-term cash awards did nothing to tie executive performance with long-term shareholder value.
Each member (except one) on our Audit and Executive Pay Committees received our highest negative votes of 7% or 8%. Three directors had 13 to 15- years long-tenure-Independence declines as tenure increases.
Please encourage our board to respond positively to this proposal to help initiate improved corporate governance and financial performance:Reincorporate In Delaware — Yes on 4.
The Board of Directors recommends a vote AGAINST this proposal for the following reasons:
ITT’s Board of Directors believes that it is not in the best interest of the Company or its shareholders to change the Company’s jurisdiction of incorporation from Indiana to Delaware.
The Company is committed to maintaining the highest standards of corporate governance, regardless of the Company’s state of incorporation, and the Board of Directors believes that the Company’s practices reflect this commitment.
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Reincorporation in Delaware is not necessary at this time to implement corporate governance ideals. Consequently, the Board of Directors and its Nominating and Governance Committee have concluded that the perceived benefits that could be obtained from reincorporation in Delaware can also be obtained, without the costs and risks associated with reincorporation, by the Company remaining an Indiana corporation.
The proposal cites as an advantage of reincorporation to Delaware that shareholders would have the potential to act by a less-than-unanimous written consent. ITT’s Board of Directors believes that such a provision permitting shareholder action by less than unanimous written consent is unnecessary in light of the existing ability of 35% of ITT’s shareholders to call special meetings. Furthermore, almost 75% of S&P 500 companies prohibit shareholder action by written consent.
Unlike meetings of shareholders, action by written consent can deny shareholders the ability to vote or otherwise provide any input on proposed shareholder actions. Action by written consent would enable shareholders owning a majority or other percentage of our shares to take action on a proposal without the benefit of the opinions or views of other shareholders. In addition, action by written consent would eliminate the need for notice to be given to shareholders in advance of a proposed action, and therefore, certain shareholders may not be informed about the proposed action until after the action has already been taken. The Board of Directors, therefore, believes that reincorporating to Delaware as a means to obtain the right for shareholders to act by less than unanimous written consent is both unnecessary and contrary to the interests of most shareholders.
We have been an Indiana corporation since our formation in 1995. Reincorporating in Delaware, a state with which ITT Corporation has no substantive historical or existing connection, would be a costly process and would have other adverse consequences to us. Reincorporation may require us to obtain consents from, or provide notices to, third parties under certain of our agreements as well as obtain approvals and consents not only from shareholders but also from governmental and regulatory agencies and lenders. In addition, reincorporation would require us to pay significantly greater state franchise taxes. Reincorporation to Delaware would subject us to an annual franchise tax under
Delaware corporate law; there is no such tax under Indiana law. It would also require us to incur substantial expense conducting a corporate review that would be duplicative of much of the work performed in connection with executing our recently completed Separation of Exelis, its Defense and Information Solutions business, and Xylem, its water-related business. Reincorporation would divert the time and attention of management from normal business operations without any commensurate benefit. The Board believes that ITT’s time and resources should remain focused on assisting the Corporation’s management in its efforts to continue to create value for all shareholders.
Finally, we note that a significant portion of the proponent’s proposal focuses on the compensation we paid to Steven Loranger, our former Chief Executive Officer, and the tenure of members who were previously on our Audit Committee. On October 31, 2011, ITT completed its previously announced Separation. Effective immediately prior to the occurrence of the Separation, Steven R. Loranger resigned as Chairman, President and Chief Executive Officer of ITT and a new Chief Executive Officer, Chief Financial Officer and management team was put in place at the Company. In addition, Mr. Loranger, Curtis J. Crawford, Director and member of the Audit Committee and Nominating and Governance Committee, John J. Hamre, Director and Chairman of the Nominating and Governance Committee, and Surya N. Mohapatra, Director and member of the Audit Committee, resigned from the Board. The Separation transaction was completed two weeks before the proponent sent the Company his proposal and significant changes to management and the Board of Directors had already taken place. The concerns that the proponent presented in his proposal were no longer relevant to the Company.
For the reasons cited above, we believe that there are significant advantages for us and our shareholders to remain incorporated in Indiana and that the advantages outweigh any perceived enhancement of shareholder rights that could result from reincorporation in Delaware.
Accordingly, the Board of Directors recommends that you vote AGAINST this proposal.
William Steiner, 112 Abbottsford Gate, Piermont, NY 10968, has notified us that he intends to present the following proposal at this year’s meeting:
5 — Independent Board Chairman
RESOLVED: Shareholders request that our board of directors adopt a policy that, whenever possible, the chairman of our board of directors shall be an independent director (by the standard of the New York Stock Exchange), who has not previously served as an executive officer of our Company. This policy should be implemented so as not to violate any contractual obligations in effect when this resolution is adopted. The policy should also specify how to select a new independent chairman if a current chairman ceases to be independent between annual shareholder meetings.
To foster flexibility, this proposal gives the option of being phased in and implemented when our next CEO is chosen.
When a CEO serves as our board chairman, this arrangement can hinder our board’s ability to monitor our CEO’s performance. Many companies already have an independent Chairman. An independent Chairman is the prevailing practice in the United Kingdom and many international markets. This proposal topic won 50%-plus support at four major U.S. companies in 2011. James McRitchie and Kenneth Steiner have sponsored proposals on this topic which received significant votes.
The merit of this Independent Board Chairman proposal should also be considered in the context of the opportunity for additional improvement in our company’s 2011 reported corporate governance in order to more fully realize our company’s potential:
In response to our majority vote in favor of 10% of shareholders to be able to call a special meeting, our company adopted a hamstrung shareholder ability to call a special meeting. This hamstrung shareholder ability required more than 3-times as many shareholders to call a special meeting. The new rule further hamstrung shareholders because it was limited to shareholders who had owned their shares for one-year.
And the new rule made it easy for shareholders to withdraw their request to call a special meeting. Plus the new rule said our “. Board may, in its discretion, cancel the special meeting.”
An independent Chairman policy can improve investor confidence in our Company and strengthen the integrity of our Board. Please encourage our board to respond positively to this proposal for an Independent Board Chairman — Yes on 5.
The Board of Directors recommends a vote AGAINST this proposal for the following reasons:
ITT’s Board of Directors believes that it is not in the best interest of the Company or its shareholders to adopt a policy that, whenever possible, the Chairman of the Board shall be an independent director (by the standard of the NYSE), who has not previously served as an executive officer of ITT.
ITT’s Corporate Governance Principles provide that the Chairman of the Board and the Chief Executive Officer may be the same person; however, the two positions may be separated if the Board deems it to be in the best interests of the Company and the shareholders. Under the current governance structure of ITT, the positions of Chairman of the Board and Chief Executive Officer are not combined. The shareholder proposal would unnecessarily eliminate the flexibility of the Board of Directors to consider whether a current or former member of management is the best suited to serve as Chairman of the Board at a given time. The Board of Directors believes that ITT and its shareholders benefit from the Board’s current ability to freely select the Chairman of the Board based on criteria that it believes to be in the best interests of ITT and its shareholders. If adopted, this proposal would unnecessarily reduce the Board of Directors’ flexibility in corporate governance matters.
The Board of Directors also disagrees with the proposal because it believes that its existing corporate governance practices already provide for strong independent leadership on the Board, as well as direct accountability to shareholders. As provided in ITT’s Corporate Governance Principles and Charters, the Board believes that the majority of the Board should consist of independent directors. As determined by the Board, in accordance with NYSE rules, all of our directors except for Denise L. Ramos, our Chief Executive Officer and President (10.0% of our directors) are currently independent directors. Each of the members of the Board of Director’s Nominating and Governance Committee, Audit Committee and Compensation Committee is an independent director.
In the past, when the Chairman of the Board and the Chief Executive Officer were the same person, the Board’s independent leadership was further enhanced by the existence of an independent presiding director whose duties were clearly delineated in ITT’s Corporate Governance Principles and Charters. The independent presiding director, among other things, presided at all meetings of the Board at which the Chairman was not present, was available to address concerns raised by other directors, senior executives or major shareholders, communicated any issues or concerns to the full Board and the Chief Executive Officer, assisted the Chairman of the Board in setting the agenda for Board meetings, approved information sent to Board members and acted as a liaison between the Chairman and the Board. The Board believes that having an independent presiding director is an effective corporate governance structure that is widely accepted by corporate governance experts and provides substantially similar benefits as having an independent director, who has not previously served as an executive officer of ITT, serve as Chairman of the Board.
The Board believes that a majority independent Board and, when necessary, the existence of the independent presiding director ensures the independent exchange of information among ITT’s independent directors and provides ITT and its shareholders with substantially the same benefits that the proposal suggests. In the Board’s view, ITT’s shareholders have benefited from the Board of Directors’ current sound corporate governance practices and strong independent Board leadership, and there is no need to require that the Chairman of the Board be an independent director, who has not previously served as an executive officer of ITT.
Accordingly, the Board of Directors recommends that you vote AGAINST this proposal.
The Domestic and Foreign Missionary Society of the Protestant Episcopal Church in the United States of America, 815 Second Avenue, New York, NY 10017-4503, has notified us that it intends to present the following proposal at this year’s meeting:
2012 ITT Shareholder Resolution on Human Rights Policy
Whereas, ITT, as a global corporation, faces increasingly complex problems as the international social, and cultural context within which ITT operates changes.
Companies confront ethical and legal challenges arising from diverse cultures and political and economic contexts or operating in regions of conflict. Today, management must address issues that include human rights, workers’ right to organize and bargain collectively, non-discrimination in the workplace, environmental protection and sustainable community development. ITT does business in countries with human rights challenges including Colombia, Egypt and Israel.
Several international conventions, declarations and treaties contain internationally recognized standards designed to protect human rights — civil, political, social, environmental, cultural and economic — that should be reflected in ITT’s policies. These include the Universal Declaration of Human Rights, the Fourth Geneva Convention, the Hague Conventions, International Covenant on Civil and Political Rights, the core labor standards of the International Labor Organization, and the International Covenant on Economic, Cultural and Social Rights. We believe these documents will help inform ITT’s revision of its human rights policy. Also, United Nations resolutions and reports of special rapporteurs on countries where ITT does business, and “Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights,” adopted by the United Nations Sub-Commission on the Promotion and Protection of Human Rights in August 2003 are helpful, as are the comprehensive human rights policies designed for global companies found in “Principles for Global Corporate Responsibility: Bench Marks for Measuring Business Performance,” developed by an international group of religious investors.
As companies formulate comprehensive policies, we believe significant commercial advantages may accrue through enhanced corporate reputation, improved employee recruitment and retention, improved community and stakeholder relations and reduced risk of adverse publicity, consumer boycotts, divestment campaigns and lawsuits.
Resolved, shareholders request the Board to amend, where applicable, within ten months of the 2012 Annual Meeting, ITT’s policies related to human rights that guide its international and U.S. operations to conform more fully with international human rights and humanitarian standards.
Supporting Statement
We believe ITT’s current human rights policies are limited in scope, and provide little or no guidance for determining business relationships where our products or services could entangle the company in human rights violations. Although we do not recommend inclusion of any specific provision of the above-named documents in the revised policy, we believe ITT’s policies should reflect a more comprehensive understanding of human rights.
ITT should be able to assure shareholders that employees are treated fairly and with dignity wherever they work in the global economy. Going beyond internal practices, however, ITT should also provide similar assurance that its products and services are not used in human rights violations. One element of ensuring compliance is utilization of independent monitors composed of respected local human rights, religious and non-governmental organizations that know local culture and conditions. We believe the adoption of a more comprehensive human rights policy, coupled with implementation, enforcement and independent monitoring, will assure shareholders of ITT’s global leadership.
The Board of Directors recommends a vote AGAINST this proposal for the following reasons:
The proposal requests that, within 10 months of the 2012 annual meeting of shareholders, the Company revise its policies related to human rights that guide its international and U.S. operations in order to have them conform more fully with international human rights and humanitarian standards.
ITT has long supported human rights through its business practices and directly through a specific provision in its Code of Conduct. ITT has also included such rights in its ITT Management System, which incorporates ITT’s values. Over the past several years, ITT has continued to demonstrate progress in benchmarking and communicating its commitment to human rights. This commitment was further evidenced with our adoption of our Policy on Human Rights.
Beginning in 2008, ITT’s Vision and Values instituted a systematic company-wide commitment to respect, responsibility and integrity:
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The Vision and Values are fundamental to our culture and they are codified in ITT’s Code of Conduct, which is available on the Company’s website athttp://www.itt.com/citizenship/code-of-conduct/. To ensure awareness of ITT’s leadership commitments, the Company conducts training for its employees. This training reinforces the responsibility of all employees to act ethically and report possible violations.
In 2009, ITT modified its Code of Conduct to add specific language regarding its commitment to human rights:
Code of Conduct:
We are committed to conducting our business in a manner that respects and advances human rights based on our values and operating principles. We uphold human rights at all times and in all locations, regardless of local business customs.
In particular, we are committed to:
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To ensure that every facet of our business upholds these standards, we seek business partners who share these commitments.
Then, in 2010, ITT conducted further research and benchmarked corporate best practices on human rights. Based on the results from that external benchmarking effort, and with a desire to continuously improve ITT’s ethical culture, in 2011, ITT implemented a specific Policy on Human Rights. The policy, which operates in conjunction with ITT’s Vision and Values and Code of Conduct, applies to all ITT employees worldwide and to ITT’s global supply chain partners within ITT’s sphere of influence.
ITT’s Policy on Human Rights states that ITT fully supports and adheres to the principles of both the Universal Declaration of Human Rights and the United Nations Global Compact where we operate. Furthermore, the policy states that ITT will work to identify and do business with supply chain partners who aspire to conduct their business in a similar manner. To underscore this commitment, the Company has published the full policy on its website athttp://www.itt.com/citizenship/employees/.
For the foregoing reasons, the Board of Directors believes that ITT has substantially fulfilled the request of this shareholder proposal with the adoption of its Policy on Human Rights.
Accordingly, the Board of Directors recommends that you vote AGAINST this proposal.
Information about the Board of Directors
Responsibilities of the Board of Directors. The Board of Directors sets policy for ITT and advises and counsels the chief executive officer and the executive officers who manage the Company’s business and affairs. The Board of Directors is responsible for assuring that:
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Governance Principles. The Board of Directors has adopted the Corporate Governance Principles and charters for each of its standing committees.Principles. The Corporate Governance Principles provide, among other things, that Directors must be able to devote the requisite time for preparation and attendance at regularly scheduled Board and Board Committee meetings, as well as be able to participate in other matters necessary for good corporate governance. To help assure that Directors are able to fulfill their commitments to the Company, the Corporate Governance Principles provide that Directors who are chief executive officers of publicly traded companies may not serve on more than two public company boards (including the ITT Board) in addition to service on their own board. Directors who are not chief executive officers of publicly traded companies may not serve on more than four public company boards (including the ITT Board). The Corporate Governance Principlescorporate governance principles and Committee Charterscommittee charters are reviewed by the Board at least annually and posted on the Company’s website athttp://www.itt.com/investors/governance/principles/. A copy of the Corporate Governance Principles will be provided, free of charge, to any shareholder upon request to the Secretary of ITT.
Leadership Structure. The Board believes that the decision as to whether to combine or separate the Chief Executive Officer and Chairman of the Board of Directors positions will depend on the facts and circumstances facing the Company at a given time and could change over time. In today’s challenging economic and regulatory environment, Directors, more than ever, are required to spend a substantial amount of time and energy in successfully navigating a wide variety of issues and guiding the policies and practices of the companies they oversee. To that end, we believe that, although we do not have a formal policy with respect to separation of the Chairman and Chief Executive Officer positions, that having a separate Chairman, whose sole job is to lead the Board, allows our Chief Executive Officer, Ms. Ramos, to completely focus her time and energy on running the day-to-day operations of our Company. The Board believes that the Company’s current leadership structure does not affect the Board’s role in risk oversight of the Company.
Communication with the Board of Directors. Interested parties may contact all outside Directors as a group, the entire Board of Directors, a committee of the Board of Directors or an individual Director by submitting a letter to the desired recipient in a sealed envelope labeled “Outside Directors,” “Board of Directors”,Directors,” or with the name of the Board committee or a specific Director. This sealed envelope should be placed in a larger envelope and mailed to the Secretary, ITT Corporation, 1133 Westchester Avenue, White Plains, NY 10604, USA. The Secretary will forward the sealed envelope to the designated recipient.
Policies for Approving Related Person Transactions. The Company and the Board have adopted formal written policies for evaluation of potential related person transactions, as those terms are defined in the SEC’s rules for executive compensation and related person disclosure, which provide for review and pre-approval of transactions which may or are expected to exceed $120,000 involving Non-Management Directors, Executive Officers, beneficial owners of five percent or more of the Company’s common stock or other securities and any immediate family of such persons. The Company’s policy generally groups transactions with related persons into two categories: (1) transactions requiring the approval of the Nominating and Governance Committee and (2) certain transactions, including ordinary course transactions below established financial thresholds, that are deemed pre-approved by the Nominating and Governance Committee.
In reviewing related person transactions that are not deemed pre-approved for approval or ratification, the Nominating and Governance Committee will consider the relevant facts and circumstances, including:
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The Nominating and Governance Committee is deemed to have pre-approved certain transactions identified in Item 404(a) of SEC Regulation S-K that are not required to be disclosed even if the amount involved exceeds $120,000. In addition, any transaction with another company at which a related person’s only relationship is as an employee (other than an executive officer), Director and/or beneficial owner of less than 10% of that company’s shares is deemed pre-approved; provided, however, that with respect to Directors, if a Director is a current employee, or if an immediate family member of the Director is a current executive officer, of a company that has made payments to, or received payments from, the Company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or 2% of such other company’s consolidated gross revenues, such transaction shall be reviewed by the Nominating and Governance Committee and not considered appropriate for automatic pre-approval. Regardless of whether a transaction is deemed pre-approved, all transactions in any amount are required to be reported to the Nominating and Governance Committee. Subsequent to the adoption of the written procedures above, the Company has followed these procedures regarding all reportable related
person transactions. The Company’s Related Person Transaction Policy is posted on the Company’s website at:http://www.itt.com/investors/governance/transactions/.
Code of Conduct. The Company has also adopted the ITT Code of Conduct which applies to all employees, including the Company’s Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer and, where applicable, to its Non-Management Directors. The Code of Conduct is also posted on the Company’s website athttp://www.itt.com/citizenship/code-of-conduct/. The Company discloses any changes or waivers from the Code of Conduct on its website for the Company’s Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, its Non-Management Directors and other executive officers. In addition, the Company will disclose within four business days any substantive changes in or waivers of the Code of Conduct granted to our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer, or persons performing similar functions,functions. We will do this by posting such information on our website as set forth above rather than by filing a Form 8-K. A copy of the Code of Conduct will be provided, free of charge, to any shareholder upon request to the Secretary of ITT.
Independent Directors.Director Independence. The Company’s Non-Management DirectorsBoard has determined that all directors other than Ms. Ramos are independent. For a director to be considered “independent,” the Board must meetaffirmatively determine that the NYSE independence standards.director has no direct or indirect material relationship with the Company. The Company’s Corporate Governance Principles define independence in accordance with the independence definition in the current NYSE corporate governance rules for listed companies. With respect to Mr. Ashford, the Board considered that he is an executive officer of a company that, in at least one of the preceding three fiscal years, received payments from the Company in an amount less than the greater of $1 million or 2% of his employer’s total net revenues. With respect to Mr. Lavin, the Board considered that he is an executive officer of a company that, in at least one of the preceding three fiscal years, received payments from the Company in an amount less than the greater of $1 million or 2% of his employer’s total net revenues. The Board also considered the Company’s charitable contributions to non-profit organizations with respect to each of the Non-Management Directors. No contributions exceeded 1% of the consolidated gross revenues of any non-profit organization.
