SCHEDULE 14AUNITED STATES
(Rule 14a-101)SECURITIES AND EXCHANGE COMMISSION
INFORMATION REQUIRED IN PROXY STATEMENTWASHINGTON, D.C. 20549
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):
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March 27, 2013
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Dear Fellow Shareholders:
Enclosed are the Notice of Annual Meeting and Proxy Statement for ITT’s 2013 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, 2013
NOTICE OF 2013 Annual Meeting
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By order of the Board of Directors,
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2013 Proxy Statement
Why did I receive these proxy materials? Beginning on or about March 27, 2013, this Proxy Statement is being mailed or made available, as the case may be, to shareholders who were shareholders as of March 13, 2013, the record date, as part of the Board of Directors’ solicitation of proxies for ITT’s 2013 Annual Meeting and any postponements or adjournments thereof. This Proxy Statement and ITT’s 2012 Annual Report to Shareholders and Annual Report on Form 10-K (which have been furnished to shareholders eligible to vote at the 2013 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 vote? You can vote if you owned shares of the Company’s common stock as of the close of business on March 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 19:
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:
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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 2013 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 4).
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, or 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 four formal items 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 2013 Annual Meeting.
How many votes are required to elect Directors? How many votes are required for other agenda items 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 eight director candidates must receive a majority of votes cast.
Item 2, Item 3, and Item 4 of the proposed agenda items require that the votes cast in favor of the proposal exceed the votes cast against the proposal. Item 2 and Item 4 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 or Item 4. In addition, broker non-votes will have no effect on the outcomes of Item 1, Item 3 or Item 4.
How many shares of ITT stock are outstanding? As of March 13, 2013, the record date, 92,069,285 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, and 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”). 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 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 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 198,747 shares of ITT common stock (approximately 0.22% of the outstanding shares) for the salaried plan, and 40,940 shares of ITT common stock (approximately 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 2013 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 2014 Annual Meeting? Rule 14a-8 under the Securities Exchange Act of 1934 (the “Exchange 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, 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, 2013, a written notice to that effect; provided, however, in the event that the date of the 2014 Annual Meeting is changed by more than 30 days from the anniversary date of the 2013 Annual Meeting, such notice must be received not later than 120 days calendar days prior to the 2014 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 2014 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 2014 Annual Meeting, such a proposal must be received on or after November 27, 2013, but not later than December 27, 2013. The nomination and notice must meet all other qualifications and requirements of the Company’s Corporate Governance Principles and committee 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 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,” 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.
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, 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.
(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: |
¨ | 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: |
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ITT Corporation |
March 31, 2014
Denise L. Ramos Chief Executive Officer and President | ITT Corporation 1133 Westchester Avenue White Plains, NY 10604 |
Dear Fellow Shareholders:
On behalf of the Board of Directors of ITT Corporation, I cordially invite you to attend our 2014 Annual Meeting of Shareholders, which will be held on Tuesday, May 20, 2014 at 9:00 a.m. Eastern Daylight Time at ITT Corporation Headquarters, 1133 Westchester Avenue, White Plains, New York 10604.
At this year’s meeting, you will be asked to vote on the election of directors, ratify the appointment of the Company’s independent registered public accounting firm, cast an advisory vote related to ITT’s executive compensation program and consider a shareholder proposal, if presented at the meeting.
Attached you will find a Notice of 2014 Annual Meeting of Shareholders and Proxy Statement that contain more information about these proposals and the meeting itself, including:
Ÿ | How to obtain admission to the meeting if you plan to attend; and |
Ÿ | Different methods you can use to vote your proxy, including by Internet and telephone. |
Every shareholder vote is important. We encourage you to vote promptly, even if you plan to attend the Annual Meeting. We appreciate your participation and your ongoing interest in ITT.
Sincerely,
Denise L. Ramos
Chief Executive Officer and President
NOTICE OF 2014 ANNUAL MEETING OF SHAREHOLDERS
Time and Date | 9:00 a.m. Eastern Daylight Time, on Tuesday, May 20, 2014 | |
Place | ITT Corporation Headquarters 1133 Westchester Avenue White Plains, New York 10604 | |
Items of Business | Ÿ To elect the nine nominees named in the attached Proxy Statement to the Board of Directors, to serve until the 2015 Annual Meeting of Shareholders or until their respective successors shall have been duly elected and qualified. Ÿ To ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the 2014 fiscal year. Ÿ To conduct an advisory vote on the compensation of the Company’s named executive officers. Ÿ To consider a shareholder proposal, if presented at the Annual Meeting. Ÿ To transact such other business as may properly come before the Annual Meeting or any adjournments or postponements thereof. | |
Who Can Vote; Record Date | Holders of record of ITT Corporation common stock at the close of business on March 24, 2014 are entitled to vote at the Annual Meeting and any adjournments or postponements thereof. | |
Mailing or Availability Date | Beginning on or about March 31, 2014, this Notice of Annual Meeting and the 2014 Proxy Statement are being mailed or made available, as the case may be, to shareholders of record on March 24, 2014. | |
About Proxy Voting | It is important that your shares be represented and voted at the Annual Meeting. If you are a registered shareholder, you may vote online atwww.proxyvote.com, by telephone or by mailing a proxy card. You may also vote in person at the Annual Meeting. If you hold shares through a bank, broker or other institution, you may vote your shares by any method specified on the voting instruction form that they provide. See details under “How do I vote”? under “Information about Voting” below. We encourage you to vote your shares as soon as possible. |
By order of the Board of Directors,
Lori B. Marino | ||||||
Corporate Secretary | ||||||
March 31, 2014 |
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
ITT CORPORATION’S ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON TUESDAY, MAY 20, 2014, AT 9:00 A.M. EDT
The Proxy Statement and Annual Report are available online at
www.proxydocs.com/itt
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ITT Corporation 1133 Westchester Avenue White Plains, NY 10604 |
This Proxy Statement is furnished to the shareholders of record of ITT Corporation, an Indiana corporation (the “Company” or “ITT”), in connection with SEC rules, we are using the Internetsolicitation of proxies on behalf of the Board of Directors of the Company, for use at the Annual Meeting of Shareholders to be held on May 20, 2014 (the “Annual Meeting”). The Annual Meeting will be held at 9:00 a.m. Eastern Daylight Time at ITT Corporation Headquarters, 1133 Westchester Avenue, White Plains, New York 10604.
Why did I receive these proxy materials? Beginning on or about March 31, 2014, this Proxy Statement is being mailed or made available, as our primary meansthe case may be, to shareholders who were shareholders as of furnishing proxy materialsMarch 24, 2014, the record date, as part of the Board of Directors’ solicitation of proxies for the Annual Meeting and any adjournments or postponements thereof. This Proxy Statement and ITT’s 2013 Annual Report to shareholders. Because we are usingShareholders and Annual Report on Form 10-K (which have been furnished to shareholders eligible to vote at the Internet, mostAnnual Meeting) contain information that the Board of Directors believes is relevant to shareholders in voting on the matters to be addressed at the Annual Meeting.
Who is entitled to vote? You can vote if you owned shares of the Company’s common stock as of the close of business on March 24, 2014, the record date.
How do I get admitted to the Annual Meeting? Only shareholders of record or beneficial owners of the Company’s common stock (“Common Stock”) as of March 24, 2014 may attend the Annual Meeting in person. You will not receive paper copiesneed an admission ticket or proof of our proxy materials. We will instead send these shareholdersownership to enter the Annual Meeting. An admission ticket is attached to your Proxy Card if you hold shares directly in your name as a shareholder of record. If you received a Notice of Internet Availability of Proxy Materials (a “Notice”), your Notice is your admission ticket. We encourage you to vote your proxy as soon as possible, even if you plan to attend the Annual Meeting, but please keep the admission ticket and bring it with you to the Annual Meeting.
If your shares are held beneficially in the name of a broker, bank or other holder of record, you must present proof of your ownership of Common Stock, such as a bank or brokerage account statement, to be admitted to the Annual Meeting. Please note that if you plan to attend the Annual Meeting in person and would like to vote there, you will need to bring a legal proxy from your broker, bank or other holder of record as explained below. If your shares are held beneficially and you would rather have an admission ticket, you can obtain one in advance by mailing a written request, along with proof of your ownership of Common Stock, to:
Attn: Corporate Secretary
ITT Corporation
1133 Westchester Avenue
White Plains, New York 10604
The proponent of a shareholder proposal included in this Proxy Statement should notify the Company in writing of the individual authorized to present the proposal at the Annual Meeting; this notification should be received at least two weeks before the Annual Meeting.
Shareholders also must present a form of photo identification, such as a driver’s license, in order to be admitted to the Annual Meeting.No cameras, recording equipment, large bags or packages will be permitted in the Annual Meeting.
How do I vote? Shareholders may vote using any of the following methods:
By telephone or on the Internet
You can vote by calling the toll-free telephone number on your Proxy Card or Notice. Please have your Proxy Card or Notice handy when you call. Easy-to-follow voice prompts allow you to vote your shares and confirm that your instructions have been properly recorded.
The website for Internet voting iswww.proxyvote.com. Please have your Proxy Card or Notice handy when you go online. As with telephone voting, you can confirm that your instructions have been properly recorded. If you vote on the Internet, you also can request electronic delivery of future proxy materials.
Telephone and Internet voting facilities for shareholders of record will be available 24 hours a day and will close at 11:59 p.m. Eastern Daylight Time on May 19, 2014. The availability of telephone and Internet voting for beneficial owners will depend on the voting processes of your broker, bank or other holder of record. Therefore, the Company recommends that you follow the voting instructions in the materials you receive.
If you vote by telephone or on the Internet, you do not need to return your Proxy Card.
By mail
If you received your Annual Meeting materials by mail, you may complete, sign and date the Proxy Card or voting instruction card and return it in the prepaid envelope. If you are a shareholder of record and you return your signed Proxy Card but do not indicate your voting preferences, the persons named in the Proxy Card will vote the shares represented by that proxy as recommended by the Board of Directors.
In person at the Annual Meeting
All shareholders may vote in person at the Annual Meeting. You may also be represented by another person at the Annual Meeting by executing a proper proxy designating that person. If you are a beneficial owner of shares, you must obtain a legal proxy from your broker, bank or other holder of record and present it to the inspectors of election with your ballot to be able to vote at the Annual Meeting. We encourage you to vote as soon as possible, even if you intend to attend the Annual Meeting in person.
By granting a proxy or submitting voting instructions
You may vote by granting a proxy or, for shares held in street name, by submitting voting instructions to your bank, broker or other holder of record.
How many votes do I have? You have one vote for every share of ITT common stock that you own.
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 Annual Meeting.
How will my shares be voted at the Annual Meeting? At the Annual Meeting, the people named on the accompanying proxy card (or if applicable, their substitutes), will vote your shares as you instruct. If you sign your Proxy Card and return it without indicating how you would like to vote your shares, your shares will be voted as the Board of Directors recommends, which is:
1. | FOR the election of the nine nominees nominated to the Board of Directors and named in this Proxy Statement, to serve until the 2015 Annual Meeting of Shareholders or until their respective successors shall have been duly elected and qualified; |
2. | FOR the ratification of Deloitte & Touche LLP (“Deloitte”) as the Company’s independent registered public accounting firm for the 2014 fiscal year; |
3. | FOR the approval, on an advisory basis, of the compensation of the Company’s named executive officers; |
4. | AGAINST the shareholder proposal; and |
5. | Otherwise in accordance with the judgment of the persons voting the proxy on any other matter properly brought before the Annual Meeting. |
What if I change my mind? As a holder of record of our Common Stock, you may revoke or change your proxy at any time before the Annual Meeting by filing a notice of revocation or another signed, later-dated Proxy Card with the Corporate Secretary of the Company, at the Company’s principal executive offices as listed on the first page of this Proxy Statement. You may also revoke your proxy by attending the Annual Meeting and voting in person. If you are a beneficial holder of our Common Stock, you should follow the voting directions you will receive—along with the Company’s proxy solicitation materials—from your broker, bank or other custodian. As previously noted, you will need a legal proxy from your broker, bank or other custodian if you prefer to cast your vote in person at the Annual Meeting.
How many shares of ITT stock are outstanding? As of March 24, 2014, the record date, 91,656,172 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. The inspectors of election appointed for the Annual Meeting will separately tabulate all affirmative and negative votes, abstentions and “broker non-votes.” Abstentions and “broker non-votes” are counted as present for purposes of determining the presence or absence of a quorum for the transaction of business.
What is the difference between a beneficial owner and a registered owner? If your shares are registered in your name with ITT’s transfer agent, Wells Fargo Shareholder Services, you are the “shareholder of record” of those shares.
If your shares are held in a stock brokerage account or by a bank or other holder of record, you are considered the “beneficial owner” of those shares, and this Proxy Statement and any accompanying documents have been provided to you by your broker, bank or other holder of record. As the beneficial owner, you have the right to direct your broker, bank or other holder of record how to vote your shares by using the voting instruction card or by following their instructions for accessingvoting by telephone or on the Internet.
What is a “broker non-vote”? If you are a beneficial owner whose shares are held of record by a broker, you must instruct the broker how to vote your shares. If you do not provide voting instructions, your shares will not be voted on any proposal on which the broker does not have discretionary authority to vote. This is called a “broker non-vote.” In these cases, the broker can register your shares as being present at the Annual Meeting for purposes of determining the presence of a quorum but will not be able to vote on those matters for which specific authorization is required under the rules of the New York Stock Exchange (“NYSE”).
If you are a beneficial owner whose shares are held of record by a broker, your broker has discretionary voting authority under NYSE rules to vote your shares on the ratification of Deloitte as the Company’s independent registered public accounting firm, even if the broker does not receive voting instructions from you. However, your broker does not have discretionary authority to vote on the election of directors, the advisory vote on the compensation of the Company’s named executive officers or the shareholder proposal without instructions from you, in which case a broker non-vote will occur and your shares will not be voted on these matters.
If you hold shares of ITT Common Stock through a broker, bank or other organization with custody of your shares, follow the voting instructions you receive from that organization.
How many votes are required to elect Directors? How many votes are required for other agenda items to pass?
Election of Directors. The Company’s Amended and Restated By-laws (the “By-laws”) provide that in uncontested elections, a director nominee shall be elected by a majority of the votes cast by the shareholders represented in person or by proxy at the Annual Meeting. A “majority of the votes cast” means that the number of votes cast “for” a director must exceed the number of votes cast “against” that director (with abstentions and broker non-votes not counted as a vote cast with respect to that director). The By-laws further 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 Corporate Secretary, and remain a director until a successor is elected and qualified. 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. After consideration, the Nominating and Governance Committee (or the equivalent committee then in existence) shall make a recommendation to the Board whether to accept or reject the tendered resignation, or whether other action should be taken. 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. As discussed above, brokers (and the many banks and other record holders of “street name” shares that follow the applicable NYSE voting rules for member brokers) do not have discretionary voting power with respect to director elections unless they have customer voting instructions. This means that, without your voting instructions on this matter, a broker non-vote will occur because your broker (or bank or other custodian) does not have the power to vote your shares on the election of directors. As a result, it is very important that you return voting instructions relating to the election of directors to your broker, bank or other custodian.
All Other Matters. The proposal ratifying the selection of the Company’s independent registered public accounting firm, the proposal to conduct an advisory vote on the compensation of the Company’s named executive officers and the shareholder proposal each require that the votes cast in favor of the proposal exceed the votes cast against the proposal. The proposals relating to the selection of the Company’s independent registered public accounting firm, the compensation of the Company’s named executive officers and the shareholder proposal are each advisory in nature and nonbinding. If you abstain from voting or if there is a broker non-vote on any matter, your abstention or broker non-vote will not affect the outcome of such vote, because abstentions and broker non-votes are not considered to be votes cast.
There are four formal items scheduled to be voted upon at the Annual Meeting as described in the Notice of 2014 Annual Meeting of Shareholders. As of the date of this Proxy Statement, there are no other matters that the Board of Directors intends to present, or has reason to believe others will present, at the Annual Meeting. If you have returned your signed and completed Proxy Card and other matters are properly presented for voting at the Annual Meeting, the people named on the accompanying proxy card (or if applicable, their substitutes), will have the discretion to vote on those matters for you.
How do I vote if I am a participant in the ITT Corporation Retirement Savings Plan? If you participate in the ITT Corporation Retirement Savings Plan, your plan trustee will vote the ITT shares credited to your ITT Corporation Retirement 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”). The trustee will vote the shares on your behalf because you are the beneficial owner, not the shareholder of record, of the shares held by the ITT Corporation
Retirement Savings Plan. The trustee votes the shares held in your ITT Corporation Retirement Savings Plan account 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 ITT Corporation Retirement Savings Plan, 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 ITT Corporation Retirement Savings Plan to vote these shares, in person or by proxy at the Annual Meeting.ITT Corporation Retirement Savings 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 Daylight Time on May 15, 2014.
How many shares are held by participants in the ITT Corporation Retirement Savings Plan? As of March 24, 2014, the record date, the ITT Corporation Retirement Savings Plan held 543,039 shares of ITT common stock (approximately 0.59% of the outstanding shares). J.P. Morgan Chase is trustee of the ITT Corporation Retirement Savings Plan.
Who counts the votes? Is my vote confidential? In accordance with the By-laws, the Company will appoint two Inspectors of Election, who may be officers or employees of the Company, and they will tabulate the votes. The Inspectors of Election monitor the voting and also certify whether the votes of shareholders are kept in confidence in compliance with ITT’s confidential voting policy.
Who will pay for the cost of this proxy solicitation? ITT will pay the cost of soliciting proxies. Proxies may be solicited on our behalf by our directors, officers or employees in person or by telephone, mail, electronic transmission and/or facsimile transmission. Innisfree M&A Incorporated, 501 Madison Avenue, New York, New York 10022, has been retained to assist in soliciting proxies for a fee of $12,500, plus distribution costs and other costs and expenses.
What is “householding” and how does it affect me? The Company has adopted a procedure approved by the SEC called “householding.” Under this procedure, beneficial shareholders who have the same address and last name and who do not participate in electronic delivery or Internet access of proxy materials will receive only one copy of the Company’s Annual Report and Proxy Statement unless one or more of these shareholders notifies the Company that they wish to continue receiving individual copies. This procedure is designed to reduce duplicate mailings and save significant printing and processing costs, as well as natural resources. Each shareholder who participates in householding will continue to receive a separate Proxy Card or Notice. Your consent to householding is perpetual unless you withhold or revoke it. You may revoke your consent at any time by contacting Broadridge, either by calling toll-free at (800) 542-1061, or by writing to Broadridge Financial Solutions, Inc. Householding Department, 51 Mercedes Way, Edgewood, New York 11717. You will be removed from the householding program within 30 days of receipt of your response, after which you will receive an individual copy of the proxy materials, including our proxy statement and annual report, and voting via the Internet. The Noticematerials.
Why did I receive a “Notice of Internet Availability of Proxy Materials also provides information on how shareholders may obtain paper copies ofMaterials” but no proxy materials? We distribute our proxy materials if they so choose.to certain shareholders via the Internet under the “Notice and Access” approach permitted by rules of the SEC. This approach conserves natural resources and reduces our costs of printing and distributing the proxy materials, while providing a convenient method of accessing the materials and voting to shareholders. On March 31, 2014, we mailed a “Notice of Internet Availability of Proxy Materials” to participating shareholders, containing instructions on how to access the proxy materials on the Internet.
Stock Ownership InformationHow do I receive proxy materials electronically in the future? This Proxy Statement and the 2013 Annual Report are available online atwww.proxydocs.com/itt. Instead of receiving future proxy statements and accompanying materials by mail, most shareholders can elect to receive an e-mail that will provide electronic links to them. Opting to receive your proxy materials online will conserve
natural resources and will save us the cost of producing documents and mailing them to you, and will also give you an electronic link to the proxy voting site.
Shareholders of Record: You may sign up for the service by logging onto the Internet atwww.proxyvote.com. Please have your Proxy Card handy when you go online.
Beneficial Owners: You also may be able to receive copies of these documents electronically. Check the information provided in the proxy materials sent to you by your broker, bank or other holder of record regarding the availability of this service or contact them regarding electronic delivery of materials.
How does a shareholder submit a proposal or nominate directors for the 2015 Annual Meeting?
Proposals under SEC Rules: Under SEC rules, if a shareholder wants us to include a proposal in our Proxy Statement and form of proxy for presentation at our 2015 Annual Meeting of Shareholders, the proposal must be received by us by December 1, 2014 at our principal executive offices at 1133 Westchester Avenue, White Plains, New York 10604, Attention: Corporate Secretary.
Proposals under our By-laws: Under our By-laws, a shareholder must follow certain procedures to nominate a person for election as a director or to introduce an item of business at an Annual Meeting of Shareholders. These procedures provide that a nomination or the introduction of an item of business at an Annual Meeting of Shareholders must be submitted in writing to the Corporate Secretary of the Company at our principal executive offices. No shareholder nominations were received for the Annual Meeting. If you intend to nominate a director or to propose an item of business at our 2015 annual meeting, you must notify us of your intention, in writing, on or after December 1, 2014, but not later than December 31, 2014. In the event that the date of the 2015 annual meeting is changed by more than 30 days from the anniversary date of the Annual Meeting, such notice must be received not earlier than 120 calendar days prior to the 2015 annual meeting and not later than 90 calendar days prior to the 2015 annual meeting or 10 calendar days following the date on which public announcement of the date of the 2015 annual meeting is first made.
For any special meeting of shareholders, the nomination or item of business must be received no earlier than 120 calendar days nor later than 90 calendar days prior to the date of the special meeting, or 10 calendar days following the date on which the public announcement of the date of the special meeting is first made.
The Boardshareholder’s submission must be made by a registered shareholder on his or her behalf or on behalf of Directors’ sharethe beneficial owner of the shares, and must include information specified in our By-laws concerning the proposal or nominee, as the case may be, and information as to the shareholder’s ownership guidelines currently provide for share ownership levelsof our Common Stock. Any person considering introducing a nomination or other item of business should carefully review our By-laws. We will not entertain any proposals or nominations at five times the annual cash retainer amount. Non-Management Directors receive a portion2015 Annual Meeting that do not meet these requirements. The By-laws are available upon request, free of their retainer in 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.charge, from ITT Corporation, 1133 Westchester Avenue, White Plains, New York 10604, Attention: Corporate Secretary.
Share ownership guidelines for corporate officers, first approved by ITT’s BoardNominations of Directors during 2001, are regularly reviewed. The guidelines specify the desired levels of Company stock ownershipdirectors and encourage a set of behaviors for each officer to reach the guideline levels. The guidelines require share ownership expressed as a multiple of base salary fornotices relating thereto must meet all corporate officers.
Specifically, the guidelines apply as set forth in the table below under the heading “Share Ownership Guideline Summary.” In achieving these ownership levels, shares owned outright, Company restricted stockother qualifications 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 indexrequirements of the Company’s stock inCorporate Governance Principles, the deferred compensation plan are considered.
To attaincommittee charters and Regulation 14A under the ownership levels set forth in the guidelines, it is expected that any restricted shares that become unrestricted and all shares acquired through the exerciseSecurities Exchange Act of stock options1934 (the “Exchange Act”). Any nominees will be held, except,evaluated by the Nominating and Governance Committee of the Board using the same standards as it uses for all other director nominees. These standards are discussed in all cases,further detail below under “Information about the Board of Directors—Director Selection and Composition.”
We strongly encourage any shareholder interested in submitting a proposal to contact our Corporate Secretary in advance of the above deadlines to discuss the proposal, and shareholders may want to consult knowledgeable counsel with regard to the extent necessarydetailed requirements of applicable securities laws and the Company’s By-laws. The Corporate Secretary can be reached at ITT Corporation, 1133
Westchester Avenue, White Plains, New York 10604, Attention: Corporate Secretary. Submitting a shareholder proposal does not guarantee that we will include it in our Proxy Statement. The chairman of the Annual Meeting may refuse to meet tax obligations.
Compliance withallow the guidelines is monitored periodically. Non-Management Directors and Company officers are afforded a reasonable periodtransaction of timeany business, or to meetacknowledge the guidelines. The Company has taken the individual tenure and share ownership levelsnomination of Non-Management Directors and corporate officers into accountany person, not made in determining compliance with the guidelines.foregoing procedures.
Share Ownership Guideline Summary
Stock Ownership of Directors, Executive Officers and Certain Shareholders
The following table shows the beneficial ownership of ITT common stock, as of January 31, 2013,2014, by each Director and nominee,director, by each of the NEOs,named executive officers as defined by the SEC in Item 402 of Regulation S-K (“Named Executive Officers” or “NEOs”), and by all Directors, nominees,directors and executive officers as a group.
The number of shares beneficially owned by each Non-Management Directornon-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 Directornon-management director or executive officer has sole dispositive and voting power, or shares those powers with his or her spouse. No directors or executive officers have pledged any shares of the Company’s common stock.
Amount and Nature of Beneficial Ownership | Amount and Nature of Beneficial Ownership | |||||||||||||||||||||||||||||||||||||||||
Name of Beneficial Owner | Title of Class | Total Shares Beneficially Owned | ITT Common Shares Owned | Options | Stock Units(1) | Percent of Class | Total Shares Beneficially Owned | ITT Common Shares Owned Directly(1) | Options | Stock Units(2) | Percent of Class | |||||||||||||||||||||||||||||||
Denise L. Ramos | Common Stock | 396,651 | 50,922 | 345,729 | — | * | 522,614 | 54,517 | 443,687 | 24,410 | * | |||||||||||||||||||||||||||||||
Aris C. Chicles | Common Stock | 108,719 | 16,253 | 92,466 | — | * | 129,191 | 3,521 | 116,899 | 8,771 | * | |||||||||||||||||||||||||||||||
Thomas M. Scalera | Common Stock | 57,801 | 4,260 | 53,541 | — | * | 75,183 | 4,688 | 68,207 | 2,288 | * | |||||||||||||||||||||||||||||||
Robert J. Pagano, Jr. | Common Stock | 172,436 | 31,563 | 140,873 | — | * | 151,860 | 33,107 | 112,650 | 6,103 | * | |||||||||||||||||||||||||||||||
Luca Savi | Common Stock | — | — | — | — | * | ||||||||||||||||||||||||||||||||||||
Thomas F. Korber | Common Stock | 7,205 | — | 7,205 | — | * | ||||||||||||||||||||||||||||||||||||
William E. Taylor | Common Stock | 108,373 | 11,501 | 96,872 | — | * | ||||||||||||||||||||||||||||||||||||
Neil W. Yeargin | — | — | — | — | * | |||||||||||||||||||||||||||||||||||||
Orlando D. Ashford | Common Stock | 1,992 | 1,992 | — | — | * | 6,072 | 6,072 | — | — | * | |||||||||||||||||||||||||||||||
G. Peter D’Aloia | Common Stock | 2,219 | — | — | 2,219 | * | 6,332 | 4,113 | — | 2,219 | * | |||||||||||||||||||||||||||||||
Donald DeFosset, Jr. | Common Stock | 2,219 | — | — | 2,219 | * | 6,332 | 4,113 | — | 2,219 | * | |||||||||||||||||||||||||||||||
Christina A. Gold | Common Stock | 24,497 | 14,743 | 4,260 | 5,494 | * | 28,577 | 16,093 | 2,910 | 9,574 | * | |||||||||||||||||||||||||||||||
Paul J. Kern | Common Stock | 9,342 | 4,817 | 4,525 | — | * | ||||||||||||||||||||||||||||||||||||
Richard P. Lavin | — | — | — | — | * | |||||||||||||||||||||||||||||||||||||
Frank T. MacInnis | Common Stock | 19,260 | 12,369 | 4,260 | 2,631 | * | 18,346 | 11,455 | 4,260 | 2,631 | * | |||||||||||||||||||||||||||||||
Linda S. Sanford | Common Stock | 25,985 | 17,823 | 7,485 | 677 | * | ||||||||||||||||||||||||||||||||||||
Rebecca A. McDonald | — | — | — | — | * | |||||||||||||||||||||||||||||||||||||
Donald J. Stebbins | Common Stock | 612 | 612 | — | — | * | 4,731 | 4,731 | — | — | * | |||||||||||||||||||||||||||||||
Markos I. Tambakeras | Common Stock | 13,964 | 6,479 | 7,485 | — | * | ||||||||||||||||||||||||||||||||||||
Richard P. Lavin(2) | Common Stock | — | — | — | — | * | ||||||||||||||||||||||||||||||||||||
All Directors and Executive Officers as a Group | Common Stock | 1,149,492 | 200,193 | 936,059 | 13,240 | 1.25 | % | 774,430 | 142,410 | 615,377 | 16,643 | * |
* | Less than |
(1) |
(2) | Non-management directors total shares beneficially owned include restricted stock units (“RSUs”) that have vested but are deferred until a later date. |
Set forth below isThe following table gives information about each person or group of persons whom the following persons who beneficially ownedCompany knows to be the beneficial owner of more than 5% of ITTthe outstanding common stockshares of our Common Stock as of March 22, 2013. Thisthe dates set forth below based on information does not include holdingsfiled by that entity with the trustee with respect to individual participants in the ITT Salaried Investment and Savings Plan.SEC.
