UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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ITT Inc.
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2018
2020
Notice of Annual Meeting
& Proxy Statement
ITT Inc.
ITT Inc.
1133 Westchester Avenue
White Plains, NY 10604
DEARFELLOW
SHAREHOLDER
FRANK T. MACINNIS
CHAIRMAN OF THE BOARD
April 9, 2018March 31, 2020
On behalf of the ITT Inc. Board of Directors, and executive officers, it isthank you for your continued investment in ITT. The Company delivered another year of exceptional performance in 2019 as our pleasurefocused strategy continues to produce long-term results for our shareholders. We invite you to join us at our 20182020 Annual Meeting of Shareholders on Wednesday, May 23, 201815, 2020 at 9:00 a.m. Eastern Time in White Plains, New York. Details regarding admission to the meeting and the business to be conducted are provided in the accompanying Notice of Annual Meeting and Proxy Statement.
At ITT, we are committedBOARD COMPOSITION & REFRESHMENT
It has been an honor to fostering sound corporate governance. You’ll see thatserve as ITT’s independent Chair since 2011. As mentioned last year, I plan to retire at this year’s Annual Meeting as part of a leadership transition strategy in connection with the appointment of Luca Savi as CEO in January 2019. In December 2019, the Board appointed Richard Lavin to serve as ITT’s next independent Chair effective with my retirement.
Rich has served as a director of the Company since 2013, and as Chair of the Board’s Compensation and Personnel Committee since 2017. His deep global manufacturing operations expertise includes a 30-year career with Caterpillar, Inc., extensive international expertise, and legal and human resources experience. This background has allowed him to provide support to our attached 2018 Proxy Statement reflectsmanagement team as they drive a high-impact strategy, and as Chair he will be in a position to help guide ITT’s strategies for growth and profitability going forward.
We remain thoughtful about our continuedBoard composition and effectiveness both through our formal, annual Board and committee evaluation process as well as through our director nominations process. Our deliberate focus on deliveringrefreshment has allowed us to build a Board that reflects a diversity of skills, experiences, and backgrounds.
SUCCESSFUL CEO TRANSITION
This past year, we completed a seamless CEO succession process and Luca successfully led ITT to another year of strong performance,financial and operational performance. The Board has provided strong, independent oversight of the business strategy through the transition, and has worked closely with Luca and the management team to focus on cultivating an engagedinnovative, diverse and effective Board of Directors, maintaining regular dialogueinclusive workplace that engages and energizes our employees.
SHAREHOLDER ENGAGEMENT
Shareholder engagement remains a key priority for the Board. The valuable feedback and perspectives received through discussions with our shareholders and advancing transparent corporate governance practices.
2017 Performance:Throughout 2017, we drove activities across the enterprisehelp to optimize execution while advancing our essential long-term growth strategies.inform ongoing boardroom discussions. We continued to growour annual outreach and engagement efforts in our key end markets including automotive, rail and general industrial. Our team also won significant new business including additional automotive platform wins in China, a new multi-million dollar rotorcraft platform and a record defense vehicle award for our shock absorber business. These multi-year awards — and others like them — are accelerating our forward momentum in exciting markets that will help drive our future growth. This performance drove strong returns for our shareholders, delivering a 40 percent total shareholder return in 2017.
Shareholder Engagement:Our Board is committed to2019, engaging with our shareholders and thoughtfully considering their feedback and insights. In 2017, we enhanced our established investor outreach program by undertaking a significant shareholder engagement effort, which resulted in
our reaching out to investorscollectively representing over 50 percentapproximately 43% of our outstanding shares. These discussions covered a wide range of topics includingcentered on our businessBoard composition and financial results, corporate governance,leadership transition, our executive compensation program andpractices as well as our enhanced sustainability initiatives. The feedback we received was shared withreporting. Shareholders were particularly interested in discussing our full Board of Directors and is being actively incorporated into our go-forward plans. We look forward to continuing this valuable dialoguefirst-ever Sustainability Report published in 2018 and beyond.2019.
Board Contributions To Our Success:In addition to reviewing and providing guidance on the Company’s strategic plan, our directors are committed to continually developing a deeper understanding of our people and workplaces. In 2017, the Board visited our recently acquired Wolverine Advanced Materials site in Virginia, where they had an opportunity to meet employees throughout the business and tour the facility. We also continued our commitment to best practices in corporate governance by evaluating all of our committees and rotating our Compensation and Personnel Committee and Nominating and Governance Committee chairs, continuing our commitment to effective board refreshment and proactive board succession planning.
Fostering Employee Engagement:In 2017, we continued our commitment to shaping a healthy and high-performing culture, defined by our Purpose of “We Solve It” and our Principles of Impeccable Character, Bold Thinking and Collective Know-how. We also advanced our efforts around employee engagement to energize our teams and help them better understand their role in driving innovation, growth and performance. This work is accompanied by our long-term focus on emphasizing that “how” our achievements are attained is just as important as “what” we accomplish. We believe that our commitment to employee engagement is a true competitive advantage and a key differentiator when growing our existing talent, recruiting new talent and partnering with our customers and other stakeholders.
On behalf of our Board of Directors, weAgain, I thank you for your investmentcontinued support and confidence in ITT and your continued support. Wethank you for the nearly 19 years that I have had the privilege to serve on this Board. I feel honored to have worked with so many deeply talented people at ITT and look forward to welcomingthe Company’s continued success.
Thank you for your continued support and confidence in ITT. We hope you can join us at our 2018the Annual Meeting of Shareholders.
Meeting.
Sincerely,
DENISE L. RAMOS
FRANK T. MACINNIS
NOTICEOF 20182020 ANNUAL
MEETING OF SHAREHOLDERS
MEETING INFORMATION
FRIDAY, MAY 15, 2020
WEDNESDAY, MAY 23, 2018
9:00 a.m. Eastern Time
ITT Inc.
1133 Westchester Avenue
White Plains, NY 10604
ITEMS OF BUSINESS
1. To elect the 11 nominees named in the attached Proxy Statement to the Board of Directors to serve until the 2021 annual meeting of shareholders or until their respective successors shall have been duly elected and qualified.
2. To ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the 2020 fiscal year.
3. To conduct an advisory vote on the compensation of the Company’s named executive officers.
4. To consider a shareholder proposal, if properly presented at the Annual Meeting.
5. To transact such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof.
WHO CAN VOTE, RECORD DATE
Holders of record of ITT Inc. common stock at the close of business on March 26, 201818, 2020 are entitled to vote at the Annual Meeting and any adjournmentsadjournment or postponementspostponement thereof.
MAILING OR AVAILABILITY DATE
Beginning on or about April 9, 2018,March 31, 2020, this Notice of 20182020 Annual Meeting of Shareholders and the attached Proxy Statement are being mailed or made available, as the case may be, to shareholders of record on March 26, 2018.18, 2020.
ABOUT PROXY VOTING
It is important that your shares be represented and voted at the Annual Meeting. If you are a registered shareholder, you may vote online atwww.proxyvote.com,, by telephone or by mailing a proxy card. You may also vote in person at the Annual Meeting. If you hold shares through a bank, broker or other institution, you may vote your shares by any method specified on the voting instruction form that they provide. See details under “How do I vote?” under “Additional Information“Information about Proxy Statement and Voting.” We encourage you to vote your shares as soon as possible.
By order of the Board of Directors,
LORI B. MARINOMARY BETH GUSTAFSSON
Senior Vice President, General
Counsel and Corporate Secretary
April 9, 2018
REVIEW YOUR PROXY STATEMENT AND VOTE IN ONE OF FOUR WAYS:March 31, 2020
ONLINE | |||||||||
Visit the website on your proxy card | BY MAIL Sign, date and return your proxy card in the enclosed envelope | BY PHONE Call the telephone number on your proxy card | IN PERSON Attend the Annual Meeting in White Plains, NY See page | ||||||
Please refer to the enclosed proxy materials or the information forwarded by your bank, broker or other holder of record to see which voting methods are available to you. | |||||||||
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR ITT Inc.’s Annual Meeting of Shareholders to be held on Friday, May 15, 2020, at 9:00 a.m. Eastern Time The Proxy Statement and 2019 Annual Report to Shareholders are available online atwww.proxyvote.com | |||||||||
* | We intend to hold our 2020 Annual Meeting of Shareholders in person. However, we continue to monitor the situation regarding COVID-19 (coronavirus) closely, taking into account guidance from public health authorities. We are sensitive to the public health and travel concerns our shareholders may have and the protocols that federal, state, and local governments may impose. Accordingly, we may determine that it is advisable to change the date, time, location or manner of conducting the 2020 Annual Meeting of Shareholders. In the event that we change the date, time, location or manner of conducting the 2020 Annual Meeting of Shareholders, we will announce that fact as promptly as practicable with details on how to participate and vote at such meeting. Please monitor our website at www.itt.com/investors for updated information. If you are planning to attend our meeting, please check the website one week prior to the meeting date. As always, we encourage you to vote your shares prior to the 2020 Annual Meeting of Shareholders. |
Please refer to the enclosed proxy materials or the information forwarded by your bank, broker or other holder of record to see which voting methods are available to you.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
ITT Inc.’s Annual Meeting of Shareholders to be held on Wednesday, May 23, 2018, at 9:00 a.m. Eastern Time
The Proxy Statement and 2017 Annual Report to Shareholders are available online atwww.proxyvote.com
ITT INC.❘2020 PROXY STATEMENT 5
ITT INC. | 2018 PROXY STATEMENT 6
ITT INC. | ❘20182020 PROXY STATEMENT 76
PROXYPROXYSTATEMENT EXECUTIVE SUMMARY
This summary highlights selected information in this Proxy Statement. Please review the entire document before voting.
ANNUAL MEETING OF SHAREHOLDERS OF ITT INC.
Date | May |
Time | 9:00 a.m. Eastern Time |
Location | ITT Inc., 1133 Westchester Avenue, White Plains, NY 10604 |
Admission Information | See page |
Voting Item | Board Voting Recommendation | Further Information (page) | |
1. | To elect the 11 nominees named in the Proxy Statement to ITT’s Board of Directors | FOR each nominee | 26 |
2. | To ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for 2020 | FOR | 33 |
3. | To conduct an advisory vote on the compensation of the Company’s named executive officers | FOR | 37 |
4. | To consider a shareholder proposal regarding proxy access | AGAINST | 70 |
Voting Item | Board Voting Recommendation | Further Information (page) | |||
1. | To elect the 11 nominees named in the Proxy Statement to ITT’s Board of Directors | FOR each nominee | 27 | ||
2. | To ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for 2018 | FOR | 33 | ||
3. | To conduct an advisory vote on the compensation of the Company’s named executive officers | FOR | 36 | ||
4. | To approve an amendment to ITT’s Articles of Incorporation to reduce the threshold required for shareholders to call a special meeting | FOR | 69 |
Your vote is important. You are eligible to vote if you were a shareholder of record at the close of business on March 26, 2018.18, 2020. Even if you plan to attend the meeting, please vote as soon as possible using one of the following methods. In all cases, you should have your proxy card in hand.
ONLINE | BY MAIL | BY PHONE | IN PERSON | |||
Visit the website on your proxy card | Sign, date and return your proxy card in the enclosed envelope | Call the telephone number on your proxy card | Attend the Annual Meeting in White Plains, NY. See page |
* | We intend to hold our 2020 Annual Meeting of Shareholders in person. However, we continue to monitor the situation regarding COVID-19 (coronavirus) closely, taking into account guidance from public health authorities. We are sensitive to the public health and travel concerns our shareholders may have and the protocols that federal, state, and local governments may impose. Accordingly, we may determine that it is advisable to change the date, time, location or manner of conducting the 2020 Annual Meeting of Shareholders. In the event that we change the date, time, location or manner of conducting the 2020 Annual Meeting of Shareholders, we will announce that fact as promptly as practicable with details on how to participate and vote at such meeting. Please monitor our website at www.itt.com/investors for updated information. If you are planning to attend our meeting, please check the website one week prior to the meeting date. As always, we encourage you to vote your shares prior to the 2020 Annual Meeting of Shareholders. |
ITT INC. | ❘20182020 PROXY STATEMENT 97
2017 PERFORMANCE2019 FISCAL HIGHLIGHTS
(Amounts reported in this section, except per share amounts, are stated in millions unless otherwise specified.)
ITT’s financialDuring 2019, we achieved strong results that reflected continued operational execution and share gain strategies in 2017 reflectkey global markets. Our results are a strong strategicreflection of our hard work and focus on optimizing execution, expanding in key end marketscreating value for our customers, while also implementing productivity improvements and deploying capital effectively to drive growth and share gains. Highlightsmaking strategic investments. The following table provides a summary of our 2017 financial results include the following:key performance indicators for 2019 with growth comparisons to 2018.
SUMMARY OF KEY PERFORMANCE INDICATORS FOR 2019
Revenue | Orders | Segment Operating Income | Segment Operating Margin | EPS | Operating Cash Flow | |||||
$2,846 4% Increase | $2,813 3% Decrease | $432 5% Increase | 15.2% 20bp Increase | $3.65 3% Decrease | $358 4% Decrease |
Adjusted Segment Operating Income | Adjusted Segment Operating Margin | Adjusted EPS | Adjusted Free Cash Flow | |||||||
$2,868 4% Increase | $2,842 2% Decrease | $457 10% Increase | 16.0% 90bp Increase | $3.81 18% Increase | $319 95% Conversion |
Organic revenue, organic orders, adjusted segment operating income, adjusted EPS, adjusted free cash flow and adjusted free cash flow conversion are financial measures not prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), which are referred to as non-GAAP financial measures. Please refer to the section titled “Key Performance Indicators and Non-GAAP Financial Measures” in our 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 21, 2020 for the definition of these non-GAAP financial measures, the reasons why we use these measures and for reconciliations to the most directly comparable measures calculated in accordance with GAAP.
Our 2019 results include:
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gas grew 7%, and transportation grew 3%. | |
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in rail was partially offset by significant prior year defense programs. | |
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growth in rail, as well as continued manufacturing and supply chain productivity, cost containment actions, and strategic acquisition benefits. These gains were partially offset by higher commodity costs and tariffs as well as unfavorable foreign exchange. | |
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a favorable tax rate. | |
■ | Operating cash flow of $357.7 decreased $14.1 or 3.8%, primarily due to proceeds of $19.0 received in 2018 from an environmental insurance-related settlement and unfavorable working capital, |
Our Nominating and Governance Committee maintains an active and engaged Board, whose diverse skill sets benefit from both the industry and company-specific knowledge of our longer-tenured directors, as well as the fresh perspectives brought by our newer directors. We continually review our Board’s composition with a focus on refreshing necessary skill sets as our business strategy and industry dynamics evolve.
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ITT INC. | ❘20182020 PROXY STATEMENT 108
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Audit: Audit Committee
Compensation: Compensation and Personnel Committee
Governance: Nominating and Governance Committee
ITT INC. | 2018 PROXY STATEMENT 11
SNAPSHOT OF 20182020 DIRECTOR NOMINEES
As a whole, our director nominees possess a variety of important qualifications, skills and attributes, including those set forth in the chart below.below:
DIRECTOR SNAPSHOT |
Board Committees | |||||||
Name | Age | Director Since | Other Public Company Boards | Position | Audit | Compensation and Personnel | Nominating and Governance |
Orlando D. Ashford | 51 | 2011 | 0 | President of Holland America Line | |||
Geraud Darnis | 60 | 2015 | 0 | Former President & CEO of UTC Building & Industrial Systems | |||
Donald DeFosset, Jr. | 71 | 2011 | 3 | Former Chairman, President & CEO of Walter Industries, Inc. | |||
Nicholas C. Fanandakis | 63 | 2016 | 2 | Former Executive Vice President of DowDuPont | |||
Richard P. Lavinnon-executive Chairman as of 2020 Annual Meeting | 68 | 2013 | 1 | Former President & CEO of Commercial Vehicle Group, Inc. | |||
Mario Longhi | 65 | 2017 | 1 | Former President & CEO of United States Steel Corporation | |||
Rebecca A. McDonald | 67 | 2013 | 0 | Former CEO of Laurus Energy, Inc. | |||
Timothy H. Powers | 71 | 2015 | 1 | Former Chairman, President & CEO of Hubbell Incorporated | |||
Luca Savi | 54 | 2019 | 0 | CEO & President of ITT Inc. | |||
Cheryl L. Shavers | 66 | 2018 | 1 | Chairman & CEO of Global Smarts, Inc. | |||
Sabrina Soussan | 50 | 2018 | 1 | CEO of Siemens Mobility |
Chair |
* | Is a citizen of a non-U.S. country (in some cases, in addition to the U.S.) |
ITT INC.❘2020 PROXY STATEMENT 9
CORPORATE GOVERNANCE HIGHLIGHTS
We are committed to strong governance practices that protect the long-term interests of our shareholders and establish strong Board and management accountability. The “Corporate Governance and Related Matters” section beginning on page 15describes12 describes our governance framework. We have adopted key corporate governance best practices, including:
WHAT WE DO | ||||
Independent | Annual Board and committee evaluation and self-assessments | |||
Highly independent and diverse Board | Active Board refreshment | |||
Annual election of directors | Director | |||
Majority voting for uncontested director elections | Formal limit on outside directorships | |||
Regular executive sessions of the Board and its committees | Meaningful stock ownership guidelines for directors | |||
Proxy access right | Formal director orientation and continuing education program | |||
Shareholder right to call special meetings | Proactive engagement with shareholders |
ITT INC. | 2018 PROXY STATEMENT 12
A policy prohibiting hedging and pledging of the Company’s securities |
SHAREHOLDER ENGAGEMENT AND RESPONSIVENESS
We enhancedSince formalizing our engagement with shareholdersapproach in 2017, reachingwe have reached out to shareholders representing over 50% of ITT’s outstanding shares annually to discuss governance, compensation and sustainability matters. In 2019 we built on this success and continued our robust annual shareholder engagement process, contacting shareholders representing nearly 70% of ITT’s outstanding shares outstanding, which included major asset managers, pension funds and other investors.engaging with shareholders representing over 40% of such shares. The feedback we received through these efforts was shared with our entirethe Board of Directors and members of senior management. Key themes from these conversations included corporate governance, executive compensation, and sustainability initiatives.
We engaged withThese conversations continue to inform our investors on general corporate governance matters,Board’s actions, including our approach to Board refreshment and diversity, our executive compensation programpractices, and our reporting efforts on sustainability initiatives. The feedbacktopics. For example, the Sustainability Report that we received was positive,ITT published in February 2019, and we appreciated the opportunity to discusssupplemental report that followed showing our three-year progress on environmental and get feedback on, for example, various elements ofsocial metrics, were shaped by our executive compensation design and changes that we anticipate making in 2018. We also appreciated the candid discussions relating to the topic of sustainability and where the Company’s efforts should best be focused going forward. As a result of the feedback that we received, we have made updates to a number of our to our disclosures in this Proxy Statement.with investors.
We encourage our registered shareholders to use the space provided on the proxy card to let us know your feelingsthoughts about ITT or to bring a particular matter to our attention. If you hold your shares through an intermediary or received the proxy materials electronically, please feel free to write directly to us.
EXECUTIVE COMPENSATION HIGHLIGHTS
The Compensation and Personnel Committee firmly believes in pay-for-performance and has structured the executive compensation program to align our executives’ interests with those of our shareholders.
Our CEO and other Namednamed executive officers (the “Named Executive Officers (“NEOs”Officers” or “NEOs”) have a significant amount of their target pay tied to an annual bonus and long-term incentives (“LTI”), which is “Pay at Risk” and dependent on ITT’s financial performance and stock price. The following graphics illustrate 2019 CEO payout under our Annual Incentive Plan (“AIP”) and payout with respect to 2017-2019 performance stock units (“PSUs”) that were granted in 2017, before Mr. Savi became CEO.
ITT INC.❘2020 PROXY STATEMENT 10
2019 was Mr. Savi’s first year as CEO, however, his contributions in previous roles as Senior Vice President and President of Motion Technologies, and President and Chief Operating Officer of ITT, had a significant and direct impact on ITT’s performance over the past few years. The history of strong shareholder returns and adjusted EPS growth show meaningful alignment between ITT’s performance and the above target 2019 AIP and 2017 PSU award results.
See “2019 Annual Incentive Plan — 2019 AIP Performance Metrics and Weightings” for the definition of Adjusted EPS.
At ITT we believe that improving our sustainability efforts creates value for our customers, employees, communities and shareholders. It helps us align to the values and emerging expectations of today’s world. In 2019, ITT issued a sustainability report which incorporated Sustainability Accounting Standards Board (“SASB”) metrics relevant to ITT, as requested by many of our shareholders in our engagement discussions. We also publish an annual supplemental report which includes our three-year progress on key environmental, social and governance (“ESG”) metrics.
ITT INC. | ❘20182020 PROXY STATEMENT 1311
Our pay-for-performance approach is illustrated by the alignment of our CEO’s realized pay over the last two years to our three-year total shareholder return (“TSR”). In 2016, our three-year TSR (2014-2016) was -8%. In 2017, our three-year TSR (2015-2017) was +37%. Realized pay increased 38% from 2016 to 2017 due to the increase of the annual bonus payout and the payout of the 2015 performance unit award. Realized pay remains below target pay in 2017 because the stock option award that was granted in 2014 (vested in 2017) did not have any intrinsic value at the time of vesting.
Target payfor each calendar year includes: annual salary + AIP award at target payout + the grant date fair value of Long-Term Incentive (“LTI”) awards granted during the year.
Realized payfor each calendar year includes: annual salary + actual AIP payout + the intrinsic value of LTI awards that vested during the year (which were granted three years ago), calculated as of the vesting date.
ITT INC. | 2018 PROXY STATEMENT 14
CORPORATE GOVERNANCEGOVERNANCE AND RELATED MATTERS
We strive to maintain the highest standards of corporate governance and ethical conduct. Maintaining full compliance with the laws, rules and regulations that govern our business, and reporting results with accuracy and transparency, are critical to those efforts. We monitor developments in the area of corporate governance, consider the feedback of our shareholders, and review our processes and procedures in light of this input. We also review federal and state laws affecting corporate governance, as well as rules and requirements of the New York Stock Exchange (the “NYSE”). We implement other corporate governance practices that we believe are in the best interests of the Company and its shareholders.
We also understand that corporate governance practices evolve over time, and we seek to maintain practices whichthat provide the right framework for our operations whichat that time, that are of value to our shareholders and whichthat positively aid in the governance of the Company.
The following sections provide an overview of ITT’s corporate governance structure and processes, including the independence and other criteria we use in selecting director nominees, our leadership structure, and certain responsibilities and activities of the Board of Directors and its committees.
ITT’s key governance documents, including our Corporate Governance Principles (the “Principles”), and the charters for the Audit, Compensation and Personnel and Nominating and Governance Committees, are available on our website atwww.itt.com/investors/governance/corporate-governance.. Our Code of Conduct is available on our website atwww.itt.com/citizenship/code-of-conduct/www.itt.com.. We have included our website addresses only as inactive textual references and do not intend them to be active links to our website. Our website is not incorporated into or a part of this Proxy Statement. Shareholders may also obtain copies of these documents free of charge by sending a written request to ITT Inc., 1133 Westchester Avenue, White Plains, NY 10604, Attention: Corporate Secretary.
CORPORATE GOVERNANCE PRINCIPLES
The Board of Directors has adopted the Principles, which govern the operations of the Board and its committees and guide the Board and ITT’s leadership team in the execution of their responsibilities. The Nominating and Governance Committee is responsible for overseeing the Principles. The Nominating and Governance Committee reviews the Principles at least annually and makes recommendations to the Board for updates in response to changing regulatory requirements, issues raised by shareholders or other stakeholders, changing regulatory requirements or otherwise as circumstances warrant. The Board may amend, waive, suspend or repeal any of the Principles at any time, with or without public notice, as it determines necessary or appropriate in the exercise of the Board’s judgment or fiduciary duties. As noted above, we have posted the Principles on our website at:www.itt.com/investors/governance/ corporate-governance.. The Principles include the following items concerning the Board:
■ | no director may stand for re-election after he or she has reached the age of |
75; | |
■ | directors must be able to devote the requisite time for preparation and attendance at regularly scheduled Board and Committee meetings, as well as be able to participate in other matters necessary for good corporate governance; |
■ | directors are limited to service on four public company boards (including the ITT Board). If the director serves as an active CEO of a public company, the director is limited to service on |
■ | the CEO reports at least annually to the Board on succession planning and management development; |
■ | the Board evaluates the performance of the |
■ | the Board maintains a process whereby the Board and its committees are subject to annual evaluation and self-assessment. |
ITT INC. | ❘20182020 PROXY STATEMENT15 12
OUR BOARD LEADERSHIP STRUCTURE
Our Board does not have a formal policy with respect to the separation of the roles of Chair of the Board and Chief Executive Officer. The Board believes that this is a matter that should be discussed and determined by the Board from time to time and that each of the possible leadership structures for a board of directors has its particular advantages and disadvantages. These factors must be considered in the context of the specific circumstances, giving due consideration to the individuals involved, the culture and performance of the Company, the needs of the business, fulfillment of the duties of the Board and the best interests of shareholders.
Although the Board may determine to combine the roles of Chair and Chief Executive Officer in the future, since 2011 the Board has determined that having separate individuals holding the Chair and Chief Executive Officer positions is the right leadership structure for the Company. This structure allows our Chief Executive Officer to focus on the operations of our business while the independent Chair focuses on leading the Board in its responsibilities. The Board most recently considered the appropriate leadership structure for the Board as part of the recently completed CEO transition and, taking into account feedback from our shareholders, confirmed that this separation continues to be in the best interests of ITT’s shareholders at this time as well as for the foreseeable future.
THE BOARD’S ROLE IN LEADERSHIP SUCCESSION PLANNING
The Board is actively engaged in our talent management program. The Compensation and Personnel Committee oversees the process for succession planning for the CEO and other senior executives and updates the full Board in its executive sessions. The Board holds a formal succession planning and talent review session each summer. These sessions include the identification and development of internal candidates and assessment of key capabilities, desired leadership skills, and the ability to influence our business and strategic direction consistent with our core values. As part of the succession planning process, the CEO, working with the Board, also reviews and maintains an emergency succession plan for the position of CEO.
Directors interact with ITT leaders through Board presentations and discussions, as well as through informal events and interactions throughout the year such as lunch, dinner, and small group and planned one-on-one sessions.
As previously disclosed by the Company on December 11, 2019, the Board appointed Mr. Lavin to serve as the non-executive Chairman of the Board, effective upon his election to the Board at the Company’s 2020 Annual Meeting of Shareholders. The current Chairman of the Board, Mr. MacInnis, will continue to serve as Chairman until such time. Mr. MacInnis will not stand for re-election to the Board at the 2020 Annual Meeting of Shareholders. The appointment of Mr. Lavin to serve as the next non-executive Chairman of ITT was made in anticipation of Mr. MacInnis’ retirement and to ensure a smooth transition.
DIRECTORS’ QUALIFICATION AND SELECTION PROCESS
BOARD MEMBERSHIP CRITERIA
The Nominating and Governance Committee takes into account a variety of factorsregularly considers and reviews with the Board the appropriate skills and characteristics for Board members in fulfilling its responsibility to identify and recommend to the Board of Directors qualified candidates for membership on the Board. Directors of the Company must be persons of integrity, with significant accomplishments and recognized business stature. In addition, the
The Corporate Governance Principles state that as part of the membership criteria for new Board members, individuals mustwho are nominated are expected to have significant accomplishments and recognized business stature and possess such attributes and experiences such as are necessary to provide a broad range of personal characteristics including diversity, (with particular consideration of gender and race), management skills and business, technological and international experience, among others.experience. The Nominating and Governance Committee’s top priority is therefore ensuring that the Board is composed of directors who bring diverse viewpoints and perspectives, exhibit a variety of skills, professional experience and backgrounds, and effectively represent the long-term interests of shareholders.
ITT INC.❘2020 PROXY STATEMENT 13
Additional criteria for identifying and evaluating candidates for the Board include:
■ | personal qualities and characteristics, accomplishments and reputation in the business community; |
■ | current knowledge and contacts in the Company’s business communities and industries; |
■ | the fit of the individual’s skills and personality with those of other directors in building a Board that is effective, collegial and responsive; |
■ | ability and willingness to commit adequate time to Board and committee matters; |
■ | diversity of viewpoints, background, experience and other demographics; |
■ | independence (including independence from the interests of a particular group of shareholders); |
■ | absence of potential conflicts with our interests; and |
■ | such other criteria as the Board may from time to time determine relevant. |
DIRECTOR SKILLS
Our director nominees possess relevant experience, skills and qualifications which contribute to a well-functioning Board that effectively oversees the Company’s strategy and management. All of our director nominees bring to the Board a wealth of executive leadership experience derived from their diverse professional backgrounds and areas of expertise. As a group, they have global industrial and financial expertise, public company board experience and sound business acumen.
BOARD DIVERSITY
The Board actively seeks to consider diverse candidates for membership on the Board when it has a vacancy to fill and includes diversity as a specific factor when conducting any search for candidates. In identifying and evaluating candidates for the Board, the Nominating and Governance Committee considers the diversity of the Board, including diversity of skills, experience and backgrounds, as well as ethnic and gender diversity. We believe that our Board nominees appropriately reflect a diversity of skills, of professional, gender, ethnic and personal backgrounds, and of experience.
BOARD TENURE
The Board also strives to maintain an appropriate balance of tenure and turnover among directors. The Board believes that there are significant benefits from the valuable experience and familiarity with the Company and its people and processes that longer-tenured directors bring, as well as significant benefits from the fresh perspective and ideas brought by new directors. We believe that our Board strikes the right balance of longer serving and newer directors.
PROCESS FOR IDENTIFYING AND SELECTING NEW BOARD MEMBERS
The Nominating and Governance Committee identifies director candidates through a variety of sources including an independent search firm, personal references, and business contacts.
Shareholders who wish to recommend candidates may contact the Nominating and Governance Committee in the manner described in “Communication with the Board of Directors.” Shareholder nominations must be made according to the procedures required by our Amended and Restated By-laws (the “By-laws”) and described in this Proxy Statement under the heading “Information about the Proxy Statement & Voting.” Shareholder recommended candidates and shareholder nominees whose nominations comply with these procedures and who meet the criteria referred to above will be evaluated by the Nominating and Governance Committee in the same manner as other nominees.
ITT INC.❘2020 PROXY STATEMENT 14
A key component to the nomination (and re-nomination) process is the Nominating and Governance Committee’s consideration of the results of the Board’s evaluation process. The results generated from this evaluation process include nominee attributes and experiences that will individually and collectively complement the existing Board, taking into account the Company’s mandatory retirement age, the current Board’s needs for expertise and recognizing that the Company’s businesses and operations are diverse and global in nature.
The Board strives to maintain an appropriate balance of tenure, turnover, diversity and skills among directors. The Board believes that there are significant benefits from the valuable experience and familiarity with the Company and its people and processes that longer-tenured directors bring, as well as significant benefits from the fresh perspective and ideas brought by new directors. Since the beginning of 2013, we have added six new independent directors who have brought valuable and varied experiences to our Board.
The Nominating and Governance Committee identifies director candidates through a variety of sources including an independent search firm, personal references, business contacts and our shareholders. Shareholders who wish to recommend candidates may contact the Nominating and Governance Committee in the manner described in “Communication with the Board of Directors.” Shareholder nominations must be made according to the procedures required by our Amended and Restated By-laws (the “By-Laws”) and described in this Proxy Statement under the heading “Information about the Proxy Statement & Voting.” Shareholder-recommended candidates and shareholder nominees whose nominations comply with these procedures and nominees who meet the criteria referred to above will be evaluated by the Nominating and Governance Committee in the same manner as other nominees.
Prior to recommending nominees for election as directors, the Nominating and Governance Committee, and then the full Board of Directors, engages in a deliberative evaluative process and considers the following to ensure that eachthe nominee possesses the skills and attributes that individually and collectively will contribute to an effective boardBoard of directors. Directors:
■ | the nominee’s fit with the membership criteria discussed above; |
■ | the nominee’s skills and attributes and overall complement to the skills matrix discussed above; and |
■ | the diversity that the nominee will add to the Board. |
Biographical information for each candidate for election as a director is evaluated and candidates for election participate in interviews with existing Board members and management. Each candidate is subject to thorough background checks and nominees must meet the requirements of the Company’s By-laws and the Corporate Governance Principles. Director nominees must be willing to commit the requisite time for preparation and attendance at regularly scheduled Board and committee meetings and participation in other matters necessary for good corporate governance.
BOARD AND COMMITTEE EVALUATION PROCESS
We recognize the critical role that Board and committee evaluations play in ensuring the effective functioning of our Board. Our Board annually evaluates the performance of the Board and its committees. As part of the Board’s self-assessment process, directors complete questionnaires whichthat consider various topics related to Board composition, structure, effectiveness, and responsibilities, as well as the overall mix of director skills, experience, and backgrounds. As set forth in its charter, the Nominating and Governance Committee oversees the Board and committee evaluation process. Annually, the Nominating and Governance Committee reviews the questionnaires and the process and considers whether changes are recommended.
ITT INC. | 2018 PROXY STATEMENT 16
TOPICS CONSIDERED DURING THE BOARD AND COMMITTEE SELF-ASSESSMENTS INCLUDE:
Board and Committee Operations | Board Performance | Committee Performance | |||||
■ | Board and committee membership, including director skills, background, expertise and diversity | ■ | Key areas of focus for the Board | ■ | Performance of committee duties under committee charters | ||
■ | Committee structure and process, including keeping the full Board abreast of committee matters | �� | ■ | Oversight of the Company’s strategy | ■ | Effectiveness of management support for committees | |
■ | Access to management, experts and internal and external resources | ■ | Effectiveness of risk oversight | ■ | Identification of topics that should receive more attention and | ||
■ | Materials and information, including the quality and quantity of information received | ■ | Performance of Board | ■ | Performance of committee chairs | ||
■ | Conduct of meetings, including encouragement of and time allocated for candid dialogue |
The Company’s Corporate Secretary aggregates and summarizes all of the directors’ responses to the questionnaires, highlighting comments and year over yearyear-over-year trends. Responses are not attributed to specific Board or committee members to promote candor. These summaries are shared with the Board and committee members to inform their review and discussion. The Chair of the Nominating and Governance Committee, with support from the Corporate Secretary, leads a discussion of the Board and committee results at the Nominating and Governance Committee meeting as well as with the full Board. Each committee chair, with support from the Corporate Secretary, leads a discussion at their committee meeting of their individual assessments. As a result of these discussions, an action plan is created and practices are updated based on the self-assessment observations and suggestions. As an outcome of these discussions, directors share relevant feedback with management and suggest changes or areas of improvement or focus.
Following the in-person review of the results of the Board and committee self-assessments, our independent ChairmanChair has individual one-on-one discussions with each director to elicit any further information about their views on the functioning of the
ITT INC.❘2020 PROXY STATEMENT 15
Board and its committees. Feedback from those discussions is also incorporated into the overall action plan.
Examples of changes made in response to the self-assessment process over the last several years include:
■ | prioritizing diversity in the next director search; |
■ | increased Board exposure both formally and informally to key executives; |
■ | additional reserved time for “Board only” discussions to continue to foster openness and cohesiveness among the Board; and |
■ | a coordinated director education schedule to provide additional education on relevant topics as part of |
The Board of Directors has considered whether to engage an independent third party to conduct or facilitate the Board self-assessments and has to dateto-date concluded that an independent review wasis not necessary. The Board has agreed that theyit will consider this going forward on an as-needed basis.as needed.