The Company’s Non-Management Directors must be independent and the Charters of the Audit, Compensation and Personnel and Nominating and Governance Committees also require all members to be independent Directors.
Based on its review, the Board of Directors affirmatively determined, after considering all relevant facts and circumstances, that no Non-Management Director has a material relationship with the Company and that all Non-Management Directors, including all members Members of the Audit Committee must also satisfy a separate SEC and NYSE independence requirement, which provides that they may not be affiliates and may not accept directly or indirectly any consulting, advisory or other compensatory fee from the Company or any of its subsidiaries, other than their directors’ compensation. Each member of the Compensation Committee also qualifies as a “non-employee director” (as defined under Rule 16b-3 under the Exchange Act) and Personnel and Nominating and Governance Committees, meetas an “outside director” (as defined in Section 162(m) of the independence definition in the current NYSE corporate governance rules for listed companies.Internal Revenue Code).
Each year, the Company’s Directors and executive officers complete annual questionnaires designed to elicit information about potential related person transactions. Additionally, Directors and executive officers must promptly advise the Corporate Secretary if there are any changes to the information previously provided.
The Nominating and Governance Committee reviews and considers all relevant facts and circumstances with respect to independence for each Director standing for election prior to recommending selection as part of the slate of Directors presented to the shareholders for election at the Company’s Annual Meeting. The Nominating and Governance Committee reviews its recommendations with the full Board, which separately considers and evaluates the independence of Directors standing for re-election using the standards described above.
In February 2012, the Board considered regular commercial sales and payments in the ordinary course of business as well as charitable contributions with respect to each of the Non-Management Directors standing for re-election at the Company’s 2012 Annual Meeting. In particular, the Board evaluated the amount of sales to ITT or purchases by ITT with respect to companies where any of the Directors serve or served as an executive officer or Director.
In no instances was a Director a current employee, or was an immediate family member of a Director a current executive officer, of a company that has made payments to, or received payments from the Company for property or services in an amount which, in any of the last three fiscal years, exceeded the greater of $1 million, or 2% of each respective company’s consolidated gross revenues. The Board also considered the Company’s charitable contributions to non-profit organizations with respect to each of the Non-Management Directors. No contributions exceeded 1% of the consolidated gross revenues of any non-profit organization.
Ms. Ramos is not independent because of her position as Chief Executive Officer and President of the Company.
On October 31, 2011, we completed the Separation of our Defense and Information Solutions business and our water related business. In connection with the Separation, the Board of Directors
determined to decrease the size of the Board of the Company from 10 Directors to eight Directors and Steven R. Loranger, Curtis Crawford, John J. Hamre, Surya N. Mohapatra and Ralph Hake tendered their resignations from the Board of Directors and the resignations were accepted. On December 14, 2011, the Board determined to increase the size of the Board of the Company from eight Directors to nine Directors and, in connection therewith, the Board elected Orlando Ashford to the Board. On February 23, 2012, the Board determined to increase the size of the Board of the Company from nine Directors to 10 Directors and, in connection therewith, the Board elected Donald J. Stebbins to the Board. The following are the independent Directors standing for election: General Kern; Messrs. Ashford, D’Aloia, DeFosset, MacInnis, Stebbins and Tambakeras; and Mrs. Gold and Ms. Sanford.
Board and Committee Roles in Oversight of Risk. The Board of Directors has primary responsibility for overall risk oversight, including the Company’s risk profile and management controls. The Audit Committee of the Board oversees the Company’s operational and regulatory risk management and risk assessment program, including all risk mitigation processes. The Nominating and Governance Committee has responsibility for assessing and monitoring the Company’s global risk profile, and provide regular reports to the Board with respect to their findings. In addition, the Company has established a cross-functional team of management referred to as the Risk Center of Excellence (the “RCOE”), to internally monitor various risks. The Nominating and Governance Committee receives regular reports from RCOE as well. The Compensation Committee reviews and assesses compensation and incentive program risks to ensure that the Company’s compensation programs encourage innovation and balance appropriate business risk and rewards without encouraging risk-taking behaviors which may have a material adverse effect on the Company. The Compensation Committee structures compensation so that unnecessary or excessive risk-taking behavior is discouraged and behaviors correlated with long-term value creation are encouraged. The Board, Audit, Nominating and Governance and Compensation Committees receive regular reports with respect to the Company’s risk profile and risk management controls.
Compensation Committee Interlocks and Insider Participation. None of the members of the Compensation Committee during fiscal year 20112012 or as of the date of this proxy statement has been an officer or employee of the Company and no executive officer of the Company served on the Compensation Committee or board of any company that employed any member of the Company’s Compensation Committee or Board of Directors.
Director Selection and Composition. Directors of the Company must be persons of integrity, with significant accomplishments and recognized business stature. The Nominating and Governance Committee desires that the Board of Directors be diverse in terms of its viewpoints, professional experience, education and skills as well as race, gender and national origin. In addition, ITT’s Corporate Governance Principles state that as part of the membership criteria for new Board members, individuals must possess such attributes and experiences as are necessary to provide a broad range of personal characteristics including diversity, management skills, and technological, business and international experience. On an annual basis, as part of its self-evaluation, the Board of Directors assesses whether the mix of directors is appropriate for the Company. In addition, theNominatingthe Nominating and Governance Committee assesses the effectiveness of these criteria by referring to the criteria when it periodically assesses the composition of the Board. The Board of Directors activelyseeksactively seeks to consider diverse candidates for membership on the Board when it has a vacancy to fill and includes diversity as a specific factor when conducting any search. As part of its process in identifying new candidates to join the Board of Directors, the Nominating and Governance Committee considers whether and to what extent the candidate’s attributes and experiences will individually and collectively complement the existing Board, recognizing that ITT’s businesses and operations are diverse and global in nature. Currently,In 2012, the Board consistsconsisted of 10 directors.ten Directors. Out of the 10
ten Directors, three are female, and one is African American. Three of our 2012 Directors, Paul J. Kern, Markos I. Tambakeras and Linda S. Sanford, will retire from the Board effective as of the end of their term, which is the day immediately prior to the Annual Meeting. The retirement of Messrs. Kern and Tambakeras is in accordance with agreements entered into at the time of the separation of the Exelis Inc. and Xylem Inc. businesses from ITT. The eight nominees for Director for 2013 include two female nominees and one African American nominee. The Directors come from diverse professional backgrounds, including technology, financial and manufacturing industries as well as governmental and non-governmental agencies.industries.
To be considered by the Nominating and Governance Committee as a Director candidate, a nominee must meet the requirements of the Company’s By-laws and Corporate Governance Principles. In addition to these minimum qualifications, the Nominating and Governance Committee evaluates each nominee’s skills to determine if those skills are complementary to the skills demonstrated by current Board members. The Nominating and Governance Committee also evaluates the Board’s needs for operational, technical, management, financial, international or other expertise.
Prior to recommending nominees for election as Directors, the Company’s Nominating and Governance Committee engages in a deliberative, evaluative process to ensure each nominee possesses the skills and attributes that individually and collectively will contribute to an effective Board of Directors. Biographical information for each candidate for election as a Director is evaluated and candidates for election participate in interviews with existing Board members and management. Each candidate is subject to thorough background checks. Director nominees must be willing to commit the requisite time for preparation and attendance at regularly scheduled Board and Committee meetings and participation in other matters necessary for good corporate governance.
The Nominating and Governance Committee identifies Director candidates through a variety of sources including personal references and business contacts. On occasion, the Nominating and Governance Committee utilizes a search firm to identify and screen Director candidates and pays a fee to that firm for each such candidate elected to the Board of the Company. The Nominating and Governance Committee will consider Director nominees recommended by shareholders for election to the Company’s Board who meet the qualification standards described above. (See Section II.F. of the Nominating and Governance Committee Charter athttp://www.itt.com/investors/governance/nominating/.) The Nominating and Governance Committee also evaluates and makes recommendations to the Board of Directors concerning appointment of Directors to Board Committees, selection of Board Committee Chairs, Committee member qualifications, Committee member appointment and removal, Committee structure and operations and proposal of the Board slate for election at the Annual Meeting of Shareholders, consistent with criteria approved by the Board of Directors. For the 2013 Annual Meeting, the Nominating and Governance Committee, each member of which is a Non-Management Director, consistent with the Nominating and Governance Committee Charter and after careful evaluation and consideration of his qualifications for service on the Company’s Board of Directors, recommended that the Board nominate Mr. Lavin to serve as a Director of the Company.
Committees of the Board of Directors. The standing Committees of the Board described below perform essential corporate governance functions.
Audit Committee
G. Peter D’Aloia, Chair | ||
Christina A. Gold | ||
Linda S. Sanford | ||
Donald J. Stebbins (appointed on March 1, 2012) | ||
Meetings in 2012: | 9 | |
Responsibilities: | Ÿ Subject to any action that may be taken by the full Board, the Audit Committee has the ultimate authority and responsibility to determine the independent auditor’s qualifications, independence and compensation, and to appoint (or nominate for shareholder ratification), evaluate, and where appropriate, consider rotation or replacement of | |
Ÿ Review and discuss with management and the independent auditor, and approve the annual audited financial statements and quarterly financial statements of the Company, including discussion of the Company’s disclosures under Management’s Discussion and Analysis of Financial Condition and Results of Operations, and make a recommendation regarding inclusion of those financial statements in any public filing including the Company’s Annual Report on Form 10-K (or the Annual Report to Shareholders if distributed prior to the filing of Form 10-K) and Quarterly Reports on form 10-Q. |
Ÿ Review and consider with the independent auditor matters required to be discussed by Statement on Auditing Standards. No. 61, as amended by AICPA, Professional Standards, Vol. 1.AU Section 380 (the framework of effective communication between the independent auditor and the Company in relation to the audit of financial statements), as adopted by the PCAOB in Rule 3200T. |
Ÿ Review with management and the independent auditor the effect of regulatory and accounting initiatives on the Company’s financial statements. | ||
Ÿ As a whole, or through the Audit Committee chair, review and discuss with the independent auditor the Company’s interim financial results to be included in the Company’s earnings report or quarterly reports to be filed with the SEC, including discussion of the Company’s disclosures under Management’s Discussion and Analysis of Financial Condition and Results of Operations prior to the filing of its Form 10-Q with the SEC. | ||
Ÿ Review and discuss with management the types of information to be disclosed and the types of presentations to be made with respect to the Company’s earnings press releases (paying particular attention to the use of any “pro forma” or “adjusted” non-GAAP information and measures) and financial information and earnings guidance provided to analysts and rating agencies. | ||
Ÿ Discuss with management and the independent auditor the | ||
Ÿ Annually request from the independent auditor a formal written statement delineating all relationships between Deloitte and the Company, consistent with the PCAOB Rule 3526. With respect to such relationships, the Audit Committee shall: | ||
Ÿ |
Ÿ |
Ÿ Pre-approve or delegate to one or more independent members, when appropriate, to pre-approve the retention of the independent auditor for audit-related and permitted non-audit services. Other tax-related consulting and special projects and fees for any other services to be provided by the independent auditor and internal audit service providers must be submitted to the Audit Committee consistent with the Company’s Audit Services, Audit-Related Services and Non-audit Services Policy. | ||
Ÿ Confirm the scope of audits to be performed by the independent auditor and any outside internal audit service provider, monitor progress and review results. | ||
Ÿ | ||
| ||
Ÿ Review significant findings or unsatisfactory internal audit reports or audit problems or difficulties encountered by the independent auditor in the course of the audit work, including any restrictions on the scope of its activities or on access to requested information, and any significant disagreements with management, and monitor management’s response to such matters. Without excluding other possibilities, the Audit Committee may wish to review with the independent auditor (i) any accounting adjustments that were noted or proposed by such firm but were “passed” (as immaterial or otherwise), (ii) any communications between the audit team and the audit firm’s national office respecting auditing or accounting issues presented by the engagement and (iii) any “management” or “internal control” letter issued, or proposed to be issued, by the independent auditor to the Company. |
Ÿ Provide oversight and discuss with management, internal auditors and the independent auditor, the adequacy and effectiveness of the Company’s overall risk assessment and risk management process, including all risk mitigation processes. | ||
Ÿ Establish and maintain free and open means of communication between and among the Audit Committee, the Company’s independent auditor, the Company’s internal audit function, management and the Board. | ||
ŸReview its performance and Charter at least annually and make recommendations to the Board of Directors for approval and adoption of its Charter. | ||
Ÿ Review the Company’s rating agency reviews. | ||
Ÿ Review regularly and consider the Company’s environmental, safety and health reserves. | ||
Ÿ Review the expense accounts of senior executives. | ||
Ÿ Update the Board of Directors on a regular basis with respect to matters coming to its attention that may have a significant impact on the Company’s financial condition or affairs, the Company’s compliance with legal or regulatory requirements and the performance and independence of the independent auditor and the internal audit function. |
Ÿ Review major issues regarding accounting principles and financial statement presentations, significant changes to the Company’s selection or application of accounting principles and major issues relating to the Company’s internal controls including any specifically required steps to correct identified major internal control issues. The Audit Committee also reviews | ||
Ÿ In conjunction with the Board of Directors, evaluate the qualifications of its members and its own performance on an annual basis. |
Ÿ Meet separately, on a regular basis, with the independent auditor, internal auditors and members of management, as well as privately as a Committee. | ||
Ÿ Establish policies regarding the Company’s employment and retention of current or former employees of the independent auditor. |
Ÿ With respect to complaints concerning accounting, internal accounting controls or auditing matters: | ||
Ÿ | ||
Ÿ | ||
Ÿ Establish levels for payment by the Company of fees to the independent auditor and any advisors retained by the Audit Committee. | ||
Ÿ Receive regular reports from the Chief Executive Officer, Chief Financial Officer and from the Company’s disclosure control committee representative on the status of the Company’s disclosure controls and related certifications, including disclosure of any material weaknesses or significant deficiencies in the design or operation of internal controls and any fraud that involves management or other employees with a significant role in internal controls. | ||
Ÿ Prepare the Report of the Audit Committee required by the SEC to be included in the Company’s Proxy Statement. | ||
Ÿ Meet regularly with the Company’s general counsel or head of ethics and compliance to review the implementation and effectiveness of the Company’s Code of Conduct and ethics and compliance program and any proposed waivers of the Code of Conduct for directors and officers. | ||
Independence
The Board of Directors has determined that each member of the Audit Committee meets the independence standards set out in the Board’s Corporate Governance Principles and its Audit Committee Charter, the requirements of the NYSE currently in effect and Rule 10A-3 ofunder the Exchange Act. The Board of Directors has evaluated the performance of the Audit Committee consistent with the regulatory requirements.
A copy of the Audit Committee Charter is available on the Company’s website
http://www.itt.com/investors/governance/audit/. The Company will provide, free of charge, a copy of the Audit Committee Charter to any shareholder, upon request to the Secretary of ITT.
Compensation and Personnel Committee
| ||
Christina A. Gold, Chair | ||
Linda S. Sanford | ||
Donald DeFosset, Jr. | ||
Paul J. Kern | ||
Orlando D. Ashford | ||
Meetings in | ||
Responsibilities: | The Compensation Committee’s primary objective is to establish a competitive executive compensation program that clearly links executive compensation to business performance and shareholder return, without excessive enterprise | |
| Ÿ Approve and oversee administration of the Company’s employee compensation program including incentive plans and equity-based compensation plans. | |
Ÿ Evaluate senior management and Chief Executive Officer performance, evaluate enterprise risk and other risk factors with respect to compensation objectives, set annual performance objectives for the Chief Executive Officer and approve individual compensation actions for the Chief Executive Officer and for the remaining corporate officers. | ||
Ÿ Oversee the establishment and administration of the Company’s benefit |
Ÿ Select, retain and determine the terms of engagement for independent compensation and benefits consultants and other outside counsel, as needed, to provide independent advice to the Committee with respect to the Company’s current and proposed executive compensation and |
Ÿ | ||
Ÿ Regularly report to the Board of Directors on compensation, benefits, continuity and related matters. | ||
Ÿ Review and discuss with the Company’s management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K or such other similar proxy rule requirements. Based on such review and discussion, determine whether to recommend to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s annual report or proxy statement for the annual meeting of stockholders. | ||
Ÿ Prepare the Compensation Committee Report for the Company’s Proxy Statement. | ||
Ÿ Review regularly and consider the Company’s Inclusion & Diversity strategy and the effectiveness of related programs and policies. | ||
Ÿ Review its performance and Charter at least annually and make recommendations to the Board of Directors for approval and adoption of its Charter. |
More detail regarding the processes and procedures used to determine executive compensation is found in the Compensation Discussion and Analysis starting on Page 43.
Independence
The Board of Directors has determined that each member of the Compensation and Personnel Committee meets the independence standards set out in the Board’s Corporate Governance Principles and its Compensation and Personnel Committee Charter and the requirements of the NYSE currently in effect.
A copy of the Compensation and Personnel Committee Charter is available on the Company’s websitehttp://www.itt.com/investors/governance/compensation/. The Company will provide, free of charge, a copy of the Compensation and Personnel Committee Charter to any shareholder, upon request to the Secretary of ITT.
Nominating and Governance Committee
2011 Nominating and Governance Committee Members are:
2012 Nominating and Governance Committee Members: | ||||
Frank T. MacInnis, Chair | ||
Donald DeFosset, Jr. | ||
Paul J. Kern | ||
Markos I. Tambakeras | ||
Orlando D. Ashford | ||
Meetings in | 4 | |
Responsibilities: | Ÿ Develop, annually review, update and recommend to the Board of Directors corporate governance principles for the Company. | |
Ÿ In the event it is necessary to select a new chief executive officer, lead the process for candidate evaluation, consideration and screening. The full Board of Directors has the final responsibility to select the Company’s chief executive officer. | ||
Ÿ Evaluate and make recommendations to the Board of Directors concerning the size, composition, governance and structure of the Board. | ||
Ÿ Make recommendations to the Board of Directors concerning the qualifications, compensation and retirement age of Directors. | ||
Ÿ Administer the Board of Directors’ annual evaluation process. | ||
Ÿ Consider questions of independence and possible conflicts of interest of members of the Board of Directors and executive officers and ensure compliance with the rules of the NYSE and the Clayton Antitrust Act. | ||
Ÿ Review and recommend to the full Board matters and agenda items relating to the Company’s Annual Meeting of Shareholders. | ||
Ÿ Review the form of Annual Report to Shareholders, Proxy Statement and related materials. | ||
Ÿ Review the Company’s business continuity and disaster recovery programs and plans. | ||
Ÿ Review significant risks related to the Company and the mitigation plans monitored by the RCOE. | ||
Ÿ Review the Company’s communication and advertising program and other activities involving community relations, major charitable contributions and promotion of the Company’s public image. |
Ÿ Determine desired Board and Director skills and attributes and conduct searches for prospective board members whose skills and attributes reflect those desired for the Board of Directors. | ||
Ÿ Identify, evaluate and propose nominees for election to the Board of Directors. Consider shareholder nominees for election to the Board. | ||
Ÿ Make recommendations to the Board of Directors concerning the appointment of Directors to Board Committees and the selection of Board Committee Chairs. | ||
Ÿ Evaluate and make recommendations regarding senior management requests for approval to accept memberships on outside boards. | ||
Ÿ Review all material related party transactions prior to initiation of the transaction and make recommendations to the Board of Directors for approval or disapproval. | ||
Ÿ Review the results of any review by the Company’s independent auditor of the Company’s policies relating to the ethical handling of conflicts of interest and review of past or proposed transactions between the Company and members of management as well as policies and procedures with respect to officers’ expense accounts and perquisites, including the use of corporate assets, when the results of such reviews are reported to the Audit Committee. | ||
Ÿ Review and discuss the Company’s risk management program. | ||
Ÿ Review its performance and Charter at least annually and make recommendations to the Board of Directors for approval and adoption of its Charter. |
As described on pages 26 to 27 the Nominating and Governance Committee will consider director nominees recommended by shareholders for election to the Company’s Board who meet the qualification standards. (See Section II.E of the Nominating and Governance Charter atIndependence
http://www.itt.com/investors/governance/nominating/).