Name and address of beneficial owner | Amount and nature of beneficial ownership | Percent of Class | ||||||
Barrow, Hanley, Mewhinney & Strauss, LLC(1) | 6,269,460 | 6.76 | % | |||||
2200 Ross Avenue, 31st Floor Dallas, TX 75201-2761 | ||||||||
BlackRock, Inc.(2) | 5,023,933 | 5.42 | % | |||||
40 East 52nd Street New York, NY 10022 | ||||||||
The Vanguard Group(3) | 4,710,062 | 5.10 | % | |||||
100 Vanguard Blvd. Malvern, PA 19355 |
Name and address of beneficial owner | Number of Shares Beneficially Owned | Percent of Class(3) | ||||||
BlackRock, Inc.(1) | 5,386,431 | 5.92 | % | |||||
40 East 52nd Street, New York, NY 10022 | ||||||||
The Vanguard Group(2) | 5,312,941 | 5.84 | % | |||||
100 Vanguard Blvd, Malvern, PA 19355 |
(1) | As reported on Schedule |
As reported on Schedule |
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 |
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(3) |
Section 16(a) Beneficial Ownership Reporting Compliance
The members of the Board of Directors, the executive officers and persons who hold more than 10% of the outstanding Common Stock are subject to the reporting requirements of Section 16(a) of the Exchange Act, which requires them to file reports with respect to their ownership of the Common Stock and their transactions in such Common Stock. Based on our records and other information, we believe that the Company’sin 2013 our directors and our executive officers 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 furnishedwho are subject to the Company and written representations that no other reports were required,Section 16(a) met all applicable filing requirements were satisfied in a timely manner for the year ended December 31, 2012.requirements.
Proposals to be Voted on at the 2013 Annual Meeting
Item 1. Election | of Directors |
TheNine members of our Board are standing for re-election, to hold office until the next Annual Meeting of Directors has nominated eight individualsShareholders. Each director must be elected by a majority of the votes cast by the shareholders represented in person or by proxy at the Annual Meeting. A “majority of the votes cast” means that the number of votes cast “for” a director must exceed the number of votes cast “against” that director (with abstentions and broker non-votes not counted as a vote cast with respect to that director). In a contested election for director (an election in which the number of nominees for election as Directorsdirector is greater than the number of directors to be elected), the vote standard would be a plurality of votes cast.
In accordance with our Corporate Governance Principles, the Board will nominate for election or re-election as a director only candidates who agree to tender, promptly following their failure to receive the required vote for election or re-election at a meeting in which they would face election or re-election, an irrevocable resignation that will be effective upon acceptance by the Board. In addition, the Board will fill director vacancies and new directorships only with candidates who agree to tender the same form of resignation promptly following their appointment to the Board.
If an incumbent director fails to receive the required vote for re-election and submits his or her resignation to the Chairman of the Board or the Corporate Secretary, then 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 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.
Each nominee elected as a director will continue in office until the earlier of the next Annual Meeting of Shareholders, his or her successor having been duly elected and qualified, or his or her death, resignation or removal.
The nine nominees for election to the Board in 2014 have agreed to serve if elected, and management has no reason to believe that such nominees will be unavailable to serve. In the event that any of the nominees is unable or declines to serve as a director at the 2013 Annual Meeting. If unforeseen circumstances arise beforetime of the 2013 Annual Meeting, andthen the persons named as proxies may vote for a substitute nominee becomes unablechosen by the present Board to serve,fill the vacancy. Alternatively, the Board of Directors couldmay reduce the size of the Board or nominate another candidate for election. Ifof Directors. The individuals named as proxies in the Board nominates another candidate, the proxies could use their discretionProxy Card intend to vote for that nominee. Each Director elected at the 2013 Annual Meeting will be elected to serve asproxy (if you are a Director until ITT’s next Annual Meeting.
The Boardshareholder of Directors recommends that you voterecord) FOR the election of each of these nominees, unless you indicate otherwise on the Proxy Card.
The principal occupation and certain other information about the nominees is set forth on the following eight nominees:pages.
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Director Biographical Information:Ms. Ramos, 56, was appointed Chief Executive Officer and President and elected a Director of ITT on October 31, 2011. She previouslyOrlando D. Ashford, 45, has served as Senior Vice President and Chief Financial Officer of ITT. Ms. Ramos has greater than 20 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, Ms. 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.
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Director Biographical Information:Mr. MacInnis, 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 director of ComNet Communications, LLC 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.
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 director 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.
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Director Biographical Information:Mr. Ashford, 44, is the President of the Talent business segment at Mercer. Previously,Mercer, a global consulting leader and subsidiary of Marsh & McLennan Companies (“Marsh”), since January 2013. From 2008 to 2012, Mr. Ashford was the Senior Vice President, Chief Human Resources and Communications Officer for Marsh. Prior to joining Marsh & McLennan Companies. Inin 2008, Mr. Ashford served as Group Director of Human Resources for Eurasia and Africa for the Coca-Cola Company and as 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 Boardboard of Directorsdirectors 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. Mr. Ashford also currently serves on the Board of Directors of Streetwise Partners.
Mr. Ashford has served as a Directorships at Public Companies for the Preceding Five Years:Directordirector of ITTthe Company since December 12, 2011.
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Director Biographical Information:Mr.G. Peter D’Aloia, 68, served as Senior Vice President and Chief Financial Officer of Trane, Inc. (formerly American Standard Companies Inc.) from 2000 until his retirement in 2008. Prior to that, Mr. D’Aloia was employed by AlliedSignal Inc. (now known as Honeywell), a position he held since 2000, before retiring in 2008. Before joining American Standard, Mr. D’Aloia worked for Honeywell where hediversified industrial company, most recently servedserving as Vice President—President, Strategic Planning and Business Development. He spent 2728 years with Honeywell’s predecessor company, AlliedSignal in diverse finance management positions. During his career with AlliedSignal, he servedpositions, including as Vice President—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, a Master of Laws (LLM) in taxation from New York University Law School and a Bachelor of Science 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 asis currently a director of otherthe following public companies: FMC Corporation since 2002 (Chairman of Audit Committee; Nominating and Corporate Governance Committee; Executive Committee); and WABCO Holdings Inc. since 2007 (Audit Committee). Mr. D’Aloia is also a director of various private companies providing additional relevant experience.and not-for-profit organizations. He also served on the board of the following public company within the last five years: AirTran Airways, Inc. from 2004 to 2011.
Directorships at Public Companies for the Preceding Five Years:Mr. D’Aloia has served as a Directordirector of ITTthe Company since October 31, 2011.2011, and is currently Chairman of the Audit Committee. In considering Mr. D’Aloia is also a board member and managingfor director of Ascend Performance Materials, Inc. In addition, he currently serves on the boards of FMC Corporation and WABCO Holdings, Inc. and he formerly served onCompany, the Board considered his significant financial and business experience resulting from senior executive and financial roles in large manufacturing operations at public companies, his strong international experience, his service as a director of AirTran Airways, Inc.several other public companies and his overall financial management abilities, including multinational legal, tax and banking expertise.
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Director Biographical Information:Donald DeFosset, Jr., 64, retired in 2005 as Chairman, President and Chief Executive Officer of Walter Industries, Inc., a diversified public company with principal operating businesses in homebuilding and home financing, water transmission products and energy services. Mr. DeFosset had 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 ofOver his career, Mr. DeFosset held significant leadership positions in major multinational corporations, including Dura Automotive Systems, Inc. (“Dura”), a global supplier of engineered systems, from October 1999 through June 2000. Before joining Dura,Navistar International Corporation and AlliedSignal, Inc. Mr. DeFosset is currently a director of the following public companies: National Retail Properties Inc. since 2008 (Chairman of Governance and Nominating Committee; Compensation Committee); Regions Financial Corporation since 2005 (Audit Committee; Compensation Committee); and Terex Corporation since 1999 (Chairman of Nominating and Governance Committee; Audit Committee). Mr. DeFosset is also a director of various private companies and not-for-profit organizations. He also served on the board of the following public company within the last five years: EnPro Industries, Inc. from 2010 to 2011.
Mr. DeFosset has served as a Corporate Executive Vice President, Presidentdirector of the Truck GroupCompany since October 2011, and is currently 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:
Compensation and Personnel Committee and the Nominating and Governance Committee. In considering Mr. DeFosset holds a Masterfor director of Business Administration from Harvard Business School and a Bachelor of Science degree in industrial engineering from Purdue University. Mr. DeFosset has significantthe Company, the Board considered his extensive 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 asHis service on the boards of directors of a directorvariety of otherlarge public companies providing additional relevant experience.further enhances his experience and adds value to the Company’s Board.
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.Christina A. Gold, Regions Financial Corporation and 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.
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Director Biographical Information:Mrs. Gold, 65,66, 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. GoldShe was President of Western Union Financial Services, Inc. and Senior Executive Vice President of Western Union’sFirst Data Corporation, former parent company First Data Corporation. From October 1999 toof The Western Union Company, from May 2002 she wasto September 2006. Prior to that, Ms. Gold served as Vice Chairman President and Chief Executive Officer of Excel Communications, Inc. Mrs., from October 1999 to May 2002. From 1998 to 1999, Ms. Gold served as President and Chief Executive OfficerCEO of The Beaconsfield Group, from March 1998 to October 1999. From 1997 to 1998, Mrs.Inc., a direct selling advisory firm that she founded. Ms. Gold was Executive Vice President of Global Development ofbegan her career in 1970 at Avon Products, Inc., and from 1993 to 1997,where she was Presidentspent 28 years in a variety of Avon North America. Mrs.significant leadership positions. Ms. Gold is currently a graduatedirector of Carleton University, Ottawa, Canada. She isthe following public company: International Flavors & Fragrances, Inc. since 2013 (Compensation Committee). Ms. Gold has also served as a director since 2001 of New York Life Insurance Company and currently serves on the board member of the Safe Water Network. She has also served on the boards of the following public companies within the last five years: Exelis Inc. from 2011 to 2013 and The Western Union Company from 2006 to 2010.
Director Experience, Qualifications, Attributes or Skills Relevant toMs. Gold has served as a director of the Company since December 1997, and is currently Chairwoman of the Compensation and Personnel Committee and a member of the Audit Committee. In considering Ms. Gold for director of the Company, the Board Membership:
Mrs. Gold hasconsidered her extensive experience as the Chief Executive Officer of a public company with wide 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.BusinessWeekThe Board also namedconsidered 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 servedlong history as a Director of ITT since 1997the Company 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. 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; as partextensive knowledge of the transaction processCompany, its operations and its people.
Richard P. Lavin, 62, is currently Chief Executive Officer and President of Commercial Vehicle Group, Inc., a leader in the development, manufacturing and fulfillment of fully integrated system solutions for the separation of the Xylem Inc. and Exelis Inc. businesses from ITT, Mrs. Gold has agreedcommercial vehicle market. Prior 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:Mr. Lavin 61, wasspent 30 years in a group presidentvariety of positions with Caterpillar Inc. for Construction Industries and Growth Markets. In November 2009, Mr. Lavin was appointed to the Board of Directors of 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 the U.S. Korea Business Council. He is a member of The Conference Board and the Chicago Council of
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:
Mr. Lavin has extensive experience in Asian and Latin American operations and was a product manager in Track-Type Tractors. Before becoming a group, including as vice president he was most recently Vice President of manufacturing operations for the 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.Ltd, and as a group president for Construction Industries and Growth Markets. Mr. Lavin had administrative responsibilityis also on the Board of Trustees at Bradley University. Mr. Lavin is currently a director of the following public companies: Commercial Vehicle Group, Inc. since 2013; and USG Corporation since 2009 (Compensation Committee; Finance Committee).
Mr. Lavin has served as a director of the Company since May 2013, and is currently a member of the Nominating and Governance Committee and the Compensation and Personnel Committee. In considering Mr. Lavin for manufacturingdirector of the Company, the Board considered his experience overseeing Caterpillar Inc.’s largest operating division and extensive international experience through overseeing that company’s operations in the region, including facilities in China, India, Japan and Indonesia.the Asia-Pacific region. In addition, Mr. Lavin washas a diverse legal and human resources background, having served as director of Corporate Labor and Human Relations and director of Compensation and Benefits, as well as the vice president of Caterpillar’s Human Services Division. He
Frank T. MacInnis, 67, was Chief Executive Officer of EMCOR Group, Inc., one of the world’s largest providers of electrical and mechanical construction services, energy infrastructure and facilities services, from 1994 to 2011 and Chairman of the Board from 1994 to 2013. Throughout his career Mr. MacInnis has managed construction and operations all over the world, including in Tehran, Baghdad, Bangkok, the United Arab Emirates, London, the United States and Canada. Mr. MacInnis is currently a director of the following public companies: EMCOR Group, Inc. since 1994 (Risk Oversight Committee); and The Williams Companies, Inc. since 1998 (Chairman of the Board; Chairman of the Nominating and Governance Committee; Compensation Committee). Mr. MacInnis is also a director of USG Corporation, providing additional relevant experience.various private companies and not-for-profit organizations.
Mr. MacInnis has served as a director of the Company since October 2001 and as Chairman of the Board since October 2011, and he is currently Chairman of the Nominating and Governance Committee. In considering Mr. MacInnis for director of the Company, the Board considered his more 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. The Board also considered his experiences on the boards of various other public companies, his leadership and insights in many of the commercial and defense markets served by the Company, as well as his background in corporate governance, financial and accounting areas, legal, strategy development and risk management.
Directorships at Public CompaniesRebecca A. McDonald, 61, retired in July 2012, having served since December 2008 as Chief Executive Officer of Laurus Energy Inc., a company involved in underground coal gasification development. She previously served as President, Gas and Power, BHP Billiton from March 2004 to September 2007, and, from October 2001 to January 2004, she served as President of the Houston Museum of Natural Science. Ms. McDonald has more than 25 years of experience in the energy industry. She has been responsible for the Preceding Five Years:development, construction and operation of natural gas and liquids pipelines, gas and electricity distribution companies, as well as power plant and gas processing facilities in North America, Asia, Africa and South America. Ms. McDonald is currently a director of the following public company: Granite Construction Incorporated since 1994 (Chairwoman of Compensation Committee; Executive Committee; Audit/Compliance Committee). Ms. McDonald is also currently a director of Aggreko plc since 2011 and a director of Veresen Inc. since 2008.
Mr. LavinMs. McDonald has served as a director of the Company since December 2013, and is currently a member of the Audit Committee. In considering Ms. McDonald for director of the Company, the Board considered her significant expertise in the oil and gas industry, as well as her executive-level experience and extensive knowledge of business systems and operations. The Board also considered her experience as a director of a variety of public and private companies within the energy industry.
Denise L. Ramos, 57, was appointed Chief Executive Officer, President and a director of the Company in October 2011. She previously served as Senior Vice President and Chief Financial Officer of the Company since 2007. Prior to joining the Company, Ms. Ramos served as Chief Financial Officer for Furniture Brands International from 2005 to 2007. From 2000 to 2005, Ms. Ramos served as Senior Vice President and Corporate Treasurer at Yum! Brands, Inc. and Chief Financial Officer for the U.S. division of KFC Corporation. Ms. Ramos began her career in 1979 at Atlantic Richfield Company (ARCO), where she had more than 20 years of business and financial experience serving in a number of increasingly responsible finance positions, including Corporate General Auditor and Assistant Treasurer. Ms. Ramos is on the Board of DirectorsTrustees for the Manufacturers Alliance for Productivity and Innovation and was recently included in the Top 100 CEO Leaders in Science, Technology, Engineering, and Math publication by STEMconnector. She is also a member of USG Corporation from November 2009 to the present.Business Roundtable and the Business Council.
In considering Ms. Ramos for director of the Company, the Board considered Ms. Ramos’ unique background which combines more than two decades in the oil and gas industry with significant retail and customer-centric experience. The Board also considered her extensive operational and manufacturing experience with industrial companies and, in particular, her intimate knowledge of the Company’s business and operations having served as its Chief Financial Officer since 2007 and Chief Executive Officer since 2011.
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Director Biographical Information:Mr.Donald J. Stebbins 55,, 56, served as the Chairman and Chief Executive Officer of Visteon Corporation, a leading global supplier of innovative climate, interior, electronic and lighting products for automotive vehicle manufacturers, from December 2008 through August 2012 and as the Chief Executive Officer from June 2008 through Augustto 2012. Mr. Stebbins joined Visteon in June 2005 as the President and Chief Operating 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 yearsis currently a director of leadership experience in global operations and finance, including 13 years in senior leadership positions with Lear before joining Visteon.the following public company: WABCO Holdings Inc. since 2007 (Compensation Committee). He also served on the board of the following public company within the last five years: Visteon Corporation from 2006 to 2012. Mr. Stebbins also serves on the board of Allied Specialty Vehicles, Inc., a privately held producer of specialty vehicles.
Directorships at Public Companies for the Preceding Five Years:Mr. Stebbins has served as a Directordirector of ITTthe Company since March 1, 2012. He alsoFebruary 2012, and is currently serves ona member of the boardAudit Committee. In considering Mr. Stebbins for director of WABCO Holdings, Inc.the Company, the Board considered his significant executive management experience gained as an executive officer of two Fortune 500 public companies, strong international experience gained as Chairman and he served on Visteon’sChief Executive Officer of Visteon, as well as financial expertise gained through a variety of financial positions of increasing responsibility with Lear, including as chief financial officer.
Recommendation of the Board of Directors from December 2006 until August 2012.
The Board of Directors unanimously recommends a vote FOR the election of the nine nominees listed above as directors. Unless a contrary choice is specified, proxies solicited by our Board will be voted FOR the election of the nine nominees listed above as directors.
Item 2. Ratification of Appointment of the Independent Registered Public Accounting Firm
The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the Company’s independent registered public accounting firm. To execute this responsibility, the Committee engages in a comprehensive annual evaluation of the independent auditor’s qualifications, performance and independence and whether the independent registered public accounting firm should be rotated, and considers the advisability and potential impact of selecting a different independent registered public accounting firm.
The Audit Committee has selected, and the Board of Directors has appointedratified the selection of, Deloitte to serve as ITT’sour independent registered public accounting firm for 2013. Shareholder ratification2014. Deloitte has served as the Company’s independent registered public accounting firm since 2002. In accordance with SEC rules and Deloitte policies, audit partners are subject to rotation requirements to limit the number of consecutive years an individual partner may provide service to our Company. For lead and concurring audit partners, the maximum number of consecutive years of service in that capacity is not requiredfive years. The process for making such appointment forselection of the fiscal year ending December 31, 2013, becauseCompany’s lead audit partner pursuant to this rotation policy involves a meeting between the Chair of the Audit Committee has responsibilityand the candidate for the appointmentrole, as well as discussion by the full Committee and with management.
The Audit Committee and the Board of Directors believe that the continued retention of Deloitte as our independent registered public accounting firm. The appointmentfirm is being submittedin the best interest of the Company and our shareholders, and we are asking our shareholders to ratify the selection of Deloitte as our independent registered public accounting firm for 2014. Although ratification is not required by our By-laws or otherwise, the Board is submitting the selection of Deloitte to our shareholders for ratification withbecause we value our shareholders’ views on the Company’s independent registered public accounting firm and as a view toward solicitingmatter of good corporate practice. In the opinion ofevent that our shareholders which opinionfail to ratify the selection, it will be taken into consideration in future deliberations. No determination has been made asconsidered a recommendation to what action the Board of Directors orand the Audit Committee would taketo consider the selection of a different firm. In addition, even if shareholders do not ratify the appointment.
selection of Deloitte, the Audit Committee may in its discretion select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our shareholders.
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 2012.2013. The Audit Committee annually reviews and considers Deloitte’s performance of the Company’s audit. Performance factors reviewed include Deloitte’s:
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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.
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.PCAOB. Representatives of Deloitte will be present at the 2013 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, 20122013 and 20112012 represent fees billed by the member firms of Deloitte Touche Tohmatsu, and their respectiveits foreign affiliates.
Fiscal Year Ended | ||||||||
2012(1) | 2011 | |||||||
(In thousands) | ||||||||
Audit Fees(2) | $ | 3,995 | $ | 4,347 | ||||
Audit-Related Fees(3) | 571 | 14,714 | ||||||
Tax Fees(4) | ||||||||
Tax Compliance Services | 464 | 2,470 | ||||||
Tax Planning Services | 169 | 4,888 | ||||||
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Total Tax Services | 633 | 7,358 | ||||||
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All Other Fees(5) | 0 | 11,508 | ||||||
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Total | $ | 5,199 | $ | 37,927 | ||||
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Fiscal Year Ended (In thousands) Audit Fees(2) Audit-Related Fees(3) Tax Fees(4) Tax Compliance Services Tax Planning Services Total Tax Services (sum of Tax Fees) All Other Fees(5) Total 2013(1) 2012 $ 3,871 $ 3,995 428 571 452 464 416 169 868 633 251 — $ 5,418 $ 5,199
(1) | Fees for |
(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. |
(3) | Fees for audit-related services billed in |
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. |
(4) | 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: |
Federal, foreign, state and local income tax return assistance; |
Internal Revenue Code and foreign tax code technical consultations; and |
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 |
(5) | Fees for other services in |
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.Deloitte. 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 divestitures; |
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 services; |
3. | Tax compliance and certain tax planning and advice work; and |
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 onduring regularly scheduled meetings and at least a quarterly basis.other times as necessary.
The Company may not engage Deloitte to providehas policies and procedures in place prohibiting employment in certain designated positions of the services described below:
EmployeesCompany of employees of Deloitte who are senior manager levelwere the lead partner, the concurring partner, or above, including leadany other member of the audit engagement team who provided more than ten hours of audit, review or concurring partners and who have been involved withattest services for the Company inCompany.
Recommendation of the independent audit, shall not be employed by the Company in any capacity for a periodBoard of five years after the termination of their activities on the Company account.Directors
The Board of Directors unanimously recommends youa voteFOR the ratification of the appointment ofDeloitte to serve as the Company’s Independent Registered Public Accounting Firm.
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 places2014 fiscal year. Unless 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. Therecontrary choice 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 adoptedspecified, proxies solicited by our Board in 1997 and approved bywill be voted FOR the shareholders at the annual meeting held May 15, 1997. The plan was amended and restated asratification 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.Deloitte.
Purpose of the Plan. The primary purpose of the plan isItem 3. Advisory Vote 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.Approve Executive Compensation
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.
In accordance with the requirements of Section 14A of the Exchange 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 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 votefollowing resolution will be submitted for a shareholder vote at next year’s annual meeting. The text of the resolution in respect of Proposal No. 4 is as follows:Annual Meeting:
“RESOLVED, that the shareholders of ITT Corporation (the “Company”) approve, on an advisory basis, the compensation paid toof the Company’s named executive officersNamed Executive Officers, as disclosed in this Proxy Statementthe Company’s proxy statement for the 2014 Annual Meeting of Shareholders pursuant to the rulesItem 402 of the SEC,Securities and Exchange Commission Regulation S-K, including the Compensation Discussion and Analysis, the compensation tables and any related narrative discussion, is hereby APPROVED.disclosures.”
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 elsewhere in this proxy statement.
In particular, shareholders should note that the Company’s Compensation and Personnel Committee bases its executive compensation decisions on the following:
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alignment of executive and shareholder interests by providing incentives linked to earnings per share, free cash flow, operating margin and revenue performance;
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the ability for executives to achieve long-term shareholder value creation without undue business risk;
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creating a clear link between an executive’s compensation and his or her individual contribution and performance;
the extremely competitive nature |
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While the results of the industries in which we operate and our need to attract and retain the most creative and talented industry leaders; and
comparability to the practices of peers in the industries that we operate in and other comparable companies generally.
The vote areon this resolution is not intended to address any specific element of compensation; rather, the vote relates to the compensation of our NEOs, as described in this Proxy Statement in accordance with the SEC’s compensation disclosure rules.
The Board values the opinions of the Company’s shareholders as expressed through their votes and other communications. This vote is advisory in nature and non-binding; however, the Board will review and consider the shareholder vote when determining executive compensation. 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.
Recommendation of the Board of Directors intends to carefully consider
The Board of Directors unanimously recommends a voteFOR the resultsadvisory resolution approving the compensation of the vote.Company’s Named Executive Officers as described in this Proxy Statement. Unless a contrary choice is specified, proxies solicited by our Board will be votedFOR this management proposal.
Item 4. Shareholder Proposal Regarding Executive Stock Retention Requirements
Mr. John Chevedden, 2215 Nelson Ave., No. 205, Redondo Beach, CA 90278, has submitted the following shareholder proposal to us.
The following shareholder proposal will be voted on at the Annual Meeting if properly presented by or on behalf of the shareholder proponent. Other than minor formatting changes, we are reprinting the proposal and supporting statement as they were submitted to us, and we have not endeavored to correct any erroneous statements or typographical errors contained therein. Share holdings of the shareholder proponent, and where applicable, of co-filers, will be supplied upon request to the Company’s Corporate Secretary. Our Board of Directors has recommended a vote against the proposal for the reasons set forth following the proposal.
“Proposal 4—Executives To Retain Significant Stock
Resolved: Shareholders urge that our executive pay committee adopt a policy requiring senior executives to retain a significant percentage of shares acquired through equity pay programs until reaching normal retirement age and to report to shareholders regarding the policy before our Company’s next annual meeting. For the purpose of this policy, normal retirement age would be an age of at least 60 and determined by our executive pay committee. Shareholders recommend that the committee adopt a share retention percentage requirement of 50% of net after-tax shares.
This single unified policy shall prohibit hedging transactions for shares subject to this policy which are not sales but reduce the risk of loss to the executive. Otherwise our directors would be able to avoid the impact of this proposal. This policy shall supplement any other share ownership requirements that have been established for senior executives, and should be implemented so as not to violate our Company’s existing contractual obligations or the terms of any pay or benefit plan currently in effect.
Requiring senior executives to hold a significant portion of stock obtained through executive pay plans would focus our executives on our company’s long-term success. A Conference Board Task Force report stated that hold-to-retirement requirements give executives “an ever-growing incentive to focus on long-term stock price performance.”
Please vote to protect shareholder value:
Executives To Retain Significant Stock—Proposal 4”
The Board of Directors recommends a vote AGAINST this proposal for the following reasons:
ITT’s Board of Directors believes that you vote FORit is not in the approvalbest interests of the 2012Company or its shareholders to adopt a policy requiring senior executives to retain a significant percentage of stock they receive under our equity compensation program until they reach retirement age.
The Board has carefully considered the proposal and for the reasons set forth below, believes that it is unnecessary in light of the Company’s existing stock ownership guidelines, anti-hedging policy and equity compensation practices. In addition, the Board is concerned that adoption of an inflexible policy requiring that our senior executives retain 50% of net after-tax shares until reaching retirement age as requested by the proposal would put the Company at a competitive disadvantage in attracting and retaining the highest caliber of executive talent.
As discussed under the heading “Executive Stock Ownership Guidelines” beginning on page 50, our senior executives are already subject to significant stock ownership guidelines. These guidelines are designed to closely align the interests of our namedsenior management with those of our shareholders.
The guidelines specify the desired levels of Company stock ownership and encourage a set of behaviors for each senior executive officers.to reach the guideline levels. The guidelines require share ownership expressed as a multiple of base salary for all members of senior management, including a requirement that our Chief Executive Officer must own shares of the Company’s common stock equal to five times his or her annual base salary. 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.
The Compensation and Personnel Committee reviews compliance with these guidelines periodically. Currently, all of the Company’s senior executives have fully satisfied or are on track to meet these ownership requirements.
In addition, the Company has a policy that prohibits Company employees from hedging their Company stock through engaging in short sales or transacting in put or call options with respect to Company stock. We believe that this policy, among other things, helps provide assurance that senior executives have a significant economic stake in the performance of the Company’s stock and further focuses them on the creation of long-term shareholder value.
Other aspects of the Company’s current compensation programs also already address the proposal’s stated goal of ensuring that senior executives focus on the Company’s long-term success. As discussed in the Compensation Discussion and Analysis, the Board believes that our executive compensation programs for both cash and equity are designed to align executive officers’ interests with the long-term interests of our shareholders. Further, as shown on page 51, 60% of our CEO’s 2013 total direct compensation was in the form of stock-based awards. These awards are made in the form of stock options, RSUs and performance units, providing a balance between incentives based on stock price appreciation and, in the case of performance units, other Company financial objectives (such as growth in return on invested capital). The Company’s practice of structuring a significant portion of executive compensation in the form of long-term equity not only provides a retention tool, but also ties executives’ potential compensation to metrics that are designed to result in enhanced value for shareholders and to ensure that our executives have a vested long-term interest in the Company’s success.
Finally, the Board opposes this proposal because we believe that adopting the policy as requested could limit the Company’s ability to attract and retain executive talent, putting the Company at a competitive disadvantage versus its peers. Imposing the mandatory retention requirements of the proposal would deprive the Board and the Compensation and Personnel Committee of the flexibility to design competitive compensation packages. Further, adopting this proposal would mean that executives would not have access to a portion of their equity compensation until retirement age. This could put the Company at risk of being unable to attract or retain qualified executives unless it increased cash compensation and decreased equity compensation, an outcome that does not align the interests of senior executives with the long-term interests of shareholders. It could also motivate executives who have been successful in enhancing shareholder value to leave the Company or retire earlier than they otherwise would have, in order to be able to share in the value that they helped to create.
In summary, the Board believes that our current compensation programs and practices create an appropriate level of long-term stock holdings in the Company by our senior executives. We believe that beyond the significant stock ownership guidelines discussed above, individuals should be free to determine the mix of assets that best suits their personal needs and circumstances. Based on the foregoing, the Board believes that it is unnecessary and against shareholders’ best interests for the Company to adopt this proposal.
Information about the Board of Directors
ResponsibilitiesRecommendation of the Board of Directors.Directors
The Board of Directors sets policy for ITTunanimously recommends a voteAGAINST this proposal. Unless a contrary choice is specified, proxies solicited by our Board will be votedAGAINST this shareholder proposal.
Corporate Governance and advisesRelated Matters
The Company strives to maintain the highest standards of corporate governance and counselsethical conduct. Maintaining full compliance with the chief executive officerlaws, rules and the executive officers who manage the Company’sregulations that govern our business, and affairs.reporting results with accuracy and transparency, are critical to those efforts. The Company monitors developments in the area of corporate governance and reviews its processes and procedures in light of such developments. The Company also reviews federal laws affecting corporate governance, as well as rules and requirements of the NYSE. The Company implements other corporate governance practices that it believes are in the best interests of the Company and its shareholders.
