(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrantþ
Filed by a Party other than the Registranto¨
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þ | Definitive Proxy Statement |
Definitive Additional Materials |
Soliciting Material Pursuant toRule 14a-12 |
Confidential, for the Use of the Commission Only (as permitted byRule 14a-6(e)(2)) |
ITT Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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2012 | ||
Notice of Annual Meeting |
& Proxy Statement | ||
ITT Corporation |
March 27, 2012
Denise L. Ramos Chief Executive Officer and President | ITT Corporation 1133 Westchester Avenue White Plains, NY 10604-3543 |
Dear Fellow Shareholders:
Enclosed are the Notice of Annual Meeting and Proxy Statement for ITT’s 20112012 Annual Meeting of Shareholders. This year’s meeting is intended to address only the business included on the agenda. Details of the business to be conducted at the Annual Meeting are given in the accompanying Notice of Annual Meeting and Proxy Statement, which provides information required by applicable laws and regulations.
Your vote is important and we encourage you to vote whether you are a registered owner or a beneficial owner.
This year, in accordance with U.S. Securities and Exchange Commission rules, we are again using the Internet as our primary means of furnishing proxy materials to shareholders. Because we are using the Internet, most shareholders will not receive paper copies of our proxy materials. We will instead send these shareholders a notice with instructions for accessing the proxy materials and voting via the Internet. This notice also provides information on how shareholders may obtain paper copies of our proxy materials if they so choose. We believe use of the Internet makes the proxy distribution process more efficient, less costly and helps in conserving natural resources.
If you are the registered owner of ITT common stock, you may vote your shares by making a toll-free telephone call or using the Internet. Details of these voting options are explained in the Proxy Statement. If you choose to receive paper copies of our proxy materials, you can vote by completing and returning the enclosed proxy card by mail as soon as possible.
If you are a beneficial owner and someone else, such as your bank, broker or trustee is the owner of record, the owner of record will communicate with you about how to vote your shares.
Whether or not you plan to attend the Annual Meeting, please vote as soon as possible. If you are a registered owner of ITT common stock and do not plan to vote in person at the Annual Meeting, you may vote via the Internet, by telephone or, if you receive a paper proxy card in the mail, by mailing the completed proxy card. Voting by any of these methods will ensure your representation at the Annual Meeting. Your vote is important.
Sincerely,
March 27, 2012
Time: | 10:30 a.m. Eastern Time, on Tuesday, May | ||
Place: | |||
Items of Business: | 1. Election of the | ||
2. Ratification of the appointment of Deloitte & Touche LLP as ITT’s Independent Registered Public Accounting Firm for | |||
2012. | |||
3. To approve, in a non-binding vote, the compensation of our named executive officers. | |||
4. To 5. To vote | |||
6. To vote on a shareholder proposal requesting that the Company amend, where applicable, | |||
7. To transact such other business as may properly come before the meeting. | |||
Who May Vote: | You can vote if you were a shareholder at the close of business on March 16, | ||
Annual Report to Shareholders andAnnual Report on Form10-K: | Copies of our |
Mailing or Availability Date: | Beginning on or about March |
About Proxy Voting: | Your vote is important. Proxy voting permits shareholders unable to attend the Annual Meeting to vote their shares through a proxy. Most shareholders are unable to attend the Annual Meeting. By appointing a |
proxy, your shares will be represented and voted in accordance with your instructions. If you do not provide instructions on how to vote, the proxies will vote as recommended by the Board of Directors. Most |
shareholders will not receive paper copies of our proxy materials and can vote their shares by following the Internet voting instructions provided on the Notice of Internet Availability of Proxy Materials. If you are a registered owner and requested a paper copy of the proxy materials, you can vote your shares by proxy by completing and returning your proxy card or by following the Internet or telephone voting instructions provided on the proxy card. Beneficial owners who received or requested a paper copy of the proxy materials may vote their shares by submitting voting instructions by completing and returning their voting instruction form or by following the Internet or telephone voting instructions provided on the voting instruction form. You can change your voting instructions or revoke your proxy at any time prior to the Annual Meeting by following the instructions on pages 1 to 5 of this proxy and on the proxy card. | ||
Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be held on Tuesday, May |
By order of the Board of Directors,
Burt M. Fealing | ||||||
Senior Vice President, | ||||||
General Counsel and Secretary |
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Why did I receive these proxy materials? Beginning on or about March 29, 2011,27, 2012, this Proxy Statement is being mailed or made available, as the case may be, to shareholders who were shareholders as of the March 16, 20112012, record date, as part of the Board of Directors’ solicitation of proxies for ITT’s 20112012 Annual Meeting and any postponements or adjournments thereof. This Proxy Statement and ITT’s 20102011 Annual Report to Shareholders and Annual Report onForm 10-K (which have been furnished to shareholders eligible to vote at the 20112012 Annual Meeting) contain information that the Board of Directors believes offers an informed view of ITT Corporation (herein referred to as “ITT” or the “Company”) and meets the regulations of the Securities and Exchange Commission (the “SEC”) for proxy solicitations.
Who is entitled to vote?vote? You can vote if you owned shares of the Company’s common stock as of the close of business on March 16, 2011,2012, the record date.
What items of business will I be voting on? You are voting on the following items of business, which are described on pages 78 to 29:
1. | Election of the |
2. | Ratification of the appointment of Deloitte & Touche LLP (“Deloitte”) as ITT’s Independent Registered Public Accounting Firm for |
3. | |
Approval, in a non-binding vote, of the compensation of our named executive |
5. | To vote |
To transact such other business as may properly come before the meeting. |
How do I vote? If you are a registered owner, you can either vote in person at the Annual Meeting or by proxy whether or not you attend the Annual Meeting. If you are a beneficial owner, you may vote by submitting voting instructions to your bank, broker, trustee or other nominee. If you are a beneficial owner and your shares are held in a bank or brokerage account, you will need to obtain a proxy, executed in your favor, from your bank or broker to be able to vote in person at the Annual Meeting. If you are a beneficial owner and your shares are held through any of the ITT savings plans for salaried or hourly employees, your shares cannot be voted in person at the Annual Meeting. What are the proxy voting procedures? If you vote by proxy, you can vote by following the voting procedures on the proxy card. You may vote:
Ÿ | |
By the Internet, |
Ÿ | |
By Telephone, by calling from the United States, or |
Ÿ | |
By Mail. |
Why does the Board solicit proxies from shareholders? Since it is impractical for all shareholders to attend the Annual Meeting and vote in person, the Board of Directors recommends
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How do the proxies vote? The proxies vote your shares in accordance with your voting instructions. If you appoint the proxies but do not provide voting instructions, they will vote as recommended by the Board of Directors. If any other matters not described in this Proxy Statement are properly brought before the meeting for a vote, the proxies will use their discretion in deciding how to vote on those matters.
How many votes do I have? You have one vote for every share of ITT common stock that you own.
How does the Board of Directors recommend that I vote on the proposals? The Board of Directors recommends a vote FOR the election of each of the nominees of the Board of Directors (Item 1), FOR the ratification of the appointment of Deloitte & Touche LLP as ITT’s Independent Registered Public Accounting Firm for 20112012 (Item 2), FOR the approval of the ITT Corporation 2011 Omnibus Incentive Plan (Item 3), FOR the approval to Amend the Company’s Restated Articles of Incorporation to Allow Shareholders to Call Special Meetings (Item 4), FOR the approval of the compensation of our namedNEOs (Item 3), AGAINST the shareholder proposal requesting that the Company change its state of incorporation from Indiana to Delaware (Item 4), AGAINST the shareholder proposal requesting that the Company adopt a policy that, whenever possible, the Chairman of the Board of Directors be an independent director who has not previously served as an executive officersofficer of the Company (Item 5) and ONE YEAR with respect to how frequently a shareholder vote to approve the compensation of our named executive officers should occur (Item 6) and AGAINST the shareholder proposal requesting that the Company amend, where applicable, ITT’sits policies related to human rights (Item 7)6).
What if I change my mind? You can revoke your proxy at any time before it is exercised by mailing a new proxy card with a later date or casting a new vote by the Internet or telephone, as applicable. You can also send a written revocation to the Secretary at the address listed on the first page of the Proxy Statement. If you come to the Annual Meeting, you can ask that the proxy you submitted earlier not be used.
What is a “broker non-vote”? The New York Stock Exchange (“NYSE”) has rules that govern brokers who have record ownership of listed company stock held in brokerage accounts for their clients who beneficially own the shares. Under these rules, brokers who do not receive voting instructions from their clients have the discretion to vote uninstructed shares on certain matters (“discretionary matters”) but do not have discretion to vote uninstructed shares as to certain other matters (“non-discretionary matters”). A broker may return a proxy card on behalf of a beneficial owner from whom the broker has not received instructions that casts a vote with regard to discretionary matters but expressly states that the broker is not voting as to non-discretionary matters. The broker’s inability to vote with respect to the non-discretionary matters to which the broker has not received instructions from the beneficial owner is referred to as a “broker non-vote.” Under current NYSE interpretations, agenda Item 2, the ratification of Deloitte & Touche LLP as the Company’s Independent Registered Public Accounting Firm (“Deloitte”) and agenda Item 4, the approval to amend the Company’s Restated Articles of Incorporation to allow Shareholders to callis considered a special meeting are both considered discretionary items.item. Your broker does not have discretion to vote your shares held in street name on Items 1, 3, 4, 5 6 or 7,6, each of which is considered a non-discretionary item. Under Indiana law, the law of the state where the Company is incorporated, broker non-votes and abstentions are counted to determine whether there is a quorum present.
There are sevensix formal items, including the shareholder proposal,proposals, scheduled to be voted upon at the Annual Meeting as described on page 1. As of the date of this Proxy Statement, the Board of Directors is not aware of any business other than as described in this Proxy Statement that will be presented for a vote at the 20112012 Annual Meeting.
How many votes are required to elect Directors or approve a proposal? How many votes are required for an agenda item to pass? The Restated Articles of Incorporation of ITT Corporation authorize the Company’s By-laws to provide for majority voting for Directors in uncontested
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scheduled Board Meetingmeeting or within 90 days after certification of the shareholder vote, whichever is earlier, and the Board will promptly publicly disclose its decision and the reasons for its decision. This means that in an uncontested election, to be elected as a Director of ITT, each of the ten10 director candidates must receive a majority of votes cast.
Item 2, Item 3, Item 4, Item 5 and Item 76 of the proposed agenda items require that the votes cast in favor of the proposal exceed the votes cast against the proposal. Item 6 will be determined by which of the options (i.e, every year, every two years, every three years) receives a majority of the votes cast. Item 2, Item 3, Item 4, Item 5 and Item 6 and Item 7 are advisory in nature and are non-binding. Under current NYSE rules, Item 3 requires the affirmative vote of a majority of the votes cast on the proposal, provided that a majority of the outstanding shares of common stock are voted on the proposal. Abstentions will have no effect on the outcomes of Item 1, Item 2, Item 3, Item 4, Item 5 Item 6 or Item 7.6. In addition, broker non-votes will have no effect on the outcomes of Item 1, Item 5,3, Item 64, Item 5 or Item 7. With respect to Item 3, abstentions are considered “votes cast” under current NYSE rules and thus will have the same effect as a vote against the proposal and will be counted in determining whether a majority of the outstanding shares of common stock are voted on the proposal. Broker non-votes with respect to Item 3 will have no effect on the outcome of the proposal, assuming a majority of the outstanding shares of common stock are otherwise voted on the proposal.
How many shares of ITT stock are outstanding? As of March 16, 2011,2012, the record date, 183,764,90895,462,363 shares of ITT common stock were outstanding.
How many holders of ITT outstanding shares must be present to hold the Annual Meeting? In order to conduct business at the Annual Meeting, it is necessary to have a quorum. To have a quorum, shareholders entitled to cast a majority of votes at the Annual Meeting must be present in person or by proxy.
How do I vote? With respect to agenda Items 1, 2, 3, 4, 5 and 7,6, you may vote for, against or abstain from voting. With respect to agenda Item 6, you may vote “one year,” “two years,” “three years,” or abstain from voting.
What is the difference between a beneficial owner and a registered owner? If shares you own are held in an ITT savings plan for salaried or hourly employees, a stock brokerage account, bank or by another holder of record, you are considered the “beneficial owner” because someone else holds the shares on your behalf. If the shares you own are held in a Morgan Stanley Smith Barney account for restricted shares or registered in your name directly with The Bank of New York Mellon, our transfer agent, you are the registered owner and the “shareholder of record.”
How do I vote if I am a participant in ITT’s savings plans for salaried or hourly employees? If you participate in any of the ITT savings plans for salaried or hourly employees, your plan trustee will vote the ITT shares credited to your savings plan account in accordance with your voting instructions, except as otherwise provided in accordance with the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended. The trustee votes the shares on your behalf because you are the beneficial owner, not the shareholder of record, of the savings plan shares.
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I participate in the ITT savings plan for salaried employees and am a shareholder of record of shares of ITT common stock. How many proxy cards will I receive? You will receive only one proxy card. Your savings plan shares and any shares you own as the shareholder of record, including ownership through the ITT Direct Purchase, Sale and Dividend Reinvestment Plan, will be set out separately on the proxy card.
How many shares are held by participants in the ITT employee savings plans? As of March 16, 2011, the2012, record date, Wells Fargo Institutional Trust Services,J.P. Morgan Chase, as the trustee for both the employee salaried savings plan and the hourly employee savings plans, held 7,957,996400,507 shares of ITT common stock (approximately 4.3%0.42% of the outstanding shares) and The Northern Trust Company, as the trustee for the hourly employees savings plans, held 507,889salaried plan, and 87,684 shares of ITT common stock (approximately 0.28%0.09% of the outstanding shares).
Who counts the votes? Is my vote confidential? Representatives of Broadridge count the votes. Representatives of IVS Associates, Inc.Broadridge will act as Inspectors of Election for the 20112012 Annual Meeting. The Inspectors of Election monitor the voting and certify whether the votes of shareholders are kept in confidence in compliance with ITT’s confidential voting policy.
Who pays for the proxy solicitation cost? ITT pays the cost of soliciting proxies from registered owners. ITT has appointed Innisfree M&A Incorporated to help with the solicitation effort. ITT will pay Innisfree M&A Incorporated a fee of $15,000$25,000 to assist with the solicitation and reimburse brokers, nominees, custodians and other fiduciaries for their costs in sending proxy materials to beneficial owners.
Who solicits proxies? Directors, officers or other regular employees of ITT may solicit proxies from shareholders in person or by telephone, facsimile transmission or other electronic communication.
How does a shareholder submit a proposal for the 20122013 Annual Meeting? Rule 14a-8 of the Securities Exchange Act of 1934, or the “Exchange Act,” establishes the eligibility requirements and the procedures that must be followed for a shareholder proposal to be included in a public company’s proxy materials. Under the rule, if a shareholder wants to include a proposal in ITT’s proxy materials for its next Annual Meeting, the proposal must be received by ITT at its principal executive offices on or before November 29, 201127, 2012, and comply with eligibility requirements and procedures. An ITT shareholder who wants to present a matter for action at ITT’s next Annual Meeting, but chooses not to do so under Exchange ActRule 14a-8, must deliver to ITT, at its principal executive offices, on or before November 29, 201127, 2012, a written notice to that effect; provided, however, in the event that the date of the 20122013 Annual Meeting is changed by more than 30 days from the anniversary date of the 20112012 Annual Meeting, such notice must be received not later than 120 days calendar days prior to the 20122013 Annual Meeting or 10 calendar days following the date on which public announcement of the date of the annual meeting is first made. In either case, as well as for shareholder nominations for Directors, the shareholder must also comply with the requirements in the Company’s By-laws with respect to a shareholder properly bringing business before the Annual Meeting. (You can request a copy of the By-laws from the Secretary of ITT.)
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Householding of Proxy Materials
SEC rules permit companies and intermediaries such as brokers to satisfy delivery requirements for proxy statements and notices with respect to two or more shareholders sharing the same address by delivering a single proxy statement or a single notice addressed to those shareholders. This process, which is commonly referred to as “householding”, provides cost savings for companies. Some
brokers household proxy materials, delivering a single proxy statement or notice to multiple shareholders sharing an address unless contrary instructions have been received from the affected shareholders. Once you have received notice from your broker that they will be householding materials to your address, householding will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in householding and would prefer to receive a separate proxy statement or notice, please notify your broker. You can request prompt delivery of a copy of the Proxy Materials by writing to: Elizabeth O’Driscoll, Manager, Stock Administration, ITT Corporation, 1133 Westchester Ave., White Plains, NY 10604, by email at Elizabeth.O’Driscoll@itt.com or by calling 914-641-2000.
We make available, free of charge on our website, all of our filings that are made electronically with the SEC, including Forms 10-K, 10-Q and 8-K. To access these filings, go to our website (www.itt.com) and click on “SEC Filings” under the “Investors” heading. Copies of our Annual Report on Form 10-K for the year ended December 31, 2011, including financial statements and schedules thereto, filed with the SEC, are also available without charge to shareholders upon written request addressed to:
Corporate Secretary
ITT Corporation
1133 Westchester Ave.
White Plains, NY 10604
Internet Availability of Proxy Materials
In accordance with SEC rules, we are using the Internet as our primary means of furnishing proxy materials to shareholders. Because we are using the Internet, most shareholders will not receive paper copies of our proxy materials. We will instead send these shareholders a Notice of Internet Availability of Proxy Materials with instructions for accessing the proxy materials, including our proxy statement and annual report, and voting via the Internet. The Notice of Internet Availability of Proxy Materials also provides information on how shareholders may obtain paper copies of our proxy materials if they so choose.
The Board of Directors’ share ownership guidelines currently provide for share ownership levels at five times the annual cash retainer amount. Non-Management Directors receive a portion of their retainer in restricted stock or restricted stock units (“RSUs”), which are paid in shares when the Share ownership guidelines for corporate officers, first approved by ITT’s Board of Directors during 2001, are regularly reviewed. The guidelines specify the desired levels of Company stock ownership and encourage a set of behaviors for each officer to reach the guideline levels. The approved guidelines require share ownership expressed as a multiple of base salary for all corporate officers. Specifically the guidelines apply as follows: chief executive officer at five times annual base salary; chief financial officer and executive vice president at three times annual base salary; senior vice presidents and group presidents at two times annual base salary; and all other corporate vice presidents at one times annual base salary. In achieving these ownership levels, shares owned outright, Company restricted stock and To attain the ownership levels set forth in the guidelines, it is expected that any restricted shares that become unrestricted Compliance with the guidelines is monitored periodically.restricted stock unitsRSUs vest. Non-Management Directors are encouraged to hold such shares until their total share ownership meets or exceeds the ownership guidelines.restricted stock units,RSUs, shares held in the Company’s dividend reinvestment plan, shares owned in the ITT Salaried Investment and Savings Plan, and “phantom” shares held in a fund that tracks an index of the Company’s stock in the deferred compensation plan are considered.will be held, and that all shares acquired through the exercise of stock options will be held, except, in all cases, to the extent necessary to meet tax obligations. Consistent with the guidelines, the share ownership levels have been substantially met for most Non-Management Directors and Company officers as of January 31, 2011. Non-Management Directors and Company officers are afforded a reasonable period of time to meet the guidelines. The Company has taken the individual tenure and share ownership levels of Non-Management Directors and corporate officer share ownership levelsofficers into account in determining compliance with the guidelines.5
Non-Management Directors | 5 X Annual Cash Retainer Amount | |
CEO | 5 X Annual Base Salary | |
CFO and EVP | 3 X Annual Base Salary | |
Senior Vice Presidents | 2 X Annual Base Salary | |
Vice Presidents | 1 X Annual Base Salary |
Stock Ownership of Directors and Executive Officers
The following table shows the beneficial ownership, as of January 31, 2011, the beneficial ownership2012, of ITT common stock and options exercisable within 60 days by each Director, by each of the executive officers named in the Summary Compensation Table at pageon Page 72, and by all Directors and executive officers as a group. In addition, with respect to Mr. Loranger and Non-Management Directors, we have provided information about ownership of restricted stock units that provides economic linkage to ITT common stock but does not represent actual beneficial ownership of shares.
Amount and Nature of Beneficial Ownership | |||||||||||||||||||||||||||||
Total | ITT Common | ||||||||||||||||||||||||||||
Title of Class | Shares | Stock | |||||||||||||||||||||||||||
Name of Beneficial | ITT Common | Beneficially | Shares | Stock | Percentage | ||||||||||||||||||||||||
Owner | Stock | Owned(1) | Owned | Options(2) | Units | of Class(5) | |||||||||||||||||||||||
Steven R. Loranger(3)(4) | Common Stock | 1,027,553 | 305,586 | 721,967 | — | 0.557 | % | ||||||||||||||||||||||
Curtis J. Crawford | Common Stock | 60,436 | 37,535 | 22,901 | 1,715 | 0.033 | % | ||||||||||||||||||||||
Christina A. Gold | Common Stock | 49,323 | 26,422 | 22,901 | 1,715 | 0.027 | % | ||||||||||||||||||||||
Ralph F. Hake | Common Stock | 36,312 | 16,971 | 19,341 | 1,715 | 0.020 | % | ||||||||||||||||||||||
John J. Hamre | Common Stock | 47,233 | 24,332 | 22,901 | 1,715 | 0.026 | % | ||||||||||||||||||||||
Paul J. Kern | Common Stock | 10,007 | 4,926 | 5,081 | 1,715 | 0.005 | % | ||||||||||||||||||||||
Frank T. MacInnis | Common Stock | 42,992 | 20,091 | 22,901 | 1,715 | 0.023 | % | ||||||||||||||||||||||
Surya N. Mohapatra | Common Stock | 14,848 | 7,607 | 7,241 | 1,715 | 0.008 | % | ||||||||||||||||||||||
Linda S. Sanford | Common Stock | 50,315 | 27,414 | 22,901 | 1,715 | 0.027 | % | ||||||||||||||||||||||
Markos I. Tambakeras | Common Stock | 40,577 | 17,676 | 22,901 | 1,715 | 0.022 | % | ||||||||||||||||||||||
Denise L. Ramos | Common Stock | 71,618 | 37,074 | 34,544 | — | 0.039 | % | ||||||||||||||||||||||
Gretchen W. McClain | Common Stock | 160,178 | 86,295 | 73,883 | — | 0.087 | % | ||||||||||||||||||||||
David F. Melcher | Common Stock | 35,451 | 15,224 | 20,227 | — | 0.019 | % | ||||||||||||||||||||||
Frank R. Jimenez | Common Stock | 16,587 | 7,111 | 9,476 | — | 0.009 | % | ||||||||||||||||||||||
All Directors and Executive Officers as a Group | Common Stock | 1,771,184 | 671,917 | 1,099,267 | 15,435 | 0.960 | % | ||||||||||||||||||||||
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Amount and Nature of Beneficial Ownership | ||||||||||||||||||||||
Name of Beneficial Owner | Title of Class ITT Common | Total Shares Beneficially Owned | ITT Common Shares | Options | Stock Units | Percentage of Class | ||||||||||||||||
Denise L. Ramos | Common Stock | 228,633 | 55,359 | 173,274 | — | * | ||||||||||||||||
Aris C. Chicles | Common Stock | | 99,525 | | | 18,504 | | | 81,021 | | — | * | ||||||||||
Thomas M. Scalera | Common Stock | | 36,379 | | 4,921 | 31,458 | — | * | ||||||||||||||
Robert J. Pagano, Jr. | Common Stock | 301,003 | 38,458 | | 262,545 | | — | * | ||||||||||||||
Munish Nanda | Common Stock | | 57,857 | | | 12,627 | | 45,230 | — | * | ||||||||||||
Steven R. Loranger(1) | Common Stock | | 566,432 | | 122,604 | 443,828 | — | * | ||||||||||||||
Gretchen W. McClain | Common Stock | 6,979 | 6,979 | — | — | * | ||||||||||||||||
David F. Melcher | Common Stock | 384 | 384 | — | — | * | ||||||||||||||||
Orlando D. Ashford | Common Stock | — | — | — | — | * | ||||||||||||||||
G. Peter D’Aloia | Common Stock | — | — | — | — | * | ||||||||||||||||
Donald DeFosset, Jr. | Common Stock | — | — | — | — | * | ||||||||||||||||
Christina A. Gold | Common Stock | 26,892 | 10,578 | 12,589 | 3,725 | * | ||||||||||||||||
Paul J. Kern | Common Stock | 7,155 | 508 | 4,049 | 2,598 | * | ||||||||||||||||
Frank T. MacInnis | Common Stock | 20,774 | 5,554 | 12,589 | 2,631 | * | ||||||||||||||||
Linda S. Sanford | Common Stock | 25,992 | 14,506 | 10,809 | 677 | * | ||||||||||||||||
Donald J. Stebbins | Common Stock | — | — | — | — | * |
Title of Class ITT Common ITT Common Shares Markos I. Tambakeras All Directors and Executive Officers as a Group Amount and Nature of Beneficial Ownership Name of Beneficial Owner
Stock Total
Shares
Beneficially
Owned
Stock
Owned Options(1) Stock
Units Percentage
of Class Common Stock 22,715 10,126 12,589 — * Common Stock 1,624,484 330,248 1,284,605 9,631 1.70 %
* | Less than one percent |
(1) | Mr. Loranger’s common stock shares owned exclude 83,709 vested but unsettled RSUs which are anticipated to be settled on May 2, 2012, approximately six months after Mr. Loranger’s termination of employment on October 31, 2011. The vested but unsettled RSUs correspond to the remaining portion of Mr. Loranger’s June 24, 2004 original employment grant of 125,000 RSUs and a portion of a March 3, 2011 grant of 18,221 RSUs. |
Schedule 13G Filings
Set forth below is information reported to the SEC on the most recently filed Schedule 13G by the following persons who owned more than 5% of ITT outstanding common stock. This information does not include holdings by the trustee with respect to individual participants in the ITT Salaried Investment and Savings Plan.
Amount and | ||||||||
nature of | ||||||||
Name and address | beneficial | Percent of | ||||||
of beneficial owner | ownership | Class | ||||||
Barrow, Hanley, Mewhinney & Strauss, LLC(1) | 13,008,379 | 7.09 | % | |||||
2200 Ross Avenue, 31st Floor Dallas, TX75201-2761 |
Name and address of beneficial owner | Amount and nature of beneficial ownership | Percent of Class | ||||||
Barrow, Hanley, Mewhinney & Strauss, LLC(1) | 6,506,226 | 7.01 | % | |||||
2200 Ross Avenue, 31st Floor Dallas, TX 75201-2761 | ||||||||
BlackRock, Inc.(2) | 5,055,203 | 5.46 | % | |||||
40 East 52nd Street, New York , NY 10022 |
(1) | As reported on Schedule 13G/A |
(2) | As reported on Schedule 13G filed on February 9, 2012, BlackRock, Inc. has sole voting power with respect to 5,055,203 shares, no shared voting power with respect to any shares, and sole dispositive power with respect to 5,055,203 shares. |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires that the Company’s executive officers and directors, and any persons beneficially owning more than 10% of a registered class of the Company’s equity securities, file reports of ownership and changes in ownership with the SEC within specified time periods. To the Company’s knowledge, based upon a review of the copies of the reports furnished to the Company and written representations that no other reports were required, all filing requirements were satisfied in a timely manner for the year ended December 31, 2010, except that Mr. Loranger filed a late Form 5 to report gifts of shares of ITT common stock on two successive dates in 2010 to his wife’s revocable trust.
20112012 Annual Meeting
1. | |
Election of Directors |
The Board of Directors has nominated ten10 individuals for election as Directors at the 20112012 Annual Meeting. Each of the nominees is currently serving as a Director of ITT and has agreed to continue
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The Board of Directors recommends that you vote FOR the election of each of the following ten10 nominees:
Denise L. Ramos Chief Executive Officer and President, ITT Corporation |
Director Biographical Information: Mr. Loranger, 59,Ms. Ramos, 55, was appointed President and Chief Executive Officer and President and elected a Director of ITT on June 28, 2004. HeOctober 31, 2011. She previously served as Senior Vice President and Chief Financial Officer of ITT. Ms. Ramos has greater than twenty years of business and financial experience acquired at Atlantic Richfield Company (ARCO). During her tenure at ARCO, she served in a number of increasingly responsible finance positions, including Corporate General Auditor and Assistant Treasurer. In addition, Ms. Ramos has five years of experience at Yum! Brands, Inc., where she was elected ChairmanSenior Vice President and Corporate Treasurer for Yum! and Chief Financial Officer for the U.S. division of the BoardKFC Corporation. Prior to joining ITT in 2007, Ms Ramos served as Chief Financial Officer for Furniture Brands International. Ms. Ramos holds a Master of Directors on December 7, 2004. Mr. Loranger is a member of the Business Roundtable, serves on the boards of the National Air and Space Museum and the Congressional Medal of Honor Foundation and is on the Executive Committee of the Aerospace Industries Association Board of Governors. Mr. Loranger received bachelor’s and master’s degreesAdministration in scienceFinance from the University of Colorado.
