UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.     )

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Illinois Tool Works Inc. Notice of 20202021 Annual Meeting And Proxy Statement

Illinois Tool Works Inc.

Notice of Annual Meeting of Stockholders

RECORD DATE

Only stockholders of record at the close of business on March 9, 20208, 2021 are entitled to vote.

VIRTUAL MEETING

There is no physical location for the Annual Meeting. The Annual Meeting will be held in virtual format only due to the continuing and uncertain public health impact of the COVID-19 pandemic and to protect the health and support the well-being of our stockholders, directors, colleagues, and guests. The virtual Annual Meeting will afford our stockholders the same rights and opportunities as an in-person meeting, allowing for active participation by all of our stockholders at no cost, regardless of their geographic location. To attend the Annual Meeting, examine our list of stockholders, vote and submit questions during the Annual Meeting, go to www.virtualshareholdermeeting.com/ITW2021 on the date of the meeting.

ANNUAL REPORT

Our Annual Report on Form10-K to stockholders for fiscal year 20192020 is enclosed if you received proxy materials by mail and is accessible on the Internet atwww.proxyvote.com if you received the Notice of Internet Availability of Proxy Materials or previously consented to electronic delivery of proxy materials.

March 27, 202026, 2021

*Enter the campus from 150 Waukegan Road at Overlook Drive. Signage will direct you to the meeting location.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 8, 2020:7, 2021: The Illinois Tool Works Inc. 20192020 Annual Report on Form10-K and this 20202021 Proxy Statement are available on the Company’s website atwww.itw.com under the “Investor Relations” link. Paper copies are available without charge upon written request to the Company’s address above,Company at Illinois Tool Works Inc., 155 Harlem Avenue, Glenview, Illinois 60025, Attention: Secretary.

Table of Contents

Corporate Governance Highlights

Composition of Director Nominees

Our director nominees include nine current Board members and a new nominee. See “Proposal No. 1—Election of Directors” for biographical and other information about our director nominees.

Governance Profile

Composition of Director Nominees

	Yes
		Exclusive Venue Requirement				No

appropriate, long-term CSR implications and the ability to meet customer needs related to sustainability and clean technology. During 2020, the Company’s management responded promptly and decisively to the unprecedented health, safety and financial challenges brought on by the COVID-19 pandemic. For more information, see “Compensation Discussion and Analysis — Executive Overview — 2020: ITW Delivers Strong Operational and Financial Performance in a Challenging Environment.”

Recent Developments.Developments

Our People; Safety Consistent with our overarching CSR strategic framework and our ongoing engagement with our shareholders, we have been monitoring. Since the financial materiality frameworkoutbreak of the Sustainability Accounting Standards Board (SASB) aspandemic in early 2020, the Company’s management determined that its number one priority would be to protect the health and support the well-being of ITW’s colleagues. With our employees’ health and well-being a waytop priority, we chose to assess theuse our strong financial materiality of environmental, social and governance risksfoundation to reinforce our commitment to our Company.people by continuing to employ all ITW colleagues through the entirety of the second quarter when the economic effects of the pandemic were at their most widespread and severe. Moreover, we decided not to initiate any enterprise-wide employment reduction mandates or programs at any point in 2020. Additionally, we redesigned production processes to ensure proper social distancing practices, adjusted shift schedules and assignments to help colleagues who have child and elder care needs, and implemented aggressive new workplace sanitation practices and a coordinated response to ensure access to personal protective equipment to minimize infection risk. For more information, see “Compensation Discussion and Analysis — Executive Overview — 2020: ITW Delivers Strong Operational and Financial Performance in a Challenging Environment.”

Our People; Diversity and Inclusion. We remain committed to achieving our Diversity and Inclusion (D&I) goals and enhancing the diversity of our global leadership teams. We have seen significant improvement since beginning our current D&I strategy in 2013. As of December 31, 2020, approximately 26 percent of our top 1,000 global senior leaders are women and approximately 18 percent of our top 1,000 U.S. senior leaders are ethnically diverse. In 2019,addition, the diversity of our executive leadership team continues to increase, currently including three females, one of whom is Asian-American, and one African-American male.

