2015 Definitive Proxy
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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| Ingersoll-Rand plc Registered in Ireland No. 469272 | U.S. Mailing Address: 800-E Beaty Street Davidson, NC 28036 (704) 655-4000 |
NOTICE OF 2015 ANNUAL GENERAL MEETING OF SHAREHOLDERS
The Annual General Meeting of Shareholders of Ingersoll-Rand plc (the “Company”) will be held on Thursday, June 4, 2015, at 2:30 p.m., local time, at Carton House Hotel, Carton House, Maynooth, County Kildare, Ireland, to consider and vote upon the following proposals:
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1. | By separate resolutions, to re-elect or elect as directors for a period of 1 year expiring at the end of the Annual General Meeting of Shareholders of Ingersoll-Rand plc in 2016, the following 12 individuals: |
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| (a) | Ann C. Berzin | (g) | Linda P. Hudson |
| (b) | John Bruton | (h) | Michael W. Lamach |
| (c) | Elaine L. Chao | (i) | Myles P. Lee |
| (d) | Jared L. Cohon | (j) | John P. Surma |
| (e) | Gary D. Forsee | (k) | Richard J. Swift |
| (f) | Constance J. Horner | (l) | Tony L. White |
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2. | To give advisory approval of the compensation of the Company’s Named Executive Officers. |
3. | To approve the appointment of PricewaterhouseCoopers LLP as independent auditors of the Company and authorize the Audit Committee of the Board of Directors to set the auditors’ remuneration. |
4. | To renew the Directors’ existing authority to issue shares. |
5. | To renew the Directors’ existing authority to issue shares for cash without first offering shares to existing shareholders. (Special Resolution) |
6. | To determine the price range at which the Company can reissue shares that it holds as treasury shares. (Special Resolution) |
7. | To conduct such other business properly brought before the meeting. |
Only shareholders of record as of the close of business on April 8, 2015, are entitled to receive notice of and to vote at the Annual General Meeting. Whether or not you plan to attend the meeting, please provide your proxy by either using the Internet or telephone as further explained in the accompanying proxy statement or filling in, signing, dating, and promptly mailing a proxy card.
Directions to the meeting can be found in Appendix A of the attached Proxy Statement.
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Registered Office: | By Order of the Board of Directors, |
170/175 Lakeview Dr. Airside Business Park Swords, Co. Dublin Ireland | EVAN M. TURTZ |
Secretary |
IF YOU ARE A SHAREHOLDER WHO IS ENTITLED TO ATTEND AND VOTE, THEN YOU ARE ENTITLED TO APPOINT A PROXY OR PROXIES TO ATTEND AND VOTE ON YOUR BEHALF. A PROXY IS NOT REQUIRED TO BE A SHAREHOLDER IN THE COMPANY. IF YOU WISH TO APPOINT AS PROXY ANY PERSON OTHER THAN THE INDIVIDUALS SPECIFIED ON THE PROXY CARD, PLEASE CONTACT THE COMPANY SECRETARY AT OUR REGISTERED OFFICE.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE ANNUAL GENERAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 4, 2015
The Annual Report and Proxy Statement are available at www.proxyvote.com.
The Notice of Internet Availability of Proxy Materials, or this Notice of 2015 Annual General Meeting of Shareholders, the Proxy Statement and the Annual Report are first being mailed to shareholders on or about April 23, 2015.
SUMMARY INFORMATION
This summary highlights information contained elsewhere in this Proxy Statement. For more complete information about these topics, please review Ingersoll-Rand plc’s Annual Report on Form 10-K and the entire Proxy Statement.
Annual General Meeting of Shareholders
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Date and Time: | | June 4, 2015 at 2:30 p.m., local time |
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Place: | | Carton House Hotel, Carton House |
| | Maynooth, County Kildare |
| | Ireland |
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Record Date: | | April 8, 2015 |
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Voting: | | Shareholders as of the record date are entitled to vote. Each ordinary share is entitled to one vote for each director nominee and each of the other proposals. |
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Attendance: | | All shareholders may attend the meeting. |
Meeting Agenda and Voting Recommendations
The Board of Directors recommends that you vote “For” each of the following items that will be submitted for shareholder approval at the Annual General Meeting.
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Agenda Item | | Vote Required | | Page |
Election of 12 directors named in the proxy statement. | | Majority of votes cast | | |
Advisory approval of the compensation of the Company’s Named Executive Officers. | | Majority of votes cast | | |
Approval of appointment of PricewaterhouseCoopers LLP as the Company’s independent auditors and authorize the Audit Committee to set the auditors’ remuneration. | | Majority of votes cast | | |
Renew the Directors’ authority to issues shares. | | Majority of votes cast | | |
Renew the Directors’ authority to issue shares for cash without first offering shares to existing shareholders (Special Resolution) | | 75% of votes cast | | |
Determine the price at which the Company can reissue shares held as treasury shares (Special Resolution) | | 75% of votes cast | | |
Corporate Governance Highlights
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Substantial majority of independent directors (9 of 10) current directors and (11 of 12) if all nominees are elected Annual election of directors Majority vote for directors Independent Lead Director Board oversight of risk management Succession planning at all levels, including for Board and CEO | Annual Board and committee self-assessments Executive sessions of non-management directors Continuing director education Executive and director stock ownership guidelines Board oversight of sustainability program |
Director Nominees
Set forth below is summary information about each director nominee. |
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Nominee | | Age | | Director Since | | Principal Occupation | | Independent | | Committee Memberships |
Ann C. Berzin | | 63 | | 2001 | | Former Chairman and CEO of Financial Guaranty Insurance Company | | ü | | Audit Finance (Chair) |
John Bruton | | 67 | | 2010 | | Former Prime Minister of the Republic of Ireland and Former European Union Commission Head of Delegation to the United States | | ü | | Compensation Corporate Governance and Nominating |
Elaine L. Chao | | 62 | | Nominee | | 24th Secretary of Labor from 2001 until 2009 | | ü
| | Nominee to Compensation Nominee to Corporate Governance and Nominating |
Jared L. Cohon | | 67 | | 2008 | | President Emeritus of Carnegie Mellon University, University Professor of Civil and Environmental Engineering and of Engineering and Public Policy, and Director of the Scott Institute for Energy Innovation | | ü | | Compensation Corporate Governance and Nominating |
Gary D. Forsee | | 65 | | 2007 | | Former President of University of Missouri System and Former Chairman of the Board and Chief Executive Officer of Sprint Nextel Corporation | | ü | | Compensation Corporate Governance and Nominating (Chair) |
Constance J. Horner | | 73 | | 1994 | | Former Commissioner of U.S. Commission on Civil Rights | | ü | | Compensation Corporate Governance and Nominating |
Linda P. Hudson | | 64 | | Nominee | | Founder, Chairman and CEO of The Cardea Group and Former President and CEO of BAE Systems, Inc. | | ü | | Nominee to Audit Nominee to Finance |
Michael W. Lamach | | 51 | | 2010 | | Chairman and CEO of Ingersoll-Rand plc
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Myles P. Lee | | 61 | | 2015 | | Former Director and CEO of CRH plc
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John P. Surma | | 60 | | 2013 | | Former Chairman and CEO of United States Steel Corporation | | ü | | Audit Finance |
Richard J. Swift | | 70 | | 1995 | | Former Chairman of Financial Accounting Standards Advisory Council and Former Chairman, President and CEO of Foster Wheeler Ltd.
| | ü | | Lead Independent Director Audit (Chair) Finance |
Tony L. White | | 68 | | 1997 | | Former Chairman, President and CEO of Applied Biosystems Inc. | | ü | | Compensation (Chair) Corporate Governance and Nominating |
Advisory Approval of Our Executive Compensation
We are asking for your advisory approval of the compensation of our named executive officers (“NEOs”). While our Board of Directors intends to carefully consider the shareholder vote resulting from the proposal, the final vote will not be binding on us and is advisory in nature. Before considering this proposal, please read our Compensation Discussion and Analysis, which explains our executive compensation programs and the Compensation Committee’s compensation decisions.
Executive Compensation
Pay for Performance
Our executive compensation programs are based on the principles of (i) market competitiveness, (ii) pay for performance, (iii) mix of short and long-term incentives, (iv) internal parity, (v) shareholder alignment and (vi) business strategy alignment. Consistent with these principles, the Compensation Committee has adopted executive compensation programs with a strong link between pay and achievement of short and long-term Company goals.
2014 Results
During 2014, our first full year after the spin-off of our commercial and residential security businesses (“Allegion”) and the reorganization of our Company, we achieved strong financial performance. The following table documents the results realized in 2014:
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Metric | | Performance |
Revenue | | Adjusted annual Revenue of $12.875 billion, an increase of 4.2% over 2013 |
OI | | Adjusted OI of $1.423 billion, an increase of 19.8% over 2013 |
OI Margin | | Adjusted OI margin of 11.05%, an increase of 1.45 percentage points over 2013 |
Cash Flow | | Adjusted Cash Flow of $853 million, a decrease of 1.1% from 2013 |
EPS | | Adjusted EPS of $3.30, an increase of 25% over 2013 |
3-Year EPS Growth | | 3-year EPS growth (2012 - 2014) of 19.37%, which ranks at the 88th percentile of the companies in the S&P 500 Industrials Index |
3-Year TSR | | 3-year TSR (2012-2014) of 153.66%, which ranks at the 91st percentile of the companies in the S&P 500 Industrials Index |
Based on our adjusted 2014 results for Revenue, Operating Income (“OI”), Cash Flow and OI margin, we achieved an Annual Incentive Matrix (“AIM”) financial score of 102.41% of target for the Enterprise. At the Segment level, 2014 AIM financial scores were 164.60% of target for the Climate Segment and 61.86% of target for the Industrial Segment.
Based on our achievement of an earnings per share (“EPS”) growth rate of 19.37% and Total Shareholder Return (“TSR”) of 153.66% during the 2012 to 2014 performance period, Performance Share Units (“PSUs”) under our Performance Share Program (“PSP”) paid out at 200% of target (maximum payout allowed under the plan).
Approval of Appointment of Independent Auditors
We are asking you to approve the appointment of PricewaterhouseCoopers LLP (“PwC”) as our independent auditors for 2015 and to authorize the Audit Committee to set PwC’s remuneration.
Renew the Directors’ authority to issues shares
We are asking you to renew our Directors’ authority to issue shares under Irish law. This authority is fundamental to our business and granting the Board this authority is a routine matter for public companies incorporated in Ireland.
Renew the Directors’ authority to issue shares for cash without first offering shares to existing shareholders
We are asking you to renew the Directors’ authority to issue shares for cash without first offering shares to existing shareholders. This authority is fundamental to our business and granting the Board this authority is a routine matter for public companies incorporated in Ireland. As required under Irish law, this proposal requires the affirmative vote of at least 75% of the votes cast.
Determine the price at which the Company can reissue shares held as treasury shares
We are asking you to determine the price at which the Company can reissue shares held as treasury shares. From time to time the Company may acquire ordinary shares and hold them as treasury shares. The Company may reissue such treasury shares, and under Irish law, our shareholders must authorize the price range at which we may reissue any shares held in treasury.
2016 Annual Meeting
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Deadline for shareholder proposals for inclusion in the proxy statement: | | December 26, 2015 |
Deadline for business proposals and nominations for director: | | March 6, 2016 |
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| Ingersoll-Rand plc
| U.S. Mailing Address: 800-E Beaty Street Davidson, NC 28036 (704) 655-4000 |
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| PROXY STATEMENT | |
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In this Proxy Statement, “Ingersoll Rand,” the “Company,” “we,” “us” and “our” refer to Ingersoll-Rand plc, an Irish public limited company. This Proxy Statement and the enclosed proxy card, or the Notice of Internet Availability of Proxy Materials, are first being mailed to shareholders of record on April 8, 2015 (the “Record Date”) on or about April 23, 2015.
PROPOSALS REQUIRING YOUR VOTE
Item 1. Election of Directors
The Company uses a majority of votes cast standard for the election of directors. A majority of the votes cast means that the number of votes cast “for” a director nominee must exceed the number of votes cast “against” that director nominee. Each director of the Company is being nominated for election for a one-year term beginning at the end of the 2015 Annual General Meeting of Shareholders to be held on June 4, 2015 (the “Annual General Meeting”) and expiring at the end of the 2016 Annual General Meeting of Shareholders. Mr. Edward E. Hagenlocker and Mr. Theodore E. Martin are retiring at the 2015 Annual General Meeting in accordance with our Corporate Governance Guidelines due to each attaining the age 75 prior to such meeting.
Under our articles of association, if a director is not re-elected in a director election, the director shall retire at the close or adjournment of the Annual General Meeting. Each director standing for election was elected as a director at our 2014 Annual General Meeting except for Myles Lee who was elected February 3, 2015 and Elaine L. Chao and Linda P. Hudson who are standing for election for the first time at this Annual General Meeting.
The Board of Directors recommends a vote FOR the directors nominated for election listed under proposals 1(a) through (l) below.
(a) Ann C. Berzin – age 63, director since 2001
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• | Chairman and Chief Executive Officer of Financial Guaranty Insurance Company (insurer of municipal bonds and structured finance obligations), a subsidiary of General Electric Capital Corporation, from 1992 to 2001. |
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▪ | Baltimore Gas & Electric Company |
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• | Other Directorships Held in the Past Five Years: |
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▪ | Constellation Energy Group, Inc. |
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▪ | Kindred Healthcare, Inc. |
Ms. Berzin’s extensive experience in finance at a global diversified industrial firm and her expertise in complex investment and financial products and services bring critical insight to the Company’s financial affairs, including its borrowings, capitalization, and liquidity. In addition, Ms. Berzin’s relationships across the global financial community strengthen Ingersoll Rand’s access to capital markets. Her board memberships provide deep understanding of trends in the energy and healthcare sectors, both of which present ongoing opportunities and challenges for Ingersoll Rand.
(b) John Bruton – age 67, director since 2010
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• | European Union Commission Head of Delegation to the United States from 2004 to 2009. |
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• | Prime Minister of the Republic of Ireland from 1994 to 1997. |
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▪ | Montpelier Re Holding Ltd. |
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• | Other Directorships Held in the Past Five Years: None |
Mr. Bruton’s long and successful career of public service on behalf of Ireland and Europe provides extraordinary insight into critical regional and global economic, social and political issues, all of which directly influence the successful execution of the Company’s strategic plan. In particular, Mr. Bruton’s leadership role in transforming
Ireland into one of the world’s leading economies during his tenure, as well as in preparing the governing document for managing the Euro, lend substantial authority to Ingersoll Rand’s economic and financial oversight.
(c) Elaine L. Chao - age 62, director nominee for 2015 Annual General Meeting
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• | 24th U.S. Secretary of Labor from 2001 until 2009, the first Asian American woman cabinet officer in American history. |
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• | Chairwoman of the Ruth Mulan Chu Chao Foundation, 2013 to present. |
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• | Distinguished Fellow at the Heritage Foundation from August 1996 to January 2001 and January 2009 to August 2014. |
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• | President and Chief Executive Officer of United Way of America from November 1992 to August 1996. |
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▪ | Vulcan Materials Company |
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• | Other Directorships Held in the Past Five Years: Dole Food Company, Inc., Protective Life |
Ms. Chao’s extensive leadership experience including high profile positions at large, complex organizations in the public, private and non-profit sectors will bring valuable perspective to matters relevant to the Company in the areas of global competitiveness, international geopolitical dynamics, workforce development, trends in governmental policies and corporate governance. In particular, Ms. Chao’s service as U.S. Secretary of Labor will provide extensive knowledge and experience regarding labor and employment trends, workforce health and safety, pension benefits and competition in a worldwide economy. Ms. Chao’s ongoing board memberships in the financial and communications industries will also provide further insight into finance, macroeconomics and new media developments.