Independence
The Board of Directors has determined that each member of the Nominating and Governance Committee meets the independence standards set out in the Board’s Corporate Governance Principles and its Nominating and Governance Committee Charter and the requirements of the NYSE currently in effect.
A copy of the Nominating and Governance Committee Charter is available on the Company’s websitehttp://www.itt.com/investors/governance/nominating/. The Company will provide, free of charge, a copy of the Nominating and Governance Committee Charter to any shareholder, upon request to the Secretary of ITT.
Meetings of the Board and Committees
During 2011,2012, there were five regularly scheduled Board meetings and 2518 meetings of standing Committees. In addition, in connection with the Separation, there were an additional sixthree Board meetings. All Directors attended at least 75% of the aggregate of all meetings of the Board and standing Committees on which they served. It is Company practice that all Directors attend the Company’s Annual Meeting. All Directors attended the Company’s 20112012 Annual Meeting. For 2012,2013, the Board has scheduled five regular meetings. In conjunction with the regular meetings, those Directors who are not employees of ITT are scheduled to meet privately (without management) following each Board meeting during the year.
20112012 Non-Management Director Compensation
In 2010, the Nominating and Governance Committee retained Pay Governance LLC, a compensation consulting firm, to assist with a review of compensation for Non-Management Directors. As part of its review, Pay Governance compared Non-Management Director compensation components and total Director compensation paid with Director compensation components and total Director compensation paid for a sample of companies in the S&P Industrials with median revenue comparable to ITT’s revenue.
Pre-Separation Non-Management Director Pay: Upon the recommendation of Pay Governance and after review, the Nominating and Governance Committee and the Compensation and Personnel Committee recommended, and the Board approved, Non-Management Director compensation changes that were made effective with the Company’s 2011 Annual Meeting to increase the cash component of the Non-Management Director compensation to $100,000, to provide for an equity retainer solely in the form of RSUs of $150,000 and to provide the Audit Committee Chair with an additional annual cash payment in the amount of $15,000.
Post-Separation Non-Management Director Pay: In anticipation of the Separation of the Xylem Inc. and Exelis Inc. businesses from ITT, theThe Board of Directors again reviewed Non-Management Director compensation levels in May 2011October 2012 with Pay Governance in light ofLLC, an independent compensation consulting firm, to ensure that the expected reduced revenue size and market capitalization of the post-Separation Company.Company’s Non-Management Director compensation levels are competitive. As a result of that review, the Nominating and Governance Committee and the Compensation and Personnel Committee recommended, and the Board approved, a post-Separation compensation package made effective onas of the date of the Separation2013 Annual Meeting consisting of $100,000 annual cash retainer and an annual equity retainer solely in the form of RSUs of $90,000. The Non-Executive Chairman receiveswill receive an additional annual payment in the amount of $125,000 (payable in 50% cash and 50% RSUs), and the Audit Committee Chair receiveswill receive an additional annual cash payment in the amount of $15,000.$15,000, the Compensation Committee Chair will receive an additional annual cash payment in the amount of $10,000 and, at any time that the Nominating and Governance Committee Chair is not also the Non-Executive Chairman, the Nominating and Governance Committee Chair will receive an additional annual cash payment in the amount of $10,000.
The following table represents the 20112012 grant date fair value of Non-Management Director compensation computed in accordance with GAAP. As discussed in more detail in the narrative following the table, all Non-Management Directors receive the same cash and stock awards for service (except Mr. MacInnis, as the Audit Committee Chair from January 1, 2011, to October 31, 2011, and as Non-Executive Chairman, from November 1, 2011, to December 31, 2011, received an additional $38,750$62,500 cash payment;payment and stock awards with an additional grant date fair value of $62,500; and Mr. D’Aloia as Audit Committee Chair, from November 1, 2011, to December 31, 2011 received an additional $7,500$15,000 cash payment). As an employee Director, Ms. Ramos does not receive compensation for Board service. Mr. Loranger, who was an employee Director prior to his resignation pursuant to the Separation, did not receive compensation for Board service. The grant date fair value of stock
awards granted to Non-Management Directors in 20112012 is provided in footnote (c)(2) to the table. Stock awards are composed of RSUs. Option awards are composed of non-qualified stock options.
Name (1) | Fees Earned or Paid in Cash (2) ($) | Stock Awards (3) ($) | Stock Option Modification (4) ($) | Total ($) | ||||||||||||
Orlando D. Ashford | 41,667 | 37,848 | — | 79,515 | ||||||||||||
Curtis J. Crawford | 50,000 | 75,322 | 47,149 | 172,471 | ||||||||||||
G. Peter D’Aloia | 57,500 | 45,001 | — | 102,501 | ||||||||||||
Donald DeFosset, Jr. | 50,000 | 45,001 | — | 95,001 | ||||||||||||
Christina A. Gold | 100,000 | 120,324 | 47,149 | 267,473 | ||||||||||||
Ralph F. Hake | 50,000 | 75,322 | 43,304 | 168,626 | ||||||||||||
John J. Hamre | 50,000 | 75,322 | 47,149 | 172,471 | ||||||||||||
Paul J. Kern | 100,000 | 120,324 | 21,995 | 242,319 |
Name
| Fees Earned or Paid in Cash (2) ($) | Stock Awards (3) ($) | Stock Option Modification (4) ($) | Total ($) | Fees Earned or Paid in Cash (1) ($) | Stock Awards (2) ($) | Total ($) | |||||||||||||||||||||
Orlando D. Ashford | 141,666.67 | 90,004.80 | 231,671.47 | |||||||||||||||||||||||||
G. Peter D’Aloia | 115,000.00 | 90,004.80 | 205,004.80 | |||||||||||||||||||||||||
Donald DeFosset, Jr. | 100,000.00 | 90,004.80 | 190,004.80 | |||||||||||||||||||||||||
Christina A. Gold | 100,000.00 | 90,004.80 | 190,004.80 | |||||||||||||||||||||||||
Paul J. Kern | 100,000.00 | 90,004.80 | 190,004.80 | |||||||||||||||||||||||||
Frank T. MacInnis | 138,750 | 151,575 | 47,149 | 337,474 | 162,500.00 | 152,500.80 | 315,000.80 | |||||||||||||||||||||
Surya N. Mohapatra | 50,000 | 75,322 | 25,592 | 150,914 | ||||||||||||||||||||||||
Linda S. Sanford | 100,000 | 120,324 | 43,304 | 263,628 | 100,000.00 | 90,004.80 | 190,004.80 | |||||||||||||||||||||
Donald J. Stebbins | 116,666.67 | 90,004.80 | 206,671.47 | |||||||||||||||||||||||||
Markos I. Tambakeras | 100,000 | 120,324 | 47,149 | 267,473 | 100,000.00 | 90,004.80 | 190,004.80 |
(1) |
Fees earned may be paid, at the election of the Director, in cash or deferred cash. Non-Management Directors may irrevocably elect deferral into an interest-bearing cash account or an account that tracks an index of the Company’s stock. With respect to Messrs. Ashford and Stebbins, the compensation as reported represents compensation for greater than a twelve-month period. |
Awards reflect the grant date fair value computed in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 718, Stock Compensation. Non-Management Directors do not receive differing amounts of equity compensation, except for Mr. MacInnis who received an additional grant value of |
The following table represents restricted common stock and stock options outstanding as of December 31, 20112012 for Non-Management Directors. Outstanding restricted common stock awards include unvested RSUs and vested but deferred RSUs. The table gives effect to the 1:2 reverserestricted stock split.and RSUs.
Non-Management Director Restricted Common Stock and
Stock Option Awards Outstanding at 20112012 Fiscal Year-End
Non-Management Director Name | Outstanding Restricted Common Stock Awards | Outstanding Stock Option Awards | ||||||
Orlando D. Ashford | 1,992 | 0 | ||||||
G. Peter D’Aloia | 2,219 | 0 | ||||||
Donald DeFosset, Jr. | 2,219 | 0 |
Non-Management Director Name | Outstanding Restricted Common Stock Awards | Outstanding Stock Option Awards | ||||||
Orlando D. Ashford | 4,080 | — | ||||||
G. Peter D’Aloia | 6,299 | — | ||||||
Donald DeFosset, Jr. | 6,299 | — | ||||||
Christina A. Gold | 16,407 | 4,260 | ||||||
Paul J. Kern | 8,897 | 4,525 | ||||||
Frank T. MacInnis | 11,451 | 4,260 | ||||||
Linda S. Sanford | 6,038 | 7,485 | ||||||
Donald J. Stebbins | 4,080 | — | ||||||
Markos I. Tambakeras | 4,080 | 7,485 |
Non-Management Director Name Christina A. Gold Paul J. Kern Frank T. MacInnis Linda S. Sanford Donald J. Stebbins Markos I. Tambakeras Outstanding
Restricted Common
Stock Awards Outstanding
Stock Option
Awards 14,030 13,065 4,817 4,525 8,983 13,065 4,862 11,285 0 0 2,904 13,065
Beginning in 2008, all restricted share awardsRSUs granted to non-management directorsNon-Management Directors vest on the nextone business day prior to the Annual Meeting. Restricted shares previously awarded under the ITT 1996 Restricted Stock Plan for Non-Employee Directors (the “1996 Plan”), which preceded the ITT 2003 Restricted Stock Plan for Non-Employee Directors (the “2003 Plan”), and under which restricted shares are still outstanding, provided that each Director’s restricted shares are held in escrow, and they may not be transferred in any manner until one of the following events occurs:
Ÿ | The fifth anniversary of the grant of the shares unless extended as described |
Ÿ | The Director retires at age |
Ÿ | There is a |
Ÿ | The Director becomes disabled or |
Ÿ | The Director’s service is terminated in certain specified, limited |
Ÿ | Any other circumstance in which the Compensation |
Under the 2003 Plan and the 1996 Plan, Non-Management Directors may choose to extend the restriction period for not more than two successive five-year periods, or until six months and one day following the Non-Management Director’s termination from service from the Board under certain permitted circumstances.
The 1996 Plan also provided if a Director ceased serving on the Board under any other circumstances, shares with respect to which the 1996 Plan restrictions have not been lifted would be forfeited. Under the 2003 Plan, the period of restriction for restricted stock granted is five years. The Compensation and Personnel Committee may determine that a Director, whose service from the Board is terminated, has fulfilled the purpose for which the grant of restricted stock was made and lift the restriction for all or a portion of restricted stock grants. Time and form of payment for outstanding restricted stock received after 2004, as well as elections to have the cash retainer deferred after 2004, have been modified, with the consent of each Director, to comply with Section 409A of the Internal Revenue Code of 1986 as amended (“Section 409A”). Section 409A is an Internal Revenue Code section that deals specifically with non-qualified deferred compensation plans and provides requirements and rules for timing of deferrals and distributions under those plans.
ITT reimburses Directors for expenses they incur to travel to and from Board, Committee and shareholder meetings and for other Company-business related expenses (including travel expenses of spouses if they are specifically invited to attend an event for appropriate business purposes). Prior to the Separation, such travel previously included use of the Company aircraft, if available and approved in advance by the Chairman of the Board and Chief Executive Officer. Director airfare was reimbursed at no greater than first-class travel rates. After the Separation, the Company no longer maintains a Company aircraft.
Indemnification and Insurance. As permitted by its By-laws, ITT indemnifies its Directors to the full extent permitted by law and maintains insurance to protect the Directors from liabilities,
including certain instances where it could not otherwise indemnify them. All Directors are covered under a non-contributory group accidental death and dismemberment policy that provides each of them with $1,000,000 of coverage. They may elect to purchase additional coverage under that policy. Non-Management Directors also may elect to participate in an optional non-contributory group life insurance plan that provides $100,000 of coverage.
The following Report of the Audit Committee does not constitute soliciting material and the Report should not be deemed filed or incorporated by reference into any other previous or future filings by the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this Report by reference therein.
Role of the Audit Committee. The Audit Committee of the Board of Directors provides oversight on matters relating to the Company’s financial reporting process and ensures that the Company develops and maintains adequate financial controls and procedures, and monitors compliance with these processes. This includes responsibility for, among other things:
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The Audit Committee also has oversight responsibility for confirming the scope and monitoring the progress and results of internal audits conducted by the Company’s internal auditor. The Audit Committee discussed with the Company’s internal auditors and Deloitte the plans for their respective audits. The Audit Committee met with the internal auditors and Deloitte, with and without management present, and discussed results of their examinations, their evaluation of the Company’s internal controls, and the Company’s financial reporting.
The Company’s management has primary responsibility for the financial statements, including the Company’s system of disclosure and internal controls. The Audit Committee may investigate any matter brought to its attention. In that regard, the Audit Committee has full access to all books, records, facilities and personnel of the Company, and the Audit Committee may retain outside counsel, auditors or other independent experts to assist the Committee in performing its responsibilities. Any individual may also bring matters to the Audit Committee confidentially or on an anonymous basis, by submitting the matter in a sealed envelope addressed to the “Audit Committee” to the Corporate Secretary who then forwards the sealed envelope to the Audit Committee.
Sarbanes-Oxley Act of 2002 (“SOX”) ComplianceCompliance.. The Audit Committee has responsibility for monitoring all elements of the Company’s compliance with Sections 302 and 404 of SOX relating to internal control over financial reporting.
Audit Committee CharterCharter.. The Board of Directors has adopted a written charter for the Audit Committee, which the Board of Directors and the Audit Committee review, and at least annually update and reaffirm. The Charter sets out the purpose, membership and organization, and key responsibilities of the Audit Committee.
Composition of the Audit CommitteeCommittee.. The Audit Committee comprises threefour members of the Company’s Board. The Board of Directors has determined that each Audit Committee member meets the independence standards set out in the Audit Committee Charter and in the Company’s Corporate Governance Principles and the requirements of the New York Stock Exchange currently in effect, including the audit committee independence requirements of Rule 10A-3 ofunder the Exchange Act. No member of the Audit Committee has any relationship with the Company that may interfere with the exercise of independence from management and the Company. All members of the Audit Committee, in the business judgment of the full Board of Directors, are financially literate and several have accounting or related financial management expertise.
20112012 Members of the Audit Committee Prior to the Separation. Committee.The members of the Audit Committee prior to the Separation were Frank T. MacInnis, Chair, Christina A. Gold, Ralph F. Hake, Surya N. Mohapatra and Linda S. Sanford.
2011 Members of the Audit Committee Following the Completion of the Separation. Following the completion of the Separation, the current2012 members of the Audit Committee are G. Peter D’Aloia, Chair, Christina A. Gold, and Linda S. Sanford (the “Current Audit Committee”).and Donald J. Stebbins. Mr. Stebbins was appointed to the Audit Committee on March 1, 2012.
Regular Review of Financial StatementsStatements.. During 2011,2012, the Audit Committee reviewed and discussed the Company’s audited financial statements with management. The Audit Committee, management and Deloitte reviewed and discussed the Company’s unaudited financial statements before the release of each quarter’s earnings report and filing on Form 10-Q, and the Company’s audited financial statements before the annual earnings release and filing on Form 10-K.
Communications with DeloitteDeloitte.. The Audit Committee has discussed with Deloitte the matters required to be discussed by the statement on Auditing Standards No. 61, as amended (AICPA,Professional Standards, Vol. 1. AU section 380) as adopted by the Public Company Accounting Oversight Board in Rule 3200T (“SAS 61”). These discussions included all matters required by SAS 61, including Deloitte’s responsibilities under generally accepted auditing standards in the United States, significant accounting policies and management judgments, the quality of the Company’s accounting principles and accounting estimates. The Audit Committee met privately with Deloitte fournine times during 2011.2012.
Independence of DeloitteDeloitte.. Deloitte is directly accountable to the Audit Committee and the Board of Directors. The Audit Committee has received the written disclosures and the letter from the Deloitte required by applicable requirements of the Public Company Accounting Oversight Board regarding Deloitte’s communications with the Audit Committee concerning independence and has discussed with Deloitte their independence from management and the Company, any disclosed relationships and the impact of those relationships on Deloitte’s independence.
Recommendation Regarding Annual Report on Form 10-K10-K.. In performing its oversight function with regard to the 20112012 financial statements, the Current Audit Committee relied on financial statements and information prepared by the Company’s management. It also relied on information provided by the internal audit staff as well as Deloitte. The Current Audit Committee reviewed and discussed with management the Company’s audited financial statements as of and for the year ended December 31, 2011.2012. Based on these discussions, and the information received and reviewed, the Current Audit Committee recommended to the Company’s Board of Directors that the financial statements be included in the 20112012 Annual Report on Form 10-K.
This report is furnished by the members of the Current Audit Committee.
G. Peter D’Aloia, Chair
Christina A. Gold
Linda S. Sanford
Donald J. Stebbins
The following Report of the Compensation and Personnel Committee does not constitute soliciting material and the Report should not be deemed filed or incorporated by reference into any other previous or future filings by the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this Report by reference therein.
ITT’s Compensation and Personnel Committee approves(“Compensation Committee”) is responsible for the overall design and oversees administrationgovernance of the Company’s executive compensation program, and senior leadership development and continuitytalent management programs. The Compensation Committee’s primary objective is to establish a competitive executive compensation program that clearly links executive compensation to business performance and shareholder return. The Compensation and Personnel Committee considers and monitors appropriate risk factors in structuring compensation to discourage unnecessary or excessive risk-taking behaviors and encourage long-term value creation.
2011 Members of the Compensation and Personnel Committee Prior to the Separation. The members of the Compensation and Personnel Committee prior to the Separation were Linda S. Sanford, Chair, Curtis J. Crawford, Ralph F. Hake and Frank T. MacInnis.
2011 Members of the Compensation and Personnel Committee Following the Completion of the Separation. Following the completion of the Separation, the current members of the Compensation and Personnel Committee are Christina A. Gold, Chair, Orlando D. Ashford, Linda S. Sanford, Donald DeFosset, Jr. and Paul J. Kern (the “Current Compensation and Personnel Committee”).
Recommendation Regarding Compensation Discussion and Analysis
In performing its oversightgovernance function during 2011 with regard to the following Compensation Discussion and Analysis prepared by management, the Current Compensation and Personnel Committee relied on statements and information prepared by the Company’s management. It also relied on information provided by Pay Governance, LLC, the independent compensation consultant to the Compensation Committee. The Current Compensation and Personnel Committee reviewed and discussed the Compensation Discussion and Analysis included in this proxy statementProxy Statement with management. Based on this review and discussion, the Current Compensation and Personnel Committee recommended to the Company’s Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K for 20112012 and this Proxy Statement.
This report is furnished by the members of the Current Compensation and Personnel Committee.
Christina A. Gold, Chair
Orlando D. Ashford
Donald DeFosset, Jr.