Our Communities. In 2020, we utilized the SASB Materiality Map^®continued to review the environmental, social and governance risks identified by SASB for companiesinvest in the Industrial Machinerycommunities where our colleagues live and Goods industry underwork, and where we do business. We especially supported our communities during the SASB’s Sustainable Industry Classification System^®COVID-19 pandemic through in-kind and financial donations, including to several COVID-19 response-related funds. We also continued to empower our colleagues globally in their efforts to make positive contributions to the organizations that mean the most to them, including through our $3 for $1 corporate match program in the U.S. and Canada.

Our Environment. We continue to monitor the SASB framework as it applies to the Company in order to identify any environmental, social and governance risks that may be material to the Company.

In recent years, among other things, we set Diversity & Inclusion goals for global women leaders and U.S. ethnically diverse leaders, implemented an Enterprise Safety Strategy, and continued our support of programs and initiatives to improve access to a high-quality education and workforce/career preparation for youth in under-served communities.

We are committed toprogress towards operating our business in a way that demonstrates our dedication to global environmental sustainability, including continuous improvement in reducing our impact on the environment. In 2019, we setannounced a greenhouse gas emissions intensity reduction target and, as a result of our significant progress towards meeting that target, in early 2021, we updated our target to reduce by 2027 our2030 the combined Scope 1 and Scope 2 greenhouse gas emissions per U.S. dollar of operating revenue by 2040 percent below 2017 levels. In 2020, we had reduced our greenhouse gas emissions intensity by 26 percent, compared with the 2017 baseline.

Our CSR report, published annually and available on our website (www.itw.com/social-responsibility), contains detailed information about our initiatives and progress in each of the four key elements that comprise our CSR strategy, including our updated greenhouse gas emissions intensity target and response to COVID-19.

Director Nominees

*Upon Mr. Ford is a new nominee to the retirementBoard of James A. Skinner in May 2020,Directors. See “Proposal No. 1 — Election of Directors” for Mr. Lenny will becomeFord’s biographical information as well as a description of the Independent Lead Director.experiences, qualifications, skills and attributes that led the Corporate Governance and Nominating Committee and the Board to conclude that Mr. Ford should be nominated to serve as a director.

** Through March 2021.

Proposal 1 - Election of Directors

Stockholders are being asked to elect the ten director nominees named in this proxy statement at our Annual Meeting. The individuals listed below, which include nine current Board members and a new director nominee, Mr. Darrell L. Ford, have been nominated by the Board of Directors as recommended by the Corporate Governance and Nominating Committee. See “Corporate Governance Policies and Practices” for more information regarding our candidate selection process. Eachprocess, including with respect to Mr. Ford. If elected, each director nominee will serve until the 20212022 Annual Meeting, until a qualified successor director has been elected, or until he or she resigns or is removed.

We will vote your shares as you specify on the proxy card, by telephone, by Internet or by mail. If you do not specify how you want your shares voted, we will vote them “FOR” the election of all the nominees listed below. If unforeseen circumstances (such as death or disability) make it necessary for the Board of Directors to substitute another person for any of the nominees, we will vote your shares “FOR” that other person. The Board of Directors does not anticipate that any nominee will be unable to serve.

Each nominee for director brings a strong and unique background and set of skills to the Board, giving the Board as a whole competence and experience in a variety of areas. Set forth below is biographical information provided by the nominees, as well as a description of the experiences, qualifications, skills and attributes that led the Corporate Governance and Nominating Committee and the Board to conclude that each nominee should serve as a director of the Company.

Richard H. Lenny*Lenny   CompensationIndependent Lead Director Corporate Governance and Nominating Committee Chair   Non-Executive Chairman of Conagra Brands, Inc.   Director since: 2014   Age: 6869		Mr. Lenny has served asnon-executive Chairman of Conagra Brands, Inc. since May 2018. Previously, he served as Chairman of Information Resources, Inc., a privately held producer of market and shopper information, from 2013 to 2018, and senior advisor of Friedman Fleischer & Lowe LLC, a private equity firm, from 2014 to 2016, after serving as an operating partner of that firm. From 2001 through 2007 he served as Chairman, President and Chief Executive Officer of The Hershey Company, a manufacturer, distributor and marketer of candy, snacks and candy-related grocery products. Prior thereto, he served as President, Nabisco Biscuit Company, and President of Pillsbury, North America. He has served as a director of ITW since 2014 and currently serves as a director of Conagra Brands, Inc., where, in addition to being the non-executive Chairman, he is a member of the Human Resources and Nominating and Corporate Governance Committees, and McDonald’s Corporation, where he is the Chairman of the Compensation Committee and a member of the Sustainability and Corporate Responsibility Committee. He previously served as a director of Discover Financial Services. He has not served as a director of any other publicly traded company in the last five years.   Skills and Qualifications:   Mr. Lenny’s experience as Chief Executive Officer of a global Fortune 500 company and diverse board experience, including board leadership roles and board experience in human resources, sustainability and Corporate Social Responsibility, bring valuable perspectives to our Board.