The results of the self-assessment process in 20172019 confirmed the Board’s belief that the Board and its committees are currently operating effectively.
DIRECTOR ORIENTATION AND CONTINUING EDUCATION
As part of ITT’s director orientation program, new directors participate in one-on-one introductory meetings with members of ITT’s leadership team and other functional leaders. This director orientation familiarizes the directors with our business and strategic plans, significant financial, accounting and risk management issues, human resources matters, our compliance programs and other controls, policies, and procedures. The orientation also addresses Board procedures, our Principles and our Board committee charters. Finally, it provides directors with the opportunity to meet with our officers and other key members of senior management.
The Company endeavors to provide ongoing director education throughout the year. Our annual strategy session, where senior management presents the strategic plans for each of the businesses and the Company as a whole, is one component of that ongoing education. We aim to periodically hold the annual strategy session at an ITT facility in order to increase the Board’s understanding of the Company’s people, operations, product lines, and overall business. Our senior management also presents topics throughout the year to the Board in order to increase their understanding of the Company’s business operations, strategies, risks and opportunities.
ITT INC. | 2018 PROXY STATEMENT 17
Directors may enroll in external director continuing education programs at ITT’s expense on topics associated with a director’s service on a public company board in order to provide a forum for them to maintain their insight into leading governance practices, exchange ideas with peers, and keep current their skills and understanding of their duties as directors.
Our Board does not have a formal policy with respect to the separation of the roles of Chairman of the Board and Chief Executive Officer. The Board believes that this is a matter that should be discussed and determined by the Board from time to time and that each of the possible leadership structures for a board of directors has its particular pros and cons. These factors must be considered in the context of the specific circumstances, giving due consideration to the individuals involved, the culture and performance of the Company, the needs of the business, fulfillment of the duties of the Board and the best interests of the shareholders. Although the Board may determine to combine the roles of Chairman and Chief Executive Officer in the future, since 2011 the Board has determined that having separate individuals hold the Chairman and Chief Executive Officer positions is the right leadership structure for the Company. This structure allows our Chief Executive Officer to focus on the operations of our business while the independent Chairman focuses on leading the Board in its responsibilities.
Our Board values the views of our shareholders, and the feedback we receive from themshareholders is a key input to our corporate governance, executive compensation, and sustainability practices. This year, at the direction
ENGAGEMENT PROGRAM
Since formalizing our engagement approach in 2017, we have reached out annually to shareholders owning over 50% of our Board,ITT’s outstanding shares to discuss governance matters. In 2019, we expanded our outreach efforts to engagecover shareholders representing nearly 70% of ITT’s outstanding shares, and engaged with a broader populationshareholders representing over 40% of our shareholders on topics relating to our long-term business strategy as well as our governance practices. such shares. The feedback we received was shared with the Board and members of senior management.
We believe that it is important for the Company to have a direct line of communication with our shareholders so that the Board and management are better able to continually assess our policies and practices informed by these important perspectives.continually.
ITT INC.❘2020 PROXY STATEMENT 16
FALL 2019 ENGAGEMENT FEEDBACK
An overview of the specific areas of focus for our shareholders during these meetings is provided in the table below.below:
Shareholder Engagement Outreach Efforts | |
Percent of Shares Outstanding Contacted: | Percent of Shares Outstanding Engaged: |
50.7% | 37.0% |
Shareholder Engagement Outreach Efforts | |
Percent of Shares Outstanding Contacted: 69% | Percent of Shares Outstanding Engaged: 43% |
Specific Areas of Focus and Feedback |
Corporate Governance | Executive Compensation | Sustainability | |||||||
Sustainability Reporting | |||||||||
■ | Discussed how the Board’s evaluation process and age limit support thoughtful refreshment | ■ | Shareholders understood the relevance of our compensation | ■ | |||||
■ | Shareholders recognized ITT’s commitment to Board diversity, including gender, race/ethnicity, age, geography, and business experience | ■ | Shareholder supported changes we made in 2019, including: (1) increasing the percentage of | ■ | Shareholders encouraged ITT to consider setting specific sustainability-related goals | ||||
■ | Shareholders appreciated ITT’s smooth leadership succession process, including the 2019 CEO transition and upcoming independent Chair transition | ■ | Shareholders supported the Board’s rationale for | ■ | |||||
ITT INC. | 2018 PROXY STATEMENT 18
As a result of the feedback we received, we have made a number of changes to this Proxy Statement in order to better communicate to our shareholders on these topics, including:
■ | ■ | Discussed the Nominating & Governance Committee’s oversight of ESG risks impacting ITT | |||
■ | Discussed the Compensation & Personnel Committee’s focus on cultivating an innovative, diverse and inclusive workplace that engages and energizes people |
RECENT BOARD ACTIONS
■ | Board Refreshment:Our approach to Board refreshment and diversity continues to be informed by our shareholders’ perspectives, and following recent additions to our Board that further enhanced our Board’s skill sets and diversity, we are implementing a |
transition of the independent Chair role that will occur at the 2020 Annual Meeting. | |
■ | |
enhance individual accountability. | |
■ | |
We encourage our shareholders to continue to engage with us and let us know your feelingstheir thoughts about ITT or to bring any matters to our attention that you would like to discuss.attention. Please feel free to write directly to us at ITT Inc., 1133 Westchester Avenue, White Plains, NY 10604,10604. Attention: Corporate Secretary.
ITT INC.❘2020 PROXY STATEMENT 17
BOARD AND COMMITTEE MEETINGS AND MEMBERSHIP
The Board of Directors and its committees meet throughout the year on a set schedule, and also hold special meetings and act by written consent from time to time as appropriate. Under the Principles, directors are expected to attend all meetings of the Board and all meetings of the committees of which they are members. Members may attend by telephone or video conference, although in-person attendance at regularly scheduled meetings is strongly encouraged. The Board of Directors held nine9 meetings during the 20172019 fiscal year, and there were 1816 meetings of standing committees. All directors attended at least 75% of the aggregate of all meetings of the Board and standing committees on which they served. It is Company practice that all directors attend our annual meetings. All directors who were on the Board at that time attended our 20172019 annual meeting of shareholders either in person or telephonically.
The Board of Directors has an Audit Committee, a Compensation and Personnel Committee, and a Nominating and Governance Committee. The following table summarizes the current membership of each Committee:
Name | Audit | Compensation and Personnel | Nominating and Governance | |||
Orlando D. Ashford | ||||||
Geraud Darnis | ||||||
Donald DeFosset, Jr. | ||||||
Nicholas C. Fanandakis | ||||||
Christina | ||||||
Richard P. Lavin | ||||||
Mario Longhi | ||||||
Frank T. | ||||||
Rebecca A. McDonald | ||||||
Timothy H. Powers | ||||||
Luca Savi | ||||||
Cheryl L. Shavers | ||||||
* | Mr. MacInnis and Ms. Gold are not standing for re-election in 2020. |
Chair |
ITT INC.❘2020 PROXY STATEMENT 18
BOARD AND COMMITTEE ROLES IN OVERSIGHT OF RISK
The Board of Directors is charged with oversight of the Company’s risk management policies and practices with the objective of ensuring that appropriate risk management systems are employed throughout the Company. ITT faces a broad array of risks, including market, operational, strategic, legal, political, international and financial risks. The Board monitors overall corporate performance, the integrity of the Company’s financial controls and the effectiveness of its legal compliance and enterprise risk management programs, risk governance practices and risk mitigation efforts. The Board receives reports from management on risk matters in the context of the Company’s annual strategy session and strategic planning reviews, the
ITT INC. | 2018 PROXY STATEMENT 19
BOARD OF DIRECTORS |
■ | The Board of Directors is charged with oversight of the Company’s risk management policies and practices with the objective of ensuring that appropriate risk management systems are employed throughout the Company. ITT faces a broad array of risks, including market, operational, strategic, legal, political, international, and financial risks. The Board monitors overall corporate performance, the integrity of the Company’s financial controls and the effectiveness of its legal compliance and enterprise risk management programs, risk governance practices, and risk mitigation efforts. The Board receives reports from management on risk matters in the context of the Company’s annual strategy session and strategic planning reviews, the annual operating plan and budget reviews and business reports, and other updates provided at Board meetings. |
annual operating plan and budget reviews and business reports and other updates provided at Board meetings.
The various Board committees also participate in oversight of the Company’s risk management efforts and report to the full Board for consideration and action when appropriate, as summarized in the table below.
Audit Committee | Compensation and Personnel Committee | ||||||||||||
Nominating and Governance Committee | |||||||||||||
Primary Risk Oversight | Primary Risk Oversight | Primary Risk Oversight | |||||||||||
■ | Oversees ITT’s policies on risk assessment and management, and oversees risks related to the Company’s financial statements, the financial reporting process, accounting matters, and other areas of significant financial risk. Also assesses risks related to legal and regulatory matters that may have a material impact on the Company’s financial | ||||||||||||
■ | Oversees risks related to compensation-related | ||||||||||||
■ | Oversees ITT’s overall risk management |
The Company has established a cross-functional team of
MANAGEMENT | |||
■ | The Company’s internal audit function has primary oversight responsibilities over risk management and engages with other members of management to monitor and analyze various risks. Each Board committee receives regular reports from management within the relevant expertise of that committee. For example, the Compensation and Personnel Committee reviews and assesses compensation and incentive program risks to ensure that the Company’s compensation programs encourage innovation and balance appropriate business risks and rewards without encouraging risk-taking behaviors that may have a material adverse effect on the Company, and it receives an annual report from management |
ITT INC.❘2020 PROXY STATEMENT 19
The charters of each of the Audit, Compensation and Personnel and Nominating and Governance Committees conform with the applicable NYSE listing standards, and each committee reviews its charter at least annually, and as regulatory developments and business circumstances warrant. Each of the committees considers revisions to theirits respective charterscharter from time to time to reflect evolving best practices. The descriptions below of the roles and responsibilities of each of the committees of the Board isare qualified by reference to the complete committee charters, which are available on our website atwww.itt.com/investors/governance/corporate-governance..
ITT INC. |2018 PROXY STATEMENT20
Attendance | Responsibilities | |
Meetings Held in Committee Members Donald DeFosset, Jr. | Purpose: | |
The Audit Committee is primarily responsible for: | ||
■ reviewing and discussing with management and the independent auditor the annual audited and quarterly unaudited financial statements and approving those financial statements for inclusion in the Company’s public filings; | ||
■ reviewing and overseeing the Company’s selection and application of accounting principles and matters relating to the Company’s internal controls and disclosure controls and procedures; | ||
■ overseeing the Company’s compliance with legal and regulatory requirements, including reviewing the effect of regulatory and accounting initiatives on the Company’s financial statements; | ||
■ overseeing the structure and scope of the Company’s internal audit function; and | ||
■ overseeing the Company’s policies on risk assessment and management. | ||
The Audit Committee is also directly responsible for the selection and oversight of the Company’s independent registered public accounting firm, including determining the firm’s qualifications, independence, scope of responsibility and compensation. | ||
Audit Committee Report, Page 35 |
The Audit Committee has established policies and procedures for the pre-approval of all services by our independent registered public accounting firm. The Audit Committee also has established procedures for the receipt, retention and treatment, on a confidential basis, of complaints received regarding accounting, internal controls and auditing matters. Additional details on the role of the Audit Committee may be found in “Ratification of the Independent Registered Public Accounting Firm (Proxy Item No. 2)” later in this Proxy Statement.
The Board of Directors has determined that each member of the Audit Committee is financially literate and independent, as defined by the rules of the SEC and the NYSE’s listing standard, as well as independent under the Principles. Although more than one member of the Audit Committee satisfies the relevant requirements, the Board of Directors has identified Timothy H. Powers as the audit committeeAudit Committee financial expert. The Board of Directors has evaluated the performance of the Audit Committee consistent with regulatory requirements.
ITT INC. |❘20182020 PROXY STATEMENT21 20
COMPENSATION AND PERSONNEL COMMITTEE
Attendance | Responsibilities | |
Meetings Held in Committee Members Richard P. Lavin(Chair) Orlando D. Ashford Christina A. Gold (will not stand for re-election in 2020) Mario Longhi Rebecca A. McDonald | Purpose: | |
The Compensation and Personnel Committee reviews and approves the Company’s overall compensation philosophy and oversees the administration of the Company’s executive compensation and benefit programs, policies and practices. Its responsibilities also include: | ||
■establishing annual performance objectives, evaluating performance and approving individual compensation actions for the Chief Executive Officer and other executive officers; | ||
■reviewing and discussing the Company’s talent review and development process, succession planning process for executive officers (including, the CEO) and other senior | ||
■approving the Compensation Discussion and Analysis included in the Company’s annual proxy statement; | ||
and ■reviewing and approving the Company’s peer companies and data sources for purposes of evaluating our compensation competitiveness and the mix of | ||
Compensation and Personnel Committee Report, Page |
The Board of Directors has determined that each member of the Compensation and Personnel Committee is independent, as defined by the rules of the SEC and the NYSE’s listing standard, as well as independent under the Principles.Principles and Section 2.10 of the Company’s By-laws. In addition, each committee member is a “non-employee director” as defined in Rule 16b-3 under the Securities Exchange Act of 1934 (“Exchange Act”) and an “outside director” as defined in Section 162(m) of the Internal Revenue Code.. The Board of Directors has evaluated the performance of the Compensation and Personnel Committee consistent with regulatory requirements.
NOMINATING AND GOVERNANCE COMMITTEE
Attendance | Responsibilities | |
Meetings Held in Committee Members Donald DeFosset, Jr.(Chair) Orlando D. Ashford Geraud Darnis Frank T. MacInnis Timothy H. Powers Cheryl L. Shavers | Purpose: | |
The Nominating and Governance Committee oversees the practices, policies and procedures of the Board and its committees. Responsibilities include: | ||
■evaluatingthe size, composition, governance and structure of the Board and the qualifications,compensation and retirement age of directors; | ||
■identifying, evaluating and proposing nominees for election to the Board; | ||
■considering the independence and possible conflicts of interest of directors and executive officers and ensuring compliance with applicable laws and NYSE listing standards; and | ||
■overseeing the Company’s overall enterprise risk management program. | ||
The Nominating and Governance Committee is | ||
charged with ■overseeing the self-evaluations of the Board and its committees; | ||
■reviewing | ||
■reviewing material related party transactions in accordance with our Related Party Transactions Policy; and | ||
■monitoring our directors’ outside engagements and administering our director resignation procedures when there is a change in a director’s employment status. | ||
The Committee also maintains an informed status on the Company’s sustainability initiatives and on activities involving community relations and philanthropy. | ||
ITT INC. |❘20182020 PROXY STATEMENT22 21
The Board of Directors has determined that each member of the Nominating and Governance Committee is independent, as defined by the rules of the SEC and the NYSE’s listing standard, as well as independent under the Principles. The Board of Directors has evaluated the performance of the Nominating and Governance Committee consistent with regulatory requirements.
As stated above, the Nominating and Governance Committee evaluates the compensation program for the non-management directors and makes recommendations to the Board regarding their compensation. The Nominating and Governance Committee has retained Pay Governance LLC (“Pay Governance”) as an independent consultant for this purpose. Pay Governance’s responsibilities include providing market comparison data on non-management director compensation at peer companies, tracking trends in non-management director compensation practices, and advising the Nominating and Governance Committee regarding the components and levels of non-management director compensation. The Nominating and Governance Committee is not aware of any conflict of interest on the part of Pay Governance arising from these services or any other factor that would impair Pay Governance’s independence. Executive officers do not play any role in either determining or recommending non-management director compensation.
EXECUTIVE SESSIONS OF DIRECTORS
Agendas for meetings of the Board of Directors include regularly scheduled executive sessions led by the Board’s non-executive ChairmanChair for the independent directors to meet without management present. Board members have access to our employees outside of Board meetings, and the Board encourages directors to visit different Company sites and events periodically and meet with local management at those sites and events, either as part of a regularly scheduled Board meeting or otherwise.
Our directors and certain employees (including executive officers) are prohibited from hedging and speculative trading in and out of the Company’s securities, including short sales and leverage transactions, such as puts, calls, and listed and unlisted options.
We also prohibit our directors and certain employees from pledging Company securities as collateral for a loan.
The Board of Directors, through the Nominating and Governance Committee, conducts an annual review of the independence of its members. With the assistance of legal counsel to the Company, the Nominating and Governance Committee has reviewed the applicable standards for Board and committee member independence, as well as the standards established by the Principles. A summary of the answers to annual questionnaires completed by each of the directors and a report of transactions with director-affiliated entities are also made available to the Nominating and Governance Committee to enable its comprehensive independence review. On the basis of this review, the Nominating and Governance Committee has delivered a report to the full Board of Directors, and the Board has made its independence determinations based upon the committee’s report and the supporting information.
Under NYSE listing standards, an independent director must not have any material relationship with the Company, either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company. The NYSE requirements pertaining to director independence also include a series of objective tests, such as the requirement that the director is not an employee of the Company and has not engaged in various types of business dealings with the Company. The Board also considers whether directors have any relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The SEC has a separate independence requirement for audit committeeAudit Committee members that overlays the NYSE requirements. The NYSE also recently promulgated rules requiringrequires directors that serve on compensation committees to satisfy additional independence requirements specific to that service.
The Board of Directors has determined that Ms. RamosMr. Savi is not “independent” because of herhis employment as Chief Executive Officer and President of the Company. The Board of Directors has reviewed all relationships between the Company and each other member of the Board of Directors and has affirmatively determined that all of the members of the Board other than Ms. RamosMr. Savi are “independent” pursuant to the applicable listing standards of the NYSE. None of these directors were disqualified from “independent” status under the objective tests set forth in the NYSE standards. In assessing independence under the subjective relationships
ITT INC.❘2020 PROXY STATEMENT 22
test described above, the Board of Directors took into account the criteria for disqualification set forth in the NYSE’s objective tests, and reviewed and discussed additional information provided by each director and the Company with regard to each director’s business and personal activities as they may relate to the Company and its management. Based on the foregoing, as required by the NYSE, the Board made the subjective determination as to each of these directors that no material relationships with the Company exist and no relationships exist which, in the opinion of the Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of such director. The Board also determined that the current members of the Audit Committee and of the Compensation and Personnel Committee meet the applicable SEC and NYSE listing standard independence requirements with respect to membership on such committees.
ITT INC. | 2018 PROXY STATEMENT 23
In making its independence determinations, the Board considered transactions occurring since the beginning of the Company’s 20152017 fiscal year between the Company and entities associated with the directors or members of their immediate family. All identified transactions that appear to relate to the Company and a person or entity with a known connection to a director were presented to the Board of Directors for consideration. The Board also considered in its analysis the Company’s contributions to tax-exempt organizations with respect to each of the non-management directors. In making its subjective determination that each non-management director is independent, the Board considered the transactions in the context of the NYSE objective standards, theand special standards established by the SEC for members of audit committees, and the SEC and Internal Revenue Service (the “IRS”) standards for compensation committee members.committees. In each case, the Board determined that, because of the nature of the director’s relationship with the entity and/or the amount involved in the transaction, the relationship did not impair the director’s independence. The Company did not make any contributions to any tax exempt organizations in which any non-management director serves as an executive officer within the past three fiscal years where such contributions exceeded the greater of $1 million or 2% of such organization’s consolidated gross revenues.
The Company has also adopted the ITT Code of Conduct which applies to all employees, including the Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer and, where applicable, to its non-management directors. We disclose on our website any changes or waivers from the Code of Conduct for the Company’s Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, our non-management directors and other executive officers. In addition, the Company will disclose within four business days any substantive changes in or waivers of the Code of Conduct granted to our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer, or persons performing similar functions. We intend to do this by posting such information on our website as set forth above rather than by filing a Form 8-K.
8-K with the SEC.
The Company has established a confidential ethics phone line and website to respond to employees’ questions and reports of ethical concerns. Also, the Audit Committee has established a policy with procedures to receive, retain and treat complaints received by the Company regarding accounting, internal controls or auditing matters, and to allow for the confidential, anonymous submission by employees of concerns regarding accounting or auditing matters.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation and Personnel Committee during 20172019 or as of the date of this Proxy Statement havehas been an officer or employee of the Company and no executive officer of the Company served on the compensation committee or board of any company that employed any member of our Compensation and Personnel Committee or Board of Directors.
ITT INC.❘2020 PROXY STATEMENT 23
COMMUNICATION WITH THE BOARD OF DIRECTORS
Shareholders and other interested parties may contact any of our directors (including the non-executive Chairman)Chair), a committee of the Board, the Board’s non-management directors as a group, or the Board as a whole by writing to them c/o ITT Inc., 1133 Westchester Avenue, White Plains, NY 10604, Attention: Corporate Secretary. Communications are distributed to the Board, or to any individual director(s), as appropriate under the facts and circumstances. Junk mail, advertisements, product inquiries or complaints, resumes, spam and surveys are not forwarded to the Board. Material that is threatening, unduly hostile or similarly inappropriate will also not be forwarded, although any non-management director may request that any communications that have been excluded be made available.
ITT INC. | 2018 PROXY STATEMENT 24
POLICIES FOR APPROVING RELATED PARTY TRANSACTIONS
The Board has adopted a written Related Party Transaction Policy (the “ Policy”“Policy”) that addresses the reporting, review and approval or ratification of transactions with related parties. The Policy covers (but is not limited to) those related party transactions and relationships required to be disclosed under Item 404(a) of the Securities Exchange Commission’s (the “SEC”)SEC’s Regulation S-K, and applies to each director or executive officer of the Company;Company, any nominee for election as a director of the Company;Company, any security holder who is known to the Company to own of record or beneficially more than 5% of any class of the Company’s voting securities;securities, and any immediate family member of any of the foregoing persons (each, a “Related Party”).
The Company recognizes that transactions with Related Parties may involve potential or actual conflicts of interest and pose the risk that they may be, or be perceived to have been, based on considerations other than the Company’s best interests. Accordingly, as a general matter, the Company seeks to avoid such transactions. However, the Company recognizes that in some circumstances transactions between Related Parties and the Company may be incidental to the normal course of business, may provide an opportunity that is in the best interests of the Company to pursue, or that may not otherwise not be inconsistent with the best interests of the Company. In other cases it may be inefficient for the Company to pursue an alternative transaction. The Policy therefore is not designed to prohibit Related Party transactions; rather, it is designed to provide for timely internal reporting of such transactions and appropriate review, oversight and public disclosure of them. The Policy supplements the provisions of our Code of Conduct concerning potential conflict of interest situations. Under the Policy, an amendment to an arrangement that is considered a Related Party transaction is, unless clearly incidental in nature, considered a separate Related Party transaction.
The Policy provides for the Nominating and Governance Committee to review all Related Party transactions and, wherever possible, to approve such transactions in advance of any such transaction being given effect. In connection with approving or ratifying a Related Party transaction, the Nominating and Governance Committee considers, in light of the relevant facts and circumstances, whether or not the transaction is in, or not inconsistentconsistent with, the best interests of the Company, including, as applicable, consideration of the following factors:
■ the position within or relationship of the Related Party with the Company;
■ the materiality of the transaction to the Related Party and the Company, including the dollar value of the transaction, without regard to profit or loss;
■ the business purpose for and reasonableness of the transaction, taken in the context of the alternatives available to the Company for attaining the purposes of the transaction;
■ whether the transaction is comparable to a transaction that could be available on an arms-length basis or is on terms that the Company offers generally to persons who are not Related Parties;
■ whether the transaction is in the ordinary course of our business and was proposed and considered in the ordinary course of business; and
■ the effect of the transaction on our business and operations, including on the Company’s internal control over financial reporting and system of disclosure controls or procedures, and any additional conditions or controls (including reporting and review requirements) that should be applied to such transaction.
The Policy provides standing pre-approval for certain types of transactions that the Nominating and Governance Committee has determined do not pose a significant risk of conflict of interest, either because a Related Party would not have a material interest in a transaction of that type or due to the nature, size and/or degree of significance to the Company. The Policy is re-evaluated periodically.
ITT INC. |❘20182020 PROXY STATEMENT25 24
CORPORATE RESPONSIBILITY AND SUSTAINABILITY
At ITT, is always focused on delivering strong financial results and we are committed to doing so in a wayknow that respects the overall environment in which we operate. Therefore, corporate responsibility andimproving our sustainability play an important role in our business and operating strategies and long-termefforts creates value creation for our shareholders, customers, employees, communities and employees. We are engaged with our investors around their growing interest in environmental, socialshareholders. It helps us align to the values and governance (ESG) performance and its impact on financial results, and this was a significant topicemerging expectations of discussion during the Company’s 2017 shareholder engagement cycle discussed earlier in this Proxy Statement under “Shareholder Engagement.”
Given that our business is rooted in manufacturing and industrial processes, we have been focused on a few key areas of sustainability, namely:
today’s world.
The Board also understands that sustainability is a key focus for today’s investors and takes investor feedback on sustainability seriously. We utilized our shareholder engagement discussions as an opportunitycontinue to better understand how our shareholders are looking at this area. In light of the feedback that we received, we are evaluatingevaluate which environmental, social and governanceESG factors pose the most material risks to the Company and create the strongest opportunities to enhance our bottom line and sustain long-term financial value.
ITT uses discussions with shareholders to better understand how investors view this topic, including emerging reporting standards, the various data sources available, and peer reporting.
We recognize thatalso use these shareholder engagement opportunities to discuss the Company’s current sustainability practices require transparencyfocus areas and accountability and we intendrecent developments. Our 2019 Sustainability Report was informed by those discussions with investors. The Sustainability Report incorporated the SASB metrics relevant to the Company, as requested by many of our shareholders in our engagement discussions. We also publish an ITTannual supplemental report which includes our three-year progress on key environmental and social metrics.
Our governance processes and policies are designed to provide appropriate oversight of sustainability reportand inform our Board about significant ESG issues impacting the Company. These policies and processes, as well as areas of focus most relevant given our business and industry, are informed by proactive engagement with our shareholders as well as other stakeholders, including the SASB.
BOARD OF DIRECTORS |
Nominating and Governance Committee Provides oversight of sustainability in general, focused on assessing the effectiveness of our Environment, Safety, Health & Security (“ESH&S”) program | Compensation andPersonnel Committee Oversees compensation and benefits for our executive officers, including recruitment and development of diverse talent necessary to ensure ITT’s success |
ESH&S GROUP |
Internal team that drives overall approach to Environment & Safety matters, establishes corporate-wide processes and goals, and periodically reports to the Board |
The Nominating and Governance and the Compensation and Personnel Committees have primary responsibility for sustainability-related topics. The Board also receives periodic reports from our internal ESH&S group in 2018order to report further on our efforts in this area. We also continue to evaluate ourstay apprised of the Company’s overall approach to non-financial reporting, including adherence to one or more of the several existing, globally recognized external frameworks.
Our Nominating and Governance Committee of the Board has responsibility for oversight of our sustainability-related practices and will be monitoring our progress in this area.
these matters.
ITT INC. |❘20182020 PROXY STATEMENT26 25
(PROXY ITEM NO. 1)
Election Procedures.Each director must be elected by a majority of the votes cast by the shareholders represented in person or by proxy at the Annual Meeting. A majority“majority of the votes cast” means that the number of votes cast “for” a director must exceed the number of votes cast “against” that director (with abstentions and broker non-votes not counted as votes cast with respect to that director). In a contested election for directordirectors (an election in which the number of nominees for election as directordirectors is greater than the number of directors to be elected), the vote standard would be a plurality of votes cast.
In accordance with our By-laws and Corporate Governancethe Principles, the Board will only nominate director candidates who agree to tender an irrevocable resignation promptly following their failure to receive the required vote for re-election in an uncontested election. In addition, the Board will fill director vacancies and new directorships only with candidates who agree to tender the same form of resignation promptly following their appointment to the Board.
If an incumbent director fails to receive the required vote for re-election in an uncontested election and submits his or her resignation to the ChairmanChair of the Board or the Corporate Secretary, then the Nominating and Governance Committee (or the equivalent committee then in existence) shall promptly consider the resignation and all relevant facts and circumstances concerning any vote and the best interests of the Company and its shareholders. After such consideration, the Nominating and Governance Committee will make a recommendation to the Board regarding whether the resignation should be accepted or rejected, or whether any other action should be taken. The Board will act on the Committee’s recommendation no later than its next regularly scheduled Board meeting (after certification of the shareholder vote) or within 90 days after certification of the shareholder vote, whichever is earlier, and the Board will promptly publicly disclose its decision and the reasons for its decision.
Each nominee elected as a director will continue in office until the earlier of the 2019 annual meeting2021 Annual Meeting of shareholders,Shareholders, his or her successor having been duly elected and qualified, or his or her death, resignation or removal.
The 11 nominees for election to the Board in 20182020 have agreed to serve if elected, and management has no reason to believe that such nominees will be unavailable to serve. In the event that any of the nominees is unable or declines to serve as a director at the time of the Annual Meeting, then the persons named as proxies may vote for a substitute nominee chosen by the present Board to fill the vacancy. Alternatively, the Board may reduce the size of the Board of Directors. The individuals named as proxies in the proxy card intend to vote theyour proxy (if you are a shareholder of record) FOR the election of each of these nominees, unless you indicate otherwise on the proxy card.
2018 Director Nominees.Eleven members of our Board are standing for election to hold office until the 2019 annual meeting2021 Annual Meeting of shareholders.
Shareholders.
We believe our 20182020 director nominees evidence our commitment to maintain an appropriate balance of tenure, turnover, diversity and skills on the Board. Of the 11 directors who are nominees for election at the Annual Meeting, three are female, three are racially or ethnically diverse, and one is African American.four are citizens of a non-U.S. country (in some cases, in addition to the U.S.). As discussed in detail in our nominees’ biographies, the nominees come from diverse professional backgrounds and industries, including manufacturing, finance and technology. Each of our 2020 director nominees was recommended for election by the Nominating and Governance Committee, and such recommendation was approved unanimously by the Board.
ITT INC.❘2020 PROXY STATEMENT 26
The principal occupation and certain other biographical information about the nominees is set forth on the following pages.
ORLANDO D. ASHFORD | ||
Age: 51 Director since: December 2011
President | CAREER: | |
Orlando D. Ashfordhas served as the President of Holland America Line, a division of Carnival Corporation, since December 2014. Previously, Mr. Ashford was the President of the Talent business segment at Mercer, a global consulting leader and subsidiary of Marsh & McLennan Companies (“Marsh”). From 2008 to 2012, Mr. Ashford was the Senior Vice President, Chief Human Resources and Communications Officer for Marsh. Prior to joining Marsh in 2008, Mr. Ashford served as Group Director of Human Resources for Eurasia and Africa for the Coca-Cola Company and as Vice President of Global Human Resources Strategy and Organizational Development for Motorola, Inc. He has also held leadership positions with Mercer Delta Consulting, Ameritech and Andersen Consulting. Mr. Ashford serves on the board of directors for the Alliance and Year Up. | ||
REASONS FOR ELECTION TO THE BOARD OF ITT: | ||
In considering Mr. Ashford for director of the Company, the Board considered his expertise in addressing talent, culture and human capital issues at the executive level, as well as his significant experience in multinational organizations, providing experience and skills relevant to the Company’s international sales operations.
| ||
BOARD COMMITTEES: | ||
■Compensation and Personnel Committee | ||
■Nominating and Governance Committee | ||
ITT INC. | 2018 PROXY STATEMENT 27
GERAUD DARNIS | ||
Age: 60
Director since: October 2015 FormerPresident &CEO of UTCBuilding &IndustrialSystems | CAREER: | |
Geraud Darnisserved as the President & Chief Executive Officer of UTC Building & Industrial Systems, the world’s largest provider of high-technology building systems, whose brands include Otis, Carrier, Chubb, Kidde and Automated Logic from September 2013 to December 2015. UTC Building & Industrial Systems is a unit of United Technologies Corporation. Mr. Darnis served as the President and Chief Executive Officer of UTC Climate, Controls and Security from September 2011 to September 2013. In 2001, he served briefly as President of UTC Power before being named President of Carrier, a position he held until 2011 when Carrier and UTC Fire & Security were combined into UTC Climate, Controls & Security. Prior to 2001, Mr. Darnis held a number of general management and financial positions at UTC in Latin America, Europe and Asia. Mr. Darnis currently serves as | ||
REASONS FOR ELECTION TO THE BOARD OF ITT: | ||
In considering Mr. Darnis for director of the Company, the Board considered his significant management experience as president of a major operating unit at a large global manufacturing company and his wide-ranging expertise in a variety of industries in which the Company operates, including industrial and aerospace.
