Our proxy statement and our 2011 annual report to stockholders are available at
http://www.proxyvote.com
YOUR VOTE IS IMPORTANT!
Please vote as promptly as possible by using the internet or telephone or
mailed to those who receive paper copies of this proxy statement.
BORGWARNER INC.
3850 Hamlin Road
Auburn Hills, Michigan 48326
PROXY STATEMENT
March 20, 200816, 2012
This proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors of BorgWarner Inc. (the(“BorgWarner” or the “Company”) for the Company’s 2008Company's 2012 Annual Meeting of Stockholders to be held at the Company’sCompany's headquarters at 3850 Hamlin Road, Auburn Hills, Michigan 48326 on April 30, 200825, 2012 at 9:00 a.m., local time, or at any adjournmentsadjournment or postponement thereof. This
Internet Availability of Proxy Materials
As permitted by rules adopted by the Securities & Exchange Commission (“SEC”), we are providing our proxy statement, and the accompanying form of proxy and our 2007 summary annual report are being mailed to stockholders beginning on or about March 20, 2008. The Company’s Summary Annual Report to Stockholderson Form 10-K for the fiscal year ended December 31, 20072011 to stockholders electronically via the internet. (Our Annual Report on Form 10-K for our fiscal year ended December 31, 2011, which includes our audited financial statements, is enclosed.not to be regarded as proxy solicitation material.) Our proxy statement and our 2011 annual report to stockholders are available at http://www.proxyvote.com.
On or about March 16, 2012, we will initiate delivery of proxy materials to our stockholders of record as of the close of business on March 1, 2012 via (1) a notice containing instructions on how to access materials online, (2) a paper copy mailing or (3) e-mail distribution. If you received a notice by mail, you will not receive a printed copy of the proxy materials in the mail. Instead, the notice we sent provides instructions on how to access and review all of the important information contained in the proxy materials. The notice also provides instructions on how you can submit your proxy over the internet or by telephone. If you received a notice by mail and would like to receive a printed copy of our proxy materials or elect to receive the materials via e-mail in the future, please follow the instructions included in the notice. If you received a printed copy of proxy materials by mail and would like to register to receive a notice of internet availability of proxy materials in the future, you can do so by any of the methods that follow:
Internet: Access the internet, go to www.proxyvote.com and follow the enrollment instructions.
Telephone: Call us free of charge at 1-800-690-6903 from within the United States or Canada.
E-mail: Send us an e-mail at www.proxyvote.com, using the control number on your proxy card as the subject line, and state whether you wish to receive a paper or e-mail copy of our proxy materials and whether your request is for this meeting only or all future meetings.
Record Date and Voting at the Annual Meeting Shares Outstanding
Only stockholders of record at the close of business on March 3, 2008 will be1, 2012 are entitled to vote at the meeting. As of such date, there were ________ issued and __________XXX,XXX,XXX outstanding shares of common stock. Each shareA list of all record holders of our stock will be available for examination by stockholders during normal business hours at 3850 Hamlin Road, Auburn Hills, Michigan 48326 at least ten days prior to the annual meeting and will also be available for examination at the annual meeting. On each matter considered at our annual meeting, you are entitled to one vote for each of your shares of common stock entitlesstock.
Voting
You have a choice of voting over the holderInternet, by telephone or by using a traditional proxy card.
To vote by Internet, go to one vote.www.proxyvote.com and follow the instructions there. You will need the 12 digit number included on your proxy card, voter instruction form or notice.
To vote by telephone, stockholders of record should dial 1-800-690-6903 and follow the instructions. Beneficial holders should dial the phone number listed on your voter instruction form. You will need the 12 digit number included on your proxy card, voter instruction form or notice.
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If you received a paper copy of a proxy card or voter instruction form, you can mark, sign and date the proxy card and return it in the envelope that was provided to you.
The deadline for voting by telephone or internet is 11:59 p.m. Eastern Time on April 24, 2012.
If you properly sign and return your signed proxy card or vote by telephone or by the Internet before the Annual Meeting,annual meeting, we will vote your shares as you direct. Any proxy returned without specification as to any matter will be voted as to each proposal in accordance with the recommendation of the Board of Directors. You
If you hold your stock in "street name", you may change or revoke your proxyvoting instructions by following the specific directions provided to you by your bank or broker. If you are a stockholder of record, you may change or revoke your vote at any time before the vote is taken by delivering a written notice of revocation to the Secretary of the Company written revocation or a proxy bearing a later date, or by attending and votingsubmitting another vote on or before April 25, 2012 (including a vote in person at the Annual Meeting.annual meeting). For all methods of voting, your last vote cast will supersede all of your previous votes.
The election inspectors will tabulate the votes cast prior to the meeting and at the meeting to determine whether a quorum is present. The presence in person or by proxy of the holders of a majority of common stock will constitute a quorum. A quorum is necessary to transact business at the Annual Meeting.annual meeting. Shares of common stock represented by proxies that reflect abstentions or “broker non-votes” (i.e., shares held by a broker or nominee whichthat are represented at the Annual Meeting,annual meeting, but with respect to which such broker or nominee is not empowered to vote on a particular proposal) will be counted as present and entitled to vote for purposes of determining the presence of a quorum.
Required Vote
With respect to the electionProposal 1 (election of Directors,directors), stockholders may (a) vote in favor of all nominees, (b) withhold votes as to all nominees, or (c) withhold votes as to specific nominees. In an uncontested director election, such as this year’syear's election, a director nominee maywill be elected to serve on the board only if the votes cast “for” the election of that nominee receivesexceed the favorable vote of more than 50% of the shares voted. Invotes cast “against” that nominee's election. Under our Corporate Governance Guidelines in a contested election, directors are elected by a plurality vote. Withheld votes and broker non-votes will not affect the outcome of the election of directors.
If you hold your stock in street name, your brokerage firm or other nominee may no longer vote your shares with respect to the election of directors without specific instructions from you as to how to vote with respect to the election of each of the four nominees for director. Abstentions and broker non-votes represented by submitted proxies will not be taken into account in determining the outcome of the election of directors.
With respect to Proposal 2 and the proposed amendment to our certificate of incorporation: the approval and adoption of that amendment requires the affirmative vote of a majority(stockholder ratification of the outstanding sharesselection of the Company’s common stock. An abstention or a broker nonvote is the functional equivalent of a “no”our auditors) and Proposal 3 (the advisory vote on this proposal.
Even though your vote with respect to a particular proposalProposal 3 is required for approvaladvisory and adoption of that proposal. An abstention on this proposal will be the functional equivalent of a “no” vote on that proposal. However, a broker nonvote on any one of those proposalstherefore will not be countedbinding on the Company, the Compensation Committee will review the voting results and take them into consideration when making future decisions regarding executive compensation. At the Annual Meeting of Stockholders held in 2011, stockholders selected annual frequency for purposesstockholder consideration of determiningexecutive compensation on an advisory basis. Stockholders will next consider the numberdesired frequency of votessuch consideration in 2017.
With respect to Proposal 4 (an amendment to our Certificate of Incorporation to affirm our majority voting standard for uncontested director elections), the proposed amendment will be approved if a majority of shares of stock outstanding and entitled to vote are cast on that proposalin favor of the Proposal. An abstention or a broker non-vote will have the same effect as a vote against the Proposal.
Proposals 3 and thus4 are not considered “routine” matters under NYSE rules. Therefore, your brokerage firm or other nominee may not vote your shares with respect to Proposals 3 or 4 without specific instructions from you as to how to vote. Abstentions and broker non-votes will not affecthave no effect on the outcome of the vote on that proposal.Proposal 3 or 4.
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Householding Information
Householding will not affect dividend check mailings, if any, in any way.
The Company’sCompany's Board of Directors currently consists of tentwelve directors and is divided into three classes. Robin J. AdamsPhyllis O. Bonanno, Alexis P. Michas, Richard O. Schaum and DavidThomas T. BrownStallkamp, are the nominees for election as Class IIII Directors to the Board at this meeting. Mr. Glaske will retire from the Board of Directors at the 2008 Annual Meeting of Stockholders in accordance with retirement guidelines adopted by the Board. Following the election of directors at this Annual Meetingannual meeting, your Board of Directors will have ninetwelve members and one vacancy.no vacancies. If elected, each nominee to Class I will serve for a term of three years or until his or her successor is elected and qualified. The Class I Directors have terms expiring at the 2009 Annual Meeting of Stockholders and the Class II Directors have terms expiring at the 20102013 Annual Meeting of Stockholders and the Class III Directors have terms expiring at the 2014 Annual Meeting of Stockholders. Each of the nominees for election as a Class IIII Director has agreed to serve if elected. All of the Class IIII Directors are presently directors of the Company. In the event that any nominee should become unavailable for election, the Board of Directors may designate a substitute nominee, in which event the shares represented by proxies at the meeting will be voted for such substitute nominee unless an instruction to the contrary is indicated on the proxy card.
At the meeting, our stockholders will elect four directors to hold office until our 2015 Annual Meeting of Stockholders and until their respective successors have been duly elected and qualified. The directors whose terms of office expire at this annual meeting are Directors Phyllis O. Bonanno, Alexis P. Michas, Richard O. Schaum and Thomas T. Stallkamp.
Recommendation
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF EACH OF THE NOMINEESFOR CLASS IIII DIRECTOR —ROBIN J. ADAMS- PHYLLIS O. BONANNO, ALEXIS P. MICHAS, RICHARD O. SCHAUM AND DAVIDTHOMAS T. BROWNSTALLKAMP.
Information on Nominees for Directors and Continuing Directors
The following table sets forth as of March 3, 2008,1, 2012, with respect to each of the Company’sCompany's current directors continuing to serve, his or her name, age, principal occupation, the year in which he or she first became a director of the Company, age, principal occupation, and his or her current directorships in other entities: entities; a narrative description of the directors' experience, qualifications, attributes and skills; all directorships at public companies and registered investment companies held since March 1, 2007; and a description of any relevant legal proceedings in which the director was involved since March 1, 2002.