Director Experience, Qualifications, Attributes or Skills Relevant to Board Membership:Mr. Loranger Ms. Ramos’s unique background combines more than two decades in the oil and gas industry with significant retail and customer-centric experience. She has extensive operational and manufacturing experience with industrial companies and, in particular, heshe has intimate knowledge of the Company’s business and operations having served as our Chief ExecutiveFinancial Officer since 2004.2007.
Directorships at Public Companies for the Preceding Five Years: Ms. Ramos has been a Director of ITT since October 31, 2011.
Frank T. MacInnis Chairman and former Chief Executive Officer, EMCOR Group, Inc., one of the world’s largest providers of electrical and mechanical construction services, energy infrastructure and facilities services |
Director Biographical Information: Mr. Loranger previously served as Executive Vice PresidentMacInnis, 65, is currently Chairman of the Board and Chief Operating Officer of Textron, Inc. from 2002 to 2004, overseeing Textron’s manufacturing businesses, including aircraft and defense, automotive, industrial products and components. From 1981 to 2002, Mr. Loranger held executive positions at Honeywell International Inc. and its predecessor company, AlliedSignal, Inc., including serving as President andwas Chief Executive Officer of its Engines, SystemsEMCOR Group, Inc. from April 1994 to January 2011. He was also President of EMCOR from April 1994 to April 1997. Mr. MacInnis is Chairman of the Board and Services businesses. He also servesa Director of ComNet Communications, LLC, Gilbane, Inc., and The Williams Companies, Inc. Mr. MacInnis received an undergraduate degree from The University of Alberta and is a graduate of The University of Alberta Law School, Alberta, Canada.
Director Experience, Qualifications, Attributes or Skills Relevant to Board Membership: Mr. MacInnis has greater than 25 years of broad-based experience as a Chief Executive Officer of a leading, publicly held, international mechanical and electrical construction, energy infrastructure, and facilities services provider. Mr. MacInnis provides knowledgeable leadership and insight into the many commercial and defense markets served by the Company and has a strong corporate and finance background. He is also a Director of EMCOR Group, Inc., providing additional relevant experience.
Directorships at Public Companies for the Preceding Five Years: Mr. MacInnis has been a Director of ITT since 2001. He was elected Chairman of the Board of ITT on October 31, 2011. Mr. MacInnis has been Chairman of the Board and a Director of EMCOR Group, Inc. since 1994 and a Director of The Williams Companies, Inc. since 1998. He was elected Chairman of the Board of The Williams Companies, Inc. in May, 2011. In December 2011, Mr. MacInnis joined the Board of Directors of Gilbane, Inc., a real estate development and construction company.
Orlando D. Ashford Senior Vice President, Chief Human Resources and Communications Officer, Marsh & McLennan Cos. |
Director Biographical Information:Mr. Ashford, 43, is the Senior Vice President, Chief Human Resources and Communications Officer for Marsh & McLennan Companies. Previously, he served as Group Director of Human Resources for Eurasia and Africa for the Coca-Cola Company and Vice President of Global Human Resources Strategy and Organizational Development for Motorola Inc. He has also held leadership positions with Mercer Delta Consulting, Ameritech and Andersen Consulting.
Director Experience, Qualifications, Attributes or Skills Relevant to Board Membership:Mr. Ashford has significant experience in multinational organizations, providing experience and skills relevant to the Company’s international sales infrastructure. Mr. Ashford is also on the Board of FedEx Corporation, providing additional relevant experience.
Directorships at Public Companies for the Preceding Five Years:Mr. Loranger has been a DirectorAshford currently serves on the Board of ITT since 2004 and has served as a DirectorDirectors of FedEx Corporation since 2006.
Peter D’Aloia Former Senior Vice President and Chief |
Director Biographical Information: Dr. Crawford, 63, isMr. D’Aloia, 67, served as Senior Vice President and Chief ExecutiveFinancial Officer of XCEO,American Standard Companies Inc., a position he held since 2000, before retiring in 2008. Before joining American Standard, Mr. D’Aloia worked for Honeywell where he most recently served as Vice President—Business Development. He isspent 27 years with Honeywell’s predecessor company, AlliedSignal, in diverse finance management positions. During his career with AlliedSignal, he served as Vice President—Taxes; Vice President and Treasurer; Vice President and Controller; and Vice President and Chief Financial Officer for the Engineered Materials Sector. Early in his career, he worked as a member oftax attorney for the Board of Trustees of DePaul University. He received a B.A. degree in business administrationaccounting firm Arthur Young and computer science and an M.A. degree from Governors State University, an M.B.A. from DePaul University and a Ph.D. from Capella University. Governors State University awarded him an honorary doctorate in 1996 and he received an honorary doctorate degree from DePaul University in 1999.
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Directorships at Public Companies for the Preceding Five Years:Dr. Crawford Mr. D’Aloia is a board member and managing director of Ascend Performance Materials, Inc. He also currently serves on the boards of FMC Corporation and WABCO Holdings, Inc.
Donald DeFosset, Jr. Former Chairman, James Hardie Industries N.V. |
Director Biographical Information: Donald DeFosset, Jr., 63, retired in 2005 as Chairman, President and Chief Executive Officer of Walter Industries, Inc., a diversified company with principal operating businesses in homebuilding and home financing, water transmission products and energy services. Mr. DeFosset served since November 2000 as President and Chief Executive Officer, and since March 2002 as Chairman, of Walter Industries. Previously, he was Executive Vice President and Chief Operating Officer of Dura Automotive Systems, Inc. (“Dura”), a global supplier of engineered systems, from October 1999 through June 2000. Before joining Dura, Mr. DeFosset served as a Corporate Executive Vice President, President of the Truck Group and a member of the Office of Chief Executive Officer of Navistar International Corporation from October 1996 to August 1999.
Director Experience, Qualifications, Attributes or Skills Relevant to Board Membership: Mr. DeFosset holds a Master of Business Administration from Harvard Business School and a Bachelor of Science degree in industrial engineering from Purdue University. Mr. DeFosset has beensignificant experience as a chief executive of a large diversified industrial company and as a senior executive of an international machinery manufacturer. Mr. DeFosset has also served as a Director in other public companies, providing additional relevant experience.
Directorships at Public Companies for the Preceding Five Years: Mr. DeFosset also serves as a Director of ITT since 1996. He isNational Retail Properties Inc., Regions Financial Corporation and EnPro Industries, Inc. Previously, Mr. DeFosset served as a Director of E.I. DuPont de Nemours and Company and ON Semiconductor Corporation. Dr. Crawford was previously a Director of Agilysys, Inc.James Hardie Industries N.V. from April 2005 to June2006 through 2008.
Christina A. Gold Former President, Chief Executive Officer and Director, The Western Union Company, Inc. |
Director Biographical Information: Mrs. Gold, 63,64, was President and Chief Executive Officer of The Western Union Company, a leading company in global money transfer, from September of 2006 to September of 2010. From May 2002 to September 2006, Mrs. Gold was President of Western Union Financial Services, Inc. and Senior Executive Vice President of Western Union’s parent company, First Data Corporation. She serves as a Director of New York Life Insurance, a mutual company. Mrs. Gold is a graduate of Carleton University, Ottawa, Canada.
Mrs. Gold was Executive Vice President of Global Development of Avon Products, Inc., and from 1993 to 1997, she was President of Avon North America. Mrs. Gold is a graduate of Carleton University, Ottawa, Canada. She is a board member of the Safe Water Network.
Director Experience, Qualifications, Attributes or Skills Relevant to Board Membership: Mrs. Gold has extensive experience as the Chief Executive Officer of a public company with wide-ranging global leadership, management and marketing experience. She was recognized in 2003, 2006, 2008 and 20082009 byFortunemagazine as one of America’s 50 Most Powerful Women in Business and byForbesmagazine on its “100 Most Powerful Women” list as No. 56 in 2007, No. 90 in 2008, and No. 76 in 2009.BusinessWeekalso named her as one of the top 25 U.S. managers in 1996.
Directorships at Public Companies for the Preceding Five Years:Mrs. Gold has been a Director of ITT since 1997. Mrs. Gold has served as Director of The Western Union Company since 2006. Mrs. Gold has also served1997 and as a directorDirector of New York Life Insurance Company, since 2001, a mutual company, andsince 2001. Mrs. Gold previously served as a Director of Torstar Corporation, a broad-based Canadian media company, providing additional relevant experience.
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not-for-profit organization chartered to work in the public interest, with expertise in systems engineering, information technology, operational concepts, and enterprise modernization. He received a B.A. degree, with highest distinction, from Augustana College in Sioux Falls, South Dakota, was a Rockefeller Fellow at Harvard Divinity School and was awarded a Ph.D., with distinction, from the School of Advanced International Studies, Johns Hopkins University, in 1978.
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General Paul J. Kern, U.S. Army (Ret.) Senior Counselor, The Cohen Group |
Director Biographical Information: General Kern, 65,66, has served as a Senior Counselor to the Cohen Group since January 2005. He served as President and Chief Operating Officer of AM General LLC from August of 2008 to January of 2010. In November 2004, General Kern retired from the United StatesU.S. Army as Commanding General, Army Materiel Command (AMC). General Kern graduated from the U.S. Military Academy at West Point. He holds masters’masters degrees in both Civilcivil and Mechanical Engineeringmechanical engineering from the University of Michigan, and he was a Senior Security Fellow at the John F. Kennedy School at Harvard University. General Kern serves on the Board of Directors of CoVant Technologies LLC, and AT Solutions, a subsidiary of CoVant Technologies.
Director Experience, Qualifications, Attributes or Skills Relevant to Board Membership:General Kern has extensive international strategic business and defense-related experience. General Kern has demonstrated leadership and management experience during his37-year career with the U.S. Army. He is a leading figure on defense transformation, as well as a highly decorated combat veteran, and achieved recognized prominence as a four-star general with the U.S. Army. General Kern spearheaded Army efforts to direct supply chain improvement efforts, modernize weapons systems and maintain field readiness, while still controlling costs. He is also a Director of iRobot Corporation, providing additional relevant experience, and a member of the Defense Science Board and National Academy of Engineering.
Directorships at Public Companies for the Preceding Five Years:General Kern has been a Director of ITT Corporation since August 2008. He has served as a Director of iRobot Corporation since 2006. General Kern was a Director of EDO Corporation from 2005 through 2007. The Company acquired EDO Corporation on December 20, 2007. He was a directorDirector of Anteon Corporation from 2005 until 2006 when it was sold to General Dynamics.
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18-year tenure. Dr. Mohapatra is also a Director at Quest Diagnostics Incorporated, a Trustee of the Rockefeller University and a member of the Corporate Advisory Board of Johns Hopkins Carey Business School, providing additional relevant experience.
Linda S. Sanford Senior Vice President, Enterprise Transformation, International Business Machines Corporation (“IBM”), an information technology company |
Director Biographical Information: Ms. Sanford, 58,59, was named Senior Vice President, Enterprise Transformation, IBM in January 2003. Previously, she was Senior Vice President and Group Executive, IBM Storage Systems Group, responsible for development of IBM’s Enterprise Storage Server and other storage-related hardware and software. She also has held positions as General Manager, IBM Global Industries, and General Manager of IBM’s S/390 Division. Ms. Sanford is a member of the Women in Technology International Hall of Fame and the National Academy of
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Director Experience, Qualifications, Attributes or Skills Relevant to Board Membership:Ms. Sanford has extensive global management and operational experience in information technology and high-technology companies. Ms. Sanford has run many large businesses within IBM and currently leads IBM’s Enterprise Transformation. In that role, Ms. Sanford is responsible for working to transform core business processes, create an IT infrastructure to support those processes, and help create a culture that recognizes the value of continual transformation. Ms. Sanford has also been named one of the 50 Most Influential Women in Business byFortuneMagazine, magazine, one of the Top Ten Innovators in the Technology Industry byInformation WeekMagazine, magazine, and one of the Ten Most Influential Women in Technology byWorking WomanMagazine. magazine. She is a senior officer in a large publicly-tradedpublicly traded company, providing additional relevant experience. In addition, Ms. Sanford’s experience in analytics and information technology is particularly relevant for understanding ITT’s businesses.
Directorships at Public Companies for the Preceding Five Years:Ms. Sanford has been a Director of ITT since 1998.
Donald J. Stebbins Chairman, Chief Executive Officer and President, Visteon Corporation, a leading global supplier of innovative climate, interior, electronic and lighting products for vehicle manufacturers |
Director Biographical Information: Mr. Stebbins, 54, joined Visteon in June 2005 as President and Chief Operating Officer, was named Chief Executive Officer on June 1, 2008 and elected Chairman effective December 1, 2008. Prior to joining Visteon, he was President and Chief Operating Officer of Lear Corporation’s operations in Europe, Asia and Africa. Before that, he was President and Chief Operating Officer of Lear Corporation’s operations in the Americas. Before joining Lear in 1992, Mr. Stebbins held positions at Bankers Trust Co. and Citibank.
Director Experience, Qualifications, Attributes or Skills Relevant to Board Membership: Mr. Stebbins has more than 20 years of leadership experience in global operations and finance, including 13 years in senior leadership positions with Lear before joining Visteon.
Directorships at Public Companies for the Preceding Five Years: Mr. Stebbins has served on Visteon’s Board of Directors since December 2006. He also currently serves on the board of WABCO Holdings, Inc.
Markos I. Tambakeras Former Chairman, President and Chief Executive Officer, Kennametal, Inc., a premier global tooling solutions, engineered components and advanced materials supplier to the automotive, aerospace, energy, mining, construction and other industries |
Director Biographical Information: Mr. Tambakeras, 60,61, served as Chairman of the Board of Directors, Kennametal, Inc. from July 1, 2002, until December 31, 2006. He was also President and Chief Executive Officer of Kennametal from July 1999 through December 31, 2005. From 1997 to June 1999, Mr. Tambakeras served as President, Industrial Controls Business, for Honeywell Incorporated. HeMr. Tambakeras serves on the Board of Trustees of Loyola Marymount University and he is also a trustee of Arizona State University and has served for two years on the President’s Council on Manufacturing. Mr. Tambakeras received a B.Sc.Bachelor of Science degree from the University of Witwatersrand, Johannesburg, South Africa, and an M.B.A.a Master of Business Administration degree from Loyola Marymount University, Los Angeles, CA.
Director Experience, Qualifications, Attributes or Skills Relevant to Board Membership:Mr. Tambakeras has strong strategic and global operational industrial experience, having worked in increasingly responsible positions in several manufacturing companies, including leadership positions in South Africa and the Asia-Pacific area. Mr. Tambakeras has an extensive background in international operations, providing experience and skills relevant to the Company’s global sales and manufacturing infrastructure. He was previously the Chairman of the Board of Trustees of the Manufacturers Alliance/MAPI, which is the manufacturing industry’s leading executive development and business research organization. Mr. Tambakeras is alsowas a Director of Parker Hannifin Corporation, providing additional relevant experience.
Directorships at Public Companies for the Preceding Five Years:Mr. Tambakeras has been a Director of ITT since 2001. Previously, Mr. Tambakeras was a Director of Kennametal, Inc. from July 1999 through December 2006. Mr. Tambakeras has served on the Board of Parker Hannifin Corporation sincefrom 2005 through 2011 and served as a Director of the Board of Newport Corporation from May 2008 through December 2009. Mr. Tambakeras was elected the non-Executive Chairman of Xylem Inc. on October 31, 2009.
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2. | |
Ratification of Appointment of the Independent Registered Public Accounting Firm |
The Board of Directors has appointed Deloitte & Touche LLP (“Deloitte”) as ITT’s independent registered public accounting firm for 2011.2012. Shareholder ratification is not required for making such appointment for the fiscal year ending December 31, 20112012, because the Audit Committee has responsibility for the appointment of our independent registered public accounting firm. The appointment is being submitted for ratification with a view toward soliciting the opinion of shareholders, which opinion will be taken into consideration in future deliberations. No determination has been made as to what action the Board of Directors or the Audit Committee would take if shareholders do not ratify the appointment. Deloitte is a registered public accounting firm by the Public Company Accounting Oversight Board (“PCAOB”). Representatives of Deloitte attended all regularly scheduled meetings of the Audit Committee during 2010.2011. The Audit Committee annually reviews and considers Deloitte’s performance of the Company’s Audit.audit. Performance factors reviewed include Deloitte’s:
Ÿ | Independence |
Experience |
Technical capabilities |
Client service assessment |
Responsiveness |
Financial strength |
Industry insight |
Leadership |
Non-audit services |
Management structure |
Peer review program |
Commitment to quality report |
Appropriateness of fees charged |
Compliance and ethics |
The Audit Committee also reviewed the terms and conditions of Deloitte’s engagement letter including an agreement bybetween the Company and Deloitte to submit disputes between Deloitte and the Company to a dispute resolution process and to limit awards based on punitive or exemplary damages under the dispute resolution procedures.
The Audit Committee discussed these considerations as well as Deloitte’s fees and services with Deloitte and Company management. The Audit Committee also determined that any non-audit services (services other than those described in the annual audit services engagement letter) provided by Deloitte were permitted under the rules and regulations concerning auditor independence promulgated by the SEC and rules promulgated by the PCAOB in Rule 3526. Representatives of Deloitte will be present at the 20112012 Annual Meeting to answer questions. Representatives of Deloitte also will have the opportunity to make a statement if they desire to do so.
Independent Registered Public Accounting Firm Fees
Aggregate fees billed to the Company for the fiscal years ended December 31, 20102011 and 20092010 represent fees billed by the member firms of Deloitte Touche Tohmatsu, and their respective affiliates.
Fiscal Year Ended | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Audit Fees(1) | $ | 8,423 | $ | 8,319 | ||||
Audit-Related Fees(2) | 2,745 | 1,015 | ||||||
Tax Fees(3) | ||||||||
Tax Compliance Services | 1,448 | 1,163 | ||||||
Tax Planning Services | 501 | 209 | ||||||
Total Tax Services | 1,949 | 1,372 | ||||||
Other Fees(4) | 1,500 | — | ||||||
Total | $ | 14,617 | $ | 10,706 | ||||
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Fiscal Year Ended | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Audit Fees(1) | $ | 4,347 | $ | 8,423 | ||||
Audit-Related Fees(2) | 14,714 | 2,745 | ||||||
Tax Fees(3) | ||||||||
Tax Compliance Services | 2,470 | 1,448 | ||||||
Tax Planning Services | 4,888 | 501 | ||||||
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Total Tax Services | 7,358 | 1,949 | ||||||
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All Other Fees(4) | 11,508 | 1,500 | ||||||
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Total | $ | 37,927 | $ | 14,617 | ||||
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(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 |
Employee benefit plan audits; | |||
Audits and other attest work related to | |||
Internal control advisory services; and | |||
Other miscellaneous attest services. |
(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; |
ii. | Internal Revenue Code and foreign tax code technical consultations; and |
iii. | Transfer pricing analyses. |
Ÿ | Tax planning services are services and advice rendered with respect to proposed transactions or services that alter the structure of a transaction to obtain an anticipated tax result. Such services consisted primarily of: |
i. | Tax advice related to the tax-free nature of the Separation; and |
ii. | Tax advice related to intra-group restructuring. |
(4) | Fees for other services consisted of consulting services in connection with the Company’s value-based commercial excellence |
Pre-Approval of Audit and Non-Audit Services
The Audit Committee pre-approves audit services provided by Deloitte. The Audit Committee has also adopted a policy on pre-approval of permitted non-audit services provided by Deloitte and certain permitted non-audit services provided by outside internal audit service providers. The purpose of the policy is to identify thresholds for services, project amounts and circumstances where Deloitte and any outside internal audit service providers may perform permitted non-audit services. A second level of review and approval by the Audit Committee is required when such permitted non-audit services, project amounts or circumstances exceed the specified amounts.
The Audit Committee has determined that, where practical, all permitted non-audit services shall first be placed for competitive bid prior to selection of a service provider. Management may select the party deemed best suited for the particular engagement, which may or may not be Deloitte. Providers other than Deloitte shall be preferred in the selection process for permitted non-audit service-related work. The policy and its implementation are reviewed and reaffirmed on a regular basis to assure conformance with applicable rules.
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1. | Due diligence, closing balance sheet audit services, purchase price dispute support and other services related to mergers, acquisitions and |
2. | Employee benefit advisory services, independent audits and preparation of tax returns for the Company’s defined contribution, defined benefit, and health and welfare benefit plans, preparation of the associated tax returns or other employee benefit advisory |
3. | Tax compliance and certain tax planning and advice |
4. | Accounting consultations and support related to generally accepted accounting principles (“GAAP”) or government contract compliance. |
The Audit Committee has also approved specific categories of audit-related services, including the assessment and review of internal controls and the effectiveness of those controls, which outside internal audit service providers may provide without further approval.
If fees for any pre-approved non-audit services provided by either Deloitte or any outside internal audit service provider exceed a pre-determined threshold during any calendar year, any additional proposed non-audit services provided by that service provider must be submitted for second-level approval by the Audit Committee. Other audit, audit-related and tax services which have not been pre-approved are subject to specific prior approval. The Audit Committee reviews the fees paid or committed to Deloitte on at least a quarterly basis.
The Company may not engage Deloitte to provide the services described below:
1. | Bookkeeping or other services related to the accounting records or financial statements of the |
2. | Financial information systems design and |
3. | Appraisal or valuation services, fairness opinions orcontribution-in-kind |
4. | Actuarial |
5. | Internal |
6. | Management functions or human resources |
7. | Broker-dealer, investment adviser or investment banking |
8. | Legal services and other expert services unrelated to the audit. |
Employees of Deloitte who are senior manager level or above, including lead or concurring partners and who have been involved with the Company in the independent audit, shall not be employed by the Company in any capacity for a period of five years after the termination of their activities on the Company account.
The Board of Directors recommends you vote FOR the ratification of appointment of the Company’s Independent Registered Public Accounting Firm.
3. | |
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(c) | ||||||||||||
Number of Securities | ||||||||||||
Remaining Available | ||||||||||||
for Future Issuance | ||||||||||||
(a) | Under Equity | |||||||||||
Number of Securities | Compensation Plans | |||||||||||
to be Issued Upon | (b) | (Excluding | ||||||||||
Exercise of | Weighted-Average | Securities | ||||||||||
Outstanding Options, | Exercise Price of | Reflected in | ||||||||||
Warrants and Rights | Outstanding Options, | Column (a)) | ||||||||||
Plan Category | (Thousands) | Warrants and Rights | (Thousands) | |||||||||
Equity Compensation Plans Approved by Security Holders(1)(2) | 9,116 | (3) | $ | 42.54 | (4) | 2,881 | (5) | |||||
Equity Compensation Plans Not Approved by Security Holders | — | — | — | |||||||||
Total | 9,116 | $ | 42.54 | 2,881 |
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Non-Binding Advisory Vote to Ratify Named Executive Officers’ Compensation |
In accordance with the requirements of Section 14A of the Exchange Act (which was added by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”)) and the related rules of the SEC, we are including in these proxy materials a separate resolution subject to shareholder vote to approve, in a non-binding vote, the compensation of our named executive officersNEOs as disclosed on pages 50Pages 42 to 101.102. The current frequency of non-binding advisory votes on executive compensation is an annual vote and we anticipate that the next vote will be at next year’s annual meeting. The text of the resolution in respect of Proposal No. 53 is as follows:
“RESOLVED, that the compensation paid to the Company’s named executive officersNEOs as disclosed in this Proxy Statement pursuant to the rules of the SEC, including the Compensation Discussion and Analysis, compensation tables and any related narrative discussion, is hereby APPROVED.”
In considering their vote, shareholders may wish to review with care the information on the Company’s compensation policies and decisions regarding the named executive officersNEOs presented in Compensation Discussion and Analysis on pages 5043 to 101.
In particular, shareholders should note that the Company’s Compensation and Personnel Committee (the “Compensation Committee”) bases its executive compensation decisions on the following:
Alignment of executive and shareholder interests by providing incentives linked to |
The ability for executives to achieve long-term shareholder value creation without undue business |
Creating a clear link between an executive’s compensation and his or her individual contribution and |
The extremely competitive nature of the industries in which we operate |
Comparability to the practices of peers in the industries that we operate in and other comparable companies generally. |
While the results of the vote are advisory in nature, the Board of Directors intends to carefully consider the results of the vote.
The Board of Directors recommends that you vote FOR the approval of the compensation of our named executive officers.
4. | |
John Chevedden, 2215 Nelson Ave., No. 205, Redondo Beach, CA 90278 has notified us that he intends to present the following proposal at this year’s meeting:
4 — Reincorporate In accordance withDelaware
Resolved, shareholders urge our board of directors to take the requirementsnecessary steps (excluding those that may be taken only by shareholders) to change our company’s jurisdiction of Section 14Aincorporation from Indiana to Delaware.
Our company is currently incorporated in Indiana. The Indiana Business Corporation Law is less shareholder-friendly than Delaware’s corporation code — especially following recent Indiana amendments — and Delaware incorporation would benefit shareholders. Recent legislation moves Indiana corporate law in the wrong direction, toward greater director entrenchment and away from giving shareholders power over corporate ground rules.
One example of the Exchange Act (which was addedadvantage of reincorporation in Delaware is that shareholders would have the potential to act by written consent by less than a unanimous vote.
The merit of this reincorporation proposal should also be considered in the Dodd-Frank Act) and the related rulescontext of the SEC, we are including in these proxy materials a separate resolution subject to shareholder vote to recommend, in a non-binding vote, whether a non-binding shareholder vote to approve the compensation of our named executive officers (that is, votes similar to the non-binding vote in Proposal No. 5) should occur every one, two or three years.
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The Corporate Library, an independent investment research firm downgraded our company to “D” with “High Governance Risk” and “Very High Concern” in executive pay — $12 million for our annual meetingsCEO Steven Loranger.
Mr. Loranger’s 2010 pension increase came to more than $2.6 million. Two-thirds of shareholders.
award. Not only every twodid these awards pay out for sub-median performance, but long-term cash awards did nothing to tie executive performance with long-term shareholder value.
Each member (except one) on our Audit and Executive Pay Committees received our highest negative votes of 7% or three8%. Three directors had 13 to 15- years may prevent shareholders from communicating in a meaningfullong-tenure-Independence declines as tenure increases.
Please encourage our board to respond positively to this proposal to help initiate improved corporate governance and coherent manner. For example, we may not know whether the shareholder vote approves or disapproves of compensation for the reporting period or the compensation for previous reporting periods or both. As a result, the implications of the shareholder vote could be difficult to discern.
The Board of Directors is recommendingrecommends a vote for a one-year frequencyAGAINST this proposal for the non-binding shareholder vote to approve the compensation of our named executive officers. Note that shareholders are not voting to approve or disapprove the recommendation of thefollowing reasons:
ITT’s Board of Directors with respectbelieves that it is not in the best interest of the Company or its shareholders to this proposal. Instead, each proxy card provides for four choices with respectchange the Company’s jurisdiction of incorporation from Indiana to this proposal: a one, two or three year frequency or shareholders may abstain from voting onDelaware.
The Company is committed to maintaining the proposal.
Ÿ | We do not have a classified board—all of our directors are elected each year, despite the fact that recent changes to Indiana law would have allowed us to implement a mandatory classified board. |
Ÿ | We elect our directors by majority voting in uncontested elections. |
Ÿ | We do not have “supermajority” voting for actions requiring shareholder approval. |
Ÿ | Our chairman is independent. |
Ÿ | We do not have a “poison pill.” |
Reincorporation in Delaware is not be construed as overruling a decision by us or the Board of Directors. Your vote will not create or imply any changenecessary at this time to our fiduciary duties or create or imply any additional fiduciary duties for us or the Board of Directors. However,implement corporate governance ideals. Consequently, the Board of Directors valuesand its Nominating and Governance Committee have concluded that the perceived benefits that could be obtained from reincorporation in Delaware can also be obtained, without the costs and risks associated with reincorporation, by the Company remaining an Indiana corporation.
The proposal cites as an advantage of reincorporation to Delaware that shareholders would have the potential to act by a less-than-unanimous written consent. ITT’s Board of Directors believes that such a provision permitting shareholder action by less than unanimous written consent is unnecessary in light of the existing ability of 35% of ITT’s shareholders to call special meetings. Furthermore, almost 75% of S&P 500 companies prohibit shareholder action by written consent.
Unlike meetings of shareholders, action by written consent can deny shareholders the ability to vote or otherwise provide any input on proposed shareholder actions. Action by written consent would enable shareholders owning a majority or other percentage of our shares to take action on a proposal without the benefit of the opinions or views of other shareholders. In addition, action by written consent would eliminate the need for notice to be given to shareholders in advance of a proposed action, and therefore, certain shareholders may not be informed about the proposed action until after the action has already been taken. The Board of Directors, therefore, believes that reincorporating to Delaware as a means to obtain the right for shareholders to act by less than unanimous written consent is both unnecessary and contrary to the interests of most shareholders.