| ||
BOARD COMMITTEES: | ||
■ Audit Committee | ||
■ Nominating and Governance Committee | ||
ITT INC.❘2020 PROXY STATEMENT 27
DONALD DEFOSSET, JR. | |||
Age: 71
Director since: October 2011 FormerChairman,President &CEO of WalterIndustries, Inc. | CAREER: | ||
Donald DeFosset, Jr.retired in 2005 as Chairman, President | |||
REASONS FOR ELECTION TO THE BOARD OF ITT: | |||
In considering Mr. DeFosset for director of the Company, the Board considered his extensive experience as a chief executive of a large diversified industrial company and as a senior executive of an international machinery manufacturer. His service on the boards of directors of a variety of large public companies further enhances his experience and adds value to the Company’s Board. | |||
BOARD COMMITTEES:
| OTHER PUBLIC COMPANY BOARDS: | ||
■ Audit Committee | ■National Retail Properties, Inc. | ||
■ Nominating and Governance Committee | ■Regions Financial Corporation
| ||
■ Terex Corporation |
ITT INC. | 2018 PROXY STATEMENT 28
NICHOLAS C. FANANDAKIS | ||||
Age: 63
Director since: October 2016
|
| CAREER: | ||
Nicholas C. Fanandakisis currently retired. He served as Executive Vice President of DowDuPont until June 2019. From November 2009 to September 2017, he served as Executive Vice President and Chief Financial Officer of DuPont. He previously served as Group Vice President of DuPont Applied BioSciences in 2008 and the Vice President of Corporate Plans in 2007. Prior to 2007, Mr. Fanandakis served in several positions within the DuPont organization ranging from a variety of plant, marketing and product management positions within Petrochemicals, Chemicals & Pigments, and Specialty Chemicals, as well as in the Industrial Solutions market space. Mr. Fanandakis joined DuPont in 1979 as an accounting and business analyst in the Petrochemicals Department. Mr. Fanandakis is currently a director of the following public | ||||
REASONS FOR ELECTION TO THE BOARD OF ITT: | ||||
In considering Mr. Fanandakis for director of the Company, the Board considered his significant financial and business experience resulting from holding various management positions at a large public manufacturing company, his overall financial management abilities, including multinational legal, tax and banking expertise, and his experience and knowledge of global industrial markets. | ||||
BOARD COMMITTEES:
| OTHER PUBLIC COMPANY BOARDS: | |||
■ Audit Committee | ■FTI Consulting, Inc. | |||
|
| ||
ITT INC. | ❘20182020 PROXY STATEMENT29 28
RICHARD P. LAVIN | |||
Age: Director since: May 2013 Chairman Elect FormerPresident& CEO of Commercial Vehicle Group, Inc. | CAREER: | ||
Richard P. Lavinwas Chief Executive Officer | |||
REASONS FOR ELECTION TO THE BOARD OF ITT: | |||
In considering Mr. Lavin for director of the Company, the Board considered his experience overseeing | |||
BOARD COMMITTEES: | OTHER PUBLIC COMPANY BOARDS: | ||
■Compensation and Personnel Committee (Chair) | ■
| ||
■ Audit Committee | |||
FORMER PUBLIC COMPANY BOARDS: | |||
■Commercial Vehicle Group, Inc. (2013-2015) | |||
■ USG Corporation (2009-2019) |
MARIO LONGHI | |||
Age: 65
Director since: October 2017 Former President & CEO of United States Steel Corporation | CAREER: | ||
Mario Longhiserved as the President Mr. Longhi is currently a director of the public company Harsco Corporation (Management Development & Compensation Committee; Audit Committee). | |||
REASONS FOR ELECTION TO THE BOARD OF ITT: | |||
In considering Mr. Longhi for director of the Company, the Board considered his significant industrial leadership experience and global viewpoint, as well as his deep knowledge of the steel industry and commodities, which are important to understanding the Company’s overall business and results. | |||
BOARD COMMITTEES:
| OTHER PUBLIC COMPANY BOARDS: | ||
■ Compensation and Personnel Committee | ■Harsco Corporation | ||
ITT INC. | 2018 PROXY STATEMENT 30
|
FORMER PUBLIC COMPANY BOARDS:
| ||
■ United States Steel Corporation (2013-2017) | |||
ITT INC.❘2020 PROXY STATEMENT 29
REBECCA A. MCDONALD | |||
Age: 67 Director since: December 2013
Former CEO of Laurus Energy Inc. | CAREER: | ||
Rebecca A. McDonaldretired in July 2012, having served since December 2008 as Chief Executive Officer of Laurus Energy Inc., a company involved in underground coal gasification development. She previously served as President, Gas and Power, BHP Billiton from March 2004 to September 2007, and, from October 2001 to January 2004, she served as President of the Houston Museum of Natural Science. Ms. McDonald has more than 25 years of experience in the energy industry. She has been responsible for the development, construction and operation of natural gas and liquids pipelines, gas and electricity distribution companies, as well as power plant and gas processing facilities in North America, Asia, Africa and South America. | |||
REASONS FOR ELECTION TO THE BOARD OF ITT: | |||
In considering Ms. McDonald for director of the Company, the Board considered her significant expertise in the oil and gas industry, as well as her executive-level experience and extensive knowledge of business systems and operations. The Board also considered her experience as a director of a variety of public and private companies within the energy industry. | |||
BOARD COMMITTEES: | OTHER PUBLIC COMPANY BOARDS: | ||
■Compensation and Personnel Committee
| ■Aggreko plc | ||
■Granite Construction Incorporated (1994-2015) | |||
■CRH public limited company (2015-2016) | |||
■Veresen Inc. (2008-2017) | |||
ITT INC. | 2018 PROXY STATEMENT 31
TIMOTHY H. POWERS | |||
Age: 71 Director since: February 2015
FormerChairman, President Incorporated | CAREER: | ||
Timothy H. Powerswas the Chairman, President | |||
REASONS FOR ELECTION TO THE BOARD OF ITT: | |||
In considering Mr. Powers for director of the Company, the Board considered his significant experience as a Chief Executive Officer and finance officer in global manufacturing and engineering companies. The Board also considered his experience in the areas of management, strategic planning, and mergers and acquisitions in the manufacturing industry. | |||
BOARD COMMITTEES:
| OTHER PUBLIC COMPANY BOARDS: | ||
■ Audit Committee (Chair) | ■WestRock Company | ||
■ Nominating and Governance Committee | |||
FORMER PUBLIC COMPANY BOARDS: | |||
■Hubbell Incorporated (2004-2014) | |||
ITT INC.❘2020 PROXY STATEMENT 30
Age: 54
Director since:
CEO | CAREER: | ||
technical roles at Ferruzzi-Montedison Group. | |||
REASONS FOR ELECTION TO THE BOARD OF ITT: | |||
In considering | |||
CHERYL L. SHAVERS | |||
Age: 66 Director since: October 2018 Chairman & CEO of Global Smarts, Inc. | CAREER: | ||
Dr. Cheryl L. Shavershas served as the Chairman & Chief Executive Officer of Global Smarts, Inc., an advisory services and strategy firm that specializes in integration of capital, technology and information across national borders, since February 2001. From 1999 to 2001, Dr. Shavers served as the Undersecretary of Commerce for Technology at the U.S. Department of Commerce, where she oversaw the Office of Technology Policy and the Technology Administration, the focal point for partnerships between the U.S. government and the private sector pertaining to commercial and industrial innovation, productivity and economic growth. She also served as Undersecretary Designate from April 1999 to November 1999. Dr. Shavers has also served as a director of the Knowles Corporation since 2007. | |||
REASONS FOR ELECTION TO THE BOARD OF ITT: | |||
In considering Dr. Shavers for director of the Company, the Board considered her extensive experience as a highly regarded and sought after technical and business expert and her extensive experience with technology development, innovation and management of growth opportunities. | |||
BOARD COMMITTEES: | OTHER PUBLIC COMPANY BOARDS: | ||
■ | ■ Knowles Corporation | ||
FORMER PUBLIC COMPANY BOARDS: | |||
■ Rockwell Collins Corporation (2001-2018) | |||
■ Mentor Graphics Inc. (2016-2017) | |||
■ Advanced Materials Technology Inc. (2008-2014) | |||
ITT INC.❘2020 PROXY STATEMENT 31
SABRINA SOUSSAN | |||
Director since: October 2018 CEO of Siemens Mobility | CAREER: | ||
Sabrina Soussanhas served as the Chief Executive Officer of Siemens Mobility since October 2017. Previously she served as the Chief Executive Officer of Siemens AG’s High-Speed, Commuter Trains, Locomotive, Metro and Light Rail business unit from October 2015 to September 2017. Ms. Soussan has held several other leadership positions in various other divisions of Siemens, including the Vice President of Sustainability and Energy Management of the Siemens Switzerland Ltd. Building Technologies Division, the head of strategy, marketing and global account management for the Building Automation unit and the head of the Powertrain business for Renault Nissan (Europe and Japan) for Siemens Automotive division. Ms. Soussan held various other positions at Siemens since she joined in 1997. Prior to Siemens, she was an Engine Research & Development Engineer for Renault. Ms. Soussan has also served as a Director of Schaeffler AG since 2019. | |||
REASONS FOR ELECTION TO THE BOARD OF ITT: | |||
In considering Ms. Soussan for director of the Company, the Board considered her extensive business and technical experience in the automotive, building technology, rail systems and aeronautics markets, as well as her leadership experience in a multinational organization. | |||
BOARD COMMITTEES: | OTHER PUBLIC COMPANY BOARDS: | ||
■ Audit Committee | ■ Schaeffler AG | ||
RECOMMENDATION OF THE BOARD OF DIRECTORS | |
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS AVOTE FORTHE ELECTION OF THE 11 NOMINEES LISTED ABOVE AS DIRECTORS. UNLESS A CONTRARY CHOICE IS SPECIFIED, PROXIES SOLICITED BY THE BOARD WILL BE VOTED FOR THE ELECTION OF THE 11 NOMINEES LISTED ABOVE AS DIRECTORS. |
ITT INC. | ❘20182020 PROXY STATEMENT32
RARATIFICATIONTIFICATION OF APPOINTMENT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PROXY
(PROXY ITEM NO. 2)
The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the Company’s independent registered public accounting firm. To execute this responsibility, the Audit Committee engages in a comprehensive annual evaluation of the independent registered public accounting firm’s qualifications, performance and independence and considers whether the independent registered public accounting firm should be rotated and considers the potential impact of selecting a different independent registered public accounting firm.
The Audit Committee has selected, and the Board of Directors has ratified the selection of, Deloitte & Touche LLP (“Deloitte”) to serve as our independent registered public accounting firm for 2018.2020. Deloitte has served as the Company’s independent registered public accounting firm since 2002. In accordance with SEC rules and Deloitte policies, audit partners are subject to rotation requirements whichthat limit the number of consecutive years an individual partner may provide service to our Company. For lead and concurring audit partners, the maximum number of consecutive years of service in that capacity is five years. The process for selection of the Company’s lead audit partner pursuant to this rotation policy involves a meeting between the Chair of the Audit Committee and the candidate for the role, as well as discussion by the full committee and with management.
The Audit Committee and Board of Directors believe that the continued retention of Deloitte as our independent registered public accounting firm is in the best interest of the Company and our shareholders, and we are asking our shareholders to ratify the selection of Deloitte as our independent registered public accounting firm for 2018.2020. Although ratification is not required by our By-laws or otherwise, the Board is submitting the selection of Deloitte to our shareholders for ratification because we value our shareholders’ views on the Company’s independent registered public accounting firm and as a matter of good corporate practice. In the event that our shareholders fail to ratify the selection, it will be considered a recommendation to the Board of Directors and the Audit Committee to consider the selection of a different firm. In addition, even if shareholders ratify the selection of Deloitte, the Audit Committee may in its discretion select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our shareholders.
Deloitte is a registered public accounting firm regulated by the Public Company Accounting Oversight Board (the “PCAOB”). Representatives of Deloitte attended all regularly scheduled meetings of the Audit Committee during 2017.2019. The Audit Committee discussed with the independent registered public accounting firm all communications required by auditing standards of the PCAOB. In addition, the committee discussed with the registered public accounting firm its independence from the Company and its management. The Audit Committee annually reviews and considers Deloitte’s performance of the Company’s audit, including the following performance factors:
■ | independence | ■ | leadership |
■ | |||
■ | non-audit services | ||
■ | |||
■ | management structure | ||
■ | |||
■ | peer review program | ||
■ | |||
■ | commitment to quality report | ||
■ | |||
■ | appropriateness of fees charged | ||
■ | |||
■ | compliance and ethics program |
The Audit Committee also reviewed the terms and conditions of Deloitte’s engagement letter including an agreement between the Company and Deloitte to submit disputes between Deloitte and the Company to a dispute resolution process.
The Audit Committee discussed the engagement letter, as well as Deloitte’s fees and services with Deloitte and Company management. The Audit Committee also determined that any non-audit services (services other than those described in the annual audit services engagement letter) provided by Deloitte were permitted under the rules and regulations concerning auditor independence promulgated by the SEC and rules promulgated by the PCAOB. Representatives of Deloitte will be present at the Annual Meeting to answer questions. Representatives of Deloitte also will have the opportunity to make a statement if they desire to do so.
ITT INC.❘2020 PROXY STATEMENT 33
Independent Registered Public Accounting Firm Fees.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES
Aggregate fees billed to the Company for the fiscal years ended December 31, 20172019 and 20162018 represent fees billed by Deloitte and its foreign affiliates.
ITT INC. | 2018 PROXY STATEMENT 33
Fiscal Year Ended (in thousands) | 2019 | 2018 | |||||
Audit Fees(1) | $ | 4,304 | $ | 3,862 | |||
Audit-Related Fees(2) | 105 | 15 | |||||
Tax Fees:(3) | |||||||
Tax Compliance Services | 408 | 168 | |||||
Tax Planning Services | 831 | 150 | |||||
Total Tax Services (sum of Tax Fees) | 1,238 | 318 | |||||
All Other Fees | 35 | — | |||||
TOTAL | $ | 5,682 | $ | 4,195 |
Fiscal Year Ended (in thousands) | 2017 | 2016 | ||||||
Audit Fees(1) | $ | 4,250 | $ | 3,745 | ||||
Audit-Related Fees(2) | 100 | 139 | ||||||
Tax Fees:(3) | ||||||||
Tax Compliance Services | 418 | 333 | ||||||
Tax Planning Services | 154 | 138 | ||||||
Total Tax Services (sum of Tax Fees) | 572 | 471 | ||||||
All Other Fees | — | — | ||||||
TOTAL | $ | 4,922 | $ | 4,355 |
(1) | Fees for audit services billed in |
• | audit of the Company’s annual financial statements and internal control over financial reporting; |
• | reviews of the Company’s quarterly financial statements; |
• | statutory and regulatory audits, consents and other services related to SEC matters; and |
• | financial accounting and reporting consultations. |
(2) | Fees for audit-related services billed in |
(3) | Fees for tax services billed in |
• | tax compliance services are services rendered, based upon facts already in existence or transactions that have already occurred, to document, compute and obtain government approval for amounts to be included in tax filings consisting primarily of: |
federal, foreign, state and local income tax return assistance; |
Internal Revenue Code and foreign tax code technical consultations; and |
transfer pricing analyses. |
• | tax planning services are services and advice rendered with respect to proposed transactions or services |
PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES
Pre-Approval of Audit and Non-Audit Services.The Audit Committee pre-approves audit services provided by Deloitte. The Audit Committee has a policy on pre-approval of permitted non-audit services provided by Deloitte. The purpose of the policy is to identify thresholds for services, project amounts and circumstances where Deloitte may perform permitted non-audit services. A second level of review and approval by the Audit Committee is required when such permitted non-audit services, project amounts or circumstances exceed the specified amounts.
The Audit Committee has determined that, where practical, all permitted non-audit services shall first be placed for competitive bid prior to selection of a service provider. Management may select the party deemed best suited for the particular engagement, which may or may not be Deloitte. The policy is reviewed and reaffirmed on a regular basis to assure conformance with applicable rules.
The Audit Committee has approved specific categories of audit, audit-related and tax services incremental to the normal auditing services, which Deloitte may provide without further Audit Committee pre-approval. These categories include, among others, the following:
1. | Due diligence, closing balance sheet audit services, purchase price dispute support and other services related to mergers, acquisitions and divestitures; |
2. | Employee benefit advisory services, independent audits and preparation of tax returns for the Company’s defined contribution, defined benefit and health and welfare benefit plans, preparation of the associated tax returns or other employee benefit advisory services; |
3. | Tax compliance and certain tax planning and advice work; and |
4. | Accounting consultations and support related to |
The Audit Committee has also approved specific categories of audit-related services, including the assessment and review of internal controls and the effectiveness of those controls, which outside internal audit service providers may provide without further approval.
ITT INC.❘2020 PROXY STATEMENT 34
If fees for any pre-approved non-audit services provided by either Deloitte or any outside internal audit service provider exceed a pre-determined threshold during any calendar year, any additional proposed non-audit services provided by that service provider must be submitted for second-level approval by the Audit Committee. Other audit, audit-related and tax services whichthat have not been pre-approved are subject to specific prior approval. The Audit Committee reviews the fees paid or committed to Deloitte during regularly scheduled meetings and at other times as necessary.
The Company has policies and procedures in place prohibiting, in some cases, employment of former Deloitte employees who were members of the audit engagement team.
RECOMMENDATION OF THE BOARD OF DIRECTORS | |
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS AVOTE FORTHE RATIFICATION OF DELOITTE TO SERVE AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE |
ITT INC. | 2018AU PROXY STATEMENT 34
AUDITDIT COMMITTEECOMMITTEE REPORT
Role of the Audit Committee.The Audit Committee of the Board of Directors provides oversight on matters relating to the Company’s financial reporting process and ensures that the Company develops and maintains adequate financial controls and procedures, and monitors compliance with these processes. This includes responsibility for, among other things:
■ | determination of qualifications and independence of Deloitte, the Company’s independent registered public accounting firm; |
■ | appointment, compensation and oversight of Deloitte in preparing or issuing audit reports and related work; |
■ | review of financial reports and other financial information provided by the Company, its systems of internal accounting and financial controls, and the annual independent audit of the Company’s financial statements; |
■ | oversight and review of procedures developed for consideration of accounting, internal accounting controls and auditing-related complaints; |
■ | review of the Company’s policies with respect to risk assessment, risk management and the Company’s major financial risk exposures; |
■ | monitoring all elements of the Company’s internal control over financial reporting; and |
■ | adoption of and monitoring the implementation and compliance with the Company’s Non-Audit Services Policy. |
The Audit Committee also has oversight responsibility for confirming the scope and monitoring the progress and results of internal audits conducted by the Company’s internal auditor. The Audit Committee discussed with the Company’s internal auditors and Deloitte the plans for their respective audits. The Audit Committee met with the internal auditors and Deloitte, with and without management present, and discussed the results of their examinations, their evaluation of the Company’s internal controls, and the Company’s financial reporting.
The Company’s management has primary responsibility for the financial statements, including the Company’s system of disclosure and internal controls. The Audit Committee may investigate any matter brought to its attention. In that regard, the Audit Committee has full access to all books, records, facilities and personnel of the Company, and the Audit Committee may retain outside counsel, auditors or other independent experts to assist the Committee in performing its responsibilities. Any individual may also bring matters to the Audit Committee by following the procedures set forth in this Proxy Statement under the heading “Communication with the Board of Directors.”
This report is furnished by the members of the Audit Committee.
Audit Committee Charter.The Board of Directors has adopted a written charter for the Audit Committee, which the Board of Directors and the Audit Committee review, and at least annually update and reaffirm. The charter sets out the purpose, membership and organization, and key responsibilities of the Audit Committee.
Regular Review of Financial Statements.ITT INC.❘2020 PROXY STATEMENT 35
REGULAR REVIEW OF FINANCIAL STATEMENTS
During 2017,2019, the Audit Committee reviewed and discussed the Company’s audited financial statements with management. The Audit Committee, management and Deloitte reviewed and discussed the Company’s unaudited financial statements before the release of each quarter’s earnings report and filing on Form 10-Q, and the Company’s audited financial statements before the annual earnings release and filing on Form 10-K.
Communications with Deloitte.The Audit Committee has reviewed and discussed with management and Deloitte the matters required to be discussed under the standards of the PCAOB. These discussions included Deloitte’s responsibilities under generally accepted auditing standards in the United States, the scope of Deloitte’s audit, significant accounting policies and management judgments, the quality of the Company’s accounting principles and accounting estimates.estimates, new accounting guidance and any critical matters addressed during the audit. The Audit Committee met privately with Deloitte eight times during 2017.2019.
Independence of Deloitte.Deloitte is directly accountable to the Audit Committee and the Board of Directors. The Audit Committee has received the written disclosures and the letter from Deloitte required by applicable requirements of the PCAOB regarding Deloitte’s communications with the Audit Committee concerning independence and has discussed with Deloitte their independence from management and the Company, any disclosed relationships and the impact of those relationships on Deloitte’s independence.
RECOMMENDATION REGARDING ANNUAL REPORT ON FORM 10-K
Recommendation Regarding Annual Report on Form 10-K.In performing its oversight function with regard to the 20172019 financial statements, the Audit Committee relied on financial statements and information prepared by the Company’s management. It also relied on information provided by the internal audit staff as well as Deloitte. The Audit Committee reviewed and discussed with management the Company’s audited financial statements as of and for the year ended December 31, 2017.2019. Based on these discussions, and the information received and reviewed, the Audit Committee recommended to the Company’s Board of Directors that the Company’s financial statements be included in the Company’s 20172019 Annual Report on Form 10-K.
This report is furnished by the members of the Audit Committee.
■ | Geraud Darnis | ■ | Donald DeFosset, Jr. | ■ | Nicholas C. Fanandakis |
■ | Richard P. Lavin | ■ | Timothy H. Powers (Chair) | ■ | Sabrina Soussan |
ITT INC. | ❘20182020 PROXY STATEMENT 3536
ADADVISORYVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION (PROXY
(PROXY ITEM NO. 3)
In accordance with the requirements of Section 14A of the Exchange Act and the related rules of the SEC, we are including in these proxy materials a separate resolution subject to shareholder vote to approve, in a non-binding vote, the compensation of our named executive officersNamed Executive Officers as defined by the SEC in Item 402 of Regulation S-K (the “Named Executive Officers” or “NEOs”) as disclosed later in this Proxy Statement in the Compensation Discussion and Analysis. The following resolution will be submitted for a shareholder vote at the Annual Meeting:
“RESOLVED, that the shareholders of ITT Inc. (the “Company”) approve, on an advisory basis, the compensation of the Company’s Named Executive Officers, as disclosed in the Company’s Proxy Statement for the 20182020 Annual Meeting of Shareholders pursuant to Item 402 of the Securities and Exchange Commission Regulation S-K, including the Compensation Discussion and Analysis, the compensation tables and narrative disclosures.”
In considering their vote, shareholders may wish to review with care the information on the Company’s compensation policies and decisions regarding the NEOs presented in this Proxy Statement in the Compensation Discussion and Analysis.
In particular, shareholders should note that the Company’s Compensation and Personnel Committee bases its executive compensation decisions on the following:
■ | alignment of executive and shareholder interests by providing incentives linked to the performance of certain financial metrics; |
■ | the ability for executives to achieve long-term shareholder value creation without undue business risk; |
■ | creating a clear link between an executive’s individual contribution and performance and his or her compensation; |
■ | the extremely competitive nature of the industries in which we operate and our need to attract and retain the most creative and talented industry leaders; and |
■ | comparability to the practices of peers in the industries that we operate in and other comparable companies generally. |
The vote on this resolution is not intended to address any specific element of compensation; rather, the vote relates to the compensation of our NEOs, as described in this Proxy Statement in accordance with the SEC’s compensation disclosure rules.
The Board values the opinions of the Company’s shareholders as expressed through their votes and other communications. This vote is advisory in nature and non-binding; however, the Board will review and consider the shareholder vote when determining executive compensation. The current frequency of non-binding advisory votes on executive compensation is an annual vote, and we anticipate that the next vote will be at next year’s annual meeting.
RECOMMENDATION OF THE BOARD OF DIRECTORS | |
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS AVOTE FOR THE ADVISORY RESOLUTION APPROVING THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS AS DESCRIBED IN THIS PROXY STATEMENT. UNLESS A CONTRARY CHOICE IS SPECIFIED, PROXIES SOLICITED BY THE BOARD WILL BE VOTED FOR THIS MANAGEMENT PROPOSAL. |
ITT INC. | ❘20182020 PROXY STATEMENT 3637
CCOMPENSATIONOMPENSATIONDISCUSSION AND ANALYSIS
BUSINESS ENVIRONMENT AND FINANCIAL RESULTS
During 2017,2019, we achieved strong financial results through our intense focus on optimizing executionrecord revenue and driving share gains, combined with stabilization or improvement in some of our key end markets. We drove strong margin gains across each of our business units throughadjusted EPS by focusing on operational execution. We expanded in newcreating value for our customers, implementing productivity improvements, and existing key markets including global friction, high speed rail, aerospace, defense, rotorcraft,making accretive organic and electric vehicles. Our 2017 financial results are previously show n in the Proxy Statement Executive Summary on page 10 .
inorganic investments. We delivered 40% TSRstrong results across multiple performance metrics in 2017 while continuingan increasingly challenging global environment. The following are highlights from our reported fiscal 2019 performance (all financial comparisons are 2019 to invest2018):
Revenue | Segment Operating Margin | EPS | Operating Cash Flow | |||
+4% | +20bps | -3% | -4% |
Organic Revenue | Adjusted Segment Operating Margin | Adjusted EPS | Adjusted Free Cash Flow | |||
+4% | +90bps | +18% | +3% |
See the section titled “Key Performance Indicators and Non-GAAP Financial Measures” in our 2019 Annual Report on Form 10-K filed with the SEC for our long-term growth. We deployed our capital in a balancedthe reasons why we use non-GAAP financial measures and effective manner by returning $45Mfor reconciliations to shareholders in the form of quarterly dividends and share repurchases, successfully completing the acquisition of Axtone Railway Components in January 2017, and by making phased investments to support our friction production capabilities in China, North America and the Czech Republic. We also continue to focus on human capital by encouraging a healthy, high performing culture and focusing on our people, enabling our leaders to drive the Company’s strategy in the years to come.comparable GAAP financial measures.
OUR SAY ON PAY AND ENGAGEMENT WITH SHAREHOLDERS
Our annual advisory vote on executive compensation (“Say on Pay”) received 97% support last year, and has received an average of 95%92% support over the last five years. Last year, our Say on Pay received 87.3% support, which contributed to our decision to enhance our outreach to shareholders. However, we also viewed our Say on Pay results as confirmation that our shareholders generally continued to support our executive compensation programs in a year that our financial results were below target.
SAY ON PAY SUPPORT
Our expanded investor outreach effort, as described under “Shareholder“Corporate Governance and Related Matters - Shareholder Engagement” on page 18, provided an opportunity, continued to discussevolve and develop last year. We increased the number of shareholders and percentage of shares covered by our executive compensation programsoutreach in late 2019, contacting shareholders representing nearly 70% of ITT’s outstanding shares and engaging with manyshareholders representing over 40% of our largest investors.such shares. While not all of these investors felt that a discussion on our governance, compensation programand sustainability practices was necessary, throughwe still had discussions with 16 institutions that represented over 40% of our total outstanding shares. During our discussions we heard the following general themes:
ITT INC.❘2020 PROXY STATEMENT 38
■ | investors understood the relevance of our compensation program metrics to our business strategy and |
■ | investors supported |
■ | investors were supportive of the Board’s rationale for | |
certain investors |
ITT INC. | 2018 PROXY STATEMENT 37
OUR COMMITMENT TO PAY FOR PERFORMANCE ALIGNMENT
We have designed our compensation programs to align the pay of our senior executives with both our short-term and long-term financial results and the performance of our stock. As indicated in the Proxy Statement Executive Summary on page 9, theThe majority of pay for our CEO and other NEOs is “at risk” and is impacted by our financial results and stock price performance.
THE IMPACT OF BUSINESS RESULTS ON OUR 2017 INCENTIVE2019 INCENTIvE PLANS
Our business strategy drives the design and metrics of our incentive plans. Our 2019 AIP includes metrics and weightings that encourage both growth (30% Adjusted EPS and 20% Adjusted Revenue) and operational excellence (20% Adjusted Free Cash Flow and 20% Adjusted Operating Margin), in addition to a 10% component that rewards executive officers for individual and team performance. 2019 was the final performance year of our 2017 PSU award, which had a payout determined by our relative return on invested capital (“ROIC”), which is intended to encourage efficient and disciplined use of capital, and relative total shareholder return (“TSR”), which is intended to directly align executive pay with shareholder return relative to our peer companies. More information on how relative ROIC and relative TSR are calculated can be found in “2019 Long-Term Incentive Compensation -- Performance Stock Units.”
As a result of our above target financial performance in 2017,2019, the payouts of our annual incentive plan (“AIP”) payout, on average, wasplans were also above target. However, our 2015 PSU payout, which was based on our 3-year performance of relative TSR and return on invested capital (“ROIC”), was below target.
■ | Our CEO, Mr. Savi, received an AIP payout that was |
■ | All |
EXPLANATION OF THEITT INC.❘2020 PROXY STATEMENT 39
CEO PAY DECISIONS FOR OUR
On January 1, 2019, Luca Savi, previously President and Chief Operating Officer of the Company, was promoted to CEO and President and became a director of the Company. In setting compensation for our new CEO, the Compensation and Personnel Committee considered a number of factors, including peer group benchmarking, prior CEO compensation levels, and increases in connection with Mr. Savi’s promotion to President and Chief Operating Officer in August 2018. The Committee believes that CEO pay should be evaluated each year and that increases should occur based on individual and company performance.
Mr. Savi joined ITT in 2011 as the Senior Vice President and President, Motion Technologies based in Barge, Italy and was employed through ITT’s Italian subsidiary. For the past four years, Mr. Savi has been on an international assignment and based in Wuxi, China. In connection with Mr. Savi’s transition to CEO in 2019, Mr. Savi and his family relocated to the United States and now reside near ITT’s headquarters. We believe that the relocation of Mr. Savi to ITT’s headquarters will allow him to more effectively focus time and attention on his new role including direct engagement with other members of senior leadership at ITT headquarters. Mr. Savi’s employment relationship was changed from our Italian subsidiary to our U.S. entity and he is now subject to ITT’s U.S. policies that apply to all similarly situated employees. Mr. Savi’s compensation while employed by our Italian subsidiary through July 2019 was paid in euros and has been converted to U.S. dollars using a 1.12 average exchange rate.
ITT provided certain allowances and payments to Mr. Savi under existing policies in place for his international assignment in China and subsequent relocation to the U.S. These payments are for assignment-related costs (housing, school, and transportation, provided in a manner consistent with what is provided to other ITT employees on international assignment), costs to move from China to the U.S., tax assistance for assignment-related allowances, and the payment of accrued vacation, as required by Italian law, that was triggered when Mr. Savi’s employment relationship was transitioned from ITT’s Italian subsidiary to our U.S. entity. The payments related to Mr. Savi’s assignment in China and relocation to the U.S., as further explained in the Summary Compensation Table under All Other Compensation, are non-recurring, and the Board expects these costs be limited in future years.
In the first quarter of each year, the Compensation and Personnel Committee meets to determine CEO pay decisions for base salary, AIP and LTI award grants reflectinginclusive of both prior year performance and appropriate positioning versus the representative peer groupRepresentative Peer Group described on page 40.42. The followingfollow table displays the decisions made during 2017 and 2018the first quarter 2020 with respect to CEO compensation.
Pay Component | 2017 Pay Decisions | 2018 Pay Decisions | Drivers for First Quarter 2018 Decisions | |||
Base Salary | $1,000,000 | $1,000,000 | The Committee considered Ms. Ramos’ base salary to be competitively positioned and did not change the base salary. | |||
Annual Incentive Plan | $805,000 (Earned in 2016 and paid in 1Q2017 and shown in SCT for 2016) | $1,500,000 (Earned in 2017 and paid in 1Q2018 and shown in SCT for 2017) | Ms. Ramos received an AIP payout that was 150% of target. As described below, 90% of the AIP payout for NEOs is tied directly to ITT’s financial results. The Committee chose to award Ms. Ramos at 150% for the 10% individual component of the AIP for the following accomplishments: - Led ITT to strong financial results including record Adjusted EPS. - Successfully transitioned the management system to improve focus on operations through implementation of the Chief Operating Officer role. - Advanced ITT’s growth and innovation strategy through investments in people, production capabilities and R&D. The Committee approved an increase to Ms. Ramos’ AIP target from 100% to 120% of salary for 2018 to provide additional pay at risk that will only be received upon achievement of financial targets. | |||
Long-Term Incentives(1) | $4,500,000 | $4,500,000 | The Committee considered Ms. Ramos’ LTI award value to be competitively positioned and did not change the target value from the previous year. | |||
TOTAL DIRECT COMPENSATION | $6,305,000 | $7,000,000 |
Pay Component | 2019 Target Pay | 2020 Target Pay | Drivers for First Quarter 2020 Pay Decisions |
Base Salary | $900,000 | $800,000 | In February 2020, the Committee considered the performance of ITT and the performance of Mr. Savi during 2019 and increased Mr. Savi’s 2020 base salary to $1,000,000 to be more competitive. On March 29, 2020, in response to the COVID-19 pandemic and the resulting economic uncertainty, the Committee elected to reduce the targeted base salary of our named executive officers by 20% effective as of April 1, 2020. The Committee has not elected to change AIP Targets at this time. |
Annual Incentive Plan Target | $900,000 | $1,100,000 | Mr. Savi received a bonus payout of $1,314,000 for 2019 performance, which was 146% of target. As described below, 90% of the AIP payout for NEOs is tied directly to ITT’s financial results. The Committee chose to award Mr. Savi at 200% for the 10% individual component of the AIP for the following accomplishments: ■ Led ITT to record financial results and a strong return to shareholders ■ Continued to position ITT for long-term growth through $179M of organic investments and $118M of strategic acquisitions ■ Improved ITT’s leadership team while advancing succession planning and talent development strategies
The Committee approved an increase to Mr. Savi’s AIP target from 100% to 110% of salary in 2020 to increase alignment of pay and performance and to better align with peer company benchmarking. The target represents 110% of base salary before the reduction due to the COVID-19 pandemic referenced above. |
Long-Term Incentives (LTI)(1) | $3,200,000 | $3,800,000 | The Committee considered Mr. Savi’s performance and peer company benchmarking and increased the annual LTI value to $3,800,000 for the 2020 LTI award. LTI ties the actual amount that Mr. Savi will receive in pay directly to ITT’s financial performance and stock price, and encourages retention. |
TOTAL TARGET COMPENSATION | $5,000,000 | $5,700,000 |
(1) | The |
ITT INC. | ❘20182020PROXY STATEMENT38 40
EXECUTIVE COMPENSATION PHILOSOPHY
We have designed our compensation programs to help us recruit and retain the executive talent required to successfully manage our business, achieve our business objectives, and maximize their long-term contributions to our success. We include compensation elements that are designed to align the interests of executives with our goals of enhancing shareholder value and achieving our long-term strategies. We determine total annual compensation by reviewing the median of the competitive market, then position compensation at, above or below the median based on experience, performance, critical skills and the general talent market for each senior executive.
BEST PRACTICES THAT SUPPORT OUR EXECUTIVE COMPENSATION PHILOSOPHY
The Compensation and Personnel Committee oversees the design and administration of our executive compensation programs and evaluates these programs against competitive practices, legal and regulatory developments and corporate governance trends.
The Compensation and Personnel Committee has incorporated the following best practices into our programs:
WHAT WE DO | WHAT WE DON’T DO | |||||
Emphasize Long-Term Compensation to Ensure Alignment of Pay With Long-Term Performance | No Hedging or Pledging of Company Stock | |||||
Significant Majority of Pay is Performance-Based and Not Guaranteed | No Accelerated Vesting of Equity Awards or Severance Benefits Solely Upon a Change in Control | |||||
Stock Ownership Requirements Require Meaningful Holdings | No Tax Gross-Ups (unless related to international assignment or relocation) | |||||
Double-Trigger Change in Control Vesting of Equity Awards | No Golden Parachutes | |||||
Clawback Policy That Applies to Our Annual Incentive Plan and Equity Awards | No Repricing of Stock Options | |||||
Proactive Engagement with Shareholders | No Supplemental Defined Benefit Pension for Executives | |||||
Engages Independent Compensation Consultant | No Excessive Perquisites or Personal Benefits |
KEY PARTICIPANTS IN THE COMPENSATION PROCESS
ROLE OF THE COMPENSATION AND PERSONNEL COMMITTEE
The Compensation and Personnel Committee reviews and approves the compensation elements and the compensation targets for each of our executive officers, including the NEOs. The Compensation and Personnel Committee also makes determinations with respect to the AIP as it relates to our executive officers, including the approval of annual performance goals and subsequent full-year achievement against those goals. It administers all elements of the Company’s long-term incentive plan, and approves the benefits and perquisites offered to executive officers. Further, the Compensation and Personnel Committee evaluates the Company’s compensation programs on an annual basis to ensure that our plans do not induce or encourage excessive risk-taking by participants. Pursuant to its charter, the Compensation and Personnel Committee may delegate authority to act upon specific matters to a subcommittee.
ROLE OF MANAGEMENT
During 2017,2019, our CEO and Chief Human Resources Officer made recommendations to the Compensation and Personnel Committee regarding executive compensation actions and incentive awards. The Chief Human Resources Officer serves as the liaison between the Compensation and Personnel Committee and Pay Governance, providing internal data on an as-needed basis so that Pay Governance can produce comparative analyses for the Compensation and Personnel Committee. In 2019, the Company’s human resources, finance
ITT INC. | ❘20182020 PROXY STATEMENT 3941
Committee. In 2017, the Company’s human resources, finance
and legal departments supported the work of the Compensation and Personnel Committee by providing information, answering questions and responding to various requests of committee members.
ROLE OF THE INDEPENDENT COMPENSATION CONSULTANT
In 2017,2019, the Compensation and Personnel Committee continued to use the services of Pay Governance in fulfilling its obligations under its charter, the material terms of which are described elsewhere in this Proxy Statement under the heading “Corporate Governance and Related Matters—Compensation and Personnel Committee.”
Pay Governance attended the four regularly-scheduledregularly scheduled meetings of the Compensation and Personnel Committee in 20172019 and provided the committeeCommittee with objective expert analyses, assessments, research, and recommendations for executive compensation programs, incentives, perquisites and compensation standards. In this capacity, they provided services that related solely to work performed for, and at the direction of, the Compensation and Personnel Committee, including analysis of material prepared by management for the Compensation and Personnel Committee’s review. Pay Governance provided no other servicesalso provides advice related to compensation for directors to the Company during 2017. The total amount of fees paid to PayNominating and Governance for 2017 services was $87,351. In addition, the Company reimburses Pay Governance for reasonable travel and business expenses.Committee.