The following sections provide an overview of ITT’s corporate governance structure and processes, including the independence and other criteria we use in selecting director nominees; our leadership structure; and certain responsibilities and activities of the Board of Directors and its Committees. Our corporate governance structure and processes are based on a number of key governance documents, which are described in the following pages.
The key governance documents, including the most current versions of the Company’s Corporate Governance Principles, and the charters for the Audit, Compensation and Personnel and Nominating and Governance Committees, are available on the Company’s website atwww.itt.com/investors/governance/. The most current version of the Company’s Code of Conduct is responsible for assuring that:available on the Company’s website atwww.itt.com/citizenship/governance/.Shareholders may also obtain copies of these documents free of charge by sending a written request to ITT Corporation, 1133 Westchester Avenue, White Plains, New York 10604, Attention: Corporate Secretary.
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Corporate Governance Principles.Principles
The Board of Directors has adopted the Corporate Governance Principles.Principles (or the “Principles”). These Principles govern the operation of the Board of Directors and its Committees and guide the Board of Directors and ITT’s leadership team in the execution of their responsibilities. The Nominating and Governance Committee is responsible for overseeing the Corporate Governance Principles provide, amongand reviews them at least annually and makes recommendations to the Board of Directors for updates in response to changing regulatory requirements, issues raised by shareholders or other things, that stakeholders, changing regulatory requirements or otherwise as circumstances warrant. The Board may amend, waive, suspend, or repeal any of the Principles at any time, with or without public notice, as it determines necessary or appropriate in the exercise of the Board’s judgment or fiduciary duties. As noted above, we have posted the Principles on our website at:www.itt.com/investors/governance/. Among other matters, the Principles include the following items concerning the Board:
No director may stand for re-election after he or she has reached the age of 72.
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 additionlimited 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). If the director serves as an active CEO of a public company, the director is limited to service on two public company boards (including the ITT board) in addition to service on his or her own board.
The corporate governance principles and committee charters are reviewed by the BoardCEO reports at least annually to the Board on succession planning and posted onmanagement development.
The Board evaluates the Company’s website at http://www.itt.com/investors/governance/principles/. A copyperformance of the Corporate Governance Principles will be provided, free of charge,Chief Executive Officer and other senior management personnel at least annually.
The Board maintains a process whereby the Board and its members are subject to any shareholder upon request to the Secretary of ITT.annual evaluation and self-assessment.
Leadership Structure.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,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 affectis currently in the Board’s role in risk oversightbest interests of the shareholders of the Company.
Communication with the Board of Directors.Directors Interested
Shareholders and other interested parties may contact all outside Directors as a group,any of the entire Board of Directors,Company’s directors (including the non-executive Chairman), a committee of the Board, of Directorsthe Board’s non-management directors as a group, or an individual Director by submitting a letter to the desired recipient in a sealed envelope labeled “Outside Directors,” “Board of Directors,” or with the name of the Board committee oras a specific Director. This sealed envelope should be placed in a larger envelope and mailedwhole by writing to the Secretary,them c/o ITT Corporation, 1133 Westchester Avenue, White Plains, NY 10604, USA. TheAttention: Corporate Secretary will forward the sealed envelope. Communications are distributed to the designated recipient.Board, or to any individual director or directors, as appropriate under the facts and circumstances. Junk mail, advertisements, product inquiries or complaints, resumes, spam and surveys are not forwarded to the Board. Material that is threatening, unduly hostile or similarly inappropriate will also not be forwarded, although any non-management director may request that any communications that have been excluded be made available.
Policies for Approving Related Person Transactions.Party Transactions
The Company andBoard of Directors has adopted a written Related Party Transaction Policy (the “Policy”) that addresses 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 forreporting, review and pre-approvalapproval or ratification of transactions which maywith related parties. The Policy covers (but is not limited to) those related party transactions and relationships required to be disclosed under Item 404(a) of Regulation S-K of the Exchange Act, and applies to each director or are expectedexecutive officer of the Company; any nominee for election as a director of the Company; any security holder who is known to exceed $120,000 involving Non-Management Directors, Executive Officers, beneficial ownersthe Company to own of five percentrecord or beneficially more than 5% of any class of the Company’s common stock or other securitiesvoting securities; and any immediate family member of any of the foregoing persons (each, a “Related Party”).
The Company recognizes that Related Party transactions may involve potential or actual conflicts of interest and pose the risk that they may be, or be perceived to have been, based on considerations other than the Company’s best interests. Accordingly, as a general matter, the Company seeks to avoid such transactions. However, the Company recognizes that in some circumstances transactions between Related Parties and the Company may be incidental to the normal course of business, may provide an opportunity that is in the best interests of the Company to pursue or the transaction may not be inconsistent with the best interests of the Company. In other cases it may be inefficient for the Company to pursue an alternative transaction. The Policy therefore is not designed to prohibit related party transactions; rather, it is designed to provide for timely internal reporting of such persons.transactions and appropriate review, oversight and public disclosure of them. The Policy supplements the provisions of the Company’s policy generally groups transactions with related persons into two categories: (1) transactions requiringCode of Conduct concerning potential conflict of interest situations. Under the approval ofPolicy, an amendment to an arrangement that is considered a Related Party transaction is, unless clearly incidental in nature, considered a separate Related Party transaction.
The Policy provides for the Nominating and Governance Committee to review all Related Party transactions and, (2) certainwherever possible, to approve such transactions including ordinary course transactions below established financial thresholds, that are deemed pre-approved byin advance of any such transaction being given effect. In connection with approving or ratifying a Related Party transaction, the
Nominating and Governance Committee.Committee considers, in light of the relevant facts and circumstances, whether or not the transaction is in, or not inconsistent with, the best interests of the Company, including, as applicable, consideration of the following factors:
In reviewing related person
the position within or relationship of the Related Party with the Company;
the materiality of the transaction to the Related Party and the Company, including the dollar value of the transaction, without regard to profit or loss;
the business purpose for and reasonableness of the transaction, taken in the context of the alternatives available to the Company for attaining the purposes of the transaction;
whether the transaction is comparable to a transaction that could be available on an arms-length basis or is on terms that the Company offers generally to persons who are not Related Parties;
whether the transaction is in the ordinary course of the Company’s business and was proposed and considered in the ordinary course of business; and
the effect of the transaction on the Company’s business and operations, including on the Company’s internal control over financial reporting and system of disclosure controls or procedures, and any additional conditions or controls (including reporting and review requirements) that should be applied to such transaction.
The Policy provides standing pre-approval for certain types of 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,type 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 reporteddue to the Nominating and Governance Committee. Subsequentnature, size and/or degree of significance to the adoption of the written procedures above, the Company has followed these procedures regarding all reportable related person transactions.Company. The Company’s Related Person Transaction Policy is posted on the Company’s website at: http://www.itt.com/investors/governance/transactions/.re-evaluated periodically.
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.non-management directors. The Code of Conduct is also posted on the Company’s website at http://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 Directorsnon-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. 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 Corporate Secretary of ITT.ITT at 1133 Westchester Avenue, White Plains, New York 10604, Attention: Corporate Secretary.
The Company has also established a confidential ethics phone line to respond to employees’ questions and reports of ethical concerns. In accordance with the Sarbanes-Oxley Act of 2002, the Audit Committee has established a policy with procedures to receive, retain and treat complaints received by the Company regarding accounting, internal controls or auditing matters, and to allow for the confidential, anonymous submission by employees of concerns regarding accounting or auditing matters.
Director Independence.Independence
The Board of Directors, through the Nominating and Governance Committee, conducts an annual review of the independence of its members. With the assistance of legal counsel to the Company, the Nominating and Governance Committee has determined that allreviewed the applicable standards for Board and Committee member independence, as well as our Corporate Governance Principles. A summary of the answers to annual questionnaires completed by each of the directors other than Ms. Ramosand a report of transactions
with director-affiliated entities are independent. Foralso made available to the Nominating and Governance Committee to enable its comprehensive independence review. On the basis of this review, the Nominating and Governance Committee has delivered a directorreport to be considered “independent,”the full Board of Directors, and the Board has made its independence determinations based upon the Committee’s report and the supporting information.
Under NYSE listing standards, an independent director must affirmatively determinenot have any material relationship with the Company, either directly or as a partner, shareholder or officer of an organization that the director has no direct or indirect materiala relationship with the Company. The Company’s Corporate Governance Principles defineNYSE requirements pertaining to director independence also include a series of objective tests, such as that the director is not an employee of the Company and has not engaged in accordancevarious types of business dealings with the Company. The Board also considers whether directors have any relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Board has not adopted categorical standards of independence definitionother than those promulgated by the NYSE. The SEC has a separate independence requirement for audit committee members that overlays the NYSE requirements. The NYSE also recently promulgated rules requiring directors that serve on compensation committees to satisfy additional independence requirements specific to that service.
The Board of Directors has determined that Ms. Ramos is not “independent” because of her employment as Chief Executive Officer and President of the Company. The Board of Directors has reviewed all relationships between the Company and each other member of the Board of Directors and has affirmatively determined that each of Mr. Ashford, Mr. D’Aloia, Mr. DeFosset, Ms. Gold, Ms. McDonald, Mr. Lavin, Mr. MacInnis and Mr. Stebbins is “independent” pursuant to the applicable listing standards of the NYSE. None of these directors were disqualified from “independent” status under the objective tests set forth in the NYSE standards. In assessing independence under the subjective relationships test described above, the Board of Directors took into account the criteria for disqualification set forth in the NYSE’s objective tests, and reviewed and discussed additional information provided by each director and the Company with regard to each director’s business and personal activities as they may relate to the Company and its management. Based on the foregoing, as required by the NYSE, the Board made the subjective determination as to each of these directors that no material relationships with the Company exist and no relationships exist which, in the opinion of the Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of such director. The Board also determined that the current NYSE corporate governance rulesmembers of the Audit Committee, Mr. D’Aloia, Ms. Gold, Ms. McDonald and Mr. Stebbins, and Compensation and Personnel Committee, Mr. Ashford, Mr. DeFossett, Mr. Lavin and Mr. MacInnis, meet the applicable SEC definition of independence.
In making its independence determinations, the Board considered transactions occurring since the beginning of the Company’s 2011 fiscal year between the Company and entities associated with the directors or members of their immediate family. All identified transactions that appear to relate to the Company and a person or entity with a known connection to a director were presented to the Board of Directors for listed companies. Withconsideration. The Board also considered in its analysis the Company’s contributions to tax-exempt organizations with respect to each of the non-management directors. In making its subjective determination that each non-management director is independent, the Board considered the transactions in the context of the NYSE objective standards, the special standards established by the SEC for members of audit committees, and the SEC and Internal Revenue Service (“IRS”) standards for compensation committee members. In each case, the Board determined that, because of the nature of the director’s relationship with the entity and/or the amount involved in the transaction, the relationship did not impair the director’s independence. In its review of Mr. Ashford,Ashford’s independence, 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 netconsolidated gross revenues. With respectThe Company did not make any contributions to Mr. Lavin, the Board considered that he isany tax exempt organizations in which any non-management director
serves as an executive officer of a company that, in at least one ofwithin the precedingpast three fiscal years received payments from the Company in an amount less thanwhere such contributions exceeded 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 thesuch organization’s 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. 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 as an “outside director” (as defined in Section 162(m) of the 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.
Ms. Ramos is not independent because of her position as Chief Executive Officer and President of the Company.revenues.
Board and Committee Roles in Oversight of Risk.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 provideprovides regular reports to the Board with respect to their findings. In addition, the Company has established a cross-functional team of members 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 and Personnel 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 whichthat may have a material adverse effect on the Company. The Compensation and Personnel 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 and Personnel Committees receive regular reports with respect to the Company’s risk profile and risk management controls.
Compensation Committee Interlocks and Insider Participation.Participation
None of the members of the Compensation and Personnel Committee during fiscal year 20122013 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 Committeecompensation committee or board of any company that employed any member of the Company’s Compensation and Personnel Committee or Board of Directors.
Director Selection and Composition.Composition
In fulfilling its responsibility to identify and recommend to the Board of Directors qualified candidates for membership on the Board, the Nominating and Governance Committee takes into account a variety of factors. 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 Nominating and Governance Committee desires that the Board of Directors assesses whetherbe diverse in terms of its viewpoints, professional experience, education and skills as well as race, gender and national origin—and the mix of directors is appropriate for the Company. In addition, the 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 actively 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, evaluating the current Board’s needs for operational, technical, management, financial, international or other expertise and recognizing that ITT’s businesses and operations are diverse and global in nature. In 2012,On an annual basis, as part of its self-evaluation, the full Board consisted of ten Directors. OutDirectors assesses whether its overall mix of the
ten Directors, three are female, and onedirectors is African American. Three of our 2012 Directors, Paul J. Kern, Markos I. Tambakeras and Linda S. Sanford, will retire fromappropriate for 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.Company.
To be considered by the Nominating and Governance Committee as a Directordirector candidate, a nominee must first 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,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 Directordirector 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 Directordirector 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 Directordirector 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 also consider Directordirector nominees recommended by shareholders for electionshareholders. Shareholders who wish to the Company’s Board who meet the qualification standards described above. (See Section II.F. ofrecommend candidates may contact the Nominating and Governance Committee Charter at http://www.itt.com/investors/governance/nominating/ ) Thein the manner described in “Communication with the Board of Directors.” Shareholder nominations must be made according to the procedures required by our By-laws and described in this Proxy Statement under the heading “How does a shareholder submit a proposal or nominate directors for the 2015 Annual Meeting?” Shareholder-recommended candidates and shareholder nominees whose nominations comply with these procedures and who meet the criteria referred to above will be evaluated by the Nominating and Governance Committee also evaluatesin the same manner as other nominees.
Twelve individuals served on ITT’s Board during 2013. Three of those directors, Paul J. Kern, Markos I. Tambakeras and makes recommendationsLinda S. Sanford, retired on May 6, 2013. Ms. McDonald was elected to the Board unanimously by the directors on December 17, 2013 after careful evaluation and consideration of Directors concerning appointment of Directors to Board Committees, selection of Boardher qualifications for service by the Nominating and Governance Committee Chairs, Committee member qualifications, Committee member appointment and removal, Committee structure and operations and proposal of the Board slateof Directors. Of the nine directors who are nominees for election at the Annual Meeting, three are female, and one is African American. The directors come from diverse professional backgrounds, including technology, financial and manufacturing industries. In “Proposals to be Voted on at the 2014 Annual Meeting—Item 1—Election of Shareholders, consistentDirectors,” we provide an overview of the background of each nominee, including their principal occupation, business experience and other directorships, together with criteria approved bythe key attributes, experience and skills viewed as most meaningful in providing value to the Board, of Directors. For the 2013 Annual Meeting, the Nominatingour Company 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.our shareholders.
CommitteesExecutive Sessions of Directors
Agendas for meetings of the Board of Directors. The standing CommitteesDirectors include regularly scheduled executive sessions for the independent directors to meet without management present; the Board’s non-executive Chairman leads those sessions. Board members have access to our employees outside of Board meetings, and the Board described below perform essential corporate governance functions.encourages directors to visit different Company sites and events periodically and meet with local management at those sites and events, either as part of a regularly scheduled Board meeting or otherwise.
AuditBoard and Committee Membership
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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,committees meet throughout the requirementsyear on a set schedule, and also hold special meetings and act by written consent from time to time as appropriate. The Board of Directors held six meetings during the NYSE currently in effect2013 fiscal year and Rule 10A-3 under the Exchange Act.there were 18 meetings of standing Committees. The Board of Directors has evaluated the performance of thean 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
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Independence
The Board of Directors has determined that each member of the Compensation 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 website http://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
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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 website http://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 2012, there were five regularly scheduled Board meetings and 18 meetings of standing Committees. In addition, there were an additional three Board meetings. All Directorsdirectors 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 Directorsdirectors attend the Company’s Annual Meeting.annual meetings. All Directorsdirectors attended the Company’s 2012 Annual Meeting. For 2013 annual meeting either in person or telephonically. Under the Company’s Corporate Governance Principles, directors are expected to attend all meetings of the
Board and all meetings of the Committees of which they are members. Members may attend by telephone or video conference to mitigate conflicts, although in-person attendance at regularly scheduled meetings is strongly encouraged.
The following table summarizes the current membership of each Committee:
Name | Audit | Compensation and Personnel | Nominating and Governance | |||
Orlando D. Ashford | ü | ü | ||||
G. Peter D’Aloia | Chair | |||||
Donald DeFosset, Jr. | ü | ü | ||||
Christina A. Gold | ü | Chair | ||||
Rebecca A. McDonald | ü | |||||
Richard P. Lavin | ü | ü | ||||
Frank T. MacInnis | Chair | |||||
Denise L. Ramos | ||||||
Donald J. Stebbins | ü |
The charters of each of the Audit, Compensation and Personnel, and Nominating and Governance Committees conform with the applicable NYSE listing standards, and each committee periodically reviews its charter, as regulatory developments and business circumstances warrant. Each of the committees from time to time considers revisions to their respective charters to reflect evolving best practices.
The purpose of the Audit Committee is to assist the Board of Directors in fulfilling its responsibility to oversee management’s conduct of the financial reporting process. The responsibilities of the Audit Committee include:
Selection and oversight of the independent auditor, including responsibility to determine the independent auditor’s qualifications, independence, scope of responsibility and compensation.
Review and discussion with management and the independent auditor regarding the annual audited and quarterly unaudited financial statements and approval of inclusion of those financial statements in the Company’s public filings.
Review and oversight of the Company’s selection and application of accounting principles and issues relating to the Company’s internal controls and disclosure controls and procedures.
Oversight of the Company’s compliance with legal and regulatory requirements, including review of the effect of regulatory and accounting initiatives on the Company’s financial statements.
Oversight of the organization and scope of the Company’s internal audit function.
Oversight and discussion with management, internal auditors and the independent auditor regarding the adequacy and effectiveness of the Company’s overall risk assessment and risk management process, including all risk mitigation processes.
The Audit Committee has scheduled five regular meetings.established policies and procedures for the pre-approval of all services by the Company’s independent registered public accounting firm. The Audit Committee also has
established procedures for the receipt, retention and treatment, on a confidential basis, of complaints received by the Company regarding its accounting, internal controls and auditing matters. Additional details on the role of the Audit Committee may be found in “Item 2—Ratification of the Independent Registered Public Accounting Firm” earlier in this Proxy Statement.
The Board of Directors has determined that each member of the Audit Committee is financially literate and independent, as defined by the rules of the SEC and the NYSE, as well as independent under ITT’s Corporate Governance Principles. Although more than one member of the Board of Directors satisfies the requirements of the audit committee financial expert, the Board of Directors has identified G. Peter D’Aloia as the audit committee financial expert. The Board of Directors has evaluated the performance of the Audit Committee consistent with regulatory requirements.
The current members of the Audit Committee are G. Peter D’Aloia (Chair), Christina A. Gold, Rebecca A. McDonald (appointed on December 17, 2013) and Donald J. Stebbins. Linda S. Sanford was a member of the Audit Committee until her retirement on May 6, 2013. The Audit Committee held seven meetings during the 2013 fiscal year. The report of the Audit Committee is included on page 31 of this Proxy Statement.
Compensation and Personnel Committee
The purpose of the Compensation and Personnel Committee is to provide oversight review of compensation and benefits of the employees of the Company. The responsibilities of the Compensation and Personnel Committee include:
Oversight and administration of the Company’s employee compensation program, including incentive plans and equity-based compensation plans.
Establishment of annual performance objectives, evaluation of performance and approval of individual compensation actions for the Chief Executive Officer and other executive officers and evaluation of enterprise risk and other risk factors with respect to compensation objectives.
Review and discussion of the Company’s talent review and development process, succession planning process for senior executive positions and aspects of culture and diversity for the Company, and provision of recommendations to the Board of Directors.
Review, discussion and approval of the Compensation Discussion and Analysis included in the Company’s annual proxy statement.
The Board of Directors has determined that each member of the Compensation and Personnel Committee is independent, as defined by the rules of the SEC and the NYSE, as well as independent under ITT’s Corporate Governance Principles. In conjunctionaddition, each Committee member is a “non-employee director” as defined in Rule 16b-3 under the Exchange Act and an “outside director” as defined in Section 162(m) of the Internal Revenue Code. The Board of Directors has evaluated the performance of the Compensation and Personnel Committee consistent with regulatory requirements.
The current members of the Compensation and Personnel Committee are Christina A. Gold (Chair), Orlando D. Ashford, Donald DeFosset, Jr. and Richard P. Lavin (appointed on May 7, 2013). Paul J. Kern was a member of the Compensation and Personnel Committee until his retirement on May 6, 2013. The Compensation and Personnel Committee held seven meetings during the 2013 fiscal year. The report of the Compensation and Personnel Committee is included on page 32 of this Proxy Statement.
Nominating and Governance Committee
The purpose of the Nominating and Governance Committee is to ensure that the Board of Directors is appropriately constituted to meet its fiduciary obligations to shareholders of the Company. The responsibilities of the Nominating and Governance Committee include:
Evaluate and make recommendations to the Board of Directors concerning the size, composition, governance and structure of the Board and the qualifications, compensation and retirement age of directors.
Identify, evaluate and propose nominees for election to the Board of Directors.
Consider questions of independence and possible conflicts of interest of directors and executive officers and ensure compliance with applicable laws and NYSE listing standards.
Develop, regularly review, update and recommend to the Board of Directors corporate governance principles for the Company.
Review of material related party transactions and review with the regularindependent auditor the Company’s policies for the ethical handling of conflicts of interest and its policies and procedures with respect to expense accounts and perquisites.
Review of the Company’s risk management programs and business continuity and disaster recovery plans.
Lead the Company’s chief executive officer succession process.
The Board of Directors has determined that each member of the Nominating and Governance Committee is independent, as defined by the rules of the SEC and the NYSE, as well as independent under the Corporate Governance Principles. The Board of Directors has evaluated the performance of the Nominating and Governance Committee consistent with regulatory requirements.
The current members of the Nominating and Governance Committee are Frank T. MacInnis (Chair), Donald DeFosset, Jr., Orlando D. Ashford and Richard P. Lavin (appointed on May 7, 2013). Paul J. Kern and Markos I. Tambakeras were members of the Nominating and Governance Committee until their retirement on May 6, 2013. The Nominating and Governance Committee held four meetings those Directors who are not employees of ITT are scheduled to meet privately (without management) following each Board meeting during the 2013 fiscal year.
20122013 Non-Management Director Compensation
The Board of Directors reviewed Non-Management Director compensation levels in October 2012 with Pay Governance LLC, an independent compensation consulting firm, to ensure that the Company’s Non-Management Director compensation levels are competitive. As a result of that review, the Nominating and Governance Committee and the Compensation Committee recommended, and the Board approved, a compensation package effective as of the date oftable below represents the 2013 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 will receive an additional annual payment in the amount of $125,000 (payable in 50% cash and 50% RSUs), the Audit Committee Chair will receive an additional annual cash payment in the amount of $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 2012 grant date fair value of Non-Management Director compensation computed in accordance with GAAP.for non-management directors. As discussed in more detail in the narrative following the table, all Non-Management Directorsnon-management directors receive the same cash fees and stock awards for their service, (exceptwhich consists of a $100,000 annual cash retainer and an annual RSU award with a value of $90,000, except for the following: Mr. MacInnis, as Non-Executive Chairman, received an additional $62,500 cash payment and stock awards with an additional grant date fairRSU award with a value of $62,500; and Mr. D’Aloia as Audit Committee Chair, received an additional $15,000 cash payment).payment; and Ms. Gold as Compensation and Personnel Committee Chair, received an additional $10,000 cash payment. As an employee Director,a management director, Ms. Ramos does not receive compensation for Board service.
Compensation is paid to non-management directors in a lump sum following the Annual Meeting at which they are elected. Non-management directors who join the Board of Directors during the course of a year receive their compensation promptly following their election, in amounts that are pro-rated to reflect their partial year of service on the Board. Non-management directors may also choose to defer receipt of either or both of their cash retainer and equity retainer. The grant date fair value of stock
awards granted to Non-Management Directorsnon-management directors in 20122013 is provided in footnote (2) to the table. Stock awards are composed of RSUs.
Name | Fees Earned or Paid in Cash (1) ($) | 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 | 162,500.00 | 152,500.80 | 315,000.80 | |||||||||
Linda S. Sanford | 100,000.00 | 90,004.80 | 190,004.80 | |||||||||
Donald J. Stebbins | 116,666.67 | 90,004.80 | 206,671.47 | |||||||||
Markos I. Tambakeras | 100,000.00 | 90,004.80 | 190,004.80 |
Name(1) | Fees Earned or Paid in Cash(2) | Stock Awards(3) | Total | |||||||||
Orlando D. Ashford | $ | 100,000 | $ | 90,018 | $ | 190,018 | ||||||
G. Peter D’Aloia | 115,000 | 90,018 | 205,018 | |||||||||
Donald DeFosset, Jr. | 100,000 | 90,018 | 190,018 | |||||||||
Christina A. Gold | 110,000 | 90,018 | 200,018 | |||||||||
Richard P. Lavin | 100,000 | 90,018 | 190,018 | |||||||||
Frank T. MacInnis | 162,500 | 152,525 | 315,025 | |||||||||
Rebecca A. McDonald(4) | 41,667 | 37,504 | 79,171 | |||||||||
Donald J. Stebbins | 100,000 | 90,018 | 190,018 |
(1) | Mr. Paul J. Kern, Mr. Markos I. Tambakeras and Ms. Linda S. Sanford retired from the Board effective as of the end of their last term, which was the day immediately prior to the 2013 annual meeting. Payment of the cash retainer and stock award to these retired directors for the 2012—2013 term was made in May 2012 and therefore these individuals are not included in the table. |
(2) | Fees earned may be paid, at the election of the |
Awards reflect the grant date fair value computed in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 718, Stock Compensation. |
The following table represents restricted common stock
(4) | Ms. McDonald was elected to the Board of Directors on December 17, 2013 and therefore the compensation reported represents compensation for less than a 12-month period. |
Non-Management Director Stock Awards and stock options outstanding as of December 31, 2012 for Non-Management Directors.Option Awards Outstanding restricted commonat 2013 Fiscal Year-End
Non-Management Director Name | Stock Awards | Option Awards | ||||||
Orlando D. Ashford | 3,066 | — | ||||||
G. Peter D’Aloia | 5,285 | — | ||||||
Donald DeFosset, Jr. | 5,285 | — | ||||||
Christina A. Gold | 18,137 | 2,910 | ||||||
Richard P. Lavin | 3,066 | — | ||||||
Frank T. MacInnis | 8,547 | 4,260 | ||||||
Rebecca A. McDonald | 886 | — | ||||||
Donald J. Stebbins | 3,066 | — |
Outstanding stock awards include unvested RSUs and vested but deferred restricted stockshares and RSUs.
Non-Management Director Restricted Common Stock and
Stock Option Awards Outstanding at 2012 Fiscal Year-End
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 |
RSUs granted to Non-Management Directorsnon-management directors vest one business day prior to the Annual Meeting.next 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’sdirector’s restricted shares are held in escrow, and they may not be transferred in any manner until one of the following events occurs:
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The fifth anniversary of the grant of the shares unless extended as described below.
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The director retires at age 72.
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There is a change of control of the Company.
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The director becomes disabled or dies.
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The director’s service is terminated in certain specified, limited circumstances.
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Any other circumstance in which the Compensation and Personnel Committee believes, in its sole discretion, that the purposes for which the grants of restricted stock were made have been fulfilled and, as such, is consistent with the intention of the Plan.
Under the 2003 Plan and the 1996 Plan, Non-Management Directorsnon-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’snon-management director’s termination from service from the Board under certain permitted circumstances.
The 1996 Plan also provided that if a Directordirector 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,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,director, to comply with Section 409A of the Internal Revenue Code of 1986 (“Section 409A”). Section 409A deals specifically with non-qualified deferred compensation plans and provides requirements and rules for timing of deferrals and distributions under those plans.
ITT reimburses Directorsdirectors 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).
Non-Management Director Share Ownership Guidelines. 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 units (“RSUs”), which are paid in shares when the RSUs vest. Non-management directors are required to hold such shares until their total share ownership meets or exceeds the ownership guidelines. Both the guidelines, and compliance with the guidelines, are monitored periodically. Non-management directors are afforded a reasonable period of time to meet the guidelines. All non-management directors with at least one full year of service on the Board of Directors own stock in the Company.
Indemnification and Insurance. As permitted by its By-laws, ITT indemnifies its Directorsdirectors to the full extent permitted by law and maintains insurance to protect the Directorsdirectors from liabilities, including certain instances where it could not otherwise indemnify them. All Directorsdirectors 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 DirectorsNon-management directors also may elect to participate in an optional non-contributory group life insurance plan that provides $100,000 of coverage.
Report of the Audit Committee Report
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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determination of qualifications and independence of Deloitte, the Company’s independent registered public accounting firm;
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appointment, compensation and oversight of Deloitte in preparing or issuing audit reports and related work;
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review of financial reports and other financial information provided by the Company, its systems of internal accounting and financial controls, and the annual independent audit of the Company’s financial statements;
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oversight and review of procedures developed for consideration of accounting, internal accounting controls and auditing-related complaints;
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review of risk assessment and risk management processes on a company-wide basis;
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monitoring all elements of the Company’s internal control over financial reporting; and
adoption of and monitoring the implementation and compliance with the Company’s Non-Audit Services Policy.
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 the 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 submittingfollowing the matterprocedures set forth in a sealed envelope addressed tothis Proxy Statement under the “Audit Committee” toheading “Communication with the Corporate Secretary who then forwards the sealed envelope to the Audit Committee.
Sarbanes-Oxley ActBoard of 2002 (“SOX”) Compliance. 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.Directors.”
Audit Committee Charter. 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 Committee. The Audit Committee comprises four 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 ExchangeNYSE currently in effect, including the audit committee independence requirements of Rule 10A-3 under 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.