Paul J. Kern
Linda S. Sanford
COMPENSATION DISCUSSION AND ANALYSIS
EXECUTIVE SUMMARY
In this Compensation Discussion and Analysis, we explain the Compensation Committee’s executive compensation philosophy and objectives for each of the Named Executive Officersnamed executive officers as defined by the SEC in Item 402(a) of Regulation S-K (“NEOs”), describe all elements of the Company’s executive compensation program, and explain why the Compensation Committee selected each compensation component. The Compensation Committee’s decisions were based, in part, on the support received for our compensation programs in last year’s executive compensation advisory vote. The Compensation Discussion and Analysis should be read in conjunction with our tabular disclosures regarding the compensation of our NEOs for 2011,2012, which can be found on page 72 ofelsewhere in this Proxy Statement under the heading “Compensation Tables.”
MAKING AN | • Setting High Expectations | |
ENDURING IMPACT | • Increasing Accountability and Transparency | |
• Remaining Accountable to Shareholders |
In October 2011, ITT completed a separation by spinning off our defense and water businesses to establish a “New ITT,” a diversified global, industrial company (the “Spin Transaction”). This transaction has allowed us to focus our talents and energy on highly engineered industrial products that supply solutions to the transportation, industrial and energy markets.
As a smaller and more focused company in 2012 we were able to meet the challenges of the slowing economy. Our size allowed us to be more nimble and responsive to the declines in demand for industrial products. We used these advantages to drive our initial progress and gain momentum quickly despite uncertain economic conditions. Our efforts were reinforced through our long-standing commitment to our people and our guiding principles of leading with technology, differentiating with customers and optimizing our work. |
2012 marks the first full year of the New ITT. During this time of significant change we created value for our Company and our customers, and generated strong returns for our shareholders.
YEAR ONE – A NEW ITT
It was a year of progress and performance, with a focus on building and implementing our sustainable growth model for the future, which we call “The ITT Way.” In our first full year as the New ITT:
We exceeded our 2011 performance in internal Company-wide financial areas, including organic revenue growth, earnings per share (“EPS”), and free cash flow. | ||
Generated a total shareholder return (“TSR”) of 23%,reflecting 21% growth in our stock price and assumed reinvestment of our quarterly dividend. | ||
We focused on building our systems and infrastructureto enable sustained growth, effective management of our portfolio of businesses and successful deployment of our significant available cash. | ||
We completed the acquisition of Bornemann Pumps in the fourth quarter which positions ITT as a leader in the oil and gas industry. |
OUR 2012 BUSINESS SUMMARY AND RESULTING NEO COMPENSATION ACTIONS
The Company’s executive compensation philosophy ties a substantial percentage of NEO compensation to business performance and share price performance, and our 2012 NEO compensation actions reflect this philosophy and our business results. Many of our NEOs, including our Chief Executive Officer, Denise Ramos, received no base salary increases in 2012 due to the fact that, at the time of the Spin Transaction, we evaluated NEO pay and made adjustments for those NEOs at that time. We reintroduced EPS as a primary goal in our Annual Incentive Plan in order to better align our NEOs’ financial interests with shareholder interests. Our long-term incentive grant practices reflected our commitment to not just increasing the Company’s stock price, but out-performing our industry peers. Finally, we continued to adopt and modify good governance policies in executive compensation that protect shareholder interests and reduce enterprise risk.
The following chart highlights our financial performance in fiscal year 2012 and the related effects on 2012 NEO compensation.
Considerations of Say-on-Pay Vote
In 2012, the Company’s advisory vote on executive compensation resulted in just under 95% of votes cast in favor of our proposal, up from 91% in the advisory 2011 vote.
We remain committed to continuing the best pay practices and pay-for-performance approach to executive compensation that resulted in a high positive vote percentage in 2011 and 2012.
Best Pay Practices
We continued to monitor our executive compensation programs in 2012 to ensure they reflect best pay practices in light of the business needs of the Company. Set forth below are the actions we took in 2012 and in previous years to promote and reinforcebest pay practices:
Changes Ahead
For 2013, we are changing our mix of long-term incentive compensation. The TSR Awards will now be known as Performance Units and they will include both a Relative Total Shareholder Return metric as well as a Return on Invested Capital metric, equally weighted. The Return on Invested Capital metric is a measure of our ability to deploy our unique capital available. We will also grant and settle these Performance Unit awards in shares following a three-year performance period to provide better shareholder alignment. The Performance Units will also be increased to 50% of the total target long-term incentive value provided to NEOs. This will reduce the weighting of Restricted Stock Units (“RSUs”) and stock options granted under the long-term incentive plan.
We also intend to begin amending our executive severance plans to reduce severance amounts to senior executives in the event of termination of employment, to better align those benefits with current competitive practices. These changes will take place over time as the existing plans have limits on when changes become effective.
As we continue to tell the story of The ITT Way, we will continue to set high expectations for ourselves and seek out new opportunities for sustainable growth and value creation for all stakeholders – customers, employees, partners, communities and shareholders.
Our Management Team
At the time of the Spin Transaction, we established a new management team to lead the Company. This team underwent certain changes in 2012. The disclosure of our NEO compensation for 20112012 covers the following executive officers:officers, including leaders of certain of our business segments (“Segments”):
Ÿ | Denise L. Ramos, Chief Executive Officer and President |
Ÿ | Aris C. Chicles, Executive Vice President |
Ÿ | Thomas M. Scalera, Senior Vice President and Chief Financial Officer |
Ÿ | Robert J. Pagano, Jr., Senior Vice President and President – Industrial Process |
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SUMMARY OF 2011 SEPARATION ISSUES
During 2011, ITT Corporation underwent a significant change in its corporate structure. On October 31, 2011, the Company successfully completed the Separation of its defense- and water-related businesses, now called Exelis Inc. (“Exelis”) and Xylem Inc. (“Xylem”), respectively. As a result, a significant number of our executives assumed new positions with Exelis and Xylem while other executives were appointed to new positions within the Company.
NEO Changes:The Board of Directors approved several changes to our NEO population, all effective at the time of the Separation.
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NEO Compensation Actions: In recognition of these personnel changes, as well as the complexity of the Separation and the commitment necessary to complete it, the Committee and the Board took a number of special actions during 2011 related to compensation. These actions and the reasons for taking them are discussed in more detail in the sections that follow, and included:
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In 2012, Messrs. Korber and Taylor came to mutual agreements with the Company to end their employment with the Company. The terms and conditions of their termination agreements are discussed elsewhere under the heading “Post-Employment Compensation.” |
Post-Separation NEOExecutive Compensation. Prior Philosophy
We believe that our underlying executive compensation programs are appropriate and effective in motivating and rewarding the behaviors that create long-term shareholder value. We have designed our compensation programs to help us recruit and retain the Separation,executive talent required to successfully manage our business, achieve business objectives and maximize their long-term contributions to our success. We provide compensation elements that align the interests of executives with our goals of enhancing shareholder value and achieving our long-term strategies. We provide target compensation that approximates the median with significant upside for superior performance. The Compensation Committee determined post-Separation annualized targetlooks to both peer companies and published compensation surveys to understand compensation levels for all post-Separation executive officers, including the NEOs. similar executives.
Elements of Compensation
Annual base salary, annual incentives, and long-term incentives provide the foundation for our NEO compensation. Additional compensation components,Annual cash incentives are awarded under our Annual Incentive Plan (“AIP”), which supplement these foundational components,uses metrics that we believe are also discussedthe fundamental measurements of the strength of the Company and which create long-term shareholder value. The performance metrics selected are described in this Compensation Discussion and Analysis. The annual target compensation for each NEO asAnalysis under the heading “AIP Performance Metrics Selection Process”. We provide three types of awards under our Long Term Incentive Plan: RSUs, stock options, and cash awards called Total Shareholder Return (“TSR”) Awards (“TSR Awards”). TSR Awards are based on the performance of the Separation date, is as follows:
Name | Base Salary as of the Separation Date | Post-Separation Target Bonus as % of Salary | Post-Separation Target Annual Cash Compensation | Post-Separation Annual Target Long-Term Incentive Value | Post-Separation Annual Target Total Direct Compensation | |||||||||||||||
Denise L. Ramos, Chief Executive Officer and President | $850,000 | 100 | % | $1,700,000 | $2,800,000 | $4,500,000 | ||||||||||||||
Aris C. Chicles, Executive Vice President – Strategy | $420,000 | 75 | % | $735,000 | $630,000 | $1,365,000 | ||||||||||||||
Thomas M. Scalera, Senior Vice President and Chief Financial Officer | $308,000 | 75 | % | $539,000 | $461,000 | $1,000,000 | ||||||||||||||
Robert J. Pagano, Jr., Senior Vice President and President – Industrial Process | $400,000 | 50 | % | $600,000 | $400,000 | $1,000,000 | ||||||||||||||
Munish Nanda, Senior Vice President and President – Control Technologies | $330,000 | 50 | % | $495,000 | $330,000 | $825,000 |
2011 Business Summary and Resulting NEO Compensation Actions
ITT’s compensation philosophy ties a substantial percentage of NEO compensation to business performance andCompany’s share price performance. Compensation design for the NEOs is structuredover a three-year period as compared to achieve long-termthat of peer companies, reflecting how we create shareholder value creation without undue business risk. If business performance or share price performance falls below identified thresholds, at-risk compensation is reduced or not paid at all.relative to our peer group.
The following chart highlightsRole of Risk and Risk Mitigation
In 2012, the Compensation Committee evaluated risk factors associated with the Company’s performancebusinesses in fiscal year 2011determining compensation structure and overpay practices. The structure of the most recent three-year period,Board of Directors’ Committees facilitates this evaluation and those results’ effect on 2011 compensation.
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Considerationsdetermination. More specifically, during 2012, the Chair of Say on Pay Vote: In 2011, the Company’s advisory vote on executive compensation resulted in more than 91%Compensation Committee was a member of votes cast in favor of our proposal. Shareholders also overwhelmingly voted in favor of an annual vote. While the Separation has had a substantial effect onAudit Committee. This membership overlap provides insight into the Company’s business strategy,risks and affords the Compensation Committee access to the information necessary to consider the impact of business risks on compensation structure and pay practices. Further, overall enterprise risk is considered and discussed at Board meetings, providing additional important information to the Compensation Committee. The Chief Executive Officer and President, and the Senior Vice President and Chief Financial Officer, attend those portions of the Compensation Committee meetings at which plan features and design configurations of the Company’s annual and long-term incentive plans to continue the good pay practicesare considered and pay-for-performance approach to executive compensation that resulted in a high positive vote percentage in 2011.approved.
Good Pay Practices: The Committee continued to modify itsWe believe our executive compensation program appropriately balances risk with maximizing long-term shareholder value. The following features of our executive compensation program especially contribute to reflect best pay practices in lightthe achievement of the business needs of the Company. Among the actions taken by the Committee in 2011 and in previous years to promote and enforce good pay practices are:this goal:
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creation. The TSR Awards are based on three-year share price performance and also encourage behavior focused on long-term goals, while discouraging behavior focused on short-term risks. |
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COMPENSATION PROCESS
Our Annual Compensation Cycle
The compensation of our executive officers, including our NEOs, is reviewed in detail by the Compensation Committee every year during the first quarter. This review includes:
Ÿ | Annual performance reviews for the prior |
Ÿ | Base salary merit increases – normally established in March, |
Ÿ | AIP target awards, and |
Ÿ | Long-term incentive target awards (including stock options, |
The actual award date of stock options, restricted stock or RSUs and target TSR Awards is determined on the date on which the Compensation Committee approves these awards. In recent years, this has occurred at the Compensation Committee’s regularly-scheduled March meeting. TSR Awards reflect a three-year performance period starting on January 1 of the year in which the Compensation Committee approved the TSR Award. Restricted stock or RSUs,RSU, TSR and stock option award recipients receive communication of the award as soon as reasonably practicalpracticable after the grant of the award.
The Compensation Committee will continue to review and assess the performance of Ms. Ramosall NEOs and allother senior executives and authorize compensation actions it believes are appropriate and commensurate with relevant competitive data, current business performance and the approved compensation program.programs.
Use of Consultants and External MarketBenchmarking Data
In 2011,2012, as in past years, the Compensation Committee looked to competitive market compensation data for companies comparable to ITTthe Company to establish overall policies and programs that address executive compensation, benefits and perquisites. This
For the CEO and CFO, in 2012, the Company created a peer group of 13 companies similar in size, market capitalization and industry to better compare executive compensation market practices among
chief executive officers and chief financial officers (the “Representative Peer Group”). The CEO and CFO roles are more easily compared from company to company, taking into account revenue levels between the companies. The 2012 Representative Peer Group consisted of the following companies.
Actuant Corporation (ATU) AMETEK, Inc. (AME) Carlisle Companies Incorporated (CSL) Crane Co. (CR) Esterline Technologies Corporation (ESL) Flowserve Corporation (FLS) Gardner Denver, Inc. (GDI) | Hubbell Incorporated (HUB.B) IDEX Corporation (IEX) Robbins & Myers, Inc. (RBN)* Roper Industries, Inc. (ROP) SPX Corporation (SPW) Woodward, Inc. (WWD) |
The median revenue of the Representative Peer Group for 2012 was $2.579 billion compared to ITT’s 2012 revenue of $2.228 billion. The Compensation Committee will continue to review and evaluate this Representative Peer Group to ensure that it remains appropriate and has determined that these companies will continue to form the Representative Peer Group for 2013, with the exception of Robbins and Myers, Inc, which was acquired in early 2013.
The Compensation Committee’s review of external market data also included, as a secondary reference for the CEO and CFO and the primary reference for the other NEOs, analysis of the Towers Watson Compensation Data Bank (“CDB”) and other compensation survey information provided by the Company’s independent compensation consultant, Pay Governance, LLC (the “Independent Compensation Consultant. The analysesConsultant”). In particular, the analysis used a sample of 192over 100 companies, listed in Appendix A, from the S&P Industrials Companiesgeneral industry that were available in the CDB. The compensation data from these companies were evaluated by usingCDB with annual revenue between $1 billion and $4 billion and a regression analysis based on each company’s annual revenue.Appendix A to this Proxy Statement lists themedian revenue of $2.2 billion, which provided a representative sample of the Company’s broader market for executive talent. The Compensation Committee will continue to review and evaluate the companies from the S&P Industrials Companiesin this sample annually to ensure that were used in the CDB analyses. The Committee believed that these 192 companies most closely reflected the labor market in which ITT competed for talent.
The Committee reviewed the external market competitiveness of all pre-Separation executive officer roles in February 2011. This analysis found that the 2011 total target compensation levels (base salary plus target annual incentive value plus target long-term incentive value) of each of our NEOs in their pre-Separation roles, after 2011 pay increases were included, were within 10%they remain representative of the market median. The Committee did not include Messrs. Pagano and Nanda in this review because they were not executive officers of the Company at the time of the analysis.
This same approach was used in determining executive compensation levels post-Separation for all NEOs, based on their post-Separation roles. The Committee reviewed the same list of external companies, but utilized a lower internal revenue reference point in the regression analysis to reflect the Company’s lower annual revenue post-Separation. The use of this lower internal revenue reference point has the effect of reducing external pay benchmarking levels, which given the same external market positioning strategy would result in lower total target compensation amounts for our
post-Separation NEOs than for our pre-Separation NEOs in similar positions. The results of the post-Separation external market analysis were as follows:
Named Executive Officer and Title | Post-Separation Base Salary Position Versus Market Median | Post-Separation Position Versus Market Median | Post-Separation Position Versus Market Median | Post-Separation Position Versus Market Median | ||||||||||||
Denise L. Ramos, Chief Executive Officer and President | -11 | % | -26 | % | -27 | % | -24 | % | ||||||||
Aris C. Chicles, Executive Vice President – Strategy | +14 | % | +34 | % | +7 | % | +14 | % | ||||||||
Thomas M. Scalera, Senior Vice President and Chief Financial Officer | -35 | % | -31 | % | -51 | % | -43 | % | ||||||||
Robert J. Pagano, Jr., Senior Vice President and President – Industrial Process | +13 | % | -7 | % | -10 | % | -1 | % | ||||||||
Munish Nanda, Senior Vice President and President – Control Technologies | +18 | % | +27 | % | +43 | % | +29 | % |
For 2012 and future years, the Committee expects to target overall total compensation at the median of a newly-created peer group. This new peer group, which consists of mid-cap S&P Industrials companies, was selected to more accurately reflect the size and industry focus of the Company post-Separation.talent market.
NEO compensation at ITTthe Company has traditionally consisted of an annual base salary, an annual cash-based incentive in the form of the AIP, and target long-term incentive awards in the form of RSUs, stock options and long-term cash awards that are tied to relativecash-based TSR Awards.awards. Beginning in 2013, the TSR Awards will consist entirely of stock-based compensation.
Compensation Element | Rationale for Providing | |||||
Base Salary | The Compensation Committee approves base salaries to executives in order to attract and retain our executive team with annual salaries that are competitive with the external market. Base salaries also serve as a counter-balance to the significant percentage of total pay that is at risk | |||||
| The AIP is structured to reward and emphasize overall enterprise performance and collaboration among the | |||||
Incentive Plan | RSUs | The Compensation Committee grants RSUs to link executive compensation to absolute share price performance, and strengthen retention value through a | ||||
Stock Options | The Compensation Committee grants stock | |||||
TSR Awards | The Compensation Committee grants TSR Awards to link executive compensation to the Company’s stock performance relative |
These
The Compensation Committee believes that these compensation elements work together to provide a reasonable mix of short-term versusand long-term compensation, guaranteed versus at-riskfixed and variable compensation, and absolute versusand relative performance measures to fully align NEO interests with those of the Company’s shareholders. The charts below set forth the compensation mix for our CEO and other NEOs.
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The Company also provides benefits and limited perquisites to its NEOs that it believes are competitive with the external market for talent.
For a more detailed discussion of these benefits and perquisites, see the discussion elsewhere in this Compensation Discussion and Analysis under the heading “Elements of Compensation — Benefits and Perquisites.”20112012 Base Salary Increases
The Compensation Committee approves NEO base salaries annually based onafter referring to external survey data provided by the Independent Compensation Consultant and the NEO’s individual performance. The Company conducted its annual base salary merit increase process in March 2011. In addition, the Company made salary adjustments in October 2011 to those executives who were promoted into new roles at the Separation.2012.
20112012 Annual Merit Increase Process: At the time of the Spin Transaction, the Compensation Committee reviewed the compensation levels of the NEOs based on the New ITT Corporation. Most current NEOs received salary increases at that time and therefore, as set forth in the table below, no additional increases were provided in March 2012. Mr. Savi’s compensation is evaluated against similarly situated European executives and has a different weighting of fixed and variable compensation than other NEOs. Based on the Compensation Committee’s targeted pay positioning, the evaluation of each NEO’s performance, and the external market data on competitive pay levels
provided by the Independent Compensation Consultant, the Committee approved salary increases to Ms. Ramos, Ms. McClain, and Messrs. Chicles, Scalera, Loranger and Melcher as follows, effective March 7, 2011:
NEO | Previous Annual Base Salary | Post-Merit Annual Base Salary | ||||||
Denise L. Ramos | $ | 590,000 | $ | 606,500 | ||||
Aris C. Chicles | $ | 340,000 | $ | 360,000 | ||||
Thomas M. Scalera | $ | 280,000 | $ | 288,400 | ||||
Steven R. Loranger | $ | 1,160,000 | $ | 1,200,000 | ||||
Gretchen W. McClain | $ | 530,000 | $ | 600,000 | ||||
David F. Melcher | $ | 530,000 | $ | 600,000 |
For Messrs. Pagano and Nanda, since they were not executive officers of the Company pre-Separation, their March 2011 salary increases were reviewed and approved by Mr. Loranger. He considered the evaluation of their individual performance, external market data on competitive pay levels from third-party consulting firms provided by internal human resources, and the overall 2011 salary increase budget for salaried personnel.