We have been an Indiana corporation since our formation in 1995. Reincorporating in Delaware, a state with which ITT Corporation has no substantive historical or existing connection, would be a costly process and would have other adverse consequences to us. Reincorporation may require us to obtain consents from, or provide notices to, third parties under certain of our agreements as well as obtain approvals and consents not only from shareholders but also from governmental and regulatory agencies and lenders. In addition, reincorporation would require us to pay significantly greater state franchise taxes. Reincorporation to Delaware would subject us to an annual franchise tax under
Delaware corporate law; there is no such tax under Indiana law. It would also require us to incur substantial expense conducting a corporate review that would be duplicative of much of the work performed in connection with executing our recently completed Separation of Exelis, its Defense and Information Solutions business, and Xylem, its water-related business. Reincorporation would divert the time and attention of management from normal business operations without any commensurate benefit. The Board believes that ITT’s time and resources should remain focused on assisting the Corporation’s management in its efforts to continue to create value for all shareholders.
Finally, we note that a significant portion of the proponent’s proposal focuses on the compensation we paid to Steven Loranger, our former Chief Executive Officer, and the tenure of members who were previously on our Audit Committee. On October 31, 2011, ITT completed its previously announced Separation. Effective immediately prior to the occurrence of the Separation, Steven R. Loranger resigned as Chairman, President and Chief Executive Officer of ITT and a new Chief Executive Officer, Chief Financial Officer and management team was put in place at the Company. In addition, Mr. Loranger, Curtis J. Crawford, Director and member of the Audit Committee and Nominating and Governance Committee, John J. Hamre, Director and Chairman of the Nominating and Governance Committee, and Surya N. Mohapatra, Director and member of the Audit Committee, resigned from the Board. The Separation transaction was completed two weeks before the proponent sent the Company his proposal and significant changes to management and the Board of Directors had already taken place. The concerns that the proponent presented in his proposal were no longer relevant to the Company.
For the reasons cited above, we believe that there are significant advantages for us and our shareholders expressto remain incorporated in their votesIndiana and will considerthat the outcomeadvantages outweigh any perceived enhancement of the vote when making future decisions on the inclusion of such proposalsshareholder rights that could result from reincorporation in Delaware.
Accordingly, the proxy materials as it deems appropriate.
William Steiner, 112 Abbottsford Gate, Piermont, NY 10968, has notified us that they intendhe intends to present the following proposal at this year’s meeting:
5 — Independent Board Chairman
RESOLVED: Shareholders request that our board of directors adopt a policy that, whenever possible, the chairman of our board of directors shall be an independent director (by the standard of the New York Stock Exchange), who has not previously served as an executive officer of our Company. This policy should be implemented so as not to violate any contractual obligations in effect when this resolution is adopted. The policy should also specify how to select a new independent chairman if a current chairman ceases to be independent between annual shareholder meetings.
To foster flexibility, this proposal gives the option of being phased in and implemented when our next CEO is chosen.
When a CEO serves as our board chairman, this arrangement can hinder our board’s ability to monitor our CEO’s performance. Many companies already have an independent Chairman. An independent Chairman is the prevailing practice in the United Kingdom and many international markets. This proposal topic won 50%-plus support at four major U.S. companies in 2011. James McRitchie and Kenneth Steiner have sponsored proposals on this topic which received significant votes.
The merit of this Independent Board Chairman proposal should also be considered in the Annual Meeting. context of the opportunity for additional improvement in our company’s 2011 reported corporate governance in order to more fully realize our company’s potential:
In accordance with applicable proxy regulations,response to our majority vote in favor of 10% of shareholders to be able to call a special meeting, our company adopted a hamstrung shareholder ability to call a special meeting. This hamstrung shareholder ability required more than 3-times as many shareholders to call a special meeting. The new rule further hamstrung shareholders because it was limited to shareholders who had owned their shares for one-year.
And the proposed resolutionnew rule made it easy for shareholders to withdraw their request to call a special meeting. Plus the new rule said our “. Board may, in its discretion, cancel the special meeting.”
An independent Chairman policy can improve investor confidence in our Company and supporting statement,strengthen the integrity of our Board. Please encourage our board to respond positively to this proposal for whichan Independent Board Chairman — Yes on 5.
The Board of Directors recommends a vote AGAINST this proposal for the following reasons:
ITT’s Board of Directors believes that it is not in the best interest of the Company or its shareholders to adopt a policy that, whenever possible, the Chairman of the Board shall be an independent director (by the standard of the NYSE), who has not previously served as an executive officer of ITT.
ITT’s Corporate Governance Principles provide that the Chairman of the Board and the Chief Executive Officer may be the same person; however, the two positions may be separated if the Board deems it to be in the best interests of the Company and the shareholders. Under the current governance structure of ITT, the positions of Chairman of the Board and Chief Executive Officer are not combined. The shareholder proposal would unnecessarily eliminate the flexibility of the Board of Directors to consider whether a current or former member of management is the best suited to serve as Chairman of the Board at a given time. The Board of Directors believes that ITT and its shareholders benefit from the Company accept no responsibility, are set forth below. ApprovalBoard’s current ability to freely select the Chairman of the Board based on criteria that it believes to be in the best interests of ITT and its shareholders. If adopted, this proposal would requireunnecessarily reduce the affirmative voteBoard of aDirectors’ flexibility in corporate governance matters.
The Board of Directors also disagrees with the proposal because it believes that its existing corporate governance practices already provide for strong independent leadership on the Board, as well as direct accountability to shareholders. As provided in ITT’s Corporate Governance Principles and Charters, the Board believes that the majority of the votes castBoard should consist of independent directors. As determined by the Board, in accordance with NYSE rules, all of our directors except for Denise L. Ramos, our Chief Executive Officer and President (10.0% of our directors) are currently independent directors. Each of the members of the Board of Director’s Nominating and Governance Committee, Audit Committee and Compensation Committee is an independent director.
In the past, when the Chairman of the Board and the Chief Executive Officer were the same person, the Board’s independent leadership was further enhanced by the existence of an independent presiding director whose duties were clearly delineated in ITT’s Corporate Governance Principles and Charters. The independent presiding director, among other things, presided at all meetings of the Board at which the Chairman was not present, was available to address concerns raised by other directors, senior executives or major shareholders, communicated any issues or concerns to the full Board and the Chief Executive Officer, assisted the Chairman of the Board in setting the agenda for Board meetings, approved information sent to Board members and acted as a liaison between the Chairman and the Board. The Board believes that having an independent presiding director is an effective corporate governance structure that is widely accepted by corporate governance experts and provides substantially similar benefits as having an independent director, who has not previously served as an executive officer of ITT, stock present in person or by proxy and entitled to vote at the Annual Meeting. Identical shareholder proposals were received from eachserve as Chairman of the following Mercy Investment Services, Inc., 2039 North Geyer Road St. Louis, MO63131-3332;Board.
The Board believes that a majority independent Board and, when necessary, the Presbyterian Church (USA), 100 Witherspoon Street Louisville, KY40202-1396;existence of the independent presiding director ensures the independent exchange of information among ITT’s independent directors and provides ITT and its shareholders with substantially the same benefits that the proposal suggests. In the Board’s view, ITT’s shareholders have benefited from the Board of Directors’ current sound corporate governance practices and strong independent Board leadership, and there is no need to require that the Chairman of the Board be an independent director, who has not previously served as an executive officer of ITT.
Accordingly, the Board of Directors recommends that you vote AGAINST this proposal.
6. | Shareholder proposal requesting that the Company amend, where applicable, its policies related to human rights. |
The Domestic and Foreign Missionary Society of the Protestant Episcopal Church in the United States of America, 815 Second Avenue, New York, NY10017-4503, (collectively, has notified us that it intends to present the “Proponents”), which shareholders hold 56, 54, and 8,100 shares respectively.
20112012 ITT Shareholder Resolution on Human Rights Policy
Whereas
Companies confront ethical and legal challenges arising from diverse cultures and political and economic contexts or operating in regions of conflict. Today, management must address issues that include human rights, workers’ right to organize and bargain collectively, non-discrimination in the workplace, environmental protection and sustainable community development. ITT does business in countries with human rights challenges including Colombia, Egypt and Israel.
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As companies formulate comprehensive policies, we believe significant commercial advantages may accrue through enhanced corporate reputation, improved employee recruitment and retention, improved community and stakeholder relations and reduced risk of adverse publicity, consumer boycotts, divestment campaigns and lawsuits.
Resolved, shareholders request the Board to amend, where applicable, within ten months of the 20112012 Annual Meeting, ITT’s policies related to human rights that guide its international and U.S. operations to conform more fully with international human rights and humanitarian standards.
SUPPORTING STATEMENTSupporting Statement
We believe ITT’s current human rights policies are limited in scope, and provide little or no guidance for determining business relationships where our products or services could entangle the company in human rights violations. Although we do not recommend inclusion of any specific provision of the above-named documents in the revised policy, we believe ITT’s policies should reflect a more comprehensive understanding of human rights.
ITT should be able to assure shareholders that employees are treated fairly and with dignity wherever they work in the global economy. Going beyond internal practices, however, ITT should also provide similar assurance that its products and services are not used in human rights violations. One element of ensuring compliance is utilization of independent monitors composed of respected local human rights, religious and non-governmental organizations that know local culture and conditions. We believe the adoption of a more comprehensive human rights policy, coupled with implementation, enforcement and independent monitoring, will assure shareholders of ITT’s global leadership.
The Board of Directors’ Statement in Opposition ofDirectors recommends a vote AGAINST this proposal for the Proposalfollowing reasons:
The proposal requests that, within ten10 months of the 20112012 annual meeting of shareholders, the Company revise its policies related to human rights that guide its international and U.S. operations in order to have them conform more fully with international human rights and humanitarian standards.
ITT has long supported human rights through its business practices and directly through a specific provision in its Code of Conduct. ITT has also included such rights in its ITT Management System, (“IMS”) which incorporates ITT’s values. Over the past several years, ITT has continued to demonstrate progress in benchmarking and communicating its commitment to human rights. This commitment was further evidenced this year with theour adoption of thisour Policy on Human Rights.
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Ÿ | ||
Our values are our compass — we strive to do the right thing always |
Ÿ | ||
Treat others fairly and courteously |
Ÿ | ||
Sustain a culture of diversity and inclusion |
The Vision and Values are fundamental to our culture and they are codified in ITT’s Code of Conduct, which is available on the Company’s web sitewebsite athttp://www.itt.com/citizenship/governance/code-conduct/code-of-conduct/. To ensure awareness of ITT’s leadership commitments, the Company conducts training for its employees. This training reinforces the responsibility of all employees to act ethically and report possible violations.
In 2009, ITT modified its Code of Conduct to add specific language regarding its commitment to Human Rights:
Code of Conduct:
We are committed to conducting our business in a manner that respects and advances human rights based on our values and operating principles. We uphold human rights at all times and in all locations, regardless of local business customs.
In particular, we are committed to:
Providing safe and secure conditions for those working on our Company’s behalf | |||
Protecting the environment | |||
Following all applicable wage and hour laws | |||
Strictly prohibiting human trafficking and the use of child or forced labor, including prison or bonded labor | |||
Treating each other fairly and equitably |
To ensure that every facet of our business upholds these standards, we seek business partners who share these commitments.
Then, in 2010, ITT conducted further researchedresearch and benchmarked corporate best practices on Human Rights.human rights. Based on the results from that external benchmarking effort, and with a desire to continuously improve ITT’s ethical culture, in 2011, ITT implemented a specific Policy on Human Rights. The policy, which operates in conjunction with ITT’s Vision and Values and Code of Conduct, applies to all ITT employees worldwide and to ITT’s global supply chain partners within ITT’s sphere of influence.
ITT’s newly implemented Policy on Human Rights states that ITT fully supports and adheres to the principles of both the Universal Declaration of Human Rights and the United Nations Global Compact where we operate. Furthermore, the policy states that ITT will work to identify and do business with supply chain partners who aspire to conduct their business in a similar manner. To underscore this commitment, the Company has published the full policy on its web sitewebsite athttp://www.itt.com/citizenship/employees/.
For the foregoing reasons, the Board of Directors believes that ITT has substantially fulfilled the request of this shareholder proposal with the adoption of its Policy on Human Rights.
Accordingly, the Board of Directors unanimously recommends athat you vote AGAINST this shareholder proposal.
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Responsibilities of the Board of Directors. The Board of Directors sets policy for ITT and advises and counsels the chief executive officer and the executive officers who manage the Company’s business and affairs. The Board of Directors is responsible for assuring that:
Ÿ | |
The Company’s businesses are conducted in conformity with applicable laws and |
Ÿ | |
The Company’s systems of financial reporting and internal controls are adequate and properly implemented and the Company has appropriate risk management structures in |
Ÿ | |
There is continuity in the leadership of the |
Ÿ | |
Management develops sound business |
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Adequate capital and managerial resources are available to implement the business |
Ÿ | |
The Company’s long-term strategies, significant investments in new businesses, joint ventures and partnerships and significant business acquisitions, including assessment of balance sheet impacts and other financial matters, are reviewed and |
Ÿ | |
The Company’s operating plans and capital, research and development and engineering budgets are reviewed and |
Governance Principles. The Board of Directors has adopted principles for governance of the Board (the “CorporateCorporate Governance Principles”)Principles and charters for each of its standing committees. The Corporate Governance Principles provide, among other things, that an Independent Presiding Director shall be appointed on an annual basis (but no Non-Management Director shall serve more than three consecutive annual terms) to preside at meetings of the Board of Directors at which the Chairman is not present, including regularly scheduled private sessions of the Non-Management Directors.
Leadership Structure. The Board has considered the leadership structure of the Company and has determinedbelieves that the chief executive officer ofdecision as to whether to combine or separate the Company shall also serve as theChief Executive Officer and Chairman of the Board of Directors. The Board feels thatDirectors positions will depend on the combinationfacts and circumstances facing the Company at a given time and could change over time. In today’s challenging economic and regulatory environment, Directors, more than ever, are required to spend a substantial amount of these two roles provides efficienttime and effective useenergy in successfully navigating a wide variety of resourcesissues and that Mr. Loranger’s position as Chief Executive Officer gives him uniqueguiding the policies and valuable insight into matters addressed by the Board of Directors. The Board also believes that it is important for long-term and short-term strategies to be controlled by a singular executive. However, the Board of Directors appoints an Independent Presiding Director, whose position is described more fully at Section III.Gpractices of the Board’s Corporate Governance Principles,http://www.itt.com/responsibility/governance/principles/. The Independent Presiding Director is availablecompanies they oversee. To that end, we believe that, although we do not have a formal policy with respect to address issues or concerns raised by other Non-Management Directors, senior executives or major shareholders not readily addressable directly toseparation of the Chairman President and Chief Executive Officer. The Independent Presiding Director advises the Chairman, President and Chief Executive Officer and communicates any issues or concernspositions, that having a separate Chairman, whose sole job is to or fromlead the full Board, and
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Communication with the Board of Directors. Interested parties may contact the Independent Presiding Director, all outside Directors as a group, the entire Board of Directors, a committee of the Board of Directors or an individual Director by submitting a letter to the desired recipient in a sealed envelope labeled “Independent Presiding Director,” “Outside Directors,” “Board of Directors”, or with the name of the Board committee or a specific director.Director. This sealed envelope should be placed in a larger envelope and mailed to the Secretary, ITT Corporation, 1133 Westchester Avenue, White Plains, NY 10604, USA. The Secretary will forward the sealed envelope to the designated recipient.
Policies for Approving Related Person Transactions. The Company and the Board have adopted formal written policies for evaluation of potential related person transactions, as those terms are defined in the SEC’s rules for executive compensation and related person disclosure, which provide for review and pre-approval of transactions which may or are expected to exceed $120,000 involving Non-Management Directors, Executive Officers, beneficial owners of five percent or more of the Company’s common stock or other securities and any immediate family of such persons. The Company’s policy generally groups transactions with related persons into two categories: (1) transactions requiring the approval of the Nominating and Governance Committee and (2) certain transactions, including ordinary course transactions below established financial thresholds, that are deemed pre-approved by the Nominating and Governance. Governance Committee.
In reviewing related person transactions that are not deemed pre-approved for approval or ratification, the Nominating and Governance Committee will consider the relevant facts and circumstances, including:
Ÿ | Whether terms or conditions of the transaction are generally available to third-parties under similar terms or conditions |
Ÿ | Level of interest or benefit to the related person |
Ÿ | Availability of alternative suppliers or customers |
Ÿ | Benefit to the Company |
The Nominating and Governance Committee is deemed to have pre-approved certain transactions identified in Item 404(a) ofRegulation S-K that are not required to be disclosed even if the amount involved exceeds $120,000. In addition, any transaction with another company at which a related person’s only relationship is as an employee (other than an executive officer), directorDirector and/or beneficial owner of less than 10% of that company’s shares is deemed pre-approved; provided, however, that with respect to directors,Directors, if a directorDirector is a current employee, or if an immediate family member of the Director is a current executive officer, of a company that has made payments to, or received payments from, the Company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or 2% of such other company’s consolidated gross revenues, such transaction shall be reviewed by the Nominating and Governance Committee and not considered appropriate for automatic pre-approval. Regardless of whether a transaction is deemed pre-approved, all transactions in any amount are required to be reported to the Nominating and Governance Committee. Subsequent to the adoption of the written procedures above, the Company has followed these procedures regarding all reportable related
person transactions. The Company’s Related Person Transaction Policy is posted on the Company’s website at:http://www.itt.com/responsibility/investors/governance/related-party-transactions/transactions/.
Code of Corporate Conduct. The Company has also adopted the ITT Code of Corporate Conduct which applies to all employees, including the Company’s Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer and, where applicable, to its Non-Management Directors. The Code of Corporate Conduct is also posted on the Company’s website athttp://www.itt.com/responsibility/conduct/citizenship/code-of-conduct/. The Company discloses any changes or waivers from the Code of Corporate Conduct on its website for the Company’s Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, its Non-Management Directors and other executive officers. In addition, the Company will disclose within four business days any substantive changes in or waivers of the Code of Corporate Conduct granted to our Chief Executive Officer, Chief
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Independent Directors. The Company’s By-laws require that a majority of the Directors must be independent directors. Additionally, the Company’s Non-Management Directors must meet the NYSE independence standards and the Company’s Corporate Governance Principles independence standards. The Company’s Corporate Governance Principles define independence.independence in accordance with the independence definition in the current NYSE corporate governance rules for listed companies. The Charters of the Audit, Compensation and Personnel and Nominating and Governance and Strategy and Finance Committees as well as the resolution establishing the Special Litigation Committee also require all members to be independent directors.
Based on its review, the Board of Directors affirmatively determined, after considering all relevant facts and circumstances, that no Non-Management Director has a material relationship with the Company and that all Non-Management Directors, including all members of the Audit, Compensation and Personnel Corporate Responsibility,and Nominating and Governance and Strategy and Finance Committees, meet the independence standards of the Company’s Corporate Governance Principles and By-laws as well as the independence definition in the current NYSE corporate governance rules for listed companies.
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The Nominating and Governance Committee reviews and considers all relevant facts and circumstances with respect to independence for each Director standing for election prior to recommending selection as part of the slate of Directors presented to the shareholders for election at the Company’s Annual Meeting. The Nominating and Governance Committee reviews its recommendations with the full Board, which separately considers and evaluates the independence of Directors standing for re-election using the additional standards described above.
In February 2011,2012, the Board considered regular commercial sales and payments in the ordinary course of business as well as charitable contributions with respect to each of the Non-Management Directors standing for re-election at the Company’s 20112012 Annual Meeting. In particular, the Board evaluated the amount of sales to ITT or purchases by ITT with respect to companies where any of the Directors serve or served as an executive officer or director.
In no other instances was a Director a current employee, or was an immediate family member of a Director a current executive officer, of a company that has made payments to, or received payments from the Company for property or services in an amount which, in any of the last three fiscal years, exceeded the greater of $1 million, or 2% of each respective company’s consolidated gross revenues. The Board also considered the Company’s charitable contributions to non-profit organizations with respect to each of the Non-Management Directors. No contributions exceeded 1% of the consolidated gross revenues of any non-profit organization.
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On October 31, 2011, we completed the Separation of our Defense and Information Solutions business and our water related business. In connection with the Separation, the Board of Directors
determined to decrease the size of the Board of the Company from 10 Directors to eight Directors and Steven R. Loranger, Curtis Crawford, John J. Hamre, Surya N. Mohapatra and Ralph Hake tendered their resignations from the Board of Directors and the resignations were accepted. On December 14, 2011, the Board determined to increase the size of the Board of the Company from eight Directors to nine Directors and, in connection therewith, the Board elected Orlando Ashford to the Board. On February 23, 2012, the Board determined to increase the size of the Board of the Company from nine Directors to 10 Directors and, in connection therewith, the Board elected Donald J. Stebbins to the Board. The following are the independent directorsDirectors standing for election: Drs. Crawford, Hamre, and Mohapatra; General Kern; Messrs. Hake,Ashford, D’Aloia, DeFosset, MacInnis, Stebbins and Tambakeras; and Mrs. Gold and Ms. Sanford.
Board and Committee Roles in Oversight of Risk. The Board of Directors has primary responsibility for overall risk oversight, including the Company’s risk profile and management controls. The Audit Committee of the Board monitorsoversees the Company’s operational and regulatory risk management and risk assessment program, including all risk mitigation processes. The General Internal Auditor, whoNominating and Governance Committee has responsibility for assessing monitoring and auditingmonitoring the Company’s global risk profile, and provide regular reports directly to the AuditBoard with respect to their findings. In addition, the Company has established a cross-functional team of management referred to as the Risk Center of Excellence (the “RCOE”), to internally monitor various risks. The Nominating and Governance Committee andreceives regular reports on a functional basis to the Chief Financial Officer.from RCOE as well. The Strategy and Finance Committee of the Board monitors financial liquidity and financing risk. The Compensation and Personnel Committee reviews and assesses compensation and incentive program risks to ensure that the Company’s compensation programs encourage innovation and balance appropriate business risk and rewards without encouraging risk-taking behaviors which may have a material adverse effect on the Company. The Compensation and Personnel Committee structures compensation so that unnecessary or excessive risk-taking behavior is discouraged and behaviors correlated with long-term value creation are encouraged. The Board, Audit, CompensationNominating and PersonnelGovernance and Strategy and FinanceCompensation Committees receive regular reports with respect to the Company’s risk profile and risk management controls.
Compensation Committee Interlocks and Insider Participation. None of the members of the Compensation and Personnel Committee during fiscal year 20102011 or as of the date of this proxy statement has been an officer or employee of the Company and no executive officer of the Company served on the Compensation Committee or board of any company that employed any member of the Company’s Compensation and Personnel Committee or Board of Directors.
Director Selection and Composition. Directors of the Company must be persons of integrity, with significant accomplishments and recognized business stature. The Nominating and Governance Committee desires that the Board of Directors be diverse in terms of its viewpoints, professional experience, education and skills as well as race, gender and national origin. In addition, ITT’s corporate governance principlesCorporate Governance Principles state that as part of the membership criteria for new Board members, individuals must possess such attributes and experiences as are necessary to provide a broad range of personal characteristics including diversity, management skills, and technological, business and international experience. On an annual basis, as part of its self-evaluation, the Board of Directors assesses whether the mix of directors is appropriate for the Company. In addition, the NominatingtheNominating and Governance Committee assesses the effectiveness of these criteria by referring to the criteria when it periodically assesses the composition of the Board. The Board of Directors actively seeksactivelyseeks to consider diverse candidates for membership on the Board when it has a vacancy to fill and includes diversity as a specific factor when conducting any search. As part of its process in identifying new candidates to join the Board of the Directors, the Nominating and Governance Committee considers whether and to what extent the candidate’s attributes and experiences will individually and collectively complement the existing Board, recognizing that ITT’s businesses and operations are diverse and global in nature. Currently, the Board consists of ten10 directors. Out of the ten directors, two10 Directors, three are female, and one is African American and one is from India.American. The directorsDirectors come from diverse professional backgrounds, including technology, financial and manufacturing industries as well as governmental and non-governmental agencies.
To be considered by the Nominating and Governance Committee as a Director candidate, a nominee must meet the requirements of the Company’s By-laws and Corporate Governance Principles. A nominee should also have experience as a board member, chief executive officer or senior officer of a publicly traded or large privately held company, or have achieved recognized prominence in a relevant field as, for example, a distinguished faculty member of a highly regarded
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Prior to recommending nominees for election as Directors, the Company’s Nominating and Governance Committee engages in a deliberative, evaluative process to ensure each nominee possesses the skills and attributes that individually and collectively will contribute to an effective Board of Directors. Biographical information for each candidate for election as a Director is evaluated and candidates for election participate in interviews with existing Board members and management. Each candidate is subject to thorough background checks. Director nominees must be willing to commit the requisite time for preparation and attendance at regularly scheduled Board and Committee meetings and participation in other matters necessary for good corporate governance.
The Nominating and Governance Committee identifies Director candidates through a variety of sources including personal references and business contacts. On occasion, the Nominating and Governance Committee utilizes a search firm to identify and screen Director candidates and pays a fee to that firm for each such candidate elected to the Board of the Company. The Nominating and Governance Committee will consider directorDirector nominees recommended by shareholders for election to the Company’s Board who meet the qualification standards described above. (See Section II.E.II.F. of the Nominating and Governance Charter athttp://www.itt.com/responsibility/investors/governance/nominating/..) The Nominating and Governance Committee also evaluates and makes recommendations to the Board of Directors concerning appointment of Directors to Board Committees, selection of Board Committee Chairs, Committee member qualifications, Committee member appointment and removal, Committee structure and operations and proposal of the Board slate for election at the Annual Meeting of Shareholders, consistent with criteria approved by the Board of Directors.
Committees of the Board of Directors. The standing Committees of the Board described below perform essential corporate governance functions. In October of 2007 the Board also formed a Special Litigation Committee to oversee an independent investigation involving the Company’s Night Vision matter.
Audit Committee
2011 Audit Committee Members are: | ||
Prior to the Separation: | ||
Frank T. MacInnis, Chair | ||
Christina A. Gold | ||
Ralph F. Hake | ||
Surya N. Mohapatra | ||
Linda S. Sanford | ||
After the completion of the Separation: | ||
G. Peter D’Aloia, Chair | ||
Christina A. Gold | ||
Linda S. Sanford | ||
Donald J. Stebbins (appointed on March 1, 2012) | ||
Meetings in | 10 | |
Responsibilities: | Ÿ Subject to any action that may be taken by the full Board, the Audit Committee has the ultimate authority and responsibility to determine | |
Ÿ Review and discuss with management and |
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Company, including discussion of the Company’s disclosures under Management’s Discussion and Analysis of Financial Condition and Results of Operations, and make a recommendation regarding inclusion of those financial statements in any public filing including the Company’s Annual Report onForm 10-K (or the Annual Report to Shareholders if distributed prior to the filing ofForm 10-K) |
Ÿ Review and consider with | ||
in Rule 3200T. | ||
Ÿ Review with management and | ||
Ÿ As a whole, or through the Audit Committee chair, review and discuss with | ||
Ÿ Review and discuss with management the types of information to be disclosed and the types of presentations to be made with respect to the Company’s | ||
agencies. | ||
Ÿ Discuss with management and | ||
head of the internal audit function. | ||
Ÿ Annually request from | ||
| Ÿ Discuss with |
| Ÿ Assess and recommend appropriate action in response to the | |
Ÿ Pre-approve or delegate to one or more independent members, when appropriate, to pre-approve the retention of the independent auditor for audit-related and |
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Ÿ Confirm the scope of audits to be performed by | |||
Ÿ Review fees and expenses charged by | |||
Ÿ On an annual basis, discuss with | |||
Ÿ Review significant findings or unsatisfactory internal audit reports or audit problems or difficulties encountered by |
Ÿ Provide oversight and discuss with management, internal auditors and | ||
Ÿ Review its performance and Charter at least annually and make recommendations to the Board of Directors for approval and adoption of its Charter. | ||
Ÿ Review the Company’s rating agency reviews. | ||
Ÿ Review regularly and consider the Company’s environmental, safety and health reserves. | ||
Ÿ Review expense accounts of senior executives. | ||
Ÿ Update the Board of Directors on a regular basis with respect to matters coming to its attention that may have a significant impact on the Company’s financial condition or affairs, |
Ÿ Review major issues regarding accounting principles and financial statement presentations, significant changes to the Company’s selection or application of accounting principles and major issues relating to the Company’s internal controls including any specifically required steps to correct identified major internal control issues. The Audit Committee also reviews management or |
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off-balance sheet structures, if any, on the Company’s financial statements. | |||
Ÿ In conjunction with the Board of Directors, evaluate the qualifications of its members and its own performance on an annual basis. | |||
Ÿ Meet separately, on a regular basis, with | |||
Ÿ Establish policies regarding the Company’s employment and retention of current or former employees of |
Ÿ With respect to complaints concerning accounting, internal accounting controls or auditing matters: | ||
| Ÿ Review and approve procedures for receipt, retention and treatment of complaints received by the Company; and | |
| Ÿ Establish procedures for the confidential, anonymous submission of complaints by employees of the Company regarding questionable accounting or auditing matters to the Audit Committee. | |
Ÿ Establish levels for payment by the Company of fees to | ||
Ÿ Receive regular reports from the Chief Executive Officer, Chief Financial Officer and from the Company’s disclosure control committee representative on the status of the Company’s disclosure controls and related certifications, including disclosure of any material weaknesses or significant deficiencies in the design or operation of internal controls and any fraud that involves management or other employees with a significant role in internal controls. | ||
Ÿ Prepare the Report of the Audit Committee | ||
Ÿ Meet regularly with the Company’s general counsel or head of ethics and compliance to review the implementation and effectiveness of the Company’s Code of Conduct and ethics and compliance program and any proposed waivers of the Code of Conduct for directors and officers. | ||
Although more than one member of the Board of Directors satisfies the requirements of the audit committee financial expert, the Board of Directors has identified |
Independence
The Board of Directors has determined that each member of the Audit Committee meets the independence standards set out in the Board’s Corporate Governance Principles and its Audit Committee Charter, and the requirements of the NYSE currently in effect andRule 10A-3 of the
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A copy of the Audit Committee Charter is available on the Company’s website
http://www.itt.com/responsibility/investors/governance/audit/. The Company will provide, free of charge, a copy of the Audit Committee Charter to any shareholder, upon request to the Secretary of ITT.