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| Class I Directors | Age | Principal Occupation and Directorships | ||||
Phyllis O. Bonanno 1999 | 68 | Ms. Bonanno Ms. Bonanno brings to the board management, operational, academic and public policy knowledge. Ms. Bonanno's public policy expertise was gained through 10 years of service as the first director of the U.S. Trade Representative's Office of Private Sector Liaison in the Executive Office of Presidents Carter and Reagan. She developed global business knowledge in the manufacturing sector during her employment as Corporate Vice President of International Trade for Warnaco, Inc., a worldwide apparel manufacturer. Her extensive international trade expertise including knowledge of trade rules and regulations benefits the Company. Ms. Bonanno's experience as a director of other public companies in varied industries has resulted in her broad understanding of corporate governance. | ||||
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Alexis P. Michas 1993 | 54 | Mr. Michas has been Managing Partner of Juniper Investment Company, LLC (“Juniper”), a private investment management company, since he founded the firm in 2008. Juniper is also a Principal of Aetolian Investors, LLC a registered Commodity Pool Operator. Mr. Michas has also been the Managing Partner and a director of Stonington Partners, Inc. since 1994. Prior to that, Mr. Michas was a partner of Merrill Lynch Capital Partners, Inc. (“MLCP”), Mr. Michas brings many years of private equity experience across a wide range of industries, and a | ||||
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| Mr. Richard O. Schaum | 65 | Mr. Schaum has been General Manager, of 3rd Horizon Associates LLC, a technology assessment and development company, since May 2003. He was Vice President and General Manager of Vehicle Systems for WaveCrest Laboratories, Inc. from October 2003 until June 2005. Mr. Schaum's nearly four decades of business experience in program management, product development and manufacturing in the global automotive industry bring technological understanding, innovation expertise and extensive industry knowledge to BorgWarner's board. At WaveCrest Laboratories he oversaw development and commercialization of proprietary transportation systems. As Executive Vice President of Product Development at Chrysler, Mr. Schaum led all Powertrain Operations, a business with $7 billion in sales. He has intimate knowledge of the kinds of products BorgWarner must develop for the future of transportation. | ||||
Thomas T. Stallkamp 2006 | 65 | Mr. Stallkamp Mr. Stallkamp's experience within and outside of the automotive industry, and his nearly 20 year tenure with DaimlerChrysler and Chrysler Corporation, important customers of BorgWarner, his international perspective and his financial acumen qualify him for membership on the Company's board. His service on the boards of Visteon (an automotive parts supplier) from 2002 to 2005 and Asahi TEC Corporation (a manufacturer of automotive and other parts) from 2008 to 2010 has given him additional insight into the priorities of and challenges confronting automotive suppliers. Mr. Stallkamp's perspective has been broadened by experience outside the auto industry and through his private equity financing experience. | ||||
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| Class II Directors | Age | Principal Occupation and Directorships | ||||
Jere A. Drummond 1996 | 72 | Mr. Drummond retired from the BellSouth Corporation on December 31, 2001. He served as Vice Chairman of the BellSouth Corporation from January 2000 until his retirement. He was President and Chief Executive Officer of BellSouth Communications Group, a provider of traditional telephone operations and products, from January 1998 until December 1999. He was President and Chief Executive Officer of BellSouth Telecommunications, Inc. from January 1995 until December 1997 and was elected a director of BellSouth Telecommunications, Inc. in 1993. Mr Drummond is a director of SAIC, Inc. He Having served as an officer of a Fortune 500 company, BellSouth Corporation, for 19 years, Mr. Drummond brings extensive management experience and | ||||
Timothy M. Manganello 2002 | 62 | Mr. Manganello has been Chairman of the Board Mr. Manganello began his career in the automotive industry in 1973. During his career at BorgWarner, he | ||||
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John R. McKernan, Jr. 2009 | 63 | Governor McKernan has been Chairman of the Board of Education Management Corporation, a large provider of private post-secondary education in North America, since December 2008. He was Executive Chairman of Education Management Corporation from February 2007 to December 2008 and Chief Executive Officer from September 2003 until February 2007. He previously held the offices of President and Vice Chairman and was a member of its Board of Directors since June 1999. Governor McKernan served as governor of the State of Maine from 1987 to 1995. He is also a director of HMH Holdings, Inc. Governor McKernan brings to BorgWarner's board a blend of experience as a former governor of Maine, a former US Congressman, a former state legislator and former CEO of a public company. His knowledge of the legislative process combined with his demonstrated leadership capabilities and CEO's perspective provide a valuable point of view to the Company's board. Governor McKernan also has significant experience as a director. Governor McKernan's practice of corporate, regulatory and administrative law enables him to provide a legal perspective on issues facing the board and the Company in those areas and with respect to corporate governance. | ||||
Ernest J. Novak, Jr. 2003 | 67 | Mr. Novak retired as a Managing Partner from Ernst & Young in June 2003. He was a Managing Partner from 1986 until June 2003. Mr. Novak is also a director of A. Schulman, Inc. and FirstEnergy Corp. Mr. Novak's extensive knowledge of accounting and his financial expertise across a broad range of public companies make him well qualified to serve as a member of our board and as Chairman of the Audit Committee of our board. Mr. Novak spent over 30 years performing, reviewing and supervising audits of diverse public companies' financial statements and overseeing the filing of them with the SEC. He has a master's degree in accounting, is a Certified Public Accountant and currently chairs the audit committees of the two other public companies of which he is a director. | ||||
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| Class III Directors | Age | Principal Occupation and Directorships | ||||
Robin J. Adams 2005 | 58 | Mr. Adams has been Executive Vice President, Chief Financial Officer and Chief Administrative Officer of the Company since April 2004. He was Executive Vice President Mr. Adams has 36 years experience in the transportation industry. He has been the executive leader for the financial organizations of two publicly traded U.S. companies for the last 19 years where he has gained significant experience dealing with public company boards on a host of financial and strategic issues. He has experience with and provided oversight in the areas of accounting, audit, corporate finance, treasury, tax, business development, investor relations and information technology. He has played a leadership role in financial transactions that include public debt and equity offerings, IPOs, securitizations and bank financings. Mr. Adams also contributes merger and acquisition experience, thorough knowledge of the | ||||
David T. Brown 2004 | 63 | Mr. Brown retired from Owens Corning, a global leader in glass technology, on December 31, 2007. He was President and Chief Executive Officer of Owens Corning from April 2002 until his retirement. He was Executive Vice President and Chief Operating Officer from January 2001 to March 2002. He was Vice President of Owens Corning and President, Insulating Systems Business from January 1997 to December 2000. | ||||
As President and Chief Executive Officer | ||||||
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Jan Carlson 2010 | 51 | Mr. Carlson was appointed President and Chief Executive Officer and Director of Autoliv in early 2007. He joined Autoliv in 1999 as President of Autoliv Electronics and held that position until April Mr. Carlson brings to the board international perspective concerning the global automotive industry and the experience and perspective of a currently-serving CEO of a non-U.S. company. Prior to joining Autoliv, Mr. Carlson was President of Saab Combitech, a division within Saab aircraft group specializing in commercializing military technologies. Mr. Carlson has a Master of Science degree in Physical Engineering from the University of Linköping, Sweden. |
Dennis C. Cuneo 2009 | 62 | Mr. Cuneo has been an attorney with Fisher & Phillips LLP since July 1, 2010, serving as Managing Partner of the firm's Washington DC office, after having been with Arent Fox LLP since November 2006. He also operates his own consulting firm, DC Strategic Advisors LLC., which provides strategic business advice to companies in the auto industry and to venture-backed cleantech companies. He was Senior Vice President of Toyota North America, Inc. from 2000 to 2006; Corporate Secretary and Chief Environmental Officer of Toyota Motor North America Inc. from 2004 to 2006, and Senior Vice President of Toyota Motor Manufacturing North America from 2001 to 2006. Mr. Cuneo was formerly Board Chairman of the Federal Reserve Bank of Cleveland, Cincinnati branch and is on the board of the Center for Automotive Research. Mr. Cuneo is also a director of Mr. Cuneo brings experience in, and |
No director nominee, director or executive officer is related to any other director nominee, director or executive officer (or to any director or executive officer of any of the Company’sCompany's subsidiaries) by blood, marriage or adoption. There are no arrangements or understandings between any nominee or any of our directors or executive officers or any other person pursuant to which that nominee or director or executive officer was nominated or elected as a director of the Company or any of its subsidiaries. No director or executive officer of the Company is party to, or has any material interests in, any material legal proceedings that are adverse to the Company or its subsidiaries.
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Board of Directors and Its Committees
The Board of Directors held four regular meetings during 2007. All2011. Each of the directors attended at least 75% of the meetings of the Board of Directors and each committee on which they served.he or she served while members of them. The Company’sCompany's Corporate Governance Guidelines set forth the Company’sCompany's policy that directors should use their best efforts to attend the Company’sCompany's annual meeting of stockholders. All directors serving at the time of the 20072011 Annual Meeting of Stockholders attended the meeting.
The Boardboard has determined that all Boardboard members meet the independence requirements of the New York Stock Exchange (“NYSE”), with the exception of Mr. Manganello, our Chairman and Chief Executive Officer, and Mr. Adams, our Executive Vice President, Chief Financial Officer and Chief Administrative Officer. Under the Company’sCompany's Corporate Governance Guidelines, a director will not be considered independent unless the Boardboard determines that such director has no direct or indirect material relationship with the Company. In addition, the Company’sCompany's Corporate Governance Guidelines provide, among other things, that:
| a director who is an employee, or whose immediate family member is an executive officer, of the Company is not “independent” until three years after the end of such employment relationship. | ||
a director who receives, or whose immediate family member receives, more than $120,000 per year in direct compensation from the Company, other than director and committee fees or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service), is not “independent” until three years after he or she ceases to receive more than $120,000 per year in such compensation.
a director who is affiliated with or employed by, or whose immediate family member is a current partner of the internal or external auditor of the Company, is a current employee of such a firm and personally works on the Company's audit or was within the last three years a partner or employee of such a firm and personally worked on the Company's audit at that time, is not “independent” until three years after the end of the affiliation or the employment or auditing relationship.
a director who is employed, or whose immediate family member is employed, as an executive officer of another company where any of the Company's present executives serve on that company's compensation committee, is not “independent” until three years after the end of such service or the employment relationship.
a director who is an executive officer or an employee, or whose immediate family member is an executive officer, of a company that makes payments to, or receives payments from, the Company for property or services in an amount which, in any single fiscal year, exceeds the greater of $1 million, or 2% of such other company's consolidated gross revenues, is not “independent” until three years after falling below such threshold.
a director who is not considered independent by relevant statute or regulation is not “independent.”
Board Leadership Structure
Our Board of Directors is a strong, cohesive board that has been effective in performing its monitoring and oversight roles by acting as a unified whole. The board has determined that there are significant advantages in having our CEO, who has extensive knowledge of the Company and the automotive industry, also serve as Chairman. Having a unified CEO and Chairman position has been especially valuable during the recent economic downturn. Mr. Manganello has been Chairman and CEO since 2003 and possesses the extensive knowledge and the collaborative demeanor in working with other members of the Board of Directors that make this leadership structure the most appropriate structure for the Company. The board reviews from time to time the question of whether the Chairman and CEO positions should be held by a single individual in light of circumstances at the time of the review. While the board has concluded for the present that a single CEO and Chairman is in the best interest of the Company and its stockholders, the board has reserved for itself the discretion to make a different determination in the future to serve the best interests of the Company if circumstances change.
In view of the fact that the Company has at times been without an independent chairman, the Board of Directors established the role of Lead Director. The Lead Director works with the Chairman and CEO and other members of the
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board to provide independent oversight of the Company's management and affairs on behalf of the Company's stockholders. Among other things, the Lead Director serves as the principal liaison between the Chairman and the independent directors, contributes to agenda planning and chairs the executive session of non-employee directors at each regularly scheduled board meeting.
Board Committees
The Board of Directors has a standing Compensation Committee, Audit Committee, Corporate Governance Committee and Executive Committee. The charters for each of our principal board committees can be found on the Company's website at www.borgwarner.com. The responsibilities of our board committees are set forth in their charters, which are reviewed at least annually.