April 2011 Promotional Increase for Mr. Nanda: In April 2011, Ms. Ramos approved an annual salary of $330,000 for Mr. Nanda, a 9% increase, that reflected a compensation level that was considered appropriate for his new role as President of the Control Technologies business segment.
October 2011 Separation-Related Promotional Increases: The Committee re-evaluated the compensation of all executive officers of the post-Separation company prior to the Separation, using the same regression analysis methodology as used in the annual market analysis. As a result of their analysis, they approved salary increases to select executive officers, including Ms. Ramos and Messrs. Chicles, Scalera, and Pagano. While some of the increases effective with the Separation are higher than historically provided during the annual cycle, they reflect the additional responsibilities that these NEOs would have in the Company post-Separation.
TheCompensation Committee approved the following base2012 NEO salaries, effective October 31, 2011:March 8, 2012:
NEO | Previous Annual Base Salary | Post- Separation Annual Base Salary | ||||||
Denise L. Ramos | $ | 606,500 | $ | 850,000 | ||||
Aris C. Chicles | $ | 360,000 | $ | 420,000 | ||||
Thomas M. Scalera | $ | 288,400 | $ | 308,000 | ||||
Robert J. Pagano, Jr. | $ | 349,000 | $ | 400,000 |
Going forward, we expect to review the salary levels for all of our NEOs and make salary adjustments as appropriate in the first quarter of each year, as has been the historical practice.
Denise L. Ramos Aris C. Chicles Thomas M. Scalera Robert J. Pagano, Jr. Luca Savi (380,000 EUR at March 2012 exchange rate) (380,000 EUR at Thomas F. Korber William E. TaylorNEO Previous Annual Base
Salary Current Annual
Base Salary $850,000 $850,000 $420,000 $420,000 $308,000 $400,000 $400,000 $400,000 $521,500 $521,500
March 2012
exchange rate) $310,000 N/A $318,000 N/A
20112012 Annual Incentive Plan
The AIP award is an element of NEO compensation that rewards annual operating performance and earnings appreciation. The Company’s AIP provides for an annual cash payment to participating executives established as a target percentage of base salary. In setting AIP awards, the Compensation Committee approves target AIP awards are set with reference to the medianafter careful consideration of competitive practice based on the CDB.external data, individual roles and responsibilities and individual performance. Any AIP payment is the product of the annual base salary rate multiplied by the target base salary percentage multiplied by the AIP annual performance factor based on the approved metrics. The Compensation Committee may approve negative discretionary adjustments with respect to NEOs.
Establishing AIP Performance Metrics Selection Process
The 20112012 AIP format isapproach was designed to consider internal business achievements. For 2011, NEOs included officers from the pre-Separation corporate segment, as well as business leaders from the business units that remained with the Company post-Separation. The reported 2011 business segments used to evaluate financial performance prior to the Separation (the “Value Centers”) were Defense and Information Solutions, Fluid Technology, and Motion & Flow Control. The post-Separation business segments used to evaluate financial performance (the “Segments”) are Industrial Process, Motion Technologies, Interconnect Solutions, and Control Technologies.
AIP Performance Metrics Selection Process
TheCompensation Committee studied past and projected earnings and other performance measures of comparable multi-industry peers.peers in the CDB. Based on its 20112012 business needsobjectives and an analysis of performance measures used among these peer companies in their annual incentive plans, the CompanyCompensation Committee identified four performance metrics for the AIP’s 2011AIP for the 2012 performance year. The 2011 AIP was modified from 2010 to emphasize the planned Separation and continued business collaboration across the enterprise. The selected performance metrics were:
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2. | Adjusted Free Cash Flow: The Company has identified Adjusted Free Cash Flow as an important measure of how the Company converts its net earnings into deployable cash. At the corporate level, Adjusted Free Cash Flow is a non-GAAP measurement defined as net cash provided by operating activities less capital expenditures, cash payments for transformation costs, repositioning costs, net asbestos cash flows and other significant items that impact current results that management believes are not related to ongoing operations and performance. At the Segment level, the Company uses the non-GAAP measure Adjusted Operating Cash Flow. Adjusted Operating Cash Flow is defined as |
Segment level net cash flow from operating activities, less capital expenditures and adjusted for special items. Adjusted Operating Cash Flow should not be considered a substitute for cash flow data prepared in accordance with GAAP. The Company’s definition of Adjusted Operating Cash Flow may not be comparable to similar measures utilized by other companies. Management believes that Adjusted Free Cash Flow and Adjusted Operating Cash Flow are important measures of performance and are utilized as a measure of the Company’s ability to generate cash. |
3. | Adjusted EBIT Margin and Adjusted Segment Operating Margin: Adjusted EBIT Margin and Adjusted Segment Operating Margin have been utilized at the corporate and Segment level, respectively, since the completion of the Spin Transaction in order to emphasize the importance of maintaining healthy margins. Adjusted EBIT Margin is defined as the ratio of adjusted segment operating income, less corporate expenses, over adjusted revenue. Adjusted Segment Operating Margin is defined as the ratio of adjusted segment operating income over adjusted revenue. Adjustments would include the impact of unbudgeted acquisitions and divestitures and special items. |
4. | Adjusted Revenue Growth: Adjusted Revenue Growth reflects the Company’s emphasis on growth. Adjusted Revenue Growth is defined as reported GAAP revenue excluding the impact of foreign currency fluctuations and contributions from acquisitions and divestitures. The Company’s definition of |
20112012 AIP Performance Metrics and Weights
The Compensation Committee after considering management and Compensation Consultant recommendations, established 20112012 AIP performance targets for the NEOs based onafter considering recommendations from management and the Independent Compensation Consultant, the Company’s approved annual operating plan, taking into consideration the Company’s aspirational business goals.goals, and input from shareholders. Successful attainment of both qualitative factors and quantitative factors are achievable only if the enterprise and the individual NEO perform at levels established by the Compensation Committee. As permitted by the 1997 AIPITT Annual Incentive Plan for Executive Officers, the Compensation Committee may exclude the impact of acquisitions, dispositions and other special items in computing AIP payments.
Internal performance metrics arewere weighted to represent operational goals. In order to encourage focus on total Company performance, duringrather than solely Segment performance, the transformation, the sum of Value Center Operating IncomeEPS performance represented 50%target was 40% of the overall performance metrics for the Company’s 20112012 AIP for all employees.NEOs. For employees working in corporate positions,corporate-level executives, which include Ms. Ramos and Messrs. Chicles, Scalera, and Loranger, the sum of Value Center OperatingKorber, consolidated Adjusted Free Cash Flow was weighted in the Company’s 20112012 AIP at 30%, and the sum of Value Centerconsolidated Adjusted Operating Margin and consolidated Adjusted Revenue wasGrowth were each weighted at 20%15%. For employees working within a specific Segment,Segment-level executives, which includesinclude Messrs. Pagano, Savi and Nanda,Taylor, the remaining 50%60% of the AIP weight iswas distributed between three Segment-specific measures: Adjusted Segment Operating Cash Flow (20%(30%), Adjusted Segment Revenue Growth (15%), and Adjusted Segment Operating Margin (15%). Adjusted Segment Operating Cash Flow was given a larger AIP weight than Adjusted Segment Revenue or Adjusted Segment Operating Margin because the Compensation Committee considered strong Adjusted Segment Operating Cash Flow to be a critical financialan important measure in the months leading up to the Separation.converting operating income into deployable cash.
We pay
The Company pays for AIP performance that clearly demonstrates substantial achievement of plan goals. We established strong incentives for revenue performance and set aggressive goals for other metrics. In order to achieve an AIP payout, each metric must meet a certain threshold for that component to be considered in the calculation. For example, Sum of Segment Operating Income performancePerformance below the 50%threshold performance level results in a zero payout percentage of target would result infor that metric being reflected as zero in the AIP calculation.component.
The formula to determine each NEO’s AIP total potential payment (subject to negative Compensation Committee discretion) is as follows:
20112012 AIP Potential Payout =
(Base Salary) x (Target Award Percentage) x (AIP Results Percentage)Performance Factor)
Both the individual performance components of the AIP and the overall AIP Award are capped at 200%. Results are interpolated between points. In addition, four qualitative business goals were considered for Mr. Loranger’s AIP in 2011:
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20112012 Target AIP Award Percentage of Base Salary and Weighting of AIP Performance Components
Named Executive Officer | 2011 Percentage of Base | Sum of Revenue (a) | Sum of Flow (b) | Sum of (c) | Segment Operating Cash Flow (d) | Segment (e) | Segment (f) | Total Enterprise Performance | ||||||||||||||||||||||
Denise L. Ramos | 87.5 | % | 20 | % | 30 | % | 50 | % | a+b+c | |||||||||||||||||||||
Aris C. Chicles | 66.7 | % | 20 | % | 30 | % | 50 | % | a+b+c | |||||||||||||||||||||
Thomas M. Scalera | 44.2 | % | 20 | % | 30 | % | 50 | % | a+b+c | |||||||||||||||||||||
Robert J. Pagano, Jr. | 50 | % | 50 | % | 20 | % | 15 | % | 15 | % | c+d+e+f | |||||||||||||||||||
Munish Nanda | 50 | % | 50 | % | 20 | % | 15 | % | 15 | % | c+d+e+f | |||||||||||||||||||
Steven R. Loranger | 130 | % | 20 | % | 30 | % | 50 | % | a+b+c | |||||||||||||||||||||
Gretchen W. McClain | 85 | % | 20 | % | 30 | % | 50 | % | a+b+c | |||||||||||||||||||||
David F. Melcher | 85 | % | 20 | % | 30 | % | 50 | % | a+b+c |
For Ms. Ramos and Messrs. Chicles and Scalera, the target award percentages reflect 10 months’ performance in their pre-Separation roles, and two months’ performance in their post-Separation roles, as follows:
Named Executive Officer | Pre-Separation Target Award Percentage of Base Salary (10 months’ | Post-Separation Target Award Percentage of Base Salary (2 months’ performance) | 2012 Percentage of Base | Adjusted (a) | Consolidated Adjusted (b) | Adjusted | Consolidated (d) | Adjusted Segment Operating Cash Flow (e) | Adjusted (f) | Adjusted (g) | Total Enterprise Performance | |||||||||||||||||||||||||
Denise L. Ramos | 85% | 100% | 100 | % | 40 | % | 30 | % | 15 | % | 15 | % | a+b+c+d | |||||||||||||||||||||||
Aris C. Chicles | 65% | 75% | 75 | % | 40 | % | 30 | % | 15 | % | 15 | % | a+b+c+d | |||||||||||||||||||||||
Thomas M. Scalera | 38% | 75% | 75 | % | 40 | % | 30 | % | 15 | % | 15 | % | a+b+c+d | |||||||||||||||||||||||
Robert J. Pagano, Jr. | 50 | % | 40 | % | 30 | % | 15 | % | 15% | a+e+f+g | ||||||||||||||||||||||||||
Luca Savi | 45 | % | 40 | % | 30 | % | 15 | % | 15% | a+e+f+g | ||||||||||||||||||||||||||
Thomas F. Korber | 50 | % | 40 | % | 30 | % | 15 | % | 15 | % | a+b+c+d | |||||||||||||||||||||||||
William E. Taylor | 45 | % | 40 | % | 30 | % | 15 | % | 15% | a+e+f+g |
Bifurcation of 2011 AIP into Pre-Separation and Post-Separation Goals: In October 2011, the Committee agreed with the Compensation Consultant’s recommendation to bifurcate the 2011 AIP into pre-Separation and post-Separation plans, due to the fact that the financial performance goals approved by the Committee at the beginning of the year would not be measurable on a post-Separation basis. Therefore, the original Corporate financial goals in the 2011 AIP were pro-rated to reflect 10 months’ pre-Separation performance, and then scored based on financial performance against those goals up to the Separation date. Independent post-Separation financial goals for the remaining two months of fiscal year were then approved by the Committee based on the operating budget for the remainder of the fiscal year, and scored at the conclusion of the fiscal year based on actual performance versus those goals.
Calculation of AIP 20112012 Performance
Pre-SeparationCompany Performance Period:Targets: The AIP performance goals set at the beginning of the fiscal yearAdjusted EPS, Free Cash Flow, Operating Margin and Revenue Growth targets were based on the full-year operating2012 business plan. The Compensation Committee reviewed the business plan with corporate management to ensure that was approved bytargets were appropriate and required significant effort to achieve. The Compensation Committee determined that the Board, and meetingachievement of the combination of financial goals set outwould be challenging and reflect strong performance in that operating plan would result in an AIP payment equal to 100%the eyes of target.shareholders. The Board believed thattable below sets forth the operating plan provided a challenging set of goalsweighting, target and actual amounts for management to achieve.
Once the Separation was completed, these full-year financial goals were multiplied by 0.833, the percentage of the year that had elapsed prior to the Separation, to determine appropriate pre-Separation goals. These pre-Separation goals were then compared to actual performance as follows:
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Post-Separation Performance Period: In Marcheach 2012 the Committee determined the 2011 AIP awards for Ms. Ramos and Messrs. Chicles and Scalera for the post-Separation period, which was based solely on the business performance of the post-Separation Company for the remaining two months of the fiscal year. No negative discretion was exercised by the Committee. As permitted by the 1997 AIP for Executive Officers, the Committee excluded the impact of acquisitions, dispositions and other special items in computing AIP performance relating to AIP targets, which AIP targets also excluded these items. The Committee met privately, without any members of management present, to determine Ms. Ramos’s 2011 AIP award.target.
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Metric | Weighting | 2012 Target | 2012 Results | |||||||||
Adjusted Earnings Per Share | 40% | $ | 1.65 | $ | 1.67 | |||||||
Adjusted Free Cash Flow | 30% | $ | 124.5M | $ | 133.5M | |||||||
Adjusted EBIT Margin | 15% | 11% | 11% | |||||||||
Adjusted Revenue Growth | 15% | $ | 2,209.8M | $ | 2,241.9M |
Segment Performance Targets: For Messrs. Pagano and Nanda, weSavi, the Compensation Committee set the remaining 2011 performance targets,Adjusted Segment Operating Cash Flow, Segment Revenue, andAdjusted Segment Operating Margin, and Adjusted Segment Revenue Growth targets for the full 12-month period at challenging levels that are consistent with ourthe Company’s long-term Peer Group targets, our premier financialCDB targets and are designed to meet shareholder expectations. We consider The Compensation Committee considers
these targets to be difficult to attain. We doreflect strong performance. The Company does not report on the Segment financial results used for Segment AIP calculations, as we believeit believes that doing so would cause competitive harm to the Company.
20112012 AIP Awards Paid in 20122013
The pre-Separation and post-Separation calculations were combined to determine full-year2012 AIP awards earnedAwards that will be paid in 2013 are as follows:
Named Executive Officers | Total Target 2011 AIP Awards ($) | Pre- Separation | Post- Separation AIP Awards ($) | Total 2011 AIP Awards ($) | Total AIP 2011 Awards as Percentage of Target (%) | |||||||||||||||
Denise L. Ramos | $ | 571,271 | $ | 587,300 | $ | 100,200 | $ | 687,500 | 120 | % | ||||||||||
Aris C. Chicles | $ | 247,500 | $ | 266,400 | $ | 37,100 | $ | 303,500 | 123 | % | ||||||||||
Thomas M. Scalera | $ | 129,827 | $ | 124,600 | $ | 27,200 | $ | 151,800 | 117 | % | ||||||||||
Robert J. Pagano, Jr. | $ | 178,750 | $ | 163,600 | $ | 37,500 | $ | 201,100 | 113 | % | ||||||||||
Munish Nanda | $ | 165,000 | $ | 178,400 | $ | 35,700 | $ | 214,100 | 130 | % | ||||||||||
Steven R. Loranger | $ | 1,300,000 | $ | 1,300,000 | $ | 0 | $ | 999,452 | (1) | 77 | % |
For Ms. McClain and Mr. Melcher, the responsibilities for calculation and payment of their 2011 AIP earned amounts were assumed by Xylem and Exelis, respectively, at the Separation date. 2011 AIP Awards for NEOs are also included in the Summary Compensation Table on Page 72. Performance targets for the 2012 AIP have not yet been established.
Named Executive Officers | Target 2012 AIP Awards ($) | 2012 AIP Awards ($) | AIP 2012 Awards as Percentage of Target (%) | |||||||||
Denise L. Ramos | $ | 850,000 | $ | 978,350 | 115.1 | % | ||||||
Aris C. Chicles | $ | 315,000 | $ | 362,565 | 115.1 | % | ||||||
Thomas M. Scalera | $ | 300,000 | $ | 345,300 | 115.1 | % | ||||||
Robert J. Pagano, Jr. | $ | 200,000 | $ | 213,000 | 106.5 | % | ||||||
Luca Savi | $ | 219,219 | $ | 217,684 | 99.3 | % | ||||||
Thomas F. Korber | $ | 142,083 | $ | 163,537 | 115.1 | % | ||||||
William E. Taylor | $ | 150,300 | $ | — | 0 | % |
Transition Success Incentive Bonus
Based on external market data provided by the Compensation Consultant on ten other recent, large spin-off transactions, and in order to retain critical key employees through the uncertainty of the Separation, the Committee approved one-time TSI Bonuses to select executive officers, including some of our NEOs, and other employees of the Company. These TSI Bonus payments were made in March 2012 four months following the successful Separation, and all plan participants needed to remain employed by the Company through the payment date in order to be eligible to receive a TSI Bonus. In accordance with the plan design to exclude Chief Executive Officer roles, neither Ms. Ramos nor Mr. Loranger received a TSI Bonus. The NEOs who received TSI Bonus payments, and the amounts of each bonus, were as follows:
Named Executive Officers | TSI Bonus ($) | |||
Aris C. Chicles | $ | 180,000 | ||
Thomas M. Scalera | $ | 145,000 | ||
Robert J. Pagano, Jr. | $ | 175,000 | ||
Munish Nanda | $ | 150,000 |
2011 Long-Term Incentive Compensation
The Company’s long-term incentive awards component for senior executives has three subcomponents, each of which directly ties long-term compensation to long-term value creation and shareholder return:
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Ÿ | Non-qualified stock option |
Ÿ | TSR |
The 20112012 Long-Term Incentive Program Awards were allocated as follows: 1/3one-third of the value was granted in RSUs calculated at grant date fair value; 1/3one-third was granted in non-qualified stock options calculated at the grant date fair value of the non-qualified options; and 1/3one-third was granted in TSR Awards calculated at target payment amount.
The following table describes the TSR Awards,RSU awards, non-qualified stock option awards, and RSU awardsTSR Awards made to NEOs in March 2011, and does not give effect to the 1:2 reverse stock split.2012. The TSR Award amounts listed reflect the cash target value, and the stock option and RSU awards reflect the number of underlying options or shares granted. Stock options were granted with a pre-Separation strike price of $57.68, which was equal to the closing price of the Company’s common stock on the grant date. For Ms. Ramos and Messrs. Chicles, Scalera, Pagano, and Nanda, these grants were converted to post-Separation ITT option grants in October 2011, using the conversion method described on Page 61. For more details on these grants, please see “Compensation Tables – Grants of Plan-Based Awards in 2011” on Page 75.