Compensation and Personnel Committee
2011 Compensation and Personnel Members are: | ||
Prior to the Separation: | ||
Linda S. Sanford, Chair | ||
Curtis J. Crawford | ||
Ralph F. Hake | ||
Frank T. MacInnis | ||
After the completion of the Separation: | ||
Christina A. Gold, Chair | ||
Linda S. Sanford, | ||
Donald DeFosset, Jr. | ||
Paul J. Kern | ||
Orlando D. Ashford (appointed on February 23, 2012) | ||
Meetings in | 6 | |
The Compensation Committee’s primary objective is to establish a competitive executive compensation program that clearly links executive compensation to business performance and shareholder return, without excessive enterprise risk. | ||
Responsibilities: | Ÿ Approve and oversee administration of the Company’s employee compensation program including incentive plans and equity-based compensation plans. | |
Ÿ Evaluate senior management and Chief Executive Officer performance, evaluate enterprise risk and other risk factors with respect to compensation objectives, set annual performance objectives for the Chief Executive Officer and approve individual compensation actions for the Chief Executive Officer and | ||
remaining corporate officers. | ||
Ÿ Oversee the establishment and administration of the Company’s benefit programs. |
Ÿ Select, retain and determine the terms of engagement for independent compensation and benefits consultants and other outside counsel, as needed, to provide independent advice to the Committee with respect to the Company’s current and proposed executive compensation and employee benefit programs. In | ||
Ÿ Oversee and approve the continuity planning process and review with the full Board of Directors, which provides final approval. | ||
Ÿ Regularly report to the Board of Directors on compensation, benefits, continuity and related matters. | ||
Ÿ Prepare the Compensation Committee Report for the Company’s Proxy Statement. |
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Ÿ Review regularly and consider the Company’s Inclusion & Diversity strategy and the effectiveness of related programs and policies. | |||
Ÿ Review its performance and Charter at least annually and make recommendations to the Board of Directors for approval and adoption of its Charter. |
More detail regarding the processes and procedures used to determine executive compensation is found in the Compensation Discussion and Analysis starting on page 50.
Independence
The Board of Directors has determined that each member of the Compensation and Personnel Committee meets the independence standards set out in the Board’s Corporate Governance Principles and its Compensation and Personnel Committee Charter and the requirements of the NYSE currently in effect.
A copy of the Compensation and Personnel Committee Charter is available on the Company’s websitehttp://www.itt.com/responsibility/investors/governance/compensation/. The Company will provide, free of charge, a copy of the Compensation and Personnel Committee Charter to any shareholder, upon request to the Secretary of ITT.
Corporate ResponsibilityNominating and Governance Committee
2011 Nominating and Governance Committee Members are:
Prior to the Separation: | ||
John J. Hamre, Chair | ||
Curtis J. Crawford | ||
Paul J. Kern | ||
Markos I. Tambakeras | ||
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Frank T. MacInnis, Chair | ||
Donald DeFosset, Jr. | ||
Paul J. Kern | ||
Markos I. Tambakeras | ||
Meetings in | 4 | |
Responsibilities: | Ÿ Develop, annually review, update and recommend to the Board of Directors corporate governance principles for the Company. | |
Ÿ In the event it is necessary to select a new chief executive officer, lead the process for candidate evaluation, consideration and screening. The full Board of Directors has the final responsibility to select the Company’s chief executive officer. | ||
Ÿ Evaluate and make recommendations to the Board of Directors concerning the composition, governance and structure of the Board. | ||
Ÿ Make recommendations to the Board of Directors concerning the qualifications, compensation and retirement age of Directors. | ||
Ÿ Administer the Board of Directors’ annual evaluation process. | ||
Ÿ Consider questions of independence and possible conflicts of interest of members of the Board of Directors and executive officers and ensure compliance with the rules of the NYSE and the Clayton Antitrust Act. | ||
Ÿ Review and recommend to the full Board matters and agenda items relating to the Company’s Annual Meeting of | ||
Shareholders. | ||
Ÿ Review the form of Annual Report to Shareholders, Proxy Statement and related materials. | ||
Ÿ Review the Company’s business continuity and disaster recovery programs and plans. | ||
Ÿ Review significant risks related to the Company and the mitigation plans monitored by the RCOE. | ||
Ÿ Review the Company’s communication and advertising program and other activities involving community relations, major charitable contributions and promotion of the Company’s public image. |
Ÿ Determine desired Board and Director skills and attributes and conduct searches for prospective board members whose skills and attributes reflect those desired for the Board of Directors. | ||
Ÿ Identify, evaluate and propose nominees for election to the Board of Directors. | ||
Ÿ Make recommendations to the Board of Directors concerning the appointment of Directors to Board Committees and the selection of Board Committee Chairs. | ||
Ÿ Evaluate and make recommendations regarding senior management requests for approval to accept |
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Ÿ Review | |||
approval or disapproval. | |||
Ÿ Review its performance and Charter at least annually and make recommendations to the Board of Directors for approval and adoption of its Charter. |
As described on pages 3426 to 3527 the Nominating and Governance Committee will consider director nominees recommended by shareholders for election to the Company’s Board who meet the qualification standards. (See Section II.E of the Nominating and Governance Charter at
http://www.itt.com/responsibility/investors/governance/nominating/).
Independence
The Board of Directors has determined that each member of the Nominating and Governance Committee meets the independence standards set out in the Board’s Corporate Governance Principles and its Nominating and Governance Committee Charter and the requirements of the NYSE currently in effect.
A copy of the Nominating and Governance Committee Charter is available on the Company’s websitehttp://www.itt.com/responsibility/investors/governance/nominating/. The Company will provide, free of charge, a copy of the Nominating and Governance Committee Charter to any shareholder, upon request to the Secretary of ITT.
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During 2010,2011, there were five regularly scheduled Board meetings and 25 meetings of standing Committees. In addition, in connection with the Separation, there were an additional six Board meetings. All Directors attended at least 75% of the aggregate of all meetings of the Board and standing Committees on which they served. It is Company practice that all Directors attend the Company’s Annual Meeting. All Directors attended the Company’s 20102011 Annual Meeting. For 2011,2012, the Board has scheduled five regular meetings. In conjunction with the regular meetings, those Directors who are not employees of ITT are scheduled to meet privately (without
43
20102011 Non-Management Director CompensationThe following table represents the 2010 grant date fair value of Non-Management Director compensation computed in accordance with GAAP. As discussed in more detail in the narrative following the table, all Non-Management Directors receive the same cash, stock, and options awards for service as a Non-Management Director (except Mr. MacInnis as the Audit Committee Chair received an additional $10,000 cash payment). Mr. Loranger, as an employee Director, does not receive compensation for his Board service. The grant date fair value of stock awards and option awards granted to Non-Management Directors in 2010 is provided in footnotes (c) and (d) to the table. Stock awards are composed of restricted stock units. Option awards are composed of non-qualified stock options. Fees Earned or Paid in Stock Option All Other Name Cash Awards Awards Compensation Total (b) ($) (c) ($) (d) ($) (g) ($) (h) ($) Curtis J. Crawford 90,000 90,192 40,126 — 220,318 Christina A. Gold 90,000 90,192 40,126 — 220,318 Ralph F. Hake 90,000 90,192 40,126 — 220,318 John J. Hamre 90,000 90,192 40,126 — 220,318 Paul J. Kern 90,000 90,192 40,126 — 220,318 Frank T. MacInnis 100,000 90,192 40,126 — 230,318 Surya N. Mohapatra 90,000 90,192 40,126 — 220,318 Linda S. Sanford 90,000 90,192 40,126 — 220,318 Markos I. Tambakeras 90,000 90,192 40,126 — 220,318 (b)Fees earned may be paid, at the election of the Director, in cash or deferred cash. Non-Management Directors may irrevocably elect deferral into an interest-bearing cash account or an account that tracks an index of the Company’s stock. Mr. MacInnis received an additional $10,000 as the Audit Committee Chair.(c) and (d)Awards reflect the grant date fair value computed in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 718, Stock Compensation. Non-Management Directors do not receive differing amounts of equity compensation, the grant date fair value for restricted stock units was $52.59 and was determined on May 11, 2010, the date of the Company’s 2010 Annual Meeting. The grant price reflects the closing price of ITT stock on the grant date. The grant date fair value ofnon-qualified stock options was $14.03, determined on March 5, 2010, the date on which Director stock options were awarded. The assumptions used in calculating these values may be found in Note 17, Long-Term Incentive Employee Compensation, to the Consolidated Financial Statements in the Company’s 2010 Form10-K.(g)No perquisites or other personal benefits were received by Non-Management Directors.44
Outstanding | Outstanding | |||||||
Non-Management | Restricted Common | Stock Option | ||||||
Director Name | Stock Awards | Awards | ||||||
Curtis J. Crawford | 22,160 | 26,130 | ||||||
Christina A. Gold | 23,026 | 26,130 | ||||||
Ralph F. Hake | 10,466 | 22,570 | ||||||
John J. Hamre | 14,224 | 26,130 | ||||||
Paul J. Kern | 3,910 | 9,050 | ||||||
Frank T. MacInnis | 13,314 | 26,130 | ||||||
Surya N. Mohapatra | 3,412 | 10,470 | ||||||
Linda S. Sanford | 8,591 | 26,130 | ||||||
Markos I. Tambakeras | 4,674 | 26,130 |
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Pre-Separation Non-Management Director Pay: Upon the recommendation of Pay Governance and after review, the Nominating and Governance Committee and the Compensation and Personnel Committee recommended, and the full Board of Directors approved, an increase in overall Non-Management Director cash compensation to raise Director compensation to a level closer to the median of companies in the S&P® Industrials Companies with revenues comparable to ITT. The Board approved, Non-Management Director compensation changes to bethat were made effective with the Company’s 2011 Annual Meeting to increase the cash component of the Non-Management Director compensation to $100,000, to provide for an equity retainer solely in the form of restricted stock unitsRSUs of $150,000 and to provide the Audit Committee Chair with an additional annual cash payment in the amount of $15,000.
Post-Separation Non-Management Director Pay: In anticipation of the Separation of the Xylem Inc. and Exelis Inc. businesses from ITT, the Board of Directors again reviewed Non-Management Director compensation levels in May 2011 with Pay Governance, in light of the expected reduced revenue size and market capitalization of the post-Separation Company. As a result of that review, the Nominating and Governance Committee and the Compensation and Personnel Committee recommended, and the Board approved, a post-Separation compensation package made effective on the date of the Separation consisting of $100,000 annual cash retainer, and an annual equity retainer solely in the form of RSUs of $90,000. The Non-Executive Chairman receives an additional annual payment in the amount of $125,000 (payable in 50% cash and 50% RSUs), and the Audit Committee Chair receives an additional annual cash payment in the amount of $15,000.
The following table represents the 2011 grant date fair value of Non-Management Director compensation computed in accordance with GAAP. As discussed in more detail in the narrative following the table, all Non-Management Directors receive the same cash and stock awards for service (except Mr. MacInnis as the Audit Committee Chair from January 1, 2011, to October 31, 2011, and as Non-Executive Chairman from November 1, 2011, to December 31, 2011, received an additional $38,750 cash payment; and Mr. D’Aloia as Audit Committee Chair from November 1, 2011, to December 31, 2011 received an additional $7,500 cash payment). As an employee Director, Ms. Ramos does not receive compensation for Board service. Mr. Loranger, who was an employee Director prior to his resignation pursuant to the Separation, did not receive compensation for Board service. The grant date fair value of stock awards granted to Non-Management Directors in 2011 is provided in footnote (c) to the table. Stock awards are composed of RSUs. Option awards are composed of non-qualified stock options.
Name (1) | Fees Earned or Paid in Cash (2) ($) | Stock Awards (3) ($) | Stock Option Modification (4) ($) | Total ($) | ||||||||||||
Orlando D. Ashford | 41,667 | 37,848 | — | 79,515 | ||||||||||||
Curtis J. Crawford | 50,000 | 75,322 | 47,149 | 172,471 | ||||||||||||
G. Peter D’Aloia | 57,500 | 45,001 | — | 102,501 | ||||||||||||
Donald DeFosset, Jr. | 50,000 | 45,001 | — | 95,001 | ||||||||||||
Christina A. Gold | 100,000 | 120,324 | 47,149 | 267,473 | ||||||||||||
Ralph F. Hake | 50,000 | 75,322 | 43,304 | 168,626 | ||||||||||||
John J. Hamre | 50,000 | 75,322 | 47,149 | 172,471 | ||||||||||||
Paul J. Kern | 100,000 | 120,324 | 21,995 | 242,319 |
Name (1) Frank T. MacInnis Surya N. Mohapatra Linda S. Sanford Markos I. Tambakeras Fees
Earned or
Paid in
Cash
(2) ($) Stock
Awards
(3) ($) Stock
Option
Modification
(4) ($) Total
($) 138,750 151,575 47,149 337,474 50,000 75,322 25,592 150,914 100,000 120,324 43,304 263,628 100,000 120,324 47,149 267,473
(1) | Dr. Crawford, Mr. Hake, Dr. Hamre and Dr. Mohapatra resigned from the Board on October 31, 2011. Messrs. D’Aloia and DeFosset joined the Board on October 31, 2011. Mr. Ashford joined the Board on December 14, 2011. Mr. Stebbins joined the Board on February 23, 2012 and his compensation for his tenure from the time of his appointment to the Board until the day before the Company’s 2012 Annual Meeting consists of $16,667 in cash and $15,021 in RSUs. |
(2) | Fees earned may be paid, at the election of the Director, in cash or deferred cash. Non-Management Directors may irrevocably elect deferral into an interest-bearing cash account or an account that tracks an index of the Company’s stock. |
(3) | Awards reflect the grant date fair value computed in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 718, Stock Compensation. Non-Management Directors do not receive differing amounts of equity compensation, except for Mr. MacInnis who received an additional grant value of $31,251 in November 2011 as the Non-Executive Chairman. The grant date fair value of the RSUs granted on May 10, 2011, the date of the Company’s 2011 Annual Meeting, was $75,322. The closing price of ITT stock on that date was $58.48 (closing price does not give effect to the Company’s 1:2 reverse stock split). The assumptions used in calculating these values may be found in Note 17, Long-Term Incentive Employee Compensation, to the Consolidated Financial Statements in the Company’s 2011 Form 10-K. |
(4) | This column represents a one-time accounting expense related to the conversion of previously granted Company stock options to a mix of Company, Xylem and Exelis stock options on the Separation date. No Company stock options were granted to any non-management Director in 2011, and no Non-Management Director received any incremental economic benefit from this conversion. |
The following table represents restricted common stock and stock options outstanding as of December 31, 2011 for Non-Management Directors. Outstanding restricted common stock awards include unvested RSUs and vested but deferred RSUs. The table gives effect to the 1:2 reverse stock split.
Non-Management Director Restricted Common Stock and
Stock Option Awards Outstanding at 2011 Fiscal Year-End
Non-Management Director Name | Outstanding Restricted Common Stock Awards | Outstanding Stock Option Awards | ||||||
Orlando D. Ashford | 1,992 | 0 | ||||||
G. Peter D’Aloia | 2,219 | 0 | ||||||
Donald DeFosset, Jr. | 2,219 | 0 |
Non-Management Director Name Christina A. Gold Paul J. Kern Frank T. MacInnis Linda S. Sanford Donald J. Stebbins Markos I. Tambakeras Outstanding
Restricted Common
Stock Awards Outstanding
Stock Option
Awards 14,030 13,065 4,817 4,525 8,983 13,065 4,862 11,285 0 0 2,904 13,065
Beginning in 2008, all restricted share awards granted to non-management directors vest on the next business day prior to the Annual Meeting. Restricted shares previously awarded under the ITT 1996 Restricted Stock Plan for Non-Employee Directors (the “1996 Plan”), which preceded the ITT 2003 Restricted Stock Plan for Non-Employee Directors (the “2003 Plan”), and under which restricted shares are still outstanding, provided that each Director’s restricted shares are held in escrow and may not be transferred in any manner until one of the following events occurs:
Ÿ | ||
The fifth anniversary of the grant of the shares unless extended as described |
Ÿ | ||
The Director retires at age |
Ÿ | ||
There is a Change of Control of the |
Ÿ | ||
The Director becomes disabled or |
Ÿ | ||
The Director’s service is terminated in certain specified, limited |
Ÿ | ||
Any other circumstance in which the Compensation and Personnel Committee believes, in its sole discretion, that the purposes for which the grants of restricted stock were made have been fulfilled and, as such, is consistent with the intention of the Plan. |
Under the 2003 Plan and the 1996 Plan, Non-Management Directors may choose to extend the restriction period for not more than two successive five-year periods, or until six months and one day following the Non-Management Director’s termination from service from the Board under certain permitted circumstances.
The 1996 Plan also provided if a Director ceased serving on the Board under any other circumstances, shares with respect to which the 1996 Plan restrictions have not been lifted would be forfeited. Under the 2003 Plan, the period of restriction for restricted stock granted is five years. The Compensation and Personnel Committee may determine that a Director, whose service from the Board is terminated, has fulfilled the purpose for which the grant of restricted stock was made and lift the restriction for all or a portion of restricted stock grants. Time and form of payment for outstanding restricted stock received after 2004, as well as elections to have the cash retainer deferred after 2004, have been modified, with the consent of each Director, to comply with Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”). Section 409A is an Internal Revenue Code section that deals specifically with non-qualified deferred compensation plans and provides requirements and rules for timing of deferrals and distributions under those plans.
ITT reimburses Directors for expenses they incur to travel to and from Board, Committee and shareholder meetings and for other Company-business related expenses (including travel expenses
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Indemnification and Insurance. As permitted by its By-laws, ITT indemnifies its Directors to the full extent permitted by law and maintains insurance to protect the Directors from liabilities,
including certain instances where it could not otherwise indemnify them. All Directors are covered under a non-contributory group accidental death and dismemberment policy that provides each of them with $1,000,000 of coverage. They may elect to purchase additional coverage under that policy. Non-Management Directors also may elect to participate in an optional non-contributory group life insurance plan that provides $100,000 of coverage.
The following Report of the Audit Committee does not constitute soliciting material and the Report should not be deemed filed or incorporated by reference into any other previous or future filings by the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this Report by reference therein. Role of the Audit Committee.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:
Ÿ | |
Determination of qualifications and independence of Deloitte & Touche LLP (“Deloitte”) |
Ÿ | |
The appointment, compensation and oversight of Deloitte in preparing or issuing audit reports and related |
Ÿ | |
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 |
Ÿ | |
Oversight and review of procedures developed for consideration of accounting, internal accounting controls and auditing-related |
Ÿ | |
Review of risk assessment and risk management processes on a company-wide |
Ÿ | |
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 results of their examinations, their evaluation of the Company’s internal controls, and the Company’s financial reporting.
The Company’s management has primary responsibility for the financial statements, including the Company’s system of disclosure and internal controls. The Audit Committee may investigate any matter brought to its attention. In that regard, the Audit Committee has full access to all books, records, facilities and personnel of the Company, and the Audit Committee may retain outside counsel, auditors or other independent experts to assist the Committee in performing its responsibilities. Any individual may also bring matters to the Audit Committee confidentially or on an anonymous basis, by submitting the matter in a sealed envelope addressed to the “Audit Committee” to the Corporate Secretary who then forwards the sealed envelope to the Audit Committee.
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Audit Committee Charter.Charter. The Board of Directors has adopted a written charter for the Audit Committee, which the Board of Directors and the Audit Committee review, and at least annually update and reaffirm. The Charter sets out the purpose, membership and organization, and key responsibilities of the Audit Committee.
Composition of the Audit Committee.Committee. The Audit Committee comprises fivethree members of the Company’s Board. The Board of Directors has determined that each Audit Committee member meets the independence standards set out in the Audit Committee Charter and in the Company’s Corporate Governance Principles and the requirements of the New York Stock Exchange currently in effect, including the audit committee independence requirements ofRule 10A-3 of the Exchange Act. No member of the Audit Committee has any relationship with the Company that may interfere with the exercise of independence from management and the Company. All members of the Audit Committee, in the business judgment of the full Board of Directors, are financially literate and several have accounting or related financial management expertise.
2011 Members of the Audit Committee Prior to the Separation. The members of the Audit Committee prior to the Separation were Frank T. MacInnis, Chair, Christina A. Gold, Ralph F. Hake, Surya N. Mohapatra and Linda S. Sanford.
2011 Members of the Audit Committee Following the Completion of the Separation. Following the completion of the Separation, the current members of the Audit Committee are G. Peter D’Aloia, Chair, Christina A. Gold and Linda S. Sanford (the “Current Audit Committee”). Donald J. Stebbins was appointed to the Audit Committee on March 1, 2012.
Regular Review of Financial Statements.Statements. During 2010,2011, 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 onForm 10-Q, and the Company’s audited financial statements before the annual earnings release and filing onForm 10-K.
Communications with Deloitte.Deloitte. The Audit Committee has discussed with Deloitte the matters required to be discussed by required to be discussed by the statement on Auditing Standards No. 61, as amended (AICPA,Professional Standards, Vol. 1. AU section 380) as adopted by the Public Company Accounting Oversight Board in Rule 3200T (“SAS 61”). These discussions included all matters required by SAS 61, including Deloitte’s responsibilities under generally accepted auditing standards in the United States, significant accounting policies and management judgments, the quality of the Company’s accounting principles and accounting estimates. The Audit Committee met privately with Deloitte four times during 2010.
Independence of Deloitte.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 the Deloitte required by applicable requirements of the Public Company Accounting Oversight Board regarding Deloitte’s communications with the Audit Committee concerning independence and has discussed with Deloitte their independence from management and the Company, any disclosed relationships and the impact of those relationships on Deloitte’s independence.
Recommendation Regarding Annual Report onForm 10-K.10-K. In performing its oversight function with regard to the 20102011 financial statements, the Current Audit Committee relied on financial statements and information prepared by the Company’s management. It also relied on information provided by the internal audit staff as well as Deloitte. The Current Audit Committee reviewed and discussed with management the Company’s audited financial statements as of and for the year ended December 31, 2010.2011. Based on these discussions, and the information received and reviewed, the Current Audit Committee recommended to the Company’s Board of Directors that the financial statements be included in the 20102011 Annual Report onForm 10-K.
This report is furnished by the members of the Current Audit Committee.
G. Peter D’Aloia, Chair
Christina A. Gold
Linda S. Sanford
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The following Report of the Compensation and Personnel Committee does not constitute soliciting material and the Report should not be deemed filed or incorporated by reference into any other previous or future filings by the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this Report by reference therein.
ITT’s Compensation and Personnel Committee approves and oversees administration of the Company’s executive compensation program and senior leadership development and continuity programs. The 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 appropriate risk factors in structuring compensation to discourage unnecessary or excessive risk-taking behaviors and encourage long-term value creation.
2011 Members of the Compensation and Personnel Committee Prior to the Separation. The members of the Compensation and Personnel Committee prior to the Separation were Linda S. Sanford, Chair, Curtis J. Crawford, Ralph F. Hake and Frank T. MacInnis.
2011 Members of the Compensation and Personnel Committee Following the Completion of the Separation. Following the completion of the Separation, the current members of the Compensation and Personnel Committee are Christina A. Gold, Chair, Orlando D. Ashford, Linda S. Sanford, Donald DeFosset, Jr. and Paul J. Kern (the “Current Compensation and Personnel Committee”).
Recommendation Regarding Compensation Discussion and Analysis
In performing its oversight function during 20102011 with regard to the Compensation Discussion and Analysis prepared by management, the Current Compensation and Personnel Committee relied on statements and information prepared by the Company’s management. It also relied on information provided by Pay Governance, LLC, the compensation consultant to the Committee. The Current 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 Current Compensation and Personnel Committee recommended to the Company’s Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Annual Report onForm 10-K for 20102011 and this Proxy Statement.
This report is furnished by the members of the Current Compensation and Personnel Committee.
Christina A. Gold, Chair
Orlando D. Ashford
Donald DeFosset, Jr.
Paul J. Kern
Linda S. Sanford Chair
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COMPENSATION DISCUSSION AND ANALYSIS
EXECUTIVE SUMMARY
The disclosure of our NEO compensation to internal business performance and share price performance. Compensation design for NEOs is structured to achieve long-term shareholder value creation without undue business risk. If internal business performance or share price performance falls below identified thresholds, at-risk compensation is reduced or not paid at all.
Denise L. Ramos, Chief Executive Officer and President |
Ÿ | Aris C. Chicles, Executive Vice President – Strategy |
Ÿ | Thomas M. Scalera, Senior Vice President and Chief Financial Officer |
Ÿ | Robert J. Pagano, Jr., Senior Vice President and President – Industrial Process |
Ÿ | Munish Nanda, Senior Vice President and President – Control Technologies |
Ÿ | Steven R. Loranger, Former Chairman, President and Chief Executive Officer |
Ÿ | Gretchen W. McClain, Former Senior Vice President |
Ÿ | David F. Melcher, Former Senior Vice President |
SUMMARY OF 2011 SEPARATION ISSUES
During 2011, ITT Corporation underwent a significant change in its corporate structure. On October 31, 2011, the Company successfully completed the Separation of its defense- and water-related businesses, now called Exelis Inc. (“Exelis”) and Xylem Inc. (“Xylem”), respectively. As a result, a significant number of our executives assumed new positions with Exelis and Xylem while other executives were appointed to new positions within the Company.
NEO Changes:The Board of Directors approved several changes to our NEO population, all effective at the time of the Separation.
NEO | Position Change | |
Denise L. Ramos | Appointed Chief Executive Officer and President of the Company | |
Aris C. Chicles | Appointed Executive Vice President – Strategy of the Company | |
Thomas M. Scalera | Appointed Senior Vice President and Chief Financial Officer of the Company | |
Robert J. Pagano, Jr. | Appointed as an executive officer of the Company | |
Munish Nanda | Appointed as an executive officer of the Company | |
Steven R. Loranger | Resigned with good reason as Chairman, President and Chief Executive Officer from the Company | |
Gretchen W. McClain | Resigned from the Company, and appointed Chief Executive Officer of Xylem | |
David F. Melcher | Resigned from the Company, and appointed Chief Executive Officer of Exelis |
NEO Compensation Actions: In recognition of these personnel changes, as well as the complexity of the Separation and the commitment necessary to complete it, the Committee and the Board took a number of special actions during 2011 related to compensation. These actions and the reasons for taking them are discussed in more detail in the sections that follow, and included:
Ÿ | Salary / Total Compensation Actions: |
Ÿ | Re-evaluated executive positions using the Company’s |
Ÿ | Established an initial external pay positioning for Ms. Ramos as our newly-promoted Chief Executive Officer and President that targeted total compensation (base salary plus target annual incentive opportunity plus target long-term incentive opportunity) at the 25th percentile of the post-Separation external benchmark, with the expectation that her market positioning would be aligned closer to the 50th percentile of the new Peer Group in 2012. |
Ÿ | Reviewed the target compensation levels paid to each of the post-Separation NEOs, and made target compensation increases as appropriate to reflect their significant increases in responsibility associated with assuming elevated post-Separation roles. |
Ÿ | Annual Incentive Plan Actions: |
Ÿ | Increased the target annual incentive plan (“AIP”) award percentages for Ms. Ramos and Messrs. Chicles and Scalera to reflect the additional responsibilities assumed at the time of Separation. |
Bifurcated the AIP into two performance periods — one pre-Separation and one post-Separation. |
Ÿ | Awarded Transition Success Incentive (“TSI”) bonus payments to Messrs. Chicles, Scalera, Pagano, and Nanda, who played key roles in effecting the Separation. |
Ÿ | Long-Term Incentive Plan Actions: |
Ÿ | Settled all of the outstanding Total Shareholder Return (“TSR”) | ||
Converted nearly all outstanding pre-Separation stock options, restricted stock, and restricted stock |
Converted all outstanding pre-Separation stock options and full-share awards for Mr. Loranger to post-Separation stock options and full-share awards distributed between the Company, Xylem and Exelis in the |
Granted one-time special awards of stock options and |
Ÿ | Benefit Plan Actions: |
Amended the |
Actions specific to former NEOs: |
50
Name | Base Salary as of the Separation Date | Post-Separation Target Bonus as % of Salary | Post-Separation Target Annual Cash Compensation | Post-Separation Annual Target Long-Term Incentive Value | Post-Separation Annual Target Total Direct Compensation | |||||||||||||||
Denise L. Ramos, Chief Executive Officer and President | $850,000 | 100 | % | $1,700,000 | $2,800,000 | $4,500,000 | ||||||||||||||
Aris C. Chicles, Executive Vice President – Strategy | $420,000 | 75 | % | $735,000 | $630,000 | $1,365,000 | ||||||||||||||
Thomas M. Scalera, Senior Vice President and Chief Financial Officer | $308,000 | 75 | % | $539,000 | $461,000 | $1,000,000 | ||||||||||||||
Robert J. Pagano, Jr., Senior Vice President and President – Industrial Process | $400,000 | 50 | % | $600,000 | $400,000 | $1,000,000 | ||||||||||||||
Munish Nanda, Senior Vice President and President – Control Technologies | $330,000 | 50 | % | $495,000 | $330,000 | $825,000 |
2011 Business Summary and Resulting NEO Compensation Actions
ITT’s compensation philosophy ties a substantial percentage of NEO compensation to business performance and share price performance. Compensation design for the NEOs is structured to achieve long-term shareholder value creation without undue business risk. If business performance or share price performance falls below identified thresholds, at-risk compensation is reduced or not paid at all.