Compensation Committee. The current members of the Compensation Committee are Directors Drummond (Chairman), Bonanno, Brown and Brown.Carlson. The principal functions of the Compensation Committee include reviewing and approving compensation philosophy and executive appointments,compensation strategy, chief executive officer and other executive remuneration and compensation plans, and supervising the administration of these plans. A primary purpose of the Compensation Committee is to ensure that the compensation of Executive Officers is internally equitable, externally competitive, motivates Executive Officers toward the achievement of business objectives and aligns their focus with the long term interests of the Company and its stockholders. The Compensation Committee met sixfive times during 2007.2011.
Audit Committee. The current members of the Audit Committee are Directors Novak (Chairman), SchaumCuneo, McKernan and Stallkamp. The Audit Committee of the Board of Directors of BorgWarner Inc. is charged with assisting the full Boardboard in fulfilling the Board’sboard's oversight responsibility with respect to the quality and integrity of the accounting, auditing, and financial reporting and risk management practices of the Company. The Audit Committee also has the responsibility for, among other things, selection and compensation of the independent registered public accounting firm, monitoring the independent registered public accounting firm’sfirm's qualifications, independence and work (including resolving any disagreements between the Company’sCompany's management and the independent registered public accounting firm regarding financial reporting), pre-approving all audit services to be performed by the independent registered public accounting firm, monitoring the performance of the Company’sCompany's internal audit function and reviewing on behalf of the Boardboard the Company’sCompany's pension plans and risk management programs. The responsibilities of the Committee are set forth in its charter, which is reviewed at least annually.
Each member of the Audit Committee meets the independence requirements set by the New York Stock Exchange,NYSE, Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission. The BoardSEC. While other members of Directors has determined that Mr. Novak is athe Audit Committee also qualify as financial expertexperts as defined by the rules and regulations of the Securities and Exchange Commission.SEC, the Board of Directors has designated the Chairman of the Audit Committee, Mr. Novak, as our audit committee financial expert. None of the members of the Committee simultaneously serve on the audit committees of more than two other public companies.
The Audit Committee met sevenfive times during 2007. The Audit Committee’s charter, which was amended in November 2007, is attached as Annex A.2011.
Corporate Governance Committee. The present members of the Corporate Governance Committee are Directors GlaskeMichas (Chairman), Drummond and Michas.Schaum. The principal functions of the Corporate Governance Committee include making recommendations to the Board of Directors regarding: (i) Boardboard composition and structure, (ii) corporate governance principles, including the nature, duties and powers of Boardboard committees, (iii) term of office for members, (iv) qualified persons to be nominated for election or re-election as directors, (v) stockholders’stockholders' suggestions for board nominations, (vi) the emergency successor to the Chief Executive Officer, and (vii) any requests for waivers of application of the Company’sCompany's Code of Ethical Conduct and any related person transactions. The Corporate Governance Committee also establishes criteria for Boardboard and committee membership, evaluates Company policies relating to the recruitment of directors and oversees the evaluation of the Board,board, its committees and management. The Corporate Governance Committee met four times during 2007.2011.
The Corporate Governance Committee will consider nominees for the Board of Directors from a variety of sources, including current directors, management, retained third-party search firms, and stockholders.
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stockholder who wishes to have a nomination considered at the 2013 annual meeting must deliver the required materials between December 26, 2012 and January 25, 2013.
The specific procedures by which stockholders may recommend nominees are set forth in Article II, Sections 7 and 8 of the Company's By-laws. The Company's By-laws require, among other things, that director nominees disclose all material monetary agreements between the nominating stockholder and the nominees; that director nominees (including the board's nominees) complete a timely manner. questionnaire regarding the nominee's background, qualifications and conflicts of interest; and that stockholders proposing business disclose economic interests, including interest in the Company as a result of derivative instruments.
Assuming that appropriate biographicalthe required information and background material is provided for candidates recommended by stockholders, the Corporate Governance Committee will evaluate those candidates by following substantially the same process, and applying substantially the same criteria, as for candidates submitted by Boardboard members. The General Counsel will review the information and provide to the Chairman of the Corporate Governance Committee an assessment of the candidate’scandidate's independence, freedom from conflicts of interest and general suitability. If the Chairman of the Corporate Governance Committee decides to submit the candidate to the entire Corporate Governance Committee, each member will receive the candidate’scandidate's background information and will be afforded an opportunity to interview the candidate.
In considering whether to recommend to the full Boardboard any candidate for inclusion in the Board’sboard's slate of recommended director nominees, the Corporate Governance Committee will consider, among other things, the extent to which candidates possess the following factors:
| the highest personal and professional ethics, integrity and values; | ||
ability to evaluate strategic options and risks and form independent opinions, stated constructively to contribute to guidance and direction of the Company;
active, objective and constructive participation at meetings of the board and its committees, with flexibility in approaching problems;
open mindedness on policy issues and areas of activity affecting overall interests of the Company and its stockholders;
stature to represent the Company before the public, stockholders and various others who affect the Company;
involvement only in activities and interests that do not create a conflict with the director's responsibilities to the Company and its stockholders;
willingness to objectively appraise management performance in the interest of the stockholders;
interest and availability of time to be involved with the Company and its employees over a sustained period;
ability to work well with others, with deep and wide perspective in dealing with people and situations, respect for the views of others;
a reasoned and balanced commitment to the social responsibilities of the Company;
contribution to the board's desired diversity and balance;
willingness of independent directors to limit public company board service to 4 or fewer boards (any exceptions would require Corporate Governance Committee approval);
willingness to tender, promptly following the annual meeting at which they are elected or re-elected as Director, an irrevocable resignation that will be effective upon (i) the failure to receive the required vote at the next annual meeting at which they face re-election and (ii) board acceptance of such resignation; and
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willingness to provide all information, including completion of a questionnaire, required by the Company's By-laws.
The Company believes that the backgrounds and qualifications of the directors, considered as a group, should provide a significant composite mix of experience, knowledge and abilities that will allow the Boardboard to fulfill its responsibilities. The Corporate Governance Committee seeks to establish and maintain a board that is strong in its collective knowledge and that possesses a diversity of skills, backgrounds and experience with respect to vision, strategy and leadership, business judgment and knowledge, corporate governance, accounting and finance, global markets and industry knowledge. If the Corporate Governance Committee determines that a stockholder-nominated candidate is suitable and that the candidate should be recommended to the full Board,board, a quorum of the full Boardboard must discuss whether to include the candidate in the slate of nominees whichthat the Boardboard recommends to stockholders for election and, if appropriate, adopt a resolution authorizing the inclusion.
You may send communications to your Board of Directors and to individual directors. Such communications should be submitted in writing addressed to your Board of Directors or to one or more named individual directors in care of BorgWarner Inc., General Counsel, 3850 Hamlin Road, Auburn Hills, Michigan 48326. All such communicationsCommunication from stockholders will be forwarded promptly to your Board of Directors or such named individual director.
Executive Committee. The present members of the Executive Committee are Directors Drummond, Manganello and Michas. The Executive Committee is empowered to act for the full Boardboard during intervals between Boardboard meetings when telephonic meetings cannot reasonably be arranged, with the exception of certain matters that by law may not be delegated. The Executive Committee met oncedid not meet during 2007.2011.
Executive Sessions. The non-employee directors meet in executive sessions without the presence of any corporate officer or member of management in conjunction with regular meetings of the Board.board. Lead Director GlaskeMichas is the current presiding director. It is expected that Director Michas will become presiding director upon Mr. Glaske’s retirement. Interested parties can make concerns known directly to the non-management directors on-line at www.mysafeworkplace.com or by toll-free call to 1-800-461-9330.
Certain Relationships and Related Transactions, and Director Independence
The Company has adopted a written policy concerning Related Party Transactions under which the CEO is responsible for review, disapproval or approval or ratification of any Related Person Transactions in which an Executive Officer or Immediate Family Member of an Executive Officer (in either case, other than the CEO) has a material interest, and the Corporate Governance Committee is responsible for review, disapproval or approval or ratification of any Related Person Transactions in which a director, nominee for director or the CEO or Immediate Family Member of any of them has a material interest
REPORT OF THE BORGWARNER INC. AUDIT COMMITTEE
Management of your Company is responsible for the preparation, presentation and integrity of your Company's consolidated financial statements and for the effectiveness of internal control over financial reporting. Management and the Company's internal auditing department are responsible for maintaining its accounting and financial reporting principles and internal controls and procedures designed to maintain compliance with accounting standards and applicable laws and regulations. Deloitte & TouchePricewaterhouseCoopers LLP (“PwC”) was the independent registered public accounting firm for the Company isin 2011 and was responsible for auditingperforming independent audits of your Company's consolidated financial statements and of the design and effectiveness of internal controls over financial reporting, and expressing opinionsan opinion on (1) the conformity of the financial statements with accounting principles, generally accepted in the United States of America (“GAAP”) and (2) the effectiveness of internal control over financial reporting.reporting based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Audit Committee is responsible for the appointment, oversight, compensation and retention of the independent registered public accounting firm.
In the performance of its oversight function, the Audit Committee has reviewed and discussed with management and Deloitte & Touche LLP,PwC, the audited consolidated financial statements for the year ended December 31, 2007.2011. The Audit Committee also has discussed with Deloitte & Touche LLP,PwC, the matters required to be discussed by the Public Company Accounting Oversight Board (“PCAOB”) Interim Auditing Standard AU Section 380, "Communication“Communication with Audit Committees." We have” The Audit
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Committee received from Deloitte & Touche LLPPwC the written disclosures and the letter required by Independence Standards Board Standard No. 1. ("Independence Discussionsapplicable requirements of the PCAOB regarding the independent registered accountant's communications with the Audit Committees"),Committee concerning independence, and have discussed with Deloitte & Touche LLPPwC their independence. The Audit Committee has concluded that Deloitte & Touche LLP'sPwC's provision of audit and non-audit services to the Company is compatible with their independence.
The Audit Committee discussed with Deloitte & Touche LLPPwC the overall scope and plans for their audit. The Audit Committee meetsmet with Deloitte & Touche LLP,PwC, with and without management present, to discuss the results of their audits, the evaluations of the Company's internal controls, and the overall quality of the Company's financial reporting. In addition, the Audit Committee provided guidance and oversight to the internal audit function, including the audit plan, and results of internal audit activity. The DirectorVice President of Internal Audit has direct access to the Audit Committee to discuss any matters desired, and the DirectorVice President of Internal Audit presented an update of internal audit activity at each Audit Committee meeting.
The members of the Audit Committee are not full-time employees of your Company and are not performing the functions of auditors or accountants. As such, itIt is not the duty or responsibility of the Audit Committee or its members to conduct "field work"“field work” or other types of auditing or accounting reviews or procedures or to set auditor independence standards. Members of the Audit Committee necessarily rely on the information provided to them by management and the independent auditors. Accordingly, the Audit Committee's considerations and discussions referred to above do not assure that the audit of the Company's financial statements has been carried out in accordance with generally accepted auditing standards, that the financial statements are presented in accordance with generally accepted accounting principles,GAAP, or that the Company's auditors are "independent."“independent.”
Based upon the reports and discussions described in this report, and subject to the limitations on the role and responsibilities of the Audit Committee that are described above and in the Audit Committee's charter, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements of the Company be included in the Company's Annual Report on Form 10-K for the year ended December 31, 2007.2011 for filing with the SEC. It also recommended to the Boardboard that, subject to stockholder ratification, Deloitte & Touche LLPPwC be appointed as the independent registered public accounting firm for the Company.Company for 2012.