The Compensation and Personnel Committee selected Pay Governance to serve as its Independent Compensationindependent compensation consultant only after assessing the firm’s independence. As part of its independence review, the Compensation and Personnel Committee reviewed the Company’s relationship with Pay Governance and determined that no conflicts of interest existed. The Compensation and Personnel Committee has the sole authority to retain and terminate consultants, including Pay Governance, with respect to compensation matters.
EXTERNAL BENCHMARKING
In 2017,2019, as in past years, the Compensation and Personnel Committee looked toconsidered competitive market compensation data, for companies comparablein addition to ITT to establish overallother factors, in determining policies and programs that address executive compensation, benefits and perquisites in line with its stated pay philosophy.perquisites.
For 20172019 pay decisions for the CEO and CFO, the Company usedCommittee reviewed a peer group of 16 companies comparable to ITT in terms of revenue, market capitalization and industry in order to better evaluate executive compensation market practices (the “Representative Peer Group”). The CEOWhen making pay decisions the Committee also considers other factors such as individual experience and CFO roles are more easily compared from company to company because their pay is disclosed inperformance, the need for critical skills and the general talent market for each company’s proxy statement. The 2017 Representative Peer Group consisted of the following companies:
senior executive. The Compensation and Personnel Committee annually reviews and evaluates this Representative Peer Group to ensure that it remains appropriate.
2019 Representative Peer Group | ||
■Actuant Corporation (ATU) (now known as Enerpac Tool Group (EPAC)) | ■EnPro Industries, Inc. (NPO) | ■Nordson Corporation (NDSN) |
■AMETEK, Inc. (AME) | ■Esterline Technologies Corp (ESL) | ■SPX Flow Inc. (FLOW) |
■Barnes Group, Inc. (B) | ■Flowserve Corporation (FLS) | ■WABCO Holdings (WBC) |
■Carlisle Companies Inc. (CSL) | ■Harsco Corporation (HSC) | ■Woodward, Inc. (WWD) |
■Colfax Corporation (CFX) | ■Hubbell Incorporated (HUBB) | |
■Crane Co. (CR) | ■IDEX Corporation (IEX) |
During 2019, two companies in the Representative Peer Group, Esterline and WABCO, were in the process of being acquired. As a result, in August 2019, the Compensation and Personnel Committee approved the addition of Curtiss-Wright and Sensata to replace Esterline and WABCO in the Representative Peer Group for compensation decisions that are made in 2020.
The Compensation and Personnel Committee’s review of external market data also included as the primary reference for the other NEOs (and as a secondary reference for the CEO and CFO), analysis of thecompensation benchmark data from Willis Towers Watson Compensation Data Bank (the “CDB”) and other compensation survey information provided by Pay Governance. This data provides a broader view of executive compensation benchmarking for jobs that are not reported in the Proxy Statement.
In particular, the Compensation and Personnel Committee’s analysis used a benchmark group from a Willis Towers Watson survey consisting of 7064 companies from the Industrials, Materials and Energy sectors that were available in the CDB during 2015 with annual revenue between approximately $1.25 billion and $5 billion in order to provide a representative sample of the Company’s broader market for executive talent (see Appendix C attached)A).
ITT INC. | ❘20182020 PROXY STATEMENT40 42
NEO COMPENSATION ELEMENTS AT A GLANCE
The disclosure of our NEO compensation for 20172019 covers the following executive officers:
■Luca Savi,Chief Executive Officer and President
■Thomas M. Scalera,Executive Vice President and Chief Financial Officer
■Mary Beth Gustafsson,Senior Vice President, General Counsel and Corporate Secretary
■Farrokh Batliwala,Senior Vice President and President, Connect & Control Technologies
■Carlo Ghirardo,Senior Vice President and President, Motion Technologies
The compensation of our executive officers, including our NEOs, is reviewed in detail by the Compensation and Personnel Committee during the first quarter of every year. NEO direct compensation for 20172019 consisted of a base salary, an AIP award and LTI awards,award, each of which is detailed below.
Form | Metrics & Weightings | Rationale for Providing | ||
Base Salary | Cash | Not Applicable | Base salary is a competitive fixed pay element tied to role, experience, performance, and criticality of skills. | |
Annual Incentive Plan Award | Cash | ■Adjusted EPS (30%) ■Adjusted Operating Margin (20%) ■Adjusted Free Cash Flow (20%) ■Adjusted Revenue (20%) ■Individual and Team Goals (10%) | The AIP is designed to reward achievement of the Company, | |
Long-Term Incentive Awards | Stock | PSU Awards: ■Relative TSR (50%) ■ROIC (50%) | The LTI plan is designed to reward performance that drives long-term shareholder value through the use of three-year cliff vesting:
■
The grant date of PSUs and RSUs is determined on the date on which the Compensation and Personnel Committee approves these awards, which is typically in February or March. |
The Company also provides benefits and limited perquisites to its NEOs that it believes are competitive with the external market for talent. For a more detailed discussion of these benefits and perquisites, see the discussion under the heading “Benefits and Perquisites.”
20172019 BASE SALARY INCREASES
The Compensation and Personnel Committee reviewed the compensation level of each NEO based on the Representative Peer Group and the external survey data. Based on the Committee’s targeted pay positioning, the evaluation of each NEO’s performance, and the external market data on competitive pay levels provided by Pay Governance, the Committee awarded base salary merit increases. In addition, Mr. Savi’s 2017 annual salary was increasedincreases effective in January 2017 in connection with his appointmentMarch 2019 to the position of Executive Vice President and Chief Operating Officer. The increases for Mr. Scalera, Ms. Gustafsson Mr. Batliwala and Ms. Creamer wereMr. Ghirardo. Mr. Savi’s base salary was effective in February 2017. Ms. Ramos did not receive a salary increase during 2017 because the Committee considered her salary asupon his promotion to CEO to be competitively positioned.and President on January 1, 2019.
ITT INC. | ❘20182020 PROXY STATEMENT 4143
2018 Annual Base Salary | 2019 Annual Base Salary | Percent Increase | |||
Luca Savi(1) | $ | 750,000 | $ | 900,000 | 20% |
Thomas M. Scalera | 530,000 | 540,000 | 2% | ||
Mary Beth Gustafsson | 472,500 | 482,000 | 2% | ||
Farrokh Batliwala | 380,000 | 400,000 | 5% | ||
Carlo Ghirardo(2) | 403,200 | 414,400 | 3% |
(1) | Mr. Savi’s salary increase of 20% was for his promotion from President and COO of ITT to CEO and President of ITT, which occurred on January 1, 2019. |
2016 Annual Base Salary | 2017 Annual Base Salary | Change | |||||||||||
Denise L. Ramos | $ 1,000,000 | $ 1,000,000 | — | % | |||||||||
Thomas M. Scalera | 500,000 | 515,000 | 3.0 | % | |||||||||
Luca Savi(1) | 480,250 | 539,575 | 12.4 | % | |||||||||
Mary Beth Gustafsson | 446,500 | 460,000 | 3.0 | % | |||||||||
Victoria L. Creamer | 367,000 | 377,500 | 2.9 | % |
Mr. |
20172019 ANNUAL INCENTIVE PLAN
For 2017,2019, AIP payouts averaged 150%137% of target for all of the NEOs, reflecting record financial results, including above target achievement, on average, of annual financial goals. The Company’s AIP provides for an annual cash payment to participating executives established as a target percentage of base salary. In setting AIP awards, the Compensation and Personnel Committee approves target AIP awards after careful consideration of external data, individual roles and responsibilities, and individual performance.
The Company pays for AIP performance that demonstrates substantial achievement of plan goals. We established strong incentives and set aggressive goals for all financial metrics. The Company must achieve a certain threshold for each of the four financial performance metrics discussed below in order for each performance component to be considered in the calculation of the AIP payout. Performance below the threshold performance level results in a zero payout for that particular performance component.
The formula to determine each NEO’s AIP total potential payment is as follows:
(Base Salary)x(Target Award Percentage)x(AIP Performance Factor) |
Both the individual performance component of the AIP and the overall AIP award payoutpayouts are capped at 200% of an individual’s annual cash bonus target.
20172019 AIP AWARDS PAID IN 20182020
The 20172019 AIP awards paid in March 20182020 are as follows:
Named Executive Officer | 2017 Target AIP Awards as Percentage of Base Salary | 2017 AIP Target Amounts | 2017 AIP Awards (Paid in First Quarter 2018) | 2017 AIP Awards as Percentage of Target (Paid in First Quarter 2018) | ||||
Denise L. Ramos | 100% | $ 1,000,000 | $ 1,500,000 | 150% | ||||
Thomas M. Scalera | 75% | 386,250 | 571,650 | 148% | ||||
Luca Savi(1) | 85% | 458,639 | 697,131 | 152% | ||||
Mary Beth Gustafsson | 75% | 345,000 | 524,400 | 152% | ||||
Victoria L. Creamer | 70% | 264,250 | 396,380 | 150% |
Named Executive Officer | 2019 Target AIP Awards as Percentage of Base Salary | 2019 AIP Target Amounts | 2019 AIP Awards (Paid in 2020) | 2019 AIP Awards as Percentage of Target (Paid in 2020) | ||
Luca Savi | 100% | $ | 900,000 | $ | 1,314,000 | 146% |
Thomas M. Scalera | 75% | 405,000 | 550,800 | 136% | ||
Mary Beth Gustafsson | 75% | 361,500 | 502,490 | 139% | ||
Farrokh Batliwala | 75% | 300,000 | 357,000 | 119% | ||
Carlo Ghirardo(1) | 65% | 269,360 | 387,880 | 144% |
(1) | Mr. |
ITT INC. | ❘20182020 PROXY STATEMENT42 44
2017
2019 AIP PERFORMANCE METRICS AND WEIGHTINGS
Based on the Company’s 20172019 business objectives, the Compensation and Personnel Committee identified four financial performance metrics and an individual component, for the 20172019 performance year, which together comprise the AIP Performance Factor. The following table shows the weighting assigned to each NEO for each AIP performance metric:
Named Executive Officer | Adjusted Earnings Per Share | Adjusted Cash Flow | Adjusted Operating Margin | Adjusted Revenue | Individual Component | |||||
Denise L. Ramos | 30% | 25% | 25% | 10% | 10% | |||||
Thomas M. Scalera | 30% | 25% | 25% | 10% | 10% | |||||
Luca Savi | 30% | 25% | 25% | 10% | 10% | |||||
Mary Beth Gustafsson | 30% | 25% | 25% | 10% | 10% | |||||
Victoria L. Creamer | 30% | 25% | 25% | 10% | 10% |
Metric | Weighting | Reason for Selection | Details |
Adjusted Earnings Per Share or Adjusted EPS | 30% | Important measure of the value provided to shareholders | Adjusted EPS is defined as income from continuing operations attributable to ITT Inc. per diluted share, adjusted to exclude special items on an after-tax basis. The after-tax basis of each special item is determined using the jurisdictional tax rate of where the expense or benefit occurred. |
Adjusted Free Cash Flow and Adjusted Segment Free Cash Flow | 20% | Important measure of how the Company converts its net earnings into deployable cash | Adjusted Free Cash Flow is defined as net cash provided by operating activities less capital expenditures, adjusted for cash payments for restructuring costs, realignment actions, other significant items that impact current results which management views as unrelated to the Company’s ongoing operations and performance. Adjusted Free Cash Flow in this Proxy Statement, unlike in our Annual Reports on 10-Ks and Quarterly Reports on 10-Qs, does include net asbestos cash flows. Adjusted Segment Free Cash Flow is defined as segment level net cash provided by operating activities less capital expenditures, adjusted for special items and the impact of foreign currency fluctuations. |
Adjusted Operating Margin and Adjusted Segment Operating Margin | 20% | Emphasizes the importance of maintaining healthy margins | Adjusted Operating Margin is defined as the ratio of Adjusted Operating Income or Adjusted Segment Operating Income, over Organic Revenue, adjusted to exclude special items that include, but are not limited to, asbestos-related impacts, restructuring costs, realignment costs, certain asset impairment charges, certain acquisition-related impacts, and unusual or infrequent items. Special items represent significant charges or credits that impact the current results, which management views as unrelated to the Company’s ongoing operations and performance. |
Organic Revenue and Organic Segment Revenue | 20% | Reflects the Company’s emphasis on growth | Organic Revenue is defined as revenue, excluding the estimated impact of foreign currency fluctuations, acquisitions, and divestitures. Adjusted Segment Revenue is defined as segment level revenue excluding the estimated impact of foreign currency fluctuations, acquisitions, and divestitures. In both cases, divestitures include sales of portions of our business that did not meet the criteria for presentation as a discontinued operation. |
Individual Component | 10% | Provides focus on supporting enterprise initiatives that will create growth and increase shareholder value | Each NEO establishes several personal or team goals related to Company initiatives or segment-specific initiatives that are aligned with the strategy of the business and the goals of the CEO. For 2019, the areas established at the start of the performance period were: ■Financial:Deliver on our financial commitments. ■Culture and Talent:Focus on our people and their work environment by continuing our culture journey through engaging and energizing employees around our strategy, purpose and principles, and increasing the skills of our leaders. ■Execution:Differentiate ourselves through safety, effectiveness and efficiency; ensure each part of the organization or segment is optimized and delivering on our commitments to our customers. ■Growth and Innovation:Advance technology and customer relationships to create new opportunities and growth. ■Capital Deployment:Drive actions to optimize the portfolio through mergers and acquisitions and organic investments. |
As permitted by the ITT Annual Incentive Plan for Executive Officers, the Compensation and Personnel Committee may exclude the impact of acquisitions, dispositionsdivestitures and other special items in computing AIP awards. Special items represent significant charges or credits that impact current results, which management views as unrelated to the Company’s ongoing operations and performance. Special items may include, but are not limited to, asbestos-related costs, restructuring costs, realignment costs, pension settlement and other curtailment costs, certain acquisition-related expenses, income tax settlements or adjustments, and unusual and infrequent items. The four financial performance metrics applicable to each NEO are therefore non-GAAP financial measures and should not be considered a substitute for measures determined in accordance with GAAP. These non-GAAP financial measures may not be comparable to similar measures reported by other companies or those that we use in theour Form 10-K or other external financial presentations. Descriptions of each of the performance metrics are as follows:
|
ITT INC. | ❘20182020 PROXY STATEMENT43 45
2017
2019 AIP PERFORMANCE TARGETS AND RESULTS
The Adjusted EPS, Adjusted Free Cash Flow, Adjusted Operating Margin and AdjustedOrganic Revenue targets were based on the Company’s 20172019 operating budget. These targets were set early in 2017.2019. The Compensation and Personnel Committee reviewed the operating budget with management to ensure that the targets were appropriate and determined that the achievement of the combination of financial goals would be challenging and reflect strong performance considering the uncertainty in some of our key end markets. In addition to these metrics, ITT Corporate and each of the Segments have working capital financial targets that if not achieved will result in up to a 5 point reduction of the final AIP financial score. In 2019, Industrial Process and Connect & Control Technologies each received a penalty of 2.5 percentage points for missing targets for working capital as a percentage of sales. The table below sets forth the target and actual results for each 20172019 AIP financial performance metric at the corporate level.
CORPORATE FINANCIAL PERFORMANCE TARGETS
Metric | Threshold (50%) | Target (100%) | Maximum (200%) | 2017 Results | 2017 Payout | |||||||||||||
Adjusted Earnings Per Share | $ | 1.98 | $ | 2.33 | $ | 2.80 | $ | 2.59 | 155% | |||||||||
Adjusted Cash Flow | $ | 107M | $ | 125M | $ | 150M | $ | 145M | 178% | |||||||||
Adjusted Operating Margin | 10.9% | 12.1% | 13.9% | 12.3% | 111% | |||||||||||||
Adjusted Revenue | $ | 2,160M | $ | 2,400M | $ | 2,640M | $ | 2,539M | 158% |
The financial targets for Mr. Savi, Mr. Scalera and Ms. Gustafsson reflect ITT Corporate targets.
Metric | Threshold (50%) | Target (100%) | Maximum (200%) | 2019 Results | 2019 Payout | ||||
Adjusted Earnings Per Share | $ | 3.01 | $ | 3.54 | $ | 4.25 | $ | 3.81 | 138% |
Adjusted Free Cash Flow | $ | 226.7M | $ | 266.7M | $ | 320.0M | $ | 313.8M | 188% |
Adjusted Operating Margin | 13.0% | 14.4% | 16.6% | 15.1% | 132% | ||||
Organic Revenue | $ | 2,541M | $ | 2,823M | $ | 3,106M | $ | 2,835M | 104% |
SEGMENT FINANCIAL PERFORMANCE TARGETS
The financial targets for Mr. Batliwala and Mr. Ghirardo reflect their business segments, in addition to the ITT Corporate Adjusted Earnings Per Share target. The business segments receive an additional benefit to their financial score and bonus payout pool when ITT exceeds financial targets.
Financial Targets of the Connect & Control business segment, which apply to Mr. Batliwala:
Metric | Threshold (50%) | Target (100%) | Maximum (200%) | 2019 Results | 2019 Payout | ||||
Adjusted Segment Free Cash Flow | $ | 101.9M | $ | 119.9M | $ | 143.9M | $ | 104.5M | 57% |
Adjusted Segment Operating Margin | 15.8% | 17.5% | 20.2% | 17.5% | 99% | ||||
Organic Segment Revenue | $ | 621M | $ | 690M | $ | 758M | $ | 657M | 77% |
Financial Targets of the Motion Technologies business segment, which apply to Mr. Ghirardo:
Metric | Threshold (50%) | Target (100%) | Maximum (200%) |
2019 Results |
2019 Payout | ||||
Adjusted Segment Free Cash Flow | $ | 173.9M | $ | 204.6M | $ | 245.5M | $ | 218.3M | 134% |
Adjusted Segment Operating Margin | 16.1% | 17.9% | 20.6% | 18.1% | 104% | ||||
Organic Segment Revenue | $ | 1,186M | $ | 1,318M | $ | 1,450M | $ | 1,273M | 83% |
AIP INDIVIDUAL COMPONENT CONSIDERATIONS
Each NEO has 10% of their AIP bonus target based on the individual component, which rewards achievement of their individual and team goals. The Compensation and PersonalPersonnel Committee considered the following achievements when determining the individual component payout of each NEO. The considerations for the CEO were described previously in the Executive“Executive Summary.”
■Thomas M. Scalera,Executive Vice President and Chief Financial Officer:
Provided leadership and |
● | Delivered record financial results and led investor relations efforts |
Drove |
ITT INC.❘2020 PROXY STATEMENT 46
■Mary Beth Gustafsson,Senior Vice President, General Counsel and Corporate Secretary:
● | Drove strategy and execution of strategic legal matters that provide a financial |
● | Deeply involved in strategic M&A decision-making |
■Farrokh Batliwala,Senior Vice President and President, Connect & Control Technologies:
● | Led performance improvement in critical CCT businesses and locations |
● | Cultivated and completed a strategic aerospace acquisition |
● | Successfully completed multi-year contract negotiations at key customers |
■Carlo Ghirardo,Senior Vice President and President, Motion Technologies:
● | Led results that significantly outperformed the | |
● | Successfully launched Mexico facility to grow revenue from customers in North America |
Drove |
20172019 LONG-TERM INCENTIVE COMPENSATION
In 2017,2019, the Compensation and Personnel Committee approved two types of vehiclesgrants for the Company’s annual LTI awards with each addressing long-term shareholder value alignment in different ways. The Committee believedbelieves that granting a combination of PSUs and RSUs was appropriate to provideprovides alignment with shareholder alignment,interests, retention value and a direct connection between pay and the opportunity to leverage awards up and down consistent with stock price performance as well asof our Company performance over the long term. Stock options were not granted in 2017 because RSUs are perceived to have better executive retention value. In 2017,
LTI for our NEOs werewas allocated as follows:
■ 50% granted in PSUs; and
■ 50% granted in RSUs.
ITT INC. | 2018 PROXY STATEMENT 44
The following table shows the target value of the LTI award grants made to NEOs in February 2017March 2019 as part of the Company’s regular annual compensation process. These LTI values were determined, taking into account base pay and annual incentive values, in developing market competitive total compensation levels and an appropriate mix of fixed versus variable and short-term versus long-term incentives. These values also considered each NEO’s role, potential long-term contribution, performance, experience and skills.
Named Executive Officer | PSUs (Target Award) | RSUs | Total(1) | |||||||||
Denise L. Ramos | $ | 2,250,000 | $ | 2,250,000 | $ | 4,500,000 | ||||||
Thomas M. Scalera | 462,500 | 462,500 | $ | 925,000 | ||||||||
Luca Savi | 525,000 | 525,000 | $ | 1,050,000 | ||||||||
Mary Beth Gustafsson | 350,000 | 350,000 | $ | 700,000 | ||||||||
Victoria L. Creamer | 187,500 | 187,500 | $ | 375,000 |
60% PSUs | + | 40% RSUs |
Named Executive Officer | PSUs (Target Award) |
RSUs |
Total(1) | |||
Luca Savi | $ | 1,920,000 | $ | 1,280,000 | $ | 3,200,000 |
Thomas M. Scalera | 600,000 | 400,000 | 1,000,000 | |||
Mary Beth Gustafsson | 450,000 | 300,000 | 750,000 | |||
Farrokh Batliwala | 300,000 | 200,000 | 500,000 | |||
Carlo Ghirardo | 240,000 | 160,000 | 400,000 |
(1) | The values in this table |
PERFORMANCE STOCK UNITS
PSUs are settled in shares after a three-year performance vesting period, with performance tied equally to the Company’s ROIC relative to the performance of companies in the Representative Peer Group (described on page 40) and the Company’s three-year TSR performance relative to a group of peer companies and the performance of the S&P 400 Capital Goods Index, of which ITT is a member.Company’s ROIC.
Delivery of shares generally requires employment throughout the three-year performance period. PSUs therefore provide alignment with absolute stock performance, relative stock performance, Company performance and potential retention value. There areFor each applicable employee, there may be up to three outstanding PSU awardsaward periods at any time. No dividend equivalents are paid on unvested PSUs.
MEASURING ROIC (50% WEIGHTING)
■The Compensation and Personnel Committee approved ROIC as a metric to align executive pay with the Company’s result in driving efficient and disciplined deployment of capital.
■ROIC for the 2019 PSUs is a percentage that will be calculated by dividing (A) after-tax income from continuing operations attributable to the Company, adjusted to exclude the after-tax impact from special items, interest income or expense and amortization of expense from intangible assets by (B) average total assets from continuing operations, less asbestos-related assets (including deferred tax assets on asbestos-related matters) and non-interest bearing current liabilities for the five preceding quarterly periods. Special items represent significant charges or credits that impact
ITT INC.❘2020 PROXY STATEMENT 47
results, such as unbudgeted acquisitions or divestitures, but may not be related to the Company’s ongoing operations and performance, as disclosed in the Company’s filings with the SEC.
RELATIVE ROIC PERFORMANCETSR (50% WEIGHTING)
■Relative TSR was again selected as a metric by the Committee to ensure executive compensation is aligned with shareholder value creation.
■The relative TSR peer group includes companies in the S&P 400 Capital Goods index and additional companies from the transportation and industrial pump/flow industries in order to provide a broad set of companies that align with ITT’s portfolio mix.
■TSR performance is measured by comparing the average closing stock price for the month of December prior to the start of the three-year performance cycle, to the average closing stock price for the month of December that concludes the three-year performance.
■Vesting at the end of the applicable three-year performance period is based on the Company’s TSR performance ranked against the TSR performance of the other companies within the TSR peer group.
If Company’s Relative | Payout Factor for | |||
at the 80th percentile or greater | 200% | |||
at the 50th percentile | 100% | |||
at the 35th percentile | 50% | |||
less than the 35th percentile | 0% |
* | Payouts for performance between the percentiles shown are |
ITT INC. | 2018 PROXY STATEMENT 45
MEASURING RELATIVE TSR PERFORMANCE
PAYOUT ON 2015 PSUs GRANTED IN 2017
In 2015,2017, ITT granted PSUs to certain executives, including each of the NEOs.NEOs, except for Mr. Ghirardo who joined ITT in 2018. The three-year performance targets were based equally on the Company’s TSR performance relative to the performance of companies in the S&P 400 Capital Goods Index and the Company’s ROIC performance relative to certain performance targets.the results of the companies in the 2017 Representative Peer Group. The payout of the 20152017 PSUs was 72%160.4% and based on the following:
■2017-2019 ROIC Results (50% weighting): ITT’s relative ROIC performance was at the 56.3 percentile of the 2017 Representative Peer Group companies. The payout for the ROIC metric was 120.8% of target.
■2017-2019 TSR Results (50% weighting): During the three-year performance period, ITT’s TSR was at the 89.7 percentile of the index of companies. The payout for the TSR metric was 200% of target.
RESTRICTED STOCK UNITS
RSUs are settled in shares after a three-year vesting period and provide alignment with stock performance and retention value. Grants of RSUs provide NEOs with stock ownership of unrestricted shares after the restrictions lapse. NEOs receive RSU awards because, in the judgment of the Compensation and Personnel Committee and based on management recommendations, these individuals are in positions most likely to influence the achievement of the Company’s long-term value creation goals and to create shareholder value over time. The Compensation and Personnel Committee reviews all grants of RSUs for executive officers prior to the award, including awards based on performance, retention-based awards, and awards contemplated for new employees as part of employment offers. The CEO has the authority to grant RSUs to other employees in certain situations. These grants are reviewed by the Compensation and Personnel Committee at its next scheduled meeting. RSUs do not grant dividend or voting rights to the holder over the vesting period, however, dividend equivalents are accrued and paid after vesting. In certain cases, such as for new hires or to facilitate retention, selected employees may receive RSUs subject to different vesting terms.
SPECIALTRANSITION-RELATED GRANTS
In addition to annual LTI awards, the Compensation and Personnel Committee may award specialother grants in the form of PSUs, RSUs or stock options. These grants are used to attract new senior executives to ITT, provide additional retention incentive or reward extraordinary performance. During 2017, no special grants were madeThe Compensation and Personnel Committee did not approve any transition awards for executive officers in 2019.
ITT INC.❘2020 PROXY STATEMENT 48
For 2018,During our annual investor engagements sessions in November, we specifically asked for feedback on a potential design change we were considering for 2020. The change involves increasing the weighting of the individual component in AIP for executive officers from 10% to 20%. The rationale for this change is to increase the focus on, and align pay to, long-term strategic initiatives that may not immediately result in short-term financial results. Increasing the individual component of AIP will allow the Compensation and Personnel Committee approved changesand the CEO (with respect to the design of our compensation programshis direct reports) to enhance alignmentbetter align pay with our business strategyperformance on individual and portfolio.team strategic long-term initiatives, such as culture, safety, talent, and sustainability.
ITT INC. | 2018 PROXY STATEMENT 46
CHANGE TO 2018 AIP
Our AIP metrics and weightings alignInvestors generally supported this potential change with our business strategy and have remained consistent over the last five years. For 2018, the Compensation and Personnel Committee approved a change to increase thesome suggesting an even higher weighting on Adjusted Revenueindividual goals when applied appropriately to drive long-term results. Investors also suggested clear disclosure on the rationale for the change and to provide a rigorous explanation of the performance and results that drive the individual scores for each executive. The Committee discussed the importance of driving long-term strategic initiatives and the feedback from investors before approving the increase of the AIP individual component weighting from 10% to 20% for the payout calculation. In addition, the weighting of Adjusted Cash Flow and Adjusted Operating Margin will decrease from 25% to 20%. This change aligns with our strategy, which is to have a balanced focus on execution, innovation, growth and portfolio management. After this change, Adjusted Revenue, Adjusted Operating Margin and Adjusted Cash Flow will have an equal emphasis and weighting of 20%. The weighting of the other two AIP metrics, Adjusted EPS and Individual2020 performance will remain the same at 30% and 10%, respectively.
CHANGES TO OUR 2018 PSU DESIGN
CHANGE TO OUR 2018 REPRESENTATIVE PEER GROUP
The Committee approved a change to the Representative Peer Group (page 40), which is to replace Roper Technologies (ROP) with WABCO Holdings (WBC). The Committee agreed that WABCO is a more appropriate peer than Roper considering ITT’s expanding portfolio related to the transportation industry.year.
All of the NEOs, except for Mr. SaviGhirardo who is employed by ITT Italy Holding s.r.l., are eligible to participate in the Company’s broad-based U.S. employee benefits program. The program includes the ITT Retirement Savings Plan, which provides before-tax and after-tax savings features, group medical and dental coverage, group life insurance, group accidental death and dismemberment insurance and other benefit plans. Prior to the spin-off of our defense and water businesses on October 31, 2011 which established us as a new diversified global, multi-industrial company (the “Spin Transaction”), employees also participated in a pension program.
All of the NEOs, except for Mr. Savi,Ghirardo, together with most of the Company’s other salaried employees who work in the United States, participate in the ITT Retirement Savings Plan, a tax-qualified savings plan, which allows employees to contribute to the plan on a before-tax basis, on an after-tax basis, or as a Roth contribution. The Company makes a core contribution of 3% or 4% of pay to the plan for all eligible employees and matches 50% of employee contributions, up to 6% of pay. The core contribution is 3% for employees whose age plus years of service is less than 50, and 4% for employees whose age plus years of service is at least 50. In addition, employees who were participating in the ITT Salaried Retirement Plan at the time it was frozen, as described below, and whose age andplus years of service was at least 60 at that time, may behave been eligible for up to five years of transition employer contributions following the Spin Transaction. The transition employer contributions ended on October 31, 2016.
The Company provides only those perquisites that it considers to be reasonable and consistent with competitive practices. Perquisites available for Ms. Ramos, Mr. Scalera, Ms. Gustafsson and Ms. Creamerour NEOs are financial and estate planning reimbursement of up to $15,000 per year. Mr. Savi is on an international assignment from Italy to China andGhirardo receives a transportation allowancecompany car, which is a common market practice for executives in connection with that assignment. Since 2011, the Company has not provided any tax gross-up for personal income taxes due on these perquisites.Italy.
Amounts reported as perquisites also include reimbursement of certain relocation-related expenses, which are described in detail in the notes to the “All Other Compensation Table” later in this Proxy Statement.the section entitled “Compensation Tables”.
ITT INC. | 2018 PROXY STATEMENT 47
RETIREMENT AND BENEFITS PLAN FOR MR. SAVI AND MR. GHIRARDO
Mr. Savi participatesbegan his career with ITT in a supplemental retirement plan provided under the terms of the collective bargaining agreement applicable to Dirigenti (Executives) of Industrial companies. These benefits are provided in addition to the Italian government-provided retirement benefits. Under the terms of the plan Mr. Savi can contribute up to €6,000 annuallyBarge, Italy and receive a company matching contribution of up to €6,000.
Mr. Savi iswas eligible for other statutory retirement and health and welfare benefits that are generally provided to our employees in Italy that have the classification of Dirigenti (Executive). During Mr. Savi’s assignment in China, he and his family will bewere covered by ITT’s international healthcare coverage plan, which covers all employees that participate in an international assignment. He also participated in a Motion Technologies (Italy) supplemental retirement plan provided under the terms of the collective bargaining agreement applicable to executives of industrial companies. Mr. Ghirardo joined ITT as Senior Vice President and President, Motion Technologies and is employed by ITT’s Italian subsidiary.
These benefits are provided in addition to the Italian government-provided retirement benefits. Under the terms of the plan, both Mr. Savi and Mr. Ghirardo could contribute up to €6,000 annually and receive a company matching contribution of up to €6,000.
Mr. Savi was no longer eligible for benefits from Italy after he relocated with his family to the U.S. in July 2019. Mr. Ghirardo continues to be eligible for these benefits as an employee of ITT in Italy.
ITT INC.❘2020 PROXY STATEMENT 49
OTHER COMPENSATION AND BENEFITS
CEO COMPENSATION AND EMPLOYMENT AGREEMENT
Ms. Ramos has an employment agreement with the Company that governs the terms of her employment. The agreement was entered into on October 31, 2011 and amended on May 16, 2016 and does not have a stated expiration date. Ms. Ramos’ compensation for 2017 is set forth above under the heading “Explanation of the Pay Decisions for our CEO.”
If the Company terminates her employment other than for cause (as defined in her employment agreement) and other than as a result of her death or disability, or as an acceleration event, Ms. Ramos will, subject to certain conditions and limitations set forth in her employment agreement, be entitled to severance pay in an amount equal to two times the sum of her then-current annual base salary and target annual incentive payable in installments over 24 months and will also be entitled to receive certain benefits during that time.
If the Company terminates her employment as a result of an acceleration event, Ms. Ramos will, subject to certain conditions and limitations set forth in her employment agreement, be entitled to severance pay in an amount equal to three times the sum of (x) annual base salary and (y) the greater of the annual incentive (assumed at target) or the actual bonus most recently paid, payable in installments over 24 months. In addition, she will be entitled to a lump sum payment equal to three times her highest annual base salary rate during the three years preceding termination or the acceleration event times the highest percentage rate of the Company’s contributions to the ITT Retirement Savings Plan and the ITT Supplemental Retirement Savings Plan (such percentage rate not to exceed 7% per year), as well as three years of healthcare benefits and life insurance.
The current employment agreement for Ms. Ramos is attached as Exhibit 10.3 to the Current Report on Form 8-K filed with the SEC on May 16, 2016.
POST-EMPLOYMENT COMPENSATION
ITT DEFERRED COMPENSATION PLAN
OurFor periods prior to 2020, our NEOs, except Mr. Savi areand Mr. Ghirardo, were eligible to participate in the ITT Deferred Compensation Plan. This plan providesprovided United States executives an opportunity to defer receipt of between 2% and 90% of any AIP awards they earn.earned. The amount of deferred compensation ultimately received reflectswould also reflect the performance of benchmark investment funds made available under the ITT Deferred Compensation Plan as selected by the executive. Participants in the ITT Deferred Compensation Plan may elect a fund that tracks the performance of the Company’s common stock. Beginning in 2020, executives will no longer be able to defer compensation under the ITT Deferred Compensation Plan, but will still be entitled to receive any compensation deferred prior to this date in accordance with the plan.
ITT SALARIED RETIREMENT PLAN
Until October 31, 2011, most of our salaried employees who workworked in the United States participated in the ITT Salaried Retirement Plan. Under the plan, participants could elect, on an annual basis, to be covered by either a Traditional Pension Plan (described elsewhere in this Proxy Statement under the heading “Compensation Tables—20172019 Pension Benefits”) or a Pension Equity Plan formula for future pension accruals. The ITT Salaried Retirement Plan was a tax-qualified plan, which provided a base of financial security for employees after they cease working. The ITT Salaried Retirement Plan was transferred
ITT INC. | 2018 PROXY STATEMENT 48
by the Company to Exelis Inc., our defense business that was spun off in the Spin Transaction, effective on October 31, 2011, and both2011. Both service credit and accrued benefits were frozen as of that date, and certain participants arewere eligible to receive transition employer contributions into the ITT Retirement Savings Plan. Exelis, Inc. was later acquired by Harris Corporation and Harris Corporation and L3 Technologies merged in 2019. to become L3Harris Technologies Inc. Mr. Scalera is the only NEO with benefits under this plan.