Named Executive Officer | TSR (Target Cash ($) | Non-Qualified Stock (# of Options) | RSU Award (# of Units) | RSU (# of | Non-Qualified Stock (# of Options) | TSR (Target Cash Award) ($) | ||||||||||||||||||
Denise L. Ramos | $ | 533,300 | 33,459 | 9,111 | 41,009 | 136,100 | $ | 935,000 | ||||||||||||||||
Aris C. Chicles | $ | 191,700 | 12,025 | 3,274 | 9,211 | 30,570 | $ | 210,000 | ||||||||||||||||
Thomas M. Scalera | $ | 50,000 | 3,475 | 854 | 8,772 | 29,115 | $ | 200,000 | ||||||||||||||||
Robert J. Pagano, Jr. | $ | 133,300 | 9,260 | 2,278 | 5,848 | 19,410 | $ | 133,300 | ||||||||||||||||
Munish Nanda | $ | 110,000 | 7,640 | 1,879 | ||||||||||||||||||||
Steven R. Loranger | $ | 2,133,300 | 133,835 | 36,442 | ||||||||||||||||||||
Gretchen W. McClain | $ | 533,300 | 33,459 | 9,111 | ||||||||||||||||||||
David F. Melcher | $ | 533,300 | 33,459 | 9,111 | ||||||||||||||||||||
Luca Savi | 4,006 | 13,295 | $ | 91,300 | ||||||||||||||||||||
Thomas F. Korber | 5,336 | 17,710 | $ | 121,700 | ||||||||||||||||||||
William E. Taylor | 4,883 | 16,210 | $ | 111,300 |
Restricted Stock Units Component
Grants of RSUs provide NEOs with stock ownership of unrestricted shares after the restrictions lapse. NEOs receivedreceive RSU awards because, in the judgment of the Compensation Committee and based on management recommendations, these individuals are in positions most likely to assist ininfluence the achievement of the Company’s long-term value creation goals and to create shareholder value over time. The Compensation Committee reviews all proposed grants of shares of RSUs for executive officers prior to the award, including awards based on performance, retention-based awards and awards contemplated for new employees as part of employment offers. The CEO has the authority to grant RSUs to employees in certain situations, and up to certain pre-approved limits. These grants are reviewed by the Compensation Committee at its next scheduled meeting.
Key elements of the 20112012 RSU program were:were the following.
Ÿ | RSUs do not grant dividend or voting rights to the holder over the vesting period; |
Ÿ | RSUs are generally subject to a three-year restriction |
Ÿ | If an acceleration event occurs (as described |
Ÿ | If an employee dies or becomes disabled, the RSUs vest in |
Ÿ | If an employee leaves the Company prior to vesting, whether through resignation or termination for cause, the RSUs are |
Ÿ | If an employee retires or is terminated other than for cause, a pro-rata portion of the RSU award |
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In certain cases, such as for new hires or to facilitate retention, selected employees may receive RSUs subject to different vesting terms as determined by the Compensation Committee.
Non-Qualified Stock Options Component
Non-qualified stock options permit option holders to buy Company stock in the future at a price equal to the stock’s value on the date the option was granted, which is the option exercise price. Non-qualified stock option terms were selected after the Compensation Committee’s review and assessment of the CDB and consideration of terms best suited to the Company.
For each of our NEOs, non-qualified stock options do not vest until three years after the award date. This delayed vesting is referred to as three-year“three-year cliff vesting.” This vesting schedule prohibits early option exercises, and focuses senior executives on the Company’s long-term value creation goals.
In 2011,2012, the fair value of stock options granted under the employee stock option program was calculated using a binomial lattice valuation model.model, a financial model used to determine the value of stock options. This model applies a binomial approach to discrete time periods to value the option to purchase a share of stock. The Compensation Committee considered this a preferred model, versus the Black-Scholes model, since the model can incorporate multiple and variable assumptions over time, including assumptions such as employee exercise patterns, stock price volatility and changes in dividends.
Key elements of the 2011 non-qualified stock option program were:options granted in 2012 are as follows.
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Ÿ | Exercise Price: |
¡ | The option exercise price of stock options awarded is the New York Stock Exchange (“NYSE”) closing price of the Company’s common stock on the date the award is approved by the |
¡ | For options granted to new executives, the option exercise price of approved stock option awards is the closing price on the grant date, generally the |
¡ | The |
Ÿ | Vesting Schedule: |
¡ | Three-year cliff vesting is required for executives at the level of senior vice president or above, while stock options vest in one-third cumulative annual installments for executives below the senior vice president |
¡ | Options cannot be exercised prior to |
¡ | If an acceleration event occurs (as described |
Ÿ | Option Term and Exercise Period: |
¡ | Options awarded |
¡ | There may be adjustments to the post-employment exercise period of an option grant if an employee’s tenure with the Company is terminated due to death, disability, retirement or termination by the Company other than for cause, provided that any post-employment exercise period cannot exceed the original expiration date of the |
Ÿ | Termination Provisions: |
¡ | If an employee is terminated for cause, or voluntarily terminates employment without an acceleration event, vested and unvested portions of the options expire on the date of |
¡ | If an employee dies or becomes permanently disabled, all unvested options vest in |
¡ | If the employee is terminated for a reason other than for cause or retires, a pro-rata portion of the stock options |
¡ | If employment is terminated due to an acceleration event or because the option holder believes in good faith that he or she would be unable to discharge his or her duties effectively after the acceleration event, the option expires on the earlier of the date seven months after the acceleration event or the normal expiration |
TSR Awards Component
TSR Awards are variable cash payments, based on the Company’s stock price appreciation relative to that of a pre-approved group of 43 industry peer companies, the TSRS&P Mid-Cap Capital Goods Index (the “TSR Performance IndexIndex”) over a three-year performance cycle. The TSR Performance Index was chosen based on companies with similar revenue and market capitalization as the Company. The Compensation Committee feels that the companies in the TSR Performance Index are those with which we compete for capital. The Compensation Committee evaluates the TSR Performance Index at least every two years to ensure that it remains appropriate and relevant. The Compensation Committee, at its discretion, determines the size and frequency of target TSR Awards, performance measures and performance goals, in addition to performance periods. In determining the size of target TSR Awards for executives, the Committee considers comparative data provided by the Compensation Consultant and the Company’s internal desired growth in share price. The Company’s target TSR Awards provided to NEOs are generally based on a participant’s position, competitive market data, individual performance and anticipated potential contributions to the Company’s long-term goals.periods
Determining TSR Awards. TheIn determining the size of the TSR Awards, the Compensation Committee considers individual performancecomparative data provided by the Independent Compensation Consultant, as well as the individual’s role, potential contribution to the company’s long-term goals and competitive market data in determining target TSR Awards.performance. Key elements of the TSR Awards include:include the following:
Ÿ | The Company’s performance is measured by comparing the Company’s average closing stock price for the month of December prior to the start of the TSR Award three-year performance cycle, to the Company’s average closing stock price for the month of December that concludes the three-year performance cycle, including adjustments for dividends and extraordinary payments. |
Ÿ | Payment, if any, of cash awards generally are made following the end of the applicable three-year performance period and are based on the Company’s performance measured against the TSR performance of the |
Ÿ | If a participant’s employment terminates before the end of the three-year performance period, the award is forfeited except in two cases: 1) if a participant dies or becomes disabled, the TSR Award vests in full and payment, if any, is made according to its original terms (vesting in full in the case of death or disability reflects the inability of the participant to control the triggering event and is consistent with benefit plan provisions related to death and disability); and 2) if a participant retires or is terminated by the Company other than for cause, a |
Ÿ | Subject to the provisions of Section 409A of the Internal Revenue Code, in the event of an acceleration event in a change of control (described |
Ÿ | Performance goals for the applicable TSR performance period are established in writing no later than 90 days after the beginning of the applicable performance period. |
Performance Goals and Payments for the TSR Awards. Individual targets for the NEOs for the 2011-20132012-2014 performance period (the “2011-13“2012-14 TSR Award Period”) used to determine TSR Awards are provided in the “Grants of Plan Based Awards in 2011”2012” table on Page 75 of this Proxy Statement.under the heading “Compensation Tables.” Payouts, if any, are based on a non-discretionarynon discretionary formula and interpolated for values
between the 35th and 80th percentile of performance. The Compensation Committee felt these breakpoints were properly motivational and rewarded the desired behavior.
If Company’s Total Shareholder Return Rank Against the Companies that Comprise the TSR Performance Index is | Payout Factor (% of Target TSR | |||
less than the 35th percentile | 0 | % | ||
at the 35th percentile | 50 | % | ||
at the 50th percentile | 100 | % | ||
at the 80th percentile or more | 200 | % |
The formula used to determine performance for the 2011-13 TSR Award Period was the same as the formulas previously approved by the Committee for the performance period January 1, 2010 through December 31, 2012 (the “2010-12 TSR Award Period”),Benefits and the performance period January 1, 2009 through December 31, 2011 (the “2009-11 TSR Award Period”).
Conversion of TSR Awards at Separation. Upon the advice of the Compensation Consultant, the Committee approved amendments to the TSR Awards’ performance goals and payment schedules in order to reflect the changed business nature of each of the Company, Exelis, and Xylem. The amendments stated that the Company’s performance versus the preset goals for each of the three overlapping award cycles would be measured and scored at the time of Separation, and eligible employees would receive a pro-rated payment of awards earned over that period. The pro-rated portion of awards covering the uncompleted period at the Separation date would be converted to a target cash payment or RSUs, depending on the TSR Award Period. In no case would any participant receive an accelerated payment. The conversion of remaining TSR Awards into RSUs with time-based vesting provisions was approved by the Committee in order to accelerate the growth in stock ownership among the Company’s new management team, and to increase support for retention of key leadership in the post-Separation Company.
The following chart explains how TSR Awards made during each of the three grant periods were converted.
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Determination of TSR Award Payments. At the conclusion of the Separation, the Committee reviewed the Company’s TSR performance over each of the three TSR Award Periods, and determined that the Company failed to reach the threshold level of relative TSR performance in any of the three TSR Award Periods. Therefore, no payments were earned on the completed portions of the TSR Award Periods.Perquisites
The uncompleted portions of each TSR Award Period were converted into cash payments and RSU grants, at target and pro-rated as per the above schedule. The converted amounts provided to eachAll of the NEOs, afterexcept Mr. Savi, are eligible to participate in the Separation, which give effectCompany’s broad-based U.S. employee benefits program. The program includes a retirement savings plan that includes before-tax and after-tax savings features, group medical and dental coverage, group life insurance, group accidental death and dismemberment insurance and other benefit plans. These other benefit plans include short-term disability insurance and a flexible spending account plan. Prior to the 1:2 reverse stock split, were as follows:Spin Transaction, employees also participated in a pension program.
Named Executive Officer | 2009-11 TSR Award ($)(1) | 2010-12 TSR Award (#)(2) | 2011-13 TSR Award (#)(3) | |||||||||
Denise L. Ramos | $ | 20,000 | 7,670 | 18,992 | ||||||||
Aris C. Chicles | $ | 7,500 | 2,589 | 6,827 | ||||||||
Thomas M. Scalera | $ | 1,850 | 704 | 1,781 | ||||||||
Robert J. Pagano, Jr. | $ | 7,072 | 2,525 | 4,747 | ||||||||
Munish Nanda | $ | 5,000 | 2,077 | 3,917 | ||||||||
Steven R. Loranger (4) | $ | 110,000 | - | - |
Conversion of Other Existing Equity Awards
In anticipationAll of the Separation, the Committee approved a conversion of all unvested restricted stock, unvested RSUs, and unexercised stock option awards upon the Separation into separate restricted stock, RSU, and stock option grants for each of the three post-Separation companies,NEOs, except Mr. Savi, together with each equity holder receiving a modified grant of restricted stock, RSUs, and/or stock options of their post-Separation employer. All converted awards preserved each equityholder’s intrinsic value and had the same terms and conditions as they had prior to the Separation. This conversion was recommended by the Compensation Consultant and approved by the Committee because it is the most common approach used in major spin-off transactions, aligns the interests of management with shareholders of each company, and maximizes the initial ownership stake among the management of each post-Separation company.
The closing price of the Company’s stock on October 31st, the final trading day pre-Separation, was $45.60. The opening price of the Company’s stock on November 1st, the first trading day post-Separation, was $17.02, which gives effect to the 1:2 reverse stock split. Given these changes, the conversion was conducted as follows:
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Since Mr. Loranger was not an employee of any of the three post-Separation companies, his pre-Separation equity grants that he retained after his termination date were converted using a distributive method, where he received post-Separation equity in all three companies in the same proportion as shares in such three companies were distributed to shareholders of the Company.
No holder of restricted shares, RSUs, or stock options received any incremental economic benefit from the conversion. However, the conversion resulted in a modification to the Company’s expense of stock options previously granted, as required under ASC Topic 718. This one-time modification is included on an individual NEO basis in the “Option Awards” column of the Summary Compensation Table on Page 72. The expense modification by NEO was as follows:
Named Executive Officer | One-Time Stock Option Expense Modification($) | |||
Denise L. Ramos | $ | 334,686 | ||
Aris C. Chicles | $ | 128,555 | ||
Thomas M. Scalera | $ | 36,780 | ||
Robert J. Pagano, Jr. | $ | 164,019 | ||
Munish Nanda | $ | 71,554 | ||
Steven R. Loranger | $ | 2,219,751 | ||
Gretchen W. McClain | $ | 412,556 | ||
David F. Melcher | $ | 47,115 |
Special 2011 Long-Term Incentive Awards
On November 7, 2011, in connection with the Separation, the Committee awarded Founders’ Grants to selected members of the executive team to create significant alignment with the long-term success of the Company. The Committee approved these Founders’ Grants as a one-time event, with multiple-year vesting schedules for each grant, in order to strengthen the alignment of the new senior management team with shareholders of the post-Separation Company, to accelerate the growth of
stock ownership among the Company’s new senior management team, and to enhance employee retention. The Committee does not consider Founders’ Grants as part of annual compensation for the Company’s NEOs, and such awards are not expected to be repeated in future years.
Options, which constituted 50% of the target value of each Founders’ Grant, were granted with a termination date 10 years from the grant date, a strike price equal to the closing price on the date of the grant, and a three-year ratable vesting schedule. Options were converted from target dollar values to a number of options based upon the estimated lattice model value of $6.94 of each stock option on the date of the grant. RSUs, which constituted the remaining 50% of the target value of each Founders’ Grant, were valued using the closing stock price of Company stock on the date of the grant, and were granted with a three-year cliff vesting schedule.
The following table describes the Founders’ Grants made to the NEOs. Stock options were granted with a strike price of $20.28, which was the closing price of the Company’s common stock on the November 7, 2011 grant date. For more details on these grants, please see “Compensation Tables – Grants of Plan-Based Awards in 2011” on Page 75.
Named Executive Officer | Total Founders’ Grants Expected Value ($) | RSU Award # Units | Non-Qualified Stock # Options | |||||||||
Denise L. Ramos | $ | 4,200,000 | 103,550 | 302,594 | ||||||||
Aris C. Chicles | $ | 1,260,000 | 31,065 | 90,778 | ||||||||
Thomas M. Scalera | $ | 693,000 | 17,086 | 49,928 | ||||||||
Robert J. Pagano, Jr. | $ | 600,000 | 14,793 | 43,228 | ||||||||
Munish Nanda | $ | 495,000 | 12,204 | 35,663 |
ITT Retirement Savings Plan for Salaried Employees
Most of the Company’sother salaried employees who work in the United States participate in the ITT Retirement Savings Plan for Salaried Employees, a tax-qualified savings plan, which allows employees to contribute to the plan on a before-tax basis and/or on an after-tax basis. The Company makes a core contribution of 3three or 4%four percent of pay to the plan for all eligible employees, and matches 50% of employee contributions, up to 6%six percent of pay. The core contribution is 3%three percent for employees whose age plus service is less than 50, and 4%four percent for employees whose age plus service is at least 50. In addition, employees who were participating in the ITT Salaried Retirement Plan and whose age and service is at least 60 may be eligible for up to five years of transition employer contributions following the Separation.Spin Transaction. Prior to the Separation,Spin Transaction, the floor contribution in the ITT Salaried Investment and Savings Plan was 1/2 one half of 1%one percent and all contributions were based on base salary only.
Employee Benefits In 2012 the ITT Salaried Investment and Perquisites
Executives, including the NEOs, areSavings Plan considers salary and bonus as eligible to participate in ITT’s broad-based employee benefits program. The program includes an investment and savings plan that includes before-tax and after-tax savings features, group medical and dental coverage, group life insurance, group accidental death and dismemberment insurance and other benefit plans. These other benefit plans include short- and long-term disability insurance, long-term care insurance and a flexible spending account plan. Prior to the Separation, employees also participated in a pension program.pay.
The Company provides only those perquisites that it considers to be reasonable and consistent with competitive practice. Perquisites available for NEOs include a car allowance up to $1,300 per month (a leased car is provided to Mr. Savi) and financial and estate planning. InSince 2011, the Company prohibiteddoes not provide any future reimbursementstax gross-up for personal income taxes due on these perquisites.
Retirement plan for Mr. Savi: Mr. Savi participates in a supplemental retirement plan provided under the terms of the collective bargaining agreement for industrial sector businesses. These benefits are provided in addition to the government provided retirement benefits. Under the terms of the plan Mr. Savi can contribute up to €6,000 and receive a matching contribution of up to €6,000.
Employee Benefits for Mr.Savi: Mr. Savi participates in other statutory retirement and health and welfare benefits that are also provided to other Italian employees.
Relocation Expenses for Mr. Pagano:Savi: In order to promoteAt the time of Mr. Pagano to the role of President of the Industrial Processes segment,Savi’s employment in November 2011, we agreed to reimburse him for relocation expenses to assist in the costs associated with his move from White Plains, New YorkDetroit, Michigan to the Industrial Processes headquarters in Seneca Falls, NY, in 2010.Italy. Costs associated with this relocation that were incurred in fiscal year 20112012 included reimbursement of loss on the sale of his home, closing costs, the movement of physical goods attorney’s fees and duplicate costs associated with maintaining his home in White Plains prior to its sale. As part oftemporary living expenses for the terms that were agreed as partfirst two years of his assumption of the new role, and as permitted underemployment. Under the Company’s relocation program, he received reimbursement for taxes associated with certain of these relocation expenses. The relocation program also includes the payment of one month’s salary, grossed up for taxes, to assist with miscellaneous expense. Mr. Savi also received a relocation bonus
of €60,000, of which €30,000 was paid in 2011 and €30,000 was paid in 2012. The relocation was primarily completed in 2011,2012, some minor expenses may be paid in 2013, and thus the amount paid by the Company to Mr. PaganoSavi in connection with this relocation was a non-recurring event.
Salaried Retirement Plan. Up until the Separation date,Until October 31, 2011, most of the Company’s salaried employees who work in the United States participated in the ITT Salaried Retirement Plan. Under the plan, participants had the option, on an annual basis, to elect to be covered by either a Traditional Pension Plan or a Pension Equity Plan formula for future pension accruals. The ITT Salaried Retirement Plan was a tax-qualified plan, which provided a base of financial security for employees after they cease working. The ITT Salaried Retirement Plan was transferred to Exelis Inc., our defense business that was spun off in the Spin Transaction, by the Company, effective on the Separation date,October 31, 2011, and both service credit and accrued benefits were frozen as of that date, subject to transition employer contributions into the ITT Retirement Savings Plan for Salaried Employees.