BORGWARNER INC. AUDIT COMMITTEE
Ernest J. Novak, Jr. Chairman
Dennis C. Cuneo John R. McKernan, Jr. Thomas T. Stallkamp Richard O. Schaum
The Audit Committee Report does not constitute soliciting material. It is not considered filed by usthe Company and shall not be incorporated by reference into any of ourits other filings under the Securities Act or the Exchange Act unless we state otherwise.
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Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of February 14, 2008,15, 2012, certain information regarding beneficial ownership of common stock by those persons and entities that are known to the Company as beneficially owning more than five percent of the Company’sCompany's common stock.
| Number of | Percent of | |||||||
Name and Address of Beneficial Owner | Shares | Class | ||||||
| UBS AG | 15,036,076 | (a) | 12.9 | % | ||||
Bahnhofstrasse 45, PO Box CH-8021 Zurich, Switzerland | ||||||||
| AXA Financial, Inc. | 7,843,361 | (b) | 6.7 | % | ||||
1290 Avenue of the Americas New York, New York 10104 | ||||||||
| Name and Address of Beneficial Owner | Number of Shares | Percent of Class |
| BlackRock, Inc. | 7,224,052(a) | 6.5% |
40 East 52nd Street | ||
| New York, NY 10022 | ||
| Prudential Financial, Inc. | 7,050,242(b) | 6.4% |
| 751 Broad Street | ||
| Newark, New Jersey 07102-3777 | ||
| Jennison Associates LLC | ||
| 466 Lexington Avenue | ||
| New York, NY 10017 | 6,874,531(c) | 6.3% |
| The Vanguard Group, Inc. | ||
| 100 Vanguard Blvd. | ||
| Malvern, PA 19355 | 5,891,844(d) | 5.4% |
| (a) | Pursuant to a Schedule 13G/A dated February | |
| (b) | Pursuant to a Schedule | |
| (c) | Pursuant to a Schedule 13G dated February 13, 2012 on behalf of Jennison Associates LLC indicating that it had sole voting power for | |
| (d) | Pursuant to a Schedule 13G dated February 9, 2012 on behalf of The Vanguard Group, Inc. indicating that it had sole voting power for 153,948 shares, sole dispositive power for | |
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The following table sets forth, as of March 3, 2008,1, 2012, certain information regarding the beneficial ownership of common stock. Eachstock by each person who was a director of the Company at December 31, 2007,2011, each nominee for election as a director, each executive officer named in the Summary Compensation Table, and suchthe directors and executive officers of the Company as a group.
Amount and Nature of Stock Ownership(b)(c) | ||||||||
Name of Beneficial Owner (a) | Percent of Class | |||||||
| Timothy M. Manganello | 350,598.93 | * | ||||||
| Robin J. Adams | 182,184.36 | * | ||||||
| Bernd Matthes | 43,556.00 | * | ||||||
| Cynthia Niekamp | 73,246.71 | * | ||||||
| Roger J. Wood | 120,955.38 | * | ||||||
| Phyllis O. Bonanno | 33,428.00 | * | ||||||
| David T. Brown | 5,682.00 | * | ||||||
| Jere A. Drummond | 37,704.00 | * | ||||||
| Paul E. Glaske (d) | 71,322.00 | * | ||||||
| Alexis P. Michas | 183,014.00 | * | ||||||
| Ernest J. Novak, Jr. | 20,104.00 | * | ||||||
| Richard O. Schaum | 7,568.00 | * | ||||||
| Thomas T. Stallkamp | 6,674.00 | * | ||||||
| All directors and executive officers of the Company (18 persons) | 1,737,264.16 | 1.48% | ||||||
| Name of Beneficial Owner(a) | Amount and Nature of Stock Ownership(b)(c) | Percent of Class | |
| Timothy M. Manganello | |||
| Robin J. Adams | |||
| John G. Sanderson | |||
| John J. Gasparovic | |||
| James R. Verrier | |||
| Phyllis O. Bonanno | |||
| David T. Brown | |||
| Jan Carlson | |||
| Dennis C. Cuneo | |||
| Jere A. Drummond | |||
| John R. McKernan, Jr. | |||
| Alexis P. Michas | |||
| Ernest J. Novak, Jr. | |||
| Richard O. Schaum | |||
| Thomas T. Stallkamp | |||
| Dr. Thomas Waldhier(e) | |||
All directors and executive officers of the Company (24 persons) | |||
| * | Represents less than one percent. |
| (a) | For purposes of the above table, the address for each named person is 3850 Hamlin Road, Auburn Hills, Michigan 48326. |
| (b) | Includes the following number of shares issuable upon the exercise of options within the next 60 days: |
| (c) | Includes all shares with respect to which each officer or director directly, or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares the power to vote or to direct voting of such shares or to dispose or to direct the disposition of such shares. |
| | |
| (d) | Includes 258,562 shares of |
| (e) | Dr. Waldhier resigned as an officer of the Company effective September 3, 2011. |
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’sCompany's executive officers, directors and persons who beneficially own more than 10 percent of a registered class of the Company’sCompany's equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of the Company’sCompany's common stock. Such officers, directors and persons are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms that they file with the SEC.
Based solely on a review of the copies of such forms that were received byinformation provided to the Company or written representations from certain reporting persons that no Form 5s were required for those persons,by each director and executive officer, the Company believes that all filing requirements applicablesuch reports required to its directors, executive officers and greater than 10 percent stockholdersbe filed in 2011 were complied with during 2007.timely filed.
Code of Ethics
The Company has long maintained a Code of Ethical Conduct which is applicable to all directors, officers and employees of the Company. In addition, the Company has adopted a Code of Ethics for CEO and Senior Financial Officers which applies to the Company’sCompany's Chief Executive Officer, Chief Financial Officer, Treasurer and Controller. Each of these codes is posted on the Company’sCompany's website at www.borgwarner.com.
Risk Oversight
Our Board of Directors regularly and continually receives information intended to apprise the board of the strategic, operational, commercial, financial, legal, and compliance risks the Company faces. Oversight of risk is an evolving process in which management assesses the degree to which risk management is integrated and continually seeks opportunities to further engrain enterprise risk management into business processes throughout the organization. The board actively encourages management to continue to drive this evolution. In 2011, the Board of Directors endorsed the Company's continued enhancement of its enterprise risk management governance infrastructure, processes, integration, communications and sustainability.
While the Board of Directors has responsibility for oversight of the Company's risk management practices, the Audit, Compensation and Corporate Governance Committees of the board contribute to the risk management oversight function. In particular, the Audit Committee focuses on financial risk, including internal controls and receives risk assessment and management reports from the Company's internal Risk Committee and from the Company's internal audit function. The members of the Risk Committee (the Company's Controller, Treasurer, Vice President of Internal Audit, Director of Risk Management, Chief Compliance Officer, Vice President and Chief Information Officer and business operations leaders) and members of the internal audit function have direct access to the Audit Committee and Board of Directors. The Audit Committee receives, reviews and discusses regular reports from them concerning risk identification and assessment, risk management policies and practices and mitigation initiatives, to assure that the risk management processes designed and implemented by the Company are adapted to the Company's strategy and are functioning as expected. In addition, as part of its compensation philosophy, the Compensation Committee strives to adopt compensation incentives that encourage appropriate risk-taking behavior that is consistent with the Company's long term business strategy and objectives. The Corporate Governance Committee oversees risk management practices in its domain, including director candidate selection, governance and succession matters.
To meet its obligations under the SEC's Enhanced Disclosure Rules, the Company undertook a process, reviewed by the Compensation Committee, to assess to what extent risks arising from our compensation programs for employees are reasonably likely to have a material adverse effect on the Company. The Company concluded that it is not likely that its compensation programs will have such an effect.
COMPENSATION DISCUSSION AND ANALYSIS
The Company achieved a second consecutive year of record sales and earnings in 2011. As a result of this continued financial success, maximum results were achieved at the Corporate level for the Economic Value ("EV") measure under our Management Incentive Plan ("MIP") during the 2011 plan year. Maximum results were also achieved by the Engine and Drivetrain business groups.
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The continued growth of the Company also resulted in significant returns for our stockholders. The Company's three-year total shareholder return ("TSR") ranked above the 90th percentile when compared to the weighted average TSR of our Peer Group Companies which are set forth on page 31. With this achievement, our Compensation Committee certified that the maximum number of Performance Shares was earned and awarded to participants, including the Named Executive Officers, for the three-year period ended in 2011 under the long-term incentive program described on pages 22-24.
Our Compensation Committee reviews the elements of compensation against the market each October using the Comparator Group set forth on page 25. The improvement in the economic climate over the last two years had positive impact on compensation both in the automotive and general industries. Survey data showed an increase in all components of compensation. Most companies implemented base salary increases in 2011 and plan to do so again in 2012. The results of this review and the continued growth and financial success of the Company led to the following actions by the Compensation Committee:
Approval of increases to base salaries for Named Executive Officers in 2011 and a plan to increase base salaries again on April 1, 2012 consistent with the market data and the growth of the Company.
Approval of target bonus opportunities for our Named Executive Officers for 2011 and 2012 that were aligned with the 65th percentile of the market data and in support of our performance based compensation philosophy.
Establishment of long-term incentive grant sizes for 2011 which were in line with the compensation philosophy and at the same levels used for 2009 and 2010. Grant levels for 2012 were set higher in some instances to maintain competitive positioning as the survey data reviewed by the Compensation Committee in October 2011 reflected generally higher values than the prior year.
2011 was the first year in which stockholders provided an advisory vote regarding the Company's executive compensation practices. Management and the Compensation Committee were pleased that over 96% of the votes received supported those practices. The Compensation Committee believes that this affirms stockholders' support of the Company's approach to executive compensation. In light of those results, the Compensation Committee did not change its policies in 2011. The Compensation Committee will continue to consider the outcome of the Company's say-on-pay votes when making future compensation decisions for the Named Executive Officers. In recognition of the stockholder vote regarding the frequency of future advisory votes on executive compensation, the Board of Directors has elected to hold such votes annually. Management and our Compensation Committee continue to believe that the Company's pay practices and performance based philosophy are effective. The Company's incentive compensation is related to performance over both a one-year and three-year horizon. The Company's TSR over those time frames has been consistently among the top of our Peer Group Companies and has outperformed the S&P 500. The overall compensation of our CEO and other Named Executive Officers has been reflective of that performance. Year over year changes in the total compensation of our Named Executive Officers has been aligned with the Company's three-year TSR results.
Highlights of the Compensation Programs
Compensation Philosophy - The Company's executive compensation program is predominantly performance based, with approximately 75% of total compensation tied to short and long-term incentives; mainly driven by the creation of economic value and total shareholder return. While base compensation is targeted at the median of comparator companies, performance based compensation is targeted at the 65th percentile. We believe that this philosophy has allowed us to attract and retain top talent and to motivate exceptional performance, which has consistently placed us in the top quartile of automotive suppliers.
Base Salary - Base salary levels are targeted at the median of a comparator group of companies with whom we compete for talent. We believe that targeting the median in setting base salary allows us to remain competitive for talent, while targeting slightly above median on performance based components of pay allows us to attract and retain top talent.
Short-Term Incentives (MIP) - Creating economic value for our stockholders is the foundation upon which we operate and is the focus of our annual incentive program.