(d) Jared L. Cohon – age 67, director since 2008
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• | President Emeritus at Carnegie Mellon University, President of Carnegie Mellon University from 1997-2013 and also appointed University Professor of Civil and Environmental Engineering / Engineering and Public Policy and Director of the Scott Institute for Energy Innovation. |
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• | Other Directorships Held in the Past Five Years: None |
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▪ | Carnegie Corporation, Trustee |
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▪ | Heinz Endowments, Trustee |
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▪ | Center for Sustainable Shale Gas Development, Director and Chair |
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▪ | Health Effects Institute, Director |
Dr. Cohon’s extensive career in academics, including 16 years as president of an institution known throughout the world for its leadership in the fields of computer science and engineering offers the Company tremendous insight into the latest developments in areas critical to commercial innovation and manufacturing process improvement. A member of the National Academy of Engineering, Dr. Cohon is a recognized authority on environmental and water resources systems analysis and management. As such, Dr. Cohon also brings unique perspectives on sustainable business practices, both within our own operations and on behalf of our customers and communities. In 2008 and 2009, at the request of Congress, Dr. Cohon chaired the National Research Council Committee that produced the report, “Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use.” In 2014, Dr. Cohon was appointed co-chair of the Congressionally-mandated Commission to review and evaluate the National Energy Laboratories. Finally, Dr. Cohon’s more than nine years of service as a member of Trane Inc.’s (formerly American Standard) board of directors provides critical insight into that part of the Company’s business.
(e) Gary D. Forsee – age 65, director since 2007
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• | President, University of Missouri System from 2008 to 2011. |
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• | Chairman of the Board (from 2006 to 2007) and Chief Executive Officer (from 2005 to 2007) of Sprint Nextel Corporation (a telecommunications company). |
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▪ | Great Plains Energy Inc. |
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▪ | DST Systems Inc. - Mr. Forsee's nomination as a director of the DST board will be presented at the DST 2015 Annual Meeting. |
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• | Other Directorships Held in the Past Five Years: None |
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▪ | Trustee, Midwest Research Institute |
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▪ | Board, University of Missouri – Kansas City Foundation |
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▪ | Board, University of Missouri – Kansas City Bloch Business School Foundation |
In addition to his broad operational and financial expertise, Mr. Forsee’s experience as chairman and chief executive officer with the third largest U.S. firm in the global telecommunications industry offers a deep understanding of the opportunities and challenges within markets experiencing significant technology-driven change. His recent role as president of a major university system provides insight into the Company’s talent development initiatives, which remain a critical enabler of Ingersoll Rand’s long-term success. Mr. Forsee’s membership on the board of an energy services utility also benefits the Company as it seeks to achieve more energy-efficient operations and customer solutions.
(f) Constance J. Horner – age 73, director since 1994
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• | Guest Scholar at the Brookings Institution (a non-partisan research institute) from 1993 to 2005. |
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• | Commissioner of U.S. Commission on Civil Rights from 1993 to 1998. |
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• | Assistant to the President and Director of Presidential Personnel from 1991 to 1993. |
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• | Deputy Secretary, U.S. Department of Health and Human Services from 1989 to 1991. |
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▪ | Pfizer Inc. - Ms. Horner will not be standing for reelection to the board of directors at Pfizer's 2015 annual meeting of stockholders because she has reached the mandatory retirement age for directors. |
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▪ | Prudential Financial, Inc. |
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• | Other Directorships Held in the Past Five Years: None |
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▪ | Trustee, The Prudential Foundation |
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▪ | Fellow, National Academy of Public Administration |
Ms. Horner’s substantial leadership experience and public-policy expertise resulting from her service in two presidential administrations and several U.S. government departments provide Ingersoll Rand with important perspective on matters that directly affect the Company’s operations and financial affairs. In particular, Ms. Horner has deep insight into employee relations, talent development, diversity, operational management and healthcare through her leadership positions at various federal departments and commissions. Ms. Horner’s board memberships afford engagement in the areas of healthcare, risk management and financial services, all of which have a direct influence on Ingersoll Rand’s success.
(g) Linda P. Hudson - age 64, director nominee
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• | Founder, Chairman, and Chief Executive Officer of The Cardea Group, a business management consulting firm |
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• | Former President and Chief Executive Officer of BAE Systems, Inc. |
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• | Other Directorships Held in the Past Five Years: BAE Systems Plc |
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▪ | Director, University of Florida Foundation, Inc. and the University of Florida Engineering Leadership Institute |
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▪ | Director, Center for a New American Security |
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▪ | Director, Wake Forest Charlotte Center |
Ms. Hudson’s prior role as President and CEO of BAE Systems and her extensive experience in the defense and engineering sectors will provide the Company with strong operational insight and understanding of matters crucial to the Company’s business. Prior to becoming CEO, Ms. Hudson was president of BAE Systems' Land & Armaments operating group, the world's largest military vehicle and equipment business, with operations around the world. In addition, Ms. Hudson has broad experience in strategic planning and risk management in complex business environments.
(h) Michael W. Lamach – age 51, Chairman since June 2010 and director since February 2010
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• | Chief Executive Officer (since February 2010) of the Company. |
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• | President and Chief Operating Officer of the Company from February 2009 to February 2010. |
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• | Senior Vice President and President, Trane Commercial Systems, of the Company from June 2008 to September 2009. |
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▪ | Iron Mountain Incorporated - Mr. Lamach has informed Iron Mountain that he will retire from its board of directors and will not be standing for reelection to the board of directors at Iron Mountain's 2015 annual meeting of stockholders. |
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• | Other Directorships Held in the Past Five Years: None |
Mr. Lamach’s extensive career of successfully leading global businesses, including ten years with Ingersoll Rand, brings significant experience and expertise to the Company’s management and governance. His 30 years of business leadership encompass global automotive components, controls, security and HVAC systems businesses, representing a broad and diverse range of products and services, markets, channels, applied technologies and operational profiles. In his current role of Chief Executive Officer, he led the successful spin-off of the Company’s commercial and residential security business and has been instrumental in driving growth and operational excellence initiatives across the Company’s global operations.
(i) Myles P. Lee – age 61, director since 2015
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• | Former Director and Chief Executive Officer of CRH plc |
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• | Current Directorships: Babcock International Group plc |
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• | Other Directorships Held in the Past Five Years |
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▪ | Director, St. Vincent’s Healthcare Group |
Mr. Lee's experience as the former head of the largest public or private company in Ireland provides strategic and practical judgment to critical elements of the Company’s growth and productivity strategies, expertise in Irish governance matters and significant insight into the building and construction sector. In addition, Mr. Lee's previous service as Finance Director and General Manager of Finance of CRH plc and in a professional accountancy practice provides valuable financial expertise to the Company.
(j) John P. Surma – age 60, director since 2013
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• | Former Chairman (from 2006-2013) and Chief Executive Officer (from 2004-2013) of United States Steel Corporation (a steel manufacturing company). |
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▪ | Marathon Petroleum Corporation |
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▪ | MPLX LP (a publicly traded subsidiary of Marathon Petroleum Corporation) |
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• | Other Directorships Held in the Past Five Years: |
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▪ | The Bank of New York Mellon Corporation |
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▪ | Director and Deputy Chair, Federal Reserve Bank of Cleveland |
Mr. Surma’s experience as the former chairman and chief executive officer of a large industrial company provides significant and direct expertise across all aspects of Ingersoll Rand’s operational and financial affairs. In particular, Mr. Surma’s financial experience, having previously served as the chief financial officer of United States Steel Corporation and as a partner of the audit firm PricewaterhouseCoopers LLP, provides the Board with valuable insight into financial reporting and accounting oversight of a public company. Mr. Surma’s past and present board memberships and other activities provide the Board an understanding of developments in the energy sector as the Company seeks to develop more energy-efficient operations and insight into national and international business and trade policy that could impact the Company.
(k) Richard J. Swift – age 70, Lead Director since 2010 and director since 1995
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• | Chairman of Financial Accounting Standards Advisory Council from 2002 through 2006. |
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• | Chairman, President and Chief Executive Officer of Foster Wheeler Ltd. (provider of design, engineering, construction, manufacturing, management and environmental services) from 1994 to 2001. |
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▪ | CVS Caremark Corporation |
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▪ | Public Service Enterprise Group |
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• | Other Directorships Held in the Past Five Years: None |
Mr. Swift’s experience as chairman and chief executive officer of a global engineering firm, the fact that he was a licensed professional engineer for 35 years prior to the retirement of his license and his five-year leadership of the advisory organization to a major accounting standards board imparts substantial expertise to all of the Company’s operational and financial matters. His leadership of an organization that was instrumental in some of the world’s most significant engineering projects provides unique insight into the complex systems involved in the efficient and effective development of buildings and industrial operations, which represent key global market segments for Ingersoll Rand’s products and services. Mr. Swift’s board memberships include firms engaged in the manufacture and distribution of industrial, electrical and electronic products, which directly correspond to key elements of the Company’s growth and operational strategies.
(l) Tony L. White – age 68, director since 1997
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• | Chairman, President and Chief Executive Officer of Applied Biosystems Inc. (a developer, manufacturer and marketer of life science systems and genomic information products) from 1995 until his retirement in 2008. |
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▪ | CVS Caremark Corporation |
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• | Other Directorships Held in the Past Five Years: None |
Mr. White’s extensive management experience, including 13 years as chairman and chief executive officer of an advanced-technology life sciences firm, provides substantial expertise and guidance across all aspects of Ingersoll Rand’s operational and financial affairs. In particular, Mr. White’s leadership of an organization whose success was directly connected to innovation and applied technologies aligns with the Company’s focus on innovation as a key source of growth. The Company benefits from Mr. White’s ongoing board memberships, where developments related to biotechnology and healthcare delivery systems can offer instructive process methodologies to accelerate our innovation efforts.
Item 2. Advisory Approval of the Compensation of Our Named Executive Officers
The Company is presenting the following proposal, commonly known as a “Say-on-Pay” proposal, which gives you as a shareholder the opportunity to endorse or not endorse our compensation program for Named Executive Officers by voting for or against the following resolution:
“RESOLVED, that the shareholders approve the compensation of the Company’s Named Executive Officers, as disclosed in the Compensation Discussion and Analysis, the compensation tables, and the related disclosure contained in the Company’s proxy statement.”
While our Board of Directors intends to carefully consider the shareholder vote resulting from the proposal, the final vote will not be binding on us and is advisory in nature.
In considering your vote, please be advised that our compensation program for Named Executive Officers is guided by our design principles, as described in the Compensation Discussion and Analysis section of this Proxy Statement:
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• | Mix of short and long-term incentives |
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• | Business strategy alignment |
By following these design principles, we believe that our compensation program for Named Executive Officers is strongly aligned with the long-term interests of our shareholders.
The Board of Directors recommends that you vote FOR advisory approval of the compensation of our Named Executive Officers as disclosed in the Compensation Discussion and Analysis, the compensation tables, and the related disclosure contained in this proxy statement.
Item 3. Approval of Appointment of Independent Auditors
At the Annual General Meeting, shareholders will be asked to approve the appointment of PricewaterhouseCoopers LLP (“PwC”) as our independent auditors for the fiscal year ending December 31, 2015, and to authorize the Audit Committee of our Board of Directors to set the independent auditors’ remuneration. PwC has been acting as our independent auditors for many years and, both by virtue of its long familiarity with the Company’s affairs and its ability, is considered best qualified to perform this important function.
Representatives of PwC will be present at the Annual General Meeting and will be available to respond to appropriate questions. They will have an opportunity to make a statement if they so desire.
The Board of Directors recommends a vote FOR the proposal to approve the appointment of PwC as independent auditors of the Company and to authorize the Audit Committee of the Board of Directors to set the auditors’ remuneration.
Audit Committee Report
While management has the primary responsibility for the financial statements and the reporting process, including the system of internal controls, the Audit Committee reviews the Company’s audited financial statements and financial reporting process on behalf of the Board of Directors. The independent auditors are responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) and to issue a report thereon. The Audit Committee monitors those processes. In this context, the Audit Committee has met and held discussions with management and the independent auditors regarding the fair and complete presentation of the Company’s results. The Audit Committee has discussed significant accounting policies applied by the Company in its financial statements, as well as alternative treatments. Management has represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with United States generally accepted accounting principles, and the Audit Committee has reviewed and discussed the consolidated financial statements with management and the independent auditors. The Audit Committee also discussed with the independent auditors the matters required to be discussed by Auditing Standard No. 16, “Communications with Audit Committees” issued by the Public Company Accounting Oversight Board (United States).
In addition, the Audit Committee has received and reviewed the written disclosures and the letter from PwC required by the Public Company Accounting Oversight Board regarding PwC’s communications with the Audit Committee concerning independence and discussed with PwC the auditors’ independence from the Company and its management in connection with the matters stated therein. The Audit Committee also considered whether the independent auditors’ provision of non-audit services to the Company is compatible with the auditors’ independence. The Audit Committee has concluded that the independent auditors are independent from the Company and its management.
The Audit Committee discussed with the Company’s internal and independent auditors the overall scope and plans for their respective audits. The Audit Committee meets separately with the internal and independent auditors, with and without management present, to discuss the results of their examinations, the evaluations of the Company’s internal controls and the overall quality of the Company’s financial reporting.
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors, and the Board has approved, that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014 (“2014 Form 10-K”), for filing with the Securities and Exchange Commission (the “SEC”). The Audit Committee has selected PwC, subject to shareholder approval, as the Company’s independent auditors for the fiscal year ending December 31, 2015.
AUDIT COMMITTEE
Richard J. Swift (Chair)
Ann C. Berzin
Edward E. Hagenlocker
Myles P. Lee
Theodore E. Martin
John P. Surma
Fees of the Independent Auditors
The following table shows the fees paid or accrued by the Company for audit and other services provided by PwC for the fiscal years ended December 31, 2014 and 2013:
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| | 2014 | | 2013 |
Audit Fees (a) | | $ | 12,660,000 | | | $ | 14,831,000 | |
Audit-Related Fees (b) | | 319,000 | | | 3,985,000 | |
Tax Fees (c) | | 5,391,000 | | | 10,785,000 | |
All Other Fees (d) | | 21,000 | | | 1,643,000 | |
Total | | $ | 18,391,000 | | $ | 31,244,000 | |
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(a) | Audit Fees for the fiscal years ended December 31, 2014 and 2013, respectively, were for professional services rendered for the audits of the Company’s annual consolidated financial statements and its internal controls over financial reporting, including quarterly reviews, statutory audits, issuance of consents, comfort letters and assistance with, and review of, documents filed with the SEC. |
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(b) | Audit-Related Fees consist of assurance services that are related to performing the audit and review of our financial statements. Audit-Related Fees for the fiscal year ended December 31, 2014 include employee benefit plan audits, abandoned and unclaimed property tax assessments, and comfort letter related to the 2014 bond offering. Audit-Related Fees for the fiscal year ended December 31, 2013 include employee benefit plan audits, abandoned and unclaimed property tax assessments, systems implementation risk assessment, comfort letter related to a bond offering of disposed businesses and carve-out audits of disposed businesses primarily related to the Spin-off. |
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(c) | Tax Fees for the fiscal years ended December 31, 2014 and 2013 include consulting and compliance services in the U.S. and non-U.S. locations and primarily relate to Spin-off costs. |
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(d) | All Other Fees for the fiscal year ended December 31, 2014 include license fees for technical accounting software. All Other Fees for the fiscal year ended December 31, 2013 include trading platform redesign services, advisory services for the transition of insourcing of information technology services and license fees for technical accounting software. |
The Audit Committee has adopted policies and procedures which require that the Audit Committee pre-approve all non-audit services that may be provided to the Company by its independent auditors. The policy: (i) provides for pre-approval of an annual budget for each type of service; (ii) requires Audit Committee approval of specific projects over $100,000, even if included in the approved budget; and (iii) requires Audit Committee approval if the forecast of expenditures exceeds the approved budget on any type of service. The Audit Committee pre-approved all of the services described under “Audit-Related Fees,” “Tax Fees” and “All Other Fees.” The Audit Committee has determined that the provision of all such non-audit services is compatible with maintaining the independence of PwC.