Excess Pension Plans. Because federal law limits the amount of benefits that can be paid and the amount of compensation that can be recognized under tax-qualified retirement plans, the Company established and maintained non-qualified, unfunded excess pension plans solely to pay retirement benefits that could not be paid from the ITT Salaried Retirement Plan. All of our NEOs except Messrs. Korber and Savi are eligible to participate in this plan. Benefits under the excess pension plans were generally paid directly by the Company. Participating officers with excess plan benefits had the opportunity to make a one-time election prior to December 31, 2008 to receive their excess benefit earned under the Traditional Pension Plan formula (described on Page 82)elsewhere in this Proxy Statement under the heading “Compensation Tables — The Company’s Pension Benefits”) in a single discounted sumlump-sum payment or as an annuity. An election of a single-sum payment was only effective if the officer met the requirements for early or normal retirement benefits under the plan; otherwise, the excess benefit earned under the Traditional Pension Plan formula would be paid as an annuity. Since the excess pension plans are an unfunded obligation of the Company, in the event of a change of control, any excess plan benefit would become immediately payable, subject to any applicable Section 409A restrictions with respect to form and timing of payments, and would be paid in a single discounted sum. The single-sum payment provision provides executives the earliest possible access to the funds in the event of a change of control, and avoids leaving unfunded pension payments in the hands of the acquirer. The Excess Pension Plan that provided additional benefits thanin addition to those that could be received under the tax-qualified ITT Salaried Retirement Plan was transferred to Exelis Inc. by the Company, effective on the Separation date of the Spin Transaction, and both service credit and accrued benefits were frozen as of that date, subject to transition credits.
Deferred Compensation Plan. OurAll of our NEOs except Mr. Savi are eligible to participate in the ITT Deferred Compensation Plan. This plan provides executives an opportunity to defer receipt of between 2% and 90% of any AIP payments they earn. The amount of deferred compensation ultimately received reflects the performance of benchmark investment funds made available under the Deferred Compensation Plan as selected by the executive. Participants in the Deferred Compensation Plan may elect a fund that tracks the performance of ITTthe Company’s common stock.
Mr. Loranger’s Non-Qualified Pension Arrangement. Mr. Loranger’s employment agreement (the “Steven R. Loranger Employment Agreement”), as described on Pages 66 to 67, provides for a non-qualified pension arrangement. Because Mr. Loranger forfeited certain employment benefits, including pension arrangements, when he left his prior employer, the Steven R. Loranger Employment Agreement provides him with a pension arrangement similar to the arrangement he forfeited.
Pensions and other post-retirement compensation for the NEOs are discussed in more detail in the 2011 Pension Benefits narrative, table and footnotes on Pages 81 to 85, the Potential Post-Employment Compensation tables and footnotes on Pages 93 to 102 and in descriptions of the compensation arrangements for Mr. Loranger and Ms. Ramos on Pages 66 to 67. The Steven R. Loranger Employment Agreement was negotiated when Mr. Loranger joined the Company.
The Company maintains two severance plans for most of its senior executives, including all of the NEOs except Mr. Savi — the Senior Executive Severance Pay Plan and the Special Senior Executive Severance Pay Plan. The Company’s Senior Executive Severance Pay Plan and Special Senior Executive Severance Pay Plan were originally established in 1984 and are regularly reviewed by the Compensation Committee. TheseThe Compensation Committee is currently undergoing a review of these plans to ensure that they are described in more detail on Pages 90 to 91. consistent with competitive market practices.
The severance plans apply topurpose of the Company’s key employees as defined by Section 409A. The Company’s severance plan arrangements are not considered in determining other elements of compensation.
Senior Executive Severance Pay Plan. The purpose of this planPlan is to provide a period of transition for senior executives. Senior executives other than Mr. Loranger, who are U.S. citizens or who are employed in the United States
are covered by this plan. The plan generally provides for severance payments if the Company terminates a senior executive’s employment without cause.
The exceptions to severance payment are:
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No severance is provided for termination for cause, because the Company believes employees terminated for cause should not receive additional compensation. No severance is provided in the case of termination after a normal retirement date because the executive will be eligible for retirement payments. No severance is provided when an executive accepts or refuses comparable employment because the executive has the opportunity to receive employment income from another party under comparable circumstances.
Ms. Ramos and Messrs. Chicles, Scalera, Pagano, and Nanda participate in this plan. Mr. Loranger did not participate in this plan because his severance arrangements, including severance pay and benefits upon termination from the Company, were provided separately under the Steven R. Loranger Employment Agreement described on Pages 66 to 67.
Special Senior Executive Severance Pay Plan. The purpose of this planPlan is to provide compensation in the case of termination of employment in connection with an acceleration event (defined on Pages 91 to 92under the heading “Potential Post-Employment Compensation — Change of this Proxy Statement)Control Arrangements”) including a change of control. The provisions of this plan are specifically designed to address the inability of senior executives to influence the Company’s future performance after certain change of control events. The plan is structured to encourage executives to act in the best interests of shareholders by providing for certain compensation and retention benefits and payments, including change of control provisions, in the case of an acceleration event.
These plans, including the potential post-employment payments that our NEOs would receive pursuant to these plans, are described in more detail elsewhere in this Compensation Discussion and Analysis under the heading “Potential Post-Employment Compensation.” The purposes of these provisions are to:
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As discussed above, this plan provides severance benefits for covered executives, including any NEO whose employment is terminated by the Company other than for cause, or where the covered executive terminates his or her employment for good reason within two years after the occurrence of an acceleration event as described below (including a termination due to death or disability) or if during the two-year period following an acceleration event, the covered executive had grounds to resign with good reason or the covered executive’s employment is terminated in contemplation of an acceleration event that ultimately occurs.
The plan is designed to put the executive in the same position, from a compensation and benefits standpoint, as he or she would have been in without the acceleration event, on a pre-tax basis. With respect to incentive plan awards, since the executive will no longer have the ability to influence the corporate objectives upon which the awards are based, the plan provides that any AIP Awards are paid out at target 100%. In the event of a change of control, a pro-rata portion of outstanding TSR Awards will be paid through the date of the change of control based on actual performance and the balance of the award will be paid at target (100%). More information about the Special Senior Executive Severance Pay Plan is provided on Pages 90 to 91 of this Proxy Statement.
In October 2011, effective with the Separation, the Company amended this plan as follows:
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The Company made these changesplans apply to the Company’s key employees as defined by Section 409A. The Company’s severance plan arrangements are not considered in order to improve Company alignment with shareholder interests.determining other elements of compensation.
Ms. Ramos, and Messrs. Chicles, Scalera, Pagano, and NandaMr. Savi does not participate in the Special Senior Executive Severance Pay Plan. Mr. Loranger did not participateSavi participates under the National Collective Agreement for the Industrial Sector Managers. This agreement provides Mr. Savi with termination benefits in the plan becauseevent his severance arrangements, which included severance pay and benefits upon termination from the Company in connection with an acceleration event, were set forth in the Steven R. Loranger Employment Agreement, described on Pages 66 to 67.
CEO COMPENSATION AND EMPLOYMENT AGREEMENTS
Denise L. Ramos Compensation and Employment Agreements: Upon her appointment as Chief Executive Officer and President of the Company, effective October 31, 2011, Ms. Ramos’sRamos’ compensation in the role was as follows:
Ÿ | Annual base salary of $850,000. |
Ÿ | AIP target incentive payment of 100% of base salary, with a range of possible payment of 0% to 200% of the target. The AIP target incentive percentage |
Ÿ | Long-Term Incentive Award target award expected value of $2,800,000. |
Ms. Ramos’sRamos’ employment letter also provided that Ms. Ramos would receive a Founders’ Grant in connection with the SeparationSpin Transaction composed of nonqualifiednon-qualified stock options and RSUs with terms set forth in her employment letter and having an aggregate expected value of $4,200,000, based on the closing price of the Company’s common stock on the November 7, 2011 grant date.
In 2012, the Compensation Committee elected not to increase Ms. Ramos’ compensation, either in total or by compensation element. The Compensation Committee took this action because Ms. Ramos’ compensation was reviewed and adjusted in November 2011 at the time of the Spin Transaction.
If the Company terminates her employment other than for cause (as defined in her employment letter) and other than as a result of her death or disability, in any case prior to her normal retirement date, sheMs. Ramos will, subject to certain conditions and limitations set forth in her employment letter, be entitled to severance pay in an amount equal to two times the sum of her then-current annual base salary and target annual incentive payable in installments over 24 months and will also be entitled to receive certain benefits during that time. The terms of her employment agreement were described in the amended Current Report on Form 8-K filingfiled on October 17, 2011.
The Compensation Steven R. Lorangerand Employment Agreements: Mr. Loranger’sCommittee reviews the compensation as Chief Executive Officer in 2011 was as follows:
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On October 14, pursuant to the terms of his Employment Agreement, ITT Corporation entered into an agreement with Mr. Loranger whereby he would resign for “good reason” in connection with the Separation. Mr. Loranger subsequently resigned as Chairman, President and Chief Executive Officer of the Company on October 31, 2011, the date of the Separation. The terms of his resignation agreement were described in the 8-K filing on October 20, 2011. They included the following compensationCEO and benefit payments, all of which were consistenther direct reports to ensure that any and all differences are understood and appropriate. The Compensation Committee reviews the overall pay structure to ensure internal pay equity and competitiveness with his existing Employment Agreement and subsequent voluntary termination for “good reason”:
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In addition to the payments consistent with his existing Employment Agreement, the Committee also approved a target payment of $600,000, payable at the discretion of the Committee based upon the successful completion of key milestones related to the Separation. The bonus was paid in March 2012.
As part of the resignation agreement, Mr. Loranger agreed that during the employment term and for two years after termination, he would not compete with the Company. He also agreed that he would not solicit or hire any of the Company’s employees or anyone who was an employee in the previous six months before his departure without the Company’s consent, or solicit any of the Company’s customers or business. Mr. Loranger also agreed not to make any false or disparaging statements at any time about the Company. In addition, Mr. Loranger agreed to follow our Code of Conduct, and he agreed not to reveal any confidential Company information or personal information about our officers, directors or employees except as necessary during employment. Mr. Loranger has assigned all rights to any Company discoveries, inventions or ideas to the Company. If Mr. Loranger violates any of these covenants, the Company may stop paying any post-termination benefits.market practices.
KEY PARTICIPANTS IN THE COMPENSATION PROCESS
Role of the Compensation Committee: The Compensation Committee, with input from Managementcorporate-level management and external data and advice from itsthe Independent Compensation Consultant, reviews and approves each of the compensation targets for all of the Company’s executive officers, including its NEOs. The Compensation Committee reviewed each compensation element for the Chief Executive OfficerCEO and other NEOs, and made the final determination regarding executive compensation for these officers using the processes described in this Compensation Discussion and Analysis. It also makes determinations with respect to the AIP as it relates to our executive officers, including the approval of annual performance goals and subsequent full-year achievement against those goals. It administers all elements of the Company’s long-term incentive grant program, and approves the benefits and perquisites offered to executive officers. It evaluates all compensation programs on an annual basis to ensure that no plans induce or encourage excessive risk-taking by its participants.
Role of Management: The Compensation Committee has delegated to the Company’s senior human resources executive responsibility for administering the executive compensation program. During 2011,2012, the Company’s Chief Executive Officer, senior human resources executive, as well as other senior executives, made recommendations to the Compensation Committee regarding executive compensation actions and incentive awards. They serve as a liaison with the Independent Compensation Consultant, providing internal data on an as-needed basis so that the Independent Compensation Consultant can provide comparative analyses to the Compensation Committee. In 2011,2012, the Company’s human resources, finance and legal departments supported the work of the Compensation Committee, provided information, answered questions and responded to requests.
Role of the Independent Compensation Consultant: In 2011,2012, the Compensation Committee retained Pay Governance, LLC (“Pay Governance” or the “Compensation Consultant”) as its independent compensation consultant. Pay Governance providesIndependent Compensation Consultant to provide independent consulting services to support the Compensation Committee in fulfilling its obligations under its charter, the material terms of which are described beginning on Page 33.elsewhere in this proxy statement under the heading “Committees of the Board of Directors.” The Independent Compensation Consultant also provided independent consulting services in support of the Nominating and GovernanceCompensation Committee’s charter, including providing competitive data on director compensation.
The Independent Compensation Consultant’s engagement leader provided the Compensation Committee with objective expert analyses, assessments, research and recommendations for executive and non-executive employee compensation programs, incentives, perquisites, and compensation standards. In this capacity, the Independent Compensation Consultant provided services that related solely to work performed for and at the direction of the Compensation Committee including analysis of material prepared by the Managementcorporate-level management for the Compensation Committee’s review. Additionally, the Independent Compensation Consultant provided analyses to the Nominating and Governance Committee and the full Board of Directors on non-management director compensation. The Compensation Consultant provided no other services to the Company during 2011.2012.
Fees forpaid to the Independent Compensation Consultant:Consultant in 2012 are set forth in the table below.
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The Compensation Committee annually reviews the Independent Compensation Consultant’s independence, and determined the Independent Compensation Consultant was independent.independent in 2012. The Compensation Committee has reviewed the relationship with the Independent Compensation Consultant and has determined that no conflicts of interest currently exist. The Compensation Committee has sole authority to retain and terminate consultants, including the Independent Compensation Consultant, with respect to compensation matters and the Nominating and Governance Committee has sole authority to retain and terminate the Compensation Consultant with respect to nominating and governance matters.
In 2008, the Company, upon the recommendation of the Compensation Committee, adopted a policy that provides for recoupment of performance-based compensation if the Board of Directors determines that a senior executive has engaged in fraud or willful misconduct that caused or otherwise contributed to the need for a material restatement of the Company’s financial results. In such a situation, the Board will review all compensation awarded to or earned by that senior executive on the basis of the Company’s financial performance during fiscal periods materiallyaffected by the restatement. This would include annual cash incentive and bonus awards and all forms of equity-based compensation. If, in the Board’s view, the compensation related to the Company’s financial performance would have been lower if it had been based on the restated results, the Board will, to the extent permitted by applicable law, seek recoupment from that senior executive of any portion of such compensation as it deems appropriate after a review of all relevant facts and circumstances. The NEOs are covered by this policy.policy.
EXECUTIVE STOCK OWNERSHIP GUIDELINES
The Company maintains stock ownership guidelines for all of its executives, including the NEOs. The guidelines, which are described in greater detail on Pages 5 to 6 ofelsewhere in this Proxy Statement under the heading “Stock Ownership Information,” specify the desired levels of Company stock ownership and encourage a set of behaviors for each officer to reach the guideline levels. The approved guidelines require share ownership expressed as a multiple of base salary for all corporate officers. The guidelines for all Company executives are:
CEO | 5 X Annual Base Salary | |
CFO and EVP | 3 X Annual Base Salary | |
Senior Vice Presidents | 2 X Annual Base Salary | |
Vice Presidents | 1 X Annual Base Salary |
In achieving these ownership levels, shares owned outright, Company restricted stock and RSUs, shares held in the Company’s dividend reinvestment plan, shares owned in the ITT Salaried Investment and Savings Plan, and “phantom” shares held in a fund that tracks an index of the Company’s stock in the deferred compensation plan are considered. As of the writing of this proxy statement, all NEOs either have met the guideline,guidelines, or are expected to meet the guidelineguidelines within the next two years.
BUSINESS RISK AND COMPENSATION
In 2011, the Committee evaluated risk factors associatedyears, with the Company’s businesses in determining compensation structure and pay practices. The structureexception of Mr. Savi who will have five years from his date of hire to achieve the Board of Director Committees facilitates this evaluation and determination. During 2011, the Chair of the Committee was a member of the Audit Committee and the Audit Committee Chair was a member of the Committee. This membership overlap provides insight into the Company’s business risks and affords the Committee access to the information necessary to consider the impact of business risks on compensation structure and pay practices. Further, overall enterprise risk is considered and discussed at Board meetings, providing additional important information to the Committee. The Chief Executive Officer and President, and the Senior Vice President and Chief Financial Officer, attend those portions of the Committee meetings at which plan features and design configurations of the Company’s annual and long-term incentive plans are considered and approved.
Compensation across the enterprise is structured so that unnecessary or excessive risk-taking behavior is discouraged. Further, total compensation for senior officers is heavily weighted toward long-term compensation consistent with the Company’s compensation philosophy, which is focused on long-term value creation. This long-term weighting discourages behaviors that encourage short-term risks.guideline.
Named Executive Officer Compensation. Annual base salary, annual incentives, and long-term incentives provide the foundation for NEO compensation. Additional compensation components, which supplement these foundational components, are also discussed in this Compensation Discussion and Analysis.
The following table summarizes representative compensation components or policies and relevant risk mitigation factors:
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CONSIDERATION OF MATERIAL NON-PUBLIC INFORMATION
The Company typically closes the window for insiders to trade in the Company’s stock in advance of, and for a period of time immediately following, earnings releases and Board and Committee meetings because the Company and insiders may be in possession of material non-public information. The first quarter Committee meeting at which compensation decisions and awards are typically made for employees usually occurs during a Board meeting period, so stock option awards may occur at a time when the Company is in possession of material non-public information. The Committee does not consider the possible possession of material non-public information when it determines the number of non-qualified stock options granted, price of options granted or timing of non-qualified stock options granted. Rather, it uses competitive data, individual performance and retention considerations when it grants non-qualified stock options, restricted stock or RSUs and TSR Awards under the long-term incentive program.
Non-qualified stock option awards and restricted stock awards or RSU Awards granted to NEOs, senior and other executives, and Directors are awarded and priced on the same date as the approval date. The Company may also award non-qualified stock options in the case of the promotion of an existing employee or hiring of a new employee. Again, these non-qualified stock option grants may be made at a time the Company is in possession of material non-public information related to the promotion or the hiring of a new employee or other matters. The Company does not time its release of material non-public information for the purpose of affecting the value of executive compensation and executive compensation decisions are not timed to the release of material non-public information.
CONSIDERATIONS OF TAX AND ACCOUNTING IMPACTS
Section 162(m) of the Internal Revenue Code places a limit of $1,000,000 on the amount of compensation that the Company may deduct in any one year with respect to its Chief Executive Officer and the three other highest-paid NEOs, other than the Chief Financial Officer. There is an exception to the $1,000,000 limitation for performance-based compensation meeting certain requirements. Compensation attributable to awards under the Company’s AIP and long-term incentive program are generally structured to qualify as performance-based compensation under Section 162(m).
However, the Compensation Committee realizes that evaluation of the overall performance of the senior executives cannot be reduced in all cases to a fixed formula. There may be situations in which the prudent use of discretion in determining pay levels is in the best interests of the Company and its shareholders and, therefore, desirable. In those situations where discretion is used, awards may be structured in ways that will not permit them to qualify as performance-based compensation under Section 162(m). The compensation of Mr. Loranger may not be fully deductible under these criteria. However, the Committee does not believe that such loss of deductibility would have any material impact on the financial condition of the Company.
The Company’s plans are intended to comply with Section 409A of the Internal Revenue Code, to the extent applicable, and the Company made amendments to the plans during 2008 in this regard. While the Company complies with other applicable sections of the Internal Revenue Code with respect to compensation, the Company and the Compensation Committee do not consider other tax implications in designing its compensation programs.
The following table provides information regarding the compensation earned by each of our named executive officers as defined by the SEC in Item 402(a) of Regulation S-K (“NEOs”).