Long-Term Incentives ("LTI") - The primary compensation vehicle utilized under our LTI plan is performance shares (two-thirds of the total value). The performance measure utilized - total shareholder return versus our industry
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peer group - provides an incentive for our executives to outperform our peers and provide maximum return to our stockholders. Under this design, target compensation is paid when 65th percentile performance is achieved over a three-year period as compared to our peers. The remaining one-third of our annual grants is comprised of restricted stock, which also incents and rewards executives to improve the long term stock value to stockholders. Both vehicles serve as retention tools as they fully vest after three years.
Stock Ownership - In further alignment with stockholder's interests, our executives are expected to hold a significant and sustained long-term personal equity interest in the Company. The CEO ownership guideline of three times average salary plus bonus for the prior three years equates to more than six times annual base salary.
Compensation Philosophy
In 2011, our Compensation Committee maintained our underlying executive compensation objectives, of the Compensation Committee of our Board of Directorswhich are to:
| attract and retain the best possible global executive talent, |
Our Compensation Committee performs a strategic review of our executive officers’officers' compensation at least annually. During this review, our Compensation Committee evaluates our compensation philosophy and objectives to ensure that they continue to reflect our intention to pay for performance, our business objectives,strategies, competitive realities and our Board’sboard's determination of what is in the best interests of stockholders. Our Compensation Committee then determines whether our compensation programs are meeting these objectives, providing adequate incentives and motivation to our executive officers and adequately compensating our executive officers relative to comparable officers in other companies with whichwhom we compete for executives. Also asAs part of this strategic review in 2007,for 2011, our Compensation Committee determined the compensation of our 1713 corporate officers including our Chief Executive Officer, our Chief Financial Officer and the three other officers and one former officer whose compensation is detailed in the Summary Compensation Table on page ____(the28 (the “Named Executive Officers”). For compensation decisions, including decisions regarding the grant of equity compensation, relating to executive officers other than our Chief Executive Officer, our Compensation Committee considers recommendations from our Chief Executive Officer. At the request of the Compensation Committee, materials for Compensation Committee meetings are prepared by our Vice President, Human Resources, with assistance from the compensation consultant engaged by the Committee, Hewitt Associates,Meridian Compensation Partners, LLC (the “Compensation Consultant”) in 2007.2011. Our Compensation Committee’sCommittee's strategic review for the 2007upcoming plan year occurredoccurs annually in October 2006 and its strategic review for the 2008 plan year occurred in October 2007 (in each instance induring an extended session).meeting session. The Committee consultedconsults with our Chief Executive Officer during this sessionthese sessions regarding the compensation of our 16 other corporatenon-CEO officers.
Components of Compensation
The key elements of our executive compensation program are base salary, short-term (annual) incentives and long-term incentives.incentives (three year). We strive to have each compensation element complement the others and reward the achievement of short-term and long-term business objectives. In 20072011, the primary short-term incentive vehicle used was the MIP, and the primary long-term incentive vehicles used were performance shares stock options and stock units.restricted stock. However, in order to keep our compensation programs in alignment with our compensation objectives and our strategic business goals, and to meet changing economic conditions and competitive challenges and pressures, we maintain flexibility in the use of these plans and vehicles. Additionally, a limited number of executive benefits and perquisites are used based on competitive practices and to provide a connection to our industry, such as the provision of leased vehicles with BorgWarner component content to our executives.practices.
Base Salary
Base salaries for our executives are established based on the scope of the executive’sexecutive's responsibilities, taking into accounttime in position and potential, the competitive market compensation paid by other companies for similar positions and internal equity. When considering market competitive base salaries we target the median level among the comparator companies. Base salaries are reviewed annually, and adjusted from time to timeas appropriate to realign salaries with market levels after taking into account individual responsibilities, individual and business unit performance, and experience.
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Short-Term Incentives
The Management Incentive Plan (“MIP”)MIP is our cash-based, annual incentive plan for executives. The primary purposes of the MIP are:are to: (i) to focus key managers on creating economic value ("EV")EV (defined below) for the Company; (ii) to reinforce teamwork and collaboration among key managers of the Company by measuring the management team at each business unit by the business results they achieve together; (iii) to deliver competitive awards for key managers when economic valueEV objectives are achieved or surpassed; and (iv) to attract and retain key managers by enabling participants in the MIP to share in the success of the Company. As a result,Consequently, we have chosen to use EV as our standard performance measure because we consider EV to be the foundation on which we operate and a very dynamic measure of how well we turn investmentinvestments into profit.profits. It is based on the conceptour belief that a business can be financially strong in the long run only if it consistently earns enough to cover its operating cost and, at the same time, produces enough additional earnings to cover its cost of capital or pay interest on debt and provide the required return to its stockholders. We consider any amount that exceeds these requirements to truly be additional economic value.
Although the MIP is an annual plan, due to the carryover feature described below, targets are established for three years at a time. The 2011 plan year was the second year under EV targets the Committee established at the end of 2009 for the 2010 - 2012 three-year cycle.
Methodology. The formula used in the MIP is as follows:is: EV = After-Tax Operating Income minus (Average Operating Investment x Cost of Capital). We define “After-Tax Operating Income” as income prior to interest and finance charges net of income taxes calculated at a fixed composite statutory rate. We define “Average Operating Investment” for each business unit as the sum of the assets employed in the business less operating liabilities such as accounts payable accruals and long-term liabilities other than debt. We define “Average Operating Investment” for the Company to be the sum of debt, minority interest, and stockholders equity less cash and cash equivalents and 1987 leveraged buy-out (“LBO”) related goodwill. We define “Cost of Capital” as the rate of return on capital invested required to compensate debt and equity investors.
Actual performance under our MIP is measured annually from January 1 to December 31. Our Compensation Committee determines any earned MIP bonuses for any given fiscal year after review of the actual performance in relation to pre-established targets for that fiscal year. Ordinarily, bonusesBonuses are typically paid in a single installment in the first quarter following the completion of a given fiscal year. The MIP is designed so that bonus compensation determined thereunder is considered qualified performance-based compensation within the meaning of Internal Revenue Code Section 162(m). Although annual bonuses currently depend primarily on the achievement of EV objectives, our Compensation Committee may adjust bonus measures and awards based on other financial or non-financial measures that it believes will benefit long-term stockholder value. While EV was the sole measure used for the payment of executive bonuses for the 2007 plan payment made in the first quarter of 2008, an adjustment was made to the EV performance improvement goals. See page ___ for an explanation of this adjustment.
We expectrequire each of our business units to increase its economic value each yearannually in order to receive above threshold levels of payout. Accordingly, a range of performance expectations (Threshold, Target and Maximum) is setrecommended by management and approved by our Compensation Committee, three years at a time, for our Company and each of our business units. At the time the performance expectations are set,established, there is substantial uncertainty as to whether they will be met. Generally, the Threshold for each of the three years is setestablished at a level that is greater than or equal to the EV achieved in the last year of the preceding three year period. In each of the second and third years of the three-year cycle, the Threshold value remains constant and the Target and Maximum values are adjusted upward each year. For the 2005 – 2007 performance cycle, the Target and Maximum values were set at an improvement of 1% and 2%, respectively,year by a percentage of the operating investment (“OI”) at the beginning of the three-yearthree year cycle.
| 2010 - 2012 Cycle EV Levels | |||
| 2010 | 2011 | 2012 | |
| Threshold | Base EV | Base EV | Base EV |
| Target | Base + 0.5% of OI | Base + 1% of OI | Base + 1.5% of OI |
| Maximum | Base + 1% of OI | Base + 2% of OI | Base + 3% of OI |
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Because the performance objectives under our MIP are determined three years at a time rather than annually, our MIP is a very challenging plan forchallenges our executives and forcescompels our key managers to find ways to generate and sustain economic growth over an extended period. Over the last ninesix years, results at or above targetTarget have been achieved just over half of the time.time reflecting the challenging nature of the targets.
In order to encourage a longer-term perspective in decision-making while continuing to reward participants for the achievement of annual goals, our MIP includes a “Carryover Bonus” feature that allows participants to earn, over the following two-year period, any MIP bonus opportunity (up to specified maximum limits) that was not attained during the current plan year. Thus, if the Maximum bonus opportunity is not earned in a given year, then the amount of the shortfall can be earned over the next two years (50% each year) by achieving results each year whichthat are higher than the prior year. However, no Carryover Bonus from a prior year is earned if the Threshold level of performance for the current year is not achieved. For example, if an individual was part of a unit whichthat achieved results at Threshold in year one, that individual would carryovercarry over the lost dollar opportunity between Threshold and Maximum into years two and three.three (50% each year). If in year two that individual’sindividual's unit achieved Maximum results, he would be paid 50% of that lost opportunity from year one. If in the subsequent year three, his unit’sunit's performance was below Threshold, he would lose the other 50% of the original carryover from year one. Because the carryover opportunity is available in addition to the basic bonus opportunity for the next two years, in a given year, the Carryover Bonus from prior years may increase the annual bonus opportunity of the executive officers above the regular target levels.
| 2008 | 2009 | 2010 | |
| Threshold | Base EV | Base EV | Base EV |
| Target | Base + 0.5% of OI | Base + 1% of OI | Base + 1.5% of OI |
| Maximum | Base + 1% of OI | Base + 2% of OI | Base + 3% of OI |
Bonus Opportunity.Based on our compensation philosophy, in November 2006,2010, for the 20072011 plan year, our Compensation Committee approved targetTarget bonus opportunities ranging from 85%75% to 125%130% of base salary for our Named Executive Officers. (See Grants of Plan-Based Awards table on page____)page 30). Our Named Executive Officers receive 50% of the Target opportunity for achieving Threshold performance and 200% of the Target opportunity for achieving Maximum performance or above. Results in between these levels are interpolated. In November 2007,2011, our Compensation Committee approved the targetTarget bonus opportunities for our executive officers for 2008.2012. These targetTarget bonus opportunities range from 85%75% to 130%135% of base salary for our Named Executive Officers. The targetIn order to place greater importance on financial performance-based compensation, the Target bonus opportunities generally reflect the approximated 65th percentile of annual bonus levels for similar positions in the Comparator Group. The final bonus amounts paid, if any, are determined by our Compensation Committee based on achievement of the performance measures.
The bonus opportunity for each officerNamed Executive Officer is further defined by unit, group and corporateCorporate results as applicable. The Compensation Committee’sCommittee's objective for the Presidents is to assign the largest percentage of the bonus opportunity to the individual business group or unit for which the executive has responsibility, while also promoting collaboration within and between business groups.