*Upon the retirement of James A. Skinner in May 2020, Mr. Lenny will become the Independent Lead Director.

Anré D. Williams Compensation Committee Chair   Group President, Global Merchant & Network Services, of American Express Company   Director since: 2010   Age: 5455		Mr. WilliamshasWilliamshas been Group President, Global Merchant & Network Services, of American Express Company, a global services company, since February 2018 and is a member of American Express’ Executive Committee, which is responsible for developing the company’s strategic direction and determining key policies. He was President, Global Merchant Services & Loyalty Group, from 2015 to 2018; and from 2011 to 2015 he was President, Global Merchant Services. Mr. Williams has over 2830 years of experience at American Express, serving in various capacities with increasing levels of responsibility, including President, Global Commercial Card; Executive Vice President, U.S. Commercial Card; Senior Vice President, U.S. Middle Market; Vice President and General Manager, Western Region, Corporate Services, and Vice President, Acquisition and Advertising. Mr. Williams also serves as a board member on a number of professional, civic and not-for-profit organizations. Mr. Williams has served as a director of ITW since 2010 and is a former director of Ryerson Inc. Mr. Williams has not served as a director of any other publicly traded company in the last five years.   Skills and Qualifications:   Mr. Williams’ significant strategic and operational leadership experience with a major global financial services company, along with his global business experience, bring valuable perspectives to our Board.

The Board of Directors recommends a vote “FOR” the election of all of the above nominees.

Board of Directors and Itsits Committees

The Company’s Board of Directors met fivesix times during 2019. In addition to these Board2020, including at five regularly scheduled meetings directors attended meetings of Board committees.and one special meeting. Non-employee directors, all of whom are independent, met five times in regularly scheduled executive sessions in conjunction with the regular Board meetings. The Company strongly encourages its directors to attend all Board and committee meetings and the Annual Meeting of Stockholders. In 2019,2020, all of the directors attended 100%all of the meetings of the Board and the committees on which they served, except that one director was unable to attend the special Board meeting and another was unable to attend a committee meeting, resulting in 92 percent attendance by these two directors. In addition, in 2020, all of the directors attended the virtual Annual Meeting of Stockholders. See “CorporateStockholders, except for Mr. James A. Skinner, who retired from the Board effective on the date of the meeting.

The Board of Directors has standing Audit, Compensation, Corporate Governance Highlights — Director Nominees” for more information about meeting attendance.and Nominating, Finance, and Executive committees. Under the terms of the respective charters, each member of the Audit, Compensation, and Corporate Governance and Nominating Committees must meet applicable New York Stock Exchange (NYSE) and Securities and Exchange Commission (SEC) independence requirements.

Role of Chairman and Chief Executive Officer

Pursuant to the Company’s Corporate Governance Guidelines, the Board examines whether the role of chairmanChairman and chief executive officerCEO should be combined each time the Board elects a new CEO, and may determine to separate or combine the offices of chairmanChairman and CEO at such other times as it deems appropriate. E. Scott Santi was elected President and CEO in November 2012, and the Board decided to separate the roles of CEOChairman and ChairmanCEO at that time. Given Mr. Santi’s successful transition into the CEO role and his deep knowledge and understanding of the Company’s business model, operations and culture, the Board determined that he is best positioned to lead the Board in its ongoing oversight of the Company’s operations and strategy. In May 2015, the Board elected Mr. Santi Chairman of the Board and CEO. The Board continues to believe that Mr. Santi is best positioned to lead the Board given his demonstrated success and quality of leadership.