The following table summarizes representative compensation components or policieschart highlights the Company’s performance in fiscal year 2011 and relevant risk mitigation factors:
Business Results versus Targets | Effect of Business Results on 2011 NEO Compensation | ||
Performance | Pre-Separation Results as % of Target (Jan 1 – Oct 31): — Sum of Value Center Revenue = 103% — Sum of Value Center Operating Cash Flow | ||
= 94% — Sum of Value Center Operating Income = 107% Post-Separation Results as % of Target (Nov 1 – Dec 31): — Sum of Segment Revenue = 103% — Sum of Segment Operating Income = 98% — Sum of Segment Cash Flow = 76% | In 2011, the Company’s internal business performance was strong, resulting in average AIP payouts among the NEOs of 121% of target. This 121% average payment is below 2010’s average AIP payment of 154% of target. | ||
2011 Transaction Success | — Successful separation of the Exelis and Xylem businesses from the Company on — Corporate and | ||
Group HQ expenses within budgets; cash expenses within budget — Created and adhered to rigorous process to design post-separation corporate function within cost targets — Above-target retention rates and strong internal staffing of new positions | — TSI Awards paid at target for recipients — Special Founders’ Grants to all post-Separation NEOs. These special Founders’ Grants were made in order to strengthen the alignment of the new senior management team with the shareholders of the post-Separation Company, to accelerate the growth of stock ownership levels among the new senior management team, and to encourage long-term key employee retention. | ||
Long-Term Financial Performance | |||
each of the three overlapping performance periods that concluded with the Separation on October 31 | |||
— No TSR Award payments for — For the | |||
increase employee retention. |
51
Ÿ | |||
Elimination of repricing or | |||
an equity restructuring (p. 57) |
Ÿ | Elimination of all income tax gross-ups on executive perquisites (p. 62) |
Ÿ | Elimination of all excise tax gross-ups from executive change-in-control severance plans (p. 65) |
Ÿ | Elimination of executive perquisites during any severance period in the event of a change-in-control (p. 65) |
Ÿ | Use of an Independent Compensation Consultant to advise the Committee (p. 67-68) |
Ÿ | Development of a Recoupment Policy (p. 68) |
Ÿ | Development of |
COMPENSATION PROCESS
Our Annual Compensation Cycle
The compensation of our executive officers, including our NEOs, is reviewed in detail every year during the first quarter. This review includes:
Ÿ | Annual performance reviews for the |
Ÿ | Base salary merit increases – normally established in March, |
Ÿ | AIP target awards, and |
Ÿ | |||||
Long-term incentive target awards (including stock options, restricted stock or RSUs, and TSR Awards). |
The actual award date of stock options, restricted stock or RSUs and target TSR Awards is determined on the date on which the Committee approves these awards. In recent years, this has occurred at the Committee’s regularly-scheduled March meeting. TSR Awards reflect a performance period starting on January 1 of the year in which the Committee approved the TSR Award. Restricted stock or RSUs, TSR and stock option award recipients receive communication of the award as soon as reasonably practical after the grant of the award.
The Committee annually reviewswill continue to review and assess the Compensation Consultant’s independenceperformance of Ms. Ramos and engaged in such a review in 2010. Based on that review, the Committee determined the Compensation Consultant was independent. The Committee has sole authority to retainall senior executives and terminate the Compensation Consultantauthorize compensation actions it believes are appropriate and commensurate with respect to compensation mattersrelevant competitive data and the Nominating and Governance Committee has sole authority to retain and terminate the Compensation Consultant with respect to nominating and governance matters.
Use of External Market Data
In 2010,2011, as in past years, the Committee looked to competitive market compensation data for companies comparable to ITT to establish overall policespolicies and programs that address executive compensation, benefits and perquisites. This review included analysis of the Towers Watson Compensation Data Bank (“CDB”) information provided by the Compensation Consultant. The analyses used a sample of 174192 companies from the S&P®
52
The Committee reviewed the external market competitiveness of all pre-Separation executive officer roles in February 2011. This analysis found that the 2011 total target compensation levels (base salary plus target annual incentive value plus target long-term incentive value) of each compensation element forof our NEOs in their pre-Separation roles, after 2011 pay increases were included, were within 10% of the Chief Executive Officermarket median. The Committee did not include Messrs. Pagano and other NEOs, and madeNanda in this review because they were not executive officers of the final determination regardingCompany at the time of the analysis.
This same approach was used in determining executive compensation levels post-Separation for these officers using the processes described in this Compensation Discussion and Analysis.all NEOs, based on their post-Separation roles. The Committee believesreviewed the Company’s compensation programssame list of external companies, but utilized a lower internal revenue reference point in the regression analysis to reflect the Company’s overarching business rationalelower annual revenue post-Separation. The use of this lower internal revenue reference point has the effect of reducing external pay benchmarking levels, which given the same external market positioning strategy would result in lower total target compensation amounts for our
post-Separation NEOs than for our pre-Separation NEOs in similar positions. The results of the post-Separation external market analysis were as follows:
Named Executive Officer and Title | Post-Separation Base Salary Position Versus Market Median | Post-Separation Position Versus Market Median | Post-Separation Position Versus Market Median | Post-Separation Position Versus Market Median | ||||||||||||
Denise L. Ramos, Chief Executive Officer and President | -11 | % | -26 | % | -27 | % | -24 | % | ||||||||
Aris C. Chicles, Executive Vice President – Strategy | +14 | % | +34 | % | +7 | % | +14 | % | ||||||||
Thomas M. Scalera, Senior Vice President and Chief Financial Officer | -35 | % | -31 | % | -51 | % | -43 | % | ||||||||
Robert J. Pagano, Jr., Senior Vice President and President – Industrial Process | +13 | % | -7 | % | -10 | % | -1 | % | ||||||||
Munish Nanda, Senior Vice President and President – Control Technologies | +18 | % | +27 | % | +43 | % | +29 | % |
For 2012 and are designedfuture years, the Committee expects to be reasonable, fair, fully disclosed,target overall total compensation at the median of a newly-created peer group. This new peer group, which consists of mid-cap S&P Industrials companies, was selected to more accurately reflect the size and consistently aligned with long-term value creation. The Committee further believes this compensation philosophy encourages individual and group behaviors that balance risk and reward and assistindustry focus of the Company in achieving steady, sustained growth and earnings performance.
ELEMENTS OF COMPENSATION
NEO compensation at ITT has traditionally consisted of its NEO positions, were compared to positions with similar attributes and responsibilities based on the CDB information. This information was used to provide the market median dollar value foran annual base salary, an annual incentivescash-based incentive in the form of the AIP, and target long-term incentive awards in the form of RSUs, stock options, and long-term incentives. The Committee used the CDB, along with other qualitative information, described on page 54, in making its determination of target and actual compensation providedcash awards that are tied to each of the Company’s NEOs. The Committee generally targets total compensation and each compensation component at the competitive median of the CDB sample group, but may consider deviations from the competitive median depending on a position’s strategic value, the Company’s objectives and strategies, and individual experience and performance in the position. The Committee may, but is not required to, consider prior year’s compensation, including short-term or long-term incentive payouts, restricted stock vesting or option exercises in compensation decisions for the NEOs.
53
Annual Base Salary | Annual Incentive Target | Long-Term Incentive | Total Compensation | |||||||||
Named Executive | Position as Percentage of | Position as Percentage of | Position as Percentage of | Position as Percentage of | ||||||||
Officer and Title | Market Median | Market Median | Market Median | Market Median | ||||||||
Steven R. Loranger, | 96% | 91% | 112% | 105% | ||||||||
Chairman, President and Chief Executive Officer | Above targeted percentage | |||||||||||
Denise L. Ramos, SVP | 98% | 100% | 82% | 90% | ||||||||
and Chief Financial Officer | Below targeted percentage | |||||||||||
Gretchen W. McClain, | 96% | 94% | 84% | 89% | ||||||||
SVP and President, Fluid and Motion Control | Below targeted percentage | Below targeted percentage | ||||||||||
David F. Melcher, SVP | 91% | 83% | 70% | 77% | ||||||||
and President, Defense and Information Solutions | Below targeted percentage | Below targeted percentage | Below targeted percentage | |||||||||
Frank R. Jimenez, VP | 82% | 66% | 50% | 61% | ||||||||
and General Counsel | Below targeted percentage | Below targeted percentage | Below targeted percentage | Below targeted percentage | ||||||||
54
Rationale for Providing | ||||||
Base Salary | The | |||||
Target AIP | The | |||||
55
56
RSUs
The Committee grants | |||
Stock Options | The Committee grants stock options awards to link executive compensation to absolute share price | ||
TSR Awards | The Committee |
These compensation elements work together to provide a reasonable mix of short-term versus long-term compensation, guaranteed versus at-risk compensation, and absolute versus relative performance measures to fully align NEO interests with those of shareholders.
Pay Mix Comparisons | Post-Separation Target Compensation Pay Mix Summary | |||
CEO | Other Average NEOs | |||
Short-Term (1 year or less) versus Long-Term (greater than 1 year) | ||||
38% Short-Term, 62% Long-Term | 57% Short-Term, 43% Long-Term | |||
Guaranteed versus At-Risk | 19% Guaranteed, 81% At-Risk | 35% Guaranteed, 65% At- Risk | ||
Absolute Performance versus Relative Performance | 79% Absolute, 21% Relative | 86% Absolute, 14% Relative |
57The Company also provides benefits and limited perquisites to its NEOs that it believes are competitive with the external market for talent.
2011 Base Salary Increases
The Committee approves NEO base salaries annually based on external survey data provided by the Compensation Consultant and the NEO’s individual performance. The Company conducted its annual base salary merit increase process in March 2011. In addition, the Company made salary adjustments in October 2011 to those executives who were promoted into new roles at the Separation.
NEO | Previous Annual Base Salary | Post-Merit Annual Base Salary | ||||||
Denise L. Ramos | $ | 590,000 | $ | 606,500 | ||||
Aris C. Chicles | $ | 340,000 | $ | 360,000 | ||||
Thomas M. Scalera | $ | 280,000 | $ | 288,400 | ||||
Steven R. Loranger | $ | 1,160,000 | $ | 1,200,000 | ||||
Gretchen W. McClain | $ | 530,000 | $ | 600,000 | ||||
David F. Melcher | $ | 530,000 | $ | 600,000 |
For Messrs. Pagano and Nanda, since they were not executive officers of the Company pre-Separation, their March 2011 salary increases were reviewed and approved by Mr. Loranger. He considered the evaluation of their individual performance, external market data on competitive pay levels from third-party consulting firms provided by internal human resources, and the overall 2011 salary increase budget for salaried personnel.
April 2011 Promotional Increase for Mr. Nanda: In April 2011, Ms. Ramos approved an annual salary of $330,000 for Mr. Nanda, a 9% increase, that reflected a compensation level that was considered appropriate for his new role as President of the Control Technologies business segment.
October 2011 Separation-Related Promotional Increases: The Committee re-evaluated the compensation of all executive officers of the post-Separation company prior to the Separation, using the same regression analysis methodology as used in the annual market analysis. As a result of their analysis, they approved salary increases to select executive officers, including Ms. Ramos and Messrs. Chicles, Scalera, and Pagano. While some of the increases effective with the Separation are higher than historically provided during the annual cycle, they reflect the additional responsibilities that these NEOs would have in the Company post-Separation.
The Committee approved the following base salaries, effective October 31, 2011:
NEO | Previous Annual Base Salary | Post- Separation Annual Base Salary | ||||||
Denise L. Ramos | $ | 606,500 | $ | 850,000 | ||||
Aris C. Chicles | $ | 360,000 | $ | 420,000 | ||||
Thomas M. Scalera | $ | 288,400 | $ | 308,000 | ||||
Robert J. Pagano, Jr. | $ | 349,000 | $ | 400,000 |
Going forward, we expect to review the salary levels for all of our NEOs and make salary adjustments as appropriate in the first quarter of each year, as has been the historical practice.
2011 Annual Incentive Plan
The AIP And Long-Term Incentive Target Awards
Establishing AIP Performance
The 20102011 AIP format is designed to consider internal business achievements. For 2010,2011, NEOs includeincluded officers from the pre-Separation corporate segment, as well as business leaders from the business units that remained with the Company post-Separation. The reported 2011 business segments used to evaluate financial performance prior to the Separation (the “Value Centers”) were Defense and Information Solutions, Fluid Technology, and the Motion & Flow Control. The post-Separation business segments used to evaluate financial performance (the “Segments”) are Industrial Process, Motion Technologies, Interconnect Solutions, and Control segment, Defense & Information Solutions segment, and Corporate headquarters.
Internal PremierAIP Performance Metrics Selection Process
The Committee studied past and projected earnings per share and other performance measures of comparable multi-industry peers. Six multi-industry companies were identified as “premier” basedBased on their rankings in the top quartile of the majority of the quantitative metrics evaluated. These six companies are:
1. | |||
Organic Revenue:Revenue reflects the Company’s emphasis on growth. Revenue is defined as reported GAAP revenue excluding the impact of foreign currency fluctuations and contributions from acquisitions and divestitures. The Company’s definition of revenue may not be comparable to similar measures utilized by other companies. Revenue is based on the local currency exchange. |
2. | |||
3. | |||
4. | Operating Margin: Operating margin is utilized at the Segment level in order to emphasize the importance of maintaining healthy margins post-Separation. Operating margin is defined as the ratio of Segment operating income over revenue. |
58
2011 AIP Performance Metrics and Weights
The Committee, after considering management and Compensation Consultant recommendations, established 2011 AIP performance targets for the NEOs based on the Company’s approved annual operating plan, taking into consideration the Company’s aspirational business goals. Successful attainment of both qualitative factors and quantitative factors are achievable only if the enterprise and the individual NEO perform at levels established by the Committee. As permitted by the 1997 AIP for Executive Officers, the Committee may exclude the impact of acquisitions, dispositions and other special items in computing AIP payments.
We pay for AIP performance that clearly demonstrates substantial achievement of plan goals. We established strong incentives for revenue performance and set aggressive goals for other metrics. In order to achieve an AIP payout, each metric must meet a certain threshold for that component to be considered in the calculation. For example, EPSSum of Segment Operating Income performance below the 50% payout percentage of target would result in that metric being reflected as zero in the AIP calculation.
Earnings Per Share Performance | $ | 3.75 | $ | 4.00 | $ | 4.50 | |||||||||
Earnings Per Share Payout Percentage of Target | 50% | 100% | 200% | ||||||||||||
The remaining metrics must meet or exceed an 85% thresholdformula to determine each NEO’s AIP total potential payment (subject to negative Committee discretion) is as follows:
2011 AIP Potential Payout =
(Base Salary) x (Target Award Percentage) x (AIP Results Percentage)
Both the individual performance level (as described in the chart below).
2010 AIP Attainment and Payout Design | ||||||||||||||||||||||||||||||
Revenue | Remaining Metrics | |||||||||||||||||||||||||||||
Performance Percentage of Target | 90% | 100% | 110% | 85% | 100% | 120% | ||||||||||||||||||||||||
Payout Percentage of Target | 50% | 100% | 200% | 50% | 100% | 200% | ||||||||||||||||||||||||
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Metric (all $ amounts in millions other than earnings per share performance) | Performance Target at 100% Payment | 2010 Performance | ||||
EPS Performance | $4.00 | $4.34 | ||||
Free Cash Flow | $740 | $924 | ||||
Sum of Group Revenue | $11,200 | $10,831 | ||||
Performance Target at | ||||||
Metric (all $ amounts in millions other than earnings per share performance) | 100% Payment | 2010 Performance | ||||
EPS Performance | $4.00 | $4.34 | ||||
Free Cash Flow | $740 | $924 | ||||
Sum of Group Revenue | $11,200 | $10,831 | ||||
Endeavor to retain top talent as part of the future state organization design process, |
Achieve Separation date targets as internally set, |
Build post-Separation Segment operating margin targets, and |
Aggressively manage steady state and separation costs. |
2011 Target AIP Award Percentage of Base Salary and
Weighting of AIP Performance Components
Target Award | ||||||||||||||||||||||||||||||
Percentage | Sum of Group | Free Cash | Sum of Group | ITT EPS | ||||||||||||||||||||||||||
of | Revenue | Flow | ROIC | Performance | Total Enterprise | |||||||||||||||||||||||||
Named Executive Officer | Base Salary | (a) | (b) | (c) | (d) | Performance | ||||||||||||||||||||||||
Steven R. Loranger | 130 | % | 20 | % | 20 | % | 20 | % | 40 | % | a+b+c+d | |||||||||||||||||||
Denise L. Ramos | 85 | % | 20 | % | 20 | % | 20 | % | 40 | % | a+b+c+d | |||||||||||||||||||
Gretchen W. McClain | 80 | % | 20 | % | 20 | % | 20 | % | 40 | % | a+b+c+d | |||||||||||||||||||
David F. Melcher | 80 | % | 20 | % | 20 | % | 20 | % | 40 | % | a+b+c+d | |||||||||||||||||||
Frank R. Jimenez | 60 | % | 20 | % | 20 | % | 20 | % | 40 | % | a+b+c+d | |||||||||||||||||||
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Named Executive Officer | 2011 Percentage of Base | Sum of Revenue (a) | Sum of Flow (b) | Sum of (c) | Segment Operating Cash Flow (d) | Segment (e) | Segment (f) | Total Enterprise Performance | ||||||||||||||||||||||
Denise L. Ramos | 87.5 | % | 20 | % | 30 | % | 50 | % | a+b+c | |||||||||||||||||||||
Aris C. Chicles | 66.7 | % | 20 | % | 30 | % | 50 | % | a+b+c | |||||||||||||||||||||
Thomas M. Scalera | 44.2 | % | 20 | % | 30 | % | 50 | % | a+b+c | |||||||||||||||||||||
Robert J. Pagano, Jr. | 50 | % | 50 | % | 20 | % | 15 | % | 15 | % | c+d+e+f | |||||||||||||||||||
Munish Nanda | 50 | % | 50 | % | 20 | % | 15 | % | 15 | % | c+d+e+f | |||||||||||||||||||
Steven R. Loranger | 130 | % | 20 | % | 30 | % | 50 | % | a+b+c | |||||||||||||||||||||
Gretchen W. McClain | 85 | % | 20 | % | 30 | % | 50 | % | a+b+c | |||||||||||||||||||||
David F. Melcher | 85 | % | 20 | % | 30 | % | 50 | % | a+b+c |
Named Executive Officer | Pre-Separation Target Award Percentage of Base Salary (10 months’ | Post-Separation Target Award Percentage of Base Salary (2 months’ performance) | ||
Denise L. Ramos | 85% | 100% | ||
Aris C. Chicles | 65% | 75% | ||
Thomas M. Scalera | 38% | 75% |
Bifurcation of 2011 AIP Potential Payout = Target Award Percentageinto Pre-Separation and Post-Separation Goals: In October 2011, the Committee agreed with the Compensation Consultant’s recommendation to bifurcate the 2011 AIP into pre-Separation and post-Separation plans, due to the fact that the financial performance goals approved by the Committee at the beginning of Base Salary x (Results of Total Enterprise Performance) interpolatedthe year would not be measurable on a post-Separation basis. Therefore, the original Corporate financial goals in the 2011 AIP were pro-rated to reflect 10 months’ pre-Separation performance, and then scored based on financial performance against those goals up to 200%the Separation date. Independent post-Separation financial goals for the remaining two months of fiscal year were then approved by the Committee based on the operating budget for the remainder of the fiscal year, and scored at the conclusion of the fiscal year based on actual performance above goal. (Subjectversus those goals.
Calculation of AIP 2011 Performance
Pre-Separation Performance Period: The AIP performance goals set at the beginning of the fiscal year were based on the full-year operating plan that was approved by the Board, and meeting the financial goals set out in that operating plan would result in an AIP payment equal to negative discretion).
Once the Separation was completed, these full-year financial goals were multiplied by 0.833, the percentage of the year that had elapsed prior to the Separation, to determine appropriate pre-Separation goals. These pre-Separation goals were then compared to actual performance as follows:
2011 Pre-Separation Metrics | Pro-Rated Target | Actual Performance | Actual as Percentage of Target | |||||||||
Sum of Value Center Operating Income Performance | $ | 1,229 million | $ | 1,317 million | 107 | % | ||||||
Sum of Value Center Revenue | $ | 9,428 million | $ | 9,726 million | 103 | % | ||||||
Sum of Value Center Operating Cash Flow | $ | 919 million | $ | 866 million | 94 | % |
2010 AIP Awards Paid in 2011
2011 Post-Separation Metrics | Pro-Rated Target | Actual Performance | Actual as Percentage of Target | |||||
Sum of Post-Separation Segment Operating Income Performance | $48 million | $47 million | 98 | % | ||||
Sum of Post-Separation Segment Revenue | $343 million | $353 million | % | |||||
Sum of Post-Separation Segment Operating Cash Flow | $104 million | $79 million | ||||||
76 | ||||||||
% |
Segment Performance Targets: For Messrs. Pagano and Nanda, we set the remaining 2011 performance targets, Segment Operating Cash Flow, Segment Revenue, and Segment Operating Margin, for the full 12-month period at challenging levels that are consistent with our long-term Peer Group targets, our premier financial targets, and are designed to meet shareholder expectations. We consider these targets to be difficult to attain. We do not report on the Segment financial results used for Segment AIP calculations, as we believe that doing so would cause competitive harm to the Company.
2011 AIP Awards Paid in 2012
The pre-Separation and post-Separation calculations were combined to determine full-year AIP awards earned as follows:
Named Executive Officers | Total Target 2011 AIP Awards ($) | Pre- Separation | Post- Separation AIP Awards ($) | Total 2011 AIP Awards ($) | Total AIP 2011 Awards as Percentage of Target (%) | |||||||||||||||
Denise L. Ramos | $ | 571,271 | $ | 587,300 | $ | 100,200 | $ | 687,500 | 120 | % | ||||||||||
Aris C. Chicles | $ | 247,500 | $ | 266,400 | $ | 37,100 | $ | 303,500 | 123 | % | ||||||||||
Thomas M. Scalera | $ | 129,827 | $ | 124,600 | $ | 27,200 | $ | 151,800 | 117 | % | ||||||||||
Robert J. Pagano, Jr. | $ | 178,750 | $ | 163,600 | $ | 37,500 | $ | 201,100 | 113 | % | ||||||||||
Munish Nanda | $ | 165,000 | $ | 178,400 | $ | 35,700 | $ | 214,100 | 130 | % | ||||||||||
Steven R. Loranger | $ | 1,300,000 | $ | 1,300,000 | $ | 0 | $ | 999,452 | (1) | 77 | % |
(1) | Amount paid to Mr. Loranger was determined based on the terms of his employment agreement and as detailed in his separation agreement as an amount equal to 100% of base salary for Mr. Loranger, pro-rated for the percentage of the year that he was employed by the Company. |
For Ms. McClain and Mr. Melcher, the responsibilities for calculation and payment of their 2011 AIP earned amounts were assumed by Xylem and Exelis, respectively, at the Separation date. 2011 AIP Awards for NEOs are also included in the Summary Compensation Table on pagePage 72.
Transition Success Incentive Bonus
Based on external market data provided by the Compensation Consultant on ten other recent, large spin-off transactions, and in order to retain critical key employees through the uncertainty of the Separation, the Committee approved one-time TSI Bonuses to select executive officers, including some of our NEOs, and other employees of the Company. These TSI Bonus payments were made in March 2012, four months following the successful Separation, and all plan participants needed to remain employed by the Company through the payment date in order to be eligible to receive a TSI Bonus. In accordance with the plan design to exclude Chief Executive Officer roles, neither Ms. Ramos nor Mr. Loranger received a TSI Bonus. The NEOs who received TSI Bonus payments, and the amounts of each bonus, were as follows:
Named Executive Officers | TSI Bonus ($) | |||
Aris C. Chicles | $ | 180,000 | ||
Thomas M. Scalera | $ | 145,000 | ||
Robert J. Pagano, Jr. | $ | 175,000 | ||
Munish Nanda | $ | 150,000 |
2011 Long-Term Incentive Awards ProgramCompensation
The Company’s long-term incentive awards component for senior executives has three subcomponents, each of which directly ties long-term compensation to long-term value creation and shareholder return:
Ÿ | ||
Restricted stock or |
Ÿ | ||
Non-qualified stock option awards. These awards have a 10-year term and a strike price equal to the closing price of the Company stock on the grant date. |
Ÿ | ||
TSR |
61
TSR | Non-Qualified | ||||||||||||||
(Target Cash | Stock Option | Restricted Stock | |||||||||||||
Award) | Award | Award | |||||||||||||
Named Executive Officer | $ | # Options | # Shares | ||||||||||||
Steven R. Loranger | 1,980,000 | 132,265 | 41,267 | ||||||||||||
Denise L. Ramos | 400,000 | 26,721 | 8,337 | ||||||||||||
Gretchen W. McClain | 360,000 | 24,049 | 7,503 | ||||||||||||
David F. Melcher | 360,000 | 24,049 | 7,503 | ||||||||||||
Frank R. Jimenez | 166,700 | 11,890 | 3,474 | ||||||||||||
The following table describes the TSR Awards, non-qualified stock option awards, and RSU awards made to NEOs in March 2011, and does not give effect to the 1:2 reverse stock split. The TSR Award amounts listed reflect the cash target value, and the stock option and RSU awards reflect the number of underlying options or shares granted. Stock options were granted with a pre-Separation strike price of $57.68, which was equal to the closing price of the Company’s common stock on the grant date fair value.
Named Executive Officer | TSR (Target Cash ($) | Non-Qualified Stock (# of Options) | RSU Award (# of Units) | |||||||||
Denise L. Ramos | $ | 533,300 | 33,459 | 9,111 | ||||||||
Aris C. Chicles | $ | 191,700 | 12,025 | 3,274 | ||||||||
Thomas M. Scalera | $ | 50,000 | 3,475 | 854 | ||||||||
Robert J. Pagano, Jr. | $ | 133,300 | 9,260 | 2,278 | ||||||||
Munish Nanda | $ | 110,000 | 7,640 | 1,879 | ||||||||
Steven R. Loranger | $ | 2,133,300 | 133,835 | 36,442 | ||||||||
Gretchen W. McClain | $ | 533,300 | 33,459 | 9,111 | ||||||||
David F. Melcher | $ | 533,300 | 33,459 | 9,111 |
Restricted Stock SubcomponentUnits Component
Grants of restricted stockRSUs provide NEOs with stock ownership of unrestricted shares after the restriction lapses.restrictions lapse. NEOs received restricted stockRSU awards because, in the judgment of the Committee and based on management recommendations, these individuals are in positions most likely to assist in the achievement of the Company’s long-term value creation goals and to create shareholder value over time. The Committee reviews all proposed grants of shares of restricted stockRSUs 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.
Key elements of the 2010 restricted stock2011 RSU program were:
RSUs do not grant dividend or voting rights to the holder over the vesting period; dividends are accrued and paid on the vesting date |
RSUs are generally | |||
If an acceleration event occurs (as described on | |||
If an employee dies or becomes disabled, the | |||
If an employee leaves the Company prior to vesting, whether through resignation or termination for cause, the |
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If an employee retires or is terminated other than for cause, a pro-rata portion of the |
Ÿ | No individual may receive more than 1,875,441 RSUs under the |
In certain cases, such as for new hires or to facilitate retention, selected employees may receive restricted stockRSUs subject to different vesting terms as determined by the Committee.
Non-Qualified Stock Options SubcomponentComponent
Non-qualified stock options permit optioneesoption holders to buy Company stock in the future at a price equal to the stock’s value on the date the option was granted, which is the option exercise price. Non-qualified stock option terms were selected after the Committee’s review and assessment of the CDB and consideration of terms best suited to the Company.