For our Named Executive Officers, the 20072011 bonus opportunities were allocatedweighted as follows:
| BorgWarner Inc. | BERU* | Business Group | Business Unit | |
| T. Manganello, CEO | 90% | 10% | ||
| R. Adams, CFO | 90% | 10% | ||
| R. Wood, President, Turbo/Emissions | 20% | 10% | 15% | 55% |
| C. Niekamp, President, TorqTransfer Systems | 30% | 15% | 55% | |
| B. Matthes, President, Transmission Systems | 30% | 15% | 55% |
| BorgWarner Inc. | Business Group | Business Unit | |
| T. Manganello, CEO | 100% | ||
| R. Adams, CFO | 100% | ||
| J. Sanderson, President Drivetrain Group | 40% | 60% | |
| J. Gasparovic, Vice President, General Counsel and Secretary | 100% | ||
| J. Verrier, President, Morse TEC | 20% | 20% | 60% |
Long-Term Incentives
We believe that long-term performance is achieveddriven through an ownership culture that rewards our executives for the maximization of long-term stockholder value. Our long-term incentive plans have been established and operated to provide certain of our employees, including our executive officers,Named Executive Officers, with appropriate incentives to help align their interests with the interests of our stockholders. In order to strengthen this alignment and provide our executives the opportunity for above market compensation when our stockholders are similarly rewarded, long-term incentive compensation levels are targeted at the 65th percentile of the market level. Furthermore, our stock compensation plans have provided a method for our executive officersNamed Executive Officers to acquire equity interests in our Company and comply
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with our stock ownership guidelines.
As discussed above, the target awards (in dollars) for our executives are typically based on the 65th percentile market value that reflects the responsibility of each Named Executive Officer, with grant sizes (in shares) based on a valuation methodology calculated by the Compensation Consultant. This methodology is the same one used by the Compensation Consultant in its market study to value equity compensation consistently between companies. Based on its review of the market data described above, our Compensation Committee approved grants in 2007 that were substantially at this target market value for our Named Executive Officers.
In 2007,2011, two-thirds of total value of the target long-term incentive opportunity was delivered through performance shares and one-third of total value was delivered through stock options.restricted stock. Due to the significant challenges in the automotive industry, our Compensation Committee determined to place the greater emphasis on performance shares because of its belief that this long-term incentive vehicle provides a more direct comparison of our longer term performance to the longer term performance of our peers within our industry, while firmly aligning our executives’executives' interests with the interests of our stockholders. Seestockholders (see further discussion of the performance shares below.
Performance Shares. Annual grants of performance shares are designed to provide competitive payouts at the end of a three-year period relative to how well we performthe Company performs against a peer group of companies (the “Peer Group Companies”) in terms of Total Shareholder Return (“TSR”).TSR. A listing of the Peer Group Companies (for the 2006 and 2007 grants) and the Former Peer Group Companies (for the 2005 grant) can be found on page ___.31. Our Board of Directors reserves the right to modify the list at any time in order to ensure that the peer group remains relevant as a measure for TSR performance. When granted, each performance share represents one share of common stock. In order for participants to earn a target award, the performance of our common stock must be at the 65th percentile of the TSR performance of the Peer Group Companies over a three-year period when compared to the Peer Group Companies.period. The value of the payout at the end of the three-year performance period is based on both the TSR performance and the stock price at the end of the period. This provides an additional link to stockholder value.
A new performance period begins each January 1 and ends three years later on December 31. As a result, in any given year up to three performance periods may overlap in a given year.overlap.
The target award is determined at the beginning of the performance period. The award is expressed in terms of performance shares. Our Compensation Committee established a conventionmethodology in February 2007 for determining the stock price to be used for converting the target dollar amount to a specific number of shares. This was established in order to provide consistency in the method of determining the stock price to be used from year to year. The conventionmethodology uses the average closing price of the Company’sCompany's common stock for the last five (5) trading days of the year preceding the date of grant, which coincides with the end of the prior performance period. The actual shares awarded for 20072011 are detailed on page ___in30 in the Grants of Plan-Based Awards table. The final value of each performance share will be determined only after the close of the performance period. There is no annual vesting of the target awards under this plan.
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| Performance Share TSR Performance/Payout Table | ||
Relative Increase in BorgWarner TSR vs. Peer Group | BorgWarner's Relative Increase Percentile Rank | Percent of Target Number of Performance Shares Earned |
| <81.3% | Below 25th percentile | 0.000% |
| 81.3% | 25th percentile | 25.000% |
| 87.5% | 35th percentile | 43.750% |
| 100.0% | 50th percentile | 71.875% |
| 112.5% | 65th percentile | 100.000% |
| 118.8% | 75th percentile | 140.000% |
| 141.1% | 90th percentile and above | 200.000% |
For example, if the Company's TSR increases at the same rate as the Peer Group Companies, the relative increase would be 100%. This represents a 50th percentile rank and would result in 71.875% of the target number of shares awarded to be paid. Interpolation is used to determine the percent of performance shares when our percentile rank does not fall directly on one of the ranks listed in the above.
Payment of earned performance shares is made in a combination of stock and cash in order to facilitate ownership of our common stock by our executives. Under current practice, sixty percentexecutives while providing cash for the payment of the earned performance shares are converted to our common stock.taxes due. The shares of stock are typically delivered shortly after our Compensation Committee certifies the results, which occurshas traditionally occurred during the first quarter after the three-year cycle has ended. Also under current practice, forty percent of the award is paid in cash since the full amount of the award is subject to income tax in the year in which it is received. The cash portion is based on the fair market value (average of the high and low sales price) of our stock on the date of delivery.
Restricted Stock Optionsand Stock Units.. The rolegranting of restricted stock optionsand stock units in the overall executive compensation package has been as a retention toolserves multiple purposes. They incent and as an incentive to and reward executives for improving the long term stock value to stockholders.stockholders and are retention tools. In 2007, the2011, restricted stock options werewas granted in February atto our executives based in the same timeU.S., as the performance shares. The exercise price is the averagehas been our traditional practice. Restrictions on one-half of the highest and lowest reported sales price of our common stock on the New York Stock Exchange on the day of the award. This method is used to mitigate any major fluctuations in the stock price that could occur during a typical day of trading in the stock market.
Compensation Benchmarking
Our Compensation Committee believes that benchmarking is a useful tool because it is a reflection of the market in which we compete for talent and provides credibility for our compensation programs with both our employees and our stockholders. However, benchmarking is not the only criterion used in compensation decisions. Other factors such as internal equity, individual and business performance, retention, and the degree of alignment between job duties of the incumbent with the benchmark job description are also considered. For example, in instances where an executive officer is uniquely key to our success, our Compensation Committee may provide compensation in excess of these benchmarks.
Our Compensation Committee annually engages an outside executive compensation consultant. For 2011, Meridian was selected. The Compensation Consultant compares the total compensation levels (including base salary, annual bonus, and long-term incentives) for our executive officers to the compensation practices of a comparator group with whom we compete for talent. Our Compensation Committee has established that the comparator group (“Comparator Group”) used for benchmarking executive officer compensation should, generally, include companies with revenues between $1.5 billion and $15 billion in the automotive, transportation and general industrial sectors. One of the companies, Johnson Controls Inc., has revenues in excess of $15 billion but is included because it is an industry comparator and is included in the Peer Group Companies used for TSR purposes. There were no changes to the Comparator Group for 2011. The group used for establishing 2011 compensation levels consisted of the following companies:
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| American Axle & Manufacturing Holdings, Inc. | Illinois Tool Works Inc. |
| AMSTED Industries, Inc. | ITT Corporation |
| ArvinMeritor, Inc. | Johnson Controls, Inc. |
| BAE Systems, Inc. | Kennametal Inc. |
| Ball Corporation | Navistar International Corp. |
| Brunswick Corporation | PACCAR Inc. |
| Cooper-Standard Holdings Inc. | Parker Hannifin Corporation |
| Cummins Inc. | Polaris Industries Inc. |
| Daimler Trucks North America LLC | Praxair, Inc. |
| Dana Holding Corporation | Robert Bosch Corporation |
| Denso International America, Inc. | The Sherwin-Williams Company |
| Donaldson Company, Inc. | Tenneco Inc. |
| Dover Corporation | The Timken Company |
| Eastman Chemical Co. | TRW Automotive Holdings Corp. |
| Eaton Corporation | Valmont Industries, Inc. |
| Federal Mogul Corporation | Worthington Industries, Inc. |
| Harley-Davidson, Inc. | |
Due to differences in size among the comparator companies, regression analysis is used to normalize the survey results to better reflect the size of our Company relative to that of the comparator companies.
Use of Tally Sheets
Tally sheets prepared by management set forth the amount of all components of each executive's current compensation including base salary, annual incentive compensation, long-term equity incentive compensation and retirement, and a historical review of prior long-term incentive grants. In October 2011, the Compensation Committee reviewed compensation tally sheets for each executive officer, including the Named Executive Officers. The tally sheets also provide a summary of the potential payouts and benefits upon various termination events. The elements and calculations reviewed are substantially similar to the information provided for each Named Executive Officer in Potential Payments Upon Termination or Change of Control on page 38. This analysis did not suggest the need for any material changes to our executive compensation program or its administration and it did not prompt the Committee to make any substantive changes to any compensation elements for any of the Named Executive Officers. The Committee expects to review updated tally sheets on an annual basis.
Executive Benefits and Perquisites
General. Our U.S.-based Named Executive Officers are eligible to participate in all of our employee benefit plans (such as medical, dental and vision care plans; flexible spending accounts for healthcare;health care; life, accidental death and dismemberment and disability insurance; employee assistance programs (confidential counseling); a defined contribution retirement plan including a 401(k) feature; and paid time off), in each case on the same basis as our other employees. The retirement plans described belowon pages 36 and 37 are provided to all employees and executives in order to permit them to accumulate funds for retirement and to provide a competitive retirement package as compared to other companies. Additionally, as described below, aOur benefit plans outside the U.S. are generally consistent with local practices.
A limited number of executive perquisites are used, alsooffered, based on competitive practices. Our Compensation Committee in its discretion may revise, amend or add to an officer’s executive benefits and perquisites if it deems it advisable. We believe that the benefits and perquisites we provide our executives are currently at or below median competitive levels for comparable companies. In 2011, to reduce administrative efforts and recognize a trend in the competitive market, the Company began to provide a taxable annual perquisite allowance in lieu of awarding individual perquisites to the Named Executive Officers. A lower perquisite allowance is paid to executives who retained a Company leased vehicle under the prior policy until the current three-year lease expires. No tax gross-ups are provided on benefits or perquisites.
25
Executive Officers received Company contributions under the Excess Plan in 2007. None of our Named Executive Officers made deferrals into the Deferred Compensation Plan in 2007. Mr. Wood has an account balance in the Deferred Compensation Plan from deferrals made prior to his appointment as an officer of the Company.2011. See further descriptions of these plansthis plan on page ___pages 36 and 37 under the Non-Qualified Deferred Compensation section.
In addition to benefits available to all BorgWarner BERU Systems GmbH ("BERU") employees, Dr. Waldhier, a non-U.S.-based former Named Executive Officer, was eligible in 2011 to receive reimbursement for supplemental health and accident insurance policies and a Company-leased vehicle in line with the competitive market. He was also eligible to participate in a deferred compensation retirement arrangement as described on page 37.
Pension Benefits. Except as described below on page ___,35, none of our Named Executive Officers participate in or have account balances in any of the qualified or non-qualified defined benefit pension plans sponsored by us.