Strong Independent Lead Director

Since the roles of Chairman and CEO were combined in 2015, the Board has elected a strong independent director as Lead Director. The Board believes that this structure, which calls for a strong, independent and highly experienced lead director with well-defined responsibilities, along with the Company’s experienced and engaged independent directors, provides effective oversight of the Company’s management. Mr. Richard H. Lenny was appointed Lead Director by the Board effective May 8, 2020, succeeding Mr. James A. Skinner who had served as Lead Director since 2017. Mr. Lenny is a highly experienced director who has held several board and management leadership roles and currently serves as non-executive Chairman of the Board of Conagra Brands, Inc. and as a member of the Board of McDonald’s Corporation. In conjunction with the Board’s role in overall strategy and succession planning as described below, our Lead DirectorMr. Lenny actively engages with our Chairman &and CEO on such matters. Additionally, Mr. Lenny works closely with our Chairman and CEO on meeting agendas that guide the Board in performing its oversight function, including with respect to the Company’s strategy and response to the COVID-19 pandemic, Board succession and Board evaluations.

In addition to the duties and responsibilities noted above, the Corporate Governance Guidelines state that the lead directorLead Director will:

The Board of Directors has standing audit, compensation, corporate governance and nominating, finance, and executive committees. Under the terms of the respective charters, each member of the audit, compensation, and corporate governance and nominating committees must meet applicable New York Stock Exchange (NYSE) and Securities and Exchange Commission (SEC) independence requirements.

Throughout 2020, the Board exercised continuous oversight of the Company’s strategy and response to the COVID-19 pandemic, including with respect to the health, safety and financial challenges presented, receiving frequent updates from management not only in regular meetings but also through the receipt of periodic information throughout the year. Regular access to information provided the Board with opportunities to effectively exercise its oversight function and provide leadership and support to management during these unprecedented times.

In instances where a particular committee reviews certain risks, that committee reports on those risks to the full Board on a regular basis. The Company believes that because each of these committees is comprised solely of independent directors, the Chairman and CEO of the Company is subject to the risk oversight of independent directors.

The committee descriptions below provide more detail regarding the risk oversight delegated to each committee by the Board.

Audit Committee

The Audit Committee is responsible for the integrity of the Company’s financial statements, compliance with legal and regulatory requirements, the independence and performance of ITW’s independent registered public accounting firm, and the performance of the Company’s internal audit function. In

Additional information on the Compensation Committee, its activities, its relationship with its compensation consultant and the role of management in setting compensation is provided under “Compensation Discussion and Analysis” below.Analysis.”

Corporate Governance and Nominating Committee

The Corporate Governance and Nominating Committee identifies, evaluates and recommends director candidates; develops, administers and recommends corporate governance guidelines; oversees the evaluations of the performance and procedures of the Board and individual directors; makes recommendations as to Board committees and Board size; and makes a recommendation to the Board regarding the Board’s determination of director independence for the Board, the Audit Committee and the Compensation Committee. It is also responsible for identifyingreviewing with the Board qualification criteria for Board members. This committee also oversees and makes recommendations to the independent directors regardingnon-employee director compensation. See “Corporate Governance Policies and Practices — Director Candidate Selection Process” below for a description of the director selection process.

Finance Committee

The Finance Committee reviews, evaluates and recommends management’s proposals to the Board relating to the Company’s financings and dividend policy, and reviews and evaluates an annual

General

One of our core values is integrity, and we have long believed that strong corporate governance is important to assure that the Company is managed for the long-term benefit of its stockholders. Accordingly, we continuously review our corporate governance policies and practices not only for compliance with applicable law, the rules and regulations of the SEC, and the listing standards of the NYSE, but also for strong corporate governance and social and environmental responsibility principles and standards of behavior.

Board Evaluations

The Board of Directors and the Audit, Compensation, and Corporate Governance and Nominating Committees conduct annual self-evaluations that assess the effectiveness, processes, skills, functions and other matters relevant to the Board as a whole or to the particular committee. Results of the evaluations are summarized and discussed at Board and committee meetings. In addition, the Board conducts a peer review evaluation led by our independent Lead Director, whereby each Board member evaluates the contributions of the other Board members, and each director receives a summary of the results of thefeedback from this peer review regarding himself or herself.from our independent Lead Director.