SEVERANCE PLAN ARRANGEMENTS
The Company maintains severance arrangements for most of its senior executives, including all of the NEOs except Mr. Savi.NEOs. These arrangements are included in two plans, one covering most severance circumstances (the ITT Senior Executive Severance Pay Plan), and the other covering severance following a change-in-control event (the ITT Senior Executive Change in Control Severance Pay Plan). These plans do not allow for the payment of tax gross-ups on severance pay or other benefits. These plans are regularly reviewed by the Compensation and Personnel Committee.
The purpose of the ITT Senior Executive Severance Pay Plan is to provide a period of transition for senior executives.executives upon termination of employment. The terms of the ITT Senior Executive Severance Pay Plan apply to Mr. Savi, Mr. Scalera, Ms. Gustafsson, and Ms. Creamer,Mr. Batliwala, however the length of Mr. Scalera’s severance benefit is specified in a 2011 employment letter entered into at the time of the Spin Transaction. The severance terms for Ms. Ramos are covered under her employment agreement. The severance terms for Mr. SaviGhirardo are covered under the National Collective Agreement for the Industrial Sector Managers in Italy. This agreement provides Mr. SaviGhirardo with termination benefits in the event his employment is terminated for other than cause. Senior executives, who are full-time salaried employees of the Company or any subsidiary, who are paid under a U.S. payroll and who report directly to the CEO, are covered by the ITT Senior Executive Severance Pay Plan. The plan generally provides for severance payments if the Company terminates a senior executive’s employment without cause. In the event that any payment would constitute an excess parachute payment within the meaning of Section 280G of the Code, then the aggregate of all payments would be reduced so that the present value of the aggregate of all payments is maximized, but is not subject to excise tax under Section 4999 of the Code or the deduction limitation of Section 280G of the Code.
The purpose of the ITT Senior Executive Change in Control Severance Pay Plan is to provide compensation in the case of termination of employment in connection with an acceleration event (defined under the heading “Potential Post—Employment“Compensation Tables— Potential Post-Employment Compensation—Change in Control Arrangements”) including a change in control. The ITT Senior Executive Change in Control Pay Plan applies to Mr. Scalera, Mr. Savi, Ms. Gustafsson and Ms. Creamer. The severance terms for Ms. Ramos in the event of an acceleration event are covered under her employment agreement.all NEOs. The provisions of this plan are specifically designed to address the inability of senior executives to influence the Company’s future performance after certain change of control events. The plan is structured to encourage executives to act in the best interests of shareholders by providing for certain compensation and retention benefits and payments in the case of an acceleration event.
These plans, including the potential post-employment payments that our NEOs would receive pursuant to these plans, are described in more detail elsewhere in this Compensation Discussion and Analysis under the heading “Potential“Compensation Tables—Potential Post-Employment Compensation.” The severance plans apply to our key employees as defined by Section 409A.
ITT INC.❘2020 PROXY STATEMENT 50
THE ROLE OF RISK AND RISK MITIGATION
In 2017,2019, the Compensation and Personnel Committee evaluated risk factors associated with our businesses in determining compensation structure and pay practices. The structure of the Board of Directors’ committees facilitates this evaluation and determination. More specifically, during 2017,During 2019, the Chair of the Compensation and Personnel Committee was a member of the Audit Committee. This membership overlap providesprovided insight into the Company’s business risks and affords the Compensation and Personnel Committee access to the information necessary to consider the impact of business risks on compensation structure and pay practices.
Further, overall enterprise risk is considered and discussed at Board meetings, providing additional important information to the Compensation and Personnel Committee. The Chief Executive Officer and the Chief Financial Officer attendCEO attends those portions of the Compensation and Personnel Committee meetings at which plan features and design configurations of our annual and long-term incentiveLTI plans are considered and approved.
We believe our executive compensation program appropriately balances risk with maximizing long-term shareholder value. The following features of our executive compensation program help to contribute to the achievement of this goal.
ITT INC. | 2018 PROXY STATEMENT 49
Emphasis on | By granting long-term incentive compensation at 37% to | |
Pay Mix | ||
Clawback Policy | We have a policy that provides for recoupment of performance-based compensation, if the Board of Directors determines that a senior executive has engaged in fraud or willful misconduct that caused or otherwise contributed to the need for a material restatement of the Company’s financial results. In such a situation, the Board will review all compensation awarded to, or earned by, that senior executive on the basis of our financial performance during fiscal periods materially affected by the restatement. This would include annual cash incentive and bonus awards and all forms of equity-based compensation. If, in the Board’s view, the compensation related to our financial performance would have been lower if it had been based on the restated results, the Board will, to the extent permitted by applicable law, seek recoupment from that senior executive of any portion of such compensation as it deems appropriate after a review of all relevant facts and circumstances. The policy covers all executives that receive PSUs, including our NEOs. | |
Required Executive Stock Ownership | NEOs are required to own Company shares or share equivalents with a value equal to a multiple of their base salary, as discussed in more detail below. We believe that this requirement aligns their interests with the interests of the Company’s shareholders and also discourages behavior that is focused only on the short-term. | |
Prohibition Against Speculating, Hedging or Pledging Stock | We have a policy prohibiting employees from hedging and speculative trading in and out of the Company’s securities, including short sales and leverage transactions, such as puts, calls, and listed and unlisted options. We also prohibit employees from pledging Company securities as collateral for a loan. | |
Rule 10b5-1 Trading Plans | The Board of Directors has authorized the use by executive officers of prearranged trading plans under Rule 10b5-1 under the Exchange Act. Rule 10b5-1 permits insiders to adopt predetermined plans for selling specified amounts of stock or exercising stock options under specified conditions and at specified times. Executive officers may only enter into a trading plan during an open trading window and they must not possess material nonpublic information regarding the Company at the time they adopt the plan. Using trading plans, insiders can diversify their investment portfolios while avoiding concerns about transactions occurring at a time when they might possess material nonpublic information. Generally, under these trading plans, the individual relinquishes control over the transactions once the plan is put into place. Accordingly, sales may occur at any time, including possibly before, simultaneously with, or immediately after significant events involving the Company. Both new plans and modifications are subject to a mandatory “waiting period” designed to safeguard the plans from manipulation or market timing. Trading plans adopted by executive officers are reviewed and approved by the Legal Department. |
ITT INC. | ❘20182020 PROXY STATEMENT50 51
EXECUTIVE STOCK OWNERSHIP GUIDELINES
In 2019, the Compensation and Personnel Committee approved an increase of the stock ownership guidelines, which are expressed as a multiple of base salary:
■Executive Vice Presidents: Increased from 3x to 4x
■Senior Vice Presidents: Increased from 2x to 3x
The Company maintains stock ownership guidelines for all of its executive officers, including the NEOs. Executive officers have five years in order to meet the guidelines.
Stock ownership guidelines for officers specify the desired levels of Company stock ownership and encourage a set of behaviors for each officer to reach the guideline levels. The guidelines specify expected stock ownership levels expressed as a multiple of base salary, as set forth in the table below. Only the following equity holdings count towardstoward achieving these ownership levels: shares owned outright, Company unvested RSUs, shares held in the Company’s dividend reinvestment plan, shares owned in the ITT Retirement Savings Plan, and “phantom” shares held in a fund that tracks an index of the Company’s stock in the deferred compensation plan. Stock options and unvested PSUs, which comprise a significant percentage of total compensation for the CEO and other NEOs, do not count towards the achievement of our executive stock ownership guidelines.
Until an executive has attained the ownership levels set forth in the guidelines, executives are prohibited from selling any restricted stock that vests and becomes unrestricted, as well as required to hold all shares acquired through the exercise of stock options (except to the extent necessary to meet tax and exercise price obligations). Both the guidelines, and compliance with the guidelines, are monitored periodically. As of the date of this Proxy Statement,December 31, 2019, all NEOs either have met the guidelines, or are on track to meet the guidelines. In 2019, the Compensation and Personnel Committee approved a request from Mr. Savi to sell shares solely to facilitate his purchase of a house near our corporate headquarters during his relocation from China to the United States.
Chief Executive Officer | |
Executive Vice Presidents | |
Senior Vice Presidents | |
Selected Vice Presidents | 1 x Annual Base Salary |
HEDGING POLICY
Our NEOs are subject to the Company’s hedging policy described at page 22.
CONSIDERATIONS OF TAX AND ACCOUNTING IMPACTS
In establishing total compensation for the executive officers, the Compensation and Personnel Committee has considered the effect of Section 162(m) of the Internal Revenue Code and the accounting rules associated with the Company’s compensation programs. Prior to 2018,As a general matter, Section 162(m) generally disalloweddisallows a tax deduction for compensation over $1,000,000 paid for any fiscal year to the CEO, the CFO and the three other highest-paid NEOs, other than the CFO. However, Section 162(m) contained an exception from this $1,000,000 limit for compensation that qualified as “performance-based.”NEOs. The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) made several changes to Section 162(m), the most significant of which was removing thisan exception for “performance-based” compensation. In addition,compensation from the Tax Act extended the applicationcalculation of Section 162(m)compensation subject to the CFO and to any employee who, at any time after 2016, was the CEO, CFO or one of the other three highest-paid NEOs for a fiscal year. The changes made by the Tax Act apply beginning January 1, 2018, other than with respect to compensation paid pursuant to written binding contracts that were in effect on November 2, 2017.$1,000,000 deduction limitation.
The primary objective of the Company’s compensation program is to support the Company’s business strategy. Prior to the adoption of the Tax Act, the Compensation and Personnel Committee generally sought to preserve the deductibility of most compensation paid to executive officers, but believed it also should have flexibility to award non-deductible compensation. As a result of these considerations in 2017, our AIP awards, as well as awards under our LTI program (including PSUs, RSUs and stock options), were intended to qualify as performance-based compensation that was deductible under Section 162(m), provided, however, that there can be no guarantee that such awards would be treated as qualified performance-based compensation under Section 162(m). As a result of the Tax Act’s elimination of the exception for performance-based compensation, the Compensation and Personnel Committee did not design the 20182019 executive compensation program to preserve the deductibility of most compensation that is paid to executive officers, as it did in 2017 and prior years.to the adoption of the Tax Act. The elimination of the performance-based pay exemption did not otherwise affect the Company’s 20182019 executive compensation program.
For purposes of Section 162(m) compliance for PSUs and RSUs granted in 2017 and prior years, the payout of awards requires the Company to meet a threshold adjusted EBITDA target during the three-year performance period. If the threshold is achieved, the Compensation and Personnel Committee may use discretion and approve payouts that range from zero to 200% of the units initially awarded, depending on the Company’s performance. A threshold adjusted EBITDA target is also used for our AIP awards for executive officers, and if the threshold is achieved then the award is fully funded and the Compensation and Personnel Committee uses discretion to approve a payout according to the established financial performance metrics discussed above in the section entitled “2017 Annual Incentive Plan.”
ITT INC. | ❘20182020 PROXY STATEMENT51 52
The following table provides information regarding the compensation earned by each of our NEOs.
Name and Principal Position | Year | Salary | Bonus(1) | Stock Awards(2) | Option Awards(3) | Non-Equity Incentive Plan Comp(4) | Change in Pension Value and Non-qualified Deferred Comp Earnings(5) | All Other Comp(6) | Total | |||||||||||||||||||||||||
Denise L. Ramos Chief Executive Officer & President | 2017 | $ 1,000,000 | $ | — | $ | 4,766,404 | $ | — | $ 1,500,000 | $ 39,555 | $ 208,028 | $ 7,513,987 | ||||||||||||||||||||||
2016 | 1,000,000 | — | 3,500,125 | 1,125,012 | 805,000 | 35,585 | 211,818 | 6,677,540 | ||||||||||||||||||||||||||
2015 | 992,308 | — | 3,335,117 | 1,062,571 | 1,162,000 | 24,729 | 244,883 | 6,821,608 | ||||||||||||||||||||||||||
Thomas M. Scalera Executive Vice President and Chief Financial Officer | 2017 | 512,692 | — | 980,005 | — | 571,650 | 8,359 | 73,535 | 2,146,241 | |||||||||||||||||||||||||
2016 | 497,526 | — | 700,224 | 225,002 | 300,000 | 4,017 | 78,681 | 1,805,450 | ||||||||||||||||||||||||||
2015 | 468,077 | — | 828,180 | 200,034 | 417,525 | — | 87,092 | 2,000,908 | ||||||||||||||||||||||||||
Luca Savi Executive Vice President and Chief Operating Officer(7) | 2017 | 539,575 | — | 1,112,329 | — | 697,131 | — | 604,058 | 2,953,093 | |||||||||||||||||||||||||
2016 | 468,541 | — | 466,760 | 150,002 | 491,800 | — | 635,070 | 2,212,173 | ||||||||||||||||||||||||||
2015 | 460,394 | — | 655,384 | 81,309 | 432,207 | — | 732,586 | 2,361,880 | ||||||||||||||||||||||||||
Mary Beth Gustafsson Senior Vice President and General Counsel | 2017 | 457,923 | — | 741,553 | — | 524,400 | 2,412 | 58,766 | 1,785,054 | |||||||||||||||||||||||||
2016 | 445,103 | — | 625,188 | 168,752 | 274,598 | 1,828 | 67,288 | 1,582,757 | ||||||||||||||||||||||||||
2015 | 427,192 | — | 487,500 | 162,500 | 373,438 | — | 64,216 | 1,514,846 | ||||||||||||||||||||||||||
Victoria L. Creamer Senior Vice President and Chief Human Resources Officer | 2017 | 375,884 | 165,000 | 397,421 | — | 396,380 | — | 48,939 | 1,383,624 | |||||||||||||||||||||||||
2016 | 365,884 | 165,000 | 283,906 | 91,254 | 176,160 | — | 36,157 | 1,118,361 | ||||||||||||||||||||||||||
2015 | 321,731 | 570,000 | 378,666 | 87,554 | 235,620 | — | 63,237 | 1,656,808 |
Name and Principal Position | Year | Salary | Bonus | Stock Awards(1) | Non-Equity Incentive Plan Comp(2) | Change in Pension Value and Non-qualified Deferred Comp Earnings(3) | All Other Comp(4) | Total | ||||||||||||||
Luca Savi | 2019 | $ | 900,000 | $ | — | $ | 3,498,822 | $ | 1,314,000 | $ | — | $ | 1,355,751 | $ | 7,068,573 | |||||||
2018 | 649,309 | — | 1,582,038 | 877,630 | — | 738,900 | 3,847,877 | |||||||||||||||
2017 | 539,575 | — | 1,112,329 | 697,131 | — | 604,058 | 2,953,093 | |||||||||||||||
Thomas M. Scalera Executive Vice President and Chief Financial Officer | 2019 | 538,135 | — | 1,093,625 | 550,800 | 14,167 | 88,142 | 2,284,869 | ||||||||||||||
2018 | 527,694 | — | 2,080,799 | 580,350 | — | 85,488 | 3,274,331 | |||||||||||||||
2017 | 512,692 | — | 980,005 | 571,650 | 8,359 | 73,535 | 2,146,241 | |||||||||||||||
Mary Beth Gustafsson Senior Vice President, General Counsel and Corporate Secretary | 2019 | 480,174 | — | 820,519 | 502,490 | — | 75,576 | 1,878,759 | ||||||||||||||
2018 | 470,579 | — | 770,277 | 526,250 | — | 55,503 | 1,822,609 | |||||||||||||||
2017 | 457,923 | — | 741,553 | 524,400 | 2,412 | 58,766 | 1,785,054 | |||||||||||||||
Farrokh Batliwala Senior Vice President and President, Connect & Control Technologies | 2019 | 396,267 | — | 547,122 | 357,000 | — | 56,470 | 1,356,859 | ||||||||||||||
2018 | 378,462 | — | 464,103 | 430,350 | — | 46,041 | 1,318,956 | |||||||||||||||
Carlo Ghirardo(6) Senior Vice President and President, Motion Technologies | 2019 | 380,800 | 593,600 | 437,821 | 387,880 | — | 58,580 | 1,858,681 |
Amounts include the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 for PSUs and RSUs. A discussion of the assumptions used in calculating these values may be found in Note |
As described in the |
The |
ITT INC. | 2018 PROXY STATEMENT 52
Amounts in this column for |
Mr. Savi’s compensation was converted from euros to U.S. dollars based on the average exchange rate for the year Mr. Savi was paid. The exchange rates used were 1.12, 1.16, and 1.13 |
(6) | The payment of $593,600 for |
ITT INC.❘2020 PROXY STATEMENT 53
Denise L. Ramos | Thomas M. Scalera | Luca Savi | Mary Beth Gustafsson | Victoria L. Creamer | ||||||||||||||||
Executive Perquisites: | ||||||||||||||||||||
Financial Counseling(1) | $ | 15,000 | $ | 15,000 | $ | — | $ | 5,385 | $ | 15,000 | ||||||||||
Assignment and Relocation Expense(2) | — | — | 395,559 | — | — | |||||||||||||||
Total Perquisites | 15,000 | 15,000 | 395,559 | 5,385 | 15,000 | |||||||||||||||
All Other Compensation: | ||||||||||||||||||||
Tax Reimbursements(3) | — | — | 190,326 | — | — | |||||||||||||||
Insurance Benefits(4) | 7,524 | 833 | 18,173 | 2,105 | 587 | |||||||||||||||
Retirement Plan Contributions(5) | 185,504 | 57,702 | — | 51,276 | 33,352 | |||||||||||||||
Total All Other Compensation | $ | 208,028 | $ | 73,535 | $ | 604,058 | $ | 58,766 | $ | 48,939 |
Luca Savi | Thomas M. | Mary Beth | Farrokh | Carlo | |||||||||||
Executive Perquisites: | |||||||||||||||
Financial Counseling(1) | $ | — | $ | 9,000 | $ | 5,880 | $ | 9,150 | $ | — | |||||
Company Car(2) | — | — | — | — | 4,418 | ||||||||||
Assignment and Relocation Expense(3) | 374,748 | — | — | — | — | ||||||||||
Total Perquisites | 374,748 | 9,000 | 5,880 | 9,150 | 4,418 | ||||||||||
All Other Compensation: | |||||||||||||||
Tax Reimbursements(4) | 410,751 | — | — | — | — | ||||||||||
Insurance Benefits(5) | 993 | 880 | 2,224 | 417 | — | ||||||||||
Statutory Vacation Payout(6) | 441,481 | — | — | — | — | ||||||||||
Retirement Plan Contributions(7) | 127,778 | 78,262 | 67,472 | 46,903 | 54,162 | ||||||||||
Total All Other Compensation | $ | 1,355,751 | $ | 88,142 | $ | 75,576 | $ | 56,470 | $ | 58,580 |
(1) | Amounts represent taxable financial and estate planning services fees paid during |
(2) | Mr. Ghirardo receives a company car, which is a common market practice in Italy. ITT does not provide a company car perquisite to executives in the |
(3) | Mr. Savi started an international assignment in China during | ||
These allowances ceased when Mr. Savi and his family relocated to the U.S. and he is no longer eligible for assignment-related allowances. The cost for Mr. Savi’s relocation from China to the U.S. was $149,261. Mr. Savi’s assignment cost was converted from Chinese renminbi to U.S. dollars based on the 2019 average exchange rate |
(4) | Under ITT’s International Assignment policy, employees on assignment to another country maintain the tax treatment they would have received if they remained in their home country. Any incremental home or host country taxes associated with the assignment are paid by the Company. The Company paid |
(5) | Amounts include taxable group term-life insurance premiums attributable to each |
(6) | Mr. Savi received a required statutory vacation payout for vacation accrued over 8 years. Payout of this amount was required under applicable Italian law. Amounts shown in table were converted from euro to U.S. dollars based on the 2019 average exchange rate of 1.12. |
(7) | Amounts represent the total employer contributions under the ITT Retirement Savings Plan and the ITT Supplemental Retirement Savings Plan. |
ITT INC. | ❘20182020 PROXY STATEMENT53 54
GRANTS OF PLAN-BASED AWARDS IN 2017
2019
The following table provides information about 20172019 equity and non-equity awards for the NEOs. The table includes the grant date for equity-based awards, the estimated future payouts under non-equity incentive plan awards (which consist of potential payouts under the 20172019 AIP) and estimated future payouts under 20172019 equity incentive plan awards, which consist of potential payouts related to the PSUs granted in 20172019 for the 2017-20192019-2021 performance period. Also provided is the number of shares underlying all other stock awards, which for 20172019 were composed solely of RSU awards. The compensation plans under which the grants in the following table were made are the AIP andunder the 2011 Omnibus Incentive Plan.
Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | All Other Stock Awards: Number of Shares of | All Other Option Awards: Number of Securities Underlying | Exercise or Base Price of Option | Grant Date Fair Value: Equity Incentive Plan | |||||||||||||||||||||||||||||||||||||||
Name | Action Date | Grant Date | �� | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | Stock or Units(3)(#) | Options(4) (#) | Awards ($) | Awards(5) ($) | |||||||||||||||||||||||||||||||
Denise L. | 2/23/2017 | 2/23/2017 | $ | 500,000 | $ | 1,000,000 | $ | 2,000,000 | ||||||||||||||||||||||||||||||||||||
Ramos | 2/23/2017 | 2/23/2017 | 28,028 | 56,055 | 112,110 | $ | 2,516,309 | |||||||||||||||||||||||||||||||||||||
2/23/2017 | 2/23/2017 | 53,985 | $ | 2,250,095 | ||||||||||||||||||||||||||||||||||||||||
Thomas M. | 2/23/2017 | 2/23/2017 | $ | 193,125 | $ | 386,250 | $ | 772,500 | ||||||||||||||||||||||||||||||||||||
Scalera | 2/23/2017 | 2/23/2017 | 5,763 | 11,525 | 23,050 | $ | 517,357 | |||||||||||||||||||||||||||||||||||||
2/23/2017 | 2/23/2017 | 11,100 | $ | 462,648 | ||||||||||||||||||||||||||||||||||||||||
Luca Savi | 2/23/2017 | 2/23/2017 | $ | 229,320 | $ | 458,639 | $ | 917,278 | ||||||||||||||||||||||||||||||||||||
2/23/2017 | 2/23/2017 | 6,540 | 13,080 | 26,160 | $ | 587,161 | ||||||||||||||||||||||||||||||||||||||
2/23/2017 | 2/23/2017 | 12,600 | $ | 525,168 | ||||||||||||||||||||||||||||||||||||||||
Mary Beth | 2/23/2017 | 2/23/2017 | $ | 172,500 | $ | 345,000 | $ | 690,000 | ||||||||||||||||||||||||||||||||||||
Gustafsson | 2/23/2017 | 2/23/2017 | 4,360 | 8,720 | 17,440 | $ | 391,441 | |||||||||||||||||||||||||||||||||||||
2/23/2017 | 2/23/2017 | 8,400 | $ | 350,112 | ||||||||||||||||||||||||||||||||||||||||
Victoria L. | 2/23/2017 | 2/23/2017 | $ | 132,125 | $ | 264,250 | $ | 528,500 | ||||||||||||||||||||||||||||||||||||
Creamer | 2/23/2017 | 2/23/2017 | 2,338 | 4,675 | 9,350 | $ | 209,861 | |||||||||||||||||||||||||||||||||||||
2/23/2017 | 2/23/2017 | 4,500 | $ | 187,560 |
Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | All Other Stock Awards: | Grant Date Fair Value: Equity | |||||||||||||||||
Name | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | Number of Shares of Stock or Units(3) (#) | Incentive Plan Awards(4) ($) | |||||||||||
Luca Savi | 3/4/2019 | 450,000 | 900,000 | 1,800,000 | ||||||||||||||||
3/4/2019 | 16,963 | 33,925 | 67,850 | 2,218,695 | ||||||||||||||||
3/4/2019 | 21,935 | 1,280,127 | ||||||||||||||||||
Thomas M. Scalera | 3/4/2019 | 202,500 | 405,000 | 810,000 | ||||||||||||||||
3/4/2019 | 5,303 | 10,605 | 21,210 | 693,567 | ||||||||||||||||
3/4/2019 | 6,855 | 400,058 | ||||||||||||||||||
Mary Beth Gustafsson | 3/4/2019 | 180,750 | 361,500 | 723,000 | ||||||||||||||||
3/4/2019 | 3,978 | 7,955 | 15,910 | 520,257 | ||||||||||||||||
3/4/2019 | 5,145 | 300,262 | ||||||||||||||||||
Farrokh Batliwala | 3/4/2019 | 150,000 | 300,000 | 600,000 | ||||||||||||||||
3/4/2019 | 2,653 | 5,305 | 10,610 | 346,947 | ||||||||||||||||
3/4/2019 | 3,430 | 200,175 | ||||||||||||||||||
Carlo Ghirardo | 3/4/2019 | 134,680 | 269,360 | 538,720 | ||||||||||||||||
3/4/2019 | 2,123 | 4,245 | 8,490 | 277,623 | ||||||||||||||||
3/4/2019 | 2,745 | 160,198 |
(1) | Amounts reflect the threshold, target and maximum payment levels, respectively, if an award payout is achieved under the AIP. These potential payments are based on achievement of specific performance metrics and are completely at risk. The AIP target award is computed based upon the applicable range of net estimated payments denominated in dollars where the target award is equal to 100% of the award potential, the threshold is equal to 50% of target, and the maximum is equal to 200% of target. Zero payment is possible for performance below the threshold. Mr. |
(2) | Amounts reflect the threshold, target and maximum unit levels, respectively, |
(3) | Amounts reflect RSU awards granted in |
(4) | ||
Amounts represent the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 for PSU and RSU awards granted to the NEOs in |
ITT INC. | ❘20182020 PROXY STATEMENT54 55
OUTSTANDING EQUITY AWARDS AT 20172019 FISCAL YEAR END
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||
Name | Grant Date | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable(1) (#) | Equity Incentive Plan Award: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested(2) (#) | Market Value of Shares or Units of Stock That Have Not Vested(3) ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested(2) (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested(3) ($) | ||||||||||||||||||||||||||||
Denise L. Ramos | 3/5/2013 | 105,295 | — | — | 26.76 | 3/5/2023 | — | — | — | — | ||||||||||||||||||||||||||||
3/4/2014 | 74,470 | — | — | 43.52 | 3/4/2024 | — | — | — | — | |||||||||||||||||||||||||||||
2/25/2015 | — | 92,720 | — | 41.52 | 2/25/2025 | 25,595 | 1,366,005 | 38,138 | 2,035,425 | |||||||||||||||||||||||||||||
2/19/2016 | — | 123,900 | — | 33.01 | 2/19/2026 | 34,085 | 1,819,116 | 35,693 | 1,904,935 | |||||||||||||||||||||||||||||
2/23/2017 | — | — | — | — | — | 53,985 | 2,881,179 | 28,028 | 1,495,854 | |||||||||||||||||||||||||||||
Thomas M. Scalera | 3/4/2014 | 13,830 | — | — | 43.52 | 3/4/2024 | — | — | — | — | ||||||||||||||||||||||||||||
2/25/2015 | — | 17,455 | — | 41.52 | 2/25/2025 | 9,640 | 514,487 | 7,182 | 383,303 | |||||||||||||||||||||||||||||
2/19/2016 | — | 24,780 | — | 33.01 | 2/19/2026 | 6,820 | 363,983 | 7,140 | 381,062 | |||||||||||||||||||||||||||||
2/23/2017 | — | — | — | — | — | 11,100 | 592,407 | 5,763 | 307,571 | |||||||||||||||||||||||||||||
Luca Savi | 3/8/2012 | 13,295 | — | — | 22.80 | 3/8/2022 | — | — | — | — | ||||||||||||||||||||||||||||
3/5/2013 | 10,290 | — | — | 26.76 | 3/5/2023 | — | — | — | — | |||||||||||||||||||||||||||||
3/4/2014 | 6,385 | — | — | 43.52 | 3/4/2024 | — | — | — | — | |||||||||||||||||||||||||||||
2/25/2015 | — | 7,095 | — | 41.52 | 2/25/2025 | 11,595 | 618,825 | 2,920 | 155,840 | |||||||||||||||||||||||||||||
2/19/2016 | — | 16,520 | — | 33.01 | 2/19/2026 | 4,545 | 242,567 | 4,760 | 254,041 | |||||||||||||||||||||||||||||
2/23/2017 | — | — | — | — | — | 12,600 | 672,462 | 6,540 | 349,040 | |||||||||||||||||||||||||||||
Mary Beth Gustafsson | 3/4/2014 | 13,405 | — | — | 43.52 | 3/4/2024 | — | — | — | — | ||||||||||||||||||||||||||||
2/25/2015 | — | 14,185 | — | 41.52 | 2/25/2025 | 3,915 | 208,944 | 5,836 | 311,467 | |||||||||||||||||||||||||||||
2/19/2016 | — | 18,585 | — | 33.01 | 2/19/2026 | 8,145 | 434,699 | 5,355 | 285,796 | |||||||||||||||||||||||||||||
2/23/2017 | — | — | — | — | — | 8,400 | 448,308 | 4,360 | 232,693 | |||||||||||||||||||||||||||||
Victoria L. Creamer | 2/25/2015 | — | 7,640 | — | 41.52 | 2/25/2025 | 4,610 | 246,036 | 3,143 | 167,742 | ||||||||||||||||||||||||||||
2/19/2016 | — | 10,050 | — | 33.01 | 2/19/2026 | 2,765 | 147,568 | 2,895 | 154,506 | |||||||||||||||||||||||||||||
2/23/2017 | — | — | — | — | — | 4,500 | 240,165 | 2,338 | 124,779 |
Option Awards | Stock Awards | ||||||||||
Name | Grant Date | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable(1) (#) | Equity Incentive Plan Award: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested(2) (#) | Market Value of Shares or Units of Stock That Have Not Vested(3) ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested(2) (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested(3) ($) | |
Luca Savi | 3/8/2012 | 13,295 | — | — | 22.80 | 3/8/2022 | — | — | — | — | |
3/5/2013 | 10,290 | — | — | 26.76 | 3/5/2023 | — | — | — | — | ||
3/4/2014 | 6,385 | — | — | 43.52 | 3/4/2024 | — | — | — | — | ||
2/25/2015 | 7,095 | — | — | 41.52 | 2/25/2025 | — | — | — | — | ||
2/19/2016 | 16,520 | — | — | 33.01 | 2/19/2026 | — | — | — | — | ||
2/23/2017 | — | — | — | — | — | 12,600 | 931,266 | 20,980 | 1,550,632 | ||
2/26/2018 | — | — | — | — | — | 14,080 | 1,040,653 | 7,260 | 536,587 | ||
3/4/2019 | — | — | — | — | — | 21,935 | 1,621,216 | 16,963 | 1,253,735 | ||
Thomas M. Scalera | 2/23/2017 | — | — | — | — | — | 11,100 | 820,401 | 18,486 | 1,366,300 | |
2/26/2018 | — | — | — | — | — | 9,155 | 676,646 | 4,720 | 348,855 | ||
8/6/2018 | — | — | — | — | — | 8,055 | 595,345 | 4,115 | 304,140 | ||
3/4/2019 | — | — | — | — | — | 6,855 | 506,653 | 5,303 | 391,945 | ||
Mary Beth Gustafsson | 3/4/2014 | 13,405 | — | — | 43.52 | 3/4/2024 | — | — | — | — | |
2/25/2015 | 14,185 | — | 41.52 | 2/25/2025 | — | — | — | — | |||
2/19/2016 | 18,585 | — | — | 33.01 | 2/19/2026 | — | — | — | — | ||
2/23/2017 | — | — | — | — | — | 8,400 | 620,844 | 13,987 | 1,033,779 | ||
2/26/2018 | — | — | — | — | — | 6,855 | 506,653 | 3,535 | 261,272 | ||
3/4/2019 | — | — | — | — | — | 5,145 | 380,267 | 3,978 | 294,014 | ||
Farrokh Batliwala | 2/23/2017 | — | — | — | — | — | 5,100 | 376,941 | 8,493 | 627,718 | |
2/26/2018 | — | — | — | — | — | 4,130 | 305,248 | 2,130 | 157,428 | ||
3/4/2019 | — | — | — | — | — | 3,430 | 253,511 | 2,653 | 196,083 | ||
Carlo Ghirardo | 4/9/2018 | — | — | — | — | — | 4,090 | 302,292 | 1,935 | 143,016 | |
4/9/2018 | — | — | — | — | — | 5,285 | 390,614 | — | — | ||
3/4/2019 | — | — | — | — | — | 2,745 | 202,883 | 2,123 | 156,911 |
(1) | Stock options vest on the third anniversary of the grant date and expire 10 years after the grant date. |
(2) | RSUs generally vest 100% on the third anniversary of the grant date. Mr. Ghirardo’s award of 5,285 RSUs granted on April 9, 2018 was granted to offset forfeited stock awards at his previous employer and vest two years after the grant date. PSUs vest upon the completion of a three-year performance period beginning January 1 of the grant year and are shown at threshold payout, with the exception of the |
(3) | Reflects the Company’s closing stock price of |
ITT INC. | ❘20182020 PROXY STATEMENT55 56
OPTION EXERCISES AND STOCK VESTED IN 2017
2019
The following table provides information regarding the values realized by our NEOs upon the exercise of stock options and the vesting of stock awards in 2017.2019.
Option Awards | Stock Awards | |||||||||||
Named Executive Officer | # of Shares Acquired on Exercise | Value Realized on Exercise | # of Shares Acquired on Vesting | Value Realized on Vesting | ||||||||
Luca Savi | — | $ | — | 16,540 | $ | 955,781 | ||||||
Thomas M. Scalera | 56,065 | 1,307,814 | 24,813 | 1,433,840 | ||||||||
Mary Beth Gustafsson | — | — | 21,640 | 1,245,257 | ||||||||
Farrokh Batliwala | 8,950 | 253,881 | 8,967 | 518,165 | ||||||||
Carlo Ghirardo | — | — | — | — |
Option Awards | Stock Awards | |||||||||||||||
Named Executive Officer | # of Shares Acquired on Exercise | Value Realized on Exercise | # of Shares Acquired on Vesting | Value Realized on Vesting | ||||||||||||
Denise L. Ramos | 286,100 | $ 7,075,261 | 20,110 | $ 827,527 | ||||||||||||
Thomas M. Scalera | 102,018 | 1,871,427 | 3,735 | 153,695 | ||||||||||||
Luca Savi | — | — | 4,225 | 173,859 | ||||||||||||
Mary Beth Gustafsson | — | — | 12,815 | 527,337 | ||||||||||||
Victoria L. Creamer | — | — | — | — |
Effective on October 31, 2011, all of the Company’s pension benefits described in this section were frozen, and the cumulative liability of these benefits was assumed by Exelis Inc. only. Ms. Ramos andOnly Mr. Scalera participated in the plans described below and they remainremains eligible for frozen pension benefits under the ITT Salaried Retirement Plan.
ITT SALARIED RETIREMENT PLAN
Under the ITT Salaried Retirement Plan, participants had the option, on an annual basis, to elect to be covered under either a Traditional Pension Plan or a Pension Equity Plan formula for future pension accruals. The ITT Salaried Retirement Plan was a funded and tax-qualified retirement program. The plan is described in detail below.
While the Traditional Pension Plan formula paid benefits on a monthly basis after retirement, the Pension Equity Plan formula enabled participants to elect to have benefits paid as a single sum payment upon employment termination, regardless of the participant’s age. The Traditional Pension Plan benefit payable to an employee depended upon the date an employee first became a participant under the plan.