For Messrs. Loranger and Melcher, Ms. Ramos and Ms. McClain,each of our NEOs, non-qualified stock options do not vest until three years after the award date. This delayed vesting is referred to as three-year cliff vesting. This vesting schedule prohibits early option exercises, notwithstanding share price appreciation, and focuses senior executives on the Company’s long-term value creation goals. Stock options awarded to Mr. Jimenez in 2010 vest in one-third annual installments.
In 2010,2011, the fair value of stock options granted under the employee stock option program was calculated using a binomial lattice valuation model. The Committee considered this a preferred model since the model can incorporate multiple and variable assumptions over time, including assumptions such as employee exercise patterns, stock price volatility and changes in dividends.
Key elements of the 20102011 non-qualified stock option program were:
Maximum Number Granted: |
¡ | No individual may receive more than 9,377,204 options under the 2011 Omnibus Plan in any one year |
Ÿ | Exercise Price: |
¡ | The option exercise price of stock options awarded is the | ||
For options granted to new executives, the option exercise price of approved stock option awards is the closing price on the grant date, generally the day following the first day of employment | |||
The 2003 Plan and the 2011 Omnibus Plan prohibit the repricing of, or exchange of, stock options and stock appreciation rights that are priced below the prevailing market price with lower-priced stock options or stock appreciation rights without shareholder approval, except in the event of an equity restructuring |
Vesting Schedule: |
¡ | Three-year cliff vesting is required for executives at the level of senior vice president or | ||
Options cannot be exercised prior to vesting |
¡ | If an acceleration event occurs (as described on | ||
Option Term and Exercise Period: |
¡ | Options awarded in 2010 and 2011 and prior to 2005 expire ten years after the grant date. Options awarded between 2005 and 2009 expire seven years after the grant | ||
There may be adjustments to the post-employment exercise period of an option grant if an employee’s tenure with the Company is terminated due to death, disability, retirement or |
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termination by the Company other than for |
Ÿ | Termination Provisions: |
¡ | If an employee is terminated for cause, or voluntarily terminates employment without an acceleration event, vested and unvested portions of the options expire on the date of termination |
¡ | If an employee dies or becomes permanently disabled, all unvested options vest in full |
¡ | If the employee is terminated for a reason other than for cause or retires, a pro-rata portion of the stock options continue to vest on the regular vesting schedule |
¡ | If employment is terminated due to an acceleration event or because the option holder believes in good faith that he or she would be unable to discharge his or her duties effectively after the acceleration event, the option expires on the earlier of the date seven months after the acceleration event or the normal expiration |
TSR Awards Component
TSR Awards are variable cash payments, based on the Compensation Consultant’s review and assessmentCompany’s stock price appreciation relative to that of the CDB, as well as the Committee’s view of the vesting terms appropriate for the Company.TSR Performance Index over a three-year performance cycle. The Committee, considersat its discretion, determines the Compensation Consultant’s reviewsize and assessmentfrequency of CDB, as well as individualtarget TSR Awards, performance measures and performance goals, in addition to performance periods. In determining the quantitysize of restricted stock, restricted stock units and stock option awards.
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Ÿ | The Company’s performance is measured by comparing the Company’s average closing stock price for the month of December prior to the start of the TSR Award three-year performance cycle, to the Company’s average closing stock price for the month of December that concludes the three-year performance cycle, including adjustments for dividends and extraordinary payments. |
Payment, if any, of cash awards generally are made following the end of the applicable three-year performance period and are based on the Company’s performance measured against the TSR performance of the selected peer group. |
Ÿ | If a participant’s employment terminates before the end of the three-year performance period, the award is forfeited except in two cases: 1) if a participant dies or becomes disabled, the TSR |
Ÿ | |
Subject to the provisions of Section 409A of the Internal Revenue Code, in the event of an acceleration event in a change of control (described on |
Ÿ | |
Performance goals for the applicable TSR performance period are established in writing no later than |
Performance Goals and Payments for the TSR.TSR Awards. Individual targets for the NEOs for the2010-2012 2011-2013 performance period (the “2011-13 TSR Award Period”) used to determine TSR Awards are provided in the Grants“Grants of Plan Based Awards in 2011” table on page 74Page 75 of this Proxy Statement. Payouts, if any, are based on a non-discretionary formula and interpolated for values between the 35th and 80th percentile of performance. The Committee felt these breakpoints were properly motivational and rewarded the desired behavior.
If Company’s Total Shareholder Return Rank Against the TSR Performance Index is | Payout Factor (% of Target TSR | |||
less than the 35th percentile | 0 | % | ||
at the 35th percentile | 50 | % | ||
at the 50th percentile | 100 | % | ||
at the 80th percentile or more | 200 | % |
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Conversion of TSR Awards at Separation. Upon the advice of the Compensation Consultant, the Committee approved amendments to the TSR Awards’ performance goals and payment schedules in order to reflect the changed business nature of each of the Company, Exelis, and Xylem. The amendments stated that the Company’s performance versus the preset goals for each of the three overlapping award cycles would be measured and scored at the time of Separation, and eligible employees would receive a pro-rated payment of awards earned over that period. The pro-rated portion of awards covering the uncompleted period at the Separation date would be converted to a target cash payment or RSUs, depending on the TSR Award Period. In no case would any participant receive an accelerated payment. The conversion of remaining TSR Awards into RSUs with time-based vesting provisions was approved by the Committee in order to accelerate the growth in stock ownership among the Company’s new management team, and to increase support for retention of key leadership in the post-Separation Company.
The following chart explains how TSR Awards made during each of the three grant periods were converted.
TSR Award Period | Percentage of (10/31/2011) | How the Target TSR Award Was Treated Upon Separation | ||||
Completed Period | Uncompleted Period | |||||
2009-11 TSR Award Period | ||||||
94.4% (34 of 36 months) | ||||||
Cash payment (if any is (e.g. January 1, 2009 – October 31, 2011). Cash payment made by March 15, 2012. | ||||||
2010-12 TSR Award Period | ||||||
2011-13 TSR Award Period | 27.8% (10 of 36 months) | Award of new RSUs at a value equal to the original TSR value, multiplied by the remaining uncompleted percentage of the 2011-13 TSR Award Period (26 months divided by 36). RSUs will vest December 31, 2013. |
Determination of TSR Award Payments. At the conclusion of the Separation, the Committee reviewed the Company’s TSR performance over each of the three TSR Award Periods, and determined that the Company failed to reach the threshold level of relative TSR performance in any of the three TSR Award Periods. Therefore, no payments were earned on the completed portions of the TSR Award Periods.
The Company achieveduncompleted portions of each TSR Award Period were converted into cash payments and RSU grants, at target and pro-rated as per the above schedule. The converted amounts provided to each of the NEOs after the Separation, which give effect to the 1:2 reverse stock split, were as follows:
Named Executive Officer | 2009-11 TSR Award ($)(1) | 2010-12 TSR Award (#)(2) | 2011-13 TSR Award (#)(3) | |||||||||
Denise L. Ramos | $ | 20,000 | 7,670 | 18,992 | ||||||||
Aris C. Chicles | $ | 7,500 | 2,589 | 6,827 | ||||||||
Thomas M. Scalera | $ | 1,850 | 704 | 1,781 | ||||||||
Robert J. Pagano, Jr. | $ | 7,072 | 2,525 | 4,747 | ||||||||
Munish Nanda | $ | 5,000 | 2,077 | 3,917 | ||||||||
Steven R. Loranger (4) | $ | 110,000 | - | - |
(1) | Cash granted in recognition of the uncompleted portion of the 2009-11 TSR Award Period was paid on March 15, 2012. |
(2) | RSUs granted in recognition of the uncompleted portion of the 2010-12 TSR Award Period will vest on December 31, 2012. |
(3) | RSUs granted in recognition of the uncompleted portion of the 2011-13 TSR Award Period will vest on December 31, 2013. |
(4) | Mr. Loranger received target cash payments for the discontinued portions of the 2010-12 TSR Award and the 2011-13 TSR Award, as detailed in his Resignation Agreement on Page 89. These cash payments will vest on the original vesting schedule for the TSR Awards. |
Conversion of Other Existing Equity Awards
In anticipation of the Separation, the Committee approved a 25.89th percentile rankingconversion of all unvested restricted stock, unvested RSUs, and unexercised stock option awards upon the Separation into separate restricted stock, RSU, and stock option grants for each of the three post-Separation companies, with each equity holder receiving a modified grant of restricted stock, RSUs, and/or stock options of their post-Separation employer. All converted awards preserved each equityholder’s intrinsic value and had the same terms and conditions as they had prior to the Separation. This conversion was recommended by the Compensation Consultant and approved by the Committee because it is the most common approach used in major spin-off transactions, aligns the interests of management with shareholders of each company, and maximizes the initial ownership stake among the management of each post-Separation company.
The closing price of the Company’s stock on October 31st, the final trading day pre-Separation, was $45.60. The opening price of the Company’s stock on November 1st, the first trading day post-Separation, was $17.02, which gives effect to the 1:2 reverse stock split. Given these changes, the conversion was conducted as follows:
Ÿ | Every one pre-Separation restricted share, RSU, and stock option was converted into 2.679201 post-Separation restricted shares, RSUs, and stock options, rounded down to the nearest full share. |
Ÿ | The strike price of every pre-Separation stock option was multiplied by 0.373246 to determine that option’s post-Separation strike price, rounded up to the nearest cent. |
Since Mr. Loranger was not an employee of any of the three post-Separation companies, his pre-Separation equity grants that he retained after his termination date were converted using a distributive method, where he received post-Separation equity in all three companies in the TSR Performance Index for this performance period, resultingsame proportion as shares in no cash paymentsuch three companies were distributed to shareholders of the Company.
No holder of restricted shares, RSUs, or stock options received any incremental economic benefit from the conversion. However, the conversion resulted in a modification to the Company’s expense of stock options previously granted, as required under ASC Topic 718. This one-time modification is included on an individual NEO basis in the TSR for this performance period.
Named Executive Officer | One-Time Stock Option Expense Modification($) | |||
Denise L. Ramos | $ | 334,686 | ||
Aris C. Chicles | $ | 128,555 | ||
Thomas M. Scalera | $ | 36,780 | ||
Robert J. Pagano, Jr. | $ | 164,019 | ||
Munish Nanda | $ | 71,554 | ||
Steven R. Loranger | $ | 2,219,751 | ||
Gretchen W. McClain | $ | 412,556 | ||
David F. Melcher | $ | 47,115 |
Special 2011 Long-Term Incentive Awards
On November 7, 2011, in connection with the Separation, the Committee awarded Founders’ Grants to selected members of the executive team to create significant alignment with the long-term success of the Company. The Committee approved these Founders’ Grants as a one-time event, with multiple-year vesting schedules for each grant, in order to strengthen the alignment of the new senior management team with shareholders of the post-Separation Company, to accelerate the growth of
stock ownership among the Company’s new senior management team, and to enhance employee retention. The Committee does not consider Founders’ Grants as part of annual compensation for the Company’s NEOs, and such awards are not expected to be repeated in future years.
Options, which constituted 50% of the target value of each Founders’ Grant, were granted with a termination date 10 years from the grant date, a strike price equal to the closing price on the date of the grant, and a three-year ratable vesting schedule. Options were converted from target dollar values to a number of options based upon the estimated lattice model value of $6.94 of each stock option on the date of the grant. RSUs, which constituted the remaining 50% of the target value of each Founders’ Grant, were valued using the closing stock price of Company stock on the date of the grant, and were granted with a three-year cliff vesting schedule.
The following table describes the Founders’ Grants made to the NEOs. Stock options were granted with a strike price of $20.28, which was the closing price of the Company’s common stock on the November 7, 2011 grant date. For more details on these grants, please see “Compensation Tables – Grants of Plan-Based Awards in 2011” on Page 75.
Named Executive Officer | Total Founders’ Grants Expected Value ($) | RSU Award # Units | Non-Qualified Stock # Options | |||||||||
Denise L. Ramos | $ | 4,200,000 | 103,550 | 302,594 | ||||||||
Aris C. Chicles | $ | 1,260,000 | 31,065 | 90,778 | ||||||||
Thomas M. Scalera | $ | 693,000 | 17,086 | 49,928 | ||||||||
Robert J. Pagano, Jr. | $ | 600,000 | 14,793 | 43,228 | ||||||||
Munish Nanda | $ | 495,000 | 12,204 | 35,663 |
ITT Retirement Savings Plan for Salaried Employees
Most of the Company’s salaried employees who work in the United States participate in the ITT Retirement Savings Plan for Salaried Employees, a tax-qualified savings plan, which allows employees to contribute to the plan on a before-tax basis and/or on an after-tax basis. The Company makes a core contribution of 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 service is less than 50, and 4% for employees whose age plus service is at least 50. In addition, employees who were participating in the ITT Salaried Retirement Plan and whose age and service is at least 60 may be eligible for up to five years of transition employer contributions following the Separation. Prior to the Separation, the floor contribution in the ITT Salaried Investment and Savings Plan was 1/2 of 1% and all contributions were based on base salary only.
Employee Benefits and Perquisites
Executives, including the NEOs, are eligible to participate in ITT’s broad-based employee benefits program. The program includes an investment and savings plan that includes before-tax and after-tax savings features, group medical and dental coverage, group life insurance, group accidental death and dismemberment insurance and other benefit plans. These other benefit plans include short- and long-term incentive awardsdisability insurance, long-term care insurance and a flexible spending account plan. Prior to the Separation, employees also participated in a pension program.
The Company provides only those perquisites that it considers to be reasonable and consistent with competitive practice. Perquisites available for NEOs include a car allowance up to $1,300 per month and financial and estate planning. In 2011, the Company prohibited any future reimbursements for personal income taxes due on these perquisites.
Relocation Expenses for Mr. Pagano: In order to promote Mr. Pagano to the role of President of the Industrial Processes segment, we agreed to reimburse him for relocation expenses to assist in the costs associated with his move from White Plains, New York to the Industrial Processes headquarters in Seneca Falls, NY, in 2010. Costs associated with this relocation that were incurred in fiscal year 2011 included reimbursement of loss on the sale of his home, closing costs, the movement of physical goods, attorney’s fees and duplicate costs associated with maintaining his home in White Plains prior to its sale. As part of the terms that were agreed as part of his assumption of the new role, and as permitted under the Company’s relocation program, he received reimbursement for taxes associated with certain of these relocation expenses. The relocation was completed in 2011, and thus the amount paid by the Company to Mr. Pagano in connection with this relocation was a non-recurring event.
Salaried Retirement Plan. Up until the Separation date, most of the Company’s salaried employees who work in the United States participated in the ITT Salaried Retirement Plan. Under the plan, participants had the option, on an annual basis, to elect to be covered by either a Traditional Pension Plan or a Pension Equity Plan formula for future pension accruals. The ITT Salaried Retirement Plan was a tax-qualified plan, which provided a base of financial security for employees after they cease working. The ITT Salaried Retirement Plan was transferred to Exelis by the Company, effective on the Separation date, and both service credit and accrued benefits were frozen as of that date, subject to transition employer contributions into the ITT Retirement Savings Plan for Salaried Employees.
Excess Pension Plans. Because federal law limits the amount of benefits that can be paid and the amount of compensation that can be recognized under tax-qualified retirement plans, the Company established and maintained non-qualified, unfunded excess pension plans solely to pay retirement benefits that could not be paid from the ITT Salaried Retirement Plan. Benefits under the excess pension plans were generally paid directly by the Company. Participating officers with excess plan benefits had the opportunity to make a one-time election prior to December 31, 2008 to receive their excess benefit earned under the Traditional Pension Plan formula (described on Page 82) in a single discounted sum payment or as an annuity. An election of a single-sum payment was only effective if the officer met the requirements for early or normal retirement benefits under the plan; otherwise, the excess benefit earned under the Traditional Pension Plan formula would be paid as an annuity. Since the excess pension plans are an unfunded obligation of the Company, in the event of a change of control, any excess plan benefit would become immediately payable, subject to any applicable Section 409A restrictions with respect to form and timing of payments, and would be paid in a single discounted sum. The single-sum payment provision provides executives the earliest possible access to the funds in the event of a change of control, and avoids leaving unfunded pension payments in the hands of the acquirer. The Excess Pension Plan that provided additional benefits than those that could be received under the tax-qualified ITT Salaried Retirement Plan was transferred to Exelis by the Company, effective on the Separation date, and both service credit and accrued benefits were frozen as of that date, subject to transition credits.
Deferred Compensation Plan. Our NEOs are eligible to participate in the ITT Deferred Compensation Plan. This plan provides executives an opportunity to defer receipt of between 2% and 90% of any AIP payments they earn. The amount of deferred compensation ultimately received reflects the performance of benchmark investment funds made available under the Deferred Compensation Plan as selected by the executive. Participants in the Deferred Compensation Plan may elect a fund that tracks the performance of ITT common stock.
Mr. Loranger’s Non-Qualified Pension Arrangement. Mr. Loranger’s employment agreement (the “Steven R. Loranger Employment Agreement”), as described on Pages 66 to 67, provides for a non-qualified pension arrangement. Because Mr. Loranger forfeited certain employment benefits, including pension arrangements, when he left his prior employer, the Steven R. Loranger Employment Agreement provides him with a pension arrangement similar to the arrangement he forfeited.
Pensions and other post-retirement compensation for the NEOs as determinedare discussed in more detail in the 2011 Pension Benefits narrative, table and footnotes on Pages 81 to 85, the Potential Post-Employment Compensation tables and footnotes on Pages 93 to 102 and in descriptions of the compensation arrangements for Mr. Loranger and Ms. Ramos on Pages 66 to 67. The Steven R. Loranger Employment Agreement was negotiated when Mr. Loranger joined the Company.
The Company maintains two severance plans for its senior executives — the Senior Executive Severance Pay Plan and the Special Senior Executive Severance Pay Plan. The Company’s Senior Executive Severance Pay Plan and Special Senior Executive Severance Pay Plan were originally established in 1984 and are regularly reviewed by the Committee. These plans are described in more detail on Pages 90 to 91. The severance plans apply to the Company’s key employees as defined by Section 409A. The Company’s severance plan arrangements are not considered in determining other elements of compensation.
Senior Executive Severance Pay Plan. The purpose of this plan is to provide a period of transition for senior executives. Senior executives, other than Mr. Loranger, who are U.S. citizens or who are employed in the United States are covered by this plan. The plan generally provides for severance payments if the Company terminates a senior executive’s employment without cause.
The exceptions to severance payment are:
Ÿ | The executive terminates his or her own employment |
Ÿ | The executive’s employment is terminated for cause |
Ÿ | Termination occurs after the executive’s normal retirement date (defined as the first of the month which coincides with or follows the executive’s 65th birthday) |
Ÿ | Termination occurs in certain divestiture instances if the executive accepts employment or refuses comparable employment. |
No severance is provided for termination for cause, because the Company believes employees terminated for cause should not receive additional compensation. No severance is provided in the case of termination after a normal retirement date because the executive will be eligible for retirement payments. No severance is provided when an executive accepts or refuses comparable employment because the executive has the opportunity to receive employment income from another party under comparable circumstances.
Ms. Ramos and Messrs. Chicles, Scalera, Pagano, and Nanda participate in this plan. Mr. Loranger did not participate in this plan because his severance arrangements, including severance pay and benefits upon termination from the Company, were provided separately under the Steven R. Loranger Employment Agreement described on Pages 66 to 67.
Special Senior Executive Severance Pay Plan. The purpose of this plan is to provide compensation in the case of termination of employment in connection with an acceleration event (defined on Pages 91 to 92 of this Proxy Statement) including a change of control. The provisions of this plan are specifically designed to address the inability of senior executives to influence the Company’s future performance after certain change of control events. The plan is structured to encourage executives to act in the best interests of shareholders by providing for certain compensation and retention benefits and payments, including change of control provisions, in the case of an acceleration event.
The purposes of these provisions are to:
Ÿ | Provide for continuing cohesive operations as executives evaluate a transaction, which, without change of control protection, could be personally adverse to the executive |
Ÿ | Keep executives focused on preserving value for shareholders |
Ÿ | Retain key talent in the face of potential transactions |
Ÿ | Aid in attracting talented employees in the competitive marketplace. |
As discussed above, this plan provides severance benefits for covered executives, including any NEO whose employment is terminated by the Company other than for cause, or where the covered executive terminates his or her employment for good reason within two years after the occurrence of an acceleration event as described below (including a termination due to death or disability) or if during the two-year period following an acceleration event, the covered executive had grounds to resign with good reason or the covered executive’s employment is terminated in contemplation of an acceleration event that ultimately occurs.
The plan is designed to put the executive in the same position, from a compensation and benefits standpoint, as he or she would have been in without the acceleration event, on a pre-tax basis. With respect to incentive plan awards, since the executive will no longer have the ability to influence the corporate objectives upon which the awards are based, the plan provides that any AIP Awards are paid out at target 100%. In the event of a change of control, a pro-rata portion of outstanding TSR Awards will be paid through the date of the change of control based on actual performance and the balance of the award will be paid at target (100%). More information about the Special Senior Executive Severance Pay Plan is provided on Pages 90 to 91 of this Proxy Statement.
In October 2011, effective with the Separation, the Company amended this plan as follows:
Ÿ | Eliminated all executive perquisites that would previously have been provided during the severance period. |
Ÿ | Amended its calculation of severance benefits so that current salary and target bonus are used in the severance formula, replacing the highest salary and highest actual bonus over the previous three years. |
Ÿ | Eliminated the plan provision that provided for reimbursement of excise taxes and subsequent income tax gross-up on that payment, should the termination payments upon the acceleration event result in an excise tax due under Internal Revenue Code (“IRC”) Section 280G. The excise tax gross-up was replaced with a “best net” provision, which provides either an unreduced benefit or a reduction in payments sufficient to avoid triggering an excise tax, whichever is better after-tax. |
The Company made these changes to the plan in order to improve Company alignment with shareholder interests.
Ms. Ramos, and Messrs. Chicles, Scalera, Pagano, and Nanda participate in the Special Senior Executive Severance Pay Plan. Mr. Loranger did not participate in the plan because his severance arrangements, which included severance pay and benefits upon termination from the Company in connection with an acceleration event, were set forth in the Steven R. Loranger Employment Agreement, described on Pages 66 to 67.
CEO COMPENSATION AND EMPLOYMENT AGREEMENTS
Denise L. Ramos Compensation and Employment Agreements: Upon her appointment as Chief Executive Officer and President of the Company, effective October 31, 2011, Ms. Ramos’s compensation in the role was as follows:
Ÿ | Annual base salary of $850,000. |
Ÿ | AIP target incentive payment of 100% of base salary, with a range of possible payment of 0% to 200% of the target. The AIP target incentive percentage is effective with the 2012 fiscal year. |
Ÿ | Long-Term Incentive Award target award expected value of $2,800,000. |
Ms. Ramos’s employment letter also provided that Ms. Ramos would receive a Founders’ Grant in connection with the Separation composed of nonqualified stock options and RSUs with terms set forth in her employment letter and having an aggregate expected value of $4,200,000, based on the closing price of the Company’s common stock on the November 7, 2011 grant date.
If the Company terminates her employment other than for cause (as defined in her employment letter) and other than as a result of her death or disability, in any case prior to her normal retirement date, she will, subject to certain conditions and limitations set forth in her employment letter, be entitled to severance pay in an amount equal to two times the sum of her then-current annual base salary and target annual incentive payable in installments over 24 months and will also be entitled to receive certain benefits during that time. The terms of her employment agreement were described in the amended 8-K filing on October 17, 2011.
Steven R. Loranger Compensation and Employment Agreements: Mr. Loranger’s compensation as Chief Executive Officer in 2011 was as follows:
Ÿ | Annual base salary of $1,200,000, effective March 7, 2011. |
Ÿ | AIP target incentive payment of 130% of base salary, with a range of possible payment of 0% to 200% of the target. |
Ÿ | Long-Term Incentive Award target of $6,400,000, split equally in 2011 between stock option value, restricted stock value, and TSR Award target value. |
On October 14, pursuant to the terms of his Employment Agreement, ITT Corporation entered into an agreement with Mr. Loranger whereby he would resign for “good reason” in connection with the Separation. Mr. Loranger subsequently resigned as Chairman, President and Chief Executive Officer of the Company on October 31, 2011, the date of the Separation. The terms of his resignation agreement were described in the 8-K filing on October 20, 2011. They included the following compensation and benefit payments, all of which were consistent with his existing Employment Agreement and subsequent voluntary termination for “good reason”:
Ÿ | Any earned but unpaid base salary through the date of termination |
Ÿ | A one-time payment of $999,452, which represents a reduced, pro-rated AIP payment of 100% of his annual salary times the percentage of the 2011 calendar year for which Mr. Loranger was employed |
Ÿ | Two years’ worth of base salary plus annual target incentive payments, with payments beginning six months from his resignation date and subsequently paid over 18 months |
Ÿ | Continuation of health and welfare benefits for two years following the resignation date |
Ÿ | Continuation of vesting in previously-granted stock options and restricted shares, based on the terms and conditions in the original grant agreements, subject to the conversion of outstanding equity grants upon Separation |
Ÿ | Calculation of the awards earned to date in outstanding TSR Award plan, and payments in cash at target values for uncompleted portions of outstanding TSR Awards, subject to the original vesting schedules |
Ÿ | Accrued benefits in the Company’s pension, savings, and deferred compensation plans. |
In addition to the payments consistent with his existing Employment Agreement, the Committee also approved a target payment of $600,000, payable at the discretion of the Committee based upon the successful completion of key milestones related to the Separation. The bonus was paid in March 2012.
As part of the resignation agreement, Mr. Loranger agreed that during the employment term and for two years after termination, he would not compete with the Company. He also agreed that he would not solicit or hire any of the Company’s employees or anyone who was an employee in the previous six months before his departure without the Company’s consent, or solicit any of the Company’s customers or business. Mr. Loranger also agreed not to make any false or disparaging statements at any time about the Company. In addition, Mr. Loranger agreed to follow our Code of Conduct, and he agreed not to reveal any confidential Company information or personal information about our officers, directors or employees except as necessary during employment. Mr. Loranger has assigned all rights to any Company discoveries, inventions or ideas to the Company. If Mr. Loranger violates any of these covenants, the Company may stop paying any post-termination benefits.
KEY PARTICIPANTS IN THE COMPENSATION PROCESS
Role of the Committee: The Committee, with input from Management and external data and advice from its Compensation Consultant, reviews and approves each of the compensation targets for all of the Company’s executive officers, including its NEOs. The Committee reviewed each compensation element for the Chief Executive Officer and other NEOs, and made the final determination regarding executive compensation for these officers using the processes described in this Compensation Discussion and Analysis. It also makes determinations with respect to the AIP as it relates to our executive officers, including the approval of annual performance goals and subsequent full-year achievement against those goals. It administers all elements of the Company’s long-term incentive grant program, and approves the benefits and perquisites offered to executive officers. It evaluates all compensation programs on March 3,an annual basis to ensure that no plans induce or encourage excessive risk-taking by its participants.
Role of Management: The Committee has delegated to the Company’s senior human resources executive responsibility for administering the executive compensation program. During 2011, the Company’s Chief Executive Officer, senior human resources executive, as well as other senior executives, made recommendations to the Committee regarding executive compensation actions and incentive awards. They serve as a liaison with the Independent Compensation Consultant, providing internal data on an as-needed basis so that the Independent Compensation Consultant can provide comparative analyses to the Committee. In 2011, the Company’s human resources, finance and legal departments supported the work of the Committee, provided information, answered questions and responded to requests.
Role of the Independent Compensation Consultant: In 2011, the Committee retained Pay Governance, LLC (“Pay Governance” or the “Compensation Consultant”) as its independent compensation consultant. Pay Governance provides independent consulting services to support the Committee in fulfilling its obligations under its charter, the material terms of which are described beginning on Page 33. The Compensation Consultant also provided independent consulting services in support of the Nominating and Governance Committee’s charter, including providing competitive data on director compensation.
The Compensation Consultant’s engagement leader provided objective expert analyses, assessments, research and recommendations for executive and non-executive employee compensation programs, incentives, perquisites, and compensation standards. In this capacity, the Compensation Consultant provided services that related solely to work performed for and at the direction of the Committee including analysis of material prepared by the Management for the Committee’s review. Additionally, the Compensation Consultant provided analyses to the Nominating and Governance Committee and the full Board of Directors on non-management director compensation. The Compensation Consultant provided no other services to the Company during 2011.