Director Qualifications and Succession Planning

The Corporate Governance and Nominating Committee periodically reviews with the Board the skills experience and characteristics required of Board members in the context of the currentmake-up of the Board and screens and recommends nominees for director to the full Board. Its assessmentPursuant to our Corporate Governance Guidelines, the criteria for Board membership includes the skills, of Board candidates, such as an understanding of technologies pertinent to the Company’s businesses, manufacturing, marketing, finance, regulation and public policy, international background and experience,

recommended that Mr. Ford be further evaluated by the Board, and a number of directors met virtually with Mr. Ford. Following that process, upon recommendation by the Committee and further discussion, the Board nominated Mr. Ford for election to the Board.

Ourby-laws permit any stockholder or group of up to 20 stockholders meeting our continuous ownership requirement of 3% or more of our common stock for at least 3 years to nominate a candidate or candidates for election and require us to include such nominees in our proxy statement and form of proxy. All such proxy access nominations must be accompanied by information about the nominating stockholders as well as the nominees and meet the requirements as specified in Article II, Section 12 of the Company’sby-laws. For a description of the process for submitting a director candidate through the use of proxy access, see “Other Information — Submitting Proxy Proposals and Director Nominations for the 20212022 Annual Meeting — How do I use proxy access to nominate a director candidate to be included in ITW’s 20212022 Proxy Statement?”

Ourby-laws also permit stockholders to nominate directors for consideration at an annual meeting of stockholders without requiring that their nominees be included in our proxy statement and form of proxy. The policy of the Corporate Governance and Nominating Committee is to consider such nominations as are properly submitted pursuant to Article II, Section 10 of the Company’sby-laws. Assuming that a properly submitted stockholder recommendation for a director candidate has been received, the Corporate Governance and Nominating Committee will evaluate that candidate by following substantially the same process, and applying substantially the same criteria, as for candidates submitted by other sources, but the Committee has no obligation to recommend that candidate for nomination. For a description of the process for submitting a director candidate without proxy access, see “Other Information — Submitting Proxy Proposals and Director Nominations for the 20212022 Annual Meeting — How do I nominate a director candidate who would not be included in ITW’s Proxy Statement?”

Director Election

Ourby-laws provide for the election of directors in uncontested elections by majority vote. Under this majority vote standard, each director must be elected by a majority of the votes cast with respect to

Shareholder Outreach Activities

We believe regular, proactive communications with our shareholders to be in the long-term best interests of the Company. Our investor communications and outreach typically include annual investor day meetings, quarterly conference calls, investor conferences, and analyst meetings someand calls throughout the year at the request of which are hosted at ITW facilities.investors. These meetings provide a forum to engage with our shareholders on topics including strategy, financial performance, risk management, talent development, compensation, corporate governance, and corporate governance. Our Chairmansocial and Chief Executive Officer, Vice Chairman, and/or Senior Vice President and Chief Financial Officer hostedenvironmental matters. Management representatives led numerousin-person meetings throughout 20192020 on these topics and sought valuable feedback from our shareholders.

Additionally, we regularly engage with shareholders holding more than a majority of our largest investorsshares regarding environmental, social and governance topics, including Corporate Social Responsibility (CSR), shareholder proposals and any other topics of interest to our investors, and we share feedback we receive from our investors with our Board. We have received valuable inputs from our investors related to our recently updatedprogress in executing our CSR strategy, as disclosed in our 2018 CSR Report.strategy. We have also received supportive feedback regarding the composition of our recently announcedBoard, diversity and inclusion strategies, goals and progress, our response to COVID-19, our greenhouse gas emissions intensity reduction target. Consistent with our overarching CSR strategic frameworktarget, and our ongoing engagement with our shareholders, we have been monitoring the financial materiality framework of the Sustainability Accounting Standards Board (SASB) as a waycontinuous journey to assess the financial materiality of environmental, social and governance risks to our Company. In 2019, we utilizedutilize the SASB Materiality Map^® and the Task Force on Climate-related Financial Disclosures (TCFD) framework to review the environmental, social and governance risks identified by SASB for companies in the Industrial Machinery and Goods industry under the SASB’s Sustainable Industry Classification System^®. We continue to monitor the SASB framework as it applies to the Company in order to identify any environmental, social and governance risks that may be material to the Company.guide our CSR disclosures.    