Item 4. Renewal of the Directors’ existing authority to issue shares.
Under Irish law, directors of an Irish public limited company must have authority from its shareholders to issue any shares, including shares which are part of the company’s authorized but unissued share capital. Our shareholders provided the Directors with this authorization at our 2014 annual general meeting on June 5, 2014 for a period of 18 months. Because this share authorization period will expire in December 2015, we are presenting this proposal to renew the Directors’ authority to issue our authorized shares on the terms set forth below.
We are seeking approval to authorize our Directors to issue up to 33% of our issued ordinary share capital as of April 8, 2015 (the latest practicable date before this proxy statement), for a period expiring 18 months from the passing of this resolution, unless renewed.
Granting the Directors this authority is a routine matter for public companies incorporated in Ireland and is consistent with Irish market practice. This authority is fundamental to our business and enables us to issue shares, including in connection with our equity compensation plans (where required) and, if applicable, funding acquisitions and raising capital. We are not asking you to approve an increase in our authorized share capital or to approve a specific issuance of shares. Instead, approval of this proposal will only grant the Directors the authority to issue shares that are already authorized under our articles upon the terms below. In addition, we note that, because we are a NYSE-listed company, our shareholders continue to benefit from the protections afforded to them under the rules and regulations of the NYSE and SEC, including those rules that limit our ability to issue shares in specified circumstances. Furthermore, we note that this authorization is required as a matter of Irish law and is not otherwise required for other U.S. companies listed on the NYSE with whom we compete. Renewal of the Directors' existing authority to issue shares is fully consistent with NYSE rules and listing standards and with U.S. capital markets practice and governance standards.
As of the date of this Proxy Statement, the Companies Act 2014 (the “Act”) is not yet in effect. It is expected to be commenced in June 2015. The Act consolidates existing company law in Ireland and will make a number of amendments to existing legislation. Reference is made to the Act in each of Items 4 to 6 to ensure that the resolutions passed at the Annual General Meeting will be effective after the commencement of the Act, whether this occurs before or after the date of the Annual General Meeting, and prior to the date of the annual general meeting in 2016.
As required under Irish law, the resolution in respect of Item 4 is an ordinary resolution that requires the affirmative vote of a simple majority of the votes cast.
The text of this resolution is as follows:
“That the Directors be and are hereby generally and unconditionally authorized with effect from the passing of this resolution to exercise all powers of the Company to allot relevant securities (within the meaning of Section 20 of the Companies (Amendment) Act 1983) up to an aggregate nominal amount of $87,355,827 (87,355,827 shares) (being equivalent to approximately 33% of the aggregate nominal value of the issued ordinary share capital of the Company as of April 8, 2015 (the latest practicable date before this proxy statement)), and the authority conferred by this resolution shall expire 18 months from the passing of this resolution, unless previously renewed, varied or revoked; provided that the Company may make an offer or agreement before the expiry of this authority, which would or might require any such securities to be allotted after this authority has expired, and in that case, the directors may allot relevant securities in pursuance of any such offer or agreement as if the authority conferred hereby had not expired.
With the commencement of the Companies Act 2014, the authority conferred by this resolution shall be applied as if the reference to Section 20 of the Companies Act (Amendment) Act 1983 in this resolution is deemed to refer to Section 1021 of the Companies Act 2014.”
The Board of Directors recommends that you vote FOR renewing the Directors’ authority to issue shares.
Item 5: Renewal of Directors’ existing authority to issue shares for cash without first offering shares to existing shareholders.
Under Irish law, unless otherwise authorized, when an Irish public limited company issues shares for cash, it is required first to offer those shares on the same or more favorable terms to existing shareholders of the company on a pro-rata basis (commonly referred to as the statutory pre-emption right). Our shareholders provided the Directors with this authorization at our 2014 annual general meeting on June 5, 2014 for a period of 18 months. Because this share authorization period will expire in December 2015, we are presenting this proposal to renew the Directors’ authority to opt-out of the pre-emption right on the terms set forth below.
We are seeking approval to authorize our Directors to opt out of the statutory pre-emption rights provision in the event of (1) the issuance of shares for cash in connection with any rights issue and (2) any other issuance of shares for cash, if the issuance is limited to up to 5% of our issued ordinary share capital as of April 8, 2015 (the latest practicable date before this proxy statement), for a period expiring 18 months from the passing of this resolution, unless renewed.
Granting the Directors this authority is a routine matter for public companies incorporated in Ireland and is consistent with Irish market practice. Similar to the authorization sought for Item 4, this authority is fundamental to our business and enables us to issue shares under our equity compensation plans (where required) and if applicable, will facilitate our ability to fund acquisitions and otherwise raise capital. We are not asking you to approve an increase in our authorized share capital. Instead, approval of this proposal will only grant the Directors the authority to issue shares in the manner already permitted under our articles upon the terms below. Without this authorization, in each case where we issue shares for cash, we would first have to offer those shares on the same or more favorable terms to all of our existing shareholders. This requirement could undermine the operation of our compensation plans and cause delays in the completion of acquisitions and capital raising for our business. Furthermore, we note that this authorization is required as a matter of Irish law and is not otherwise required for other U.S. companies listed on the NYSE with whom we compete. Renewal of the Directors' existing authorization to opt out of the statutory pre-emption rights as described above is fully consistent with NYSE rules and listing standards and with U.S. capital markets practice and governance standards.
As required under Irish law, the resolution in respect of this proposal is a special resolution that requires the affirmative vote of at least 75% of the votes cast.
The text of the resolution in respect of this proposal is as follows:
“As a special resolution, that, subject to the passing of the resolution in respect of Item 4 as set out above and with effect from the passing of this resolution, the directors be and are hereby empowered pursuant to Section 24 of the Companies (Amendment) Act 1983 to allot equity securities (as defined in Section 23 of that Act) for cash, pursuant to the authority conferred by Item 4 as if sub-section (1) of Section 23 did not apply to any such allotment, provided that this power shall be limited to:
(a) the allotment of equity securities in connection with a rights issue in favor of the holders of ordinary shares (including rights to subscribe for, or convert into, ordinary shares) where the equity securities respectively attributable to the interests of such holders are proportional (as nearly as may be) to the respective numbers of ordinary shares held by them (but subject to such exclusions or other arrangements as the directors may deem necessary or expedient to deal with fractional entitlements that would otherwise arise, or with legal or practical problems under the laws of, or the requirements of any recognized regulatory body or any stock exchange in, any territory, or otherwise); and
(b) the allotment (otherwise than pursuant to sub-paragraph (a) above) of equity securities up to an aggregate nominal value of $13,235,731 (13,235,731 shares) (being equivalent to approximately 5% of the aggregate nominal value of the issued ordinary share capital of the Company as of April 8, 2015 (the latest practicable date before this proxy statement)) and the authority conferred by this resolution shall expire 18 months from the passing of this resolution, unless previously renewed, varied or revoked; provided that the Company may make an offer or agreement before the expiry of this authority, which would or might require any such securities to be allotted after this authority has expired, and in that case, the directors may allot equity securities in pursuance of any such offer or agreement as if the authority conferred hereby had not expired.
With the commencement of the Companies Act 2014, the authority conferred by this resolution shall be applied as if the references to Sections 20, 23 and 24 of the Companies (Amendment) Act 1983 in this resolution are deemed to refer to their equivalent provisions in Sections 1021, 1022 and 1023 of the Companies Act 2014.”
The Board of Directors recommends that you vote FOR renewing the Directors’ authority to opt-out of statutory pre-emption rights.
Item 6: Determine the price at which the Company can reissue shares held as treasury shares.
Our open-market share repurchases (redemptions) and other share buyback activities may result in ordinary shares being acquired and held by the Company as treasury shares. We may reissue treasury shares that we acquire through our various share buyback activities including in connection with our executive compensation program and our director programs.
Under Irish law, our shareholders must authorize the price range at which we may reissue any shares held in treasury. In this proposal, that price range is expressed as a minimum and maximum percentage of the closing market price of our ordinary shares on the NYSE the day preceding the day on which the relevant share is re-issued. Under Irish law, this authorization expires 18 months after its passing unless renewed.
The authority being sought from shareholders provides that the minimum and maximum prices at which an ordinary share held in treasury may be reissued are 95% and 120%, respectively, of the closing market price of the ordinary shares on the NYSE the day preceding the day on which the relevant share is re-issued, except as described below with respect to obligations under employee share schemes, which may be at a minimum price of nominal value. Any reissuance of treasury shares will be at price levels that the Board considers in the best interests of our shareholders.
As required under Irish law, the resolution in respect of this proposal is a special resolution that requires the affirmative vote of at least 75% of the votes cast.
The text of the resolution in respect of this proposal is as follows:
“As a special resolution, that the reissue price range at which any treasury shares held by the Company may be reissued off-market shall be as follows:
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(a) | the maximum price at which such treasury share may be reissued off-market shall be an amount equal to 120% of the “market price”; and |
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(b) | the minimum price at which a treasury share may be reissued off-market shall be the nominal value of the share where such a share is required to satisfy an obligation under an employee share scheme or any option schemes operated by the Company or, in all other cases, an amount equal to 95% of the “market price”; and |
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(c) | for the purposes of this resolution, the “market price” shall mean the closing market price of the ordinary shares on the NYSE the day preceding the day on which the relevant share is re-issued. |
FURTHER, that this authority to reissue treasury shares shall expire at 18 months from the date of the passing of this resolution unless previously varied or renewed in accordance with the provisions of Section 209 of the Companies Act 1990.
With the commencement of the Companies Act 2014, the authority conferred by this resolution shall be applied as if the references to Section 209 of the Companies Act 1990 in this resolution are deemed to refer to Section 1078 of the Companies Act 2014."
The Board of Directors recommends that shareholders vote FOR the proposal to determine the price at which the Company can reissue shares held as treasury shares.
CORPORATE GOVERNANCE
Corporate Governance Guidelines
Our Corporate Governance Guidelines, together with the charters of the various Board committees, provide a framework for the corporate governance of the Company. The following is a summary of our Corporate Governance Guidelines and practices. A copy of our Corporate Governance Guidelines, as well as the charters of each of our Board committees, are available on our website at www.ingersollrand.com under the heading “Investor Relations – Corporate Governance.”
Role of the Board of Directors
The Company’s business is managed under the direction of the Board of Directors. The role of the Board of Directors is to oversee the management and governance of the Company and monitor senior management’s performance.
Board Responsibilities
The Board of Directors’ core responsibilities include:
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• | selecting, monitoring, evaluating and compensating senior management; |
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• | assuring that management succession planning is adequate; |
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• | reviewing the Company’s financial controls and reporting systems; |
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• | overseeing the Company’s management of enterprise risk; |
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• | reviewing the Company’s ethical standards and legal, compliance programs and procedures; and |
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• | evaluating the performance of the Board of Directors, Board committees and individual directors. |
Board Leadership Structure
The positions of Chairman of the Board and CEO at the Company are held by the same person, except in unusual circumstances, such as during a CEO transition. This policy has worked well for the Company. It is the Board of Directors’ view that the Company’s corporate governance principles, the quality, stature and substantive business knowledge of the members of the Board, as well as the Board’s culture of open communication with the CEO and senior management are conducive to Board effectiveness with a combined Chairman and CEO position.
In addition, the Board of Directors has a strong, independent Lead Director and it believes this role adequately addresses the need for independent leadership and an organizational structure for the independent directors. The Board of Directors appoints a Lead Director for a three-year minimum term from among the Board’s independent directors. The Lead Director coordinates the activities of all of the Board’s independent directors. The Lead Director is the principal confidant to the CEO and ensures that the Board of Directors has an open, trustful relationship with the Company’s senior management team. In addition to the duties of all directors, as set forth in the Company’s Governance Guidelines, the specific responsibilities of the Lead Director are as follows:
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• | Chair the meetings of the independent directors when the Chairman is not present; |
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• | Ensure the full participation and engagement of all Board members in deliberations; |
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• | Lead the Board of Directors in all deliberations involving the CEO’s employment, including hiring, contract negotiations, performance evaluations, and dismissal; |
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• | Counsel the Chairman on issues of interest/concern to directors and encourage all directors to engage the Chairman with their interests and concerns; |
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• | Work with the Chairman to develop an appropriate schedule of Board meetings and approve such schedule, to ensure that the directors have sufficient time for discussion of all agenda items, while not interfering with the flow of Company operations; |
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• | Work with the Chairman to develop the Board and Committee agendas and approve the final agendas; |
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• | Keep abreast of key Company activities and advise the Chairman as to the quality, quantity and timeliness of the flow of information from Company management that is necessary for the directors to effectively and responsibly perform their duties; although Company management is responsible for the preparation of materials for the Board of Directors, the Lead Director will approve information provided to the Board and may specifically request the inclusion of certain material; |
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• | Engage consultants who report directly to the Board of Directors and assist in recommending consultants that work directly for Board Committees; |
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• | Work in conjunction with the Corporate Governance and Nominating Committee in compliance with Governance Committee processes to interview all Board candidates and make recommendations to the Board of Directors; |
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• | Assist the Board of Directors and Company officers in assuring compliance with and implementation of the Company’s Governance Guidelines; work in conjunction with the Corporate Governance Committee to recommend revisions to the Governance Guidelines; |
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• | Call, coordinate and develop the agenda for and chair executive sessions of the Board’s independent directors; act as principal liaison between the independent directors and the CEO; |
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• | Work in conjunction with the Corporate Governance and Nominating Committee to identify for appointment the members of the various Board Committees, as well as selection of the Committee chairs; |
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• | Be available for consultation and direct communication with major shareholders; |
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• | Make a commitment to serve in the role of Lead Director for a minimum of three years; and |
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• | Help set the tone for the highest standards of ethics and integrity. |
Mr. Swift has been the Company’s Lead Director since January 2010.
Board Risk Oversight
The Board of Directors has oversight responsibility of the processes established to report and monitor systems for material risks applicable to the Company. The Board of Directors focuses on the Company’s general risk management strategy and the most significant risks facing the Company and ensures that appropriate risk mitigation strategies are implemented by management. The full Board is responsible for considering strategic risks and succession planning and, at each Board meeting, receives reports from each Committee as to risk oversight within their areas of responsibility. The Board of Directors has delegated to its various committees the oversight of risk management practices for categories of risk relevant to their functions as follows:
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• | The Audit Committee oversees risks associated with the Company’s systems of disclosure controls and internal controls over financial reporting, as well as the Company’s compliance with legal and regulatory requirements. |
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• | The Compensation Committee considers risks related to the attraction and retention of talent and risks related to the design of compensation programs and arrangements. |
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• | The Corporate Governance and Nominating Committee oversees risks associated with sustainability. |
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• | The Finance Committee oversees risks associated with foreign exchange, insurance, credit and debt. |
The Company has appointed the Chief Financial Officer as its Chief Risk Officer and, in that role, the Chief Risk Officer periodically reports on risk management policies and practices to the relevant Board Committee or to the full Board so that any decisions can be made as to any required changes in the Company’s risk management and mitigation strategies or in the Board’s oversight of these.
Finally, as part of its oversight of the Company’s executive compensation program, the Compensation Committee considers the impact of the Company’s executive compensation program and the incentives created by the compensation awards that it administers on the Company’s risk profile. In addition, the Company reviews all of its compensation policies and procedures, including the incentives that they create and factors that may reduce the likelihood of excessive risk taking, to determine whether they present a significant risk to the Company. Based on this review, the Company has concluded that its compensation policies and procedures are not reasonably likely to have a material adverse effect on the Company.
Director Compensation and Share Ownership
It is the policy of the Board of Directors that directors’ fees be the sole compensation received from the Company by any non-employee director. The Company has a share ownership requirement of four times the annual cash retainer paid to the directors. A director cannot sell any shares of Company stock until he or she attains such level of ownership and any sale thereafter cannot reduce the total number of holdings below the required ownership level. Directors are required to retain this minimum level of Company share ownership until their resignation or retirement from the Board.