2012 Members The Board of the Audit Committee. The 2012 members of the Audit Committee areDirectors has identified G. Peter D’Aloia Chair, Christina A. Gold, Linda S. Sanford and Donald J. Stebbins. Mr. Stebbins was appointed toas the Audit Committee on March 1, 2012.audit committee financial expert.
Regular Review of Financial Statements. During 2012,2013, 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 Deloitte. The Audit Committee has reviewed and discussed with management and Deloitte the matters required to be discussed byunder the statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1. AU section 380) as adopted bystandards of the Public Company Accounting Oversight Board in Rule 3200T (“SAS 61”PCAOB”). 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 nineseven times during 2012.2013.
Independence of Deloitte. 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 Deloitte required by applicable requirements of the Public Company Accounting Oversight BoardPCAOB 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-K. In performing its oversight function with regard to the 20122013 financial statements, the 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 Audit Committee reviewed and discussed with management the Company’s audited financial statements as of and for the year ended December 31, 2012.2013. Based on these discussions, and the information received and reviewed, the Audit Committee recommended to the Company’s Board of Directors that the financial statements be included in the 20122013 Annual Report on Form 10-K.
This report is furnished by the members of the Audit Committee.
G. Peter D’Aloia, Chair
Christina A. Gold
Linda S. Sanford
Donald J. Stebbins
G. Peter D’Aloia (Chair) Christina A. Gold | Rebecca A. McDonald 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 (“Compensation Committee”) is responsible for the overall design and governance of the Company’s executive compensation program, senior leadership development and talent management programs. The Compensation and Personnel 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.
Recommendation Regarding Compensation Discussion and Analysis
In performing its governance function, with regard to the following Compensation Discussion and Analysis, prepared by management, the 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 and Personnel Committee. The Compensation and Personnel Committee reviewed and discussed the Compensation Discussion and Analysis included in this Proxy Statement with management. Based on this review and discussion, the Compensation and Personnel Committee recommended to the Company’s Board of Directors that the Compensation Discussion and Analysis be included in the Company’s 2013 Annual Report on Form 10-K for 2012 and this Proxy Statement.
This report is furnished by the members of the Compensation and Personnel Committee.
Christina A. Gold, Chair
Orlando D. Ashford
Donald DeFosset, Jr.
Paul J. Kern
Linda S. Sanford
Christina A. Gold (Chair) Orlando D. Ashford | Donald DeFosset, Jr. Richard P. Lavin |
COMPENSATION DISCUSSION AND ANALYSISCompensation Discussion and Analysis
Executive Summary
In our second full year as the “new ITT” we have continued to focus on building and implementing our sustainable growth model for the future. In doing so, we have delivered strong operating results, made significant investments in our businesses and our key functions, and advanced our strategy to deliver solid results to shareholders.
Our 2013 business performance was extremely strong:
Revenue was up 12% to $2.5 billion, with organic revenue up 6%, representing solid gains and strengths across key geographies and strategic end markets;
GAAP income from continuing operations totaled $5.28 per share;
Adjusted EPS from continuing operations increased 20% to $2.02 per share, reflecting strong operational performance; and
Adjusted segment operating income increased 21% and margins expanded 100 basis points due to volume and productivity gains.
As shown below, ITT achieved significant total shareholder returns in 2013, as compared to the S&P 400 Capital Goods Index, of which ITT is a member.
During the past two years, the Company has made significant investments in its people, focusing on talent management and building capabilities to grow our own leaders. These investments will enable the Company to identify and develop leaders with a greater focus on effective succession planning. These efforts, combined with the work started in 2013 on creating a healthy, high performing culture, will allow the Company to focus its investment on leaders that will help drive and execute the Company’s strategy.
What is New for 2013 and 2014?
As we considered 2013 and 2014 executive compensation design, we were mindful of the results of the Company’s 2012 and 2013 advisory votes on executive compensation, which resulted in 95% and 94%, respectively, of shareholder votes cast in favor of our proposals.
We remain committed to continuing the best pay practices and pay-for-performance approach to executive compensation that resulted in consistently high positive vote percentages. This commitment is reflected in the following changes introduced in 2013 and 2014.
2013 Changes
Ÿ | Annual Incentive Plan |
¡ | The Annual Incentive Plan for Executive Officers was changed in 2013 to include an individual goal component. This element was added to provide focus on supporting enterprise initiatives that will create growth and increase shareholder value. For 2013, the primary focus areas were increased attention to talent management and creating strong succession plans for leadership positions, implementation of lean manufacturing practices across our manufacturing facilities, development and execution of an enterprise IT strategy and a focus on other key strategic initiatives. |
Ÿ | Long-Term Incentives |
¡ | Beginning with the 2013 grants, we changed our mix of long-term incentive compensation, placing more weight on performance-based awards, which now make up half of our long-term incentive vehicles: |
¡ | Also beginning with the 2013 grants, performance units (formerly TSR Units) may vest based on performance against both a relative Total Shareholder Return metric as well as a Return on Invested Capital metric, equally weighted, providing a balance between relative and absolute long-term performance. We will grant and, if earned depending upon performance, settle these performance unit awards in shares following a three-year performance period, which further aligns payouts with stock price performance. |
Ÿ | Severance |
¡ | During 2013 the Compensation and Personnel Committee approved changes to the Senior Executive Severance Pay Plan (excluding the Chief Executive Officer who is covered by a separate employment agreement). The changes were intended to bring ITT’s practices in line with current market practices. Some of the changes made to the plan were reducing the overall cash severance benefits provided to executives from a maximum of two years to one year, providing participants with outplacement assistance for 12 months and eliminating the vesting of equity awards during the severance period. These changes were effective July 1, 2013 for new participants. The existing program will sunset over two years for current participants, upon which time those individuals will be covered under the new terms. |
2014 Changes
Ÿ | Change of Control Provisions |
¡ | Beginning with the Company’s annual grant cycle in March 2014, all long-term incentive awards will now include a “double trigger” provision, consistent with the Company’s other change of control severance benefits, meaning that both a change of control event and termination of an executive’s employment will be required for the acceleration of an executives’ long-term incentive awards to occur. This change reflects a best pay practice and still provides competitive benefits in the event that an executive’s employment is terminated due to a change of control of the Company. |
Ÿ | Retirement Provisions |
¡ | Beginning with the Company’s annual grant cycle in March 2014, all long-term incentive awards will now provide continued vesting for retirees that have: |
attained age 62 with at least 10 years of service; or
attained age 65.
Continued vesting will be contingent upon the executive’s adherence to various restrictive covenants. The Company believes that this approach provides additional alignment with shareholders for long-term decision-making by executives nearing retirement and also recognizes long-serving employees.
In this Compensation Discussion and Analysis, we explain the Compensation and Personnel Committee’s executive compensation philosophy, andidentify the performance objectives for each of the named executive officers as defined by the SEC in Item 402(a) of Regulation S-K (“NEOs”),our Named Executive Officers, describe all elements of the Company’s executive compensation program, and explain why the Compensation and Personnel 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 2012,2013, which can be found elsewhere in this Proxy Statement under the heading “Compensation Tables.”
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In October 2011, ITT completed a separation by spinning off our defenseGovernance 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.
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:
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 2012 covers the following executive officers, including leaders of certain of our business segments (“Segments”):
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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.”
Executive Compensation 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.
Executive Compensation Philosophy
We have designed our compensation programs to help us recruit and retain the executive talent required to successfully manage our business, achieve our business objectives and maximize their long-term contributions to our success. We provide compensation elements that are designed to align the interests of executives with our goals of enhancing shareholder value and achieving our long-term strategies. We provide targetOur total annual compensation that approximatesis informed by the median of the competitive market, with significant upside for superior performance.experience, performance, critical skills, and the general talent market driving positioning above or below the market median. The Compensation and Personnel Committee looks to both peer companies and published compensation surveys as an important input to understand compensation levels for senior executives.
Key Participants in the Compensation Process
Role of the Compensation and Personnel Committee: The Compensation and Personnel Committee reviews and approves each of the compensation targets for all of the Company’s executive officers, including its NEOs. The Compensation and Personnel Committee reviewed each compensation element for the CEO and other NEOs, and made the final determination regarding such compensation elements. The Compensation and Personnel Committee 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. Further, the Compensation and Personnel Committee evaluates all compensation programs on an annual basis to ensure that no plans induce or encourage excessive risk-taking by its participants. Pursuant to its charter the Compensation and Personnel Committee may delegate authority to act upon specific matters to a subcommittee.
Role of Management: During 2013, the Company’s Chief Executive Officer and senior human resources executive made recommendations to the Compensation and Personnel Committee regarding executive compensation actions and incentive awards. The senior human resources executive serves as a liaison between the Compensation and Personnel Committee and Pay Governance, LLC (“Pay Governance”), the Compensation and Personnel Committee’s Independent Compensation Consultant, providing internal data on an as-needed basis so that Pay Governance can provide comparative analyses to the Compensation and Personnel Committee. In 2013, the Company’s human resources, finance and legal departments supported the work of the Compensation and Personnel Committee, by providing information, answering questions and responding to various requests of committee members.
Role of the Independent Compensation Consultant: In 2013, the Compensation and Personnel Committee continued to use the services of Pay Governance in fulfilling its obligations under its charter, the material terms of which are described elsewhere in this proxy statement under the heading “Committees of the Board of Directors.”
Pay Governance attended five of the seven meetings held by the Compensation and Personnel Committee in 2013 and provided the committee with objective expert analyses, assessments, research and recommendations for executive compensation programs, incentives, perquisites, and compensation standards. In this capacity, they provided services that related solely to work performed for, and at the direction of, the Compensation and Personnel Committee, including analysis of material prepared by corporate-level management for the Compensation and Personnel Committee’s review. Pay Governance provided no other services to the Company during 2013.
The total amount of fees paid to Pay Governance for 2013 services to the Compensation and Personnel Committee was $201,463. In addition, the Compensation and Personnel Committee reimburses Pay Governance for reasonable travel and business expenses.
The Compensation and Personnel Committee selected Pay Governance to serve as its Independent Compensation consultant only after assessing the firm’s independence. As part of its independence review, the Compensation and Personnel Committee reviewed the Company’s relationship with Pay Governance and determined that no conflicts of interest existed. The Compensation and Personnel Committee has the sole authority to retain and terminate consultants, including Pay Governance, with respect to compensation matters.
External Benchmarking
In 2013, as in past years, the Compensation and Personnel Committee looked to competitive market compensation data for companies comparable to the Company to establish overall policies and programs that address executive compensation, benefits and perquisites in line with its stated pay philosophy.
For first quarter 2013 pay decisions for the CEO and CFO, the Company used a peer group of 13 companies similar executives.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 2013 Representative Peer Group consisted of the following companies:
Ÿ Actuant Corporation (ATU) Ÿ AMETEK, Inc. (AME) Ÿ Carlisle Companies Incorporated (CSL) Ÿ Crane Co. (CR) Ÿ Esterline Technologies Corporation (ESL) Ÿ Flowserve Corporation (FLS) Ÿ Gardner Denver, Inc. (GDI) | Ÿ Hubbell Incorporated (HUB.B) Ÿ IDEX Corporation (IEX) Ÿ Robbins & Myers, Inc. (RBN) Ÿ Roper Industries, Inc. (ROP) Ÿ SPX Corporation (SPW) Ÿ Woodward, Inc. (WWD) |
The Compensation and Personnel Committee periodically reviews and evaluates this Representative Peer Group to ensure that it remains appropriate. The Compensation and Personnel Committee will change this peer group in 2014 to remove Robbins and Myers, Inc., which was acquired, and Gardner Denver, Inc., which was taken private. In addition, Barnes Group, Inc. (B), Colfax Corporation (CFX), EnPro Industries, Inc. (NPO), Harsco Corporation (HSC) and Nordson Corporation (NDSN) were added to this peer group in 2014, bringing the total size of the peer group to 16 companies for 2014. The peer group was expanded to minimize the impact of 2013 mergers and acquisitions on the size of the Company’s peer group and to meet the Committee’s desire to include additional relevant peers.
The Compensation and Personnel Committee’s review of external market data also included, as the primary reference for the other NEOs (and as a secondary reference for the CEO and CFO), analysis of the Towers Watson Compensation Data Bank (“CDB”) and other compensation survey information provided by Pay Governance. In particular, the Compensation and Personnel Committee’s analysis used a sample of over 100 companies from general industry that were available in the CDB with annual revenue between $1.1 billion and $4.5 billion, in order to provide a representative sample of the Company’s broader market for executive talent (see Exhibit A attached).
Elements of Compensation
Annual base salary, annual incentives, and long-term incentives provide the foundation forNEO Compensation Elements at a Glance
The disclosure of our NEO compensation. Annual cash incentives are awarded under our Annual Incentive Plan (“AIP”), which uses metrics that we believe arecompensation for 2013 covers the fundamental measurementsfollowing executive officers, including leaders 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 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 Company’s share price over a three-year period as compared to that of peer companies, reflecting how we create shareholder value relative to our peer group.
The Role of Risk and Risk Mitigation
In 2012, the Compensation Committee evaluated risk factors associated with the Company’s businesses in determining compensation structure and pay practices. The structure of the Board of Directors’ Committees facilitates this evaluation and determination. More specifically, during 2012, the Chair of the Compensation Committee was a member of the Audit Committee. This membership overlap provides insight into the Company’s business 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 are considered and approved.
We believe our executive compensation program appropriately balances risk with maximizing long-term shareholder value. The following featurescertain of our executive compensation program especially contribute to the achievement of this goal:business segments (“Segments”):
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Our Annual Compensation Cycle
The compensation of our executive officers, including our NEOs, is reviewed in detail by the Compensation and Personnel Committee every year during the first quarter. This review includes:
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The actual award datequarter of stock options, RSUs and 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. RSU, TSR and stock option award recipients receive communication of the award as soon as reasonably practicable after the grant of the award.
The Compensation Committee will continue to review and assess the performance of all NEOs and other senior executives and authorizeevery year. NEO direct compensation actions it believes are appropriate and commensurate with relevant competitive data, current business performance and the approved compensation programs.
Use of Consultants and External Benchmarking Data
In 2012, as in past years, the Compensation Committee looked to competitive market compensation data for companies comparable to the Company to establish overall policies and programs that address executive compensation, benefits and perquisites.
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.
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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”). In particular, the analysis used a sample of over 100 companies, listed in Appendix A, from general industry that were available in the CDB with annual revenue between $1 billion and $4 billion and a median 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 in this sample annually to ensure that they remain representative of the Company’s talent market.
NEO compensation at the Company has traditionally consistedconsists of an annual base salary, an annual cash-based incentive in the form of the AIP, and long-term incentive awards, in the formeach of RSUs, stock options and cash-based TSR awards. Beginning in 2013, the TSR Awards will consist entirely of stock-based compensation.which is detailed below:
Compensation Element | Form | Rationale for Providing | ||||
Base Salary | Cash | Base salary is a competitive fixed pay element tied to role, experience, and criticality of skills. | ||||
Annual Incentive Compensation (AIP) | ||||||
| Cash | The AIP is designed to reward achievement of the enterprise (company), Segments (where applicable) and individual performance. The AIP is structured to | ||||
Long-Term Incentives (LTI) | Stock | The long-term incentive plan is designed to reward performance that drives long-term shareholder value through the use of three-year cliff vesting: ŸPerformance Units (50% of LTI mix) provide rewards linked to absolute stock price performance (due to denomination as share units) and can go up or down based on Ÿ 3-year Relative TSR vs. S&P 400 Capital Goods Index Ÿ 3-year Return on Invested Capital ŸRSUs(25% of | ||||
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value. ŸStock Options | ||||||
ŸThe actual award date of stock options, RSUs and performance units is determined on the date on which the Compensation and Personnel Committee |
The Compensation Committee believes that these compensation elements work together to provide a reasonable mix of short-term and long-term compensation, fixed and variable compensation, and absolute and 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.
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 — Compensation—Benefits and Perquisites.”
2012How the Pay Mix Supports Pay-for-Performance Alignment
The Compensation and Personnel Committee believes that these compensation elements work together to provide a reasonable mix of short-term and long-term compensation and fixed and variable compensation to provide alignment of the NEO’s objectives and rewards with the interests of the Company’s shareholders. As an NEO’s scope of responsibility increases, the amount of performance-based pay increases and fixed pay decreases in relation to the NEO’s level within the Company. The charts below show this compensation mix for our CEO and other NEOs.
Note: The information above reflects 2013 base salary, 2013 target bonus, and 2013 target long-term incentive grant value. Calculations exclude the value of special one-time, long-term incentive grants. Short-term compensation is composed of base salary and target bonus. Long-term compensation is composed of target long-term incentive grant value. Fixed compensation is composed of base salary. Variable compensation is composed of target bonus and target long-term incentive grant value.
2013 Base Salary Increases
The Compensation Committee approves NEO base salaries annually after 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 2012.2013.
2012 Annual Merit Increase Process: At the time of the Spin Transaction, theThe Compensation and Personnel Committee reviewed the compensation levels of the NEOs based on the New ITT Corporation. Most current NEOs received salary increases at that timeRepresentative Peer Group 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.external survey data. Based on the Compensation and Personnel 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,Pay Governance, the Compensation and Personnel Committee approved the following 20122013 NEO salaries, effective March 8, 2012:5, 2013:
NEO | Previous Annual Base Salary | Current Annual Base Salary | ||||||||||||||
Named Executive Officer | 2012 Annual Base Salary | 2013 Annual Base Salary | Change % | |||||||||||||
Denise L. Ramos | $850,000 | $850,000 | $ | 850,000 | $ | 900,000 | 6 | % | ||||||||
Aris C. Chicles | $420,000 | $420,000 | $ | 420,000 | $ | 420,000 | — | |||||||||
Thomas M. Scalera | $308,000 | $400,000 | $ | 400,000 | $ | 408,000 | 2 | % | ||||||||
Robert J. Pagano, Jr. | $400,000 | $400,000 | $ | 400,000 | $ | 416,000 | 4 | % | ||||||||
Luca Savi | $521,500 (380,000 EUR at March 2012 exchange rate) | $521,500 (380,000 EUR at | ||||||||||||||
Thomas F. Korber | $310,000 | N/A | ||||||||||||||
William E. Taylor | $318,000 | N/A | ||||||||||||||
Neil W. Yeargin | — | $ | 320,000 | — |
20122013 Annual Incentive Plan
The AIP is an elementFor 2013, annual incentive plan payouts averaged 147% of NEO compensation that rewards annual operating performancetarget for the NEOs, reflecting strong Adjusted Cash Flow and earnings appreciation.Earnings per Share growth. 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 and Personnel Committee approves target AIP awards after careful consideration of external data, individual roles and responsibilities and individual performance. Any
The Company pays for AIP paymentperformance that demonstrates substantial achievement of plan goals. We established strong incentives and set aggressive goals for all financial metrics.
Our most senior executive officers’ eligibility to receive AIP awards is first conditioned upon the productattainment of the annual base salary rate multiplieda threshold performance metric established by the Compensation and Personnel Committee, which for 2013 was the achievement of an adjusted EBITDA target base salary percentage multiplied byof 50% of prior year’s EBITDA. Upon satisfaction of this performance threshold, the AIP annual performance factor based on the approved metrics. The Compensation and Personnel Committee may approveexercise negative discretionary adjustmentsdiscretion to determine AIP payments for these individuals in accordance with respectthe performance criteria applied to NEOs.
all other AIP participants. These AIP performance metrics are described below under the heading “2013 AIP Performance Metrics Selection Processand Weight,” and in 2013 for each NEO they included four financial metrics and an individual component. In 2013, the Compensation and Personnel Committee exercised negative discretion to subject the most senior executive officers to the same performance criteria as all other AIP participants, and to consider each officer’s performance against his or her individual goals.
Under these performance criteria, in order to achieve an AIP payout, the Company must achieve a certain threshold for each of the four financial metrics in order for each performance component to be considered in the calculation. Performance below the threshold performance level results in a zero payout for that particular performance component.
The formula to determine each NEO’s AIP total potential payment is as follows:
2013 AIP Potential Payout =
(Base Salary) x (Target Award Percentage) x (AIP Performance Factor)
Both the individual performance components of the AIP and the overall AIP Award are capped at 200%. The Compensation and Personnel Committee maintains the right to exercise negative discretion when determining AIP awards, but did not exercise negative discretion, or further negative discretion in the case of our NEOs, when determining the 2013 AIP awards under the criteria described below.
2013 AIP Awards Paid in 2014
The 20122013 AIP approach was designed to consider internal business achievements. The Compensation Committee studied pastAwards that were paid in March 2014 are as follows:
Named Executive Officer | 2013 Target AIP Awards as Percentage of Base Salary | 2013 Target AIP Awards | 2013 AIP Awards (Paid in First Quarter 2014) | 2013 AIP Awards as | ||||||||||||
Denise L. Ramos | 100 | % | $ | 900,000 | $ | 1,449,000 | 161 | % | ||||||||
Aris C. Chicles | 75 | % | $ | 315,000 | $ | 497,700 | 158 | % | ||||||||
Thomas M. Scalera | 75 | % | $ | 306,000 | $ | 474,300 | 155 | % | ||||||||
Robert J. Pagano, Jr. | 50 | % | $ | 208,000 | $ | 289,120 | 139 | % | ||||||||
Neil W. Yeargin | 50 | % | $ | 160,000 | $ | 195,200 | 122 | % |
2013 AIP Performance Metrics and projected earnings and other performance measures of comparable multi-industry peers in the CDB. Weight
Based on its 2012the Company’s 2013 business objectives, and an analysis of performance measures used among these peer companies in their annual incentive plans, the Compensation and Personnel Committee identified fourfive performance metrics for the AIP for the 20122013 performance year. The selectedfollowing table shows the weighting assigned to each NEO for each AIP performance metric:
Named Executive Officer | Adjusted Earnings per Share | Adjusted Cash Flow | Adjusted Operating EBIT Margin | Adjusted Revenue | Adjusted Segment Free Cash Flow | Adjusted Segment Operating Margin | Adjusted Segment Revenue | Individual Component | ||||||||||||||||||||||||
Denise L. Ramos | 30 | % | 25 | % | 25 | % | 10 | % | — | — | — | 10 | % | |||||||||||||||||||
Aris C. Chicles | 30 | % | 25 | % | 25 | % | 10 | % | — | — | — | 10 | % | |||||||||||||||||||
Thomas M. Scalera | 30 | % | 25 | % | 25 | % | 10 | % | — | — | — | 10 | % | |||||||||||||||||||
Robert J. Pagano, Jr. | 30 | % | — | — | — | 25 | % | 25 | % | 10 | % | 10 | % | |||||||||||||||||||
Neil W. Yeargin | 30 | % | — | — | — | 25 | % | 25 | % | 10 | % | 10 | % |
As permitted by the ITT Annual Incentive Plan for Executive Officers, the Compensation and Personnel Committee may exclude the impact of acquisitions, dispositions and other special items in computing AIP awards. The four financial performance metrics were:applicable to each NEO are therefore non-GAAP financial measures and should not be considered a substitute for measures determined in accordance with GAAP. These non-GAAP financial measures may not be comparable to similar measures reported by other companies. Descriptions of each the performance metrics are as follows:
Metric | Reason for Selection | Details | ||
Adjusted Earnings per | Important measure of the value provided to | Reflects the adjusted non-GAAP earnings per share from continuing operations of the |
Adjusted | Important measure of how the Company converts its net earnings into deployable | At the corporate level, Adjusted |
Segment level net cash flow from operating activities, less capital expenditures and adjusted for special items. |
Metric | Details | |||
Adjusted Operating EBIT Margin and Adjusted Segment Operating | Emphasizes the importance of maintaining healthy | Adjusted Operating 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 |
Adjusted Revenue and Adjusted Segment Revenue | Adjusted Revenue | ||||
Individual Component | Provides focus on supporting enterprise initiatives that will create growth and increase shareholder value | Each NEO establishes several personal or team goals related to |
For our NEOs at the corporate level, Ms. Ramos, Messrs. Chicles, Scalera,AIP 2013 Performance Targets and formerly, Mr. Korber, incentive compensation is based on consolidatedResults
Corporate Performance Targets: The Adjusted Earnings per Share,EPS, Adjusted Free Cash Flow, Adjusted Operating EBIT Margin and Adjusted Revenue Growth. For Mr. Savi, Mr. Pagano and, formerly, Mr. Taylor, who head or headed certain of our Segments, incentive compensation is based on Adjusted Earnings Per Share, Adjusted Operating Cash Flow, Adjusted Operating Margin, and Adjusted Revenue Growth at their Segments.
2012 AIP Performance Metrics and Weights
The Compensation Committee established 2012 AIP performance targets for the NEOs after considering recommendations from management and the Independent Compensation Consultant, the Company’s business 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 ITT 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 were weighted to represent operational goals. In order to encourage focus on total Company performance, rather than solely Segment performance, the EPS performance target was 40% of the overall performance metrics for the Company’s 2012 AIP for all NEOs. For corporate-level executives, which include Ms. Ramos and Messrs. Chicles, Scalera, and Korber, consolidated Adjusted Free Cash Flow was weighted in the Company’s 2012 AIP at 30% and consolidated Adjusted Operating Margin and consolidated Adjusted Revenue Growth were each weighted at 15%. For Segment-level executives, which include Messrs. Pagano, Savi and Taylor, the remaining 60% of the AIP weight was distributed between three Segment-specific measures: Adjusted Segment Operating Cash Flow (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 an important measure in converting operating income into deployable cash.
The Company pays for AIP performance that 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. Performance below the threshold performance level results in a zero payout for that component.
The formula to determine each NEO’s AIP total potential payment (subject to negative Compensation Committee discretion) is as follows:
2012 AIP Potential Payout =
(Base Salary) x (Target Award Percentage) x (AIP Performance Factor)
Both the individual performance components of the AIP and the overall AIP Award are capped at 200%. Results are interpolated between points.
2012 Target AIP Award Percentage of Base Salary and Weighting of AIP Performance Components
Named Executive Officer | 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 | 100 | % | 40 | % | 30 | % | 15 | % | 15 | % | a+b+c+d | |||||||||||||||||||||
Aris C. Chicles | 75 | % | 40 | % | 30 | % | 15 | % | 15 | % | a+b+c+d | |||||||||||||||||||||
Thomas M. Scalera | 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 |
Calculation of AIP 2012 Performance
Company Performance Targets: The Adjusted EPS, Free Cash Flow, Operating Margin and Revenue Growth targets were based on the 2012Company’s 2013 business plan. The Compensation and Personnel Committee reviewed the business plan with corporate management to ensure that the targets were appropriateappropriate. The Compensation and required significant effort to achieve. The CompensationPersonnel Committee determined that the achievement of the combination of financial goals would be challenging and reflect strong performance in the eyes of shareholders.performance. The table below sets forth the weighting, target and actual amountsresults for each 20122013 AIP financial performance target.metric at the corporate level.
Corporate Financial Performance Targets
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 |
Metric | 2013 Target | 2013 Results | 2013 Payout | |||||||||
Adjusted Earnings per Share | $ | 1.85 | $ | 2.02 | 160.7% | |||||||
Adjusted Cash Flow | $ | 168.4M | $ | 203.3M | 200.0% | |||||||
Operating EBIT Margin | 10.7% | 11.2% | 133.1% | |||||||||
Adjusted Revenue | $ | 2,452.0M | $ | 2,495.6M | 117.8% |
Segment Performance Targets:Targets: For Messrs.Mr. Pagano (Industrial Process) and Savi,Mr. Yeargin (Interconnect Solutions), the Compensation Committee set the Adjusted Segment Operating Cash Flow, Adjusted Segment Operating Margin, and Adjusted Segment Revenue Growth targets for the full 12-month period at levels that are consistent with the Company’s long-term CDB targets and are designed to meet shareholder expectations. The CompensationPersonnel Committee considers
these the segment performance targets to reflect strong performance.
Segment Financial Performance Targets
Metric | 2013 Target | 2013 Results | 2013 Payout | |||||||||
Adjusted Segment Operating Margin (Industrial Process) | 11.4% | 12.1% | 140.1% | |||||||||
Adjusted Segment Operating Margin (Interconnect Solutions) | 8.3% | 8.5% | 117.7% | |||||||||
Adjusted Segment Revenue (Industrial Process) | $ | 1,158.2M | $ | 1,115.3M | 87.6% | |||||||
Adjusted Segment Revenue (Interconnect Solutions) | $ | 388.7M | $ | 399.3M | 127.2% |
The Company does not report on the Adjusted Segment financial results used for Segment AIP calculations,Free Cash Flow metric, as it believes that doing sodisclosing this specific target would causeresult in competitive harm to the Company.Company in that it may inform competitors and other parties as to the basis for future business decisions and provide insights into the Company’s confidential planning process and strategies.
2013 Long-Term Incentive Compensation
In 2013, long-term incentives were allocated as follows:
Ÿ | 50% was granted in performance units calculated at target payment amount; |
Ÿ | 25% was granted in RSUs calculated at grant date fair value; and |
Ÿ | 25% was granted in stock options calculated using a valuation model consistent with accounting expense. |
The following table shows the value of the long-term incentive award grants made to NEOs in March 2013 as part of the Company’s regular annual compensation process. These long-term incentive values were determined, taking into account base pay and annual incentive values, in developing market competitive total compensation levels and an appropriate mix of fixed vs. variable and short-term vs. long-term incentives. These values also considered each NEO’s role, potential long-term contribution, performance, experience, and skills.