As part of our annual investor outreach, early this year we offered the opportunity to holders of approximately 56%55% of our shares, represented by 2624 investors, to engage with us regarding governance

The Corporate Governance and Nominating Committee oversees and makes recommendations to the Board regardingnon-employee director compensation based on comparisons of financial performance and median compensation levels of our peer group. Peer group directors’ compensation data is prepared by Frederic W. Cook, & Co., Inc., the independent compensation consulting firm that advises the Compensation Committee.

Annual Fees

The following table shows thenon-employee director compensation for 2019.2020. The Corporate Governance and Nominating Committee did not recommend, and the Board did not approve, any changes in non-employee director compensation in 2020. Non-employee directors wereare given the opportunity to elect to receive all or a portion of their annual cash retainer, including chair and Lead Director fees, in an equivalent value of ITW common stock pursuant to our 2015 Long-Term Incentive Plan. The number of ITW shares to be issued to a director is determined by dividing the dollar amount of the fee subject to the election by the fair market value of ITW common stock on the date the fee otherwise would have been paid in cash.

Director Compensation in Fiscal Year 20192020

The following table summarizes the compensation for ournon-employee directors who served during 2019.2020.

Footnote 2 Table

The number of the directors’ phantom stock units disclosed in the table represents an equivalent number of shares of ITW common stock as of December 31, 2019.2020. Because the granting of phantom stock units was discontinued in May 2012, Messrs. Henderson and Lenny, who joined the Board after that date, were not awarded phantom stock units upon joining the Board. Phantom stock units are not transferable and have no voting rights. The units are payable in cash and are not included in the “percent of class” calculation.

*Less than 1%

Compensation Discussion and Analysis

TheThis Compensation Discussion and Analysis provides detailed information about our 20192020 compensation programs, policies and practices, as well as the principles and philosophy utilized by the Compensation Committee (the “Committee”)Committee) regarding these programs for the named executive officers (NEOs) in the Summary Compensation Table. For 2019,2020, our NEOs are:

Executive Compensation Table of Contents

Certain Defined Terms

*SeeAppendix B for reconciliation of GAAP tonon-GAAP measures.

Our Long-Term Enterprise Strategy

In launching our long-term Enterprise Strategy, we undertook a complete review of our performance and began executing a multi-step approach to shift our primary growth engine to organic revenue growth. Key initiatives of our Enterprise Strategy included portfolio realignment, business structure simplification, strategic sourcing, and diligentre-application of ITW’s 80/20Front-to-Back processProcess to optimize our segments for growth.

Since implementing our Enterprise Strategy in 2012, we have increasedand notwithstanding the impacts of the global pandemic in 2020, ITW’s operating margin has increased from 15.9 percent to 24.122.9 percent andAfter-TaxAfter-tax Return on Average Invested Capital(After-TaxAfter-tax ROIC) has increased from 14.5 percent to 28.726.2 percent. Over this same period, we have grown Earnings Per Share (EPS) by a compound annual growth rate of 139 percent, and the Company’s market capitalization has more than doubled.nearly tripled.

2020: ITW Delivers Strong Operational and Financial Performance in a Challenging Environment

In 2020, we leveraged the strength and resilience of the ITW Business Model to navigate the unprecedented challenges of the COVID-19 pandemic to deliver strong operational and financial performance while remaining committed to executing our strategy to deliver differentiated performance over the long-term.

Our priorities in response to the pandemic were to: (1) protect the health and support the well-being of our ITW colleagues; (2) continue to serve the Company’s customers with excellence; (3) maintain financial strength, liquidity and strategic optionality; and (4) leverage the Company’s strengths to position it to fully participate in the recovery. With our employees’ health and well-being a top priority, we chose to use our strong financial foundation to reinforce our commitment to our people by continuing to employ all ITW colleagues through the entirety of the second quarter when the economic

In addition, since 2012,effects of the pandemic were at their most widespread and severe. Moreover, we have delivered total returnsdecided not to our stockholders of 246 percent versus 166 percent for our proxy peer group and 162 percentinitiate any enterprise-wide employment reduction mandates or programs at any point in 2020. These decisions proved to be the right ones for the S&P 500.

In December 2018, the Company, reaffirmed its commitment to the Enterprise Strategy’s objectivesour people, and updated its long-term goals through 2023 to achieve full potential performance. The performance objectives of our executive compensation plans, both annualcustomers, and long-term, are closely aligned with these goals.