Board Size and Composition
The Board of Directors consists of a substantial majority of independent, non-employee directors. In addition, our Corporate Governance Guidelines require that all members of the committees of the Board must be independent directors. The Board of Directors has the following four standing committees: Audit Committee, Compensation Committee, Corporate Governance and Nominating Committee, and Finance Committee. The Board of Directors has determined that each member of each of these committees is “independent” as defined in the NYSE listing standards and the Company’s Guidelines for Determining Independence of Directors. Committee memberships and chairs are rotated periodically.
Board Diversity
The Company’s policy on Board diversity relates to the selection of nominees for the Board of Directors. In selecting a nominee for the Board, the Corporate Governance and Nominating Committee considers the skills, expertise and background that would complement the existing Board and ensure that its members are of sufficiently diverse and independent backgrounds, recognizing that the Company’s businesses and operations are diverse and global in nature. The Board of Directors has two female directors, one African-American director, one Hispanic director and two international directors out of a total of 12 directors. If all director nominees are elected at this meeting, the Company will have four female directors, one Hispanic director and two international directors out of a total of 12 directors.
Board Advisors
The Board of Directors and its committees may, under their respective charters, retain their own advisors to carry out their responsibilities.
Executive Sessions
The Company’s independent directors meet privately in regularly scheduled executive sessions, without management present, to consider such matters as the independent directors deem appropriate. These executive sessions are required to be held no less than twice each year.
Board and Board Committee Performance Evaluation
The Corporate Governance and Nominating Committee assists the Board in evaluating its performance and the performance of the Board committees. Each committee also conducts an annual self-evaluation. The effectiveness of individual directors is considered each year when the directors stand for re-nomination.
Director Orientation and Education
The Company has developed an orientation program for new directors and provides continuing education for all directors. In addition, the directors are given full access to management and corporate staff as a means of providing additional information.
Director Nomination Process
The Corporate Governance and Nominating Committee reviews the composition of the full Board to identify the qualifications and areas of expertise needed to further enhance the composition of the Board, makes recommendations to the Board concerning the appropriate size and needs of the Board and, on its own or with the assistance of management, a search firm or others, identifies candidates with those qualifications. In considering candidates, the Corporate Governance and Nominating Committee will take into account all factors it considers appropriate, including breadth of experience, understanding of business and financial issues, ability to exercise sound judgment, diversity, leadership, and achievements and experience in matters affecting business and industry. The Corporate Governance and Nominating Committee considers the entirety of each candidate’s credentials and believes that at a minimum each nominee should satisfy the following criteria: highest character and integrity, experience and understanding of strategy and policy-setting, sufficient time to devote to Board matters, and no conflict of interest that would interfere with performance as a director. Shareholders may recommend candidates for consideration for Board membership by sending the recommendation to the Corporate Governance and Nominating Committee, in care of the Secretary of the Company. Candidates recommended by shareholders are evaluated in the same manner as director candidates identified by any other means.
Director Retirement
It is the policy of the Board of Directors that each non-employee director must retire at the annual general meeting immediately following his or her 75th birthday. Directors who change the occupation they held when initially elected must offer to resign from the Board of Directors. At that time, the Corporate Governance and Nominating Committee reviews the continued appropriateness of Board membership under the new circumstances and makes a recommendation to the Board of Directors. Employee directors, including the CEO, must retire from the Board of Directors at the time of a change in their status as an officer of the Company, unless the policy is waived by the Board.
Director Independence
The Board of Directors has determined that all of our current directors and director nominees, except M.W. Lamach, who is an employee of the Company, are independent under the standards set forth in Exhibit I to our Corporate Governance Guidelines, which are consistent with the NYSE listing standards. In determining the independence of directors, the Board evaluated transactions between the Company and entities with which directors were affiliated that occurred in the ordinary course of business and that were provided on the same terms and conditions available to other customers. A copy of Exhibit I to our Corporate Governance Guidelines is available on our website, www.ingersollrand.com, under the heading “Investor Relations—Corporate Governance.”
Communications with Directors
Shareholders and other interested parties wishing to communicate with the Board of Directors, the non-employee directors or any individual director (including our Lead Director and Compensation Committee Chair) may do so either by sending a communication to the Board and/or a particular Board member, in care of the Secretary of the Company, or by e-mail at irboard@irco.com. Depending upon the nature of the communication and to whom it is directed, the Secretary will: (a) forward the communication to the appropriate director or directors; (b) forward the communication to the relevant department within the Company; or (c) attempt to handle the matter directly (for example, a communication dealing with a share ownership matter).
Code of Conduct
The Company has adopted a worldwide Code of Conduct, applicable to all employees, directors and officers, including our Chief Executive Officer, our Chief Financial Officer and our Controller. The Code of Conduct meets the requirements of a “code of ethics” as defined by Item 406 of Regulation S-K, as well as the requirements of a “code of business conduct and ethics” under the NYSE listing standards. The Code of Conduct covers topics including, but not limited to, conflicts of interest, confidentiality of information, and compliance with laws and regulations. A copy of the Code of Conduct is available on our website located at www.ingersollrand.com under the heading “Investor Relations—Corporate Governance.” Amendments to, or waivers of the provisions of, the Code of Conduct, if any, made with respect to any of our directors and executive officers will be posted on our website.
Anti-Hedging Policy and Other Restrictions
The Company prohibits its directors and executive officers from (i) purchasing any financial instruments designed to hedge or offset any decrease in the market value of Company securities and (ii) engaging in any form of short-term speculative trading in Company securities. Directors and executive officers are also prohibited from holding Company securities in a margin account or pledging Company securities as collateral for a loan unless the Senior Vice President and General Counsel provides pre-clearance after the director or executive officer clearly demonstrates the financial capability to repay the loan without resort to the pledged securities.
Committees of the Board
Audit Committee
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Members: | Richard J. Swift (Chair) |
| Ann C. Berzin |
| Myles P. Lee |
| John P. Surma |
| Linda P. Hudson (nominee) |
Key Functions:
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• | Review annual audited and quarterly financial statements, as well as the Company’s disclosures under “Management’s Discussion and Analysis of Financial Conditions and Results of Operations,” with management and the independent auditors. |
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• | Obtain and review periodic reports, at least annually, from management assessing the effectiveness of the Company’s internal controls and procedures for financial reporting. |
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• | Review the Company’s processes to assure compliance with all applicable laws, regulations and corporate policy. |
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• | Recommend the public accounting firm to be proposed for appointment by the shareholders as our independent auditors and review the performance of the independent auditors. |
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• | Review the scope of the audit and the findings and approve the fees of the independent auditors. |
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• | Approve in advance permitted audit and non-audit services to be performed by the independent auditors. |
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• | Satisfy itself as to the independence of the independent auditors and ensure receipt of their annual independence statement. |
The Board of Directors has determined that each current member and each director nominee who will become a member of the Audit Committee upon election is “independent” for purposes of the applicable rules and regulations of the SEC, as defined in the NYSE listing standards and the Company’s Corporate Governance Guidelines, and has determined that each current member and each director nominee who will become a member of the Audit Committee upon election meets the qualifications of an “audit committee financial expert,” as that term is defined by rules of the SEC.
A copy of the charter of the Audit Committee is available on our website, www.ingersollrand.com, under the heading “Investor Relations—Corporate Governance.”
Compensation Committee |
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Members: | Tony L. White (Chair) |
| John Bruton |
| Jared L. Cohon |
| Gary D. Forsee |
| Constance J. Horner |
| Elaine L. Chao (nominee) |
Key Functions: | |
• | Establish our executive compensation strategies, policies and programs. |
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• | Review and approve the goals and objectives relevant to the compensation of the Chief Executive Officer, evaluate the Chief Executive Officer’s performance against those goals and objectives and set the Chief Executive Officer’s compensation level based on this evaluation. The Compensation Committee Chair presents all compensation decisions pertaining to the Chief Executive Officer to the full Board of Directors. |
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• | Approve compensation of officers. |
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• | Review and approve executive compensation and benefit programs. |
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• | Administer the Company’s equity compensation plans. |
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• | Review and recommend significant changes in principal employee benefit programs. |
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• | Approve and oversee Compensation Committee consultants. |
For a discussion concerning the processes and procedures for determining NEO and director compensation and the role of executive officers and compensation consultants in determining or recommending the amount or form of compensation, see “Compensation Discussion and Analysis” and “Compensation of Directors,” respectively.
The Board of Directors has determined that each member of the Compensation Committee is “independent” as defined in the NYSE listing standards and the Company’s Corporate Governance Guidelines. In addition, the Board of Directors has determined that each member of the Compensation Committee qualifies as a “Non-Employee Director” within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934 and an “outside director” within the meaning of Section 162(m) of the Code.
A copy of the charter of the Compensation Committee is available on our website, www.ingersollrand.com, under the heading “Investor Relations—Corporate Governance.”
Corporate Governance and Nominating Committee
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Members: | Gary D. Forsee (Chair) |
| John Bruton |
| Jared L. Cohon |
| Constance J. Horner |
| Tony L. White |
| Elaine L. Chao (nominee) |
Key Functions:
| |
• | Identify individuals qualified to become directors and recommend the candidates for all directorships. |
| |
• | Recommend individuals for election as officers. |
| |
• | Review the Company’s Corporate Governance Guidelines and make recommendations for changes. |
| |
• | Consider questions of independence of directors and possible conflicts of interest of directors as well as executive officers. |
| |
• | Take a leadership role in shaping the corporate governance of the Company. |
| |
• | Oversee the Company’s sustainability efforts. |
The Board of Directors has determined that each current member and each director nominee who will become a member of the Corporate Governance and Nominating Committee is “independent” as defined in the NYSE listing standards and the Company’s Corporate Governance Guidelines.
A copy of the charter of the Corporate Governance and Nominating Committee is available on our website, www.ingersollrand.com, under the heading “Investor Relations—Corporate Governance.”
Finance Committee
|
| |
Members: | Ann C. Berzin (Chair) |
| Myles P. Lee |
| John P. Surma |
| Richard J. Swift |
| Linda P. Hudson (nominee) |
Key Functions:
| |
• | Review proposed borrowings and issuances of securities. |
| |
• | Consider and recommend for approval by the Board of Directors the repurchase of the Company’s shares. |
| |
• | Review cash management policies. |
| |
• | Review periodic reports of the investment performance of the Company’s employee benefit plans. |
The Board of Directors has determined that each current member and each director nominee who will become a member of the Finance Committee is “independent” as defined in the NYSE listing standards and the Company’s Corporate Governance Guidelines.
A copy of the charter of the Finance Committee is available on our website, www.ingersollrand.com, under the heading “Investor Relations—Corporate Governance.”
Board, Committee and Annual Meeting Attendance
The Board of Directors and its committees held the following number of meetings during the fiscal year ended December 31, 2014:
|
| |
Board | 6 |
Audit Committee | 9 |
Compensation Committee | 7 |
Corporate Governance and Nominating Committee | 6 |
Finance Committee | 6 |
Each incumbent director attended 95% or more of the total number of meetings of the Board of Directors and the committees on which he or she served during the year. The Company’s non-employee directors held six independent director meetings without management present during the fiscal year 2014. It is the Board’s general practice to hold independent director meetings in connection with regularly scheduled Board meetings.
The Company expects all Board members to attend the annual general meeting, but from time to time other commitments prevent all directors from attending the meeting. Ten of our eleven Board members standing for re-election at the 2014 Annual General Meeting attended that meeting, which was held on June 5, 2014.
Compensation of Directors
Director Compensation
Our director compensation program is designed to compensate non-employee directors fairly for work required for a company of our size and scope and align their interests with the long-term interests of our shareholders. The program reflects our desire to attract, retain and use the expertise of highly qualified people serving on the Company’s Board of Directors. Employee directors do not receive any additional compensation for serving as a director.
Our 2014 director compensation program for non-employee directors consisted of the following elements:
|
| | | | |
Compensation Element | | Compensation Value |
Annual Retainer (1/2 paid in cash and 1/2 paid in restricted stock units)* | | $ | 285,000 | |
Audit Committee Chair Cash Retainer | | $ | 30,000 | |
Compensation Committee Chair Cash Retainer | | $ | 20,000 | |
Corporate Governance and Nominating Committee Chair and Finance Committee Chair Cash Retainer | | $ | 15,000 | |
Audit Committee Member Cash Retainer (other than Chair) | | $ | 7,500 | |
Lead Director Cash Retainer | | $ | 50,000 | |
Additional Meetings or Unscheduled Planning Session Fees ** | | $ 2,500 (per meeting or session) |
|
| |
* | The number of restricted stock units granted are determined by dividing the grant date value of the award, $142,500 by the average of the high and low closing price of the Company's common stock on the date of grant. Beginning in 2015, a director who retires, resigns or otherwise separates from the Company will receive a pro-rata cash retainer payment for the quarter in which such event occurs based on the number of days elapsed since the end of the immediately preceding quarter. |
** | The Board and each Committee, other than Audit, has 6 regularly scheduled meetings each year. The Audit Committee has 9 regularly scheduled meetings each year. |
In addition, non-employee directors were previously eligible to receive a tax equalization payment if the Irish income taxes owed on their director compensation exceed the income taxes owed on such compensation in their country of residence. Without these tax equalization payments, a director would be subject to double taxation since they are already paying taxes on their director income in their country of residence. We believe these tax equalization payments were appropriate to ensure our ability to continue to attract highly qualified persons who do not reside in Ireland. In 2014, three non-employee directors received a tax equalization payment for the year 2013. In 2014, our Corporate Governance and Nominating Committee eliminated the tax equalization payments on retainers beginning with the retainers earned for the 2014 fiscal year.
Share Ownership Requirement
To align the interests of directors with shareholders, the Board of Directors has adopted a share ownership requirement of four times the annual cash retainer paid to the directors. A director cannot sell any shares of Company stock until he or she attains such level of ownership and any sale thereafter cannot reduce the total number of holdings below the required ownership level. Directors are required to retain this minimum level of Company share ownership until their resignation or retirement from the Board.