Named Executive Officer | Performance Unit Awards (Target Award) | RSUs | Stock Options | Total | ||||||||||||
Denise L. Ramos | $ | 1,402,500 | $ | 701,250 | $ | 701,250 | $ | 2,805,000 | ||||||||
Aris C. Chicles | $ | 315,000 | $ | 157,500 | $ | 157,500 | $ | 630,000 | ||||||||
Thomas M. Scalera | $ | 306,000 | $ | 153,000 | $ | 153,000 | $ | 612,000 | ||||||||
Robert J. Pagano, Jr. | $ | 208,000 | $ | 104,000 | $ | 104,000 | $ | 416,000 | ||||||||
Neil W. Yeargin | $ | 160,000 | $ | 80,000 | $ | 80,000 | $ | 320,000 |
2012 AIP Awards PaidSpecial Grants in 2013
The 2012 AIP Awards that will be paidIn addition to the above long-term incentive awards, three NEOs also received the following special grants, which are not reflected in 2013 are as follows:the table above:
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 | % |
2012 Long-Term Incentive CompensationMr. Chicles received a one-time grant of $250,000 in RSUs to provide additional retention incentive and to reflect his unique multi-dimensional role at ITT, which encompasses IT strategy, corporate development, communications, human resources and ITT Management Systems, as well as his involvement with developing and implementing the Company’s long-term strategy.
Mr. Pagano received a one-time grant of $100,000 in RSUs to provide additional retention incentive and to reflect his leadership in closing the acquisition of Bornemann Pumps, a significant acquisition for the Company.
Mr. Yeargin received a one-time grant of $232,812 in RSUs pursuant to the terms in his letter of employment, in order to provide a recruitment incentive for an important new hire to lead one of the Company’s key business units.
The Company’s long-term incentive awards component for senior executives hastake a portfolio approach by using three subcomponents,distinct vehicles, each addressing long-term shareholder value alignment in different ways. The Compensation and Personnel Committee believes these three types of awards in combination provide strong shareholder alignment, retention value, and the opportunity to leverage awards up and down consistent with absolute and relative stock price performance, as well as Company performance over the long term.
Performance Unit Awards (formerly TSR Unit Awards). Performance units are settled in shares after a three-year performance vesting period, with performance tied equally to the Company’s Return on Invested Capital (ROIC) and the Company’s three-year total shareholder return (TSR) performance relative to the performance of the S&P 400 Capital Goods Index, of which directly ties long-term compensationITT is a member. The number of shares delivered can range from zero to long-term value creation200% of the units initially awarded, depending on performance, and shareholder return:delivery generally requires employment throughout the three-year performance period. Performance units therefore provide alignment with absolute stock performance, relative stock performance, Company performance, and potential retention value.
Measuring TSR performance:
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 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.
Payment, if any, for stock awards generally is made following the end of the applicable three-year performance period and is based on the Company’s performance measured against the TSR performance of the TSR Performance Index. There are up to three outstanding performance unit awards at any time. Consistent with market practice, payouts are made at the target for median performance with upward and downward adjustments for performance above and below median, respectively.
Payout Factor for TSR Component of Performance Unit Award | ||||
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at the | 50 | % | ||
at the 50th percentile | 100 | % | ||
at the 80th percentile or more | 200 | % |
Measuring ROIC performance:
In 2013, the Company established threshold, target and maximum ROIC metrics for the three-year performance period from 2013 through 2015. The threshold, target and maximum ROIC metrics were 10.0%, 11.0% and 12.0% respectively. The Company will need to maintain ROIC improvement at a faster growth rate than its peers in order to achieve the target ROIC metric. The ROIC metrics account for the fact that the Company’s ROIC at the beginning of the three-year performance period was lower than its peers due to the Company’s balance sheet after the Spin Transaction (as defined below under “Benefits and Perquisites”).
The performance goals are designed to be appropriately challenging, and there is a risk that payments will not be made at all or will be made at less than 100% of the target amount. The level of performance required to attain a threshold payout is generally set at a level of performance where the Compensation and Personnel Committee believes that a significantly reduced incentive payment is appropriate and below which no payout is appropriate. The level of performance to attain the target payout is designed to be reasonably challenging. The level of performance to attain a maximum payout is generally set at a level of performance that the Compensation and Personnel Committee deems exceptional.
Payment, if any, of stock awards generally are made following the end of the applicable three-year performance period and are based on the ROIC achieved during the final year of the performance period.
Restricted Stock Units. RSUs are settled in shares after a three-year vesting period and so provide alignment with stock performance, and retention value. RSUs granted to international employees are settled in cash rather than shares, again for local income tax purposes. RSUs provide the same economic risk or reward as restricted stock, but recipients do not have voting rights and do not receive cash dividends during the restriction period. Dividend equivalents are accrued and paid in cash upon vesting of the RSUs.
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The 2012 Long-Term Incentive Program Awards were allocated as follows: one-third of the value was granted in RSUs calculated at grant date fair value; one-third was granted in non-qualified stock options calculated at the grant date fair value of the non-qualified options; and one-third was granted in TSR Awards calculated at target payment amount.
The following table describes the RSU awards, non-qualified stock option awards, and TSR Awards made to NEOs in March 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.
Named Executive Officer | RSU (# of | Non-Qualified Stock (# of Options) | TSR (Target Cash Award) ($) | |||||||||
Denise L. Ramos | 41,009 | 136,100 | $ | 935,000 | ||||||||
Aris C. Chicles | 9,211 | 30,570 | $ | 210,000 | ||||||||
Thomas M. Scalera | 8,772 | 29,115 | $ | 200,000 | ||||||||
Robert J. Pagano, Jr. | 5,848 | 19,410 | $ | 133,300 | ||||||||
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 receive RSU awards because, in the judgment of the Compensation and Personnel Committee and based on management recommendations, these individuals are in positions most likely to influence the achievement of the Company’s long-term value creation goals and to create shareholder value over time. The Compensation and Personnel Committee reviews all grants 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.situations. These grants are reviewed by the Compensation and Personnel Committee at its next scheduled meeting.
Key elements of RSUs do not grant dividend or voting rights to the 2012 RSU program wereholder over the following.
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vesting period; dividend equivalents are accrued and paid on the vesting date. 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 and Personnel Committee.
Non-Qualified Stock Options Component
Non-qualified stockOptions. Stock options permit option holdersprovide the right 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 stock option exercise price. Stock options have a 10-year term and require a three-year vesting period of continuous employment before becoming fully exercisable (generally vesting one-third per year over the three-year period for employees other than executive officers), and so provide alignment with long-term stock price growth, and potential retention value. Non-qualified stock option terms were selected after the Compensation and Personnel 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 cliff vesting.” This vesting schedule prohibits early option exercises, and focuses senior executives on the Company’s long-term value creation goals.
In 2012,2013, the fair value of stock options granted under the employee stock option program was calculated using a binomial lattice valuation 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 non-qualified stock options granted in 2012 are2013 were as follows.follows:
Ÿ | Exercise Price: |
¡ | The option exercise price of stock options awarded is the |
¡ | For stock options granted to new executives, the |
¡ | The Omnibus Incentive Plan prohibits the repricing of, or exchange of, stock options and stock appreciation rights that are priced below the prevailing market price with lower-priced stock options or stock appreciation rights without shareholder approval, except in the event of an equity restructuring. |
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 level. |
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Ÿ | Option Term and Exercise Period: |
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¡ | There may be adjustments to the post-employment exercise period of |
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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 S&P Mid-Cap Capital Goods Index (the “TSR Performance Index”) 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 TSR Awards, performance measures and performance goals, in addition to performance periods
Determining TSR Awards. In determining the size of the TSR Awards, the Compensation Committee considers comparative data provided by the Independent Compensation Consultant, as well as the individual’s role, potential contribution to the company’s long-term goals and performance. Key elements of the TSR Awards include the following:
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Performance Goals and Payments for the TSR Awards. Individual targets for the NEOs for the 2012-2014 performance period (the “2012-14 TSR Award Period”) used to determine TSR Awards are provided in the “Grants of Plan Based Awards in 2012” table under the heading “Compensation Tables.” Payouts, if any, are based on a non 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.
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Benefits and Perquisites
All of the NEOs except Mr. Savi, are eligible to participate in the Company’s broad-based U.S. employee benefits program. The program includes a retirement savings plan that includesthe ITT Corporation Retirement Savings Plan, which provides 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 Spin Transaction, employees also participated in a pension program. In October 2011, ITT completed a separation by spinning off our defense and water businesses, to establish a new diversified global, multi-industrial company (the “Spin Transaction”).
All of the NEOs except Mr. Savi, together with most of the Company’s other salaried employees who work in the United States, participate in the ITT Corporation Retirement Savings Plan (previously called the ITT Corporation Retirement Savings Plan for Salaried Employees,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 three or four percent of pay to the plan for all eligible employees, and matches 50% of employee contributions, up to six percent of pay. The core contribution is three percent for employees whose age plus service is less than 50, and four percent for employees whose age plus service is at least 50. In addition, employees who were participating in the ITT Salaried Retirement Plan at the time it was frozen, as described below, and whose age and service is at least 60 may be eligible for up to five years of transition employer contributions following the Spin Transaction. Prior to the Spin Transaction, the floor contribution in the ITT Salaried Investment and Savings Plan was one halfone-half of one percent and all contributions were based on base salary only. In 2012only; since October 31, 2011, the ITT Salaried Investment and Savings Planplan considers salary and bonus as eligible 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.planning reimbursement of up to $1,250 per month. Since 2011, the Company doeshas not provideprovided any tax gross-up for personal income taxes due on these perquisites.
Retirement planAmounts reported as perquisites also include reimbursement of certain relocation-related expenses. In 2013, the Company reimbursed Mr. Yeargin 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. Savi: At the time of Mr. Savi’s employment in November 2011, we agreed to reimburse him for relocation expenses to assist in the costs associated with his move from Detroit, Michiganrelocation to Italy. Costs associated with this relocation that were incurred in fiscal year 2012 included reimbursement of
California, including, but not limited to, the financial loss on the sale of his home in the St. Charles, Illinois area, closing costs, thetemporary living expenses, movement of physical goods, attorney’s fees and temporary living expenses forhome visits prior to his move to California. The Company also provided him with a tax equalization payment related to his relocation, which provided him with the first two yearssame after-tax income as he would have received had he not relocated at the request of his employment. Underthe Company. No further relocation assistance is owed to Mr. Yeargin. The Company hired Mr. Yeargin in early 2013 to lead one of the Company’s key business units, and substantial relocation program, he received reimbursementassistance was provided as a recruitment incentive for taxes associated with certain of thesean important new hire. The Company is committed to only providing special relocation expenses. The relocation program also includesassistance when there is a compelling business need to do so. As noted in the payment of one month’s salary, grossed up for taxes,Executive Summary, the Company is making significant investments in its people, focusing on talent management and building capability 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 2012, some minor expenses may be paid in 2013, and thus the amount paid bygrow our own leaders. These investments will enable the Company to Mr. Savi in connectionidentify and develop leaders with this relocation was a non-recurring event.greater focus on effective succession planning.
Post-EmploymentOther Compensation and Benefits
Salaried Retirement Plan. 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, onCEO Compensation and Employment Agreement
Ms. Ramos has 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, byemployment agreement with the Company effectivethat governs the terms of her employment. The agreement was entered into on the 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 elsewhere in this Proxy Statement under the heading “Compensation Tables — The Company’s Pension Benefits”) in a single discounted lump-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 benefits in 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 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. All 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 the Company’s common stock.
Severance Plan Arrangements
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. The Compensation Committee is currently undergoing a review of these plans to ensure that they are consistent with competitive market practices.
The purpose of the Senior Executive Severance Pay Plan is to provide a period of transition for senior executives. Senior executives 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 purpose of the Special Senior Executive Severance Pay Plan is to provide compensation in the case of termination of employment in connection with an acceleration event (defined under the heading “Potential Post-Employment Compensation — Change of 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 severance plans apply to 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.
Mr. Savi does not participate in the Senior Executive Severance Pay Plan. Mr. Savi participates under the National Collective Agreement for the Industrial Sector Managers. This agreement provides Mr. Savi with termination benefits in the event his employment is terminated for other than cause.
CEO COMPENSATION AND EMPLOYMENT AGREEMENTS
Denise L. Ramos Compensation and Employment Agreements: Upon her appointmenthave a stated expiration date. Ms. Ramos’ initial compensation as Chief Executive Officer and President of the Company effective October 31, 2011,consisted of a minimum base salary of $850,000, an AIP target incentive payment of 100% of base salary (beginning with the 2012 fiscal year) and a Long-Term Incentive Award target value of $2,800,000. Ms. Ramos’ compensation in the role was as follows:
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Ms. Ramos’ employment letter also provided that Ms. Ramos would receive a Founders’ Grant in connection with the Spin Transaction composed of non-qualified stock options and RSUs with termsfor 2013 is set forth in her employment letter and having an aggregate expected value of $4,200,000, based onunder 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.heading “Executive Summary.”
If the Company terminates her employment other than for cause (as defined in her employment letter)agreement) and other than as a result of her death or disability, in any case prior to her normal retirement date, Ms. Ramos will, subject to certain conditions and limitations set forth in her employment letter,agreement, 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 filed on October 17, 2011.
The Compensation Committee reviews the compensation of the CEO and all of her 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 market practices.
KEY PARTICIPANTS IN THE COMPENSATION PROCESSPost-Employment Compensation
RoleDeferred Compensation Plan. All of our NEOs 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 awards 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 the Compensation Committee: Company’s common stock.
Frozen Plans
Ÿ | ITT Salaried Retirement Plan. 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 could elect, on an annual basis, to be covered by either a Traditional Pension Plan (described elsewhere in this Proxy Statement under the heading “Compensation Tables—The Company’s Pension Benefits”) 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 October 31, 2011, and both service credit and accrued benefits were frozen as of that date, and certain participants are eligible to receive transition employer contributions into the ITT Corporation Retirement Savings Plan. |
Ÿ | ITT Excess Pension Plan. 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 until October 31, 2011 maintained, a non-qualified, unfunded excess pension plan solely to pay retirement benefits that could not be paid from the ITT Salaried Retirement Plan. All of our NEOs (other than Mr. Yeargin) participated in this plan. Benefits under the ITT Excess Pension Plan 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 in a single discounted lump-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 ITT Excess Pension Plan is 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 ITT Excess Pension Plan was transferred to Exelis Inc. by the Company, effective on the date of the Spin Transaction, and both service credit and accrued benefits were frozen as of that date, and certain participants are eligible to receive transition employer contributions into the ITT Corporation Retirement Savings Plan. |
Severance Plan Arrangements
The Compensation Committee, with input from corporate-level management and external data and advice from the Independent Compensation Consultant, reviews and approves eachCompany maintains severance arrangements for most of the compensation targets forits senior executives, including all of the NEOs. These arrangements are broken out into two plans, one covering most severance circumstances (the Senior Executive Severance Pay Plan), and the other covering severance following a change-in-control event (the Special Senior Executive Severance Pay Plan). These plans were originally established in 1984 and are regularly reviewed by the Compensation and Personnel Committee.
The purpose of the Senior Executive Severance Pay Plan is to provide a period of transition for senior executives. The Senior Executive Severance Pay Plan applies to all NEOs other than Ms. Ramos, whose severance terms are covered under her employment agreement. Senior executives 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. During 2013, the Compensation and Personnel Committee considered changes to the Senior Executive Severance Pay Plan. The changes were intended to bring ITT’s practices in line with current competitive practices. Some of the changes made to the plan were reducing the overall cash severance benefits provided to executives from a maximum of two years to one year, providing participants with outplacement assistance for 12 months and eliminating the vesting of equity awards during the severance period. These changes were effective July 1, 2013 for new participants. The existing program will sunset over two years for executives, upon which time those individuals will be covered under the new terms.
The purpose of the Special Senior Executive Severance Pay Plan is to provide compensation in the case of termination of employment in connection with an acceleration event (defined under the heading “Potential Post-Employment Compensation—Change of 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 executive officers,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 in the case of an acceleration event.
These plans, including its NEOs. The Compensation Committee reviewed each compensation element for the CEO and otherpotential post-employment payments that our NEOs and made the final determination regarding executive compensation forwould receive pursuant to these officers using the processesplans, are described in more detail elsewhere in this Compensation Discussion and Analysis. It also makes determinations with respect toAnalysis under 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 noheading “Potential Post-Employment Compensation.” The severance plans induce or encourage excessive risk-taking by its participants.apply
to the Company’s Policies The Role of Risk and Risk Mitigation In 2013, the Role of Management: The Compensation Committee has delegated senior human resources executive responsibility for administeringkey employees as defined by Section 409A. The Company’s severance plan arrangements are not considered in determining other elements of compensation.executive compensation program. During 2012,Compensation and Personnel Committee evaluated risk factors associated with the Company’s Chief Executive Officer, senior human resources executive, as well as other senior executives, made recommendations to the Compensation Committee regarding executivebusinesses in determining compensation actionsstructure 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 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 2012, the Compensation Committee retained the Independent 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 elsewhere in this proxy statement under the heading “Committeespay practices. The structure of the Board of Directors.” The Independent Compensation Consultant also provided independent consulting services in supportDirectors’ Committees facilitates this evaluation and determination. More specifically, during 2013, the Chair of the Compensation Committee’s charter, including providing competitive data on director compensation.
The Independent Compensation Consultant’s engagement leader providedand Personnel Committee was a member of the Audit Committee. This membership overlap provides insight into the Company’s business risks and affords the Compensation and Personnel Committee with objective expert analyses, assessments, researchaccess to the information necessary to consider the impact of business risks on compensation structure and recommendations for executivepay practices. Further, overall enterprise risk is considered and non-executive employee compensation programs, incentives, perquisites,discussed at Board meetings, providing additional important information to the Compensation and compensation standards. In this capacity,Personnel Committee. The Chief Executive Officer and President, and the Independent Compensation Consultant provided services that related solely to work performed forSenior Vice President and at the directionChief Financial Officer, attend those portions of the Compensation and Personnel Committee including analysis of material prepared by corporate-level management for the Compensation Committee’s review. Additionally, the Independent Compensation Consultant provided analyses to the Nominatingmeetings at which plan features 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 2012.
Fees paid to the Independent Compensation Consultant in 2012 are set forth in the table below.
Ÿ Services performed that related solely to work performed for, and at the direction of, the Compensation Committee or the Nominating and Governance Committee, and analyses of documents prepared by corporate-level management for the Compensation Committee’s review during 2012: | $ | 359,411 | ||
Ÿ Other services performed for the Company during 2012: | $ | 0 |
The Compensation Committee annually reviews the Independent Compensation Consultant’s independence, and determined the Independent Compensation Consultant was 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.
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 restatementdesign configurations of the Company’s financial results. In such a situation, the Board will review allannual and long-term incentive plans are considered and approved.
We believe our executive compensation awarded to or earned by that seniorprogram appropriately balances risk with maximizing long-term shareholder value. The following features of our 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 relatedprogram especially contribute 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 executiveachievement 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.goal:
Ÿ | Emphasis on Long-Term Compensation. By targeting long-term incentive compensation at 44% to 61% of our NEOs’ total compensation package, the Compensation and Personnel Committee believes that it is encouraging strategies that correlate with the long-term interests of the Company. The Company’s long-term incentive awards, described elsewhere in this Compensation Discussion and Analysis under the heading “Elements of Compensation—2013 Long-Term Incentive Compensation,” feature a three-year vesting threshold for senior vice presidents and 10-year stock option terms, encouraging behavior focused on long-term value creation. Performance unit awards focus on three-year stock price performance and improvement in three-year Return on Invested Capital, encouraging behavior focused on long-term goals while discouraging behavior focused on short-term risks. |
Ÿ | Pay Mix. 20% to 35% of total target compensation is fixed for NEOs while the remaining total compensation is tied to performance, consistent with the Company’s pay-for-performance philosophy. As scope of responsibility increases, the amount of performance-based pay increases and fixed pay decreases in relation to the level within the Company. The Company’s incentive design provides multiple performance time frames and a variety of financial measures that are intended to drive profitable and sustained growth. |
Ÿ | Clawback Policy. In 2008, the Company, upon the recommendation of the Compensation and Personnel 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 materially affected 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. |
Ÿ | Required Executive Stock Ownership. NEOs are required to own Company shares or share equivalents with a value equal to a multiple of their base salary, as discussed in more detail below. We believe this requirement aligns their interests with the interests of the Company’s shareholders and also discourages behavior that is focused only on the short-term. |
Ÿ | Prohibition Against Speculating in Company Stock and Hedging. The Company has a policy prohibiting employees from hedging and speculative trading in and out the Company’s securities, including short sales and leverage transactions, such as puts, calls, and listed and unlisted options. |
Ÿ | Rule 10b5-1 Trading Plans. ITT’s Board of Directors has authorized the use by executive officers of prearranged trading plans under Rule 10b5-1 of the Exchange Act. Rule 10b5-1 permits insiders to adopt predetermined plans for selling specified amounts of stock or exercising stock options under specified conditions and at specified times. Executive officers may only enter into a trading plan during an open trading window and they must not possess material nonpublic information regarding the Company at the time they adopt the plan. Using trading plans, insiders can diversify their investment portfolios while avoiding concerns about transactions occurring at a time when they might possess material nonpublic information. Generally, under these trading plans, the individual relinquishes control over the transactions once the trading plan is put into place. Accordingly, sales under these plans may occur at any time, including possibly before, simultaneously with, or immediately after significant events involving the Company. Both new plans and modifications are subject to a mandatory “waiting period” designed to safeguard the plans from manipulation or market timing. All trading plans adopted by executive officers are reviewed and approved by the Company’s Legal Department. |
EXECUTIVE STOCK OWNERSHIP GUIDELINESExecutive Stock Ownership Guidelines
The Company maintains stock ownership guidelines for all of its executives,executive officers, including the NEOs. TheExecutive officers have five years in order to meet the guidelines.
Share ownership guidelines which are described in greater detail elsewhere in this Proxy Statement under the heading “Stock Ownership Information,”for officers 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 requirespecify expected share ownership levels expressed as a multiple of base salary, for all corporate officers. The guidelines for all Company executives are:
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as set forth below. 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 andCorporation Retirement 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, 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 and exercise price obligations.
Both the guidelines, and compliance with the guidelines, are monitored periodically. Company officers are afforded a reasonable period of time to meet the guidelines.
CEO | 5 X Annual Base Salary | |
CFO and EVP | 3 X Annual Base Salary | |
Senior Vice Presidents | 2 X Annual Base Salary | |
Selected Vice Presidents | 1 X Annual Base Salary |
As of the writingdate of this proxy statement,Proxy Statement, all NEOs either have met the guidelines, or are expectedon track to meet the guidelines within the next two years, with the exceptionguidelines.
Considerations of Mr. Savi who will have five years from his date of hire to achieve the guideline.
CONSIDERATIONS OF TAX AND ACCOUNTING IMPACTSTax 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 toOur AIP awards as well as awards under the Company’s AIP andour long-term incentive program are generally structuredintended to qualify as performance-based compensation deductible under Section 162(m).
However, the Compensation and Personnel 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 Company’s plans are intended to comply with Section 409A of the Internal Revenue Code, to the extent applicable,applicable.
CEO Compensation Decisions
Pay Decisions for the CEO Following 2012
The Company’s executive compensation philosophy ties a substantial percentage of CEO compensation to business performance and stock price performance. In the Companyfirst quarter of each year, the Compensation and Personnel Committee meets to determine CEO pay decisions for base, annual incentive, and new long-term incentive grants reflecting both prior year performance and appropriate positioning versus the representative peer group. The following table displays the decisions made amendments toin the plans during 2008 in this regard. Whilefirst quarter of 2013 and rationale:
First Quarter 2013 Decisions (following 2012 performance) | Decision Driver for First Quarter 2013 Decisions | |||||
Base Salary | $ | 900,000 | Ms. Ramos’ base salary was increased $50,000 to $900,000 based on her leadership in increasing shareholder value, focusing on infrastructure and building a platform for continued future growth, as well as completing the strategic acquisition of Bornemann Pumps in the fourth quarter of 2012. | |||
Annual Incentive Plan (AIP) | $ | 978,350 | The Company exceeded its financial targets, resulting in AIP payouts of 115% of target based on increases in earnings per share, cash flow and revenue growth. The Company also met its operating margin targets. These metrics are fundamental to the growth in shareholder value, which was 23% in 2012. | |||
Long-Term Incentives (LTI) | $ | 2,805,000 | LTI grant value remained the same as in 2012 reflecting the fact that Ms. Ramos had been in the CEO role for just over one year. | |||
Total Direct Compensation (TDC) | $ | 4,683,350 |
Note: The totals above reflect the Company complies with other applicable sections of the Internal Revenue Codefirst quarter 2013 AIP payout based on 2012 performance, and first quarter 2013 decisions with respect to compensation,salary and long-term incentive compensation. The salary total above differs from what is displayed in the CompanySummary Compensation Table which appears later in this Proxy Statement because the new salary did not become effective until March 2013.
Pay Decisions for the CEO Following 2013
The following table displays the decisions made in the first quarter of 2014 and rationale:
First Quarter 2014 Decisions (following 2013 performance) | Decision Driver for First Quarter 2014 Decisions | |||||
Base Salary | $ | 950,000 | Ms. Ramos’ base salary was increased $50,000 to $950,000 based on her leadership in driving strong operating performance, substantially increasing shareholder value, and building a platform for continued future growth, as well as to achieve closer alignment with market benchmarks. | |||
Annual Incentive Plan (AIP) | $ | 1,449,000 | The Company significantly exceeded its financial targets, resulting in a 2013 AIP payout for Ms. Ramos of 161% of target based on significant increases in earnings per share, cash flow, operating margins and revenue growth. These metrics are fundamental to the growth in shareholder value, which was substantial in 2013 at 87%. Ms. Ramos was also recognized for her performance related to personal and team goals associated with strategic initiatives. Ms. Ramos’ AIP target for 2014 remains at 100% of base salary. | |||
Long-Term Incentives (LTI) | $ | 3,500,000 | LTI grant value increased from $2,805,000 to $3,500,000 reflecting Ms. Ramos’ strong leadership, proven financial and operational results and continued focus on increasing long-term shareholder value, as well as to achieve closer alignment with market benchmarks. | |||
Total Direct Compensation (TDC) | $ | 5,899,000 |
Note: The totals above reflect the Compensation Committee do not consider other tax implications in designing its compensation programs.first quarter 2014 AIP payout based on 2013 performance, and first quarter 2014 decisions with respect to salary and long-term incentive compensation.
COMPENSATION TABLESCompensation Tables
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”).NEOs.
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 |
Name and Principal Position | Year | Salary | Bonus | Stock Awards(1) | Option Awards(2) | Non-Equity Incentive Plan Comp(3) | Change in Pension Value and Non-qualified Deferred Comp Earnings(4) | All Other Comp(5) | Total | |||||||||||||||||||||||||||
Denise L. Ramos | 2013 | $ | 890,384 | $ | — | $ | 2,320,489 | $ | 712,847 | $ | 1,449,000 | $ | — | $ | 114,504 | $ | 5,487,224 | |||||||||||||||||||
Chief Executive | 2012 | 850,000 | — | 1,870,000 | 935,000 | 978,350 | 109,444 | 30,528 | 4,773,322 | |||||||||||||||||||||||||||
Officer & President | 2011 | 640,788 | 20,000 | 3,158,816 | 2,965,014 | 687,500 | 265,992 | 51,443 | 7,789,553 | |||||||||||||||||||||||||||
Aris C. Chicles | 2013 | 420,000 | — | 771,182 | 160,111 | 497,700 | — | 66,118 | 1,915,111 | |||||||||||||||||||||||||||
Executive Vice | 2012 | 420,000 | — | 420,000 | 210,000 | 542,565 | 63,892 | 29,192 | 1,685,649 | |||||||||||||||||||||||||||
President | 2011 | 365,385 | 7,500 | 1,010,543 | 949,151 | 483,500 | 129,839 | 35,785 | 2,981,703 | |||||||||||||||||||||||||||
Thomas M. Scalera | 2013 | 406,461 | — | 506,281 | 155,541 | 474,300 | — | 43,834 | 1,586,417 | |||||||||||||||||||||||||||
Chief Financial Officer | 2012 | 381,246 | — | 400,000 | 200,000 | 460,300 | 13,715 | 24,994 | 1,480,255 | |||||||||||||||||||||||||||
2011 | 289,800 | 1,850 | 445,763 | 433,008 | 296,800 | 34,941 | 12,840 | 1,515,002 | ||||||||||||||||||||||||||||
Robert J. Pagano, Jr. | 2013 | 412,923 | — | 444,143 | 105,747 | 289,120 | — | 53,265 | 1,305,198 | |||||||||||||||||||||||||||
President, Industrial | 2012 | 400,000 | — | 266,633 | 133,333 | 388,000 | 295,425 | 17,023 | 1,500,414 | |||||||||||||||||||||||||||
Process | 2011 | 355,273 | 7,072 | 564,697 | 596,532 | 376,100 | �� | 460,899 | 1,294,205 | 3,654,778 | ||||||||||||||||||||||||||
Neil W. Yeargin President, Interconnect Solutions | 2013 | 276,923 | — | 497,557 | 81,342 | 195,200 | — | 1,324,925 | 2,375,947 |
(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 |
(2) | 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. A discussion of assumptions |
relating to stock option awards may be found in Note |
(3) |
(4) |
Named Executive Officer | ITT Salaried Retirement Plan | ITT Excess Pension Plan | Total | |||||||||
Denise L. Ramos | $ | (9,447 | ) | $ | (41,788 | ) | $ | (51,235 | ) | |||
Aris C. Chicles | (12,343 | ) | (22,817 | ) | (35,160 | ) | ||||||
Thomas M. Scalera | (4,719 | ) | (3,481 | ) | (8,200 | ) | ||||||
Robert J. Pagano, Jr. | (71,291 | ) | (76,468 | ) | (147,759 | ) | ||||||
Neil W. Yeargin | — | — | — |
Assumptions used to calculate the above amounts can be found immediately after the 2013 Pension Benefits table. Mr. Yeargin was hired after October 31, 2011, the date on which the plans were frozen. As amounts represent a decrease in value, such amounts have not been included in the Summary Compensation Table.