TRADITIONAL PENSION PLAN
A participant first employed prior to January 1, 2000, under the Traditional Pension Plan would receive an annual pension that would be the total of:
■ | 2% of his or her average final compensation (as defined below) for each of the first 25 years of benefit service, plus |
■ | 1.5% of his or her average final compensation for each of the next 15 years of benefit service, reduced by |
■ | 1.25% of his or her primary Social Security benefit for each year of benefit service up to a maximum of 40 years. |
A participant first employed on or after January 1, 2000, under the Traditional Pension Plan would receive an annual pension that would equal:
■ | 1.5% of his or her average final compensation for each year of benefit service up to 40 years, reduced by |
■ | 1.25% of his or her primary Social Security benefit for each year of benefit service up to a maximum of 40 years. |
For a participant first employed prior to January 1, 2005, average final compensation (including salary and approved bonus or AIP awards) is the total of:
■ | The participant’s average annual base salary for the five calendar years of the last 120 consecutive calendar months of eligibility service that would result in the highest average annual base salary amount, plus |
■ | The participant’s average annual pension eligible compensation, not including base salary, for the five calendar years of the participant’s last 120 consecutive calendar months of eligibility service that would result in the highest average annual compensation amount. |
For a participant first employed on or after January 1, 2005, average final compensation is the average of the participant’s total pension eligible compensation (salary, bonus and annual incentive payments for NEOs and other exempt salaried employees) over the highest five consecutive calendar years of the participant’s final 120 months of eligibility service.
ITT INC. | ❘20182020 PROXY STATEMENT56 57
As it applies to participants first employed prior to January 1, 2000, under the Traditional Pension Plan, Standard Early Retirement is available to employees at least 55 years of age with 10 years of eligibility service. Special Early Retirement is available to employees at least age 55 with 15 years of eligibility service or at least age 50 whose age plus total eligibility service equals at least 80. For Standard Early Retirement, if payments begin before age 65, payments from anticipated payments at the normal retirement age of 65 (the “Normal Retirement Age”) are reduced by one-fourth of one percent for each month that payments commence prior to the Normal Retirement Age. For Special Early Retirement, if payments begin between ages 60- 64, benefits will be payable at 100%. If payments begin prior to age 60, they are reduced by five-twelfths of one percent for each month that payments start before age 60 but not more than 25%. For participants first employed from January 1, 2000 through December 31, 2004, under the Traditional Pension Plan, Standard Early Retirement was available as described above. Special Early Retirement was also available to employees who attained at least age 55 with 15 years of eligibility service (but not earlier than age 55). For Special Early Retirement, the benefit payable at or after age 62 would be at 100%; if payments commenced prior to age 62 they would be reduced by five-twelfths of one percent for each of the first 48 months prior to age 62 and by an additional four twelfths of one percent for each of the next 12 months and by an additional three-twelfths of one percent for each month prior to age 57.
For participants first employed on or after January 1, 2005, and who retire before age 65, benefits may commence at or after age 55 but they would be reduced by five ninths of one percent for each of the first 60 months prior to age 65 and an additional five eighteenths of one percent for each month prior to age 60.
PENSION EQUITY PLAN
A participant under the Pension Equity Plan would receive a single sum pension that would equal the total accumulated percentage (as described below) times final average compensation (as defined above).
Total accumulated percentage is the sum of annual percentages earned for each year of benefit service. The percentage earned for any given year of benefit service ranges from three percent to six percent based on age:
■ | Under age 30: 3% per year of benefit service |
■ | Age 30 to age 39: 4% per year of benefit service |
■ | Age 40 to age 49: 5% per year of benefit service |
■ | Age 50 and over: 6% per year of benefit service |
Effective January 1, 2008, the ITT Salaried Retirement Plan was amended to provide for a three-year vesting requirement. In addition, for employees who were already vested and who were involuntarily terminated and entitled to severance payments from the Company, additional months of age and service (not to exceed 24 months) were to be imputed based on the employee’s actual service to his or her last day worked, solely for purposes of determining eligibility for early retirement.
The 20172019 Pension Benefits table provides information on the pension benefits for the NEOs. Ms. Ramos and Mr. Scalera participated under the terms of the plan in effect for employees hired after January 1, 2005. The Traditional Pension Plan accumulated benefit an employee earned over his or her career with the Company is payable on a monthly basis starting after retirement. Employees may retire as early as age 50 under the terms of the plan. Pensions may be reduced if retirement starts before age 65. Possible pension reductions are described above. The Pension Equity Plan benefit can be received as a lump sum or an annuity following termination. Mr. Scalera participated in the Pension Equity Plan formula prior to 2011. Ms. Ramos has always participated only under the Traditional Pension Plan formula. Benefits under this plan are subject to the limitations imposed under Sections 415 and 401(a)(17) of the Internal Revenue Code in effect as of December 31, 2011. Section 415 limits the amount of annual pension payable from a qualified plan. For 2017,2019, this limit is $215,000$225,000 per year for a single-life annuity payable at an IRS-prescribed retirement age. This ceiling may be actuarially adjusted in accordance with IRS rules for items such as employee contributions, other forms of distribution and different annuity starting dates. Section 401(a) (17) limits the amount of compensation that may be recognized in the determination of a benefit under a qualified plan. For 2017,2019, this limit is $270,000.$280,000.
20172019 PENSION BENEFITS TABLE
Named Executive Officer | Plan Name | Number of Years Credit Service (#) | Present Value of Accumulated Benefit at Earliest Date for Unreduced Benefit | Payments During Last Fiscal Year | ||||||||||
Denise L. Ramos | ITT Salaried Retirement Plan | 4.33 | $ 186,373 | $ — | ||||||||||
Thomas M. Scalera(1) | ITT Salaried Retirement Plan | 5.77 | 56,105 | — | ||||||||||
Luca Savi(2) | ITT Salaried Retirement Plan | N/A | N/A | N/A | ||||||||||
Mary Beth Gustafsson(3) | ITT Salaried Retirement Plan | N/A | N/A | N/A | ||||||||||
Victoria L. Creamer(3) | ITT Salaried Retirement Plan | N/A | N/A | N/A |
Named Executive Officer | Plan Name | Number of Years Credit Service (#) | Present Value of Accumulated Benefit at Earliest Date for Unreduced Benefit ($) | Payments During Last Fiscal Year ($) | |||||||
Luca Savi(1) | ITT Salaried Retirement Plan | N/A | N/A | N/A | |||||||
Thomas M. Scalera(2) | ITT Salaried Retirement Plan | 5.77 | 65,370 | — | |||||||
Mary Beth Gustafsson(3) | ITT Salaried Retirement Plan | N/A | N/A | N/A | |||||||
Farrokh Batliwala(3) | ITT Salaried Retirement Plan | N/A | N/A | N/A | |||||||
Carlo Ghirardo(4) | ITT Salaried Retirement Plan | N/A | N/A | N/A |
(1) | As previously described, Mr. Savi became eligible for U.S. benefits in 2019 and is not eligible for pension, however, he continues to have a statutory retirement benefit under Italian law for his previous ITT service in Italy. |
(2) | Mr. Scalera has an accrued benefit under both the Traditional Pension Plan formula and the Pension Equity Plan formula. His lump sum Pension Equity Plan benefit is |
(3) | Ms. Gustafsson and |
(4) | Mr. Ghirardo receives statutory retirement benefits under Italian law and other benefits applicable to Dirigenti employees. |
ITT INC. | ❘20182020 PROXY STATEMENT57 58
Assumptions used to determine present value as of December 31, 20172019 are generally consistent with those used by Harris CorporationL3Harris Technologies Inc. (the acquirerultimate owner of the ITT Salaried Retirement Plan from Exelis Inc. in 2015)). The assumptions utilized were as follows:
■ | Measurement date: December 31, |
■ | Discount Rate: |
■ | Mortality (pre-commencement): None |
■ | Mortality (post-commencement): |
■ | Mortality projection (post-commencement): Generational projection with |
■ | Normal retirement date: age 65 |
■ | Unreduced retirement date: age 65 |
■ | Assumed benefit commencement date: age 65 |
■ | Accumulated benefit is calculated based on credited service and pay as of October 31, 2011 |
■ | For benefits under the Traditional Pension Plan formula, present value is based on the single life annuity payable at assumed benefit commencement date. |
■ | For benefits under the Pension Equity Plan formula, present value is based on projected lump sum value at assumed benefit commencement date; Pension Equity Plan value is projected from December 31, |
■ | All results shown are estimates only; actual benefits will be based on precise credited service and compensation history, which will be determined at benefit commencement date. |
20172019 NONQUALIFIED DEFERRED COMPENSATION
ITT DEFERRED COMPENSATION PLAN
The ITT Deferred Compensation Plan is a tax deferral plan.plan that was frozen to new deferrals effective as of 2020. The ITT Deferred Compensation Plan permitspermitted eligible employees with a base salary of at least $200,000 to defer between 2% and 90% of their AIP payment. The AIP amount deferred is included in the Summary Compensation Table under Non-Equity Incentive Plan Compensation. Withdrawals under the plan are available on payment dates elected by participants at the time of the deferral election. The withdrawal election is irrevocable, except in cases of demonstrated hardship due to an unforeseeable emergency as provided by the ITT Deferred Compensation Plan. Amounts deferred will be unsecured general obligations of the Company to pay the deferred compensation in the future and employees will have the rights of an unsecured general creditor with respect to those funds.
Participants can elect to have their account balances allocated into one or more of the 25 phantom investment funds (including a phantom Company stock fund) and can change their investment allocations on a daily basis. All plan accounts are maintained on the accounts of the Company and investment earnings are credited to a participant’s account (and charged to corporate earnings) to mirror the investment returns achieved by the investment funds chosen by that participant.
A participant can establish up to six “accounts” into which AIP award deferrals are credited and he or she can elect a different form of payment and a different payment commencement date for each “account.” One account may be selected based on a termination date (the “Termination Account”) and five accounts are based on employee-specified dates (each a “Special Purpose Account”). Each Special Purpose Account and Termination Account may have different investment and payment options. Termination Accounts will be paid in the seventh month following the last day worked. Changes to Special Purpose Account distribution elections must be made at least 12 months before any existing benefit payment date, may not take effect for at least 12 months, and must postpone the existing benefit payment date by at least five years. Additionally, Termination Account distribution elections are irrevocable.
ITT INC. | ❘20182020 PROXY STATEMENT58 59
The table below shows the annual rate of return for the funds available under the ITT Deferred Compensation Plan, as reported by the administrator for the calendar year ended December 31, 2017.2019.
Name of Fund | Rate of Return 1/1/17 to 12/31/17 | Name of Fund | Rate of Return 1/1/17 to 12/31/17 | |||||||
Fixed Rate Option(1) | 3.35 | % | American Funds EuroPacific Growth (REREX) | 30.70 | % | |||||
PIMCO Total Return Institutional (PTTRX) | 5.13 | % | First Eagle Overseas A (SGOVX) | 14.05 | % | |||||
PIMCO Real Return Institutional (PRRIX) | 3.92 | % | Lazard Emerging Markets Equity Open (LZOEX) | 27.73 | % | |||||
T Rowe Price High Yield (PRHYX) | 7.37 | % | Clearbrige Small Cap Growth IS (LMOIX) | 25.47 | % | |||||
Dodge & Cox Stock (DODGX) | 18.33 | % | DFA US Targeted Value I (DFFVX) | 9.59 | % | |||||
Vanguard Developed Markets Index Inv (VDVIX) | 26.31 | % | Invesco Global Real Estate A (AGREX) | 12.66 | % | |||||
Vanguard 500 Index (VFINX) | 21.67 | % | Model Portfolio(2)— Conservative | 6.27 | % | |||||
American Funds Growth Fund of America R4 (RGAEX) | 26.09 | % | Model Portfolio(2)— Moderate Conservative | 10.88 | % | |||||
Artisan Mid Cap (ARTMX) | 20.48 | % | Model Portfolio(2)— Moderate | 14.47 | % | |||||
Vanguard Selected Value Inv (VASVX) | 19.51 | % | Model Portfolio(2)— Moderate Aggressive | 17.62 | % | |||||
Vanguard Federal Money Market Inv (VMFXX) | 0.81 | % | Model Portfolio(2)— Aggressive | 21.53 | % | |||||
Harbor International (HIINX) | 22.45 | % | ITT Stock Fund (ITT) | 40.06 | % | |||||
Vanguard Total Bond Market Index (VBMFX) | 3.46 | % |
Name of Fund | Rate of Return 1/1/19 to 12/31/19 | Name of Fund | Rate of Return 1/1/19 to 12/31/19 | |||||
Fixed Rate Option(1) | 3.00 | % | American Funds EuroPacific Growth (REREX) | 26.98 | % | |||
PIMCO Total Return Institutional (PTTRX) | 8.26 | % | First Eagle Overseas A (SGOVX) | 17.61 | % | |||
PIMCO Real Return Institutional (PRRIX) | 8.52 | % | Lazard Emerging Markets Equity Open (LZOEX) | 17.73 | % | |||
T Rowe Price High Yield (PRHYX) | 14.66 | % | Clearbrige Small Cap Growth IS (LMOIX) | 25.78 | % | |||
Dodge & Cox Stock (DODGX) | 24.83 | % | DFA US Targeted Value I (DFFVX) | 21.47 | % | |||
American Funds Growth Fund of America R4 (RGAEX) | 28.10 | % | Invesco Global Real Estate A (AGREX) | 22.47 | % | |||
Vanguard 500 Index Admiral (VFIAX) | 31.46 | % | Model Portfolio(2) — Conservative | 10.59 | % | |||
Vanguard Selected Value Inv (VASVX) | 29.54 | % | Model Portfolio(2) — Moderate Conservative | 15.03 | % | |||
Artisan Mid Cap (ARTMX) | 38.12 | % | Model Portfolio(2) — Moderate | 18.89 | % | |||
Hartford Schroders Int’l Multi-Cap Value S (SIDRX) | 18.56 | % | Model Portfolio(2) — Moderate Aggressive | 22.29 | % | |||
Vanguard Federal Money Market Inv (VMFXX) | 2.14 | % | Model Portfolio(2) — Aggressive | 25.68 | % | |||
Vanguard Total Bond Market Index Adm (VBTLX) | 8.71 | % | ITT Stock Fund (ITT) | 54.58 | % | |||
Vanguard Developed Markets Index Adm (VTMGX) | 22.05 | % |
(1) | The Fixed Rate Option rate is based on guaranteed contractual returns from the insurance company provider. |
(2) | The returns shown in the model portfolio are not subsidized by the Company, but represent returns for a managed portfolio based on funds available to deferred compensation participants. |
ITT SUPPLEMENTAL RETIREMENT SAVINGS PLAN.
ITT Supplemental Retirement Savings Plan.Since federal law limits the amount of compensation that can be used to determine employee and employer contribution amounts to the tax-qualified plan to $270,000($280,000 in 2017,2019), the Company has established and maintains a non-qualified unfunded ITT Supplemental Retirement Savings Plan to allow for Company contributions based on base salary and actual annual bonus paid in excess of these limits. All balances under this plan are maintained on the books of the Company and earnings are credited to the accumulated savings under the plan based on the earnings in the Stable Value Fund in the tax-qualified plan. Benefits will be paid in a lump sum in the seventh month following the last day worked. Effective January 1, 2012, the plan was amended to no longer permit employee contributions.
ITT INC. | ❘20182020 PROXY STATEMENT59 60
2017
2019 NONQUALIFIED DEFERRED COMPENSATION TABLE
The table below shows nonqualified deferred compensation activity for the NEOs for 2017.2019.
Name | Executive Contributions Last Fiscal Year(1) | Registrant Contributions Last Fiscal Year(2) | Aggregate Earnings Last Fiscal Year | Aggregate Withdrawals/ Distributions | Aggregate Balance at Last Fiscal Year End | |||||||||
Luca Savi | ||||||||||||||
Non-qualified savings | $ | — | $ | 6,327 | $ | 6 | $ | — | $ | 6,333 | ||||
Deferred compensation | — | — | — | — | — | |||||||||
TOTAL | $ | — | $ | 6,327 | $ | 6 | $ | — | $ | 6,333 | ||||
Thomas M. Scalera | ||||||||||||||
Non-qualified savings | $ | — | $ | 58,694 | $ | 7,478 | $ | — | $ | 364,375 | ||||
Deferred compensation | — | — | — | — | — | |||||||||
TOTAL | $ | — | $ | 58,694 | $ | 7,478 | $ | — | $ | 364,375 | ||||
Mary Beth Gustafsson | ||||||||||||||
Non-qualified savings | $ | — | $ | 50,850 | $ | 3,143 | $ | — | $ | 164,475 | ||||
Deferred compensation | — | — | 139,631 | — | 1,200,597 | |||||||||
TOTAL | $ | — | $ | 50,850 | $ | 142,774 | $ | — | $ | 1,365,072 | ||||
Farrokh Batliwala | ||||||||||||||
Non-qualified savings | $ | — | $ | 32,797 | $ | 1,426 | $ | — | $ | 79,487 | ||||
Deferred compensation | — | — | — | — | — | |||||||||
TOTAL | $ | — | $ | 32,797 | $ | 1,426 | $ | — | $ | 79,487 | ||||
Caro Ghirardo | ||||||||||||||
Non-qualified savings | $ | — | $ | — | $ | — | $ | — | $ | — | ||||
Deferred compensation | — | — | — | — | — | |||||||||
TOTAL | $ | — | $ | — | $ | — | $ | — | $ | — |
Name | Executive Contributions Last Fiscal Year(1) | Registrant Contributions Last Fiscal Year(2) | Aggregate Earnings Last Fiscal Year(3) | Aggregate Withdrawals/ Distributions | Aggregate Balance at Last Fiscal Year End | ||||||||||||||
Denise L. Ramos | |||||||||||||||||||
Non-qualified savings | $ | — | $ | 158,941 | $ | 17,635 | $ | — | $ | 1,002,079 | |||||||||
Deferred compensation | — | $ | — | 115,756 | 166,833 | 3,570,704 | |||||||||||||
TOTAL | — | 158,941 | 133,391 | 166,833 | 4,572,783 | ||||||||||||||
Thomas M. Scalera | |||||||||||||||||||
Non-qualified savings | — | 38,338 | 4,024 | — | 234,741 | ||||||||||||||
Deferred compensation | — | — | — | — | — | ||||||||||||||
TOTAL | — | 38,338 | 4,024 | — | 234,741 | ||||||||||||||
Luca Savi | |||||||||||||||||||
Non-qualified savings | — | — | — | — | — | ||||||||||||||
Deferred compensation | — | — | — | — | — | ||||||||||||||
TOTAL | — | — | — | — | — | ||||||||||||||
Mary Beth Gustafsson | |||||||||||||||||||
Non-qualified savings | — | 15,427 | 1,377 | — | 85,619 | ||||||||||||||
Deferred compensation | 247,138 | 17,300 | 41,121 | — | 676,239 | ||||||||||||||
TOTAL | 247,138 | 32,727 | 42,498 | — | 761,858 | ||||||||||||||
Victoria L. Creamer | |||||||||||||||||||
Non-qualified savings | — | 17,223 | 574 | — | 41,617 | ||||||||||||||
Deferred compensation | — | — | — | — | — | ||||||||||||||
TOTAL | — | 17,223 | 574 | — | 41,617 |
Note:Note: “Non-qualified savings” represent amounts in the ITT Supplemental Retirement Savings Plan. “Deferred compensation” earnings under the ITT Deferred Compensation Plan are calculated by reference to actual earnings of the investment funds as provided in the table above.
(1) |
(2) | Amounts represent the core, match and applicable transition employer contributions into the ITT Supplemental Retirement Savings Plan (Non-qualified savings) and the ITT Deferred Compensation Plan (Deferred compensation). | |
ITT INC. | ❘20182020 PROXY STATEMENT60 61
POTENTIAL POST-EMPLOYMENT COMPENSATION
The potential post-employment compensation tables reflect the amount of compensation payable to each of the NEOs in the event their ITT employment with us ceases, including voluntary termination, termination for cause, death or disability, termination without cause, or termination in connection with a change of control. Post-separation compensation of our NEOs, other than Mr. Savi,Ghirardo, is governed by the ITT Senior Executive Severance Pay Plan. In addition, post-separation compensation of all of our NEOs is governed by the ITT Senior Executive Change in Control Severance Pay Plan (applicable to situations involving a change of control) and our equity award agreements. In the case of Mr. Scalera, the length of his severance benefit is specified in a 2011 employment letter entered into at the time of the Spin Transaction. Ms. Ramos’ post-separation compensation and the severance terms applicable to her in the event of an acceleration event are covered under her employment agreement.
The amounts shown in the potential post-employment compensation tables are estimates, assuming that the triggering event occurred on December 31, 2017,2019, including amounts that would be earned through such date (or that would be earned during a period of severance), and where applicable, are based on the closing price of the Company’s stock on December 29, 2017,31, 2019, the last trading day of 2017,2019, which was $53.37.
$73.91.
The actual amounts to be paid out can only be determined at the time of such executive’s separation from the Company.
PAYMENTS AND BENEFITS PROVIDED GENERALLY TO SALARIED EMPLOYEES
The amounts shown in the tables in this section do not include payments and benefits to the extent these payments and benefits are provided on a non-discriminatory basis to salaried employees generally upon termination of employment. These include:
■ | Accrued salary and vacation pay. |
■ | Regular pension benefits under the ITT Salaried Retirement Plan (frozen as of the date of the Spin Transaction and transferred to |
■ | Health care benefits provided to retirees under the ITT Salaried Retirement Plan, including retiree medical and dental insurance (if eligible as of the date of the Spin Transaction). Employees who terminate prior to retirement are eligible for continued benefits under COBRA. |
■ | Distributions of plan balances under the ITT Retirement Savings Plan and amounts under the ITT Supplemental Retirement Savings Plan. |
No perquisites are available to any NEOs in any of the post-employment compensation circumstances. With respect to the ITT Salaried Retirement Plan, frozen benefits under such plan may be deferred to age 65, but may become payable at early retirement age, or earlier for benefits under the Pension Equity Plan formula. Employees of the Company do not have to terminate employment in order to receive their benefits from the ITT Salaried Retirement Plan since the plan is now sponsored by Harris Corporation.L3Harris Technologies Inc.
ITT SENIOR EXECUTIVE SEVERANCE PAY PLAN
The ITT Senior Executive Severance Pay Plan provides overall cash severance benefits to executives, provides participants with outplacement assistance for one year and does not allow for the vesting of equity awards during the severance period. The amount of severance pay under this plan depends on the executive’s base pay and years of service, not to exceed 12 months of base pay. The Company considers these severance pay provisions appropriate transitional provisions given the job responsibilities and competitive market in which senior executives function.
No severance is provided if an employee is terminated for cause, because the Company believes employees terminated for cause should not receive additional compensation.
In addition, the Company’s obligation to continue severance payments stops if the executive does not comply with the Company’s Code of Corporate Conduct. We consider this cessation provision to be critical to the Company’s emphasis on ethical behavior. The Company’s obligation to continue severance payments also stops if the executive does not comply with non-competition provisions of the ITT Senior Executive Severance Pay Plan. These provisions protect the integrity of our businesses and are consistent with typical commercial arrangements.
If a covered executive receives or is entitled to receive other compensation from another company, the amount of that other compensation could be used to offset amounts otherwise payable under the ITT Senior Executive Severance Pay Plan. For six months following the termination date, the executive will continue to be eligible for healthcare benefits and for 12 months the executive will entitled to outplacement support. Severance pay will start within 60 days following the covered executive’s scheduled termination date.
ITT INC. | ❘20182020 PROXY STATEMENT61 62
CEO EMPLOYMENT AGREEMENT
Under the terms of Ms. Ramos’ employment agreement, should Ms. Ramos be terminated by the Company other than for cause and other than in the event of a change of control, Ms. Ramos is entitled
ITT SENIOR EXECUTIVE CHANGE IN CONTROL SEVERANCE PAY PLAN
This plan provides two levels of benefits for covered executives, based on their position within the Company. The Compensation and Personnel Committee considered two levels of benefits appropriate based on the relative ability of each level of employee to influence future Company performance. Executive Vice Presidents and Senior Vice Presidents receive the higher level and certain Vice Presidents the second level. Under the ITT Senior Executive Change in Control Severance Pay Plan, if a covered executive is terminated within two years of a change in control or in contemplation of a change in control event that ultimately occurs or if the covered executive terminates his or her employment for good reason within two years of a change in control, he or she would be entitled to:
■ | Any accrued but unpaid base salary, bonus (AIP award), vacation and unreimbursed expenses; |
■ | Two or three times the current base salary and target annual incentive as of the termination date; |
■ | A lump sum payment equal to two or three times the highest annual base salary rate during the three years preceding termination or an acceleration event times the highest percentage rate of the Company’s contributions to the ITT Retirement Savings Plan and the ITT Supplemental Retirement Savings Plan, such percentage rate not to exceed 7% per year; |
■ | Subsidized healthcare benefits for six months after termination; and |
■ | One year of outplacement assistance. |
All of the NEOs other than Ms. Ramos, are covered at the highest level of benefits. The severance terms for Ms. Ramos in the occurrence of an acceleration event are covered under her employment agreement.
CHANGE IN CONTROL ARRANGEMENTS
There are change in control provisions in various Company plans, which were adopted to mitigate the concern that, in the event the Company is considering a change in control transaction, the employees involved in considering the transaction might otherwise be motivated to act in their own interests rather than in the interests of the shareholders.
The payment or vesting of awards or benefits under certain of the plans listed below are accelerated solely upon the occurrence of a change in control of the Company. As described on the next page, our equity plans and our severance pay plans have “double triggers,” requiring both a change in control and a termination of employment to accelerate the vesting of unvested awards.
The following Company plans have change in control provisions:
■ | 2011 Omnibus Incentive Plan |
■ | 2003 Equity Incentive Plan |
■ | ITT Annual Incentive Plan for Executive Officers |
■ | ITT Senior Executive Change in Control Severance Pay Plan |
■ | ITT Change in Control Severance Pay Plan |
■ | ITT Deferred Compensation Plan |
■ | ITT Supplemental Retirement Savings Plan |
The 2011 Omnibus Incentive Plan, 2003 Equity Incentive Plan, ITT Annual Incentive Plan for Executive Officers, ITT Senior Executive Change in Control Severance Pay Plan, and ITT Change in Control Severance Pay Plan consider a change in control to have occurred if one of the following acceleration events occurs:
1. | A report on Schedule 13D was filed with the SEC disclosing that any person, other than the Company or one of its subsidiaries or any employee benefit plan that is sponsored by the Company or a subsidiary, had become the beneficial owner of 20% or more of the Company’s outstanding stock. |
2. | A person other than the Company or one of its subsidiaries or any employee benefit plan that is sponsored by the Company or a subsidiary purchased the Company’s shares in connection with a tender or exchange offer, if after consummation of the offer the person purchasing the shares is the beneficial owner of 20% or more of the Company’s outstanding stock. |
ITT INC. | 2018 PROXY STATEMENT 62
3. | Theshareholders of the Company approved, and the Company fully executed: |
(a) | Any consolidation, business combination or merger of the Company other than a consolidation, business combination or merger in which the shareholders of the Company immediately prior to the merger would hold 50% or more of the combined voting power of the Company or the surviving corporation of the merger and would have the same proportionate ownership of common stock of the surviving corporation that they held in the Company immediately prior to the merger; or |
(b) | Any sale, lease, exchange or other transfer of all or substantially all of the assets of the Company. |
4. | A majority of the members of the Board of Directors of the Company changed within a 12 month period, unless the election or nomination for election of each of the new directors by the Company’s shareholders had been approved by two-thirds of the directors still in office who had been directors at the beginning of the 12 month period or whose nomination for election or election was recommended or approved by a majority of directors who were directors at the beginning of the 12 month period. |
5. | Any person other than the Company or one of its subsidiaries or any employee benefit plan sponsored by the Company or a subsidiary became the beneficial owner of 20% or more of the Company’s outstanding stock. |
ITT INC.❘2020 PROXY STATEMENT 63
The ITT Supplemental Retirement Savings Plan and ITT Deferred Compensation Plan consider a change in control to have occurred if one of the following acceleration events occurs:
1. | A majority of the members of the Board of Directors of the Company changed within a |
2. | Any one person, or more than one person acting as a group (as defined in Treasury Regs. 1.409A-2(i)(5)(v)(B)), acquires ownership of shares that, together with shares held by such person or group constitutes more than 50% of the total fair market value or total voting power of the shares of the Corporation. |
3. | Either (i) a person, or more than one person acting as a group (as defined in Treasury Regs. 1.409A-2(i)(5)(v)(B)), acquires ownership of shares possessing 30% or more of the total voting power of the shares of the Corporation, taking into account all such shares acquired during the |
4. | A change in the ownership of a substantial portion of assets occurs on the date on which any one person, or more than one person acting as a group (as defined in Treasury Regs. 1.409A-2(i)(5)(v)(B)), other than a person or group of persons that is related to the Company, acquires assets that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions, taking into account all such assets acquired during the |
Beginning with the Company’s annual grant cycle in March 2014, all long-term incentive awards (PSUs, RSUs and stock options) have included a “double trigger” provision, whereby no benefits will be paid to an executive unless (i) a change in control of the Company has occurred and (ii) there has been a specified change in the employment status of the executive within a period of time following the change in control. For example, if a covered executive is terminated without cause within two years of a change in control or terminates his or her employment for good reason within two years of a change in control, or is terminated before the change in control occurs, but after its announcement or at the request of a participant, he or she would be entitled to vesting of long-term incentive awards pursuant to the award agreements. The ITT Senior Executive Change in Control Severance Plan and ITT Change in Control Severance Pay Plan also have double trigger provisions. We utilize “double trigger” vesting to ensure management talent will be available to assist in the successful integration following a change in control and to align with prevailing governance practices.
ITT INC. | ❘20182020 PROXY STATEMENT63 64
Potential post-employment compensation arrangements are more fully described for the NEOs in the following table. As noted above, this table assumes a triggering event as of December 31, 2017.2019.
Resignation or Termination for Cause | Death or Disability | Termination Not For Cause | Termination Not For Cause or With Good Reason After Change of Control | |||||||||||||
Denise L. Ramos | ||||||||||||||||
Cash Severance(1) | $ | — | $ | — | 2,000,000 | 3,000,000 | ||||||||||
AIP | — | — | 2,000,000 | 3,000,000 | ||||||||||||
Unvested Equity Awards(2) | — | 18,524,556 | 11,353,952 | 18,524,556 | ||||||||||||
ITT Supplemental Retirement Savings Plan(3) | — | — | — | 210,000 | ||||||||||||
Other Benefits(4) | — | — | 61,584 | 77,376 | ||||||||||||
TOTAL(5) | $ | — | 18,524,556 | 15,415,536 | 24,811,932 | |||||||||||
Thomas M. Scalera | ||||||||||||||||
Cash Severance(1) | $ | — | $ | — | 600,833 | 1,545,000 | ||||||||||
AIP | — | �� | — | 1,158,750 | ||||||||||||
Unvested Equity Awards(2) | — | 3,942,756 | 2,472,980 | 3,942,756 | ||||||||||||
ITT Supplemental Retirement Savings Plan(3) | — | — | — | 108,150 | ||||||||||||
Other Benefits(4) | — | — | 37,896 | 37,896 | ||||||||||||
TOTAL(5) | $ | — | 3,942,756 | 3,111,709 | 6,792,552 | |||||||||||
Luca Savi | ||||||||||||||||
Cash Severance(1) | $ | — | $ | — | 539,575 | 1,618,725 | ||||||||||
AIP | — | — | — | 1,375,917 | ||||||||||||
Unvested Equity Awards(2) | — | 3,316,258 | 1,931,660 | 3,316,258 | ||||||||||||
ITT Supplemental Retirement Savings Plan(3) | — | — | — | — | ||||||||||||
Other Benefits(4) | — | — | 30,000 | 30,000 | ||||||||||||
TOTAL(5) | $ | — | 3,316,258 | 2,501,235 | 6,340,900 | |||||||||||
Mary Beth Gustafsson | ||||||||||||||||
Cash Severance(1) | $ | — | $ | — | 460,000 | 1,380,000 | ||||||||||
AIP | — | — | — | 1,035,000 | ||||||||||||
Unvested Equity Awards(2) | — | 2,986,858 | 1,825,144 | 2,986,858 | ||||||||||||
ITT Supplemental Retirement Savings Plan(3) | — | — | — | 96,600 | ||||||||||||
Other Benefits(4) | — | — | 37,896 | 37,896 | ||||||||||||
TOTAL(5) | $ | — | 2,986,858 | 2,323,040 | 5,536,354 | |||||||||||
Victoria L. Creamer | ||||||||||||||||
Cash Severance(1) | $ | — | $ | — | 319,423 | 1,132,500 | ||||||||||
AIP | — | — | — | 792,750 | ||||||||||||
Unvested Equity Awards(2) | — | 1,655,169 | 1,056,716 | 1,655,169 | ||||||||||||
ITT Supplemental Retirement Savings Plan(3) | — | — | — | 67,950 | ||||||||||||
Other Benefits(4) | — | — | 37,896 | 37,896 | ||||||||||||
TOTAL(5) | $ | — | $ | 1,655,169 | 1,414,035 | 3,686,265 |
Resignation or Termination for Cause | Death or Disability | Termination Not For Cause | Termination Not For Cause or With Good Reason After Change of Control | |||||||||
Luca Savi | ||||||||||||
Cash Severance(1) | $ | — | $ | — | $ | 900,000 | $ | 2,700,000 | ||||
AIP | — | — | — | 2,700,000 | ||||||||
Unvested Equity Awards(2) | — | 8,724,360 | 5,022,691 | 10,887,024 | ||||||||
ITT Supplemental Retirement Savings Plan(3) | — | — | — | 189,000 | ||||||||
Other Benefits(4) | 635,713 | 635,713 | 675,728 | 675,728 | ||||||||
TOTAL(5) | $ | 635,713 | $ | 9,360,073 | $ | 6,598,419 | $ | 17,151,752 | ||||
Thomas M. Scalera | ||||||||||||
Cash Severance(1) | $ | — | $ | — | $ | 630,000 | $ | 1,620,000 | ||||
AIP | — | — | — | 1,215,000 | ||||||||
Unvested Equity Awards(2) | — | 6,055,158 | 4,077,829 | 7,317,400 | ||||||||
ITT Supplemental Retirement Savings Plan(3) | — | — | — | 113,400 | ||||||||
Other Benefits(4) | — | — | 40,015 | 40,015 | ||||||||
TOTAL(5) | $ | — | $ | 6,055,158 | $ | 4,747,844 | $ | 10,305,815 | ||||
Mary Beth Gustafsson | ||||||||||||
Cash Severance(1) | $ | — | $ | — | $ | 482,000 | $ | 1,446,000 | ||||
AIP | — | — | — | 1,084,500 | ||||||||
Unvested Equity Awards(2) | — | 3,652,032 | 2,569,158 | 4,322,773 | ||||||||
ITT Supplemental Retirement Savings Plan(3) | — | — | — | 101,220 | ||||||||
Other Benefits(4) | — | — | 40,300 | 40,300 | ||||||||
TOTAL(5) | $ | — | $ | 3,652,032 | $ | 3,091,458 | $ | 6,994,793 | ||||
Farrokh Batliwala | ||||||||||||
Cash Severance(1) | $ | — | $ | — | $ | 369,360 | $ | 1,200,000 | ||||
AIP | — | — | — | 900,000 | ||||||||
Unvested Equity Awards(2) | — | 2,270,381 | 1,337,874 | 2,697,378 | ||||||||
ITT Supplemental Retirement Savings Plan(3) | — | — | — | 72,025 | ||||||||
Other Benefits(4) | — | — | 32,987 | 32,987 | ||||||||
TOTAL(5) | $ | — | $ | 2,270,381 | $ | 1,740,221 | $ | 4,902,390 | ||||
Carlo Ghirardo | ||||||||||||
Cash Severance(1) | $ | — | $ | — | $ | 414,000 | $ | 1,242,000 | ||||
AIP | — | — | — | 807,300 | ||||||||
Unvested Equity Awards(2) | — | 1,495,569 | 744,099 | 1,857,836 | ||||||||
ITT Supplemental Retirement Savings Plan(3) | — | — | — | — | ||||||||
Other Benefits(4) | 76,974 | 468,974 | 106,974 | 106,974 | ||||||||
TOTAL(5) | $ | 76,974 | $ | 1,964,543 | $ | 1,265,073 | $ | 4,014,110 |
(1) |
ITT INC. | 2018 PROXY STATEMENT 64
change of control, all NEOs |
ITT INC.❘2020 PROXY STATEMENT 65
(2) | Unvested equity awards reflect the market value of stock and in the money value of stock options based on the Company’s December |
(3) | No additional ITT Supplemental Retirement Savings Plan payments are made in the event of voluntary or involuntary termination, or termination for cause. Amount reflects the additional cash payment representing Company contributions, which would be made following a change of control as described in the ITT Senior Executive Change in Control Severance Pay Plan. |
(4) |
(5) | Values in this table show the full payments per the applicable plan documents under the potential termination scenarios. In the event of a change of control a “best net” provision would apply, which provides either an unreduced benefit or a reduction in payments sufficient to avoid triggering an excise tax, whichever is better after-tax. |
In accordance with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act, weWe are required to calculate and report a reasonable estimate of the ratio of the annual total compensation of our CEO to the median annual total compensation of our other employees. For 2017,2019, we calculated the CEO Pay Ratio to be 198.131.