ITW’s 2023 Annual Performance Targets

ITW Delivers Solid Progress in 2019 on Our Path to Full Potential Performance

In a challenging industrial demand environment during 2019, we executed very well on the objectives of the Enterprise Strategy within our control and continued to make meaningful progress on our path to full potential performance. The combination of our proprietary and powerful ITW Business Model, diversified high-quality business portfolio, and diligent execution continue to position us to deliver resilient financial performance overwin the long term.recovery going into 2021.

The Company achieved recordDespite revenues being down eleven percent year-over-year, we delivered EPS of $7.74, up 2$6.63, operating income of $2.9 billion and highly resilient operating margin of 22.9 percent from 2018, and delivered(only down 120 basis points year-over-year despite the following performance in 2019:

The following table shows the percent of average incentive pay for our NEOs tied to each of the financial metrics in our annual and long-term incentive plans for 2019:

ITW’s Focus on Performance-Based Compensation in 20192020

Variable pay makes up a substantial portion of CEO and NEO compensation, as illustrated in the graphgraphs below. We believe that the mix of incentives in our executive compensation plans continues to support the achievement of the current phase of our strategy and, as such, our 2019 short-term and long-term2020 incentive plan designs remained unchanged from 2018.2019.

Note: The charts above reflect total target compensation, which is the sum of base salary, target EIP and the grant date fair value of long-term cash and equity incentives for 2019.2020.

The metrics in our annual and long-term incentive plans are designed to reward superior Company and business segment and individual performance. The following table shows the financial performance metrics for the NEOs used in the Company’s 2019 EIP2020 Executive Incentive Plan (EIP) and 2019-20212020-2022 Performance Share Units (PSUs) and Performance Cash awards granted under the long-term incentive plan.

ITW5-Year CEO Pay Versus Cumulative TSR Comparison

Each component of the Company’s compensation structure plays an integral role in motivating our executives to maximize ITW’s long-term performance potential. More than 77 percent of the CEO’s compensation is tied to the successful achievement of the Enterprise Strategy’s long-term performance objectives. The following table shows total CEO pay relative to the Company’s cumulative TSR performance over the last 5 years.

 Notes:

Executive Compensation Highlights

Compensation Philosophy

Compensation Objectives

We emphasize a total compensation approach in establishing individual executive compensation levels with each component of compensation serving a specific purpose. In addition to paying a competitive base salary, we use a mix of different performance-based components of compensation that reward different aspects of both Company and individual performance. Our 20192020 executive compensation program consisted of both fixed (base salary) and variable (annual cash incentives and long-term incentive compensation) components, as illustrated below:

20192020 Compensation Components

Ongoing Best Practices

We regularly review and refine our executive compensation program to ensure that it continues to address practices and policies that are aligned with ourpay-for-performance philosophy and the interests of our stockholders. In this regard, our 20192020 compensation program reflects the following:

Say on Pay Advisory Voting Results

In 2017, 2018, 2019 and 2019, 97.2 percent,2020, 95.5 percent, 95.9 percent and 95.995.0 percent, respectively, of stockholder votes were cast to approve the compensation of our NEOs. The Committee believes that this favorable vote is confirmation that our stockholders believe the pay of our NEOs is appropriately aligned with the performance of the Company and the interests of our stockholders. The Committee therefore determined that it was not necessary to make any changes to our executive compensation practices during 2020 as a result of the Say on Pay votes.

How We Make Compensation Decisions

Role of the Compensation Committee

The Committee conducts an annual review of ITW’s practices and the compensation of our executive officers to ensure:

In making its executive compensation decisions and recommendations, the Committee is guided by the following factors:

See “Board of Directors and Its Committees — its Committees—Compensation Committee” under “Proposal 1 — 1—Election of Directors” for more information about the function of the Committee.

Role of the Compensation Consultant

The Committee engages an independent advisor, Frederic W. Cook & Co., Inc. (Cook), to work directly on its behalf and in cooperation with management to review ITW’s executive compensation program, confirm appropriateness of our peer companies, and assess our compensation governance process. In 2019,2020, Cook conducted a marketplace review of the compensation we pay to our executive officers. Cook provided the Committee with relevant market data, including a review of our pay and performance and that of our peers, reviewed the peer companies we use for comparison purposes, and benchmarked our compensation against our peer companies. Cook also assisted the Committee with its assessment of compensation-related risk.