(5) | Amounts in this column for |
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 |
Executive Perquisites | All Other Compensation | |||||||||||||||||||||||||||||||
Named Executive Officer | Financial Counseling(1) | Auto Allowance(2) | Relocation Expense(3) | Total Perquisites | Tax Reimbursements(4) | Group Life Insurance(5) | Retirement Plan Contributions(6) | Total All Other Compensation | ||||||||||||||||||||||||
Denise L. Ramos | $ | 9,000 | $ | 15,600 | $ | — | $ | 24,600 | $ | — | $ | 4,336 | $ | 85,568 | $ | 114,504 | ||||||||||||||||
Aris C. Chicles | 12,567 | 15,600 | — | 28,167 | — | 1,021 | 36,930 | 66,118 | ||||||||||||||||||||||||
Thomas M. Scalera | — | 15,600 | — | 15,600 | — | 428 | 27,806 | 43,834 | ||||||||||||||||||||||||
Robert J. Pagano, Jr. | — | 15,600 | — | 15,600 | — | 1,002 | 36,663 | 53,265 | ||||||||||||||||||||||||
Neil W. Yeargin | — | 13,800 | 663,184 | 676,984 | 646,918 | 392 | 631 | 1,324,925 |
(1) | Amounts represent financial |
(2) | Semi-monthly auto allowances are provided to a range of executives, including the NEOs. |
(3) |
(4) | The |
(5) |
Amounts include taxable group term-life insurance premiums attributable to each NEO. |
(6) | Amounts represent the Core and Match contributions under the ITT Supplemental Retirement Savings Plan for Salaried Employees (wherein earnings are credited to the accumulated savings under the plan). |
Grants of Plan-Based Awards in 20122013
The following table provides information about 20122013 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 20122013 AIP) and estimated future payouts under 20122013 equity incentive plan awards, includingwhich consist of potential payouts related to the TSRperformance unit target award granted in 20122013 for the 2012-20142013-2015 performance period (each unit equals $1).period. Also provided is the number of shares underlying all other stock and option awards, composed of RSU and non-qualified stock option awards. The table also provides the exercise price of the non-qualified stock option awards, reflecting the closing price of the Company’s common stock on the grant date and the grant date fair value of each equity award computed under FASB ASC Topic 718. The compensation plans under which the grants in the following table were made are described in the Compensation Discussion and Analysis and include the AIP, TSR Awards,performance unit awards, RSU awards, and non-qualified stock options awards.
Name | Action Date | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | All Other Stock Awards: Number of Shares of Stock or Units (#)(3) | All Other | Exercise or Base Price of Option Awards ($ / Sh)(5) | Grant ($)(6) | Action Date | Grant Date |
Estimated Future Payouts |
Estimated Future Payouts | All Other or Units(3) (#) | All Other (#) | Exercise ($/Sh) | Grant ($) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Threshold ($) | Target ($) | Maximum ($) | Threshold ($) | Target ($) | Maximum ($) | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Denise L. Ramos | 3/8/2012 | 3/8/2012 | 425,000 | 850,000 | 1,700,000 | 03/05/2013 | 03/05/2013 | 450,000 | 900,000 | 1,800,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/8/2012 | 3/8/2012 | 467,500 | 935,000 | 1,870,000 | 935,000 | 03/05/2013 | 03/05/2013 | 27,436 | 54,871 | 109,742 | 1,619,243 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/8/2012 | 3/8/2012 | (a) | 41,009 | 935,005 | 03/05/2013 | 03/05/2013 | 26,205 | 701,246 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/8/2012 | 3/8/2012 | 136,100 | 22.80 | 935,007 | 03/05/2013 | 03/05/2013 | 105,295 | 26.76 | 712,847 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Aris C. Chicles | 3/8/2012 | 3/8/2012 | 157,500 | 315,000 | 630,000 | 03/05/2013 | 03/05/2013 | 157,500 | 315,000 | 630,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/8/2012 | 3/8/2012 | 105,000 | 210,000 | 420,000 | 210,000 | 03/05/2013 | 03/05/2013 | 6,162 | 12,324 | 24,648 | 363,681 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/8/2012 | 3/8/2012 | (a) | 9,211 | 210,011 | 03/05/2013 | 03/05/2013 | 15,228 | 407,501 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/8/2012 | 3/8/2012 | 30,570 | 22.80 | 210,016 | 03/05/2013 | 03/05/2013 | 23,650 | 26.76 | 160,111 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Thomas M. Scalera | 3/8/2012 | 3/8/2012 | 150,000 | 300,000 | 600,000 | 03/05/2013 | 03/05/2013 | 153,000 | 306,000 | 612,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/8/2012 | 3/8/2012 | 100,000 | 200,000 | 400,000 | 200,000 | 03/05/2013 | 03/05/2013 | 5,986 | 11,972 | 23,944 | 353,294 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/8/2012 | 3/8/2012 | (a) | 8,772 | 200,002 | 03/05/2013 | 03/05/2013 | 5,717 | 152,987 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/8/2012 | 3/8/2012 | 29,115 | 22.80 | 200,020 | 03/05/2013 | 03/05/2013 | 22,975 | 26.76 | 155,541 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Robert J. Pagano, Jr. | 3/8/2012 | 3/8/2012 | 100,000 | 200,000 | 400,000 | 03/05/2013 | 03/05/2013 | 104,000 | 208,000 | 416,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/8/2012 | 3/8/2012 | 66,650 | 133,300 | 266,600 | 133,300 | 03/05/2013 | 03/05/2013 | 4,069 | 8,138 | 16,276 | 240,152 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/8/2012 | 3/8/2012 | (a) | 5,848 | 133,334 | 03/05/2013 | 03/05/2013 | 7,623 | 203,991 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/8/2012 | 3/8/2012 | 19,410 | 22.80 | 133,347 | 03/05/2013 | 03/05/2013 | 15,620 | 26.76 | 105,747 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Luca Savi | 3/8/2012 | 3/8/2012 | 109,610 | 219,219 | 438,438 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Neil W. Yeargin | 03/05/2013 | 03/05/2013 | 80,000 | 160,000 | 320,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/8/2012 | 3/8/2012 | 45,650 | 91,300 | 182,600 | 91,300 | 03/05/2013 | 03/05/2013 | 3,130 | 6,260 | 12,250 | 184,733 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/8/2012 | 3/8/2012 | (a) | 4,006 | 91,337 | 03/05/2013 | 03/05/2013 | 11,690 | 312,824 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3/8/2012 | 3/8/2012 | 13,295 | 22.80 | 91,337 | 03/05/2013 | 03/05/2013 | 12,015 | 26.76 | 81,342 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Thomas Korber | 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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
William E. Taylor | 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 AIP. These potential payments are based on achievement of specific performance metrics and are completely at risk. The AIP target award is computed based upon the applicable range of net estimated payments denominated in dollars where the target award is equal to 100% of the award potential, the threshold is equal to 50% of target and the maximum is equal to 200% of target. Zero payment is possible for below threshold performance. |
(2) | Amounts reflect the threshold, target and maximum |
(3) | Amounts reflect the number of RSU awards granted in |
(4) | Amounts reflect the number of non-qualified stock options granted in |
(5) | The stock 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 |
Outstanding Equity Awards at 20122013 Fiscal Year End
Name | Option Awards | Stock Awards | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Grant Date (mm/dd/yyyy) | Number of Securities Underlying Unexercised Options (#) Exercisable(1) | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)(2) | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested ($) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | Grant Date (mm/dd/yyyy) | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable(1) | Equity Incentive (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested(2) (#) | Market ($) | Equity ($) | Equity That ($) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
07/02/2007 | 43,829 | — | — | 25.75 | 7/2/2014 | 210,297 | 4,933,568 | — | — | 03/05/2009 | 80,724 | — | — | 12.39 | 03/05/2016 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
03/10/2008 | 48,721 | — | — | 19.82 | 3/10/2015 | — | — | — | — | 03/05/2010 | 71,590 | — | — | 19.97 | 03/05/2020 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
03/05/2009 | 80,724 | — | — | 12.39 | 3/5/2016 | — | — | — | — | 03/03/2011 | — | 89,643 | — | 21.53 | 03/03/2021 | 24,410 | 1,059,882 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
03/05/2010 | — | 71,590 | — | 19.97 | 3/5/2020 | — | — | — | — | 11/07/2011 | 201,730 | 100,864 | — | 20.28 | 11/07/2021 | 103,550 | 4,496,141 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
03/03/2011 | — | 89,643 | — | 21.53 | 3/3/2021 | — | — | — | — | 03/08/2012 | — | 136,100 | — | 22.80 | 03/08/2022 | 41,009 | 1,780,611 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11/07/2011 | 100,865 | 201,729 | — | 20.28 | 11/7/2021 | — | — | — | — | 03/05/2013 | — | 105,295 | — | 26.76 | 03/05/2023 | 26,205 | 1,137,821 | 27,436 | 1,191,271 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
03/08/2012 | — | 136,100 | — | 22.80 | 03/08/2022 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Aris C. Chicles | 03/07/2007 | 15,793 | — | — | 21.64 | 3/7/2014 | 63,413 | 1,487,669 | — | — | 03/05/2010 | 24,163 | — | — | 19.97 | 03/05/2020 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
03/10/2008 | 22,250 | — | — | 19.82 | 3/10/2015 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
03/05/2010 | — | 24,163 | — | 19.97 | 3/5/2020 | — | — | — | — | 03/03/2011 | — | 32,217 | — | 21.53 | 03/03/2021 | 8,771 | 380,837 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
03/03/2011 | — | 32,217 | — | 21.53 | 3/3/2021 | — | — | — | — | 11/07/2011 | 60,519 | 30,259 | — | 20.28 | 11/07/2021 | 31,065 | 1,348,842 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11/07/2011 | 30,260 | 60,518 | — | 20.28 | 11/7/2021 | — | — | — | — | 03/08/2012 | — | 30,570 | — | 22.80 | 03/08/2022 | 9,211 | 399,942 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
03/08/2012 | — | 30,570 | — | 22.80 | 3/8/2022 | — | — | — | — | 03/05/2013 | — | 23,650 | — | 26.76 | 03/05/2023 | 15,228 | 661,200 | 6,162 | 267,554 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Thomas M. Scalera | 03/06/2006 | 5,082 | — | — | 19.66 | 3/6/2013 | 31,973 | 750,087 | — | — | 03/07/2007 | 4,286 | — | — | 21.64 | 03/07/2014 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
03/07/2007 | 4,286 | — | — | 21.64 | 3/7/2014 | — | — | — | — | 03/10/2008 | 5,438 | — | — | 19.82 | 03/10/2015 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
03/10/2008 | 5,438 | — | — | 19.82 | 3/10/2015 | — | — | — | — | 03/05/2009 | 8,868 | — | — | 12.39 | 03/05/2016 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
03/05/2009 | 8,868 | — | — | 12.39 | 3/5/2016 | — | — | — | — | 03/05/2010 | 7,019 | — | — | 19.97 | 03/05/2020 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
03/05/2010 | 4,677 | 2,342 | — | 19.97 | 3/5/2020 | — | — | — | — | 03/03/2011 | 6,205 | 3,105 | — | 21.53 | 03/03/2021 | 2,288 | 99,345 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
03/03/2011 | 3,102 | 6,208 | — | 21.53 | 3/3/2021 | — | — | — | — | 11/07/2011 | 33,286 | 16,642 | — | 20.28 | 11/07/2021 | 17,086 | 741,874 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11/07/2011 | 16,643 | 33,285 | — | 20.28 | 11/7/2021 | — | — | — | — | 03/08/2012 | — | 29,115 | — | 22.80 | 03/08/2022 | 8,772 | 380,880 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
03/08/2012 | — | 29,115 | — | 22.80 | 3/8/2022 | — | — | — | — | 03/05/2013 | — | 22,975 | — | 26.76 | 03/05/2023 | 5,717 | 248,232 | 5,986 | 259,912 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Robert J. Pagano, Jr. | 08/09/2004 | 10,716 | — | — | 14.29 | 8/9/2014 | 48,058 | 1,127,441 | — | — | 03/05/2009 | 33,851 | — | — | 12.39 | 03/05/2016 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
03/07/2007 | 19,169 | — | — | 21.64 | 3/7/2014 | — | — | — | — | 03/05/2010 | 25,171 | — | — | 19.97 | 03/05/2020 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
03/10/2008 | 21,018 | — | — | 19.82 | 3/10/2015 | — | — | — | — | 03/03/2011 | 16,538 | 8,271 | — | 21.53 | 03/03/2021 | 6,103 | 264,992 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
03/05/2009 | 33,851 | — | — | 12.39 | 3/5/2016 | — | — | — | — | 11/07/2011 | 28,819 | 14,409 | — | 20.28 | 11/07/2021 | 14,793 | 642,312 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
03/05/2010 | 16,779 | 8,392 | — | 19.97 | 3/5/2020 | — | — | — | — | 03/08/2012 | — | 19,410 | — | 22.80 | 03/08/2022 | 5,848 | 253,920 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
03/03/2011 | 8,268 | 16,541 | — | 21.53 | 3/3/2021 | — | — | — | — | 03/05/2013 | — | 15,620 | — | 26.76 | 03/05/2023 | 7,623 | 330,991 | 4,069 | 176,675 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11/07/2011 | 14,410 | 28,818 | — | 20.28 | 11/7/2021 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
03/08/2012 | — | 19,410 | — | 22.80 | 3/8/2022 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Luca Savi | 03/08/2012 | — | 13,295 | — | 22.80 | 3/8/2022 | 4,006 | 93,981 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Thomas F. Korber | 11/07/2011 | 7,205 | 14,409 | 20.28 | 11/7/2021 | 12,732 | 298,693 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
03/08/2012 | — | 17,710 | 22.80 | 3/8/2022 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
William E. Taylor | 03/07/2007 | 15,793 | — | — | 21.64 | 3/7/2014 | 29,698 | 696,715 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
03/10/2008 | 14,829 | — | — | 19.82 | 3/10/2015 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
03/05/2009 | 23,925 | — | — | 12.39 | 3/5/2016 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
03/05/2010 | 12,742 | 6,374 | — | 19.97 | 3/5/2020 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
03/03/2011 | 6,199 | 12,408 | — | 21.53 | 3/3/2021 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11/07/2011 | 10,807 | 21,614 | — | 20.28 | 11/7/2021 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
03/08/2012 | — | 16,210 | — | 22.80 | 3/8/2022 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Neil W. Yeargin | 03/05/2013 | — | 12,015 | — | 26.76 | 03/05/2023 | 11,690 | 507,580 | 3,130 | 135,905 |
Outstanding Equity Awards at 2012 Fiscal Year-End
(1) | Vesting schedule for unvested stock options |
Future Vesting Schedule (# of options) | �� | Future Vesting Schedule (# of options) | ||||||||||||||||||||||||||||||||||||||
Name | Grant Date | Expiration Date | 2013 | 2014 | 2015 | Grant Date | Expiration Date | 2014 | 2015 | 2016 | ||||||||||||||||||||||||||||||
Denise L. Ramos | 3/5/2010 | 3/5/2020 | 71,590 | — | — | 03/03/2011 | 03/03/2021 | 89,643 | — | — | ||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2021 | — | 89,643 | — | 11/07/2011 | 11/07/2021 | 100,864 | — | — | |||||||||||||||||||||||||||||||
11/7/2011 | 11/7/2021 | 100,865 | 100,864 | — | 03/08/2012 | 03/08/2022 | — | 136,100 | — | |||||||||||||||||||||||||||||||
3/8/2012 | 3/8/2022 | — | — | 136,100 | 03/05/2013 | 03/05/2023 | — | — | 105,295 | |||||||||||||||||||||||||||||||
Aris C. Chicles | 3/5/2010 | 3/5/2020 | 24,163 | — | — | 03/03/2011 | 03/03/2021 | 32,217 | — | — | ||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2021 | — | 32,217 | — | 11/07/2011 | 11/07/2021 | 30,259 | — | — | |||||||||||||||||||||||||||||||
11/7/2011 | 11/7/2021 | 30,259 | 30,259 | — | 03/08/2012 | 03/08/2022 | — | 30,570 | — | |||||||||||||||||||||||||||||||
3/8/2012 | 3/8/2022 | — | — | 30,570 | 03/05/2013 | 03/05/2023 | — | — | 23,650 | |||||||||||||||||||||||||||||||
Thomas M. Scalera | 3/5/2010 | 3/5/2020 | 2,342 | — | — | 03/03/2011 | 03/03/2021 | 3,105 | — | — | ||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2021 | 3,103 | 3,103 | — | 11/07/2011 | 11/07/2021 | 16,642 | — | — | |||||||||||||||||||||||||||||||
11/7/2011 | 11/7/2021 | 16,643 | 16,642 | — | 03/08/2012 | 03/08/2022 | — | 29,115 | — | |||||||||||||||||||||||||||||||
3/8/2012 | 3/8/2022 | — | — | 29,115 | 03/05/2013 | 03/05/2023 | — | — | 22,975 | |||||||||||||||||||||||||||||||
Robert J. Pagano, Jr. | 3/5/2010 | 3/5/2020 | 8,391 | — | — | 03/03/2011 | 03/03/2021 | 8,271 | — | — | ||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2021 | 8,270 | 8,269 | — | 11/07/2011 | 11/07/2021 | 14,409 | — | — | |||||||||||||||||||||||||||||||
11/7/2011 | 11/7/2021 | 14,409 | 14,409 | — | 03/08/2012 | 03/08/2022 | — | 19,410 | — | |||||||||||||||||||||||||||||||
3/8/2012 | 3/8/2022 | — | — | 19,410 | 03/05/2013 | 03/05/2023 | — | — | 15,620 | |||||||||||||||||||||||||||||||
Luca Savi | 3/8/2012 | 3/8/2022 | — | — | 13,295 | |||||||||||||||||||||||||||||||||||
Thomas F. Korber | 11/7/2011 | 11/7/2021 | 7,205 | 7,204 | — | |||||||||||||||||||||||||||||||||||
3/8/2012 | 3/8/2022 | — | — | 17,710 | ||||||||||||||||||||||||||||||||||||
William E. Taylor | 3/5/2010 | 3/5/2020 | 6,374 | — | — | |||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2021 | 6,203 | 6,205 | — | ||||||||||||||||||||||||||||||||||||
11/7/2011 | 11/7/2021 | 10,807 | 10,807 | — | ||||||||||||||||||||||||||||||||||||
3/8/2012 | 3/8/2022 | — | — | 16,210 | ||||||||||||||||||||||||||||||||||||
Neil W. Yeargin | 03/05/2013 | 03/05/2023 | — | — | 12,015 |
(2) | RSUs vest on the applicable 3-year anniversary of the grant |
Future Vesting Schedule (# of shares) | ||||||||||||||||
Name | Grant Date | 2013 | 2014 | 2015 | ||||||||||||
Denise L. Ramos | 3/5/2010 | 22,336 | — | — | ||||||||||||
3/3/2011 | — | 24,410 | — | |||||||||||||
11/7/2011 | (a) | 18,992 | — | — | ||||||||||||
11/7/2011 | — | 103,550 | — | |||||||||||||
3/8/2012 | — | — | 41,009 | |||||||||||||
Aris C. Chicles | 3/5/2010 | 7,539 | — | — | ||||||||||||
3/3/2011 | — | 8,771 | — | |||||||||||||
11/7/2011 | (a) | 6,827 | — | — | ||||||||||||
11/7/2011 | — | 31,065 | — | |||||||||||||
3/8/2012 | — | — | 9,211 | |||||||||||||
Thomas M. Scalera | 3/5/2010 | 2,046 | — | — | ||||||||||||
3/3/2011 | — | 2,288 | — | |||||||||||||
11/7/2011 | (a) | 1,781 | — | — | ||||||||||||
11/7/2011 | — | 17,086 | — | |||||||||||||
3/8/2012 | — | — | 8,772 | |||||||||||||
Robert J. Pagano, Jr. | 3/10/2008 | 9,216 | — | — | ||||||||||||
3/5/2010 | 7,351 | — | — | |||||||||||||
3/3/2011 | — | 6,103 | — | |||||||||||||
11/7/2011 | (a) | 4,747 | — | — | ||||||||||||
11/7/2011 | — | 14,793 | — | |||||||||||||
3/8/2012 | — | — | 5,848 | |||||||||||||
Luca Savi | 3/8/2012 | — | — | 4,006 | ||||||||||||
William E. Taylor | 3/5/2010 | 5,583 | — | — | ||||||||||||
3/3/2011 | — | 4,576 | — | |||||||||||||
11/7/2011 | (a) | 3,561 | — | — | ||||||||||||
11/7/2011 | — | 11,095 | — | |||||||||||||
3/8/2012 | — | — | 4,883 |
Reflects |
Option Exercises and Stock Vested in 20122013
The following table provides information regarding the values realized by our NEOs upon the exercise of stock options and the vesting of stock awards.awards in 2013.
Option Awards | Stock Awards | Option Awards | Stock Awards | |||||||||||||||||||||||||||||
Name | Number of Shares Acquired on (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting(1)(#) | Value Realized on Vesting(2)($) | ||||||||||||||||||||||||||||
Named Executive Officer | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | ||||||||||||||||||||||||||||
Denise L. Ramos | — | — | 25,449 | 600,851 | 92,550 | 1,235,186 | 41,328 | 1,416,782 | ||||||||||||||||||||||||
Aris C. Chicles | 42,978 | 345,456 | 9,543 | 225,310 | 38,043 | 544,374 | 14,366 | 496,320 | ||||||||||||||||||||||||
Thomas M. Scalera | — | — | 2,357 | 55,649 | 5,082 | 32,802 | 3,827 | 131,575 | ||||||||||||||||||||||||
Robert J. Pagano, Jr. | 152,740 | 1,095,570 | 18,213 | 422,456 | 50,903 | 801,394 | 21,314 | 656,006 | ||||||||||||||||||||||||
Luca Savi | — | — | — | — | ||||||||||||||||||||||||||||
Thomas F. Korber | — | — | — | — | ||||||||||||||||||||||||||||
William E. Taylor | 29,018 | 115,804 | 6,363 | 150,230 | ||||||||||||||||||||||||||||
Neil W. Yeargin | — | — | — | — |
RSU Awards. In 2010, the Compensation Committee awarded restricted stock awards. Beginning in 2011, and continuing in 2012, the Compensation Committee elected to award RSUs, which are settled in shares upon vesting. The Compensation Committee decided to award RSUs rather than restricted stock in 2011 because RSU awards provide consistent tax treatment for domestic and international employees. RSUs granted to international employees are settled in cash rather than shares, again for local income tax purposes. RSUs provide the same economic risk or reward as restricted stock, but recipients do not have voting rights and do not receive cash dividends during the restriction period. Dividend equivalents are accrued and paid in cash upon vesting of the RSUs.
The Company’s2013 Pension Benefits
Effective on October 31, 2011, all of the Company’s pension benefits described in this section were frozen, and the cumulative liability of these benefits was assumed by Exelis.Exelis Inc. All NEOs, with the exception ofother than Mr. Savi,Yeargin, participated in the plans described below, and remain eligible for frozen pension benefits under these plans.
ITT Salaried Retirement Plan. Under the ITT Salaried Retirement Plan, participants had the option, on an annual basis, to elect to be covered under either a Traditional Pension Plan or a Pension Equity Plan formula for future pension accruals. The ITT Salaried Retirement Plan was a funded and tax-qualified retirement program. The plan is described in detail below.
While the Traditional Pension Plan formula paid benefits on a monthly basis after retirement, the Pension Equity Plan formula enabled participants to elect to have benefits paid as a single sum payment upon employment termination, regardless of the participant’s age. The Traditional Pension Plan benefit payable to an employee depended upon the date an employee first became a participant under the plan.
Traditional Pension Plan
A participant first employed prior to January 1, 2000, under the Traditional Pension Plan would receive an annual pension that would be the total of:
|
2% of his or her “average final compensation” (as defined below) for each of the first 25 years of benefit service, plus
1.5% of his or her average final compensation for each of the next 15 years of benefit service, reduced by |
|
1.25% of his or her primary Social Security benefit for each year of benefit service up to a maximum of 40 years.
A participant first employed on or after January 1, 2000, under the Traditional Pension Plan would receive an annual pension that would equal:
|
1.5% of his or her average final compensation for each year of benefit service up to 40 years, reduced by
|
1.25% of his or her primary Social Security benefit for each year of benefit service up to a maximum of 40 years.
For a participant first employed prior to January 1, 2005, average final compensation (including salary and approved bonus or AIP payments)awards) is the total of:
|
The participant’s average annual base salary for the five calendar years of the last 120 consecutive calendar months of eligibility service that would result in the highest average annual base salary amount, plus
|
The participant’s average annual pension eligible compensation, not including base salary, for the five calendar years of the participant’s last 120 consecutive calendar months of eligibility service that would result in the highest average annual compensation amount.
For a participant first employed on or after January 1, 2005, average final compensation wasis the average of the participant’s total pension eligible compensation (salary, bonus and annual incentive payments for NEOs and other exempt salaried employees) over the highest five consecutive calendar years of the participant’s final 120 months of eligibility service.
As it applies to participants first employed prior to January 1, 2000, under the Traditional Pension Plan, Standard Early Retirement is available to employees at least 55 years of age with 10 years of eligibility service. Special Early Retirement is available to employees at least age 55 with 15 years of eligibility service or at least age 50 whose age plus total eligibility service equals at least 80. For Standard Early Retirement, if payments begin before age 65, payments from anticipated payments at the normal retirement age of 65 (the “Normal Retirement Age”) are reduced by one fourthone-fourth of one percent for each month that payments commence prior to the Normal Retirement Age. For Special Early Retirement, if payments begin between ages 60-64, benefits will be payable at 100%. If payments begin prior to age 60, they are reduced by five twelfthsfive-twelfths of one percent for each month that
payments start before age 60 but not more than 25%.
For participants first employed from January 1, 2000 through December 31, 2004, under the Traditional Pension Plan, Standard Early Retirement was available as described above. Special Early Retirement was also available to employees who attained at least age 55 with 15 years of eligibility service (but not earlier than age 55). For Special Early Retirement, the benefit payable at or after age 62 would be at 100%; if payments commenced prior to age 62 they would be reduced by five twelfthsfive-twelfths of one percent for each of the first 48 months prior to age 62 and by an additional four twelfths of one percent for each of the next 12 months and by an additional three twelfthsthree-twelfths of one percent for each month prior to age 57.
For participants first employed on or after January 1, 2005, and who retire before age 65, benefits may commence at or after age 55 but they would be reduced by five ninths of one percent for each of the first 60 months prior to age 65 and an additional five eighteenths of one percent for each month prior to age 60.
Pension Equity Plan
A participant under the Pension Equity Plan would receive a single sum pension that would equal the total accumulated percentage (as described below) times final average compensation (as defined above).
Total accumulated percentage is the sum of annual percentages earned for each year of benefit service. The percentage earned for any given year of benefit service ranges from three percent to six percent based on age:
|
Under age 30: three percent per year of benefit service
|
Age 30 to age 39: four percent per year of benefit service
|
Age 40 to age 49: five percent per year of benefit service
|
Age 50 and over: six percent per year of benefit service
In December 2007, effective January 1, 2008, the ITT Salaried Retirement Plan and the ITT Excess Pension PlansPlan were amended to provide for a three-year vesting requirement. In addition, for employees who were already vested and who were involuntarily terminated and entitled to severance payments from the Company, additional months of age and service (not to exceed 24 months) were to be imputed based on the employee’s actual service to his or her last day worked, solely for purposes of determining eligibility for early retirement.
The 20122013 Pension Benefits table provides information on the pension benefits for the NEOs. Mr. Pagano participated under the terms of the plan in effect for employees hired prior to January 1, 2000. Ms. Ramos, and Messrs.Mr. Chicles and Mr. Scalera participated under the terms of the plan in effect for employees hired after January 1, 2005. The Traditional Pension Plan accumulated benefit an employee earned over his or her career with the Company is payable on a monthly basis starting after retirement. Employees may retire as early as age 50 under the terms of the plan. Pensions may be reduced if retirement starts before age 65. Possible pension reductions are described above. The Pension Equity Plan benefit can be received as a lump sum or an annuity following termination. Mr. Scalera participated in the Pension Equity Plan formula prior to 2011. All of the other NEOs have always participated only under the Traditional Pension Plan formula, except Mr. Savi who is covered by benefits provided under the terms of the collective bargaining agreement covering managers within the industrial sector businesses. Mr. Savi participates in the Previndai Pension Fund under the National Collective Agreement for Industrial Sector Managers.
formula. Benefits under this plan are subject to the limitations imposed under Sections 415 and 401(a)(17) of the Internal Revenue Code in effect as of December 31, 2011. Section 415 limits the amount of annual pension payable from a qualified plan. For 2012,2013, this limit is $200,000 per year for a single-life annuity payable at an IRS-prescribed retirement age. This ceiling may be actuarially adjusted in accordance with IRS rules for items such as employee contributions, other forms of distribution and different annuity starting dates. Section 401(a)(17) limits the amount of compensation that may be recognized in the determination of a benefit under a qualified plan. For 2012,2013, this limit is $250,000.
ITT Excess Pension Plan. Since federal law limits the amount of benefits paid under and the amount of compensation recognized under tax-qualified retirement plans, the Company maintained the unfunded ITT Excess Pension Plan, which is not qualified for tax purposes, until the Spin Transaction date. The purpose of the ITT Excess Pension Plan was to restore benefits calculated under the ITT Salaried Retirement Plan formula that cannot be paid because of the IRS limitations noted above. The Company did not grant any extra years of benefit service to any employee under either the ITT Salaried Retirement Plan or the ITT Excess Pension Plan.
No pension benefits were paid to any of the other named executivesNEOs in the last fiscal year.