The median employee used to calculate the 2018 CEO pay ratio left the Company during 2019, so we conducted the following process to identify the median employee for 2019. The date used to determine the median employee was October 27, 2017. To identifyDecember 31, 2019. We used annual salary rate as the consistently applied measure to determine the median employee we included annual salary, bonus payments and overtime payments. For U.S. employees we also included an estimate of Company contributions to individual 401(k) retirement accounts. We annualized the compensation of full-time and part-time employees that joined ITT after January 1, 2017. No cost of living adjustments were utilized in identifying our median employee or calculating the pay ratio disclosed above.employee. To account for employees paid in currencies other than the U.S. dollar, we used currency exchange rates as of December 31, 20172019 to convert their compensation into U.S. dollars.
We excluded employees from acquisitions that closed in 2019. We started with 10,62010,558 full time, part-time and temporary employees who were paid directly by ITT or our subsidiaries, and also included contractors for whom ITT or our subsidiaries determine compensation, but were employed by third parties as of October 27, 2017. December 31, 2019.
We then excluded 666all 471 of our employees that joined ITT through the acquisition of Axtone, which was completed on January 26, 2017.
Accordingly, our total employee population for purposes of the pay ratio calculation was 9,954, consisting of 3,191 U.S. employeesin Argentina and 6,763 non-U.S. employees located in 33 different countries. We then excluded 104 employees from India and 38 employees from Thailand (representing all employees from these countries)Poland under an applicable exemption for limited numbers of non-U.S. employees. The excluded employees in these countries representArgentina and Poland represented less than 5% of our total employee population. No cost of living adjustments were utilized in identifying our median employee or calculating the annual total compensation.
We identified the median employee to be a full-time hourly employee located in the U.S. We then determined the annual total compensation of the median employee, which included actual annual salary, overtime and company contributions toward benefits (medical and dental premiums and contributions to the employee’s 401(k) account). The total annual compensation of our median employee was determined to be $37,958.$53,778. For 2019, the annual compensation for Mr. Savi was $7,068,573, which is shown in the Summary Compensation Table.
ITT INC. | ❘20182020 PROXY STATEMENT65 66
COCOMPENSATIONMPENSATION AND PERSONNELCOMMITTEE REPORT
ITT’s Compensation and Personnel Committee is responsible for the overall design and governance of the Company’s executive compensation program, senior leadership development and talent management programs. The Compensation and Personnel Committee’s primary objective is to establish a competitive executive compensation program that clearly links executive compensation to business performance and shareholder return. The Compensation and Personnel Committee considers and monitors appropriate risk factors in structuring compensation to discourage unnecessary or excessive risk-taking behaviors and encourage long-term value creation.
RECOMMENDATION REGARDING COMPENSATION DISCUSSION AND ANALYSIS
In performing its governance function, with regard to the Compensation Discussion and Analysis, the Compensation and Personnel Committee relied on statements and information prepared by the Company’s management. It also relied on information provided by Pay Governance. The Compensation and Personnel Committee reviewed and discussed the Compensation Discussion and Analysis included in this Proxy Statement with management. Based on this review and discussion, the Compensation and Personnel Committee recommended to the Company’s Board of Directors that the Compensation Discussion and Analysis be included in the Company’s 20172019 Annual Report on Form 10-K and this Proxy Statement.
This report is furnished by the members of the Compensation and Personnel Committee.
■Orlando D. Ashford | ■Christina A. Gold (will not stand for re-election in 2020) | ■Richard P. Lavin (Chair) |
■Mario Longhi | ■Rebecca A. McDonald |
20201719 NON-MANAGEMENTNON-MANAGEMENT DIRECTOR COMPENSATION
The table below represents the 20172019 compensation for our non-management directors. As discussed in more detail in the narrative following the table, all non-management directors receive the same cash fees and stock awards for their service, which consists of a $100,000 annual cash retainer and an annual RSU award with a value of $100,000,$125,000, except for the following: Mr. MacInnis, as Non-Executive Chairman, received an additional $62,500 cash payment and an additional RSU award with a value of $62,500; Mr. Powers as Audit Committee Chair, received an additional $15,000 cash payment; and Ms. GoldMr. Lavin as Compensation and Personnel Committee Chair, received an additional $10,000 cash payment. In February 2018,payment; and Mr. DeFosset was named Chair ofas the Nominating and GoveranceGovernance Committee and Mr. Lavin was named Chair of the Compensation and Personnel Committee. Both Mr. DeFosset and Mr. Lavin received $5,000 as pro-rated compensation for their service as chairs during the 2017-2018 term.an additional $10,000 cash payment. As a management director, Ms. RamosMr. Savi does not receive compensation for Board service.
Compensation is paid to non-management directors in a lump sum following the annual meeting at which they are elected. Non-management directors who join the Board of Directors during the course of a year receive their compensation promptly following their election, in amounts that are pro-rated to reflect their partial year of service on the Board. Non-managementFor periods prior to 2020, our non-management directors were eligible to participate in the ITT Deferred Compensation Plan. Because of changes to the Plan described on page 50, for periods after 2020, non-management directors may alsoonly choose to defer receipt of either or both of their cash retainer and equity retainer. The grant date fair value of stock awards granted to non-management directors in 20172019 is provided in footnote (2) to the table below. Stock awards are composed of RSUs.
ITT INC. | ❘20182020 PROXY STATEMENT66 67
Name | Fees Earned or Paid in Cash(1) | Stock Awards(2) | Total | ||||||
Orlando D. Ashford | $ | 100,000 | $ | 125,012 | $ | 225,012 | |||
Geraud Darnis | 100,000 | 125,012 | 225,012 | ||||||
Donald DeFosset, Jr. | 110,000 | 125,012 | 235,012 | ||||||
Nicholas C. Fanandakis | 100,000 | 125,012 | 225,012 | ||||||
Christina A. Gold | 100,000 | 125,012 | 225,012 | ||||||
Richard P. Lavin | 110,000 | 125,012 | 235,012 | ||||||
Mario Longhi | 100,000 | 125,012 | 225,012 | ||||||
Frank T. MacInnis | 162,500 | 162,528 | 325,028 | ||||||
Rebecca A. McDonald | 100,000 | 125,012 | 225,012 | ||||||
Timothy H. Powers | 115,000 | 125,012 | 240,012 | ||||||
Cheryl L. Shavers | 100,000 | 125,012 | 225,012 | ||||||
Sabrina Soussan | 100,000 | 125,012 | 225,012 |
Name | Fees Earned or Paid in Cash(1) | Stock Awards(2) | Total | |||||||||
Orlando D. Ashford | $ 100,000 | $ 100,038 | $ 200,038 | |||||||||
Geraud Darnis | 100,000 | 100,038 | 200,038 | |||||||||
Donald DeFosset, Jr. | 105,000 | 100,038 | 205,038 | |||||||||
Nicholas C. Fanandakis | 100,000 | 100,038 | 200,038 | |||||||||
Christina A. Gold | 110,000 | 100,038 | 210,038 | |||||||||
Richard P. Lavin | 105,000 | 100,038 | 205,038 | |||||||||
Mario Longhi(3) | 66,667 | 66,707 | 133,374 | |||||||||
Frank T. MacInnis | 162,500 | 162,505 | 325,005 | |||||||||
Rebecca A. McDonald | 100,000 | 100,038 | 200,038 | |||||||||
Timothy H. Powers | 115,000 | 100,038 | 215,038 |
(1) | Fees may be paid in cash at the time they are earned, or deferred, at the election of the director. Non-management directors may irrevocably elect deferral into an interest-bearing cash account or into the ITT Stock Fund, which is a tracking fund that invests in Company stock. For periods after 2020, directors are no longer allowed to defer their cash retainers. |
(2) | Awards are made in RSUs and they reflect a grant date fair value computed in accordance with GAAP. The grant date fair value of the RSUs granted on May | |
NON-MANAGEMENT DIRECTOR STOCK AWARDS AND OPTION AWARDS OUTSTANDING AT DECEMBER 31, 20172019 FISCAL YEAR-END
Non-Management Director Name | Stock Awards | Option Awards | |
Orlando D. Ashford | 2,399 | — | |
Geraud Darnis | 2,399 | — | |
Donald DeFosset, Jr. | 7,478 | — | |
Nicholas C. Fanandakis | 2,399 | — | |
Christina A. Gold | 15,039 | — | |
Richard P. Lavin | 2,399 | — | |
Mario Longhi | 1,460 | — | |
Frank T. MacInnis | 18,926 | 1,430 | |
Rebecca A. McDonald | 4,570 | — | |
Timothy H. Powers | 7,430 | — |
Non-Management Director Name | Stock Awards | Option Awards |
Orlando D. Ashford | 2,106 | — |
Geraud Darnis | 3,966 | — |
Donald DeFosset, Jr. | 9,225 | — |
Nicholas C. Fanandakis | 3,966 | — |
Christina A. Gold | 20,243 | — |
Richard P. Lavin | 3,966 | — |
Mario Longhi | 3,966 | — |
Frank T. MacInnis | 22,385 | — |
Rebecca A. McDonald | 8,536 | — |
Timothy H. Powers | 11,396 | — |
Cheryl L. Shavers | 2,106 | — |
Sabrina Soussan | 2,106 | — |
Outstanding stock awards include unvested RSUs granted under the 2011 Omnibus Incentive Plan and vested but deferred restricted shares and RSUs granted under the 2011 Omnibus Incentive Plan, the ITT 1996 Restricted Stock Plan for Non-EmployeeNon- Employee Directors and the Amended and Restated 2003 Equity Incentive Plan. RSUs granted to non-management directors vest one business day prior to the next annual meeting. Unvested RSUs do not earn dividends or carry voting rights while unvested, however dividend equivalents are accrued during this period and are paid out in cash following vesting of the award.
ITT reimburses directors for expenses they incur to travel to and from Board, Committee and shareholder meetings and for other Company-business relatedCompany business-related expenses (including travel expenses of spouses if they are specifically invited to attend an event for appropriate business purposes).
ITT INC. | ❘20182020 PROXY STATEMENT 6768
NON-MANAGEMENT DIRECTOR STOCK OWNERSHIP GUIDELINES
ITT’s stock ownership guidelines currently provide for non-management directors to achieve stock ownership levels of five times the annual base cash retainer amount within five years of joining the Board. Non-management directors receive a portion of their retainer in RSUs, which are paid in shares when the RSUs vest. Non-management directors are required to hold such shares until their total share ownership meets or exceeds the ownership guidelines. Both the guidelines, and compliance with the guidelines, are monitored periodically. All non-management directors with at least one full year of service on the Board of Directors own stock in the Company. Directors are also subject to the Company’s policy prohibiting hedging and speculative trading in and out of the Company’s securities, including short sales and leverage transactions, such as puts, calls, and listed and unlisted options. The Company also prohibits directors from pledging Company securities as collateral for a loan.
INDEMNIFICATION AND INSURANCE
Indemnification and Insurance.As permitted by its By-laws, ITT indemnifies its directors to the fullfullest extent permitted by law and maintains insurance to protect the directors from liabilities, including certain instances where ITT could not otherwise indemnify them. All directors are covered under a non-contributory group accidental death and dismemberment policy that provides each of them with $1,000,000 of coverage. They may elect to purchase additional coverage under that policy. Non-management directors also may elect to participate in an optional non-contributory group life insurance plan that provides $100,000 of coverage.
HEDGING POLICY
Our directors are subject to the Company’s policy prohibiting hedging and speculative trading in and out of the Company’s securities, including short sales and leverage transactions, such as puts, calls, and listed and unlisted options, as described on page 22.
ITT INC. | ❘20182020 PROXY STATEMENT68 69
CONAPPROVALSIDERATION OF AN AMENDMENT TO ITT’S ARTICLES OF INCORPORATION TO REDUCE THE THRESHOLD REQUIRED FOR SHAREHOLDERS TO CALL A SPECIAL MEETING (PROXYSHAREHOLDER PROPOSAL REGARDING PROXY ACCESS
(PROXY ITEM NO. 4)
The following shareholder proposal will be voted on at the Annual Meeting if properly presented by or on behalf of the shareholder proponent. Other than minor formatting changes, we are reprinting the proposal and supporting statement as they were submitted to us, and we have not endeavored to correct any erroneous statements or typographical errors contained therein. Share holdings of the shareholder proponent, and where applicable, of co-filers, will be supplied upon request to the Company’s Corporate Secretary. Our Board of Directors has proposed, and unanimously recommendsrecommended a vote against the proposal for the reasons set forth following the proposal.
Mr. John Chevedden, 2215 Nelson Ave., No. 205 Redondo Beach, Calif. 90278 has submitted the following shareholder proposal:
Proposal 4 - Improve Shareholder Proxy Access
Shareholders request that our board of directors take the steps necessary to enable as many shareholders approve, an amendmentas may be needed to aggregate their shares to equal 3% of our Articlesstock owned continuously for 3-years in order to enable shareholder proxy access.
Currently proxy access at ITT is limited to 20 shareholders who must together own $180 million of Incorporation to reduceITT stock continuously for 3-years at a time when many shares are held for less than one-year. “Continuously for 3-years” will exclude the requisite percentagevast majority of ITT stock.
Under this proposal it is likely that the number of shareholders requiredwho participate in the aggregation process would still be a modest number due to call a special meeting of shareholders from 35% to 25%.
CURRENT AND PROPOSED STANDARDS
In May 2011, shareholders approved an amendment to Article Fifth of our Articles of Incorporation to allowthe administrative burden on shareholders to call a special meetingqualify as one of the Company’saggregation participants. Plus it is easy for management to reject potential aggregating shareholders but onlybecause the administrative burden on shareholders leads to a number of potential technical errors by shareholders holding an aggregate “net long position”that management can then nitpick and thus reject.
Shareholders should be able to select the ownership structure of at least 35%a group that requests proxy access. Shareholders are in the best position to know whether it will be more practical to have a few big shareholders or a greater number of smaller shareholders and should not be saddled with inflexible rules.
The directors of many companies promote “one sizes does not fit all” in their proxies and this principle should apply here. Indeed the ITT directors should support this proposal to be consistent with their opposition to a rigid, “one-size-fits-all” policy in the 2019 ITT proxy.
Please vote yes:
Improve Shareholder Proxy Access - Proposal 4
Recommendation of the voting powerBoard of the outstanding capital stock of the Company. Directors
The Board of Directors concurrently adopted Section 1.4 of our By-laws, which consists of corresponding procedural and informational requirements for shareholders to callrecommends a special meeting, including a reference to the 35% ownership threshold. We refer to these provisions collectively as the “Current Standards.” The Current Standards were approved by approximately 99% of the shareholders who voted on the proposal at the 2011 Annual Meeting of Shareholders.
Ifvote AGAINST this proposal is adopted, we will file Restated Articles of Incorporation withfor the Secretary of State of the State of Indiana and adopt a corresponding amendment to our By-laws to reduce to 25% the threshold that is required for shareholders to call a special meeting of shareholders. The amendment to the By-laws does not require shareholder approval and will take effect subject to approval of the amendment to our Articles of Incorporation at the Annual Meeting. We refer to the reduced 25% threshold for calling a special meeting as the “Proposed Standards.”
The descriptions of the amendments to the Articles of Incorporation and By-laws, respectively, are qualified in their entirety by the complete text of the proposed amendment to the Articles of Incorporation, which is set forth in Appendix A, and the corresponding amendment to the By-laws, which is set forth in Appendix B.
REASONS FOR ADOPTING THE PROPOSED STANDARDS
We received a shareholder proposal for our 2018 Annual Meeting seeking to reduce to 10% the threshold required for shareholders to call a special meeting of shareholders. In light of growing shareholder support for thresholds lower than 35%, the Board began to reevaluate the Current Standards and engaged in discussions with a number of shareholders regarding the appropriate threshold for shareholders to call a special meeting. As a result of this outreach, the Board of Directors concluded that reducing the ownership threshold required to call a special meeting from 35% to 25% was appropriate in light of the Company’s governance policies, the practices of other companies of comparable size and feedback from our shareholders. In response to our stated intention to present the Proposed Standards for a shareholder vote, the shareholder proposal was withdrawn.
following reasons:
The Board believes that a 25% threshold would ensure that shareholders have a meaningful right to bring matters before all shareholders on an expedited basis, rather than waiting for the next annual meeting. At the same time, this threshold would help to ensure that the right to call a special meeting is exercised only when a sufficiently broad base of our shareholders have an interest in addressing a topic on an expedited basis. The Board also believes that calling a special meeting of shareholders is not a matter to be taken lightly, and that a special meeting should only be called by shareholders representing a substantial percentage of the voting power of the Company’s capital stock. The Board of Directors believes that a 10% threshold would introduce a risk that a minority of shareholders could submit a meeting request covering agenda items relevant only to particular constituencies as opposed to shareholders generally. In addition, organizing and preparing for a special meeting imposes substantial legal and administrative costs and involves a significant commitment of management time and focus that could divert attention from our operations. Accordingly, the Board believes that the proposed 25% threshold strikes the appropriate balance between these competing concerns.
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THE PRACTICES OF THE COMPANY’S PEERS
In evaluating the Current Standards and making its decision to seek shareholder approval of the Proposed Standards, the Board of Directorshas carefully considered the special meeting provisions of the 16 companies making up the Company’s Representative Peer Group as disclosed on page 40 of this Proxy Statement, as well as the practices of larger companies that are members of the S&P 500. As of the date this Proxy Statement was approved, nine of the 16 companies in our peer group had provisions in their charters or bylaws that allowed their shareholders to call special meetings (seven had no such right at all). Of the nine companies that had provisions allowing shareholders to call special meetings, three companies had a special meeting threshold below the Company’s current 35% standard. Similarly, although we are not a member of the S&P 500, the Board considered the practices of S&P 500 companies generally as an indicator of the practices of large companies. The Board observed that a plurality of such companies do not provide shareholders with a right to call a special meeting, but that among companies that do provide shareholders with a special meeting right, the most prevalent threshold is 25%.
In light of these findings, the Board of Directors believes that by reducing the threshold to 25%, the Company’s special meeting provisions would compare favorably with those of similarly situated companies.
SHAREHOLDER FEEDBACK
The Board of Directors also discussed the Current Standards as part of the Company’s shareholder engagement cycle discussed earlier in this Proxy Statement under “Shareholder Engagement.” A number of the Company’s largest shareholders expressed a preference for a threshold that was lower than 35%. Most shareholders with whom the Company engaged indicated that they did not think there was a “one size fits all” rule in this area, and that an appropriate provision would be dependent on the size of the company, governance profile of the company, the company’s shareholder base, the Board’s viewpoint on the appropriate threshold and the balance between providing shareholders with access to this important right and avoiding undue expense and disruption to the Company.
The Board of Directors is strongly committed to good governance practices and is highly interested in the views and concerns of the Company’s shareholders. Shareholder feedback is a key input to the Board’s views on this matter and on other corporate governance practices. In assessing the shareholder proposal and other shareholder feedback on this matter, the Board has reviewed the Current Standards and the corresponding policies of other companies. The Board believes the right to call a special meeting should be exercised judiciously and only in consideration of extraordinary, time-sensitive events that are of interest to a broad base of shareholders. The Board concluded that the Proposed Standards are consistent with this objective and that approval of the Proposed Standardsproposal is not in the best interests of the Company and itsour shareholders. The Board believes that the amendment requested by this shareholder proposal is unnecessary for the following reasons:
■ | We have already implemented proxy access in a meaningful manner and on terms that are the same as those adopted by a significant majority of companies that have adopted proxy access bylaws. |
■ | Our By-laws permit up to 20 shareholders to aggregate their positions for purposes of meeting the 3% minimum ownership requirement and count affiliated shareholders as only one shareholder for this purpose. |
■ | We maintain strong corporate governance practices that, when coupled with our existing proxy access By-law, provide shareholders with a meaningful voice into the nomination and election of directors. |
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1. | The Company adopted a meaningful proxy access By-law following shareholder outreach. |
The Board amended the Company’s By-laws to implement proxy access procedures in February 2016. The current version of the By-laws are publicly available as Exhibit 3.2 to the Current Report on Form 8-K that we filed with the SEC on May 25, 2018.
Recognizing that proxy access was of interest to many of our shareholders, prior to adopting the Company’s proxy access framework in February 2016, the Company analyzed the issue, including reviewing it with our major shareholders and advisors. Ultimately, the Board adopted a proxy access By-law that seeks to balance the interest of shareholders in effectively including candidates for the Board in the Company’s proxy materials with the need to use resources efficiently and protect the interests of all shareholders. The Board believes that the proxy access By-law it adopted achieves that balance and reflects its fundamental commitment to robust corporate governance practices.
The Company’s proxy access By-law differs from the shareholder proposal only with respect to the limit on how many shareholders may aggregate their shares in order to reach the 3% ownership requirement.
2. | The Company’s proxy access By-law permitting up to 20 shareholders to aggregate their holdings is appropriate. |
The Company’s proxy access By-law permits up to 20 shareholders to aggregate their holdings in order to meet the 3% minimum ownership threshold. The Board believes this is a reasonable and appropriate provision that is consistent with: (i) views expressed by the shareholders during the Company’s outreach efforts prior to the Board’s adoption of the Company’s proxy access By-law, (ii) the practice of more than 90% of the companies that have adopted a proxy access provision, including all five companies in the Company’s Representative Peer Group disclosed on page 42 of this Proxy Statement that have proxy access provisions, and (iii) provisions that have received wide support from major institutional shareholders.
As disclosed on page 81 of this Proxy Statement, the Company’s largest three shareholders currently beneficially own a significant percentage of the Company’s outstanding common stock on an aggregated basis and have maintained significant ownership percentages in recent years. Further, under the Company’s existing proxy access By-law, a group comprised of 20 shareholders with equal holdings would only need to own 0.15% of the Company’s shares, or approximately 131,550 shares, in order for the group to meet the 3% minimum ownership threshold. A review of the Company’s share records indicates that 85 unaffiliated shareholders held this level of ownership as of December 31, 2019, and cumulatively this group owned over 87% of the Company’s outstanding common stock.
If these shareholders held a consistent number of shares across the three-year holding period, these shareholders would have the ability to form innumerable combinations of 20-member (or smaller) groups for the purpose of meeting the 3% minimum ownership threshold. In addition, there are no restrictions that would prevent any of these known institutional investors from participating in shareholder groups initiated by or otherwise involving any of the holders of the remaining 13% of the Company’s shares, regardless of the number of shares held by any of those smaller holders. The Company accordingly believes that its existing By-law provides a meaningful proxy access right that does not inhibit the formation of shareholder groups to achieve the minimum ownership requirement.
Further, the Company believes that although shareholder groups with more than 20 members are unlikely to form, to the extent they do, or attempt to do so, such groups would generate substantial administrative and operational costs for the Company without providing a corresponding benefit to shareholders. The Company is required to make inquiries into the nature and duration of the share ownership of each shareholder participating in an aggregate group in order to verify their holdings and compliance with the requirements of our By-laws. The expansion of these obligations to groups comprised of more than 20 unaffiliated shareholders would be highly impractical from the Company’s perspective, and would potentially jeopardize the Company’s ability to administer nominations submitted by such groups in accordance with the By-laws. Finally, the Board does not believe that the current aggregation limit restricts the ability of institutional investors or other significant investors to make nominations because affiliated shareholders (i.e.,those that are under common management and investment control) are counted as one shareholder for purposes of the aggregation requirement.
In this regard, aside from this shareholder proposal and a similar shareholder proposal submitted by the proponent for the 2017 annual meeting of shareholders, the Company has not received any communications from shareholders indicating that the 20 shareholder aggregation provision is unduly restrictive. The existing By-law therefore strikes an appropriate balance between the interests of shareholders in taking advantage of proxy access procedures with the need to efficiently use the Company’s resources in the interest of all shareholders.
3. | The Company has an established record of strong governance practices, particularly when it comes to Board accountability and shareholder engagement. |
In considering the shareholder proposal, our Board encourages shareholders to consider the Company’s proxy access aggregation provision in the context of other provisions already included in our Company’s Articles of Incorporation, By-laws, Corporate Governance Principles and other practices that are designed to promote accountability of our Board and management to our investors and to foster shareholder engagement. These include the following highlights:
■ | Proxy access procedures reflecting input from our shareholders and containing terms that are consistent with those of other companies are available to shareholders under the existing By-laws; |
■ | A process exists for shareholders to submit recommendations of director candidates for consideration by the Nominating and Governance Committee; |
■ | As described elsewhere in this Proxy Statement, ITT has a strong shareholder engagement process; |
■ | Shareholders have a right to call special meetings at a reasonable threshold; |
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■ | We actively review and refresh our Board of Directors and have added six new independent directors since the beginning of 2015; |
■ | The independent Nominating and Governance Committee annually evaluates the Board and, in making decisions on the Board’s composition, considers the tenure, performance, contributions, experience, skill set, and commitment of each director; |
■ | Our Board is declassified and elected annually by a majority of the votes cast in uncontested elections; |
■ | Our Board proactively engages with shareholders; |
■ | All members of the Board, other than the Chief Executive Officer, are independent (92% independent); |
■ | Our Board has a high degree of diversity; |
■ | There are no supermajority voting requirements in our Company’s Articles of Incorporation or By-laws; and |
■ | Directors are subject to meaningful stock ownership requirements. |
CONCLUSION
The Board of Directors believes that, as described in detail above, the Company’s proxy access By-law, including the provision permitting up to 20 shareholders to aggregate their holdings, achieves the proper balance of providing shareholders with a meaningful proxy access right while managing administrative and operational costs in a practical manner. The Company remains committed to maintaining strong corporate governance practices, and the Board believes the Company’s existing proxy access By-law achieves this objective.
RECOMMENDATION OF THE BOARD OF DIRECTORS | |
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE |
ITT INC. | ❘20182020 PROXY STATEMENT 7072
INFORMATION ABOUT THE PROXY STATEMENT & VOTING
PROXY STATEMENT
This Proxy Statement is furnished to the shareholders of record of ITT Inc., an Indiana corporation, in connection with the solicitation of proxies on behalf of the Board of Directors of the Company, for use at the Annual Meeting of Shareholders to be held on May 23, 2018.15, 2020. The Annual Meeting will be held at 9:00 a.m. Eastern Time at ITT Inc. Headquarters, 1133 Westchester Avenue, White Plains, NY 10604.
WHY DID I RECEIVE THESE PROXY MATERIALS?
Why did I receive these proxy materials?Beginning on or about April 9, 2018,March 31, 2020, this Proxy Statement is being mailed or made available, as the case may be, to shareholders who were shareholders as of March 26, 2018,18, 2020, the record date, as part of the Board of Directors’ solicitation of proxies for the Annual Meeting, including any adjournmentsadjournment or postponementspostponement thereof. This Proxy Statement and the ITT 20172019 Annual Report to Shareholders (the “Annual Report”) and Annual Report on Form 10-K (which have been furnished to shareholders eligible to vote at the Annual Meeting) contain information that the Board of Directors believes is relevant to shareholders in voting on the matters to be addressed at the Annual Meeting.
WHO IS ENTITLED TO VOTE?
Who is entitled to vote?You can vote if you owned shares of the Company’s common stock as of the close of business on March 26, 2018,18, 2020, the record date.
HOW DO I GET ADMITTED TO THE ANNUAL MEETING?
How do I get admitted to the Annual Meeting?Only shareholders of record or beneficial owners of the Company’s common stock as of the record date may attend the Annual Meeting in person. You will need an admission ticket or proof of ownership to enter the Annual Meeting. An admission ticket is attached to your proxy card if you hold shares directly in your name as a shareholder of record. If you received a Notice of Internet Availability of Proxy Materials (a “Notice”), your Notice is your admission ticket. We encourage you to vote your proxy as soon as possible, even if you plan to attend the Annual Meeting, but please keep the admission ticket and bring it with you to the Annual Meeting.
If your shares are held beneficially in the name of a broker, bank or other holder of record, you must present proof of your ownership of common stock, such as a bank or brokerage account statement, to be admitted to the Annual Meeting. Please note that if you plan to attend the Annual Meeting in person and would like to vote there, you will need to bring a legal proxy from your broker, bank or other holder of record as explained below. If your shares are held beneficially and you would rather have an admission ticket, you can obtain one in advance by mailing a written request, along with proof of your ownership of common stock, to:
ITT Inc.
1133 Westchester Avenue
White Plains, NY 10604
Attn: Corporate Secretary
Shareholders also must present a form of photo identification, such as a driver’s license, in order to be admitted to the Annual Meeting.No cameras, recording equipment, large bags or packages will be permitted in the Annual Meeting.
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HOW DO I VOTE?
How do I vote?Shareholders may vote using any of the following methods:
BY TELEPHONE OR ON THE INTERNET
You can vote by calling the toll-free telephone number on your proxy card or Notice. Please have your proxy card or Notice handy when you call. Easy-to-follow voice prompts allow you to vote your shares and confirm that your instructions have been properly recorded.
The website for Internet voting iswww.proxyvote.comwww.proxyvote.com.. Please have your proxy card or Notice handy when you go online. As with telephone voting, you can confirm that your instructions have been properly recorded. If you vote on the Internet, you also can request electronic delivery of future proxy materials.
Telephone and Internet voting facilities for shareholders of record will be available 24 hours a day and will close at 11:59 p.m. Eastern Time on May 22, 2018.14, 2020. The availability of telephone and Internet voting for beneficial owners will depend on the voting processes of your broker, bank or other holder of record. Therefore, the Company recommends that you follow the voting instructions in the materials you receive.
If you vote by telephone or on the Internet, you do not need to return your proxy card.
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BY MAIL
If you received your Annual Meeting materials by mail, you may complete, sign and date the proxy card or voting instruction card and return it in the prepaid envelope. If you are a shareholder of record and you return your signed proxy card but do not indicate your voting preferences, the persons named in the proxy card will vote the shares represented by that proxy as recommended by the Board of Directors.
IN PERSON AT THE ANNUAL MEETING
All shareholders may vote in person at the Annual Meeting. You may also be represented by another person at the Annual Meeting by executing a proper proxy designating that person. If you are a beneficial owner of shares, you must obtain a legal proxy from your broker, bank or other holder of record and present it to the inspectors of election with your ballot to be able to vote at the Annual Meeting. We encourage you to vote as soon as possible, even if you intend to attend the Annual Meeting in person.
* We intend to hold our 2020 Annual Meeting of Shareholders in person. However, we continue to monitor the situation regarding COVID-19 (coronavirus) closely, taking into account guidance from public health authorities. We are sensitive to the public health and travel concerns our shareholders may have and the protocols that federal, state, and local governments may impose. Accordingly, we may determine that it is advisable to change the date, time, location or manner of conducting the 2020 Annual Meeting of Shareholders. In the event that we change the date, time, location or manner of conducting the 2020 Annual Meeting of Shareholders, we will announce that fact as promptly as practicable with details on how to participate and vote at such meeting. Please monitor our website at www.itt.com/ investors for updated information. If you are planning to attend our meeting, please check the website one week prior to the meeting date. As always, we encourage you to vote your shares prior to the 2020 Annual Meeting of Shareholders.
BY GRANTING A PROXY OR SUBMITTING VOTING INSTRUCTIONS
You may vote by granting a proxy or, for shares held in street name, by submitting voting instructions to your bank, broker or other holder of record.
WHAT IS THE DIFFERENCE BETWEEN A REGISTERED OWNER AND A BENEFICIAL OWNER?
What is the difference between a registered owner and a beneficial owner?If your shares are registered in your name with ITT’s transfer agent, EQ Shareholder Services (formerly known as Wells Fargo Shareholder Services),Computershare, you are a “registered owner,” also sometimes referred to as the “shareholder of record” of those shares.
If your shares are held in a stock brokerage account or by a bank or other holder of record, you are considered the “beneficial owner” of those shares, which are also sometimes referred to as being held in “street name,” and this Proxy Statement and any accompanying documents have been provided to you by your broker, bank or other holder of record. As the beneficial owner, you have the right to direct your broker, bank or other holder of record how to vote your shares by using the voting instruction card or by following their instructions for voting by telephone or on the Internet.
How many votes doITT INC.❘2020 PROXY STATEMENT 74
HOW MANY VOTES DO I have?HAVE?
You have one vote for every share of common stock that you own as of the record date.
WHY DOES THE BOARD SOLICIT PROXIES FROM SHAREHOLDERS?
Why does the Board solicit proxies from shareholders?Since it is impractical for all shareholders to attend the Annual Meeting and vote in person, the Board of Directors recommends that you appoint the two people named on the accompanying proxy card to act as your proxies at the Annual Meeting.
WHAT ITEMS ARE ON THE AGENDA FOR THE ANNUAL MEETING?
What items are on the agenda for the Annual Meeting?There are four formal items scheduled to be voted upon at the Annual Meeting as described in the Notice of 20182020 Annual Meeting of Shareholders. As of the date of this Proxy Statement, there are no other matters that the Board of Directors intends to present, or has reason to believe others will present, at the Annual Meeting. If you have returned your signed and completed proxy card and other matters are properly presented for voting at the Annual Meeting, the people named on the accompanying proxy card (or, if applicable, their substitutes), will have the discretion to vote on those matters for you.
HOW WILL MY SHARES BE VOTED AT THE ANNUAL MEETING?
How will my shares be voted at the Annual Meeting?At the Annual Meeting, the people named on the accompanying proxy card (or if applicable, their substitutes), will vote your shares as you instruct. If you sign your proxy card and return it without indicating how you would like to vote your shares, your shares will be voted as the Board of Directors recommends, which is set forth under “Proxy Statement Executive Summary” on page 97 of this Proxy Statement. With respect to any other business as may properly come before the Annual Meeting, your shares will be voted in accordance with the judgment of the persons voting the proxy.
WHAT IF I CHANGE MY MIND?
What if I change my mind?As a holder of record of common stock, you may revoke or change your proxy at any time before the Annual Meeting by filing a notice of revocation or another signed, later-dated proxy card with the Corporate Secretary of the Company, at the Company’s principal executive offices as listed on the first page of this Proxy Statement. You may also revoke your proxy by attending the Annual Meeting and voting in person. If you are a beneficial owner of common stock, you should follow the voting directions you will receive from your broker, bank or other holder of record along with the Company’s proxy solicitation materials. As previously noted, you will need a legal proxy from your broker, bank or other holder of record if you prefer to cast your vote in person at the Annual Meeting.