2014 Director Compensation
The compensation paid or credited to our non-employee directors for the year ended December 31, 2014, is summarized in the table below.
|
| | | | | | | | | | | | | |
Name | | Fees earned or paid in cash ($)(a) | | Equity / Stock Awards ($) (b) | | All Other Compensation ($)(c) | | Total ($) |
A. C. Berzin | | 165,000 | | | 142,503 |
| | 235,331 |
| | | 542,834 | |
J. Bruton | | 145,000 | | | 142,503 |
| | 6,867 |
| | | 294,370 | |
J. L. Cohon | | 145,000 | | | 142,503 |
| | — |
| | | 287,503 | |
G. D. Forsee | | 160,000 | | | 142,503 |
| | 10,363 |
| | | 312,866 | |
E. E. Hagenlocker | | 150,000 | | | 142,503 |
| | 13,058 |
| | | 305,561 | |
C. J. Horner | | 145,000 | | | 142,503 |
| | — |
| | | 287,503 | |
T. E. Martin | | 150,000 | | | 142,503 |
| | — |
| | | 292,503 | |
N. Peltz (d) | | 61,463 | | | 142,503 |
| | — |
| | | 203,966 | |
J. P. Surma | | 150,000 | | | 142,503 |
| | — |
| | | 292,503 | |
R. J. Swift | | 222,500 | | | 142,503 |
| | — |
| | | 365,003 | |
T. L. White | | 165,000 | | | 142,503 |
| | — |
| | | 307,503 | |
____________________ |
| |
(a) | The amounts in this column represent the following annual cash retainer, the Committee Chair retainers, the Audit Committee member retainer, the Lead Director retainer, and the Board, Committee and other meeting or session fees: |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name | | Cash Retainer ($) | | Committee Chair Retainer ($) | | Audit Committee Member Retainer ($) | | Lead Director Retainer Fees ($) | | Board, Committee and Other Meeting or Session Fees ($) | | Total Fees earned or paid in cash ($) |
A. C. Berzin | | 142,500 | | | 15,000 | | | | 7,500 | | | | — | | | | — | | | | 165,000 |
J. Bruton | | 142,500 | | | — | | | | — | | | | — | | | | 2,500 | | | | 145,000 |
J. L. Cohon | | 142,500 | | | — | | | | — | | | | — | | | | 2,500 | | | | 145,000 |
G. D. Forsee | | 142,500 | | | 15,000 | | | | — | | | | — | | | | 2,500 | | | | 160,000 |
E. E. Hagenlocker | | 142,500 | | | — | | | | 7,500 | | | | — | | | | — | | | | 150,000 |
C. J. Horner | | 142,500 | | | — | | | | — | | | | — | | | | 2,500 | | | | 145,000 |
T. E. Martin | | 142,500 | | | — | | | | — | | | | — | | | | 2,500 | | | | 145,000 |
N. Peltz | | 61,463 | | | — | | | | — | | | | — | | | | — | | | | 61,463 |
J. P. Surma | | 142,500 | | | — | | | | 7,500 | | | | — | | | | — | | | | 150,000 |
R. J. Swift | | 142,500 | | | 30,000 | | | | — | | | | 50,000 | | | | — | | | | 222,500 |
T. L. White | | 142,500 | | | 20,000 | | | | — | | | | — | | | | 2,500 | | | | 165,000 |
| |
(b) | Represents RSUs awarded in 2014 as part of each director's annual retainer. The amounts in this column reflect the aggregate grant date fair value of RSU awards granted for the year under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718 and do not reflect amounts paid to or realized by the directors. For a discussion of the assumptions made in determining the ASC 718 values see Note 11, “Share-Based Compensation,” to the Company’s consolidated financial statements contained in its 2014 Form 10-K. |
For each non-employee director at December 31, 2014, the following table reflects unvested RSUs:
|
| | | | |
Name | | Number of RSUs (#) |
A. C. Berzin | | 2,382 |
| |
J. Bruton | | 2,382 |
| |
J. L. Cohon | | 2,382 |
| |
G. D. Forsee | | 2,382 |
| |
E. E. Hagenlocker | | 2,382 |
| |
C. J. Horner | | 2,382 |
| |
T. E. Martin | | 2,382 |
| |
N. Peltz(1) | | — |
| |
J. P. Surma | | 2,382 |
| |
R. J. Swift | | 2,382 |
| |
T. L. White | | 2,382 |
| |
(1) Mr. Peltz resigned effective June 5, 2014 and vested in his RSUs at the time of his resignation.
| |
(c) | Represents tax equalization payments made in 2014, and in the case of Mr. Bruton, reimbursement of Irish taxes for travel expenses. |
(d) Nelson Peltz resigned effective June 5, 2014. Fees earned by Mr. Peltz were paid to Trian Fund Management, L.P. (“Trian”).
For each non-employee director at December 31, 2014, the following table reflects unexercised stock options, all of which are vested: |
| | | | |
Name | | Number of stock options |
A. C. Berzin | | – |
| |
J. Bruton | | – |
| |
J. L. Cohon | | 20,160 |
| |
G. D. Forsee | | – |
| |
E. E. Hagenlocker | | – |
| |
C. J. Horner | | – |
| |
T. E. Martin | | – |
| |
N. Peltz | | – |
| |
J. P. Surma | | – |
| |
R. J. Swift | | – |
| |
T. L. White | | – |
| |
COMPENSATION DISCUSSION AND ANALYSIS
The Compensation Discussion and Analysis (“CD&A”) set forth below provides an overview of our executive compensation programs, including the philosophy and objectives of such programs, as well as a discussion of how awards are determined for our Named Executive Officers (“NEOs”). These NEOs include our Chairman and Chief Executive Officer (“CEO”), our Chief Financial Officer (“CFO”), and our three most highly compensated executive officers from the 2014 fiscal year. The executive officers serving as NEOs are:
|
| |
NEO | Title |
Mr. Michael W. Lamach | Chairman and Chief Executive Officer |
Ms. Susan K. Carter, | Senior Vice President and Chief Financial Officer |
Ms. Marcia J. Avedon, Ph.D. | Senior Vice President, Human Resources, Communications and Corporate Affairs |
Mr. Didier P. M. Teirlinck, Ph.D. | Executive Vice President, Climate Segment |
Mr. Robert G. Zafari | Executive Vice President, Industrial Segment |
This discussion and analysis is divided into the following sections: (I) Executive Summary, (II) Compensation Philosophy and Design Principles, (III) Factors Considered in the Determination of Target Total Direct Compensation (“TDC”), (IV) Role of the Committee, Independent Advisor, and Committee Actions, (V) Compensation Program Descriptions and Compensation Decisions and (VI) Other Compensation and Tax Matters.
I. Executive Summary
At the end of 2013, the organization was restructured from four business sectors into two business segments, Climate and Industrial following the spin-off of our security businesses. In consideration of this reorganization and the refreshed business strategy, a comprehensive review of our compensation philosophy as well as the design of our executive compensation programs was conducted in 2014. The review confirmed that, consistent with our historical intent, the design of these programs allows our Company to attract, retain and focus the talents and energies of executives, including our NEOs, who are capable of meeting the Company’s current and future goals, most notably, the creation of sustainable shareholder value.
Overall, our executive compensation programs were designed by incorporating the following principles:
(i) market competitiveness,
(ii) pay for performance,
(iii) mix of short and long-term incentives,
(iv) internal parity,
(v) shareholder alignment, and
(vi) business strategy alignment.
Consistent with these principles, the Compensation Committee (the “Committee”) has adopted executive compensation programs with a strong link between pay and the achievement of short and long-term Company goals. The primary elements of the executive compensation programs are:
|
| | | | |
Total Direct Compensation | |
| Element1 | | Objective of Element | |
| Base Salary | | Fixed cash compensation. | |
| Annual Incentive (the Annual Incentive Matrix or “AIM”) | | Variable cash incentive compensation. Any award earned is based on performance against pre-defined annual revenue (“Revenue”), Operating Income (“OI”), cash flow (“Cash Flow”) and OI margin percent objectives, as well as individual performance. | |
| Long-Term Incentives (“LTI”) | | Variable long-term incentive compensation. Performance is aligned with the Company’s stock price and is awarded in the form of stock options, RSUs and performance share units (“PSUs”). PSUs are only payable if the Company’s earnings per share (“EPS”) growth and total shareholder return (“TSR”) relative to companies in the S&P 500 Industrials Index exceed threshold performance against pre-defined objectives. | |
1 See Section V, “Compensation Program Descriptions and Compensation Decisions”, for additional discussion of these elements of compensation.
As illustrated in the charts below, the Committee places significant emphasis on variable compensation (AIM and LTI) so that a substantial percentage of each NEO’s target total direct compensation is contingent on the successful achievement of the Company’s short-term and long-term goals.
2014 Results
During 2014, our first full year after the spin-off of our commercial and residential security businesses (“Allegion”) and the reorganization of our Company, we achieved strong financial performance. The following table documents the results realized in 2014:
|
| | |
Metric | | Performance |
Revenue | | Adjusted annual Revenue of $12.875 billion, an increase of 4.2% over 2013 |
OI | | Adjusted OI of $1.423 billion, an increase of 19.8% over 2013 |
OI Margin | | Adjusted OI margin of 11.05%, an increase of 1.45 percentage points over 2013 |
Cash Flow | | Adjusted Cash Flow of $853 million, a decrease of 1.1% from 2013 |
EPS | | Adjusted EPS of $3.30, an increase of 25% over 2013 |
3-Year EPS Growth | | 3-year EPS growth (2012 - 2014) of 19.37%, which ranks at the 88th percentile of the companies in the S&P 500 Industrials Index |
3-Year TSR | | 3-year TSR (2012-2014) of 153.66%, which ranks at the 91st percentile of the companies in the S&P 500 Industrials Index |
Based on our adjusted 2014 results for Revenue, OI, Cash Flow and OI margin, we achieved an AIM financial score of 102.41% of target for the Enterprise. At the Segment level, 2014 AIM financial scores were 164.60% of target for the Climate Segment and 61.86% of target for the Industrial Segment.
Based on our achievement of an average EPS growth rate of 19.37% and a TSR of 153.66% during the 2012 to 2014 performance period, PSUs under our Performance Share Program (“PSP”) paid out at 200% of target (maximum payout allowed under the plan).
2014 Committee Actions
The Committee took the following actions in 2014:
| |
• | Reviewed the executive compensation philosophy and strategy in relation to the Company’s going-forward business strategy. The Committee concluded that the general design and construct of the programs aligned with the business strategy and was appropriate for the foreseeable future. |
| |
• | Given the spin-off of Allegion and the reorganization of our Company, reviewed and approved a new peer group to be used to benchmark executive compensation levels and program design in 2015. |
| |
• | Approved a modification to the definition of “major restructuring” in the Company’s Major Restructuring Severance Plan to reflect the reorganization of the Company from four business sectors to two business segments. |
Consideration of 2014 Advisory Vote on Executive Compensation
The Committee regularly reviews the philosophy, objectives and elements of our executive compensation programs in relation to our short and long-term business objectives. In undertaking this review, the Committee considers the views of shareholders as reflected in their annual advisory vote on our executive compensation proposal. At our 2014 annual general meeting, shareholders approved our executive compensation proposal by an overwhelming majority (over 97%). Based on the Committee’s review and the support our executive compensation programs received from shareholders, the Committee determined it would be appropriate to maintain the core elements of our executive compensation programs.
II. Compensation Philosophy and Design Principles
The objective of our executive compensation programs is to enable us to attract, retain and focus the talents and energies of executive officers (including our NEOs) who are capable of meeting the Company’s current and future goals, most notably the creation of sustainable shareholder value. Our compensation programs and decisions are driven by this objective. As we operate in an ever-changing environment, our Committee makes decisions with consideration of economic, technological, regulatory, investor and competitive factors as well as our executive compensation principles.
The design principles that govern our executive compensation programs are:
1. Market competitiveness
The compensation opportunities must serve to attract and retain high performing executives in a competitive environment for talent. Therefore, all of our executive compensation program targets are established using relevant market data to ensure their competitiveness. In aggregate, we structure our executive compensation to provide target total direct compensation (“TDC”) at the 50th percentile of the markets in which we compete for talent. However, each executive’s target TDC may be above or below the 50th percentile based on his or her experience and proficiency in performing the duties of his or her position.
2. Pay for performance
A strong pay for performance culture is paramount among the considerations that lead to our Company’s success. As a result, a substantial percentage of each executive’s TDC is contingent on, and variable with performance of the Company, the applicable business, and the individual. Company and business performance are measured against pre-established financial, operational and strategic objectives. Individual performance is measured against pre-established individual goals as well as demonstrated leadership competencies and behaviors consistent with our Company values. In addition, a portion of the long-term incentive is earned based upon earnings and shareholder value performance relative to peer companies.
3. Mix of short and long-term incentives
A proper mix between short and long-term incentives is important to encourage decision making that mitigates risk and balances the need to meet our Annual Operating Plan (“AOP”) objectives while also taking into account the long-term interests of the Company and its shareholders. The mix of pay, including short and long-term incentives, is determined by considering the Company’s pay for performance compensation philosophy and strategic objectives in addition to competitive market practice.
4. Internal parity
Each executive’s target TDC opportunity is proportionate with the responsibility, scope and complexity of his or her role within the Company. Thus, similar jobs are assigned similar target compensation opportunities.
5. Shareholder alignment
Our executive compensation programs align the interests of our executives with those of our shareholders by rewarding the achievement of key financial targets such as revenue growth, EPS, and cash flow which should correlate with share price appreciation over time. In addition, our long-term incentives are tied to total shareholder returns and increase in value as share price increases. Other program requirements, including share ownership guidelines for executives and vesting schedules on equity awards further align executives’ and shareholders’ interests.
6. Business strategy alignment
Our executive compensation programs provide flexibility to align with changing Company or business unit strategies. In addition, the programs allow for individuals within the Company’s businesses to focus on specific financial measures to meet the short and long-term plans of the particular business for which they are accountable. It is not only possible but also desirable for certain leaders to earn substantial awards in years when their business unit outperforms the Company as a whole. Conversely, if a business fails to meet its performance goals, that business’ leader may earn a lesser award in that year than his or her peers in a business that met or exceeded its goals. To provide a balanced incentive, all executives have a significant portion of their compensation tied to Company performance.
III. Factors Considered in the Determination of Target Total Direct Compensation (“TDC”)
Our Committee reviews and evaluates our executive compensation levels and practices against those companies with which we compete for executive talent. These reviews are conducted throughout the year using a variety of methods such as:
•the direct analysis of the proxy statements of other diversified industrial companies (refer to peer group below),
| |
• | a review of compensation survey data of other industrial companies of similar size published by independent consulting firms, |
•a review of customized compensation survey data provided by independent consulting firms, and
•feedback received from external constituencies.
The Committee does not rely on a single source of information when making executive compensation decisions. Many of the companies included in these compensation surveys are also included in the S&P 500 Industrials Index referred to in our 2014 Form 10-K under the caption “Performance Graph.”
The Committee, with the assistance of its independent advisor, develops a peer group that it uses to evaluate executive compensation programs and levels. The peer group is comprised of global diversified companies that have comparable revenue and/or industry fit with our lines of business and are those with which we compete for both business and talent. The following peer group was adopted in August 2012 and used for benchmarking with respect to the 2014 compensation matters: |
| | | |
3M | Eaton Corp | Johnson Controls Inc. | Pentair |
Cummins, Inc. | Emerson Electric | Paccar Inc. | Stanley Black & Decker |
Danaher Corp | Honeywell International | Parker Hannifin Corp | Textron |
Dover | Illinois Tool Works | PPG Industries | Tyco International |
Given the spin-off of Allegion and the reorganization of our Company, in 2014 the Committee reviewed the compensation peer group used to benchmark 2015 compensation matters, and based on their review, added SPX Corporation. The addition of SPX Corporation increased the number of companies in the peer group to 17 (up from 16) and reduced the median revenue of the peer group from $16.1 billion to $15.1 billion for fiscal year 2013.
In addition, the Committee annually reviews tally sheets on the NEOs in order to understand fully all elements of current and potential future compensation when making compensation decisions.
IV. Role of the Committee, Independent Advisor and Committee Actions
Our Committee, which is composed solely of independent directors, oversees our compensation plans and policies, administers our equity-based programs and reviews and approves all forms of compensation relating to our executive officers, including the NEOs.
The Committee exclusively decides the compensation elements and the amounts to be awarded to our CEO. Our CEO does not make any recommendations regarding his own compensation and is not informed of these awards until the decisions have been finalized. Our CEO makes compensation recommendations related to our other NEOs and executive officers. The Committee considers these recommendations when approving the compensation elements and amounts to be awarded to our other NEOs.
Our Committee is responsible for reviewing and approving amendments to our executive compensation and benefit plans. In addition, our Committee is responsible for reviewing our major broad-based employee benefit plans and making recommendations to our Board of Directors for significant amendments to, or termination of, such plans. The Committee’s duties are described in the Committee's Charter, which is available on our website at www.ingersollrand.com.
Our Committee has the authority to retain an independent advisor for the purpose of reviewing and providing guidance related to our executive compensation and benefit programs. The Committee is directly responsible for the compensation and oversight of the independent advisor. For 2014, the Committee continued to engage Hay Group, Inc. (“Hay Group”) to serve as its independent advisor. Hay Group also provided the Corporate Governance and Nominating Committee advice on director compensation matters. The Committee has determined that the Hay Group is independent and does not have a conflict of interest because (a) Hay Group did not perform any other services for the Company, (b) the fees received by Hay Group for its services for the Compensation and Corporate Governance and Nominating Committees were nominal as a percentage of Hay Group’s total revenues, (c) Hay Group has adopted policies and procedures that are designed to prevent conflicts of interest, (d) neither any member of the Committee nor any executive officer has a business or personal relationship with Hay Group, and (e) neither Hay Group nor its consultants that work with the Company directly own stock in the Company.