20122013 Pension Benefits(1)Benefits Table
Name | Plan Name | Number of Years Credit Service (#) | Present Value of Accumulated Benefit at Earliest Date for Unreduced Benefit | Payments During Last Fiscal Year ($) | ||||||||||
Denise L. Ramos | ITT Salaried Retirement Plan | 4.33 | $ | 133,355 | $ | 0 | ||||||||
ITT Excess Pension Plan | 4.33 | $ | 589,878 | $ | 0 | |||||||||
Aris C. Chicles | ITT Salaried Retirement Plan | 5.42 | $ | 126,977 | $ | 0 | ||||||||
ITT Excess Pension Plan | 5.42 | $ | 234,717 | $ | 0 | |||||||||
Thomas M. Scalera | ITT Salaried Retirement Plan | 5.77 | $ | 39,412 | $ | 0 | ||||||||
ITT Excess Pension Plan | 5.77 | $ | 31,492 | $ | 0 | |||||||||
Robert J. Pagano, Jr.(2) | ITT Salaried Retirement Plan | 22.08 | $ | 883,187 | $ | 0 | ||||||||
ITT Excess Pension Plan | 13.25 | $ | 944,107 | $ | 0 | |||||||||
Luca Savi | ITT Salaried Retirement Plan | 0.0 | $ | 0 | $ | 0 | ||||||||
ITT Excess Pension Plan | 0.0 | $ | 0 | $ | 0 | |||||||||
Thomas F. Korber | ITT Salaried Retirement Plan | 0.0 | $ | 0 | $ | 0 | ||||||||
ITT Excess Pension Plan | 0.0 | $ | 0 | $ | 0 | |||||||||
William E. Taylor | ITT Salaried Retirement Plan | 8.79 | $ | 291,868 | $ | 0 | ||||||||
ITT Excess Pension Plan | 8.79 | $ | 356,391 | $ | 0 |
Named Executive Officer | Plan Name | Number of Years Credit Service (#) | Present Value of Accumulated Benefit at Earliest Date for Unreduced Benefit | Payments During Last Fiscal Year ($) | ||||||||||
Denise L. Ramos | ITT Salaried Retirement Plan | 4.33 | $ | 123,908 | — | |||||||||
ITT Excess Pension Plan | 4.33 | 548,090 | — | |||||||||||
Aris C. Chicles | ITT Salaried Retirement Plan | 5.42 | 114,634 | — | ||||||||||
ITT Excess Pension Plan | 5.42 | 211,900 | — | |||||||||||
Thomas M. Scalera(1) | ITT Salaried Retirement Plan | 5.77 | 34,693 | — | ||||||||||
ITT Excess Pension Plan | 5.77 | 28,011 | — | |||||||||||
Robert J. Pagano, Jr.(2) | ITT Salaried Retirement Plan | 22.08 | 811,896 | — | ||||||||||
ITT Excess Pension Plan | 13.25 | 867,639 | — | |||||||||||
Neil W. Yeargin(3) | ITT Salaried Retirement Plan | — | — | — | ||||||||||
ITT Excess Pension Plan | — | — | — |
(1) |
(2) | Mr. Pagano’s accrued benefit under the ITT Salaried Retirement Plan includes his benefit earned under the Goulds Retirement Plan prior to ITT’s acquisition of Goulds Pumps Inc. (“Goulds”) on December 1, 1998. Accordingly, the years of credited service include 8.83 years of service accrued as an employee of Goulds. The Goulds plan did not provide benefits in excess of the IRS limits. |
(3) | Mr. Yeargin was hired after October 31, 2011, |
Assumptions used to determine present value as of December 31, 2012,2013, are as follows and are generally consistent with those used by Exelis Inc. for 20122013 financial statement reporting purposes:
Ÿ | Measurement date: December 31, |
Ÿ | Discount Rate: |
Ÿ | Mortality (pre-commencement): None |
Ÿ | Mortality (post-commencement): |
Ÿ | Normal retirement date: age 65 |
Ÿ | Unreduced retirement date: age 60 for Mr. Pagano; age 65 for all other NEOs |
Ÿ | Earliest age at which a participant first employed prior to January 1, 2000 may receive unreduced benefits: age 60 |
Ÿ | Assumed benefit commencement date: age 60 for Mr. Pagano and 65 for all other NEOs |
Ÿ | Accumulated benefit is calculated based on credited service and pay as of October 31, 2011 |
Ÿ | For benefits under the Traditional Pension Plan |
Ÿ | For benefits under the Pension Equity |
Ÿ | The six-month delay under the ITT Excess Pension Plan as required under Section 409A of the Internal Revenue Code was disregarded for this purpose |
Ÿ | All results shown are estimates only; actual benefits will be based on precise credited service and compensation history, which will be determined at benefit commencement |
The 20122013 row of the column titled Change“Change in Pension Plan Value & Nonqualifiedand Non-qualified Deferred Compensation EarningsComp Earnings” in the Summary Compensation Table quantifies the change in the present value of the ITT Excess Pension Plan benefit from December 31, 2011,2012, to December 31, 2012.2013. To determine the present value of the plan benefit as of December 31, 2011,2012, the same assumptions that are described above to determine present value as of December 31, 2012,2013, were used, except the following:
Ÿ | Discount rate: 4.09% |
Ÿ | Mortality (post commencement): |
|
ITT2013 Nonqualified Deferred Compensation Plan
ITT Deferred Compensation Plan. The ITT Deferred Compensation Plan is a tax deferral plan. The ITT Deferred Compensation Plan permits eligible executivesemployees with a base salary of at least $200,000 to defer between 2% and 90% of their AIP payment. The AIP amount deferred is included in the Summary Compensation Table under Non-Equity Incentive Plan Compensation. Withdrawals under the plan are available on payment dates elected by participants at the time of the deferral election. The withdrawal election is irrevocable except in cases of demonstrated hardship due to an unforeseeable emergency as provided by the ITT Deferred Compensation Plan. Amounts deferred will be unsecured general obligations of the Company to pay the deferred compensation in the future and will rank with other unsecured and unsubordinated indebtedness of the Company.
Participants can elect to have their account balances allocated into one or more of the 25 phantom investment funds (including a phantom Company stock fund) and can change their investment allocations on a daily basis. All plan accounts are maintained on the accounts of the Company and investment earnings are credited to a participant’s account (and charged to corporate earnings) to mirror the investment returns achieved by the investment funds chosen by that participant.
A participant can establish up to six “accounts” into which AIP paymentaward deferrals are credited and he or she can elect a different form of payment and a different payment commencement date for each “account.” One account may be selected based on a termination date (the “Termination Account”) and five accounts are based on employee-specified dates (each a “Special Purpose Account”). Each Special Purpose and Termination Account may have different investment and payment options. Termination Accounts will be paid in the seventh month following the last day worked. Changes to Special Purpose Account distribution elections must be made at least 12 months before any existing benefit payment date, may not take effect for at least 12 months, and must postpone the existing benefit payment date by at least five years. Additionally, Termination Account distribution elections are irrevocable.
The table below shows the annual rate of return for the funds available under the ITT Deferred Compensation Plan, as reported by the administrator for the calendar year ended December 31, 2013.
Name of Fund | Rate of Return 1/1/13 to 12/31/13 | Name of Fund | Rate of Return 1/1/13 to 12/31/13 | |||||||
Fixed Rate Option(1) | 5.25% | Vanguard Developed Markets Index (VDMIX) | 21.84% | |||||||
PIMCO Total Return Institutional (PTTRX) | (1.92)% | Aberdeen Select International Equity A (BJBIX) | 12.37% | |||||||
PIMCO Real Return Institutional (PRRIX) | (9.05)% | American Funds EuroPacific Growth (REREX) | 20.17% | |||||||
T Rowe Price High Yield (PRHYX) | 9.07% | First Eagle Overseas A (SGOVX) | 11.57% | |||||||
Dodge & Cox Stock (DODGX) | 40.55% | Lazard Emerging Markets Equity Open (LZOEX) | (1.14)% | |||||||
Vanguard 500 Index (VFINX) | 32.18% | Invesco Global Real Estate A | 2.38% | |||||||
American Funds Growth Fund of America R4 (RGAEX) | 33.82% | Model Portfolio(2) — Conservative | 1.61% | |||||||
Perkins Mid Cap Value (JMCVX) | 25.92% | Model Portfolio(2) — Moderate Conservative | 8.37% | |||||||
Artisan Mid Cap (ARTMX) | 37.39% | Model Portfolio(2) — Moderate | 14.68% | |||||||
American Century Small Cap Value (ASVIX) | 34.91% | Model Portfolio(2) — Moderate Aggressive | 19.51% | |||||||
Perimeter Small Cap Growth (PSCGX) | 43.29% | Model Portfolio(2) — Aggressive | 25.14% | |||||||
Harbor International (HIINX) | 16.40% | ITT Corporation Stock Fund (ITT) | 87.38% | |||||||
Vanguard Total Bond Market Index (VBMFX) | (2.26)% |
(1) | The Fixed Rate Option 5.25% rate is based on guaranteed contractual returns from the insurance company provider. |
(2) | The returns shown in the model portfolio are not subsidized by the Company, but represent returns for a managed portfolio based on funds available to deferred compensation participants. |
ITT Supplemental Retirement Savings Plan for Salaried Employees. Since federal law limits the amount of compensation that can be used to determine employee and employer contribution amounts to $250,000 in 2012 to the tax-qualified plan to $255,000 in 2013, the Company has established and maintains a
non-qualified unfunded ITT Supplemental Retirement Savings Plan for Salaried Employees to allow for employee and Company contributions based on base salary in excess of these limits. Employee contributions under this plan were limited to six percent of base salary. All balances under this plan are maintained on the books of the Company and earnings are credited to the accumulated savings under the plan based on the earnings in the Stable Value Fund in the tax-qualified plan. Benefits will be paid in a lump sum in the seventh month following the last day worked.
Effective January 1, 2012, the plan was amended to no longer permit employee contributions.
2013 Nonqualified Deferred Compensation. Non-qualified savingsCompensation Table
The table below shows the activity within the Deferred Compensation Plan for the NEOs for 2013.
Name | Executive Contributions Last Fiscal Year(1) | Registrant Contributions Last Fiscal Year(2) | Aggregate Earnings Last Fiscal Year | Aggregate Withdrawals/ Distributions | Aggregate Balance at Last Fiscal Year End | |||||||||||||||
Denise L. Ramos | ||||||||||||||||||||
Non-qualified savings | $ | — | $ | 85,568 | $ | 4,064 | $ | — | $ | 315,330 | ||||||||||
Deferred Compensation | 391,340 | — | 89,646 | — | 1,875,971 | |||||||||||||||
Total | 391,340 | 85,568 | 93,710 | — | 2,191,301 | |||||||||||||||
Aris C. Chicles | ||||||||||||||||||||
Non-qualified savings | — | 36,930 | 1,696 | — | 132,820 | |||||||||||||||
Deferred Compensation | — | — | — | — | — | |||||||||||||||
Total | — | 36,930 | 1,696 | — | 132,820 | |||||||||||||||
Thomas M. Scalera | ||||||||||||||||||||
Non-qualified savings | — | 27,806 | 496 | — | 47,938 | |||||||||||||||
Deferred Compensation | — | — | — | — | — | |||||||||||||||
Total | — | 27,806 | 496 | — | 47,938 | |||||||||||||||
Robert J. Pagano, Jr. | ||||||||||||||||||||
Non-qualified savings | — | 36,663 | 1,825 | — | 152,828 | |||||||||||||||
Deferred Compensation | 53,250 | — | 12,391 | — | 509,536 | |||||||||||||||
Total | 53,250 | 36,663 | 14,216 | — | 662,364 | |||||||||||||||
Neil W. Yeargin | ||||||||||||||||||||
Non-qualified savings | — | 631 | — | — | 631 | |||||||||||||||
Deferred Compensation | — | — | — | — | ||||||||||||||||
Total | — | 631 | — | — | 631 |
Note: “Non-qualified savings” represent amounts in the ITT Supplemental Retirement Savings Plan for Salaried Employees. Deferred Compensation“Deferred compensation” earnings under the ITT Deferred Compensation Plan are calculated by reference to actual earnings of mutual funds or the Company’s stock as provided in the accompanying chart.chart above.
2012 Nonqualified Deferred Compensation
The table below shows the activity within the Deferred Compensation Plan for the NEOs for 2012.
Name(a) | Executive ($)(1)(b) | Registrant ($)(2)(c) | Aggregate ($)(d) | Aggregate Withdrawals/ Distributions ($)(e) | Aggregate ($)(3)(f) | |||||||||||||||
Denise L. Ramos | ||||||||||||||||||||
Non-qualified savings | 1,962 | 96,183 | 1,271 | — | 225,699 | |||||||||||||||
Deferred compensation | — | — | 72,729 | — | 1,394,985 | |||||||||||||||
Total | 1,962 | 96,183 | 74,000 | — | 1,620,684 | |||||||||||||||
Aris C. Chicles | ||||||||||||||||||||
Non-qualified savings | 25,063 | 18,787 | 1,194 | — | 94,195 | |||||||||||||||
Deferred compensation | — | — | — | — | — | |||||||||||||||
Total | 25,063 | 18,787 | 1,194 | — | 94,195 | |||||||||||||||
Thomas M. Scalera | ||||||||||||||||||||
Non-qualified savings | 8,769 | 8,769 | 49 | — | 17,637 | |||||||||||||||
Deferred compensation | — | — | — | — | — | |||||||||||||||
Total | 8,769 | 8,769 | 49 | — | 17,637 | |||||||||||||||
Robert J. Pagano, Jr. | ||||||||||||||||||||
Non-qualified savings | 923 | 24,615 | 1,597 | — | 114,340 | |||||||||||||||
Deferred compensation | 70,385 | 8,446 | 23,166 | — | 443,895 | |||||||||||||||
Total | 71,308 | 33,061 | 24,763 | — | 558,235 | |||||||||||||||
Luca Savi | ||||||||||||||||||||
Non-qualified savings | — | — | — | — | — | |||||||||||||||
Deferred compensation | — | — | — | — | — | |||||||||||||||
Total | — | — | — | — | — | |||||||||||||||
Thomas F. Korber | ||||||||||||||||||||
Non-qualified savings | — | 25,280 | 229 | — | 29,510 | |||||||||||||||
Deferred compensation | — | — | — | — | — | |||||||||||||||
Total | — | 25,280 | 229 | — | 29,510 | |||||||||||||||
William E. Taylor | ||||||||||||||||||||
Non-qualified savings | — | 15,239 | 329 | — | 31,209 | |||||||||||||||
Deferred compensation | — | — | 6,449 | — | 123,693 | |||||||||||||||
Total | — | 15,239 | 6,778 | — | 154,902 |
(1) |
(2) |
The table below shows the funds available under the ITT Deferred Compensation Plan, as reported by the administrator, and their annual rate of return for the calendar year ended December 31, 2012.
Name of Fund | Rate of Return 1/1/12 to 12/31/12 | Name of Fund | Rate of Return 1/1/12 to 12/31/12 | |||||||
Fixed Rate Option(1) | 5.50 | Vanguard Developed Markets Index (VDMIX) | 18.83 | |||||||
PIMCO Total Return Institutional (PTTRX) | 10.35 | Artio International Equity A (BJBIX) | 14.87 | |||||||
PIMCO Real Return Institutional (PRRIX) | 9.26 | American Funds EuroPacific Growth (REREX) | 19.22 | |||||||
T Rowe Price High Yield (PRHYX) | 15.24 | First Eagle Overseas A (SGOVX) | 13.98 | |||||||
Dodge & Cox Stock (DODGX) | 22.01 | Lazard Emerging Markets Equity Open (LZOEX) | 22.03 | |||||||
Vanguard 500 Index (VFINX) | 15.82 | Invesco Global Real Estate A | 27.75 | |||||||
American Funds Growth Fund of America R4 (RGAEX) | 20.56 | Model Portfolio* — Conservative | 9.76 | |||||||
Perkins Mid Cap Value (JMCVX) | 10.32 | Model Portfolio* — Moderate Conservative | 12.54 | |||||||
Artisan Mid Cap (ARTMX) | 19.52 | Model Portfolio* — Moderate | 15.00 | |||||||
American Century Small Cap Value (ASVIX) | 16.70 | Model Portfolio* — Moderate Aggressive | 16.48 | |||||||
Perimeter Small Cap Growth (PSCGX) | 10.38 | Model Portfolio* — Aggressive | 18.34 | |||||||
Harbor International (HIINX) | 20.41 | ITT Corporation Stock Fund (ITT) | 23.46 | |||||||
Vanguard Total Bond Market Index (VBMFX) | 4.05 |
In 2012, Mr. Taylor reached a mutual agreement with the Company to end his employment. Following are the amounts paid to Mr. Taylor as a result of his retirement.
Salary for a period of 22.6 months | $ | 628,652 | ||
Accrued but Untaken Vacation | $ | 26,335 | ||
Additional Employee Benefits | $ | 188,595 | ||
Additional vesting of RSUs | $ | 322,887 | ||
Additional vesting of NQSOs | $ | 202,472 | ||
Additional vesting of TSR Awards | $ | 98,779 | ||
|
| |||
Total amount payable upon termination (paid through 7/19/14) | $ | 1,467,720 |
In 2012, Mr. Korber reached a mutual agreement with the Company to end his employment. Following are the amounts paid to Mr. Korber as a result of his departure from the Company.
Salary for a period of 12 months | $ | 310,000 | ||
Accrued but Untaken Vacation | $ | 23,846 | ||
Additional Employee Benefits | $ | 93,000 | ||
Additional vesting of RSUs | $ | 112,420 | ||
Additional vesting of NQSOs | $ | 80,490 | ||
Additional vesting of TSR Awards | $ | 82,807 | ||
Relocation benefits payable | $ | 10,000 | ||
|
| |||
Total amount payable upon termination (paid through 11/30/13) | $ | 712,563 |
POTENTIAL POST-EMPLOYMENT COMPENSATIONPotential Post-Employment Compensation
The potential post-employment compensation tables reflect the amount of compensation payable to each of the NEOs named who continue to be employed by the Company in the event oftheir employment termination under several different circumstances,is terminated, including voluntary termination, termination for cause, death or disability, termination without cause or termination in connection with a change of control. Ms. Ramos, Mr. Chicles, Mr. Scalera, Mr. Pagano and Messrs. Chicles, Scalera, and PaganoMr. Yeargin are covered under the Senior Executive Severance Pay Plan or Special Senior Executive Severance Pay Plan (applicable to situations involving a change of control) described in the Compensation Discussion and Analysis under the heading “Post-Employment Compensation.”
Mr. Savi is an Italian employee and is covered by the National Collective Agreement for Industrial Sector Managers. This collective bargaining agreement provides for severance benefits in the eventCompensation—Change of termination of employment for other than cause.Control Arrangements.”
The amounts shown in the potential post-employment compensation tables are estimates, (or the estimated present value of the ITT Excess Pension Plan which may be paid in continuing annuity payments), assuming that the triggering event was effective as of December 31, 2012,2013, including amounts that would be
earned through such date (or that would be earned during a period of severance), and where applicable, are based on the closing price of the Company’s stock on December 31, 2012,2013, the last trading day of 2012,2013, which was $23.46.$43.42.
The actual amounts to be paid out can only be determined at the time of such executive’s separation from the Company. For purposes of calculating the estimated potential payments to our officers under the ITT Excess Pension Plan, as reflected in the tables below, we have used the same assumptions described in the notes to the 2012 Pension Benefits table, except as noted in the footnotes.
Payments and Benefits Provided Generally to Salaried Employees. The amounts shown in the tables in this section do not include payments and benefits to the extent these payments and benefits are provided on a non-discriminatory basis to salaried employees generally upon termination of employment. These include:
Ÿ | Accrued salary and vacation |
Ÿ | Regular pension benefits under the ITT Salaried Retirement Plan (frozen as of the date of the Spin Transaction and transferred to Exelis Inc.). ITT participants do not accrue any additional service credit under the plan in the event of a termination. See the section “Elements of |
Ÿ | Pension benefits under the ITT Excess Pension Plan (frozen as of the date of the Spin Transaction and transferred to Exelis Inc.). The plan balances for the ITT Excess Pension Plan were shown as part of this analysis in previous years, but with the transfer of the plan |
balances to Exelis Inc. in 2011, ITT participants do not accrue any additional service credit under the plan in the event of a termination. See the section “Elements of Compensation — balances to Exelis Inc. in 2011, ITT participants do not accrue any additional service credit under the plan in the event of a termination. See the section “Elements of Compensation—Post-Employment Compensation” in the Compensation Discussion and Analysis for more information.
Ÿ | Health care benefits provided to retirees under the ITT Salaried Retirement |
Ÿ | Distributions of plan balances under the ITT Corporation Retirement Savings Plan |
No perquisites are available to any NEOs in any of the post-employment compensation circumstances. With respect to the ITT Salaried Retirement Plan, frozen benefits under such plan may be deferred to age 65, but may become payable at early retirement age, or earlier for benefits under the Pension Equity Plan formula. Employees of the Company do not have to terminate employment in order to receive their benefits from the ITT Salaried Retirement Plan since the plan is now sponsored by Exelis Inc. Benefits under the ITT Excess Pension Plan must commence as soon as possible following termination but generally would be payable seven months following such date, retroactive to the date the ITT Excess Pension Plan benefit became payable. Benefits for the ITT Excess Pension Plan will not generally be payable prior to termination.
Senior Executive Severance Pay Plan. During 2013, the Compensation and Personnel Committee approved changes to the Senior Executive Severance Pay Plan. The changes were intended to bring ITT’s practices in line with current market practices. Some of the changes made to the plan were reducing the overall cash severance benefits provided to executives from a maximum of two years to one year, providing participants with outplacement assistance for 12 months and eliminating the vesting of equity awards during the severance period. These changes were effective July 1, 2013 for new participants. The existing program will sunset over two years for executives, upon which time those individuals will be covered under the new terms.
The amount of severance pay under this plan depends on the executive’s base pay and years of service. The amount will not exceed 24 months of base pay or be greater than two times the executive’s total annual compensation during the year immediately preceding termination.
Ÿ | Prior to July 1, 2013: The amount will not exceed 24 months of base pay or be greater than two times the executive’s total annual compensation during the year immediately preceding termination. |
Ÿ | Beginning July 1, 2013 (two-year grace period for current executives): The amount will not exceed 12 months of base pay. |
The Company considers these severance pay provisions appropriate transitional provisions given the job responsibilities and competitive market in which senior executives function.
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.
In addition, the Company’s obligation to continue severance payments stops if the executive does not comply with the Company’s Code of Corporate Conduct. We consider this cessation provision to be critical to the Company’s emphasis on ethical behavior. The Company’s obligation to continue severance payments also stops if the executive does not comply with non-competition provisions of the ITT Severance Policy or Senior Executive Severance Pay Plan. These provisions protect the integrity of our businesses and are consistent with typical commercial arrangements. Ms. Ramos, Mr. Chicles, Mr. Scalera, Mr. Pagano and Messrs. Chicles, Scalera and PaganoMr. Yeargin are covered under this plan.
If a covered executive receives or is entitled to receive other compensation from another company, the amount of that other compensation could be used to offset amounts otherwise payable under the ITT Senior Executive Severance Pay Plan. During the severance payment period, the executive will have a limited right to continue to be eligible for participation in certain benefit plans. Severance pay will start within 60 days following the covered executive’s scheduled termination date.
Ms. Ramos. Under the terms of Ms. Ramos’ employment agreement, should Ms. Ramos be terminated by the Company other than for cause, Ms. Ramos is entitled to a severance benefit equal to 24 months of base salary and target AIP award, subject to the Company’s severance policies. The information under the heading “CEO Compensation and Employment Agreement” and the Potential Post-Employment Compensation table for Ms. Ramos below provides additional information.
Special Senior Executive Severance Pay Plan. This plan provides two levels of benefits for covered executives, based on their position within the Company. The Compensation and Personnel Committee considered two levels of benefits appropriate based on the relative ability of each level of employee to influence future Company performance. (SeniorSenior Vice Presidents receive the higher level and certain Vice Presidents the second level).level. Under the Special Senior Executive Severance Pay Plan, if a covered
executive is terminated within two years of a change of control or in contemplation of a change of control event that ultimately occurs or if the covered executive terminates his or her employment for good reason within two years of a change of control, he or she would be entitled to:
Ÿ | Any accrued but unpaid base salary, bonus (AIP |
Ÿ | Two or three times the current base salary and target annual incentive as of the termination |
Ÿ | Continuation of health and life insurance benefits at the same levels for two or three |
Ÿ | A lump sum payment equal to two or three times the highest annual base salary rate during the three years preceding termination or an acceleration event times the highest percentage rate of the Company’s contributions to the ITT |
Ÿ | One year of outplacement assistance. |
Ms. Ramos and Messrs. Chicles, Scalera, and PaganoAll of the NEOs are all covered at the highest level of benefits. Ms. Ramos is entitled to a cash payment upon severance, as described on elsewhere in this Proxy Statement under the heading “CEO Compensation and Employment Agreements,” which payment may be delayed, if required by Section 409A.
Ms. Ramos. Under Ms. Ramos’ terms of employment, should Ms. Ramos be terminated by the Company other than for cause, Ms. Ramos is entitled to a severance benefit equal to twenty-four months of base salary and target AIP award, subject to the Company’s severance policies.
The Potential Post-Employment Compensation tables provide additional information.
Change inof Control Arrangements
The payment or vesting of awards or benefits under eachcertain of the plans listed below would beare accelerated solely upon the occurrence of a change of control of the Company. The reasons for the change of control provisions in these plans are to put the executive in the same position he or she would have been in had the change of control not occurred. Executives then can focus on preserving value for shareholders when evaluating situations that, without change of control provisions, could be personally adverse to the executive. There would be a change of control of the Company if one of the following acceleration events occurred:
1. A report on Schedule 13D was filed with the SEC disclosing that any person, other than the Company or one of its subsidiaries or any employee benefit plan that is sponsored by the Company or a subsidiary, had become the beneficial owner of 20% or more of the Company’s outstanding stock.
1. | A report on Schedule 13D was filed with the SEC disclosing that any person, other than the Company or one of its subsidiaries or any employee benefit plan that is sponsored by the Company or a subsidiary, had become the beneficial owner of 20% or more of the Company’s outstanding stock. |
2. A person other than the Company or one of its subsidiaries or any employee benefit plan that is sponsored by the Company or a subsidiary purchased the Company’s shares in connection with a tender or exchange offer, if after consummation of the offer the person purchasing the shares is the beneficial owner of 20% or more of the Company’s outstanding stock.
2. | A person other than the Company or one of its subsidiaries or any employee benefit plan that is sponsored by the Company or a subsidiary purchased the Company’s shares in connection with a tender or exchange offer, if after consummation of the offer the person purchasing the shares is the beneficial owner of 20% or more of the Company’s outstanding stock. |
3. The shareholders of the Company approved, and the Company fully executed:
3. | The shareholders of the Company approved, and the Company fully executed: |
(a) Any consolidation, business combination or merger of the Company other than a consolidation, business combination or merger in which the shareholders of the Company immediately prior to the merger would hold 50% or more of the combined voting power of the Company or the surviving corporation of the merger and would have the same proportionate ownership of common stock of the surviving corporation that they held in the Company immediately prior to the merger; or
(a) | Any consolidation, business combination or merger of the Company other than a consolidation, business combination or merger in which the shareholders of the Company immediately prior to the merger would hold 50% or more of the combined voting power of the Company or the surviving corporation of the merger and would have the same proportionate ownership of common stock of the surviving corporation that they held in the Company immediately prior to the merger; or |
(b) | Any sale, lease, exchange or other transfer of all or substantially all of the assets of the Company. |
4. | A majority of the members of the Board of Directors of the Company changed within a 12-month period, unless the election or nomination for election of each of the new Directors by the Company’s shareholders had been approved by two-thirds of the Directors still in office who had been Directors at the beginning of the 12-month period or whose nomination for election or election was recommended or approved by a majority of Directors who were Directors at the beginning of the 12-month period. |
(b) Any sale, lease, exchange or other transfer of all or substantially all of the assets of the Company.
4. A majority of the members of the Board of Directors of the Company changed within a 12-month period, unless the election or nomination for election of each of the new Directors by the Company’s shareholders had been approved by two-thirds of the Directors still in office who had been Directors at the beginning of the 12-month period or whose nomination for election or election was recommended or approved by a majority of Directors who were Directors at the beginning of the 12-month period.
5. Any person other than the Company or one of its subsidiaries or any employee benefit plan sponsored by the Company or a subsidiary became the beneficial owner of 20% or more of the Company’s outstanding stock.
5. | Any person other than the Company or one of its subsidiaries or any employee benefit plan sponsored by the Company or a subsidiary became the beneficial owner of 20% or more of the Company’s outstanding stock. |
Pre-2005 awards and benefits will be paid if the 20% threshold described above is reached. For awards or benefits earned since January 1, 2005, payment of awards or benefits would be made if a person other than the Company, its subsidiaries or any employmentemployee benefit plan sponsored by the Company becomes the beneficial owner of 30% or more of the Company’s outstanding stock.
Certain of the plans listed below contain a “double trigger” provision, whereby no benefits will be paid to an executive unless both a change of control of the Company has occurred, and there has been a specified change in the employment status of the executive within a period of time following the change of control. For example, under the Special Senior Executive Severance Pay Plan, if a covered executive is terminated within two years of a change of control or in contemplation of a change of
control event that ultimately occurs or if the covered executive terminates his or her employment for good reason within two years of a change of control, he or she would be entitled to the severance benefits provided pursuant to that plan.
Beginning with the Company’s annual grant cycle in March 2014, all long-term incentive awards (performance units, RSUs and stock options) will also now include the double trigger provision, operating in the same fashion as the Special Senior Executive Severance Pay Plan. This change reflects a best pay practice and still provides competitive benefits in the event that an executive’s employment is terminated due to a change of control of the Company.