TSR | Non-Qualified | ||||||||||||||
(Target Cash | Stock Option | Restricted Stock | |||||||||||||
Named Executive | Award) | Award | Unit Award | ||||||||||||
Officer | $ | # Options | # Units | ||||||||||||
Steven R. Loranger | 2,133,300 | 133,835 | 36,442 | ||||||||||||
Denise L. Ramos | 533,300 | 33,459 | 9,111 | ||||||||||||
Gretchen W. McClain | 533,300 | 33,459 | 9,111 | ||||||||||||
David F. Melcher | 533,300 | 33,459 | 9,111 | ||||||||||||
Frank R. Jimenez | 233,300 | 16,205 | 3,986 | ||||||||||||
Fees for the Compensation Consultant:
Ÿ Services performed that related solely to work performed for, and at the direction of, the Committee or the Nominating and Governance Committee, and analyses of documents prepared by Management for the Committee’s review during 2011: | $ | 898,315 | ||
Ÿ Percentage of the above fees related specifically to work required as part of the Separation: | 80% | |||
Ÿ Other services performed for the Company during 2011: | $ | 0 |
The Committee annually reviews the Compensation Consultant’s independence, and determined the Compensation Consultant was independent. The Committee has sole authority to retain and terminate the Compensation Consultant with respect to compensation matters and the Nominating and Governance Committee has sole authority to retain and terminate the Compensation Consultant with respect to nominating and governance matters.
RECOUPMENT POLICY
In 2008, the Company, upon the recommendation of the Committee, adopted a policy that provides for recoupment of performance-based compensation if the Board of Directors determines that a senior executive has engaged in fraud or willful misconduct that caused or otherwise contributed to the need for a material restatement of the Company’s financial results. In such a situation, the Board will review all compensation awarded to or earned by that senior executive on the basis of the Company’s financial performance during fiscal periods materially affected by the restatement. This would include annual cash incentive and bonus awards and all forms of equity-based compensation. If, in the Board’s view, the compensation related to the Company’s financial performance would have been lower if it had been based on the restated results, the Board will, to the extent permitted by applicable law, seek recoupment from that senior executive of any portion of such compensation as it deems appropriate after a review of all relevant facts and circumstances. The NEOs are covered by this policy.
EXECUTIVE STOCK OWNERSHIP GUIDELINES
The Company maintains stock ownership guidelines for all of Material Non-Public Information.its executives, including the NEOs. The guidelines, which are described in greater detail on Pages 5 to 6 of this Proxy Statement, specify the desired levels of Company stock ownership and encourage a set of behaviors for each officer to reach the guideline levels. The approved guidelines require share ownership expressed as a multiple of base salary for all corporate officers. The guidelines for all Company executives are:
CEO | 5 X Annual Base Salary | |
CFO and EVP | 3 X Annual Base Salary | |
Senior Vice Presidents | 2 X Annual Base Salary | |
Vice Presidents | 1 X Annual Base Salary |
In achieving these ownership levels, shares owned outright, Company restricted stock and RSUs, shares held in the Company’s dividend reinvestment plan, shares owned in the ITT Salaried Investment and Savings Plan, and “phantom” shares held in a fund that tracks an index of the Company’s stock in the deferred compensation plan are considered. As of the writing of this proxy statement, all NEOs either have met the guideline, or are expected to meet the guideline within the next two years.
BUSINESS RISK AND COMPENSATION
In 2011, the Committee evaluated risk factors associated with the Company’s businesses in determining compensation structure and pay practices. The structure of the Board of Director Committees facilitates this evaluation and determination. During 2011, the Chair of the Committee was a member of the Audit Committee and the Audit Committee Chair was a member of the Committee. This membership overlap provides insight into the Company’s business risks and affords the Committee access to the information necessary to consider the impact of business risks on compensation structure and pay practices. Further, overall enterprise risk is considered and discussed at Board meetings, providing additional important information to the Committee. The Chief Executive Officer and President, and the Senior Vice President and Chief Financial Officer, attend those portions of the Committee meetings at which plan features and design configurations of the Company’s annual and long-term incentive plans are considered and approved.
Compensation across the enterprise is structured so that unnecessary or excessive risk-taking behavior is discouraged. Further, total compensation for senior officers is heavily weighted toward long-term compensation consistent with the Company’s compensation philosophy, which is focused on long-term value creation. This long-term weighting discourages behaviors that encourage short-term risks.
Named Executive Officer Compensation. Annual base salary, annual incentives, and long-term incentives provide the foundation for NEO compensation. Additional compensation components, which supplement these foundational components, are also discussed in this Compensation Discussion and Analysis.
The following table summarizes representative compensation components or policies and relevant risk mitigation factors:
Compensation Component or Policy | Risk Mitigation Factor | |
Salary | Calculation is based on market rates. | |
Base amount provides stability and minimizes risk-taking incentives. | ||
Annual Incentive Plan | AIP design emphasizes overall performance and collaboration among business Segments. | |
AIP components focus on metrics that encourage operating performance and earnings per share appreciation. | ||
AIP design tailored to meet unique business considerations for Corporate headquarters and business Segments. | ||
Individual AIP components and total AIP awards are capped. | ||
Long-Term Incentive Awards | The three-year vesting threshold for senior vice presidents and 10-year option terms encourage behaviors focused on long-term value creation. | |
Restricted Stock or Restricted Stock Units | Restricted stock or RSUs generally vest after three years. | |
Stock Options | Stock options vest after three years for the Chief Executive Officer and President, and for senior vice presidents, and in one-third cumulative annual installments after the first, second and third anniversary of the grant date for other optionees. Options awarded in 2010 and 2011 and options awarded prior to 2005 expire 10 years after the grant date. Options awarded between 2005 and 2009 expire seven years after the grant date. | |
Total Shareholder Return Awards | The TSR long-term award is based on three-year share price performance and encourages behaviors focused on long-term goals, while discouraging behaviors focused on short-term risks. | |
Perquisites | Limited perquisites are based on competitive market data. The Committee has determined that tax reimbursements related to financial counseling and tax preparation for senior executives associated with the 2011 tax year will be eliminated. No salary increase will be provided to offset the elimination of tax reimbursement. | |
Severance and Pension benefits | Severance and pension benefits are in line with competitive market data. | |
Recoupment Policy | Policy provides mechanism for senior executive compensation recapture in certain situations involving fraud or willful misconduct. | |
Officer Share Ownership Guidelines | Company officers are required to own Company shares or share equivalents up to 5x base salary, depending on the level of the officer. Share ownership guidelines align executive and shareholder interests. Company policy prohibits speculative trading in and out of ITT securities, including prohibitions on short sales and leverage transactions, such as puts, calls, and listed and unlisted options. |
CONSIDERATION OF MATERIAL NON-PUBLIC INFORMATION
The Company typically closes the window for insiders to trade in the Company’s stock in advance of, and for a period of time immediately following, earnings releases and Board and Committee meetings because the Company and insiders may be in possession of material non-public information. The first quarter Committee meeting at which compensation decisions and awards are typically made for employees usually occurs during a Board meeting period, so stock option awards may occur at a time when the Company is in possession of material non-public information. The Committee does not consider the possible possession of material non-public information when it determines the number of non-qualified stock options granted, price of options granted or timing of non-qualified stock options granted. Rather, it uses competitive data, individual performance and retention considerations when it grants
67
Non-qualified stock option awards and restricted stock awards or restricted stock unit awardsRSU Awards granted to NEOs, senior and other executives, and Directors are awarded and priced on the same date as the approval date. The Company may also award non-qualified stock options in the case of the promotion of an existing employee or hiring of a new employee. Again, these non-qualified stock option grants may be made at a time the Company is in possession of material non-public information related to the promotion or the hiring of a new employee or other matters. The Company does not time its release of material non-public information for the purpose of affecting the value of executive compensation and executive compensation decisions are not timed to the release of material non-public information.
68
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70
Section 162(m) of the Internal Revenue Code places a limit of $1,000,000 on the amount of compensation that the Company may deduct in any one year with respect to its Chief Executive Officer and the three other highest-paid NEOs, other than the Chief Financial Officer. There is an exception to the $1,000,000 limitation for performance-based compensation meeting certain requirements. Compensation attributable to awards under the Company’s AIP and long-term incentive program are generally structured to qualify as performance-based compensation under Section 162(m).
However, the Committee realizes that evaluation of the overall performance of the senior executives cannot be reduced in all cases to a fixed formula. There may be situations in which the prudent use of discretion in determining pay levels is in the best interests of the Company and its shareholders and, therefore, desirable. In those situations where discretion is used, awards may be structured in ways that will not permit them to qualify as performance-based compensation under Section 162(m). The compensation of Mr. Loranger may not be fully deductible under these criteria. However, the Committee does not believe that such loss of deductibility would have any material impact on the financial condition of the Company.
The Company’s plans are intended to comply with Section 409A, to the extent applicable, and the Company made amendments to the plans during 2008 in this regard. While the Company complies with other applicable sections of the Internal Revenue Code with respect to compensation, the Company and the Committee do not consider other tax implications in designing its compensation programs.
71
COMPENSATION TABLES
Change in | |||||||||||||||||||||||||||||||||||||||||||||
Pension | |||||||||||||||||||||||||||||||||||||||||||||
Non- | Value & | ||||||||||||||||||||||||||||||||||||||||||||
Equity | Nonqualified | ||||||||||||||||||||||||||||||||||||||||||||
Incentive | Deferred | ||||||||||||||||||||||||||||||||||||||||||||
Name and Principal | Stock | Option | Plan | Compensation | All Other | ||||||||||||||||||||||||||||||||||||||||
Position | Year | Salary | Bonus | Awards | Awards | Compensation | Earnings | Compensation | Total | ||||||||||||||||||||||||||||||||||||
(a) | (b) | ($)(c) | ($)(d) | ($)(e) | ($)(f) | ($)(g) | ($)(h) | ($)(i) | ($)(j) | ||||||||||||||||||||||||||||||||||||
Steven R. Loranger | 2010 | 1,154,231 | — | 4,187,372 | 2,047,462 | 2,328,352 | 2,602,844 | 314,791 | 12,635,052 | ||||||||||||||||||||||||||||||||||||
Chairman, President and | 2009 | 1,130,000 | — | 3,713,945 | 1,744,716 | 1,909,700 | 4,940,075 | 406,545 | 13,844,981 | ||||||||||||||||||||||||||||||||||||
Chief Executive Officer | 2008 | 1,119,615 | — | 4,806,163 | 1,499,000 | 2,534,025 | 2,508,911 | 211,125 | 12,678,839 | ||||||||||||||||||||||||||||||||||||
Denise L. Ramos | 2010 | 580,384 | — | 845,946 | 413,641 | 774,300 | 124,047 | 67,981 | 2,806,299 | ||||||||||||||||||||||||||||||||||||
Senior Vice President | 2009 | 540,000 | — | 675,272 | 317,269 | 596,700 | 135,414 | 63,377 | 2,328,032 | ||||||||||||||||||||||||||||||||||||
and Chief Financial Officer | 2008 | 533,077 | 150,000 | 873,838 | 272,593 | 870,900 | 70,593 | 184,727 | 2,955,728 | ||||||||||||||||||||||||||||||||||||
Gretchen W. McClain | 2010 | 527,604 | — | 761,335 | 372,279 | 654,700 | 97,308 | 74,141 | 2,487,367 | ||||||||||||||||||||||||||||||||||||
Senior Vice President and | 2009 | 504,054 | 61,000 | 2,426,708 | 317,269 | 474,600 | 70,753 | 65,453 | 3,919,837 | ||||||||||||||||||||||||||||||||||||
President, Fluid and Motion Control | 2008 | 426,462 | — | 801,010 | 249,883 | 527,700 | 39,611 | 139,099 | 2,183,765 | ||||||||||||||||||||||||||||||||||||
David F. Melcher | 2010 | 509,808 | — | 761,335 | 372,279 | 654,700 | 93,107 | 56,959 | 2,448,188 | ||||||||||||||||||||||||||||||||||||
Senior Vice President and President, Defense & Information Solutions | 2009 | 425,000 | — | 468,921 | 224,733 | 386,750 | 66,150 | 58,217 | 1,629,771 | ||||||||||||||||||||||||||||||||||||
Frank R. Jimenez Vice President and General Counsel | 2010 | 412,115 | — | 352,524 | 166,817 | 384,500 | 47,578 | 54,855 | 1,418,389 | ||||||||||||||||||||||||||||||||||||
Name and Principal Position | Year | Salary ($) | Bonus ($)(1) | Stock Awards ($)(2) | Option Awards ($)(3) | Non-Equity Incentive Plan Compensation ($)(4) | Change in Value and | All Other Compensation ($)(6) | Total ($) | |||||||||||||||||||||||||||
Denise L. Ramos | 2011 | 640,788 | 20,000 | 3,158,816 | 2,965,014 | 687,500 | 265,992 | 51,443 | 7,789,553 | |||||||||||||||||||||||||||
Chief Executive | 2010 | 580,384 | — | 845,946 | 413,641 | 774,300 | 124,047 | 67,981 | 2,806,299 | |||||||||||||||||||||||||||
Officer & President | 2009 | 540,000 | — | 675,272 | 317,269 | 596,700 | 135,414 | 63,377 | 2,328,032 | |||||||||||||||||||||||||||
Aris C. Chicles Executive Vice President, Strategy | 2011 | 365,385 | 7,500 | 1,010,543 | 949,151 | 483,500 | 129,839 | 35,785 | 2,981,703 | |||||||||||||||||||||||||||
Thomas M. Scalera Chief Financial Officer | 2011 | 289,800 | 1,850 | 445,763 | 433,008 | 296,800 | 34,941 | 12,840 | 1,515,002 | |||||||||||||||||||||||||||
Robert J. Pagano, Jr. President, Industrial Process | 2011 | 355,273 | 7,072 | 564,697 | 596,532 | 376,100 | 460,899 | 1,294,205 | 3,654,778 | |||||||||||||||||||||||||||
Munish Nanda President, Control Technologies | 2011 | 319,065 | 5,000 | 465,878 | 428,383 | 364,100 | 27,453 | 79,582 | 1,689,461 | |||||||||||||||||||||||||||
Steven R. Loranger Former Chairman of |
| 2011 2010 2009 |
|
| 1,007,692 1,154,231 1,130,000 |
|
| 710,000 — — |
|
| 4,235,275 4,187,372 3,713,945 |
|
| 4,341,036 2,047,462 1,744,716 |
|
| — 2,328,352 1,909,700 |
|
| 4,431,301 2,602,844 4,940,075 |
|
| 1,332,915 314,791 406,545 |
|
| 16,058,219 13,844,981 |
| |||||||||
the Board, President | ||||||||||||||||||||||||||||||||||||
and Chief Executive Officer | ||||||||||||||||||||||||||||||||||||
Gretchen W. McClain |
| 2011 2010 2009 |
|
| 494,231 527,604 504,054 |
|
| — — 61,000 |
|
| 1,058,822 761,335 2,426,708 |
|
| 942,841 372,279 317,269 |
|
| — 654,700 474,600 |
|
| 250,968 97,308 70,753 |
|
| 48,372 74,141 65,453 |
|
| 2,795,234 3,919,837 |
| |||||||||
Former Senior Vice President and Former | ||||||||||||||||||||||||||||||||||||
President, Fluid and Motion Control | ||||||||||||||||||||||||||||||||||||
David F. Melcher |
| 2011 2010 2009 |
|
| 494,231 509,808 425,000 |
|
| — — — |
|
| 1,058,822 761,335 468,921 |
|
| 577,440 372,279 224,733 |
|
| — 654,700 386,750 |
|
| 200,596 93,107 66,150 |
|
| 47,696 56,959 58,217 |
|
| 2,378,785 1,629,771 |
| |||||||||
Former Senior Vice President and Former | ||||||||||||||||||||||||||||||||||||
President, Defense & Information Solutions |
(1) | Amounts in this column for Ms. Ramos and Messrs. Chicles, Scalera, Pagano, Nanda and Loranger include the |
(2) | Amounts in this column include the aggregate grant date fair value computed in accordance with |
(3) | Amounts in |
(4) | Amounts in this column for Messrs. Chicles, Scalera, Pagano, and Nanda in 2011 include the |
(5) | No NEO received preferential or above-market earnings on deferred compensation. The change in the present value in accrued pension benefits was determined by measuring the present value of the accrued benefit at the |
72
(6) | Amounts in this column for |
Other Compensation Personal Use of Excess Tax Total Corporate Financial Auto Total Savings Plan Reimburse- 401(K) All Other Aircraft Counseling Allowances Perquisites Contributions ments Match Other Compensation Name ($) ($) ($) ($) ($) ($) ($) ($) ($) (a) (b) (c) (d) (f) (g) (h) (i) (j) (k) Steven R. Loranger 152,979 63,166 15,600 231,745 31,823 37,746 8,575 4,902 314,791 Denise L. Ramos — 16,331 15,600 31,931 11,738 14,273 8,575 1,464 67,981 Gretchen W. McClain 8,936 15,895 15,600 40,431 10,011 14,263 8,575 861 74,141 David F. Melcher — 14,648 15,139 29,787 9,267 6,957 8,575 2,373 56,959 Frank R. Jimenez — 14,800 15,600 30,400 5,849 9,079 8,575 952 54,855
Name | Executive Perquisites | All Other Compensation | ||||||||||||||||||||||||||||||||||||||
Personal Use of Corporate Aircraft ($)(1) | Financial Counseling ($)(2) | Auto Allowances ($)(3) | Total Perquisites ($) | Supplemental Savings Plan Contributions ($)(4) | Tax Reimbursements | Relocation Expense ($)(6) | 401(k) Employer Contributions ($)(7) | Other ($)(8) | Total All Other | |||||||||||||||||||||||||||||||
Denise L. Ramos | 2,566 | 5,260 | 15,600 | 23,426 | 16,142 | — | — | 8,575 | 3,300 | 51,443 | ||||||||||||||||||||||||||||||
Aris C. Chicles | — | 5,200 | 15,600 | 20,800 | 5,340 | — | — | 8,575 | 1,070 | 35,785 | ||||||||||||||||||||||||||||||
Thomas M. Scalera | — | — | 2,600 | 2,600 | — | — | — | 9,952 | 288 | 12,840 | ||||||||||||||||||||||||||||||
Robert J. Pagano, Jr. | — | — | 14,000 | 14,000 | 4,641 | 523,861 | 742,528 | 8,575 | 600 | 1,294,205 | ||||||||||||||||||||||||||||||
Munish Nanda | — | — | 13,200 | 13,200 | 3,024 | — | 54,391 | 8,510 | 457 | 79,582 | ||||||||||||||||||||||||||||||
Steven R. Loranger | 131,520 | 85,493 | 13,000 | 230,013 | 17,002 | 73,475 | — | 8,575 | 1,003,850 | | 1,332,915 | | ||||||||||||||||||||||||||||
Gretchen W. McClain | 5,010 | 12,195 | 13,000 | 30,205 | 8,728 | — | — | 8,575 | 864 | 48,372 | ||||||||||||||||||||||||||||||
David F. Melcher | — | 13,394 | 13,000 | 26,394 | 7,148 | 2,997 | — | 8,575 | 2,582 | 47,696 |
(1) | Amounts reflect the aggregate incremental cost to ITT for personal use of the corporate aircraft for Ms. Ramos, Mr. Loranger and Ms. McClain. Mr. Loranger’s employment agreement with the Company |
(2) | Amounts represent financial counseling and tax service fees paid during |
(4) | Company contributions to the ITT |
(5) | The amount for Mr. Pagano reflects a tax equalization payment related to his relocation described below, which provided him with the same after-tax income as he would have received had he not relocated to Seneca Falls, New York at the request of the Company. The amounts for |
(6) | The amount for Mr. Pagano reflects costs associated with his relocation from White Plains, New York to Seneca Falls, New York, which was initiated in 2010 prior to Mr. Pagano becoming an executive officer of the |
(7) | Amounts represent the aggregate of the Company’s |
(8) | Amounts include taxable group term-life insurance premiums attributable to each |
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The following table provides information about 20102011 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 20102011 AIP) and estimated future payouts under 20102011 equity incentive plan awards, (includingincluding the TSR target award granted in 20102011 for the2010-2012 2011-2013 performance period (each unit equals $1)). Also provided is the number of shares underlying all other stock awards, comprisedcomposed of restricted stockRSU and non-qualified stock option awards. The table also provides the exercise price of the non-qualified stock option awards, reflecting the closing price of ITT stock on the grant date and the grant date fair value of each equity award computed under FASB ASC Topic 718. Grants made prior to the Separation date do not give effect to the 1:2 reverse stock split, and grants made subsequent to the Separation date give effect to the 1:2 reverse stock split. The compensation plans, under which the grants in the following table were made are described in the Compensation Discussion and Analysis, beginning on page 58Page 43 of this Proxy Statement, and include the AIP, TSR restricted stockAwards, RSU awards, and non-qualified stock options awards.
All | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock | All Other | Grant | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Awards: | Option | Date | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Estimated Future Payouts Under | Number | Awards: | Exercise | Fair | |||||||||||||||||||||||||||||||||||||||||||||||||||
Non-Equity Incentive Plan | Estimated Future Payouts Under | of | Number | or Base | Value | ||||||||||||||||||||||||||||||||||||||||||||||||||
Awards | Equity Incentive Plan Awards | Shares | of Securities | Price of | of Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||
of Stock | Underlying | Option | and Option | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Grant | Threshold | Target | Maximum | Threshold | Target | Maximum | or Units | Options | Awards | Awards | |||||||||||||||||||||||||||||||||||||||||||||
Name | Date | ($) | ($) | ($) | (#) | (#) | (#) | (#) | (#) | ($/Sh) | ($) | ||||||||||||||||||||||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | (k) | (l) | ||||||||||||||||||||||||||||||||||||||||||||
Steven R. Loranger | 754,000 | 1,508,000 | 3,016,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 990,000 | 1,980,000 | 3,960,000 | 1,980,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 41,267 | 2,207,372 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 132,265 | 53.49 | 2,047,462 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Denise L. Ramos | 250,750 | 501,500 | 1,003,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 200,000 | 400,000 | 800,000 | 400,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 8,337 | 445,946 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 26,721 | 53.49 | 413,641 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Gretchen W. McClain | 212,000 | 424,000 | 848,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 180,000 | 360,000 | 720,000 | 360,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 7,503 | 401,335 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 24,049 | 53.49 | 372,279 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
David F. Melcher | 212,000 | 424,000 | 848,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 180,000 | 360,000 | 720,000 | 360,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 7,503 | 401,335 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 24,049 | 53.49 | 372,279 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Frank R. Jimenez | 124,500 | 249,000 | 498,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 83,350 | 166,700 | 333,400 | 166,700 | |||||||||||||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 3,474 | 185,824 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
05-Mar-10 | 11,890 | 53.49 | 166,817 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Action Date | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | All Other Stock Awards: Number of Shares of Stock or Units (#)(3) | All Other | Exercise or Base Price of Option Awards ($ / Sh)(5) | Grant ($)(6) | ||||||||||||||||||||||||||||||||||||||||
Threshold ($) | Target ($) | Maximum ($) | Threshold ($) | Target ($) | Maximum ($) | |||||||||||||||||||||||||||||||||||||||||||
Denise L. Ramos | 214,802 | 429,604 | 859,208 | |||||||||||||||||||||||||||||||||||||||||||||
70,833 | 141,667 | 283,334 | ||||||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | 266,650 | 533,300 | 1,066,600 | 533,300 | |||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | (a) | 9,111 | 525,522 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (b) | 103,550 | 2,099,994 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (c) | 7,670 | 155,548 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (d) | 18,992 | 385,158 | ||||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | (e) | 33,459 | 57.68 | 530,325 | |||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (f) | 302,594 | 20.28 | 2,100,002 | |||||||||||||||||||||||||||||||||||||||||||
Aris C. Chicles | 97,500 | 195,000 | 390,000 | |||||||||||||||||||||||||||||||||||||||||||||
26,250 | 52,500 | 105,000 | ||||||||||||||||||||||||||||||||||||||||||||||
0 | 180,000 | 180,000 | ||||||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | 95,850 | 191,700 | 383,400 | 191,700 | |||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | (a) | 3,274 | 188,844 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (b) | 31,065 | 629,998 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (c) | 2,589 | 52,505 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (d) | 6,827 | 138,452 | ||||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | (e) | 12,025 | 57.68 | 190,596 | |||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (f) | 90,778 | 20.28 | 629,999 | |||||||||||||||||||||||||||||||||||||||||||
Thomas M. Scalera | 45,663 | 91,327 | 182,653 | |||||||||||||||||||||||||||||||||||||||||||||
19,250 | 38,500 | 77,000 | ||||||||||||||||||||||||||||||||||||||||||||||
0 | 145,000 | 145,000 | ||||||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | 25,000 | 50,000 | 100,000 | 50,000 | |||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | (a) | 854 | 49,259 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (b) | 17,086 | 346,504 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (c) | 704 | 14,277 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (d) | 1,781 | 36,119 | ||||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | (e) | 3,475 | 57.68 | 49,727 | |||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (f) | 49,928 | 20.28 | 346,500 | |||||||||||||||||||||||||||||||||||||||||||
Robert J. Pagano, Jr. | 72,708 | 145,417 | 290,833 | |||||||||||||||||||||||||||||||||||||||||||||
16,667 | 33,333 | 66,667 | ||||||||||||||||||||||||||||||||||||||||||||||
0 | 175,000 | 175,000 | ||||||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | 66,650 | 133,300 | 266,600 | 133,300 | |||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | (a) | 2,278 | 131,395 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (b) | 14,793 | 300,002 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (c) | 2,525 | 51,207 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (d) | 4,747 | 96,269 | ||||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | (e) | 9,260 | 57.68 | 132,511 | |||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (f) | 43,228 | 20.28 | 300,002 | |||||||||||||||||||||||||||||||||||||||||||
Munish Nanda | 68,750 | 137,500 | 275,000 | |||||||||||||||||||||||||||||||||||||||||||||
13,750 | 27,500 | 55,000 | ||||||||||||||||||||||||||||||||||||||||||||||
0 | 150,000 | 150,000 | ||||||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | 55,000 | 110,000 | 220,000 | 110,000 | |||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | (a) | 1,879 | 108,381 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (b) | 12,204 | 247,497 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (c) | 2,077 | 42,122 | ||||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (d) | 3,917 | 79,437 | ||||||||||||||||||||||||||||||||||||||||||||
3/3/2011 | 3/3/2011 | (e) | 7,640 | 57.68 | 109,328 | |||||||||||||||||||||||||||||||||||||||||||
10/4/2011 | 11/7/2011 | (f) | 35,663 | 20.28 | 247,501 |
Steven R. Loranger Gretchen W. McClain David F. Melcher 650,000 1,300,000 2,600,000 0 600,000 600,000 3/3/2011 3/3/2011 1,066,650 2,133,300 4,266,600 2,133,300 3/3/2011 3/3/2011 (a) 36,442 2,101,975 3/3/2011 3/3/2011 (e) 133,835 57.68 2,121,285 255,000 510,000 1,020,000 3/3/2011 3/3/2011 266,650 533,300 1,066,600 533,300 3/3/2011 3/3/2011 (a) 9,111 525,522 3/3/2011 3/3/2011 (e) 33,459 57.68 530,325 255,000 510,000 1,020,000 3/3/2011 3/3/2011 266,650 533,300 1,066,600 533,300 3/3/2011 3/3/2011 (a) 9,111 525,522 3/3/2011 3/3/2011 (e) 33,459 57.68 530,325
(1) | Amounts reflect the threshold, target and maximum payment levels, respectively, if an award payout is achieved under the Company’s AIP and TSI Bonus plans described on |
74
Name | Pre-Spin (pro-rated for 10 months) | Post-Spin (pro-rated for two months) | ||||||||||||||||||||||
Salary ($) | Target % | Target Amount ($) | Salary ($) | Target % | Target Amount | |||||||||||||||||||
Denise L. Ramos | 606,500 | 85 | % | 429,604 | 850,000 | 100 | % | 141,667 | ||||||||||||||||
Aris C. Chicles | 360,000 | 65 | % | 195,000 | 420,000 | 75 | % | 52,500 | ||||||||||||||||
Thomas M. Scalera | 288,400 | 38 | % | 91,327 | 308,000 | 75 | % | 38,500 | ||||||||||||||||
Robert J. Pagano, Jr. | 349,000 | 50 | % | 145,417 | 400,000 | 50 | % | 33,333 | ||||||||||||||||
Munish Nanda | 330,000 | 50 | % | 137,500 | 330,000 | 50 | % | 27,500 |
The TSI target award, a one-time award related to the successful execution of the Separation, was computed based upon the applicable range of net estimated payments denominated in dollars where the target award was equal to 100% of the award potential, the threshold is equal to 50% of target and the maximum is equal to 100% of target. Zero payment was possible for below threshold performance.