HOW MANY SHARES OF ITT STOCK ARE OUTSTANDING?
How many shares of ITT stock are outstanding?As of March 26, 2018,18, 2020, the record date, 87,408,88088,024,417 shares of common stock were outstanding.
HOW MANY HOLDERS OF ITT OUTSTANDING SHARES MUST BE PRESENT TO HOLD THE ANNUAL MEETING?
How many holders of ITT outstanding shares must be present to hold the Annual Meeting?In order to conduct business at the Annual Meeting, it is necessary to have a quorum. To have a quorum, shareholders entitled to cast a majority of votes at the Annual Meeting must be present in person or by proxy. The inspectors of election appointed for the Annual Meeting will separately tabulate all affirmative and negative votes, abstentions and “broker non-votes.” Abstentions and broker non-votes are counted as present for purposes of determining the presence or absence of a quorum for the transaction of business.
WHAT IS A “BROKER NON-VOTE”?
ITT INC. | 2018 PROXY STATEMENT 72
What is a “broker non-vote”?If you are a beneficial owner whose shares are held of record by a broker, you must instruct the broker how to vote your shares with respect to certain items of business. If you do not provide voting instructions, your shares will not be voted on any item of business on which the broker does not have discretionary authority to vote. This is called a broker non-vote. In these cases, the broker will not be able to vote on those matters for which specific authorization is required under the rules of the NYSE.
ITT INC.❘2020 PROXY STATEMENT 75
If you are a beneficial owner whose shares are held of record by a broker, your broker has discretionary voting authority under NYSE rules to vote your shares on the ratification of Deloitte as the Company’s independent registered public accounting firm, even if the broker does not receive voting instructions from you. However, your broker does not have discretionary authority to vote without instructions from you on the election of directors, the advisory vote on the compensation of the Company’s named executive officers, or the advisory vote on the amendment of certain provisionsshareholder proposal, and in our Articles of Incorporation that relate to shareholders’ right to call a special meeting, in whicheach case a broker non-vote will occur and your shares will not be voted on these items of business.
If you hold shares of common stock through a broker, bank or other holder of record, follow the voting instructions you receive from that organization.
HOW MANY VOTES ARE REQUIRED TO ELECT DIRECTORS? HOW MANY VOTES ARE REQUIRED FOR OTHER AGENDA ITEMS TO PASS?
How many votes are required to elect Directors? How many votes are required for other agenda items to pass?ELECTION OF DIRECTORS
Election of Directors.The Company’s By-laws provide that in uncontested elections, a director nominee shall be elected by a majority of the votes cast by the shareholders represented in person or by proxy at the Annual Meeting. A “majority of the votes cast” means that the number of votes cast “for” a director nominee must exceed the number of votes cast “against” that nominee (with abstentions and broker non-votes not counted as votes cast with respect to that director nominee). The By-laws further provide that in uncontested elections, any director nominee who fails to be elected by a majority, but who also is a director at the time, shall promptly provide a written conditional resignation, as a holdover director, to the ChairmanChair of the Board or the Corporate Secretary, and remain a director until a successor is elected and qualified. The Nominating and Governance Committee shall promptly consider the resignation and all relevant facts and circumstances concerning any vote and the best interests of the Company and its shareholders. After consideration, the Nominating and Governance Committee shall make a recommendation to the Board whether to accept or reject the tendered resignation, or whether other action should be taken. The Board will act on the Nominating and Governance Committee’s recommendation no later than its next regularly scheduled Board meeting (after certification of the shareholder vote) or within 90 days after certification of the shareholder vote, whichever is earlier, and the Board will promptly publicly disclose its decision and the reasons for its decision. As discussed above, brokers (and many banks and other record holders of “street name” shares that follow the applicable NYSE voting rules for member brokers) do not have discretionary voting power with respect to director elections unless they have customer voting instructions. This means that, without your voting instructions on this matter, a broker non-vote will occur because your broker (or bank or other holder of record) does not have the power to vote your shares on the election of directors. As a result, it is very important that you return voting instructions relating to the election of directors to your broker, bank or other holder of record.
ALL OTHER MATTERS
All Other Matters.The proposals relating to the selection of the Company’s independent registered public accounting firm, and the compensation of the Company’s named executive officers and the shareholder proposal are each advisory in nature and non-binding.
For each of these proposals, and for the proposal to amend our Articles of Incorporation to reduce the threshold required for shareholders to call a special meeting to pass, the votes cast in favor of the proposal must exceed the votes cast against the proposal. If you abstain from voting or if there is a broker non-vote on any matter, your abstention or broker non-vote will not affect the outcome of such vote, because abstentions and broker non-votes are not considered to be votes cast.
HOW DO I VOTE IF I AM A PARTICIPANT IN THE ITT RETIREMENT SAVINGS PLAN?
How do I vote if I am a participant in the ITT Retirement Savings Plan?If you participate in the ITT Retirement Savings Plan (formerly the ITT Corporation Retirement Savings Plan), your plan trustee will vote the ITT shares credited to your ITT Retirement Savings Plan account in accordance with your voting instructions, except as otherwise provided in accordance with the Employee Retirement Income Security Act of 1974 (“ERISA”). The trustee will vote the shares on your behalf because you are the beneficial owner, not the shareholder of record, of the shares held by the ITT Retirement Savings Plan. The trustee votes the shares held in your ITT Retirement Savings Plan account for which no voting instructions are received (“Undirected Shares”) in the same proportion as the shares for which the trustee receives voting instructions, except as otherwise provided in accordance with ERISA. Under the ITT Retirement Savings Plan, participants are “named fiduciaries” to the extent of their authority to direct the voting of ITT shares credited to their savings plan accounts and their proportionate share of Undirected Shares. By submitting voting instructions by telephone, the Internet or by signing and returning the voting instruction card, you direct the trustee of the ITT Retirement Savings Plan to vote these shares, in person or by proxy at the Annual Meeting.
ITT Retirement Savings Plan participants should mail their confidential voting instruction card to Broadridge Financial Solutions, Inc. (“Broadridge”), acting as tabulation agent, or vote by telephone or Internet. Instructions from ITT Retirement Savings Plan Participants must be received by Broadridge no later than 11:59 p.m. Eastern Time on May 20, 2018.14, 2020.
How many shares are held by participants in the ITT Retirement Savings Plan?INC.❘2020 PROXY STATEMENT 76
HOW MANY SHARES ARE HELD BY PARTICIPANTS IN THE ITT RETIREMENT SAVINGS PLAN?
As of March 26, 2018,18, 2020, the record date, the ITT Retirement Savings Plan held 178,161158,399 shares of common stock (approximately 0.20%0.17% of the outstanding shares). J.P. Morgan ChaseNorthern Trust is trustee of the ITT Retirement Savings Plan.
WHO COUNTS THE VOTES? IS MY VOTE CONFIDENTIAL?
ITT INC. | 2018 PROXY STATEMENT 73
Who counts the votes? Is my vote confidential?In accordance with the By-laws, the Company will appoint two Inspectors of Election, who may be officers or employees of the Company, and they will tabulate the votes. The Inspectors of Election monitor the voting and also certify whether the votes of shareholders are kept in confidence in compliance with ITT’s confidential voting policy.
WHO WILL PAY FOR THE COST OF THIS PROXY SOLICITATION?
Who will pay for the cost of this proxy solicitation?ITT will pay the cost of soliciting proxies. Proxies may be solicited on our behalf by our directors, officers or employees in person or by telephone, mail, electronic transmission and/or facsimile transmission. Innisfree M&A Incorporated, 501 Madison Avenue, New York, NY 10022, has been retained to assist in soliciting proxies for a fee of $12,500, plus distribution costs and other costs and expenses.
WHAT IS “HOUSEHOLDING” AND HOW DOES IT AFFECT ME?
What is “householding” and how does it affect me?The Company has adopted a procedure approved by the SEC called “householding.” Under this procedure, beneficial shareholders who have the same address and last name and who do not participate in electronic delivery or Internet access of proxy materials will receive only one copy of the Company’s Annual Report and Proxy Statement unless one or more of these shareholders notifies the Company that they wish to continue receiving individual copies. This procedure is designed to reduce duplicate mailings and save significant printing and processing costs, as well as natural resources.
Each shareholder who participates in householding will continue to receive a separate proxy card or Notice. Your consent to householding is perpetual unless you revoke it. You may revoke your consent at any time by contacting Broadridge, either by calling toll-free at (800) 542-1061, or by writing to Broadridge Financial Solutions, Inc. Householding Department, 51 Mercedes Way, Edgewood, NY 11717. You will be removed from the householding program within 30 days of receipt of your response, after which you will receive an individual copy of the proxy materials.
WHY DID I RECEIVE A “NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS” BUT NO PROXY MATERIALS?
Why did I receive a “Notice of Internet Availability of Proxy Materials” but no proxy materials?We distribute our proxy materials to certain shareholders by giving notice to those shareholders that they may access their proxy materials on the Internet. This so-called “Notice and Access” approach, which is permitted by SEC rules, conserves natural resources and reduces our costs of printing and distributing the proxy materials, while providing a convenient method of accessing the materials and voting to shareholders. On April 9, 2018,March 31, 2020, we mailed a “Notice of Internet Availability of Proxy Materials” to participating shareholders, containing instructions on how to access the proxy materials on the Internet.
HOW DO I RECEIVE PROXY MATERIALS ELECTRONICALLY IN THE FUTURE?
How do I receive proxy materials electronically in the future?This Proxy Statement and the Annual Report are available online atwww.proxyvote.comwww.proxyvote.com.. Instead of receiving future proxy statements and accompanying materials by mail, most shareholders can elect to receive an e-mail that will provide electronic links to them. Opting to receive your proxy materials online will conserve natural resources and will save us the cost of producing documents and mailing them to you, and will also give you an electronic link to the proxy voting site.
Shareholders of Record.ITT INC.❘2020 PROXY STATEMENT 77
SHAREHOLDERS OF RECORD
You may sign up for the service by logging onto the Internet atwww.proxyvote.comwww.proxyvote.com.. Please have your proxy card handy when you go online.
BENEFICIAL OWNERS
Beneficial Owners.You also may be able to receive copies of these documents electronically. Check the information provided in the proxy materials sent to you by your broker, bank or other holder of record regarding the availability of this service or contact them regarding electronic delivery of materials.
HOW DOES A SHAREHOLDER PROPOSE MATTERS FOR CONSIDERATION AT THE 2021 ANNUAL MEETING OF SHAREHOLDERS?
How does a shareholder propose matters for consideration at the 2019 annual meeting of shareholders?PROPOSALS TO BE INCLUDED IN OUR PROXY STATEMENT
Proposals to be included in our proxy statement.Under SEC rules, if a shareholder wants us to include a proposal in our proxy statement for presentation at our 20192021 annual meeting of shareholders, the proposal must be received by us by December 10, 2018.1, 2020. Any such proposal must comply with Rule 14a-8 under the Exchange Act.
PROPOSALS TO BE BROUGHT BEFORE THE 2021 ANNUAL MEETING OF SHAREHOLDERS
Proposals to be brought before the 2019 annual meeting of shareholders.A shareholder seeking to introduce an item of business at the 20192021 annual meeting of shareholders must comply with the procedures set forth in our By-laws. If you intend to propose an item of business to be presented at our 20192021 annual meeting of shareholders, you must notify us of your intention, in writing, on or after December 10, 2018,1, 2020, but not later than January 9, 2019.December 31, 2020. In the event that the date of the 20192021 annual meeting of shareholders is changed by more than 30 days from the anniversary date of the Annual Meeting, such notice must be received not earlier than 120 calendar days prior to the 20192021 annual meeting and not later than 90 calendar days prior to the 20192021 annual meeting, or, if later, 10 calendar days following the date on which public announcement of the date of the 20192021 annual meeting is first made.
For any special meeting of shareholders, the item of business must be received no earlier than 120 calendar days nor later than 90 calendar days prior to the date of the special meeting, or, if later, 10 calendar days following the date on which the public announcement of the date of the special meeting is first made.
HOW DOES A SHAREHOLDER NOMINATE DIRECTORS FOR THE 2021 ANNUAL MEETING OF SHAREHOLDERS?
How does a shareholder nominate directors for the 2019 annual meeting of shareholders?DIRECTOR NOMINATIONS FOR INCLUSION IN OUR PROXY STATEMENT
Director nominations for inclusion in our proxy statement.In February 2016, we amended our By-laws to implement “proxy access,” which allows a shareholder or group of shareholders meeting certain conditions to nominate directors for election at annual meetings of shareholders using our proxy statement. This provision allows a shareholder, or group of up to 20 shareholders, to nominate up to two director candidates or, if greater, up to 20% of the number of directors then serving on our Board of Directors, if the shareholder or group has owned continuously for at least three years a number of shares equal to at least three percent of our outstanding common stock measured as of the date we receive the nomination. The number of director candidates who may be nominated under our proxy access By-law will be reduced by the number of director nominations made under our advance notice By-law, as described in the following section.
ITT INC. | 2018 PROXY STATEMENT 74
If you intend to nominate a director for election at the 20192021 annual meeting of shareholders using our proxy access By-law, you must submit the nomination, along with the other materials required by our By-laws, on or after November 10, 2018,1, 2020, but not later than December 10, 2018.1, 2020.
DIRECTOR NOMINATIONS TO BE BROUGHT BEFORE THE 2021 ANNUAL MEETING OF SHAREHOLDERS
Director nominations to be brought before the 2019 annual meeting of shareholders.If you intend to nominate a director for consideration at the 20192021 annual meeting of shareholders, you must notify us in writing of your intention to do so and provide us with the information required by our advance notice By-law on or after December 10, 2018,1, 2020, but not later than January 9, 2019.December 31, 2020. In the event that the date of the 20192021 annual meeting of shareholders is changed by more than 30 days from the anniversary date of the Annual Meeting, such notice must be received not earlier than 120 calendar days prior to the 20192021 annual meeting and not later than 90 calendar days prior to the 20192021 annual meeting, or, if later, 10 calendar days following the date on which public announcement of the date of the 20192021 annual meeting is first made.
For any special meeting of shareholders, a nomination to be brought before the meeting must be received no earlier than 120 calendar days nor later than 90 calendar days prior to the date of the special meeting, or, if later, 10 calendar days following the date on which the public announcement of the date of the special meeting is first made.
Note that any such nominations will not be included in or voted through the Company’s proxy materials.
What information mustITT INC.❘2020 PROXY STATEMENT 78
WHAT INFORMATION MUST I submit with a proposal or nomination?SUBMIT WITH A PROPOSAL OR NOMINATION?
A shareholder’s submission of a proposal or director nomination must include information specified in our By-laws concerning the proposal or nomination, as the case may be, and information as to the shareholder’s ownership of common stock. Any person considering submission of a proposal for an item of business or a nomination to be considered at a shareholder meeting should carefully review our By-laws. We will not entertain any proposals or nominations at the 20192021 annual meeting of shareholders that do not meet these requirements. The By-laws are available upon request, free of charge, from ITT Inc., 1133 Westchester Avenue, White Plains, NY 10604, Attention: Corporate Secretary. The By-laws were also filed as Exhibit 3.2 to the Current Report on Form 8-K that we filed with the SEC on May 16, 2016,25, 2018, which is available, free of charge, on the SEC’s website,www.sec.gov,, and our Investor Relations website,www.itt.com/investorsinvestors/corporate-governance..
Nominations of directors and notices relating thereto must meet all other qualifications and requirements of the Company’s Corporate Governance Principles, the committee charters and Regulation 14A under the Exchange Act. Any shareholder nominees will be evaluated by the Nominating and Governance Committee of the Board using the same standards as it uses for all other director nominees. These standards are discussed in further detail elsewhere in this Proxy Statement under the heading of “Corporate Governance and Related Matters—Directors’ Qualification and Selection Process.”
WHERE SHOULD I SEND A SHAREHOLDER PROPOSAL OR DIRECTOR NOMINATION FOR THE 2021 ANNUAL MEETING OF SHAREHOLDERS?
Where should I send a shareholder proposal or director nomination for the 2019 annual meeting of shareholders?If you intend to submit a proposal or director nomination, you must send the proposal or nomination, along with all information required by our By-laws, to our principal executive offices at: ITT Inc., 1133 Westchester Avenue, White Plains, NY 10604, Attention: Corporate Secretary. We strongly encourage any shareholder interested in submitting a proposal or director nomination to contact our Corporate Secretary in advance of the above deadlines to discuss the proposal, and shareholders may want to consult knowledgeable counsel with regard to the detailed requirements of applicable securities laws and the Company’s By-laws. Submitting a shareholder proposal or nomination does not guarantee that we will include it in our Proxy Statement. The chairman of the Annual Meeting may refuse to allow the transaction of any business, or to acknowledge the nomination of any person, not made in compliance with the foregoing procedures.
WHO CAN HELP ANSWER MY ADDITIONAL QUESTIONS?
Who can help answer my additional questions?If you have any additional questions about the Annual Meeting or how to vote, please call our proxy solicitor, Innisfree M&A Incorporated, toll-free at 888-750-5834. Banks and brokers may call collect at 212-750-5833.
ITT INC. | ❘20182020 PROXY STATEMENT 7579
STOCK OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN SHAREHOLDERS
The following table shows the beneficial ownership of our common stock, as of January 31, 2018,2020, by each director, by each of the NEOs, and by all directors and executive officers as a group.
The number of shares beneficially owned by each non-management director or executive officer has been determined under the rules of the SEC, which provide that beneficial ownership includes any shares as to which a person has sole or shared voting or dispositive power, and any shares which the person would have the right to acquire beneficial ownership of within 60 days through the exercise of any stock option or other right. Unless otherwise indicated, each non-management director or executive officer has sole dispositive and voting power, or shares those powers with his or her spouse. No directors or executive officers have pledged any shares of common stock.
Amount and Nature of Beneficial Ownership | ||||||||||||||||||||
Name of Beneficial Owner | Total Shares Beneficially Owned | Shares Owned Directly(1) | Options(2) | Stock Units(3) | Percent of Class | |||||||||||||||
Denise L. Ramos | 480,585 | 144,367 | 272,485 | 63,733 | * | |||||||||||||||
Thomas M. Scalera | 55,593 | 7,486 | 31,285 | 16,822 | * | |||||||||||||||
Luca Savi | 69,604 | 18,024 | 37,065 | 14,515 | * | |||||||||||||||
Mary Beth Gustafsson | 39,997 | 2,656 | 27,590 | 9,751 | * | |||||||||||||||
Victoria L. Creamer | 15,393 | 7,640 | 7,753 | * | ||||||||||||||||
Orlando D. Ashford | 16,249 | 16,249 | * | |||||||||||||||||
Geraud Darnis | 14,564 | 14,564 | * | |||||||||||||||||
Donald DeFosset, Jr. | 16,957 | 11,878 | 5,079 | * | ||||||||||||||||
Nicholas C. Fanandakis | 1,968 | 1,968 | * | |||||||||||||||||
Christina A. Gold | 38,895 | 26,255 | 12,640 | * | ||||||||||||||||
Richard P. Lavin | 10,270 | 10,270 | * | |||||||||||||||||
Mario Longhi(4) | * | |||||||||||||||||||
Frank T. MacInnis | 44,241 | 27,061 | 1,430 | 15,750 | * | |||||||||||||||
Rebecca A. McDonald | 8,131 | 5,960 | 2,171 | * | ||||||||||||||||
Timothy H. Powers | 5,596 | 565 | 5,031 | * | ||||||||||||||||
All Directors and Executive Officers as a Group (18 persons) | 846,718 | 294,213 | 389,435 | 163,070 | 1.0% |
Amount and Nature of Beneficial Ownership | |||||||||||||||
Name of Beneficial Owner | Total Shares Beneficially Owned | Shares Owned Directly(1) | Options(2) | Stock Units(3) | Percent of Class | ||||||||||
Luca Savi | 87,165 | — | 53,585 | 33,580 | * | ||||||||||
Thomas M. Scalera | 46,715 | 17,129 | — | 29,586 | * | ||||||||||
Mary Beth Gustafsson | 84,642 | 16,080 | 46,175 | 22,387 | * | ||||||||||
Farrokh Batliwala | 19,574 | 5,981 | — | 13,593 | * | ||||||||||
Carlo Ghirardo | — | — | — | — | * | ||||||||||
Orlando D. Ashford | 18,382 | 18,382 | — | — | * | ||||||||||
Geraud Darnis | 18,948 | 17,088 | — | 1,860 | * | �� | |||||||||
Donald DeFosset, Jr. | 21,460 | 14,341 | — | 7,119 | * | ||||||||||
Nicholas C. Fanandakis | 6,303 | 4,443 | — | 1,860 | * | ||||||||||
Christina A. Gold | 43,342 | 25,205 | — | 18,137 | * | ||||||||||
Richard P. Lavin | 14,567 | 12,707 | — | 1,860 | * | ||||||||||
Mario Longhi | 3,338 | 1,478 | — | 1,860 | * | ||||||||||
Frank T. MacInnis | 50,760 | 31,113 | — | 19,647 | * | ||||||||||
Rebecca A. McDonald | 12,503 | 6,073 | — | 6,430 | * | ||||||||||
Timothy H. Powers | 9,865 | 575 | — | 9,290 | * | ||||||||||
Cheryl L. Shavers | 1,200 | 1,280 | — | — | * | ||||||||||
Sabrina Soussan | 771 | 771 | — | — | * | ||||||||||
All Directors and Executive Officers as a Group (21 persons) | 469,394 | 184,485 | 101,950 | 182,958 | 0.5% | ||||||||||
* | Less than 1% |
(1) | Includes units held as of January 31, |
(2) |
(3) | Reflects PSUs and RSUs that vest or that may be settled within 60 days of January 31, | |
The principal occupation and certain other information about the nominees is set forth in “Election of Directors (Proxy Item No. 1).”
ITT INC. | ❘20182020 PROXY STATEMENT76 80
The following table gives information about each person or group of persons whom the Company knows to be the beneficial owner of more than 5% of the outstanding shares of common stock based on information filed by that entity with the SEC on the dates indicated below.
Name and address of beneficial owner | Number of Shares Beneficially Owned | Percent of Class(4) | ||||||
The Vanguard Group(1) 100 Vanguard Blvd Malvern, PA 19355 | 8,117,543 | 9.22% | ||||||
BlackRock, Inc.(2) 55 East 52nd Street New York, NY 10022 | 7,413,218 | 8.40% | ||||||
FMR LLC(3) 245 Summer Street Boston, MA 02210 | 5,882,938 | 6.69% |
Name and address of beneficial owner | Number of Shares Beneficially Owned | Percent of Class(4) |
The Vanguard Group(1) 100 Vanguard Blvd Malvern, PA 19355 | 8,795,421 | 10.02% |
BlackRock, Inc.(2) 55 East 52nd Street New York, NY 10022 | 7,949,121 | 9.05% |
FMR LLC(3) 245 Summer Street Boston, MA 02210 | 6,078,067 | 6.92% |
(1) | As reported on |
(2) | As reported on |
(3) | As reported on Schedule 13G filed on February |
(4) | Calculations based on the Company’s shares issued and outstanding of 87,806,208 as of January 31, |
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The members of the Board of Directors, the executive officers and persons who hold more than 10% of the outstanding common stock are subject to the reporting requirements of Section 16(a) of the Exchange Act, which requires them to file reports with respect to their ownership of, and transactions in, our common stock. Based on our records and other information, we believe that in 2017 our directors and our executive officers who are subject to Section 16(a) met all applicable filing requirements.
EQUITY COMPENSATION PLAN INFORMATION
The following sets forth information concerning the shares of common stock that may be issued under equity compensation plans as of December 31, 2017.2019.
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans | |||||||
Equity Compensation Plans: | |||||||||
Approved by Security Holders(1) | 2,028,986(2) | $ | 32.24(3) | 38,247,463(4) | |||||
Not Approved by Security Holders | — | — | — | ||||||
Total | 2,028,986 | $ | 32.24 | 38,247,463 |
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans | |||||
Equity Compensation Plans: | |||||||
Approved by Security Holders(1) | 1,194,127 | (2) | $ | 33.55 | (3) | 37,520,264 | (4) |
Not Approved by Security Holders | — | — | — | ||||
Total | 1,194,127 | $ | 33.55 | 37,520,264 |
(1) | Equity compensation plans approved by shareholders include the 2003 Equity Incentive Plan and the 2011 Omnibus Incentive Plan. Since the approval of the 2011 Omnibus Incentive Plan, no additional awards will be granted under the ITT Amended and Restated 2003 Equity Incentive Plan. |
(2) | This amount includes |
(3) | The weighted-average exercise price pertains only to outstanding stock options and not to outstanding restricted stock units or performance stock units, which by their nature have no exercise price. |
(4) | This amount represents the number of shares available for issuance pursuant to equity awards that may be granted in the future under the 2011 Omnibus Incentive Plan. |
ITT INC. | ❘20182020 PROXY STATEMENT77 81
The Company filed its Annual Report on Form 10-K for the 20172019 fiscal year with the SEC on February 16, 2018.21, 2020. A copy of the Company’s Form 10-K (without exhibits or documents incorporated by reference) is included in the 20172019 Annual Report to Shareholders that is being delivered or made available via the Internet concurrently with this Proxy Statement to all shareholders.
By Order of the Board of Directors,
Mary Beth Gustafsson
Senior Vice President, General Counsel
and Corporate Secretary
Dated: March 31, 2020
Lori B. Marino
Corporate Secretary
Dated: April 9, 2018
ITT INC. | ❘20182020 PROXY STATEMENT78 82
Applicable Provisions of theLIST OF COMPANIES UTILIZED FROM THE WILLIS TOWERS WATSON COMPENSATION DATA BANK (CDB) ANALYSIS
Amended and Restated Articles of Incorporation of ITT Inc.
Article Fifth
(b) Special meetings of shareholders of the Corporation may be called only (i) by the Chairman of the Board of Directors, (ii) by a majority vote of the entire Board of Directors or (iii) by the Secretary of the Corporation upon the written request (a “Special Meeting Request”) of shareholders of record having, as of the date of the Special Meeting Request, an aggregate “net long position” of at least 25% of the voting power of the outstanding shares of capital stock of the Corporation entitled to vote on the matter or matters to be brought before the proposed special meeting (provided that such Special Meeting Request complies and is in accordance with the By-laws of the Corporation), and may not be called by any other person or persons. “Net long position” shall be determined with respect to each requesting holder in accordance with the definition thereof set forth in Rule 14e-4 under the Securities Exchange Act of 1934, provided that (x) for purposes of such definition, in determining such holder’s “short position,” the reference in such Rule to “the date that a tender offer is first publicly announced or otherwise made known by the bidder to holders of the security to be acquired” shall be the date of the relevant Special Meeting Request and the reference to the “highest tender offer price or stated amount of the consideration offered for the subject security” shall refer to the closing sales price of the Corporation’s common stock on the New York Stock Exchange on such date (or, if such date is not a trading day, the next succeeding trading day) and (y) the “net long position” of such holder shall be reduced by the number of shares as to which such holder does not, or will not, have the right to vote or direct the vote at the proposed special meeting or as to which such holder has entered into any derivative or other agreement, arrangement or understanding that hedges or transfers, in whole or in part, directly or indirectly, any of the economic consequences of ownership of such shares. The “net long position” shall be determined in good faith by the Board, which determination shall be conclusive and binding on the Corporation and the shareholders.
ITT INC. | 2018 PROXY STATEMENT 79
Applicable Provisions of the
Amended and Restated By-laws of ITT Inc.
1.4. Special Meetings of Shareholders. (a) Except as otherwise expressly required by applicable law, special meetings of shareholders or of any class or series entitled to vote may be called for any purpose or purposes by the Chairman, by a majority vote of the entire Board or by the Secretary upon written request in accordance with the Corporation’s Articles of Incorporation, as amended from time to time (the “Articles of Incorporation”), and these By-laws to be held at such date, time and place (within or outside the state of Indiana) as shall be determined by the Board and designated in the notice thereof. Only such business as is specified in the notice of any special meeting of shareholders shall come before such meeting.
(b) A special meeting of shareholders shall be called by the Secretary at the written request or requests (each, a “Special Meeting Request” and, collectively, the “Special Meeting Requests”) of shareholders who are shareholders of record having, as of the date on which such Special Meeting Request is delivered to the Secretary, an aggregate “net long position” (as defined in Article Fifth of the Articles of Incorporation) of at least 25% of the voting power of the outstanding shares of capital stock of the Corporation entitled to vote on the matter or matters to be brought before the proposed special meeting of shareholders (the “Requisite Percentage”) if such Special Meeting Request complies with the requirements of Section 1.4(c) and all other applicable sections of the Articles of Incorporation and these By-laws. The Board shall determine in good faith whether all requirements set forth in these By-laws have been satisfied and such determination shall be binding on the Corporation and its shareholders.
(c) A Special Meeting Request must be delivered by hand or by registered United States mail or courier service, postage prepaid, to the attention of the Secretary. A Special Meeting Request to the Secretary shall be signed and dated by each shareholder of record (or a duly authorized agent of such shareholder) requesting the special meeting of shareholders (each, a “Requesting Shareholder”), shall comply with the shareholder notice and information requirements for annual meetings of shareholders set forth in Sections 1.6(b) through 1.6(d) and, if applicable, the shareholder notice and information requirements for nominations of a person or persons for election as Director(s) as set forth in Section 2.3(a) of these By-laws, and shall also include (i) a statement of the specific purpose or purposes of the special meeting, (ii) the matter(s) proposed to be acted on at the special meeting, (iii) the reasons for conducting such business at the special meeting, (iv) the text of any resolutions proposed for consideration, (v) an acknowledgment by the Requesting Shareholder(s) and the beneficial owners, if any, on whose behalf the Special Meeting Request(s) are being made that any reduction in the aggregate net long position of the Requesting Shareholder(s) below the Requisite Percentage following the delivery of the Special Meeting Request shall constitute a revocation of such Special Meeting Request, and (vi) documentary evidence that the Requesting Shareholders own the Requisite Percentage as of the date of such written request to the Secretary; provided, however, that, if the Requesting Shareholders are not the beneficial owners of the shares representing the Requisite Percentage, then to be valid, the Special Meeting Request(s) must also include documentary evidence (or, if not simultaneously provided with the Special Meeting Request(s), such documentary evidence must be delivered to the Secretary within 10 business days after the date on which the Special Meeting Request(s) are delivered to the Secretary) that the beneficial owners on whose behalf the Special Meeting Request(s) are made beneficially own the Requisite Percentage as of the date on which such Special Meeting Request(s) are delivered to the Secretary. In addition, the Requesting Shareholders and the beneficial owners, if any, on whose behalf the Special Meeting Request(s) are being made shall promptly provide any other information reasonably requested by the corporation.
(d) Notwithstanding the foregoing provisions of this Section 1.4, a special meeting of shareholders requested by shareholders shall not be held if (i) the Special Meeting Request does not comply with this Section 1.4, (ii) the Special Meeting Request relates to an item of business that is not a proper subject for shareholder action under applicable law, (iii) the Special Meeting Request is received by the Secretary during the period commencing 90 calendar days prior to the first anniversary of the date of the immediately preceding annual meeting of shareholders and ending on the date of the next annual meeting, (iv) an annual or special meeting of shareholders that included an identical or substantially similar item of business (“Similar Business”) was held not more than 120 calendar days before the Special Meeting Request was received by the Secretary, (v) the Board or the Chairman of the Board has called or calls for an annual or special meeting of shareholders to be held within 90 calendar days after the Special Meeting Request is received by the Secretary and the business to be conducted at such meeting includes Similar Business, or (vi) the Special Meeting Request was made in a manner that involved a violation of Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or other applicable law. For purposes of this Section 1.4(d), the nomination, election or removal of Directors shall be deemed to be Similar Business with respect to all items of business involving the nomination, election or removal of Directors, changing the size of the Board and filling vacancies and/or newly created directorships resulting from any increase in the authorized number of Directors. The Board shall determine in good faith whether the requirements set forth in this Section 1.4(d) have been satisfied.
ITT INC. | 2018 PROXY STATEMENT 80
(e) In determining whether a special meeting of shareholders has been requested by the record holders of shares representing in the aggregate at least the Requisite Percentage, multiple Special Meeting Requests delivered to the Secretary will be considered together only if (i) each Special Meeting Request identifies substantially the same purpose or purposes of the special meeting and substantially the same matters proposed to be acted on at the special meeting (in each case as determined in good faith by the Board), and (ii) such Special Meeting Requests have been dated and delivered to the Secretary within 60 days of the earliest dated Special Meeting Request. A Requesting Shareholder may revoke a Special Meeting Request at any time by written revocation delivered to the Secretary and if, following such revocation, there are outstanding un-revoked requests from Requesting Shareholders holding less than the Requisite Percentage, the Board may, in its discretion, cancel the special meeting of shareholders. If none of the Requesting Shareholders appears or sends a duly authorized agent to present the business to be presented for consideration that was specified in the Special Meeting Request, the corporation need not present such business for a vote at such special meeting of shareholders.
(f) Special meetings of shareholders shall be held at such date, time and place as may be fixed by the Board in accordance with these By-laws; provided, however, that in the case of a special meeting requested by shareholders, the date of any such special meeting shall not be more than 90 calendar days after a Special Meeting Request that satisfies the requirements of this Section 1.4 (or, in the case of multiple Special Meeting requests, the last Special Meeting Request necessary to reach the Requisite Percentage) is received by the Secretary.
ITT INC. | 2018 PROXY STATEMENT 81
List of Companies Utilized from the Willis Towers Watson Compensation Data Bank (CDB) Analysis
2017 Benchmark Group2019 BENCHMARK GROUP — Willis Towers WatsonWILLIS TOWERS WATSON CDB
(Industrials, Materials, and Energy Companies with Revenue Between ApproximatelyBENCHMARK DATA WAS SUBMITTED BY INDUSTRIALS, MATERIALS, AND ENERGY COMPANIES WITH REVENUE BETWEEN APPROXIMATELY $1.25 & $5.0 Billion)BILLION IN 2017 AND AGED TO REFLECT THE 2019 MARKET)
A.O. Smith | GATX | |||
GCP Applied Technologies | Rowan Companies | |||
Granite Construction | RPM International | |||
Apex Tool Group | H.B. Fuller | Ryerson | ||
AMETEK | Harsco | Sensata Technologies | ||
Ashland | Herman Miller | Sensient Technologies | ||
Brembo | Hexcel | Snap-on | ||
Cabot | Hexion | Sonoco Products | ||
Carpenter Technology | HNI | Steelcase | ||
CF Industries | Hunt Consolidated | TimkenSteel | ||
Chemtura | International Flavors & Fragrances | Toro | ||
Cliffs Natural Resources | Kennametal | Transocean | ||
CoorsTek | Kinross Gold | Trinity Industries | ||
Cubic | Lincoln Electric | USG Corporation | ||
Curtiss-Wright | Magellan Midstream Partners | Valvoline | ||
Donaldson Company | Martin Marietta Materials | Vectrus | ||
Encana Services | Meritor | Vulcan Materials | ||
EnLink Midstream | Peabody Energy | W. R. Grace | ||
Equifax | Pitney Bowes | Watts Water Technologies | ||
Esterline Technologies | PolyOne | Westlake Chemical | ||
Flowserve | Precision Drilling | Worthington Industries | ||
Fortune Brands Home & Security | ||||
ITT INC. | ❘20182020 PROXY STATEMENT82 83
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