With respect to CEO compensation, on an annual basis, Cook provides an independent recommendation to the Committee for its consideration. In developing its recommendation, Cook relies on its understanding of ITW’s business, strategy and compensation programs, as well as its own independent research and analysis including ITW’s peer group. Cook does not meet with the CEO with respect to his compensation.

Peer Companies

For 2019,In connection with its annual review in 2020, the Committee confirmedremoved two companies from the following 17 companiespeer group (Ingersoll-Rand plc and Raytheon Company) based on transactions that occurred during the year. The Committee then added two peers (Ecolab Inc. and Trane Technologies plc) that met the criteria summarized to be used as the Company’s peer group:right.

The revenue median of the peer group was $21.7$18.0 billion based on the twelve-month average of reported financial results through AprilJune 30, 2019,2020, and the median market capitalization was $32.0$29.3 billion, versus $14.58$13.8 billion and $46.6$52.8 billion, respectively, for ITW.

The nature of our decentralized and diverse lines of business presents challenges in identifying similar organizations for comparison purposes; however, we believe that the peer group selected provides relevant comparisons.

Compensation Decisions and Individual Compensation Levels

On an annual basis, the CEO reviews the total compensation of the NEOs and makes recommendations to the Committee based on his assessment of each executive’s individual performance and peer group compensation information. The Committee makes recommendations to the independent directors regarding the CEO’s compensation based on an assessment of the CEO’s performance and peer group compensation information. There are no material differences in the policies and decision processes used in setting compensation for the CEO and the other NEOs. However, the different levels of compensation for the NEOs, as shown in the Summary Compensation Table of this proxy statement, reflect internal factors such as each executive’s scope of responsibility, performance, impact on profitable growth and breadth of experience, as well as compensation data from the peer group.

Components of the 20192020 Executive Compensation Program

Base Salary

In determining base salary, the CEO and the Committee consider the size and scope of the executive officers’ responsibilities, experience, performance, market data and the median base salary of similar positions at our peer group companies. The Committee believes that median base salary is an appropriate general reference point to use for encouraging solid performance. Base salaries are reviewed annually, and adjustments are intended to recognize performance and contributions over the prior year, as well as any significant changes in duties or scope of responsibility.

For 2019,2020, the Committee did not recommend an adjustment to Mr. Santi’srecommended a base salary after reviewing his compensation history as CEO and his base salary relative to the competitive practicesincrease of ITW’s peers. This recommendation2.7 percent for Mr. Santi, which was approved by the Board’s independent directors. For the other NEOs, the Committee approved recommended base pay merit increases of 4.0ranging from 3.5 to 4.5 percent. These base salary increases were effective February 25, 2019.24, 2020.

Annual Executive Incentive Plan

We believe that executives generally should be rewarded for their contributions to the overall financial success measured by income and organic growth of the Company as a whole, and, if applicable, the business segment he or she leads. Achieving our annual financial objectives is important to executing on our current strategic objectives and delivering long-term value to stockholders. The Committee recommends the annual incentive target award for the CEO, which is subject to approval by the independent directors of the full Board. The Committee determines and approves the performance results and annual incentive target awards for the other NEOs.NEOs and recommends for approval, and the independent directors of the full Board approve the annual incentive award amount for the CEO.

The annual Executive Incentive Plan (EIP) is composed solely of financial performance measures for our NEOs. TheFor 2020, the financial metric weighting for Mr. Santi, Mr. O’Herlihy and Mr. Larsen wasis based 60 percent on Company operating income and 40 percent on Company organic revenue growth. For Mr. Martindale and Mr. Hartnett, the weighting of the financial measures wasis based 60 percent on operating income and 40 percent on organic revenue growth, with 50 percent of each metric based on Company results and 50 percent on results of their respective business segments. The financial measures were recommended by management and approved by the Committee at the start of the performance year. While the Committee has the discretion to make adjustments in the calculation of financial performance to eliminate factors beyond the control of management and to eliminate possible disincentives to act in the long-term best interests of the Company and our stockholders, no suchthe Committee did not make any adjustments were made to the 20192020 EIP plan or plan payouts due to the impact of the COVID-19 pandemic on financial results.

20192020 EIP Financial Measures

For 2019,2020, executive officers were eligible to earn a payment according to the performance scales below.

20192020 EIP Company Financial Targets