(2) | Amounts reflect the threshold, target and maximum payment levels, respectively, if an award payout is achieved, under the Company’s TSR Plan for the |
(3) | Amounts reflect the number of |
(a) | Reflects the grants of RSUs provided to the NEOs in March 2011. Numbers listed reflect the pre-Separation number of RSUs. For NEOs who continued employment with the Company after the Separation date, every one pre-Separation restricted share, RSU, and stock option was converted into 2.679201 post-Separation restricted shares, |
(b) | Reflects special Founders’ Grants made on November 7, 2011, to select members of the |
(c) | Reflects RSUs granted in |
(d) | Reflects RSUs granted in recognition of the uncompleted portion of the 2011-13 TSR Award Period, which will vest on December 31, 2013. Details of the conversion are provided on Pages 59 to 60. |
(4) | Amounts reflect the number of non-qualified stock options granted in |
(e) | Reflects the |
(f) | Reflects special Founders’ Grants made on November 7, 2011 to select members of the Executive team in connection with the Separation, as detailed on Pages 61 to 62. Ms. McClain and Messrs. Loranger and Melcher did not receive Founders’ Grants. |
(5) | The option exercise price for non-qualified stock options granted in |
(6) | Amounts in this column represent the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 for TSR target awards, |
75
76
77
78
Option Awards | Stock Awards | ||||||||||||||||||||||||||||||||||||||||||||
Equity | |||||||||||||||||||||||||||||||||||||||||||||
Equity | Equity | Incentive | |||||||||||||||||||||||||||||||||||||||||||
Incentive | Incentive | Plan Awards: | |||||||||||||||||||||||||||||||||||||||||||
Plan | Plan Awards: | Market or Payout | |||||||||||||||||||||||||||||||||||||||||||
Awards: | Market | Number of | Value of | ||||||||||||||||||||||||||||||||||||||||||
Number of | Number of | Number of | Number of | Value | Unearned | Unearned | |||||||||||||||||||||||||||||||||||||||
Securities | Securities | Securities | Shares | of Shares | Shares, | Shares, | |||||||||||||||||||||||||||||||||||||||
Underlying | Underlying | Underlying | or Units | or Units | Units or | Units or | |||||||||||||||||||||||||||||||||||||||
Unexercised | Unexercised | Unexercised | Option | Option | of Stock | of Stock | Other Rights | Other Rights | |||||||||||||||||||||||||||||||||||||
Options (#) | Options (#) | Unearned | Exercise | Expiration | That Have | That Have | That Have | That Have | |||||||||||||||||||||||||||||||||||||
Name | Exercisable | Unexercisable | Options | Price | Date | Not Vested | Not Vested | Not Vested | Not Vested | ||||||||||||||||||||||||||||||||||||
(a) | (b) | (c) | (#)(d) | ($)(e) | (f) | (#)(g) | ($)(h) | (#)(i) | ($)(j) | ||||||||||||||||||||||||||||||||||||
Steven R. Loranger | 199,120 | — | — | 45.47 | 3/8/2012 | 121,880 | 6,351,167 | 3,960,000 | 1,980,000 | ||||||||||||||||||||||||||||||||||||
83,612 | — | — | 52.68 | 3/6/2013 | |||||||||||||||||||||||||||||||||||||||||
89,235 | — | — | 57.99 | 3/7/2014 | |||||||||||||||||||||||||||||||||||||||||
250,000 | — | — | 41.52 | 6/28/2014 | |||||||||||||||||||||||||||||||||||||||||
— | 100,000 | — | 53.09 | 3/10/2015 | |||||||||||||||||||||||||||||||||||||||||
— | 165,690 | — | 33.19 | 3/5/2016 | |||||||||||||||||||||||||||||||||||||||||
— | 132,265 | — | 53.49 | 3/5/2020 | |||||||||||||||||||||||||||||||||||||||||
Denise L. Ramos | 16,359 | — | — | 69.00 | 7/2/2014 | 28,994 | 1,510,877 | 760,000 | 380,000 | ||||||||||||||||||||||||||||||||||||
— | 18,185 | — | 53.09 | 3/10/2015 | |||||||||||||||||||||||||||||||||||||||||
— | 30,130 | — | 33.19 | 3/5/2016 | |||||||||||||||||||||||||||||||||||||||||
— | 26,721 | — | 53.49 | 3/5/2020 | |||||||||||||||||||||||||||||||||||||||||
Gretchen W. McClain | 33,333 | — | — | 55.59 | 9/19/2012 | 74,500 | 3,882,195 | 720,000 | 360,000 | ||||||||||||||||||||||||||||||||||||
8,725 | — | — | 52.68 | 3/6/2013 | |||||||||||||||||||||||||||||||||||||||||
15,155 | — | — | 57.99 | 3/7/2014 | |||||||||||||||||||||||||||||||||||||||||
— | 16,670 | — | 53.09 | 3/10/2015 | |||||||||||||||||||||||||||||||||||||||||
— | 30,130 | — | 33.19 | 3/5/2016 | |||||||||||||||||||||||||||||||||||||||||
— | 24,049 | — | 53.49 | 3/5/2020 | |||||||||||||||||||||||||||||||||||||||||
David F. Melcher | 3,690 | 1,845 | — | 66.45 | 8/18/2015 | 15,224 | 793,323 | 610,000 | 305,000 | ||||||||||||||||||||||||||||||||||||
8,269 | 16,536 | — | 33.19 | 3/5/2016 | |||||||||||||||||||||||||||||||||||||||||
— | 24,049 | — | 53.49 | 3/5/2020 | |||||||||||||||||||||||||||||||||||||||||
Frank R. Jimenez | 5,512 | 11,023 | — | 45.81 | 6/9/2016 | 7,111 | 370,554 | 333,400 | 166,700 | ||||||||||||||||||||||||||||||||||||
— | 11,890 | — | 53.49 | 3/5/2020 | |||||||||||||||||||||||||||||||||||||||||
Name | Option Awards | Stock Awards | ||||||||||||||||||||||||||||||||||||||
Grant Date (mm/dd/yyyy) | Number of Securities Underlying Unexercised Options (#) Exercisable(1) | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)(2) | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested ($) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | |||||||||||||||||||||||||||||||
Denise L. Ramos | 07/02/2007 | 43,829 | — | — | 25.75 | 7/2/2014 | 202,407 | 3,912,527 | — | — | ||||||||||||||||||||||||||||||
03/10/2008 | 48,721 | — | — | 19.82 | 3/10/2015 | |||||||||||||||||||||||||||||||||||
03/05/2009 | — | 80,724 | — | 12.39 | 3/5/2016 | |||||||||||||||||||||||||||||||||||
03/05/2010 | — | 71,590 | — | 19.97 | 3/5/2020 | |||||||||||||||||||||||||||||||||||
03/03/2011 | — | 89,643 | — | 21.53 | 3/3/2021 | |||||||||||||||||||||||||||||||||||
11/07/2011 | — | 302,594 | — | 20.28 | 11/7/2021 | |||||||||||||||||||||||||||||||||||
Aris C. Chicles | 06/02/2006 | 12,704 | — | — | 19.81 | 6/2/2013 | 66,334 | 1,282,236 | — | — | ||||||||||||||||||||||||||||||
03/07/2007 | 15,793 | — | — | 21.64 | 3/7/2014 | |||||||||||||||||||||||||||||||||||
03/10/2008 | 22,250 | — | — | 19.82 | 3/10/2015 | |||||||||||||||||||||||||||||||||||
03/05/2009 | — | 30,274 | — | 12.39 | 3/5/2016 | |||||||||||||||||||||||||||||||||||
03/05/2010 | — | 24,163 | — | 19.97 | 3/5/2020 | |||||||||||||||||||||||||||||||||||
03/03/2011 | — | 32,217 | — | 21.53 | 3/3/2021 | |||||||||||||||||||||||||||||||||||
11/07/2011 | — | 90,778 | — | 20.28 | 11/7/2021 | |||||||||||||||||||||||||||||||||||
Thomas M. Scalera | 03/06/2006 | 5,082 | — | — | 19.66 | 3/6/2013 | 26,262 | 507,644 | — | — | ||||||||||||||||||||||||||||||
03/07/2007 | 4,286 | — | — | 21.64 | 3/7/2014 | |||||||||||||||||||||||||||||||||||
03/10/2008 | 5,438 | — | — | 19.82 | 3/10/2015 | |||||||||||||||||||||||||||||||||||
03/05/2009 | 5,910 | 2,958 | — | 12.39 | 3/5/2016 | |||||||||||||||||||||||||||||||||||
03/05/2010 | 2,338 | 4,681 | — | 19.97 | 3/5/2020 | |||||||||||||||||||||||||||||||||||
03/03/2011 | — | 9,310 | — | 21.53 | 3/3/2021 | |||||||||||||||||||||||||||||||||||
11/07/2011 | — | 49,928 | — | 20.28 | 11/7/2021 | |||||||||||||||||||||||||||||||||||
Robert J. Pagano, Jr. | 01/02/2003 | 26,792 | — | — | 11.54 | 1/2/2013 | 62,948 | 1,216,785 | — | — | ||||||||||||||||||||||||||||||
02/02/2004 | 48,225 | — | — | 13.98 | 2/2/2014 | |||||||||||||||||||||||||||||||||||
08/09/2004 | 10,716 | — | — | 14.29 | 8/9/2014 | |||||||||||||||||||||||||||||||||||
03/08/2005 | 53,584 | — | — | 16.97 | 3/8/2012 | |||||||||||||||||||||||||||||||||||
03/06/2006 | 24,139 | — | — | 19.66 | 3/6/2013 | |||||||||||||||||||||||||||||||||||
03/07/2007 | 19,169 | — | — | 21.64 | 3/7/2014 | |||||||||||||||||||||||||||||||||||
03/10/2008 | 21,018 | — | — | 19.82 | 3/10/2015 | |||||||||||||||||||||||||||||||||||
03/05/2009 | 22,566 | 11,285 | — | 12.39 | 3/5/2016 | |||||||||||||||||||||||||||||||||||
03/05/2010 | 8,388 | 16,783 | — | 19.97 | 3/5/2020 | |||||||||||||||||||||||||||||||||||
03/03/2011 | — | 24,809 | — | 21.53 | 3/3/2021 | |||||||||||||||||||||||||||||||||||
11/07/2011 | — | 43,228 | — | 20.28 | 11/7/2021 | |||||||||||||||||||||||||||||||||||
Munish Nanda | 05/08/2008 | 8,651 | — | — | 24.35 | 5/8/2015 | 35,644 | 688,999 | — | — | ||||||||||||||||||||||||||||||
03/05/2009 | 7,975 | 7,974 | — | 12.39 | 3/5/2016 | |||||||||||||||||||||||||||||||||||
03/05/2010 | 6,901 | 13,809 | — | 19.97 | 3/5/2020 | |||||||||||||||||||||||||||||||||||
03/03/2011 | — | 20,469 | — | 21.53 | 3/3/2021 | |||||||||||||||||||||||||||||||||||
11/07/2011 | — | 35,663 | — | 20.28 | 11/7/2021 | |||||||||||||||||||||||||||||||||||
Steven R. Loranger | 06/28/2004 | 125,000 | — | 15.50 | 10/31/2012 | — | — | — | — | |||||||||||||||||||||||||||||||
03/08/2005 | 99,560 | — | 16.97 | 3/8/2012 | ||||||||||||||||||||||||||||||||||||
03/06/2006 | 41,806 | — | 19.66 | 3/6/2013 | ||||||||||||||||||||||||||||||||||||
03/07/2007 | 44,617 | — | 21.64 | 3/7/2014 | ||||||||||||||||||||||||||||||||||||
03/10/2008 | 50,000 | — | 19.82 | 3/10/2015 | ||||||||||||||||||||||||||||||||||||
03/05/2009 | 82,845 | — | 12.39 | 3/5/2016 | ||||||||||||||||||||||||||||||||||||
03/05/2010 | 66,132 | — | 19.96 | 10/31/2018 | ||||||||||||||||||||||||||||||||||||
03/03/2011 | 57,623 | — | 21.53 | 10/31/2018 |
(1) | Vesting |
Vesting Schedule (#’s) | |||||||||||||||||||||||||
Name | Grant Date | Expiration Date | 2011 | 2012 | 2013 | ||||||||||||||||||||
Steven R. Loranger | 3/10/2008 | 3/10/15 | 100,000 | ||||||||||||||||||||||
3/5/2009 | 3/5/16 | 165,690 | |||||||||||||||||||||||
3/5/2010 | 3/5/20 | 132,265 | |||||||||||||||||||||||
Denise L. Ramos | 3/10/2008 | 3/10/15 | 18,185 | ||||||||||||||||||||||
3/5/2009 | 3/5/16 | 30,130 | |||||||||||||||||||||||
3/5/2010 | 3/5/20 | 26,721 | |||||||||||||||||||||||
Gretchen W. McClain | 3/10/2008 | 3/10/15 | 16,670 | ||||||||||||||||||||||
3/5/2009 | 3/5/16 | 30,130 | |||||||||||||||||||||||
3/5/2010 | 3/5/20 | 24,049 | |||||||||||||||||||||||
David F. Melcher | 8/18/2008 | 8/18/15 | 1,845 | ||||||||||||||||||||||
3/5/2009 | 3/5/16 | 8,268 | 8,268 | ||||||||||||||||||||||
3/5/2010 | 3/5/20 | 24,049 | |||||||||||||||||||||||
Frank R. Jimenez | 6/9/2009 | 6/9/16 | 5,512 | 5,511 | |||||||||||||||||||||
3/5/2010 | 3/5/20 | 3,964 | 3,963 | 3,963 | |||||||||||||||||||||
79
Future Vesting Schedule (# of options) | ||||||||||||||||||||
Name | Grant Date | Expiration Date | 2012 | 2013 | 2014 | |||||||||||||||
Denise L. Ramos | 3/5/2009 | 3/5/2016 | 80,724 | |||||||||||||||||
3/5/2010 | 3/5/2020 | 71,590 | ||||||||||||||||||
3/3/2011 | 3/3/2021 | 89,643 | ||||||||||||||||||
11/7/2011 | 11/7/2021 | 100,865 | 100,865 | 100,864 | ||||||||||||||||
Aris C. Chicles | 3/5/2009 | 3/5/2016 | 30,274 | |||||||||||||||||
3/5/2010 | 3/5/2020 | 24,163 | ||||||||||||||||||
3/3/2011 | 3/3/2021 | 32,217 | ||||||||||||||||||
11/7/2011 | 11/7/2021 | 30,260 | 30,259 | 30,259 | ||||||||||||||||
Thomas M. Scalera | 3/5/2009 | 3/5/2016 | 2,958 | |||||||||||||||||
3/5/2010 | 3/5/2020 | 2,341 | 2,340 | |||||||||||||||||
3/3/2011 | 3/3/2021 | 3,104 | 3,103 | 3,103 | ||||||||||||||||
11/7/2011 | 11/7/2021 | 16,643 | 16,643 | 16,642 | ||||||||||||||||
Robert J. Pagano, Jr. | 3/5/2009 | 3/5/2016 | 11,285 | |||||||||||||||||
3/5/2010 | 3/5/2020 | 8,392 | 8,391 | |||||||||||||||||
3/3/2011 | 3/3/2021 | 8,270 | 8,270 | 8,269 | ||||||||||||||||
11/7/2011 | 11/7/2021 | 14,410 | 14,409 | 14,409 | ||||||||||||||||
Munish Nanda | 3/5/2009 | 3/5/2016 | 7,976 | |||||||||||||||||
3/5/2010 | 3/5/2020 | 6,905 | 6,904 | |||||||||||||||||
3/3/2011 | 3/3/2021 | 6,823 | 6,823 | 6,823 | ||||||||||||||||
11/7/2011 | 11/7/2021 | 11,888 | 11,888 | 11,887 | ||||||||||||||||
Steven R. Loranger | 3/5/2009 | 3/5/2016 | 82,845 | |||||||||||||||||
3/5/2010 | 10/31/2018 | 66,132 | ||||||||||||||||||
3/3/2011 | 10/31/2018 | 57,623 |
(2) | Vesting |
Vesting Schedule(#) | |||||||||||||||||||||||||
Name | Grant Date | 2011 | 2012 | 2013 | 2014 | ||||||||||||||||||||
Steven R. Loranger | 3/10/2008 | 28,370 | |||||||||||||||||||||||
3/5/2009 | 52,243 | ||||||||||||||||||||||||
3/5/2010 | 41,267 | ||||||||||||||||||||||||
Denise L. Ramos | 7/2/2007 | 6,000 | |||||||||||||||||||||||
3/10/2008 | 5,158 | ||||||||||||||||||||||||
3/5/2009 | 9,499 | ||||||||||||||||||||||||
3/5/2010 | 8,337 | ||||||||||||||||||||||||
Gretchen W. McClain | 3/10/2008 | 4,728 | |||||||||||||||||||||||
3/5/2009 | 9,499 | ||||||||||||||||||||||||
3/5/2009 | 52,770 | ||||||||||||||||||||||||
3/5/2010 | 7,503 | ||||||||||||||||||||||||
David F. Melcher | 8/18/2008 | 1,125 | |||||||||||||||||||||||
3/5/2009 | 6,596 | ||||||||||||||||||||||||
3/5/2010 | 7,503 | ||||||||||||||||||||||||
Frank R. Jimenez | 6/9/2009 | 3,637 | |||||||||||||||||||||||
3/5/2010 | 3,474 | ||||||||||||||||||||||||
Future Vesting Schedule (# of shares) | ||||||||||||||||
Name | Grant Date | 2012 | 2013 | 2014 | ||||||||||||
Denise L. Ramos | 3/5/2009 | 25,449 | ||||||||||||||
3/5/2010 | 22,336 | |||||||||||||||
3/3/2011 | 24,410 | |||||||||||||||
11/7/2011 | (a) | 7,670 | ||||||||||||||
11/7/2011 | (b) | 18,992 | ||||||||||||||
11/7/2011 | 103,550 | |||||||||||||||
Aris C. Chicles | 3/5/2009 | 9,543 | ||||||||||||||
3/5/2010 | 7,539 | |||||||||||||||
3/3/2011 | 8,771 | |||||||||||||||
11/7/2011 | (a) | 2,589 | ||||||||||||||
11/7/2011 | (b) | 6,827 | ||||||||||||||
11/7/2011 | 31,065 | |||||||||||||||
Thomas M. Scalera | 3/5/2009 | 2,357 | ||||||||||||||
3/5/2010 | 2,046 | |||||||||||||||
3/3/2011 | 2,288 | |||||||||||||||
11/7/2011 | (a) | 704 | ||||||||||||||
11/7/2011 | (b) | 1,781 | ||||||||||||||
11/7/2011 | 17,086 | |||||||||||||||
Robert J. Pagano, Jr. | 3/10/2008 | 9,211 | 9,216 | |||||||||||||
3/5/2009 | 9,002 | |||||||||||||||
3/5/2010 | 7,351 | |||||||||||||||
3/3/2011 | 6,103 | |||||||||||||||
11/7/2011 | (a) | 2,525 | ||||||||||||||
11/7/2011 | (b) | 4,747 | ||||||||||||||
11/7/2011 | 14,793 | |||||||||||||||
Munish Nanda | 3/5/2009 | 6,363 | ||||||||||||||
3/5/2010 | 6,049 | |||||||||||||||
3/3/2011 | 5,034 | |||||||||||||||
11/7/2011 | (a) | 2,077 | ||||||||||||||
11/7/2011 | (b) | 3,917 | ||||||||||||||
11/7/2011 | 12,204 |
(a) | Reflects RSUs granted in recognition of the uncompleted portion of the 2010-12 TSR Award Period, which will vest on December 31, 2012. |
(b) | Reflects RSUs granted in recognition of the uncompleted portion of the 2011-13 TSR Award Period, which will vest on December 31, 2013. |
(3) | Reflects the Company’s closing stock price of |
Option Exercises and Stock Vested in 2011
The following table provides information regarding the values realized by our NEOs upon the exercise of stock options, and the vesting of stock awards.
Option Awards | Stock Awards | |||||||||||||||
Name | Number of Shares Acquired on (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting(1)(#) | Value Realized on Vesting(2)($) | ||||||||||||
Denise L. Ramos | — | — | 11,158 | 646,565 | ||||||||||||
Aris C. Chicles | — | — | 1,934 | 109,000 | ||||||||||||
Thomas M. Scalera | — | — | 473 | 26,658 | ||||||||||||
Robert J. Pagano, Jr. | — | — | 1,827 | 102,970 | ||||||||||||
Munish Nanda | — | — | 672 | 38,915 | ||||||||||||
Steven R. Loranger(3) | — | — | 59,751 | 3,039,321 | ||||||||||||
Gretchen W. McClain | — | — | 4,728 | 266,470 | ||||||||||||
David F. Melcher | — | — | 1,125 | 49,883 |
(1) | The number of shares acquired on vesting does not reflect the reverse split of ITT shares that occurred on October 31, 2011. |
(2) | The amounts reflect the value realized upon the vesting of restricted stock based on the closing price of ITT stock on the date of vesting. |
(3) | The number of shares vested for Mr. Loranger includes shares that vested on October 31, 2011, but will not settle until 2012. The future settlement date and number of shares to be released to Mr. Loranger are: |
Vesting Schedule | ||||||||||||||||||
Equity Incentive Plan Awards | Approval Date(1) | Target Award in units(#) | 2011 | 2012 | ||||||||||||||
Steven R. Loranger | 3/5/2009 | 1,980,000 | 1,980,000 | |||||||||||||||
3/5/2010 | 1,980,000 | 1,980,000 | ||||||||||||||||
Denise L. Ramos | 3/5/2009 | 360,000 | 360,000 | |||||||||||||||
3/5/2010 | 400,000 | 400,000 | ||||||||||||||||
Gretchen W. McClain | 3/5/2009 | 360,000 | 360,000 | |||||||||||||||
3/5/2010 | 360,000 | 360,000 | ||||||||||||||||
David F. Melcher | 3/5/2009 | 250,000 | 250,000 | |||||||||||||||
3/5/2010 | 360,000 | 360,000 | ||||||||||||||||
Frank R. Jimenez(2) | 6/9/2009 | 166,700 | 166,700 | |||||||||||||||
3/5/2010 | 166,700 | 166,700 | ||||||||||||||||
May 2, 2012 | 31,381 |
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Option Awards | Stock Awards | |||||||||||||||||||
Number of | Value | Number of | Value | |||||||||||||||||
Shares | Realized | Shares | Realized | |||||||||||||||||
Acquired on | on | Acquired on | on | |||||||||||||||||
Exercise | Exercise | Vesting | Vesting | |||||||||||||||||
Name | (#) | ($) | (#) | ($)(1) | ||||||||||||||||
(a) | (b) | (c) | (d) | (e) | ||||||||||||||||
Steven R. Loranger | — | — | 115,522 | 5,562,859 | ||||||||||||||||
Denise L. Ramos | — | — | 6,930 | 309,702 | ||||||||||||||||
Gretchen W. McClain | — | — | 3,671 | 195,150 | ||||||||||||||||
David F. Melcher | — | — | — | — | ||||||||||||||||
Frank R. Jimenez | — | — | — | — | ||||||||||||||||
Effective on the Separation date, all ITT pension benefits described in this section were frozen, and the cumulative liability of these benefits was assumed by Exelis, except for Mr. Loranger’s Special Pension Arrangement, which is retained by the Company. All NEOs participated in the plans described below, and remain eligible for frozen pension benefits under these plans.
ITT Salaried Retirement Plan. Under the ITT Salaried Retirement Plan, participants havehad 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 iswas a funded and tax-qualified retirement program. The plan is described in detail below. All of the NEOs participate in the Traditional Pension Plan formula of the ITT Salaried Retirement Plan.
While the Traditional Pension Plan formula payspaid benefits on a monthly basis after retirement, the Pension Equity Plan formula enablesenabled 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 dependsdepended 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:
Ÿ | 2% of his or her “average final compensation” (as described below) for each of the first 25 years of benefit service, plus |
Ÿ | 1.5% of his or her average final compensation for each of the next 15 years of benefit service, reduced by |
Ÿ | 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:
Ÿ | ||
1.5% of his or her average final compensation (as defined below) for each year of benefit service up to 40 years, reduced by |
Ÿ | ||
1.25% of his or her primary Social Security benefit for each year of benefit service up to a maximum of 40 years. |
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Ÿ | ||
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 |
Ÿ | ||
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 iswas the average of the participant’s total pension eligible compensation (salary, bonus and annual incentive payments for NEOs and other exempt salaried employees) over the highest five consecutive calendar years of the participant’s final 120 months of eligibility service.
As it applies to participants first employed prior to January 1, 2000, under the Traditional Pension Plan, Standard Early Retirement is available to employees at least 55 years of age with 10 years of eligibility service. Special Early Retirement is available to employees at least age 55 with 15 years of eligibility service or at least age 50 whose age plus total eligibility service equals at least 80. For Standard Early Retirement, if payments begin before age 65, payments from anticipated payments at the normal retirement age of 65 (the “Normal Retirement Age”) are reduced by 1/4 of 1% 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 5/12 of 1% 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 iswas available as described above. Special Early Retirement iswas also available to employees who have 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 commencecommenced prior to age 62 they would be reduced by5/ 5/12 of 1% for each of the first 48 months prior to age 62 and by an additional4/ 4/12 of 1% for each of the next 12 months and by an additional3/ 3/12 of 1% 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 by5/ 5/9 of 1% for each of the first 60 months prior to age 65 and an additional5/ 5/18 of 1% 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 3% to 6% based on age:
Ÿ | Under age 30: 3% per year of benefit service |
Ÿ | Age 30 to age 39: 4% per year of benefit service |
Ÿ | Age 40 to age 49: 5% per year of benefit service |
Ÿ | Age 50 and over: 6% per year of benefit service |
In December 2007, effective January 1, 2008, the ITT Salaried Retirement Plan and the ITT Excess Pension Plans were amended to provide for a three-year vesting requirement. In addition, for employees who arewere already vested and who arewere involuntarily terminated and entitled to severance payments from the Company, additional months of age and service (not to exceed 24 months) arewere 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 20102011 Pension Benefits table on page 83Page 84 of this Proxy Statement provides information on the pension benefits for the NEOs. AtMr. Pagano participated under the present time, noneterms of the NEOs listedplan in the Summary Compensation Table has electedeffect for employees hired prior to accrue benefits under the Pension Equity Plan formula.January, 1 2000. Mr. Loranger participatesparticipated under the terms of the plan in effect for employees hired between January 1, 2000 and December 31, 2004 and2004. Ms. Ramos Ms. McClain Mr. Melcher and Mr. Jimenez participateMessrs. Chicles, Scalera, and Nanda participated under the terms of the plan in effect for employees hired after January 1, 2005. The Traditional Pension Plan accumulated benefit an employee earnsearned over his or her career with the Company is payable on a monthly basis starting after retirement. Employees may retire as early as age 5550 under the terms of the plan. Pensions may be reduced if retirement starts before age 65. Possible pension reductions are described above.
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, 2010.2011. Section 415 limits the amount of annual pension payable from a qualified plan. For 2010,2011, this limit is $195,000 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 2010,2011, this limit is $245,000.
ITT Excess Pension Plan. Since federal law limits the amount of benefits paid under and the amount of compensation recognized under tax-qualified retirement plans, the Company maintainsmaintained the unfunded ITT Excess Pension Plan, which is not qualified for tax purposes.purposes, until the Separation date. The purpose of the
82
Special Pension Arrangement. Mr. Loranger’s employment agreement providesprovided for a non-qualified pension arrangement if Mr. Loranger’s employment iswas terminated on or after June 28, 2009, or under certain circumstances prior to that date. This arrangement providesprovided for an annuity paid
monthly over Mr. Loranger’s life, calculated as a percentage of his average annual compensation for the five years in which his compensation was highest, whichwith percentage ranges from 38%, if Mr. Loranger iswas age 57 upon the date of his termination, to 50%, if Mr. Loranger iswas at least age 60 on the date of his termination. Any amount so determined willwould be reduced by the amount to which Mr. Loranger iswas entitled to under the pension plans of ITT or the plans of any prior employer. Quantification of Mr. Loranger’s pension arrangements, as of December 31, 2010,2011, is provided in the 20102011 Pension Benefits table below and the arrangements are further discussed in footnote (5) to Mr. Loranger’s Potential Post-Employment Compensation tabledescription on page 92.
Mr. Loranger resigned with good reason from the Company on October 31, 2011. During 2011, he received two months of benefit payments under the ITT Salaried Retirement Plan. In accordance with Section 409A, Mr. Loranger will not receive any payments from the ITT Excess Pension Plan or his Special Pension Arrangement until May 2012.
No pension benefits were paid to any of the other named executives in the last fiscal year.
BenefitsBenefits(1) Present Value of Accumulated Present Value Benefit at Number of of Accumulated Earliest Payments Years Benefit at Date for During Credited Normal Unreduced Last Fiscal Service Retirement Benefit Year Name(a) Plan Name(b) (#)(c) ($)(d)(1) (e) ($)(f) Steven R. Loranger ITT Salaried Retirement Plan 6.51 150,257 150,257 — ITT Excess Pension Plan 6.51 2,017,943 2,017,943 — Special Pension Arrangement 6.51 5,579,701 10,732,988 Denise L. Ramos ITT Salaried Retirement Plan 3.50 68,423 68,423 — ITT Excess Pension Plan 3.50 279,374 279,374 — Gretchen W. McClain ITT Salaried Retirement Plan 5.29 72,062 72,062 — ITT Excess Pension Plan 5.29 193,588 193,588 — David F. Melcher ITT Salaried Retirement Plan 2.38 50,938 50,938 — ITT Excess Pension Plan 2.38 133,311 133,311 — Frank R. Jimenez ITT Salaried Retirement Plan 1.56 17,912 17,912 — ITT Excess Pension Plan 1.56 29,666 29,666 ��