Name and Principal Position | Year | Salary ($) | Bonus ($)(1) | Stock Awards ($)(2) | Option Awards ($)(3) | Non-Equity Incentive Plan Compensation ($)(4) | Change in Value and | All Other Compensation ($)(6) | Total ($) | |||||||||||||||||||||||||||
Denise L. Ramos | 2011 | 640,788 | 20,000 | 3,158,816 | 2,965,014 | 687,500 | 265,992 | 51,443 | 7,789,553 | |||||||||||||||||||||||||||
Chief Executive | 2010 | 580,384 | — | 845,946 | 413,641 | 774,300 | 124,047 | 67,981 | 2,806,299 | |||||||||||||||||||||||||||
Officer & President | 2009 | 540,000 | — | 675,272 | 317,269 | 596,700 | 135,414 | 63,377 | 2,328,032 | |||||||||||||||||||||||||||
Aris C. Chicles Executive Vice President, Strategy | 2011 | 365,385 | 7,500 | 1,010,543 | 949,151 | 483,500 | 129,839 | 35,785 | 2,981,703 | |||||||||||||||||||||||||||
Thomas M. Scalera Chief Financial Officer | 2011 | 289,800 | 1,850 | 445,763 | 433,008 | 296,800 | 34,941 | 12,840 | 1,515,002 | |||||||||||||||||||||||||||
Robert J. Pagano, Jr. President, Industrial Process | 2011 | 355,273 | 7,072 | 564,697 | 596,532 | 376,100 | 460,899 | 1,294,205 | 3,654,778 | |||||||||||||||||||||||||||
Munish Nanda President, Control Technologies | 2011 | 319,065 | 5,000 | 465,878 | 428,383 | 364,100 | 27,453 | 79,582 | 1,689,461 | |||||||||||||||||||||||||||
Steven R. Loranger Former Chairman of |
| 2011 2010 2009 |
|
| 1,007,692 1,154,231 1,130,000 |
|
| 710,000 — — |
|
| 4,235,275 4,187,372 3,713,945 |
|
| 4,341,036 2,047,462 1,744,716 |
|
| — 2,328,352 1,909,700 |
|
| 4,431,301 2,602,844 4,940,075 |
|
| 1,332,915 314,791 406,545 |
|
| 16,058,219 13,844,981 |
| |||||||||
the Board, President | ||||||||||||||||||||||||||||||||||||
and Chief Executive Officer | ||||||||||||||||||||||||||||||||||||
Gretchen W. McClain |
| 2011 2010 2009 |
|
| 494,231 527,604 504,054 |
|
| — — 61,000 |
|
| 1,058,822 761,335 2,426,708 |
|
| 942,841 372,279 317,269 |
|
| — 654,700 474,600 |
|
| 250,968 97,308 70,753 |
|
| 48,372 74,141 65,453 |
|
| 2,795,234 3,919,837 |
| |||||||||
Former Senior Vice President and Former | ||||||||||||||||||||||||||||||||||||
President, Fluid and Motion Control | ||||||||||||||||||||||||||||||||||||
David F. Melcher |
| 2011 2010 2009 |
|
| 494,231 509,808 425,000 |
|
| — — — |
|
| 1,058,822 761,335 468,921 |
|
| 577,440 372,279 224,733 |
|
| — 654,700 386,750 |
|
| 200,596 93,107 66,150 |
|
| 47,696 56,959 58,217 |
|
| 2,378,785 1,629,771 |
| |||||||||
Former Senior Vice President and Former | ||||||||||||||||||||||||||||||||||||
President, Defense & Information Solutions |
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1) | Option Awards ($)(2) | Non-Equity Incentive Plan Compensation ($)(3) | Change in Value and | All Other Compensation ($)(5) | Total ($) | |||||||||||||||||||||||||||
Denise L. Ramos | 2012 | 850,000 | — | 1,870,000 | 935,000 | 978,350 | 109,444 | 30,528 | 4,773,322 | |||||||||||||||||||||||||||
Chief Executive | 2011 | 640,788 | 20,000 | 3,158,816 | 2,965,014 | 687,500 | 265,992 | 51,443 | 7,789,553 | |||||||||||||||||||||||||||
Officer & President | 2010 | 580,384 | — | 845,946 | 413,641 | 774,300 | 124,047 | 67,981 | 2,806,299 | |||||||||||||||||||||||||||
Aris C. Chicles | 2012 | 420,000 | — | 420,000 | 210,000 | 542,565 | 63,892 | 29,192 | 1,685,649 | |||||||||||||||||||||||||||
Executive Vice President | 2011 | 365,385 | 7,500 | 1,010,543 | 949,151 | 483,500 | 129,839 | 35,785 | 2,981,703 | |||||||||||||||||||||||||||
Thomas M. Scalera | 2012 | 381,246 | — | 400,000 | 200,000 | 460,300 | 13,715 | 24,994 | 1,480,255 | |||||||||||||||||||||||||||
Chief Financial Officer | 2011 | 289,800 | 1,850 | 445,763 | 433,008 | 296,800 | 34,941 | 12,840 | 1,515,002 | |||||||||||||||||||||||||||
Robert J. Pagano, Jr. | 2012 | 400,000 | — | 266,633 | 133,333 | 388,000 | 295,425 | 17,023 | 1,500,414 | |||||||||||||||||||||||||||
President, Industrial Process | 2011 | 355,273 | 7,072 | 564,697 | 596,532 | 376,100 | 460,899 | 1,294,205 | 3,654,778 | |||||||||||||||||||||||||||
Luca Savi President, Motion Technologies | 2012 | 487,154 | (6) | — | 182,633 | 91,333 | 217,684 | — | 299,967 | 1,278,771 | ||||||||||||||||||||||||||
Thomas F. Korber Former Senior Vice President, Human Resources | 2012 | 292,115 | — | 243,367 | 121,667 | 243,537 | — | 992,869 | 1,893,555 | |||||||||||||||||||||||||||
William E. Taylor | 2012 | 330,431 | — | 222,633 | 111,333 | 160,000 | 83,865 | 1,492,888 | 2,401,150 | |||||||||||||||||||||||||||
Former Senior Vice President and Former | ||||||||||||||||||||||||||||||||||||
President, Interconnect Solutions |
(1) |
Amounts in this column include the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 718 for TSR Award units and RSUs. |
Amounts in this column include the aggregate grant date fair value of non-qualified stock option awards in the year of grant based on a binomial lattice valuation. |
relating to option awards may be found in Note |
(3) | Amounts in this column for all NEOs include AIP awards for the performance year |
No NEO received preferential or above-market earnings on deferred compensation. The change in the present value in accrued pension benefits was determined by measuring the present value of the accrued benefit at the representative dates using a discount rate of |
Amounts in this column for |
(6) | Mr. Savi received his salary in Euros. The dollar amount of Mr. Savi’s salary was calculated using the December 2012 Treasury foreign current exchange rate of 1.281985 Euros to U.S. dollars. |
Name | Executive Perquisites | All Other Compensation | ||||||||||||||||||||||||||||||||||||||
Personal Use of Corporate Aircraft ($)(1) | Financial Counseling ($)(2) | Auto Allowances ($)(3) | Total Perquisites ($) | Supplemental Savings Plan Contributions ($)(4) | Tax Reimbursements | Relocation Expense ($)(6) | 401(k) Employer Contributions ($)(7) | Other ($)(8) | Total All Other | |||||||||||||||||||||||||||||||
Denise L. Ramos | 2,566 | 5,260 | 15,600 | 23,426 | 16,142 | — | — | 8,575 | 3,300 | 51,443 | ||||||||||||||||||||||||||||||
Aris C. Chicles | — | 5,200 | 15,600 | 20,800 | 5,340 | — | — | 8,575 | 1,070 | 35,785 | ||||||||||||||||||||||||||||||
Thomas M. Scalera | — | — | 2,600 | 2,600 | — | — | — | 9,952 | 288 | 12,840 | ||||||||||||||||||||||||||||||
Robert J. Pagano, Jr. | — | — | 14,000 | 14,000 | 4,641 | 523,861 | 742,528 | 8,575 | 600 | 1,294,205 | ||||||||||||||||||||||||||||||
Munish Nanda | — | — | 13,200 | 13,200 | 3,024 | — | 54,391 | 8,510 | 457 | 79,582 | ||||||||||||||||||||||||||||||
Steven R. Loranger | 131,520 | 85,493 | 13,000 | 230,013 | 17,002 | 73,475 | — | 8,575 | 1,003,850 | | 1,332,915 | | ||||||||||||||||||||||||||||
Gretchen W. McClain | 5,010 | 12,195 | 13,000 | 30,205 | 8,728 | — | — | 8,575 | 864 | 48,372 | ||||||||||||||||||||||||||||||
David F. Melcher | — | 13,394 | 13,000 | 26,394 | 7,148 | 2,997 | — | 8,575 | 2,582 | 47,696 |
Name | Executive Perquisites | All Other Compensation | ||||||||||||||||||||||||||||||
Financial Counseling ($)(1) | Auto Allowance ($)(2) | Total Perquisites ($) | Severance Payments ($)(3) | Tax Reimbursements ($)(4) | Relocation Expense ($)(5) | Group Life Insurance ($)(6) | Total All Other Compensation ($) | |||||||||||||||||||||||||
Denise L. Ramos | 10,800 | 15,600 | 26,400 | — | — | — | 4,128 | 30,528 | ||||||||||||||||||||||||
Aris C. Chicles | 12,571 | 15,600 | 28,171 | — | — | — | 1,021 | 29,192 | ||||||||||||||||||||||||
Thomas M. Scalera | 9,000 | 15,600 | 24,600 | — | — | 394 | 24,994 | |||||||||||||||||||||||||
Robert J. Pagano,Jr. | 457 | 15,600 | 16,057 | — | — | — | 966 | 17,023 | ||||||||||||||||||||||||
Luca Savi | — | 52,290 | 52,290 | — | 97,555 | 111,662 | 261,507 | |||||||||||||||||||||||||
Thomas F. Korber | 16,784 | 14,300 | 31,084 | 712,563 | 79,216 | 169,538 | 468 | 992,869 | ||||||||||||||||||||||||
William E. Taylor | — | 13,200 | 13,200 | 1,467,720 | 11,002 | — | 966 | 1,492,888 |
(1) |
Amounts represent financial counseling and tax service fees paid during |
Semi-monthly auto allowances are provided to a range of executives, including the NEOs. |
(3) | Severance payments are based on base salary and service with the company and include (i) a lump sum payment for vacation and/or personal days, (ii) benefit costs, (iii) acceleration expense on restricted stock and options and (iv) TSR expense. |
(4) |
(5) | The |
(6) |
Amounts include taxable group term-life insurance premiums attributable to each |
Grants of Plan-Based Awards in 20112012
The following table provides information about 20112012 equity and non-equity awards for the NEOs. The table includes the grant date for equity-based awards, the estimated future payouts under non-equity incentive plan awards (which consist of potential payouts under the 20112012 AIP) and estimated future payouts under 20112012 equity incentive plan awards, including the TSR target award granted in 20112012 for the 2011-20132012-2014 performance period (each unit equals $1). Also provided is the number of shares underlying all other stock awards, composed of RSU and non-qualified stock option awards. The table also provides the exercise price of the non-qualified stock option awards, reflecting the closing price of ITTthe Company’s common stock on the grant date and the grant date fair value of each equity award computed under FASB ASC Topic 718. Grants made prior to the Separation date do not give effect to the 1:2 reverse stock split, and grants made subsequent to the Separation date give effect to the 1:2 reverse stock split. The compensation plans under which the grants in the following table were made are described in the Compensation Discussion and Analysis beginning on Page 43 of this Proxy Statement, and include the AIP, TSR Awards, RSU awards, and non-qualified stock options awards.
Name | Action Date | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | All Other Stock Awards: Number of Shares of Stock or Units (#)(3) | All Other | Exercise or Base Price of Option Awards ($ / Sh)(5) | Grant ($)(6) | ||||||||||||||||||||||||||||||||||||||||
Threshold ($) | Target ($) | Maximum ($) | Threshold ($) | Target ($) | Maximum ($) | |||||||||||||||||||||||||||||||||||||||||||
Denise L. Ramos | 214,802 | 429,604 | 859,208 | |||||||||||||||||||||||||||||||||||||||||||||
70,833 | 141,667 | 283,334 | ||||||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | 266,650 | 533,300 | 1,066,600 | 533,300 | |||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | (a) | 9,111 | 525,522 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (b) | 103,550 | 2,099,994 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (c) | 7,670 | 155,548 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (d) | 18,992 | 385,158 | ||||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | (e) | 33,459 | 57.68 | 530,325 | |||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (f) | 302,594 | 20.28 | 2,100,002 | |||||||||||||||||||||||||||||||||||||||||||
Aris C. Chicles | 97,500 | 195,000 | 390,000 | |||||||||||||||||||||||||||||||||||||||||||||
26,250 | 52,500 | 105,000 | ||||||||||||||||||||||||||||||||||||||||||||||
0 | 180,000 | 180,000 | ||||||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | 95,850 | 191,700 | 383,400 | 191,700 | |||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | (a) | 3,274 | 188,844 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (b) | 31,065 | 629,998 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (c) | 2,589 | 52,505 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (d) | 6,827 | 138,452 | ||||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | (e) | 12,025 | 57.68 | 190,596 | |||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (f) | 90,778 | 20.28 | 629,999 | |||||||||||||||||||||||||||||||||||||||||||
Thomas M. Scalera | 45,663 | 91,327 | 182,653 | |||||||||||||||||||||||||||||||||||||||||||||
19,250 | 38,500 | 77,000 | ||||||||||||||||||||||||||||||||||||||||||||||
0 | 145,000 | 145,000 | ||||||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | 25,000 | 50,000 | 100,000 | 50,000 | |||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | (a) | 854 | 49,259 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (b) | 17,086 | 346,504 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (c) | 704 | 14,277 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (d) | 1,781 | 36,119 | ||||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | (e) | 3,475 | 57.68 | 49,727 | |||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (f) | 49,928 | 20.28 | 346,500 | |||||||||||||||||||||||||||||||||||||||||||
Robert J. Pagano, Jr. | 72,708 | 145,417 | 290,833 | |||||||||||||||||||||||||||||||||||||||||||||
16,667 | 33,333 | 66,667 | ||||||||||||||||||||||||||||||||||||||||||||||
0 | 175,000 | 175,000 | ||||||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | 66,650 | 133,300 | 266,600 | 133,300 | |||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | (a) | 2,278 | 131,395 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (b) | 14,793 | 300,002 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (c) | 2,525 | 51,207 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (d) | 4,747 | 96,269 | ||||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | (e) | 9,260 | 57.68 | 132,511 | |||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (f) | 43,228 | 20.28 | 300,002 | |||||||||||||||||||||||||||||||||||||||||||
Munish Nanda | 68,750 | 137,500 | 275,000 | |||||||||||||||||||||||||||||||||||||||||||||
13,750 | 27,500 | 55,000 | ||||||||||||||||||||||||||||||||||||||||||||||
0 | 150,000 | 150,000 | ||||||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | 55,000 | 110,000 | 220,000 | 110,000 | |||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | (a) | 1,879 | 108,381 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (b) | 12,204 | 247,497 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (c) | 2,077 | 42,122 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (d) | 3,917 | 79,437 | ||||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | (e) | 7,640 | 57.68 | 109,328 | |||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (f) | 35,663 | 20.28 | 247,501 |
Steven R. Loranger Gretchen W. McClain David F. Melcher All Other Grant ($)(6) Denise L. Ramos Aris C. Chicles Thomas M. Scalera Robert J. Pagano, Jr. Luca Savi Thomas Korber William E. Taylor 650,000 1,300,000 2,600,000 0 600,000 600,000 3/3/2011 3/3/2011 1,066,650 2,133,300 4,266,600 2,133,300 3/3/2011 3/3/2011 (a) 36,442 2,101,975 3/3/2011 3/3/2011 (e) 133,835 57.68 2,121,285 255,000 510,000 1,020,000 3/3/2011 3/3/2011 266,650 533,300 1,066,600 533,300 3/3/2011 3/3/2011 (a) 9,111 525,522 3/3/2011 3/3/2011 (e) 33,459 57.68 530,325 255,000 510,000 1,020,000 3/3/2011 3/3/2011 266,650 533,300 1,066,600 533,300 3/3/2011 3/3/2011 (a) 9,111 525,522 3/3/2011 3/3/2011 (e) 33,459 57.68 530,325 Name Action
Date Grant
Date Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards (1) Estimated Future Payouts
Under Equity Incentive Plan
Awards(2) All
Other
Stock
Awards:
Number
of
Shares
of Stock
or Units
(#)(3)
Option
Awards:
Number of
Securities
Underlying
Options
(#)(4) Exercise
or Base
Price of
Option
Awards
($ /
Sh)(5)
Date
Fair
Value -
Equity
Incentive
Plan
Awards Threshold
($) Target
($) Maximum
($) Threshold
($) Target
($) Maximum
($) 3/8/2012 3/8/2012 425,000 850,000 1,700,000 3/8/2012 3/8/2012 467,500 935,000 1,870,000 935,000 3/8/2012 3/8/2012 (a) 41,009 935,005 3/8/2012 3/8/2012 136,100 22.80 935,007 3/8/2012 3/8/2012 157,500 315,000 630,000 3/8/2012 3/8/2012 105,000 210,000 420,000 210,000 3/8/2012 3/8/2012 (a) 9,211 210,011 3/8/2012 3/8/2012 30,570 22.80 210,016 3/8/2012 3/8/2012 150,000 300,000 600,000 3/8/2012 3/8/2012 100,000 200,000 400,000 200,000 3/8/2012 3/8/2012 (a) 8,772 200,002 3/8/2012 3/8/2012 29,115 22.80 200,020 3/8/2012 3/8/2012 100,000 200,000 400,000 3/8/2012 3/8/2012 66,650 133,300 266,600 133,300 3/8/2012 3/8/2012 (a) 5,848 133,334 3/8/2012 3/8/2012 19,410 22.80 133,347 3/8/2012 3/8/2012 109,610 219,219 438,438 3/8/2012 3/8/2012 45,650 91,300 182,600 91,300 3/8/2012 3/8/2012 (a) 4,006 91,337 3/8/2012 3/8/2012 13,295 22.80 91,337 3/8/2012 3/8/2012 71,042 142,083 284,166 3/8/2012 3/8/2012 60,850 121,700 243,400 121,700 3/8/2012 3/8/2012 (a) 5,336 121,661 3/8/2012 3/8/2012 17,710 22.80 121,668 3/8/2012 3/8/2012 75,150 150,300 300,600 3/8/2012 3/8/2012 55,650 111,300 222,600 111,300 3/8/2012 3/8/2012 (a) 4,883 111,332 3/8/2012 3/8/2012 16,210 22.80 111,363
(1) | Amounts reflect the threshold, target and maximum payment levels, respectively, if an award payout is achieved under the Company’s |
Name | Pre-Spin (pro-rated for 10 months) | Post-Spin (pro-rated for two months) | ||||||||||||||||||||||
Salary ($) | Target % | Target Amount ($) | Salary ($) | Target % | Target Amount | |||||||||||||||||||
Denise L. Ramos | 606,500 | 85 | % | 429,604 | 850,000 | 100 | % | 141,667 | ||||||||||||||||
Aris C. Chicles | 360,000 | 65 | % | 195,000 | 420,000 | 75 | % | 52,500 | ||||||||||||||||
Thomas M. Scalera | 288,400 | 38 | % | 91,327 | 308,000 | 75 | % | 38,500 | ||||||||||||||||
Robert J. Pagano, Jr. | 349,000 | 50 | % | 145,417 | 400,000 | 50 | % | 33,333 | ||||||||||||||||
Munish Nanda | 330,000 | 50 | % | 137,500 | 330,000 | 50 | % | 27,500 |
The TSI target award, a one-time award related to the successful execution of the Separation, was computed based upon the applicable range of net estimated payments denominated in dollars where the target award was equal to 100% of the award potential, the threshold is equal to 50% of target and the maximum is equal to 100% of target. Zero payment was possible for below threshold performance.
(2) | Amounts reflect the threshold, target and maximum payment levels, respectively, if an award payout is achieved, under the Company’s TSR Plan for the |
(3) | Amounts reflect the number of RSU awards granted in |
(4) | Amounts reflect the number of non-qualified stock options granted in |
(5) | The option exercise price for non-qualified stock options granted in |
(6) | Amounts in this column represent the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 for TSR target awards, RSU awards, and non-qualified stock option awards granted to the NEOs in |
Outstanding Equity Awards at 20112012 Fiscal Year-EndYear End