Potential Payments Upon Termination or Change of Control
Change of Control Employment Agreements. We have entered into Change of Control Employment Agreements (the “Change of Control Agreements”) with each of our Named Executive Officers.Officers and 14 other executives. In establishing the Change of Control Agreements, our Board of Directors determined that it is in the best interests of the Company and its stockholders (i) to assure that we will havemaintain the continued dedication of our Named Executive Officers in the event of the threat or occurrence of a Change of Control, and (ii) to diminish the inevitable distraction of our Named Executive Officers by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control by agreeing to provide two to three years of compensation (depending on position) if the executive’sexecutive's employment is terminated as a result of a Change of Control. See pages ___38 and __39 for further details of the Change of Control Agreements for our Named Executive Officers. In order to reflect evolving trends in executive compensation and governance, at the recommendation of management, our Board of Directors approved changes to the standard Change of Control Agreement. These changes, which apply to all Change of Control Agreements issued beginning in 2009, (i) eliminate the excise tax gross-up provisions, (ii) attribute a portion of the benefit in the event of a Change of Control to the execution of a non-compete agreement with the executive and (iii) incorporate a clause that allows an executive to forego a portion of benefits in the event that the excise tax would otherwise be triggered.
Severance Benefits. Each of our U.S.-based Named Executive Officers is eligible for severance benefits under the BorgWarner Inc. Transitional Income Plan (“TIP”). The TIP was established to provide some financial protection to all U.S. salaried employees in the event that their employment is terminated for reasons beyond their control. The TIP benefit includes a lump sum payment that is based on salary level and length of service with us (with a maximum benefit of twenty-six26 weeks of base salary, adjusted for unemployment benefits) and medical coverage. In no event would a U.S.-based Named Executive Officer receive a payment under both the Change of Control Agreement and the TIP.
Stock Ownership Guidelines
In order to promote equity ownership and further align the interests of our management and our stockholders, we have established stock ownership guidelines that requestoutline our expectations for our executives to hold a significant and sustained long-term personal financial interest in the Company. Our stock ownership guidelines, which apply to all of our officers including our Named Executive Officers, request that our officers own and continuously hold a minimum level of stock as long as we employ them. The levels of requested stock ownership for our Named Executive Officers are as follows:
| Position | Stock Ownership Guideline |
| CEO | Three times average salary plus bonus for prior three years |
| CFO and Presidents | Two times average salary plus bonus for prior three years |
| General Counsel | One times average salary plus bonus for prior three years |
The CEO ownership guideline, assuming a target bonus, equates to more than six times the annual base salary.
Each of our Named Executive Officers is expected to fulfill this goal within five years of his or her appointment as an officer. Moreover, enough stock must be secured during each of the first five years to demonstrate progress toward fulfilling the goal by year five. Our Compensation Committee reviews the ownership level for our Chief Executive Officer and all other persons covered under this guideline each year. Our Board of Directors reserves the right to determine what action will be taken if a covered individual does not meet the requestedexpected ownership guidelines. All of our Named Executive Officers met the requestedexpected stock ownership guidelines in 2007.2011.
26
Our Insider Trading and Confidentiality Policy prohibits our directors and employees from engaging in any transaction involving a put, call or other option on BorgWarner Securities orsecurities and from selling any BorgWarner Securitiessecurities he or she does not own; i.e.own (i.e., “selling short.”short”).
Deductibility of Compensation
Section 162(m) of the U.S. Internal Revenue Code places a limit on(“IRC”) generally limits to $1 million the deduction as a business expenseU.S. federal deductibility of compensation paid in excess of $1 million paidone year to certain “covered employees” of a publicly held corporation (generally, our Chief Executive Officer, Chief Financial Officer and our next three most highly compensated executive officers in the year that the compensation is paid). Compensation thatHowever, performance-based compensation generally is “performance-based compensation” generally does not count toward Section 162(m)’s $1 million limit.
subject to the limits on deductibility so long as it meets certain requirements. Our compensation plans are generally designed so that bonusour incentive compensation determined thereunder qualifies as performance-based compensation within the meaning of Section 162(m).
Our Compensation Committee, which is comprised solely of “outside directors” for purposes of Section 162(m), strives to provide our Named Executive Officers with compensation programs that preserve the tax deductibility of the Internal Revenue Code. It is believed that all compensation earnedpaid by the namedCompany, consistent with our strategic business goals and other compensation objectives. Our Compensation Committee believes that stockholder interests are best served by compensation programs that attract, retain and reward the executive officerstalent necessary for our success. Accordingly, the Committee has discretion and flexibility in 2007 wasstructuring our compensation programs, and, in any year, may authorize compensation that is not fully deductible for Federal income tax puroses.under Section 162(m) if it believes such compensation will enable us to better achieve our strategic business goals, promote the interests of our stockholders and meet compensation objectives.
The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
THE COMPENSATION COMMITTEE
Jere A. Drummond, Chairman
Phyllis O. Bonanno
David T. Brown
Jan Carlson
The Compensation Committee Report does not constitute soliciting material. It is not considered filed by us and shall not be incorporated by reference into any of our other filings under the Securities Act or the Exchange Act unless we state otherwise.
Compensation Committee Interlocks and Insider Participation
During our last completed fiscal year, the voting members of our Compensation Committee were Jere A. Drummond, Chairman, Phyllis O. Bonanno, and David T. Brown.Brown and Jan Carlson. None of these persons was an officer or employee of the Company or any of its subsidiaries, or was formerly an officer of the Company or of any of its subsidiaries during such fiscal year.subsidiaries. None of these persons has any relationship requiring disclosure by the Company under Item 404 of Regulation S-K.
No executive officer of the Company served as a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served on the Company’sCompany's Compensation Committee or the Company’sCompany's Board of Directors. No executive officer of the Company served as a director of another entity, or as a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of such other entity, one of whose executive officers served on the Compensation Committee or the Board of Directors of the Company.
27
Summary Compensation Table
The following table sets forth information regarding compensation earned by our Named Executive Officers during 2007:2011:
| Name and Principle Position | Year | Salary | Bonus (1) | Stock Awards (2) | Option Awards (3) | Non-Equity Incentive Plan Compensation (4) | Change in Pension Value and Non-Qualified Deferred Compensation Earnings (5) | All Other Compensation | Total | ||||||||||||||||||||||||
| ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ||||||||||||||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | ||||||||||||||||||||||||
| Timothy M. Manganello | 2007 | 900,000 | - | 6,296,024 | 1,030,051 | 2,666,782 | - | 237,695 | 11,130,552 | ||||||||||||||||||||||||
| Chairman and CEO | 2006 | 900,000 | - | 315,529 | 494,516 | 624,118 | - | 293,431 | 2,627,594 | ||||||||||||||||||||||||
| Robin J. Adams | 2007 | 466,000 | - | 1,644,501 | 445,985 | 1,061,342 | - | 111,776 | 3,729,604 | ||||||||||||||||||||||||
| EVP, CFO and CAO | 2006 | 466,000 | - | 167,811 | 295,042 | 215,686 | - | 150,336 | 1,294,875 | ||||||||||||||||||||||||
| Roger J. Wood | 2007 | 395,000 | - | 1,271,210 | 254,809 | 709,924 | - | 158,982 | 2,789,925 | ||||||||||||||||||||||||
| President and GM, Turbo / Emission Systems | 2006 | 395,000 | - | 117,169 | 123,333 | 329,835 | - | 249,738 | 1,215,075 | ||||||||||||||||||||||||
| Cynthia A. Niekamp | 2007 | 365,000 | - | 1,032,589 | 213,575 | 875,385 | - | 58,724 | 2,545,274 | ||||||||||||||||||||||||
| President and GM, TorqTransfer Systems | 2006 | 365,000 | 85,000 | 117,169 | 119,341 | 43,448 | - | 90,256 | 820,214 | ||||||||||||||||||||||||
| Bernd W. Matthes(6) | 2007 | 365,000 | - | 1,032,589 | 198,144 | 326,478 | - | 321,672 | 2,243,883 | ||||||||||||||||||||||||
| President and GM, Transmission Systems | 2006 | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
(1) $85,000 sign-on bonus paid in 2006 per 2004 employment offer. | |||||||||||||||||||||||||||||||||
| (2) 2007 compensation expense of the 2005, 2006, and 2007 performance share awards. Assumptions used in the | |||||||||||||||||||||||||||||||||
| calculations of these amounts are included in the Company’s audited financial statements for the fiscal year ended December 31, 2007, | |||||||||||||||||||||||||||||||||
| included in the Company’s Summary Annual Report for 2008 filed with the Securities and Exchange Commission (See Note 12 on pages 49-52). | |||||||||||||||||||||||||||||||||
| This also includes the 2007 compensation expense of the August 3, 2007 Recognition and Retention Grant to Mr. Manganello. | |||||||||||||||||||||||||||||||||
| Details of this grant were disclosed in an 8-K filing on August 7, 2007. The compensation expense reported for 2006 included the | |||||||||||||||||||||||||||||||||
| 2004 ESPP award and the 2005 and 2006 performance share awards. Assumptions used in the 2006 calculations were included in | |||||||||||||||||||||||||||||||||
| the Company’s 2006 Annual Report filed with the Securities and Exchange Commission (See Note 12 on pages 49-52). | |||||||||||||||||||||||||||||||||
| (3) 2007 compensation expense of aggregate grant date fair value of the 2004, 2005, 2006, 2007 Stock Option awards, excluding forfeitures. | |||||||||||||||||||||||||||||||||
| Assumptions used in the calculations of these amounts are included in the Company’s audited financial statements for the fiscal year ended | |||||||||||||||||||||||||||||||||
| December 31, 2007, included in the Company’s Summary Annual Report for 2008 filed with the Securities and Exchange Commission (See Note 12 on pages 49-52). | |||||||||||||||||||||||||||||||||
| The compensation expense reported for 2006 included the aggregate grant date fair values of the 2004, 2005, 2006 Stock Option awards, excluding | |||||||||||||||||||||||||||||||||
| forfeitures. Assumptions used in the 2006 calculations were included in the Company’s 2006 Annual Report filed with the Securities and Exchange | |||||||||||||||||||||||||||||||||
| Commission (See Note 12 on pages 49-52). | |||||||||||||||||||||||||||||||||
| (4) Reflects the 2007 plan year payout, paid in February 2008, under the Management Incentive Plan (MIP), including Carryover Bonus payments of | |||||||||||||||||||||||||||||||||
| $691,606 for Mr. Manganello, $243,180 for Mr. Adams, $95,801 for Mr. Wood, $80,424 for Dr. Matthes, and $288,055 for Ms. Niekamp. | |||||||||||||||||||||||||||||||||
| The 2006 plan year payout under the MIP included Carryover Bonus payments of $2,582 for Mr. Manganello, $1,141 for | |||||||||||||||||||||||||||||||||
| Mr. Adams, $713 for Mr. Wood. No Carryover Bonus was paid to Ms. Niekamp for the 2006 plan year. | |||||||||||||||||||||||||||||||||
| (5) The actual change in the present value of the accumulated pension value decreased for Dr. Matthes by $98,908 in 2007 due to an increase in the | |||||||||||||||||||||||||||||||||
| discount rate used in 2007 compared to the rate used in 2006. Change in Pension Value for 2007 was converted from Euro to US Dollar using | |||||||||||||||||||||||||||||||||
| an exchange rate of 1 Euro = 1.4598 US Dollar. | |||||||||||||||||||||||||||||||||
| (6) Compensation is not reported for Dr. Matthes for 2006 as he was not a Named Executive Officer. | |||||||||||||||||||||||||||||||||
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards (1) ($) | Option Awards (1) ($) | Non-Equity Incentive Plan (2) ($) | Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | ||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | ||||||||
| Timothy M. Manganello | 2011 | 1,141,250 | — | 4,869,636 | — | 3,718,000 | — | 940,922 | 10,669,808 | ||||||||
| Chairman and Chief | |||||||||||||||||
| Executive Officer | 2010 | 1,100,000 | — | 5,339,285 | — | 5,005,000 | — | 616,237 | 12,060,522 | ||||||||
| 2009 | 946,458 | — | 4,952,018 | — | 2,997,412 | — | 199,605 | 9,095,493 | |||||||||
| Robin J. Adams | 2011 | 586,188 | — | 1,825,638 | — | 1,601,775 | — | 417,403 | 4,431,004 | ||||||||
| Executive VP, Chief | |||||||||||||||||
| Financial Officer and | 2010 | 565,000 | — | 2,002,343 | — | 2,076,375 | — | 253,700 | 4,897,418 | ||||||||
| Chief Administrative | 2009 | 486,135 | — | 1,856,972 | — | 1,243,419 | — | 88,759 | 3,675,285 | ||||||||
| Officer | |||||||||||||||||
| John G. Sanderson (3) | 2011 | 465,000 | — | 1,156,202 | — | 1,051,250 | — | 189,603 | 2,862,055 | ||||||||
| Executive VP and Group | |||||||||||||||||
| President, Drivetrain | 2010 | 465,000 | — | 1,101,446 | — | 1,006,250 | — | 108,536 | 2,681,232 | ||||||||
| 2009 | 322,878 | — | 1,331,652 | — | 338,498 | — | 54,802 | 2,047,830 | |||||||||
| John J. Gasparovic (4) | 2011 | 392,500 | — | 669,436 | — | 736,875 | — | 183,322 | 1,982,133 | ||||||||
| Vice President, General | |||||||||||||||||
| Counsel and Secretary | |||||||||||||||||
| James R. Verrier (4) | 2011 | 337,188 | — | 547,772 | — | 571,094 | — | 158,671 | 1,614,725 | ||||||||
| Vice President, President | |||||||||||||||||
| and General Manager, | |||||||||||||||||
| BorgWarner Morse TEC | |||||||||||||||||
| Dr. Thomas Waldhier (5)(6)(7)(8) | 2011 | 461,067 | — | 730,094 | — | 866,980 | 143,043 | 43,422 | 2,244,606 | ||||||||
| Former Vice President, | |||||||||||||||||
| President and General | 2010 | 432,427 | — | 800,971 | — | 1,005,508 | 100,792 | 36,229 | 2,375,927 | ||||||||
| Manager, BERU Systems | 2009 | 429,660 | 279,340 | 1,320,525 | — | 619,524 | 117,519 | 43,956 | 2,810,524 | ||||||||
| and Emission Systems | |||||||||||||||||
(1) The aggregate values in columns (e) and (f) reported for 2011, 2010, and 2009 represent the grant date fair market value of the awards noted in the Grants of Plan Based Awards Table. Assuming maximum performance levels are achieved for the 2011-2013 Performance Share Plan, the maximum value of all stock awards granted would be $8,315,619 for Mr. Manganello, $3,115,239 for Mr. Adams, $1,973,654 for Mr. Sanderson, $1,141,585 for Mr. Gasparovic, $935,357 for Mr. Verrier, and $1,244,525 for Dr. Waldhier based on fair market value at the time of grant.