In addition to the actions taken in 2014, which are described in the Executive Summary, our Committee has adopted a number of changes over the past few years, including:
| |
• | Diversified and expanded the metrics associated with our AIM and PSP programs to better align with business strategies and shareholder interests; |
| |
• | Adopted a claw-back/recoupment policy. Our current policy will be revised, if necessary, to comply with the requirements of the Dodd-Frank Act when the final regulations are issued; |
| |
• | Incorporated provisions in the 2007 and 2013 Incentive Stock Plans to replace full payout at target of outstanding PSP awards in the event of a Change in Control of the Company with prorated PSP payout at target based on the point in the performance period when the Change in Control occurs; and |
| |
• | Closed the Ingersoll-Rand Company Elected Officer Supplemental Pension Program (“EOSP”) to new participants effective April 30, 2011. |
V. Compensation Program Descriptions and Compensation Decisions
The following table provides a summary of the elements, objectives, risk mitigation factors and other key features of our total direct compensation program. Each of these elements is described in detail below: |
| | | | |
Element | |
Objective of Element including Risk Mitigation Factors | | Key Features Relative to NEOs |
Base Salary | | To provide a sufficient and stable source of cash compensation. To avoid encouraging excessive risk-taking, it is important that an appropriate level of cash compensation is not variable. | | Targeted, on average, at the 50th percentile of our peer group. Adjustments are determined by the Committee based on an evaluation of the NEO’s proficiency in fulfilling his or her responsibilities, as well as performance against key objectives and behaviors. Only 10% of the CEO’s target total direct compensation and only 23% on average for the other NEOs is comprised of base salary. |
Annual Incentive Matrix (“AIM”) Program | | To serve as an annual cash award tied to the achievement of pre-established performance objectives. Structured to take into consideration the unique needs of the various business units. Amount of compensation earned cannot exceed a maximum payout of 200% of individual target levels and is also subject to a claw-back in the event of a financial restatement. | | Each NEO has an AIM target expressed as a percentage of base salary. Targets are set based on the compensation levels of similar jobs in comparable companies, as well as on the NEO’s experience and proficiency level in performing the duties of the role. Actual AIM payouts are dependent on business and/or enterprise financial and individual performance. The financial metrics used to determine the awards for 2014 were Revenue, OI, and Cash Flow, modified (up or down) based on OI Margin performance. 16% of the CEO’s target total direct compensation is comprised of AIM and 21%, on average, for the other NEOs. |
Performance Share Program (“PSP”) | | To serve as a long-term incentive tied to the achievement of pre-established performance objectives relative to companies in the S&P 500 Industrials Index. To promote long-term strategic planning and discourage an overemphasis on attaining short-term goals. Amount earned cannot exceed a maximum payout of 200% of individual target levels and is also subject to a claw-back in the event of a financial restatement. | | Earned over a 3-year performance period. The number of PSUs earned is based on relative TSR and relative EPS growth compared to companies within the S&P 500 Industrials Index (with equal weight given to each metric). Actual value of the PSUs earned depends on our share price at the time of payment. 37% of the CEO’s target total direct compensation is comprised of PSP and 28%, on average, for the other NEOs. |
Stock Options / Restricted Stock Units (“RSUs”) | | Aligns the interests of the NEOs and shareholders. Awards provide a balanced approach between risk and retention. Awards are subject to a claw-back in the event of a financial restatement. | | Stock options and RSUs are granted annually, with stock options having an exercise price equal to the fair market value of ordinary shares on the date of grant. Both stock options and RSUs typically vest ratably over three years, one-third per year. Stock options expire on the 10th anniversary (less one day) of the grant date (unless employment terminates sooner). 37% of the CEO’s target total direct compensation is comprised of a mix of stock options and RSUs and 28%, on average, for the other NEOs. |
Base Salary
Our Committee generally targets base salaries for the NEOs around the median for executives in our peer group or other relevant comparative companies who have similar roles and responsibilities. However, the Committee will also consider each NEO’s experience, proficiency, performance and potential to impact future business results, as well as behavior against competencies and key Company values when making base salary decisions.
The table below reflects the base salary adjustments for the NEOs for the 2014 performance period. When determining base salary adjustments, each NEO is evaluated on the results achieved and the behaviors demonstrated to generate these results.
|
| | | | | | | | | | | | | |
(dollar amounts annualized)
Name | | 2013 | | 2014 | | Percentage Change (%) |
M. W. Lamach | | $ | 1,250,000 | | | | $ | 1,250,000 | | | | — |
|
S. K. Carter | | $ | 635,000 | | | | $ | 654,000 | | | | 3.0% |
|
M. J. Avedon | | $ | 528,000 | | | | $ | 555,000 | | | | 5.1% |
|
D. P. M. Teirlinck(1) | | $ | 655,000 | | | | $ | 655,000 | | | | — |
|
R. G. Zafari(1) | | $ | 550,000 | | | | $ | 550,000 | | | | — |
|
(1) Messrs. Teirlinck and Zafari received based salary increases in December 2013 in conjunction with their promotion to EVP, Segment roles. There were no base salary increases in 2014 for Messrs. Teirlinck and Zafari.
Annual Incentives (Annual Incentive Matrix or “AIM”)
The AIM program is an annual cash incentive program designed to reward NEOs for Revenue growth, increases in OI, the delivery of strong Cash Flow and individual contributions to the Company. We believe that our AIM design provides participants with clarity as to how they can earn a cash incentive based on strong performance relative to each metric. The Committee establishes a target award for each NEO that is expressed as a percentage of base salary. Individual AIM payouts are calculated as the product of a financial performance score and an individual performance score, both of which are based on achievement relative to pre-established performance objectives adopted by the Committee. Individual AIM awards are calculated by multiplying individual AIM targets by an AIM Payout Percentage calculated as illustrated in the table below:
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Financial Score: Core Financial Metrics | x | Multiplier | = | Adjusted Financial Score (0% to 200%) | x | Individual Performance Score (0% to 150%) | = | AIM Payout Percentage (0% to 200%) |
1/3 Revenue 1/3 Operating Income 1/3 Cash Flow | | Operating Margin Percent | | Financial Score x Multiplier | | Performance against Individual Objectives | | Adjusted Financial Score x Individual Performance Score |
Financial Performance: AIM incentive opportunity is tied to pre-established goals for three equally-weighted performance metrics (“Core Financial Metrics”): Revenue, OI, and Cash Flow. Threshold performance for each metric must be achieved in order for any incentive to be payable for that metric. The financial AIM payout is the sum of the calculated payout percentage for each metric, adjusted by an OI margin percentage multiplier (“Multiplier”), which can range from 85% to 115%.
The Committee retains the authority to adjust the Company’s reported financial results for the impact of changes in accounting principles, extraordinary items and unusual or non-recurring gains or losses, including significant differences from the assumptions contained in the financial plan upon which the incentive targets were established. Adjustments to reported financial results are intended to better reflect an executives’ line of sight and ability to affect performance results, align award payments with decisions which support the AOP, avoid artificial inflation or deflation of awards due to unusual or non-recurring items in the applicable period and emphasize the Company’s preference for long-term and sustainable growth.
2014 AIM financial performance goals for the NEOs are summarized in the following table:
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| Pre-Established Financial Targets ($ million)* | Payout as % of Target** | | OI Margin | OI Margin Multiplier** |
| Revenue | OI | Cash Flow |
Enterprise |
Threshold | $12,159.7 | $1,226.7 | $810.0 | 30% | | 10.1% | 85% |
Target | $12,799.7 | $1,363.0 | $900.0 | 100% | | 10.7% | 100% |
Maximum | $13,439.7 | $1,644.9 | $1,100.0 | 200% | | 12.2% | 115% |
Climate Segment |
Threshold | $9,338.2 | $977.4 | $977.4 | 30% | | 10.5% | 85% |
Target | $9,829.7 | $1,086.0 | $1,086.0 | 100% | | 11.0% | 100% |
Maximum | $10,321.2 | $1,326.4 | $1,326.4 | 200% | | 12.9% | 115% |
Industrial Segment |
Threshold | $2,821.5 | $432.9 | $432.9 | 30% | | 15.3% | 85% |
Target | $2,970.0 | $481.0 | $481.0 | 100% | | 16.2% | 100% |
Maximum | $3,118.5 | $553.2 | $553.2 | 200% | | 17.7% | 115% |
* Reflects the financial goals for the Enterprise and segments to which incentive opportunity for our 2014 NEOs was tied.
** Results are interpolated between performance levels.
For 2014 AIM purposes, the CEO, CFO and SVP of Human Resources, Communication and Corporate Affairs were measured on the basis of the Enterprise financial metrics. The other two NEOs were measured based on a combination of Enterprise financial objectives (50% weighting) and their respective 2014 Segment financial objectives (50% weighting). We believe this weighting appropriately focuses segment leaders on achieving the pre-established objectives for their business as well as aligning their interests with Enterprise goals to help deliver sustainable shareholder value.
The table below summarizes 2014 performance relative to performance targets and corresponding 2014 AIM payout levels.
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(in millions) | Financial Targets | Adjusted Financial Performance | Payout as a % of Target | Aggregate Payout as % of Target | OI Margin Multiplier | | AIM Financial Payout |
Enterprise | | | | | | | |
Revenue | $12,799.7 | $12,875.4 | 112% | 98.69% | 103.77% | | 102.41% |
OI | $1,363.0 | $1,422.5 | 121% | |
Cash Flow | $900.0 | $852.6 | 63% | |
OI Margin | 10.7% | 11.05% | N/A | |
Climate Segment | | | | | | | |
Revenue | $9,829.7 | $9,863.6 | 107% | 151.01% | 109.00% | | 164.60% |
OI | $1,086.0 | $1,196.9 | 146% | |
Cash Flow | $1,086.0 | $1,327.4 | 200% | |
OI Margin | 11.1% | 12.13% | N/A | |
Industrial Segment | | | | | | | |
Revenue | $2,970.0 | $3,011.7 | 128% | 72.78% | 85.00% | | 61.86% |
OI | $481.0 | $451.4 | 57% | |
Cash Flow | $481.0 | $435.2 | 33% | |
OI Margin | 16.2% | 14.99% | N/A | |
Individual Performance: Individual objectives are established annually and include strategic initiatives as well as financial and non-financial metrics. Each NEO is evaluated based upon actual results against established measures and our core competencies. At the end of the fiscal year the CEO evaluates each NEO’s overall performance against individual objectives and submits a recommendation to the Committee. The Committee evaluates the CEO’s performance against individual objectives. Based on its evaluation of the CEO and the CEO’s recommendation for other NEOs, the Committee determines the individual performance score for each NEO, which can range from 0% to 150%.
In determining the individual factor for each NEO’s AIM award, the Committee considered pre-established individual performance objectives, including the following:
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• | Successful achievement of milestones to further implement the business operating system and operational excellence initiatives. |
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• | Execution of key growth initiatives including product management excellence initiatives, enterprise sales excellence initiatives and innovation programs. |
•Accomplishments to further implement the information technology strategy and system launches.
•Improvements in employee engagement, talent development and retention.
Determination of Payout: The actual AIM payout is determined by multiplying the NEO’s target award by the financial performance score and multiplying that result by the individual performance score. AIM payouts cannot exceed 200% of the target award. If the overall AIM payout score is less than 30%, no award is payable. In that event, the CEO and the Committee may establish a discretionary pool (equal to 30% of the target payout levels) for top performers and/or other deserving employees in an amount determined to be appropriate based on their performance against objectives.
In determining the 2014 performance levels for 2014 AIM purposes, the Committee approved certain adjustments to financial results at the enterprise and segment levels to (a) exclude the impact of spin-off related and restructuring payments made in 2014 from enterprise Free Cash Flow, (b) adjust operating income and cash flow upwards to offset the impact of acquisitions during the year, (c) adjust revenue and operating income downward and cash flow upward to offset the financial impact of unplanned regulatory changes associated with energy efficiency implementation requirements issued during 2014, and (d) adjust cash flow upward to offset the impact of debt refinancing in 2014. None of these events had been contemplated when the 2014 performance goals were determined. Prior to the Committee approving these adjustments, they were also reviewed with the Audit Committee.
The Committee approved the following AIM awards for NEOs based on achieving both the 2014 financial and individual objectives:
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Name | | AIM Target | | AIM Payout Percent for 2014 | | Individual Performance Score | | AIM Award for 2014 |
M. W. Lamach | | 160 | % | of | $1,250,000 | | | 102.41% | | 100% | | $2,048,200 |
S. K. Carter | | 100 | % | of | $654,000 | | | 102.41% | | 100% | | $669,761 |
M. J. Avedon | | 85 | % | of | $555,000 | | | 102.41% | | 100% | | $483,119 |
D. P. M. Teirlinck | | 90 | % | of | $655,000 | | | 133.51% | | 100% | | $787,041 |
R. G. Zafari | | 85 | % | of | $550,000 | | | 82.14% | | 100% | | $384,005 |
Long-Term Incentive Program
Our long-term incentive program is comprised of PSUs, stock options and RSUs. It is designed to further align the executives’ interests with the interests of our shareholders. This approach enables us to develop and implement long-term strategies that we believe are in the best interest of shareholders.
Performance Share Program (“PSP”): Our PSP is an equity-based incentive compensation program that provides our NEOs and other key executives with an opportunity to earn PSUs based on the Company’s performance relative to other companies in the S&P 500 Industrials Index. PSUs are earned over a 3-year performance period based equally on our relative EPS growth (from continuing operations) and TSR as compared to the companies within the S&P 500 Industrials Index. The actual number of PSUs earned for grants made in 2014 (which can range from 0% to 200% of target) is based on the following thresholds:
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Ingersoll Rand’s Performance Relative to the Companies within the S&P 500 Industrials Index | | % of Target PSUs Earned* |
< 25th Percentile | | 0% |
25th Percentile | | 25% |
50th Percentile | | 100% |
≥ 75th Percentile | | 200% |
* Results are interpolated between percentiles achieved. |
The NEOs’ PSP target awards, expressed as a dollar amount, are set by assessing competitive market values for executives in our peer group with similar roles and responsibilities. The dollar target is converted to share equivalent PSUs based on the fair market value of the Company’s shares on the date that the award is granted. Our Committee retains the authority and discretion to make downward adjustments to the calculated PSP award payouts or not to grant any award payout regardless of actual performance. EPS is calculated in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”), subject to adjustments for extraordinary, unusual or infrequent items; the impact of any change in accounting principles; goodwill and other intangible asset impairments; and gains or charges associated with discontinued operations or with obtaining or losing control of a business. As a result, expense for outstanding PSP awards is recorded using fixed accounting.
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• | EPS growth is measured as the average of the annual EPS growth in each of the three years of the performance cycle. |
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• | TSR is measured as the total stock price appreciation and dividends earned during the three years of the performance cycle. To account for stock price volatility, a 30-day average stock price at the beginning and ending periods is used. |
Dividend equivalents are accrued on outstanding PSU awards at the same time and at the same rate as dividends are paid to shareholders, but are only paid upon vesting on the number of PSUs actually earned and vested. Dividend equivalents are payable in cash at the time the associated PSUs are distributed unless the NEO elected to defer the PSUs into our executive deferred compensation plan, in which case the dividends are also deferred.
Stock Options/Restricted Stock Units: We grant our NEOs an equal mix of stock options and RSUs. Our Committee believes that this mix provides an effective balance between risk and retention for our NEOs and conserves share usage under our incentive stock plan. Stock options are considered “at risk” since there is no value unless the stock price appreciates during the term of the option period. RSUs, on the other hand, provide strong retentive value because they have value even if our stock price does not grow during the restricted period. Our Committee annually reviews our equity mix and grant policies to ensure they are aligned with our pay for performance philosophy, our executive compensation objectives and the interests of our shareholders.
Stock option and RSU targets are expressed in dollars. The dollar target is converted to a number of shares based on the fair market value of the Company’s shares on the date that the award is granted. In order to determine the target stock option and RSU awards for our NEOs, the Committee considers factors such as market competitiveness with our peer group, demonstrated potential to drive future business results and sustained individual performance.