The following Company plans have change of control provisions:
Ÿ | 2011 Omnibus Incentive Plan |
Ÿ 1997 Long-Term Incentive Plan | |||
Ÿ2003 Equity Incentive |
Ÿ Special Senior Executive Severance Pay Plan | |||
Ÿ1994 Incentive Stock |
Ÿ Enhanced Severance Pay Plan | |||
Ÿ1996 Restricted Stock Plan for Non-Employee |
Ÿ Deferred Compensation Plan | |||
ŸITT Annual Incentive Plan for Executive |
|
Ÿ |
|
|
|
|
Supplemental Retirement Savings Plan for Salaried |
Ÿ 1997 Annual Incentive Plan | ŸRamos Letter |
Under the 2011 Omnibus Incentive Plan, a change of control requires consummation of the transactions described in 3(a) and (b) above.
Potential post-employment compensation arrangements are more fully described for the NEOs in the following tables. As noted above, these tables assume a triggering event as of December 31, 2013. Please see the discussion in “Potential Post-Employment Compensation—Senior Executive Severance Pay Plan,” regarding changes made in severance arrangements, which will affect the severance entitlements of the Named Executive Officers in the future.
Termination For Cause Cash Severance(1) Salary AIP Total Unvested Equity Award(2) 3/3/2011 Option Award 3/3/2011 Restricted Stock 11/7/2011 Option Award(3) 11/7/2011 Restricted Stock(3) 3/8/2012 Option Award 3/8/2012 Restricted Stock 3/5/2013 Option Award 3/5/2013 Restricted Stock 2012-2014 TSR Unit Award 2013-2015 Performance Unit Award Total Non-Qualified Retirement Benefits ITT Excess Pension Plan(4) ITT Excess Savings Plan(5) Total Other Benefits Outplacement(6) Health and Welfare(7) Total Total(8)Aris C. Chicles Resignation Death Disability Termination
Not For
Cause Termination
Not For
Cause or
With Good
Reason
After
Change of
Control $ — $ — $ — $ — $ 560,000 $ 1,260,000 — — — — — 945,000 — — — — 560,000 2,205,000 — — 705,230 705,230 705,230 705,230 — — 380,837 380,837 380,837 380,837 — — 700,193 700,193 700,193 700,193 — — 1,348,842 1,348,842 1,348,842 1,348,842 — — 630,353 630,353 630,353 630,353 — — 399,942 399,942 399,942 399,942 — — 394,009 394,009 — 394,009 — — 661,200 661,200 459,167 661,200 — — 210,000 210,000 210,000 345,100 — — 535,108 535,108 416,195 624,293 — — 5,965,714 5,965,714 5,250,759 6,189,999 — — — — — — — — — — — 44,100 — — — — — 44,100 — — — — 5,000 5,000 — — — — 23,710 53,347 — — — — 28,710 58,347 $ — $ — $ 5,965,714 $ 5,965,714 $ 5,839,469 $ 8,497,446
Termination For Cause Cash Severance(1) Salary AIP Total Unvested Equity Award(2) 3/3/2011 Option Award 3/3/2011 Restricted Stock 11/7/2011 Option Award(3) 11/7/2011 Restricted Stock(3) 3/8/2012 Option Award 3/8/2012 Restricted Stock 3/5/2013 Option Award 3/5/2013 Restricted Stock 2012-2014 TSR Unit Award 2013-2015 Performance Unit Award Total Non-Qualified Retirement Benefits ITT Excess Pension Plan(4) ITT Excess Savings Plan(5) Total Other Benefits Outplacement(6) Health and Welfare(7) Total Total(8)Thomas M. Scalera Resignation Death Disability Termination
Not For
Cause Termination
Not For
Cause or
With Good
Reason
After
Change of
Control $ — $ — $ — $ — $ 544,000 $ 1,224,000 — — — — — 918,000 — — — — 544,000 2,142,000 — — 67,968 67,968 67,968 67,968 — — 99,345 99,345 99,345 99,345 — — 385,096 385,096 385,096 385,096 — — 741,874 741,874 741,874 741,874 — — 600,351 600,351 600,351 600,351 — — 380,880 380,880 380,880 380,880 — — 382,764 382,764 — 382,764 — — 248,232 248,232 172,383 248,232 — — 200,000 200,000 200,000 328,667 — — 519,824 519,824 404,308 606,462 — — 3,626,334 3,626,334 3,052,205 3,841,639 — — — — — — — — — — — 42,840 — — — — — 42,840 — — — — 5,000 5,000 — — — — 22,195 49,938 — — — — 27,195 54,938 $ — $ — $ 3,626,334 $ 3,626,334 $ 3,623,400 $ 6,081,417
Termination For Cause Termination Cause Termination Cause or Cash Severance(1) Salary AIP Total Unvested Equity Award(2) 3/3/2011 Option Award 3/3/2011 Restricted Stock 11/7/2011 Option Award(3) 11/7/2011 Restricted Stock(3) 3/8/2012 Option Award 3/8/2012 Restricted Stock 3/5/2013 Option Award 3/5/2013 Restricted Stock 2012-2014 TSR Unit Award 2013-2015 Performance Unit Award Total Non-Qualified Retirement Benefits ITT Excess Pension Plan(4) ITT Excess Savings Plan(5) Total Other Benefits Outplacement(6) Health and Welfare(7) Total Total(8)Robert J. Pagano, Jr. Resignation Death Disability
Not For
Not For
With Good
Reason
After
Change of
Control $ — $ — $ — $ — $ 832,000 $ 1,248,000 — — — — — 624,000 — — — — 832,000 1,872,000 — — 181,052 181,052 181,052 181,052 — — 264,992 264,992 264,992 264,992 — — 333,424 333,424 333,424 333,424 — — 642,312 642,312 642,312 642,312 — — 400,234 400,234 400,234 400,234 — — 253,920 253,920 253,920 253,920 — — 260,229 260,229 — 260,229 — — 330,991 330,991 303,408 330,991 — — 133,300 133,300 133,300 219,056 — — 353,352 353,352 353,352 412,244 — — 3,153,806 3,153,806 2,865,994 3,298,454 — — — — — — — — — — — 43,680 — — — — — 43,680 — — — — 5,000 5,000 — — — — 31,573 47,359 — — — — 36,573 52,359 $ — $ — $ 3,153,806 $ 3,153,806 $ 3,734,567 $ 5,266,493
Termination For Cause Termination Cause Cash Severance(1) Salary AIP Total Unvested Equity Award(2) 3/5/2013 Option Award 3/5/2013 Restricted Stock 2013-2015 Performance Unit Award Total Non-Qualified Retirement Benefits ITT Excess Pension Plan(4) ITT Excess Savings Plan(5) Total Other Benefits Outplacement(6) Health and Welfare(7) Total Total(8)Neil W. Yeargin Resignation Death Disability
Not For Termination
Not For
Cause or
With Good
Reason After
Change of
Control $ — $ — $ — $ — $ 320,000 $ 960,000 — — — — — 480,000 — — — — 320,000 1,440,000 — — 200,170 200,170 — 200,170 — — 507,580 507,580 296,088 507,580 — — 271,809 271,809 181,206 317,111 — — 979,559 979,559 477,294 1,024,861 — — — — — — — — — — — — — — — — — — — — — — 5,000 5,000 — — — — 13,112 39,337 — — — — 18,112 44,337 $ — $ — $ 979,559 $ 979,559 $ 815,406 $ 2,509,198
(1) | Under Ms. Ramos’ employment agreement dated October 4, 2011, described in the Compensation Discussion and Analysis under the heading “CEO Compensation and Employment Agreements,” Ms. Ramos will receive severance pay in an amount equal to two times the sum of (x) annual base salary and (y) target annual incentive due to termination not for cause. Under the Senior Executive Severance Pay Plan, as described elsewhere in this Proxy Statement under the heading “Potential Post-Retirement Compensation”, the other NEOs will receive the following number of months of base salary after termination without cause: Mr. Chicles 16 months, Mr. Scalera 16 months, Mr. Pagano 24 months, Mr. Yeargin 12 months. In the event of a change |
Senior Executive Severance Pay Plan, described elsewhere in this Proxy Statement under the heading “Potential Post-Retirement Compensation” and, under the terms of the plan, would be paid a lump sum payment equal to the sum of three times (x) annual base salary and (y) |
(2) | Unvested equity awards reflect the market value of stock and in the money value of stock options based on the Company’s December 31, |
Ÿ | TSR Awards/Performance Unit Awards: |
¡ | If a participant’s employment terminates before the end of the three-year performance period, the award is forfeited, except as detailed below. |
¡ | If a participant dies or becomes disabled, TSR/Performance Unit 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) |
¡ | If an employee retires or is terminated by the Company other than for cause, a pro-rated payout, if any, is made according to its original terms and is provided based on the number of full months of employment during the measurement period divided by 36 (the term of the three-year TSR/Performance Unit Award). |
¡ | If an acceleration event occurs (as described under the heading “Potential Post-Employment Compensation—Change of Control Arrangements”) the TSR Awards/Performance Unit Awards vest in full based on actual performance through the date of the Acceleration Date and target performance for the uncompleted portion of the cycle. |
Ÿ | RSUs: |
¡ | If an employee leaves the Company prior to vesting, whether through resignation or termination for cause, the RSUs are forfeited. |
¡ | If an employee dies or becomes disabled, the RSUs vest in full. |
¡ | If an employee retires or is terminated other than for cause, a pro-rata portion of the RSU award vests. |
If an acceleration event occurs (as described under the heading “Potential Post-Employment Compensation—Change of Control Arrangements”) the RSUs vest in full.
Ÿ | Stock Options |
¡ | If an employee is terminated for cause, or voluntarily terminates employment without an acceleration event, unvested stock options expire on the date of termination. |
¡ | If an employee dies or becomes permanently disabled, all unvested stock options vest in full. |
¡ | If the employee retires, a pro-rata portion of the stock options vest. |
¡ | If the employee is terminated for a reason other than for cause, death, or disability, unvested stock options expire on the date of termination. |
¡ | 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 stock option expires on the earlier of the date seven months after the acceleration event or the normal expiration date. |
(3) | Reflects special Founders’ Grants made on November 7, 2011. |
(4) |
No additional ITT Excess Pension Plan payments are made in the event of termination. All benefits under the ITT Excess Pension Plan are payable by Exelis Inc. |
No additional ITT Excess Savings Plan payments are made in the event of voluntary or involuntary termination, or termination for cause. Amount reflects the additional cash payment representing Company contributions, which would be made following a change of control as described in the Special Senior Executive Severance Pay Plan described elsewhere in this Proxy Statement under the heading “Potential Post-Retirement Compensation.” |
The Company’s Special Senior Executive Severance Pay Plan includes one year of outplacement services. Amounts shown are based on a competitive bid. Assumes outplacement provided under termination not for cause. |
Under Ms. Ramos’ employment agreement, Ms. Ramos will continue to be eligible to participate in Company benefit plans for a period of two years after termination not for cause. Under the Senior Executive Severance Plan, the other NEOs will continue to receive benefits during the Severance period after termination without cause. In the event of a change |
Values in this table show the full payments per the applicable plan documents under the potential termination scenarios. In the event of a change |
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, 2013.
Number of to be Issued Exercise of Outstanding Warrants | Weighted- Exercise Outstanding Warrants | Number of Remaining for Future Under Equity Compensation | ||||||||||
Equity Compensation Plans Approved by Security Holders(1) | 3,992,169 | (2) | $ | 20.46 | (3) | 40,195,375 | (4) | |||||
Equity Compensation Plans Not Approved by Security Holders | — | — | — | |||||||||
Total | 3,992,169 | $ | 20.46 | 40,195,375 |
(1) | Equity compensation plans approved by shareholders include 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. Since the approval of the 2011 Omnibus Incentive Plan, no additional awards will be granted under the 2002 ITT Stock Option Plan for Non-Employee Directors or the ITT Amended and Restated 2003 Equity Incentive Plan. Under the 2011 Omnibus Incentive Plan, (i) restricted stock and RSUs may be awarded up to a maximum aggregate grant of 1,875,441 shares or units in any one plan year to any one participant, (ii) performance unit awards and other awards may be awarded up to a maximum aggregate grant of 1,875,441 shares or units and a maximum amount payable of $15 million in any one plan year to any one participant and (iii) stock option awards may be awarded up to a maximum aggregate grant of 9,377,204 shares in any one plan year to any one participant. |
(2) | The weighted-average remaining contractual life of the total number of outstanding options was 6.0 years as disclosed in Note 18 to the Consolidated Financial Statements in the Company’s 2013 Annual Report on Form 10-K. |
(3) | The weighted-average exercise price pertains only to 2,675,678 outstanding options and not to outstanding restricted stock or restricted stock units, which by their nature have no exercise price. |
(4) | As of December 31, 2013, 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 17,588,694, which is included in the 40,195,375 disclosed above. |
Form 10-K
The Company filed its Annual Report on Form 10-K for the 2013 fiscal year with the SEC on February 21, 2014. A copy of the Company’s Form 10-K (without exhibits or documents incorporated by reference) is included in the Annual Report to Shareholders that is being delivered or made available via the Internet concurrently with this Proxy Statement to all shareholders.
By Order of the Board of Directors, |
Lori B. Marino Corporate Secretary |
Dated: March 31, 2014 |
Appendix A
List of Companies utilized from the 2012 Towers Watson Compensation Data Bank (CDB) Analysis
A.O. Smith | ||||||
Expedia | ||||||
Exterran | ||||||
Federal Reserve Bank of Dallas | ||||||
Federal Reserve Bank of St. Louis | ||||||
GATX | ||||||
Green Mountain | ||||||
H.B. Fuller | ||||||
Harman International Industries | ||||||
Harsco | Solutions | |||||
Herman Miller | Scotts Miracle-Gro | |||||
Hexcel | ShawCor | |||||
HNI | Sigma-Aldrich | |||||
IDEXX Laboratories | Snap-on | |||||
Intercontinental Hotels | Stanford University | |||||
International Flavors & Fragrances | Stepan Company | |||||
International Game Technology | TeleTech Holdings | |||||
Itron | Teradata | |||||
Jack in the Box | The Auto Club Group | |||||
K. Hovnanian Companies LLC | Toro | |||||
Kansas City Southern | Tower International | |||||
KB Home | Trinity Industries | |||||
Kennametal | Tronox | |||||
Kinross Gold | Tupperware Brands | |||||
Leggett and Platt | ||||||
Crown Castle | Life Technologies | Unisys | ||||
Curtiss-Wright | Lincoln Electric | United Rentals | ||||
Deckers Outdoor | Magellan Midstream | University of Maryland | ||||
Deluxe | Partners | Medical Center | ||||
Dentsply | Manitowoc | University of Texas-M.D. Anderson Cancer Center | ||||
Dex One | Martin Marietta Materials | Valmont Industries | ||||
Dollar Thrifty Automotive Group | Vertex Pharmaceuticals | |||||
Donaldson | ||||||
Education Management | MoneyGram International | Vulcan Materials | ||||
Endo Health Solutions | New York University | Warner Chilcott | ||||
Energy Solutions | Nu Skin Enterprises | Wendy’s Group | ||||
EnPro Industries | OMNOVA Solutions | Westlake Chemical | ||||
Equifax | Pall Corporation | Xylem | ||||
Esterline Technologies |
ITT Corporation Annual Incentive Plan For Executive Officers
(amended and restated as of January 1, 2013)
1. Purpose
The purpose of this ITT Corporation Annual Incentive Plan for Executive Officers (the “Incentive Plan”) is to provide incentive compensation in the form of a cash award to executive officers of ITT Corporation (the “Company”) for achieving 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. The Incentive Plan seeks to enable the Company to continue to be competitive in its ability to attract and retain executive officers of the highest caliber.
It is intended that compensation payable under the Incentive Plan will qualify as “performance-based compensation,” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) and regulations promulgated thereunder, if such qualification is desired.
2. Plan Administration
The Compensation and Personnel Committee (the “Committee”) of the Board of Directors (the “Board”) of the Company, as constituted by the Board from time to time, shall be comprised completely of “outside directors” as defined under Section 162(m) of the Code.
The Committee shall have full power and authority to administer, construe and interpret the provisions of the Incentive Plan and to adopt and amend administrative rules and regulations, agreements, guidelines and instruments for the administration of the Incentive Plan and for the conduct of its business as the Committee considers appropriate.
Except with respect to matters which under Section 162(m) of the Code are required to be determined in the sole and absolute discretion of the Committee, the Committee shall have full power, to the extent permitted by law, to delegate its authority to any officer or employee of the Company to administer and interpret the procedural aspects of the Incentive Plan, subject to the terms of the Incentive Plan, including adopting and enforcing rules to decide procedural and administrative issues.
The Committee may rely on opinions, reports or statements of officers or employees of the Company and of counsel to the Company (inside or retained counsel), public accountants and other professional or expert persons.
The Board reserves the right to amend or terminate the Incentive Plan in whole or in part at any time; provided, however, that except as necessary to maintain an outstanding incentive award’s qualification as performance-based compensation under Section 162(m) of the Code (“Performance-Based Compensation”), no amendments shall adversely affect or impair the rights of any participant that have previously accrued hereunder, without the written consent of the participant. Unless otherwise prohibited by applicable law, any amendment required to cause an incentive award to qualify as Performance-Based Compensation may be made by the Committee. No amendment to the Incentive Plan may be made to alter the class of individuals who are eligible to participate in the Incentive Plan, the performance criteria specified in Section 4 hereof or the maximum incentive award payable to any participant without shareholder approval unless shareholder approval of the amendment is not required in order for incentive awards paid to participants to constitute Performance-Based Compensation.
No member of the Committee shall be liable for any action taken or omitted to be taken or for any determination made by him or her in good faith with respect to the Incentive Plan, and the Company shall indemnify and hold harmless each member of the Committee against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Committee) arising out of any act or omission in connection with the administration or interpretation of the Incentive Plan, unless arising out of such person’s own fraud or bad faith.
3. Eligible Executives
Executive officers of the Company and its subsidiaries, as defined by the Securities Exchange Act of 1934, Rule 3b-7, as that definition may be amended from time to time, shall be eligible to participate in the Incentive Plan. The Committee shall select from all eligible executive officers, those to whom incentive awards shall be granted under the Incentive Plan.
4. Plan Year, Performance Periods, Performance Measures and Performance Targets
Each fiscal year of the Incentive Plan (the “Plan Year”) shall begin on January 1 and end on December 31. The performance period (the “Performance Period”) with respect to which incentive awards may be payable under the Incentive Plan shall be the Plan Year unless the Committee designates one or more different Performance Periods.
The Committee shall establish the performance measures (the “Performance Measures”) to be used which may include, one or more of the following criteria: (i) consolidated earnings before or after taxes (including earnings before interest, taxes, depreciation and amortization); (ii) net income; (iii) operating income; (iv) earnings per share; (v) book value per share; (vi) return on shareholders’ equity; (vii) expense management; (viii) return on investment; (ix) improvements in capital structure; (x) profitability of an identifiable business unit or product; (xi) profit margins; (xii) stock price; (xiii) market share; (xiv) revenues or sales (including organic revenue); (xv) costs; (xvi) cash flow; (xvii) working capital (xviii) return on assets; (xix) total shareholder return; (xx) return on invested or total capital and (xxi) economic value added.
In addition, to the extent consistent with Section 162(m) of the Code, Performance Measures may be based upon other objectives such as 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.
All Performance Measures shall be objectively determinable and, to the extent they are expressed in standard accounting terms, shall be according to generally accepted accounting principles as in existence on the date on which the applicable Performance Period is established and without regard to any changes in such principles after such date (unless the modification of a Performance Measure to take into account such a change is pre-established in writing at the time the Performance Measures are established in writing by the Committee and/or the modification would not affect the ability of the incentive award to qualify as Performance-Based Compensation).
Notwithstanding the foregoing, incentive awards that are not intended to qualify as Performance-Based Compensation may be based on the Performance Measures described above or such other measures as the Committee may determine.
The Committee shall establish the performance targets (the “Performance Targets”) to be achieved which shall be based on one or more Performance Measures relating to the Company as a whole or to the specific businesses of the Company, subsidiaries, operating groups, or operating units, as determined by the Committee. Performance Targets may be established on such terms as the Committee may determine, in its discretion, including in absolute terms, as a goal relative to performance in prior periods, or as a goal compared to the performance of one or more comparable companies or an index covering multiple companies. The Committee also shall establish with respect to each incentive award an objective formula to be used in calculating the amount of incentive award each participant shall be eligible to receive. There may be a sliding scale of payment dependent upon the percentage levels of achievement of Performance Targets.
The Performance Measures and Performance Targets, which may be different with respect to each participant and each Performance Period, must be set forth in writing by the Committee within the first ninety (90) days of the applicable Performance Period or, if sooner, prior to the time when 25 percent of the relevant Performance Period has elapsed.
5. Certification of Performance Targets and Calculation of Incentive Awards
After the end of each Performance Period, and prior to the payment for such Performance Period, the Committee must certify in writing the degree to which the Performance Targets for the Performance Period were achieved, including the specific target objective or objectives and the satisfaction of any other material terms of the incentive award. The Committee shall calculate the amount of each participant’s incentive award for such Performance Period based upon the Performance Measures and Performance Targets for such participant. In establishing Performance Targets and Performance Measures and in calculating the degree of achievement thereof, the Committee may ignore extraordinary items, property transactions, changes in accounting standards and losses or gains arising from discontinued operations. The Committee shall have no authority or discretion to increase the amount of any participant’s incentive award as so determined to the extent such incentive award is intended to qualify as Performance-Based Compensation, but it may reduce the amount or totally eliminate any such incentive award if it determines in its absolute and sole discretion that such action is appropriate in order to reflect the participant’s performance or unanticipated factors during the Performance Period. The Committee shall have the authority to increase or decrease the amount of an incentive award to the extent the incentive award is not intended to qualify as Performance-Based Compensation.
The maximum payment that may be made with respect to incentive awards under the Plan to any participant in any one calendar year shall be $8,000,000.
6. Payment of Awards
Approved incentive awards shall be payable by the Company in cash to each participant, or to the participant’s estate in the event of the participant’s death, as soon as practicable (and in any event no later than 2-1/2 months) after the end of each Performance Period. No incentive award that is intended to qualify as Performance-Based Compensation may be paid under the Incentive Plan until the Committee has certified in writing that the relevant Performance Targets were achieved. If a participant is not an employee on the last day of the Performance Period, the Committee shall have sole discretion to determine what portion, if any, the participant shall be entitled to receive with respect to any award for the Performance Period. The Committee shall have the authority to adopt appropriate rules and regulations for the administration of the Incentive Plan in such termination cases.
The Company retains the right to deduct from any incentive awards paid under the Incentive Plan any Federal, state, local or foreign taxes required by law to be withheld with respect to such payment.
Notwithstanding the above, no incentive awards shall be paid under the Incentive Plan unless the Incentive Plan is approved by the requisite shareholders of the Company.
7. Other Terms and Conditions
Any award made under this Incentive Plan shall be subject to the discretion of the Committee. No person shall have any legal claim to be granted an award under the Incentive Plan and the Committee shall have no obligation to treat participants uniformly. Except as may be otherwise required by law, incentive awards under the Incentive Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary. Incentive awards granted under the Incentive Plan shall be payable from the general assets of the Company, and no participant shall have any claim with respect to any specific assets of the Company.
Nothing contained in the Incentive Plan shall give any participant the right to continue in the employment of the Company or affect the right of the Company to terminate the employment of a participant.
8. Acceleration Event.
An “Acceleration Event” shall occur if (i) a report on Schedule 13D shall be filed with the Securities and Exchange Commission pursuant to Section 13(d) of the Securities Exchange Act of 1934 (the “Act”) disclosing that any person (within the meaning of Section 13(d) of the Act), other than the Company or a subsidiary of the Company or any employee benefit plan sponsored by the Company or a subsidiary of the Company, is the beneficial owner directly or indirectly of twenty percent (20%) or more of the outstanding Common Stock $1 par value, of the Company (the “Stock”); (ii) any person (within the meaning of Section 13(d) of the Act), other than the Company or a subsidiary of the Company, or any employee benefit plan sponsored by the Company or a subsidiary of the Company, shall purchase shares pursuant to a tender offer or exchange offer to acquire any Stock (or securities convertible into Stock) for cash, securities or any other consideration, provided that after consummation of the offer, the person in question is the beneficial owner (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of twenty percent (20%) or more of the outstanding Stock (calculated as provided in paragraph (d) of Rule 13d-3 under the Act in the case of rights to acquire Stock); (iii) the consummation of (A) any consolidation, business combination or merger involving the Company, other than a consolidation, business combination or merger involving the Company in which holders of Stock immediately prior to the consolidation, business combination or merger (x) hold fifty percent (50%) or more of the combined voting power of the Company (or the corporation resulting from the merger or consolidation or the parent of such corporation) after the merger and (y) have the same proportionate ownership of common stock of the Company (or the corporation resulting from the merger or consolidation or the parent of such corporation), relative to other holders of Stock immediately prior to the merger, business combination or consolidation, immediately after the merger as immediately before, or (B) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company, (iv) there shall have been a change in a majority of the members of the Board within a 12-month period unless the election or nomination for election by the Company’s stockholders of each new director during such 12-month period was approved by the vote of two-thirds of the directors then still in office who (x) were directors at the beginning of such 12-month period or (y) whose nomination for election or election as directors was recommended or approved by a majority of the directors who were directors at the beginning of such 12-month period or (v) any person (within the meaning of Section 13(d) of the Act) (other than the Company or any subsidiary of the Company or any employee benefit plan (or related trust) sponsored by the Company or a subsidiary of the Company) becomes the beneficial owner (as such term is defined in Rule 13d-3 under the Act) of twenty percent (20%) or more of the Stock.
Upon the occurrence of such Acceleration Event, the Performance Measures for each Performance Period with respect to which incentive awards may be payable under the Incentive Plan shall be deemed to be achieved at the greater of (i) the Performance Target established for such Performance Measures or (ii) the Company’s actual achievement of such Performance Measures as of the Acceleration Event. Payment of the incentive awards, for the full year, will be made to each participant, in cash, within five (5) business days following such Acceleration Event.
9. Miscellaneous.
The Incentive Plan, as amended and restated, shall be effective as of January 1, 2013 subject to the approval of the requisite shareholders of the Company. Once approved, the Incentive Plan shall remain in effect unless/until terminated by the Board; provided, however, that if an Acceleration Event has occurred no amendment or termination shall impair the rights of any participant with respect to any prior award.
This Incentive Plan shall be construed and governed in accordance with the laws of the State of New York.
Annual Meeting of Shareholders
Tuesday, May 20, 2014
9:00 a.m., EDT on Tuesday, May 7, 2013Eastern Daylight Time
ITT Corporation Headquarters
1133 Westchester Avenue
White Plains, NY 10604
PLEASE PRESENT THIS CARD AT THE ENTRANCE TO THE MEETING ROOMShareholders will be admitted to the Annual Meeting beginning at 8:30 a.m. Eastern Daylight Time.
If you wish to attend, please plan to arrive early since seating will be limited. For directions, contact us at (914) 641-2000.
If you plan to attend the Annual Meeting, please bring this admission ticket with you.
Note:If you plan to attend the Annual Meeting of Shareholders, please indicate your intention to attend by marking the appropriate box on the attached proxy card. If you plan to attend the Annual Meeting in person, please bring, in addition to this Admission Ticket, a proper form of identification. The use of video, still photography or audio recording at the Annual Meeting is not permitted. For the safety of attendees, all bags, packages and briefcases are subject to inspection. Your compliance is appreciated.
This Admission Ticket should not be returned with your proxy but should be retained and brought with you to the Annual Meeting.
SEC Proxy Access Notice
Important Notice Regarding the Internet Availability of Proxy Materials for the Shareholder Meeting to be held at 9:00 a.m., EDT on Tuesday, May 20, 2014 at ITT Corporation Headquarters, 1133 Westchester Avenue, White Plains, NY 10604:
The proxy materials for ITT’s 20132014 Annual Meeting of Shareholders, including the 20122013 Annual Report and the 20132014 Notice and Proxy Statement are available on the Internet. To view these proxy materials, please visit https://www.proxydocs.com/itt.itt.
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M54806-P32409
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ITT CORPORATION FOR THE ANNUAL MEETING TO BE HELD MAY
The shareholder(s) whose signature(s) appear(s) on the reverse side of this proxy form hereby appoint(s) Aris C. Chicles, Thomas M. Scalera and
For participants in the ITT Under the savings plan, 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 allocated shares for which no direction is received and unallocated shares, if any (together, “Undirected Shares”). ITT
The Trustee will exercise its discretion in voting on any other matter that may be presented for a vote at the meeting and at adjournments or postponements.
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(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.)
(Continued and to be dated and signed on the reverse side.)
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ITT CORPORATION 1133 WESTCHESTER AVENUE WHITE PLAINS, NY 10604 WWW.ITT.COM | WE ENCOURAGE YOU TO TAKE ADVANTAGE OF
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VOTE BY TELEPHONE - 1-800-690-6903 Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call.
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VOTE BY INTERNET -www.proxyvote.com Use the Internet to vote your proxy. Have your proxy card in hand when you access the website. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
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ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. |
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Election of | For | Against | Abstain | The Board of Directors recommends a vote FOR Proposals 2 and 3: | ||||||||||||||||||||||||||||||||||||||
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| Proposal 2 Ratification of the appointment of Deloitte & Touche LLP as |
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Proposal 3 Approval of an advisory vote on executive compensation | ¨ | ¨ | ¨ | |||||||||||||||||||||||||||||||||||
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1h. Denise L. Ramos |
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For address changes and/or comments, please check this box and write them on the back where |
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(NOTE: Please sign exactly as your name or names appear(s) on this Proxy Card. When signing as attorney, executor, officer, administrator, trustee, custodian or guardian, | Yes | No | ||||||||||||||||||||||||||||||||||||||||
Signature [PLEASE SIGN WITHIN BOX] | Date | Signature (Joint | Date |