Both stock options and RSUs generally vest ratably, one third per year, over a three year period following the grant. Dividend equivalents are accrued on outstanding RSU awards at the same time and at the same rate as dividends are paid to shareholders. Dividend equivalents on RSUs are only payable if the underlying RSU award vests. At the time of vesting, one ordinary share is issued for each RSU and any accrued dividend equivalents are paid in cash.
2014 Equity Awards
In 2014, the Committee approved the PSU, stock option and RSU awards based on its evaluation of market competitiveness and each NEO’s demonstrated potential to drive future business results and sustained individual performance. The values in the table below reflect equity-based awards approved by the Committee. These values differ from the corresponding values reported in the Summary Compensation Table and the Grants of Plan-Based Awards Table due to different methodologies used in assigning the economic value of equity-based awards required for accounting and proxy statement reporting purposes. The Committee makes its determination based on expected grant date value while the accounting and proxy statement values are determined as of the grant date in accordance with GAAP requirements. The difference is most significant for the PSU awards which are earned, in part, based on TSR relative to the S&P 500 Industrials Index over a three-year performance period. The accounting and proxy report values are greater because they take into account the expected payout distribution from 0-200% of target.
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Name | | Target Value 2014-16 PSU Award ($) | | Stock Option Award ($) | | | RSU Award ($) | |
M. W. Lamach | | | 4,625,000 | | | | 2,312,500 | | | | 2,312,500 | | |
S. K. Carter | | | 950,000 | | | | 475000 | | | | 475000 | | |
M. J. Avedon | | | 550,000 | | | | 275,000 | | | | 275,000 | | |
D. P. M. Teirlinck | | | 825,000 | | | | 412,500 | | | | 412,500 | | |
R. G. Zafari | | | 600,000 | | | | 300,000 | | | | 300,000 | | |
Performance Share Units Payout
As discussed above, PSUs for the 2012 - 2014 performance period were earned based on the Company’s EPS growth (from continuing operations) and TSR performance relative to all of the companies in the S&P 500 Industrials Index.
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• | EPS growth is measured as the average of the annual EPS growth in each of the three years of the performance cycle. The rate of EPS growth was 19.37% for the 2012 to 2014 period, which ranked at the 88th percentile of the companies in the S&P 500 Industrials Index. 2013 EPS growth was calculated including earnings from the residential and commercial security business spun-off to form Allegion. 2014 EPS growth was calculated based on 2013 EPS excluding the residential and commercial security business spun-off to form Allegion. |
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• | TSR is measured as the total stock price appreciation and dividends earned during the three years of the performance cycle. To account for stock price volatility, a 30-day average stock price at the beginning and ending periods is used. TSR was 153.66% for the 2012 to 2014 period, which ranked at the 91st percentile of the companies in the S&P 500 Industrials Index. The TSR calculation includes $14.63 for the Allegion share dividend associated with the spin-off of the residential and commercial security business. |
PSUs for the 2012 to 2014 performance cycle paid out at 200% of target levels as summarized in the table below.
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Performance Metric | Ingersoll Rand Performance | Percentile Rank | Metric Payout | Weighting | Payout Level |
Relative EPS Growth | 19.37% | 88th %ile | 200% | 50% | 100% |
Relative TSR | 153.66% | 91st %ile | 200% | 50% | 100% |
Total Award Payout Percentage: | 200% |
2015 Compensation Decisions
The Committee annually reviews the total direct compensation for each NEO and, using its discretion based on its compensation philosophy and design principles, may revise such compensation. For 2015, the Committee has set the base salary and target AIM award for each NEO as follows:
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Name | | Base Salary ($) | | Change From 2014 (%) | | Target AIM Award (%) |
M. W. Lamach | |
| $1,300,000 |
| | | | 4.0 | % | | 160 | % | |
S. K. Carter | |
| $675,000 |
| | | | 3.2 | % | | 100 | % | |
M. J. Avedon | |
| $575,000 |
| | | | 3.6 | % | | 85 | % | |
D. P. M. Teirlinck | |
| $685,000 |
| | | | 4.6 | % | | 90 | % | |
R. G. Zafari | |
| $570,000 |
| | | | 3.6 | % | | 85 | % | |
The Committee established the following target long-term incentives including PSU awards for the 2015 - 2017 performance period and granted the following stock option and RSU awards for each NEO in 2015:
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Name | | Target 2015 Long-Term Incentive Value(1) ($) | | Shares Underlying Stock Option Awards(2) (#) | | RSU Shares(3) (#) | | Target 2015-17 PSU Shares (#)(3) |
M. W. Lamach | | 9,250,000 | | | | 158,499 |
| | 34,487 |
| | 68,974 | |
S. K. Carter | | 1,950,000 | | | | 33,414 |
| | 7,271 |
| | 14,541 | |
M. J. Avedon | | 1,200,000 | | | | 20,563 |
| | 4,474 |
| | 8,948 | |
D. P. M. Teirlinck | | 1,750,000 | | | | 29,987 |
| | 6,525 |
| | 13,049 | |
R. G. Zafari | | 1,250,000 | | | | 21,419 |
| | 4,661 |
| | 9,321 | |
(1) The target long-term incentive value is delivered 25% in stock options, 25% in RSUs and 50% in PSUs.
(2) The number of stock options was determined based on the Black-Scholes ratio on December 31, 2014 and the fair market value of our ordinary shares on the date of grant.
(3) The number of RSUs and target PSUs were determined using the fair market value of our ordinary shares on the date of grant.
VI. Other Compensation and Tax Matters
Retirement Programs and Other Benefits
We maintain qualified and nonqualified defined benefit pension plans for our employees, including the NEOs, to provide for fixed benefits upon retirement based on the individual’s age and number of years of service. These plans include the Pension Plan, the Trane Pension Plan, the Supplemental Pension Plans and the EOSP or the KMP. Refer to the Pension Benefits table and accompanying narrative for additional details on these programs.
We offer a qualified defined contribution (401(k)) plan called the Ingersoll-Rand Company Employee Savings Plan (the “ESP”) to our salaried non-union and hourly U.S. workforce, including the NEOs. The ESP is a plan that provides a dollar-for-dollar Company match on the first six percent of the employee’s eligible compensation that the employee contributes to the ESP. The ESP has a number of investment options and is an important component of our retirement program.
We also have a nonqualified defined contribution plan. The Ingersoll-Rand Company Supplemental Employee Savings Plan (the “Supplemental ESP”) is an unfunded plan that makes up matching contributions that cannot be made to the ESP due to Internal Revenue Code limitations. The Supplemental ESP is deemed to be invested in the funds selected by the NEOs, which are the same funds available in the ESP except for a self-directed brokerage account, which is not available in the Supplemental ESP.
In June 2012, our Board of Directors approved significant changes to our broad-based, qualified retirement programs with the intent to move from a combined defined benefit/defined contribution approach to a fully defined contribution plan approach over time. Employees active prior to July 1, 2012 were given a choice between continuing to participate in the defined benefit plan until December 31, 2022, or moving to an enhanced version of the ESP effective January 1, 2013. Employees hired or rehired on or after July 1, 2012 were automatically covered under the enhanced version of the ESP. Under the enhanced version of the ESP, employees will receive a basic employer contribution equal to two percent of eligible compensation in addition to the Company’s matching contribution while ceasing to accrue benefits under the defined benefit plan (employees of our Club Car business are generally not eligible for the basic employer contribution). Effective as of December 31, 2022, accruals in the defined benefit plan will cease for all employees. The Committee approved corresponding changes to the applicable nonqualified defined benefit and contribution pension plans. Additional details on the changes can be found in the narrative accompanying the Pension Benefits table.
Our Ingersoll Rand Executive Deferred Compensation Plan (the “EDCP Plan I”) and the Ingersoll Rand Executive Deferred Compensation Plan II (the “EDCP Plan II” and, together with the EDCP Plan I, the “EDCP Plans”) allow eligible employees to defer receipt of a part of their annual salary, AIM award and/or PSP award in exchange for investments in ordinary shares or mutual fund investment equivalents. Refer to the Nonqualified Deferred Compensation table for additional details on the EDCP Plans.
We provide an enhanced, long-term disability plan to certain executives. The plan provides for a higher monthly maximum than the standard group plan and a more favorable definition of disability and has an underlying individual policy that is portable when the executive terminates.
In light of the American Jobs Creation Act of 2004 governing Section 409A of the Code, “mirror plans” for several of our nonqualified plans, including the Ingersoll-Rand Company Supplemental Pension Plan (“Supplemental Pension Plan I”) and the EDCP I, were created. The mirror plans are the Ingersoll-Rand Company Supplemental Pension Plan II (“Supplemental Pension Plan II” and, together with the Supplemental Pension Plan I, the “Supplemental Pension Plans”) and the EDCP II. The purpose of these mirror plans is not to provide additional benefits to participants, but merely to preserve the tax treatment of the plans that were in place prior to December 31, 2004. In the case of the Supplemental Plans, the mirror plan benefits are calculated by subtracting the original benefit value to avoid duplication of the benefit. For the EDCP Plans, balances accrued through December 31, 2004 are maintained separately from balances accrued after that date.
We provide our NEOs with other benefits that we believe are consistent with prevailing market practice and those of our peer companies. These other benefits and their incremental cost to the Company are reported in “All Other Compensation” shown in the Summary Compensation Table.
Severance Arrangements
In connection with external recruiting of certain officers, we generally enter into employment arrangements that provide for severance payments upon certain termination events, other than in the event of a change in control (which is covered by separate agreements with the officers). Mr. Lamach, Ms. Carter and Ms. Avedon have such arrangements. In 2012 we adopted a Severance Plan, amended outstanding award agreements and adopted new equity award agreements to provide certain employees, including our NEOs, with certain benefits in the event of a termination of employment without cause or for good reason under a Major Restructuring (as defined in the Post-Employment Section below). In addition, although we do not have a formal severance policy for our executives (other than in the event of a Major Restructuring), we do have guidelines that in most cases would
provide for severance in the event of termination without cause. The severance payable under employment agreements for Mr. Lamach, Ms. Carter and Ms. Avedon and the benefits available in connection with a Major Restructuring and under the severance guidelines are further described in the Post-Employment Benefits section of the proxy statement.
Change-In-Control Provisions
We have entered into change-in-control agreements with our NEOs. Payments are subject to a double trigger, meaning that payments would be received only if an officer is terminated without cause or resigns for “good reason” within two years following a change in control. We provide change-in-control agreements to our NEOs to focus them on the best interests of shareholders and assure continuity of management in circumstances that reduce or eliminate job security and might otherwise lead to accelerated departures. Our incentive stock plans provide for the accelerated vesting of outstanding stock awards in the event of a change in control of the Company. Refer to the Post-Employment Benefits section of this proxy statement for a more detailed description of the change-in-control provisions.
Tax and Accounting Considerations
Section 162(m) of the Code imposes a limit of $1,000,000 on the amount that we may deduct for federal income tax purposes in any one year for compensation paid to our CEO and any of our three other highest-paid NEOs, other than our CFO, who are employed as of the end of the year. However, to the extent compensation is “performance-based” within the meaning of Section 162(m), the Section’s limitations will not apply. We intend most of the variable compensation (i.e., AIM, PSP and stock options) paid to NEOs to qualify as performance-based within the meaning of Section 162(m) so as to be tax deductible by us, which benefits our shareholders. In order to qualify as performance based, the compensation must, among other things, be paid pursuant to a shareholder approved plan upon the attainment of objective performance criteria. Our Committee believes that tax deductibility of compensation is an important factor, but not the sole factor, in setting executive compensation policies and in rewarding superior executive performance. Accordingly, although our Committee generally intends to avoid the loss of a tax deduction due to Section 162(m), it reserves the right, in appropriate circumstances, to pay amounts that are not deductible. In determining variable compensation programs, we consider other tax and accounting implications of particular forms of compensation, such as the implications of Section 409A of the Code governing deferred compensation arrangements and favorable accounting treatment afforded certain equity based plans that are settled in shares. However, the forms of variable compensation we utilize are determined primarily by their effectiveness in creating maximum alignment with our key strategic objectives and the interests of our shareholders.
Senior Executive Performance Plan (“SEPP”)
The SEPP is a shareholder approved plan that funds the annual cash incentive awards that may be granted to each of the NEOs. Under the SEPP, the maximum amount of cash incentive that can be paid to the CEO is 0.6% of Consolidated OI from Continuing Operations (as defined in the SEPP) and the maximum amount of cash incentive that can be paid to any other covered executive is 0.3% of Consolidated OI from Continuing Operations. Our Committee generally exercises its discretion to pay less than the maximum amount to the NEOs, after considering the factors described in the AIM Program.
Timing of Awards
Our regular annual equity grants are made by our Committee at a meeting held after the annual earnings release. The timing of this meeting allows management to review the prior year’s performance and assemble all of the necessary information for our Committee’s consideration. The date is never selected or changed to increase the value of equity awards for executives.
Claw-back /Recoupment Policy
To further align the interests of our employees and our shareholders, we have a claw-back /recoupment policy to ensure that any fraud or intentional misconduct leading to a restatement of our financial statements would be properly addressed. The policy provides that if it is found that an employee committed fraud or engaged in intentional misconduct that resulted, directly or indirectly, in a need to restate our financial statements, then our Committee has the discretion to direct the Company to recover all or a portion of any cash or equity incentive compensation paid or value realized, and/or to cancel any stock-based awards or AIM award granted to an employee on or after the effective date of the policy. Our Committee may also request that the Company seek to recover any gains realized on or after the effective date of the policy for equity or cash awards made prior to that date (including AIM, stock options, PSUs and RSUs). Application of the claw-back /recoupment policy is subject to a determination by our Committee that: (i) the cash incentive or equity compensation to be recouped was calculated on, or its realized value affected by, the financial results that were subsequently restated; (ii) the cash incentive or equity award would have been less valuable than what was actually awarded or paid based on the application of the correct financial results; and (iii) the employee to whom the policy applied engaged in fraud or intentional misconduct. This policy will be revised if required under the Dodd-Frank Act once the regulations implementing the claw-back policy requirements of that law have been issued.
Share-Ownership Guidelines
We impose share ownership requirements on each of our officers. These share ownership requirements are designed to emphasize share ownership by our officers and to further align their interests with our shareholders. Each officer must achieve and maintain ownership of ordinary shares or ordinary share equivalents at or above a prescribed level. The requirements are as follows:
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Position | | Number of Active Participants as of the Record Date | | Individual Ownership Requirement (Shares and Equivalents) |
Chief Executive Officer | | 1 | | 150,000 | | |
Executive Vice Presidents | | 2 | | 75,000 | | |
Senior Vice Presidents | | 6 | | 40,000 | | |
Corporate Vice Presidents | | 8 | | 15,000 | | |
This equates to ownership of approximately eight times base salary for the CEO and the Executive Vice Presidents and in excess of four times base salary for the Senior Vice Presidents.
Our share-ownership program requires the accumulation of ordinary shares (or ordinary share equivalents) over a five-year period following the date the person becomes subject to share-ownership requirements at the rate of 20% of the required level each year. Executives who are promoted, and who have their ownership requirement increased, have three years to achieve the new level from the date of promotion. However, given the significant increase in the ownership requirement for an individual who is promoted to CEO, that individual has five years from the date of the promotion to achieve the new level. Ownership credit is given for actual ordinary shares owned, deferred compensation that is invested in ordinary shares within our EDCP Plans, ordinary share equivalents accumulated in our qualified and nonqualified employee savings plans as well as unvested RSUs. Stock options, SARs and unvested PSUs do not count toward meeting the share-ownership target. If executives fall behind their scheduled accumulation level during their applicable accumulation period, or if they fail to maintain their required level of ownership after their applicable accumulation period, their right to exercise stock options will be limited to “buy and hold” transactions and any shares received upon the vesting of RSU and PSU awards must be held until the required ownership level is achieved. As of the Record Date, all of our executives subject to the share-ownership guidelines were in compliance with these requirements.
COMPENSATION COMMITTEE REPORT
We have reviewed and discussed with management the Compensation Discussion and Analysis contained in this Proxy Statement. Based on our review and discussion, we recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement as well as the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
COMPENSATION COMMITTEE
Tony L. White (Chair)
John Bruton
Jared L. Cohon
Gary D. Forsee
Constance J. Horner
SUMMARY OF REALIZED COMPENSATION
The table below is a summary of the compensation actually realized by our CEO for 2014, 2013 and 2012. This information is intended as a supplement to and not as a substitute for the information shown on the Summary Compensation Table. The information required to be shown on the Summary Compensation Table includes elements of compensation that may or may not actually be realized by the NEOs at a future date. We believe this table enhances our shareholders’ understanding of our CEO’s compensation.
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Year | Salary ($) | Performance-based Cash Compensation (1)($) | Equity Compensation (2)($) | Other Compensation (3)($) | Total Realized Compensation ($) |
2014 | $1,250,000 | $2,650,000 | $15,106,336 | $394,328 | $19,400,664 |
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2013 | $1,237,500 | $1,821,270 | $19,720,521 | $319,785 | $23,099,076 |
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2012 | $1,175,000 | $1,522,950 | $171,246 | $311,363 | $3,180,559 |
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(1) Represents the AIM award paid in the applicable year and earned in the immediately previous year.
(2) Represents amount realized upon the exercise of stock options and the vesting of RSUs and PSUs, before payment of applicable withholding taxes and brokerage commissions, and includes the value of dividend equivalents paid on such awards. For 2014, this includes the following amounts:
|
| | |
| Value Realized | Total Shareholder Return (“TSR”) Over the Period Outstanding * |
Stock Options Exercise: February 1, 2006 Grant February 7, 2007 Grant February 15, 2008 Grant
|
$1,400,236 $1,121,317 $1,498,372 $4,019,925 |
TSR for 2006-2014 was 126% TSR for 2007-2014 was 131% TSR for 2008-2014 was 92% |
Restricted Stock Units Vesting: February 24, 2012 Grant February 22, 2013 Grant
|
$1,134,496 $1,049,467 $2,183,963 |
TSR for 2012-2014 was 173% TSR for 2013-2014 was 77%
|
Performance Stock Units Earned: 2011-2013 Performance Period |
$8,902,447 |
TSR for 2011-2013 was 71% |
* TSR calculated using closing stock price at the beginning and end of each period.
(3) Represents the amounts imputed as income under applicable IRS rules and regulations.
EXECUTIVE COMPENSATION
The following table provides summary information concerning compensation paid by the Company or accrued on behalf of our NEOs for services rendered during the years ended December 31, 2014, 2013 and 2012.
Summary Compensation Table |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name and Principal Position | | Year | | Salary ($)(a) | |
Bonus ($)(b) | | Stock Awards ($)(c) | | Option Awards ($)(d) | | Non- Equity Incentive Plan Compensation ($)(e) | | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(f) | | All Other Compensation ($)(g) | | Total ($) | |
M. W. Lamach | | 2014 | | 1,250,000 | | — |
| | 7,493,591 | | 2,096,815 | | 2,048,200 | | 6,026,605 | | 502,295 | | 19,417,506 | |
Chairman and Chief Executive Officer | | 2013 | | 1,237,500 | | 250,000 |
| | 7,176,489 | | 2,265,976 | | 2,650,000 | | 917,847 | | 490,026 | | 14,987,838 | |
| 2012 | | 1,175,000 | | — |
| | 6,288,586 | | 1,697,045 | | 1,571,270 | | 4,920,650 | | 483,868 | | 16,136,419 | |
S. K. Carter | | 2014 | | 649,250 | | | | 1,539,248 | | 430,701 | | 669,761 | | 168,481 | | 139,335 | | 3,596,776 | |
Senior Vice President and Chief Financial Officer | | 2013 | | 163,790 | | 960,000 |
| | 2,302,436 | | 65,408 | | 218,050 | | 29,347 | | 364,657 | | 4,103,688 | |
| | | | | | | | | | | | | | | | | | |
M. J. Avedon | | 2014 | | 548,250 | | — |
| | 891,174 | | 249,361 | | 483,119 | | 985,227 | | 114,066 | | 3,271,197 | |
Senior Vice President, Human Resources, Communications and Corporate Affairs
| | 2013 | | 523,500 | | 100,000 |
| | 902,256 | | 275,006 | | 615,125 | | 46,862 | | 87,814 | | 2,550,563 | |
| 2012 | | 503,400 | | — |
| | 960,778 | | 259,277 | | 371,657 | | 603,324 | | 99,207 | | 2,797,643 | |
D. P. M. Teirlinck | | 2014 | | 655,000 | | — |
| | 1,336,792 | | 374,026 | | 787,041 | | 1,159,571 | | 150,536 | | 4,462,966 | |
Executive Vice President, Climate Segment | | 2013 | | 604,167 | | — |
| | 1,939,504 | | 362,505 | | 855,547 | | 356,770 | | 186,124 | | 4,304,617 | |
| 2012 | | 580,000 | | — |
| | 1,179,131 | | 318,197 | | 225,695 | | 750,764 | | 117,538 | | 3,171,325 | |
R. G. Zafari | | 2014 | | 550,000 | | — |
| | 972,208 | | 272,024 | | 384,005 | | 815,343 | | 94,916 | | 3,088,496 | |
Executive Vice President, Industrial Segment | | 2013 | | 492,250 | | — |
| | 1,652,530 | | 284,102 | | 397,354 | | 392,678 | | 88,626 | | 3,307,540 | |
| 2012 | | 470,000 | | — |
| | 873,473 | | 235,706 | | 319,679 | | 844,683 | | 91,083 | | 2,834,624 | |
_______________
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(a) | Pursuant to the EDCP Plans, a portion of a participant’s annual salary may be deferred into a number of investment options. In 2014 there were no salary deferrals by any NEO into the EDCP Plans. |
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(b) | The amounts in this column for 2013 reflect completion recognition bonuses that were awarded in December, 2013 to certain individuals, including Mr. Lamach and Ms. Avedon, whose contributions were critical to the successful completion of the spin-off of the companies commercial and residential securities business. Ms. Carter, as part of her employment offer, received a cash payment of $960,000 in 2013 in consideration of the bonus and performance share plan payments forfeited at her prior employer. In the event Ms. Carter voluntarily leaves the company within two years of her hire date, she would have to repay this amount to the Company. |
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(c) | The amounts in this column reflect the aggregate grant date fair value of PSU awards and any RSU awards granted for the year under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718 and do not reflect amounts paid to or realized by the NEOs. For a discussion of the assumptions made in determining the ASC 718 values see Note 11, “Share-Based Compensation,” to the Company’s consolidated financial statements contained in its 2014 Form 10-K. The ASC grant date fair value of the PSU award is spread over the number of months of service required for the grant to become non-forfeitable, disregarding any adjustments for potential forfeitures. In determining the aggregate grant date fair value of the PSU awards, the awards are valued assuming target level performance achievement. If the maximum level performance achievement is assumed, the aggregate grant date fair value of the PSU awards would be as follows: |
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| | | |
Name | | Maximum Grant Date Value Of 2014-16 PSU Awards ($) |
M. W. Lamach | | 10,362,112 | |
S. K. Carter | | 2,128,476 | |
M. J. Avedon | | 1,232,318 | |
D. P. M. Teirlinck | | 1,848,477 | |
R. G. Zafari | | 1,344,371 | |
Amounts in 2013 for Messrs. Teirlinck and Zafari include $814,968 from special RSU awards granted to them on December 6, 2013 in connection with the reorganization of the company or their respective promotions.
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(d) | Ms. Carter's 2013 AIM award was prorated to reflect her September 27, 2013 employment date. The amounts in this column reflect the aggregate grant date fair value of stock option grants for financial reporting purposes for the year under ASC 718 and do not reflect amounts paid to or realized by the NEOs. For a discussion of the assumptions made in determining the ASC 718 values see Note 11, “Share-Based Compensation,” to the Company’s consolidated financial statements contained in its 2014 Form 10-K. Please see “2014 Grants of Plan-Based Awards” and “Outstanding Equity Awards at December 31, 2014” for additional detail. |
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(e) | This column reflects the amounts earned as annual awards under the AIM program. Unless deferred into the EDCP Plans, AIM program payments are made in cash. In 2014, Mr. Zafari was the only NEO who elected to defer a percentage (15%) of his AIM award into the EDCP Plans. Amounts shown in this column are not reduced to reflect deferrals of AIM awards into the EDCP Plans. |
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(f) | Amounts reported in this column reflect the aggregate increase in the actuarial present value of the benefits under the qualified Ingersoll Rand Pension Plan Number One (the “Pension Plan”), Supplemental Pension Plans, Ingersoll-Rand Company Key Management Supplemental Program (the “KMP”) and EOSP, as applicable. The change in pension benefits value is attributable to the additional year of service and age, the annual AIM award and any annual salary increase. Amounts are higher for those NEOs who are older and closer to retirement than for those who are younger and further from retirement since the period over which the benefit is discounted to determine its present value is shorter and the impact of discounting is therefore reduced. |
Other external factors, outside the influence of the plan design, also impact the values shown in this column. For all the NEOs, the amounts in this column for 2012 and 2014 were impacted by decreasing interest rates (rates for ten-year Constant Maturities for US Treasury Securities), which cause the value of the lump sum distributions under the EOSP and the KMP to increase and in 2013 by increasing interest rates which cause the value of the lump sum distributions under the EOSP and the KMP to decrease. The 2014 change in value attributable to the change in interest rates is as follows for each of the NEOs: Lamach ($1,887,297), Carter ($15,034), Avedon ($259,400), Teirlinck ($121,415) and Zafari ($193,966). In addition, 2014 amounts for all NEOs were impacted by a change to the applicable mortality table as defined by the Internal Revenue Code that is used to estimate life expectancy. The change in value for each of the NEOs attributable to Changes in the applicable mortality table is as follows: Lamach ($1,357,339), Carter ($14,682), Avedon ($213,190), Teirlinck ($242,397) and Zafari ($259,258).
There was no above market interest earned by the NEOs during 2014.
(g) The following table summarizes the components of this column for fiscal year 2014:
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| | | | | | | | | | | | | | | |
Name | | Company Contributions ($)(1) | | Company Cost for Life Insurance ($) | |
Company Cost for Long Term Disability ($) | | Tax Assistance ($)(2) | |
Other Benefits ($)(3) | | Total ($) |
M. W. Lamach | | 234,000 | | 3,312 | | 1,285 |
| | 118,757 | | 144,941 |
| | 502,295 |
S. K. Carter | | 73,947 | | 3,019 | | 1,697 |
| | 3,762 | | 56,910 |
| | 139,335 |
M. J. Avedon | | 69,803 | | 1,319 | | 1,824 |
| | | | 41,120 |
| | 114,066 |
D. P. M. Teirlinck | | 90,633 | | 2,864 | | 2,528 |
| | 374 | | 54,137 |
| | 150,536 |
R. G. Zafari | | 56,841 | | 2,276 | | 2,029 |
| | 93 | | 33,677 |
| | 94,916 |
_____________
(1) Represents Company contributions under the Company’s ESP and Supplemental ESP plans.
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(2) | The amount for Mr. Lamach represents tax equalization payments related to Irish taxes owed on $315,000, which is the portion of his income that is allocated to his role as a director of the Company. Without these payments, Mr. Lamach would be subject to double taxation on this amount since he is already paying U.S. taxes on this income. The amount for (i) Ms. Carter represents payments made on her behalf for taxes related to relocation costs and (ii) Messrs. Teirlinck and Zafari represent payments of taxes on their behalf related to Company contributions made to the Belgium social scheme. |
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(3) | Represents: (i) the incremental cost to the Company of personal use of the Company aircraft (whether leased or owned) by the CEO. For security and safety reasons and to maximize his availability for Company business, the Board of Directors requires the CEO to travel on Company-provided aircraft for business and personal purposes, unless commercial travel is deemed a minimal security risk by the Company. The incremental cost to the Company of personal use of leased aircraft used by the Company is calculated based on the hourly average variable operating costs to the Company. Variable operating costs include fuel, maintenance, on-board catering and landing fees. The hourly average variable cost is multiplied by the amount of time flown for personal use to derive the incremental cost. The incremental cost to the Company of personal use of the Company's aircraft is calculated by multiplying the flight time by a variable fuel charge and the average fuel price per gallon and adding any ground costs such as landing and parking fees as well as crew charges for travel expenses. Both methodologies exclude fixed costs that do not change based on usage, such as pilots’ and other employees’ salaries, management fees and training, hangar and insurance expenses. We impose an annual limit of $150,000 on the CEO’s non-business use of Company-provided aircraft. For 2014, the amount for Mr. Lamach includes $121,854 for personal use of Company-provided aircraft; (ii) the following relocation costs for Ms. Carter $36,159, (iii) the following incremental cost of the Company-leased cars, calculated based on the lease, insurance, fuel and maintenance costs to the Company (and for Ms. Avedon and Mr. Teirlinck, it also includes the difference between the resale value and the book value for the Company cars they purchased under the program): Mr. Lamach, $13,638; Ms. Carter $8,931; Ms. Avedon, $28,613; Mr. Teirlinck, $31,784; and Mr. Zafari, $21,056; (iv) additional incremental costs associated with the use of the Company aircraft. Under the Company’s aircraft use policy, the Compensation Committee has determined that business use includes travel that is related to the Company’s business or benefits the Company, such as travel to meetings of other boards on which the CEO sits. For 2014, the amount for Mr. Lamach includes $35,975 for such business-related travel; (v) the following costs for financial counseling services, which may include tax preparation and estate planning services: Mr. Lamach, $9,449; Ms. Carter $10,000; Ms. Avedon $9,449; Mr. Teirlinck, $5,000; and Mr. Zafari, $5,000; (vi) the following costs for medical services provided through an on-site physician under the Executive Health Program: Mr. Lamach, $0; Ms. Carter, $1,820; Ms. Avedon $3,058; Mr. Teirlinck, $1,817; and Mr. Zafari, $3,737; (vii) the payments of $15,536 and $3,884 to permit Messrs. Teirlinck and Zafari to remain covered under the Belgium social scheme and have access to the country’s health plan should they return to Europe. |
2014 Grants of Plan-Based Awards
The following table shows all plan-based awards granted to the NEOs during fiscal 2014. This table is supplemental to the Summary Compensation Table and is intended to complement the disclosure of equity awards and grants made under non-equity incentive plans in the Summary Compensation Table.
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Estimated Future Payouts Under Non-Equity Plan Awards | | Estimated Future Payouts Under Equity Incentive Plan Awards | | All Other Stock Awards: Number of Shares of Stock or Units | | All Other Option Awards: Number of Securities Underlying Options | | Exercise or Base Price of Option Awards | | Grant Date Fair Value of Stock and Option Awards |
Name | | Grant Date | | Threshold | | Target | | Maximum | | Threshold | | Target | | Maximum | |
| ($)(a) | | ($)(a) | | ($)(a) | | (#)(b) | | (#)(b) | | (#)(b) | | (#)(c) | | (#)(c) | | ($/Sh)(d) | | ($)(e) |
M. W. Lamach | | | | | | | | | | | | | | | | | | | | | | |
AIM | | 2/25/2014 | | 600,000 |
| | 2,000,000 |
| | 4,000,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
PSUs (2014-16) | | 2/25/2014 | | — |
| | — |
| | — |
| | 19,328 |
| | 77,309 |
| | 154,618 |
| | — |
| | — |
| | — |
| | 5,181,056 |
|
Options | | 2/25/2014 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 146,733 |
| | 59.8250 |
| | 2,096,815 |
|
RSUs | | 2/25/2014 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 38,655 |
| | — |
| | — |
| | 2,312,535 |
|
S. K. Carter | | | | | | | | | | | | | |