(2) The values in column (g) reflect payments made under the Management Incentive Plan (MIP), including Carryover Bonus payments. The 2011 plan year payout, paid in February 2012, includes a Carryover Bonus payment of $715,000 for Mr. Manganello, $296,625 for Mr. Adams, $169,250 for Mr. Sanderson, $144,375 for Mr. Gasparovic, $59,219 for Mr. Verrier, and $167,550 for Dr. Waldhier. The 2010 plan year payout, paid in February 2011, includes
28
a Carryover Bonus payment of $2,145,000 for Mr. Manganello, $889,875 for Mr. Adams, $169,250 for Mr. Sanderson, and $365,836 for Dr. Waldhier. The 2009 plan year payout, paid in February 2010, includes a Carryover Bonus payment of $1,567,412 for Mr. Manganello, $650,169 for Mr. Adams, and $283,269 for Dr. Waldhier.
(3) Mr. Sanderson joined BorgWarner Inc. as an officer on February 23, 2009.
(4) Mr. Gasparovic and Mr. Verrier first became Named Executive Officers in 2011, therefore no data is reflected for the prior years.
(5) Compensation reported for Dr. Waldhier is converted to US Dollars using an exchange rate of 1 Euro = 1.3919 USD, which is a periodic average rate for 2011.
(6) The actual change in the present value of the accumulated pension value increased for Dr. Waldhier in 2011 by $143,043 when netted against last year’s balance. The change in Pension Value for 2011 for Dr. Waldhier was converted from Euros to US Dollars using an exchange rate of 1 Euro = 1.3919 US Dollar. The change in Pension Value for 2010 for Dr. Waldhier was converted from Euros to US Dollars using an exchange rate of 1 Euro = 1.3285 US Dollar. The change in Pension Value for 2009 for Dr. Waldhier was converted from Euros to US Dollars using an exchange rate of 1 Euro = 1.3967 US Dollar.
(7) The value reported in column (d) represents a special one-time recognition and retention cash payment.
(8) Dr. Waldhier resigned as an officer of the Company effective September 3, 2011. As required, Dr. Waldhier is reported as a Named Executive Officer as he would have qualified as one of our top five most highly compensated executives had he remained an officer of the Company as of December 31, 2011. Stock Awards reported in column (e) granted on February 7, 2011 were forfeited on September 3, 2011 in connection with the resignation of Dr. Waldhier as disclosed in a Form 8-K filed on August 30, 2011.
All Other Compensation Table
The following table details, by category, the amounts reported above in the “All Other Compensation” column of the Summary Compensation Table for each of our Named Executive Officers. All of our Named Executive Officers exceeded the aggregate threshold of $10,000 for perquisites and personal benefits. The chart below indicates the amount in each category for each of our Named Executive Officers:
| Name | Perquisite Allowance ($) | Personal Use of Leased Vehicle ($) | Personal Use of Company Aircraft ($) | Tax Reimburse-ment ($) | Registrant Contributions to Defined Contribution Plans (1) ($) | German Supple-mental Insurance Contribution ($) | TOTAL of All Other Compensation ($) | |||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | |||||||
| Timothy M. Manganello | 32,000 | 9,088 | 14,002 | — | 885,832 | — | 940,922 | |||||||
| Robin J. Adams | 31,400 | 5,061 | 244 | — | 380,698 | — | 417,403 | |||||||
| John G. Sanderson | 20,600 | 10,809 | 566 | — | 157,628 | — | 189,603 | |||||||
| John J. Gasparovic | 22,000 | 11,250 | — | — | 150,072 | — | 183,322 | |||||||
| James R. Verrier | 27,800 | 1,756 | 925 | — | 128,190 | — | 158,671 | |||||||
| Dr. Thomas Waldhier (2) | 15,855 | 22,853 | — | — | — | 4,714 | 43,422 | |||||||
| Name | Personal Use of Leased Vehicle | Financial Counseling | Personal Use of Company Aircraft | Relocation Costs (1) | Life Insurance Premiums Paid by Company | Tax Reimbursement | Registrant Contributions to Defined Contribution Plans (2) | TOTAL of "All Other Compensation" | ||||||||||||||||||||||||
| ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | ||||||||||||||||||||||||
| Timothy M. Manganello | 17,071 | 10,000 | 6,363 | - | 900 | 10,101 | 193,260 | 237,695 | ||||||||||||||||||||||||
| CEO | ||||||||||||||||||||||||||||||||
| Robin J. Adams | 9,943 | 10,000 | - | - | 839 | 7,250 | 83,744 | 111,776 | ||||||||||||||||||||||||
| CFO | ||||||||||||||||||||||||||||||||
| Roger J. Wood | 9,674 | 10,000 | 997 | 28,917 | 711 | 8,944 | 99,739 | 158,982 | ||||||||||||||||||||||||
| President, TBS/E | ||||||||||||||||||||||||||||||||
| Cynthia A. Niekamp | - | 10,000 | 1,477 | 657 | 5,061 | 41,529 | 58,724 | |||||||||||||||||||||||||
| President, TTS | ||||||||||||||||||||||||||||||||
| Bernd W. Matthes | 9,084 | 10,000 | 606 | 173,905 | 657 | 85,791 | 41,629 | 321,672 | ||||||||||||||||||||||||
| President, TS | ||||||||||||||||||||||||||||||||
(1) Amounts relating to relocation from New York to North Carolina and North Carolina to Michigan for Mr. Wood, and from Germany to Michigan for Dr. Matthes. | ||||||||||||||||||||||||||||||||
| (2) Amounts contributed by the Company on behalf of its Named Executive officers during 2007 pursuant to the provisions of the RSP and the Excess Plan. | ||||||||||||||||||||||||||||||||
(2) Reimbursement for Health Insurance of € 3,387 per the German employment contract of Dr. Waldhier. Compensation reported for Dr. Waldhier is converted to US Dollar using an exchange rate of 1 Euro = 1.3919 USD, which is a periodic average rate for 2011.
| Name | Tax Reimbursement for Personal Use of Leased Vehicle | Tax Reimbursement for Financial Counseling Services | Tax Reimbursement for Personal Use of Company Aircraft | Tax Reimbursement for Relocation Costs | Total Tax Reimbursement | |||||||||||||||
| ($) | ($) | ($) | ($) | ($) | ||||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | |||||||||||||||
| Timothy M. Manganello | 2,846 | 6,828 | 427 | - | 10,101 | |||||||||||||||
| CEO | ||||||||||||||||||||
| Robin J. Adams | 2,846 | 4,404 | - | - | 7,250 | |||||||||||||||
| CFO | ||||||||||||||||||||
| Roger J. Wood | 2,846 | 4,404 | 444 | 1,250 | 8,944 | |||||||||||||||
| President, TBS/E | ||||||||||||||||||||
| Cynthia A. Niekamp | - | 4,404 | 657 | - | 5,061 | |||||||||||||||
| President, TTS | ||||||||||||||||||||
| Bernd W. Matthes | 2,798 | 4,404 | 270 | 78,319 | 85,791 | |||||||||||||||
| President, TS | ||||||||||||||||||||
29
Grants of Plan Based Awards
The following table summarizes the grants of equity and non-equity plan awards to our Named Executive Officers in 2007: 2011:
Name | Grant Date | Estimated Possible Payout Under | Estimated Future Payout Under | All Other Stock Awards: Number of Shares or Stock Units | All Other Option Awards: Number of Securities Underlying Option | Exercise or Base Price of Option Awards (4) | Closing Market Price on Date of Option Grant | Grant Date Fair Value of Stock and Option Awards | ||||
| Non-Equity Incentive Plan Awards (1) | Equity Incentive Plan Awards | |||||||||||
| Threshold | Target | Maximum | Threshold | Target | Maximum | |||||||
| ($) | ($) | ($) | (#) | (#) | (#) | (#) | (#) | ($/Share) | ($/Share) | ($) | ||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | (k) | (l) | (m) |
| Timothy M. Manganello | 562,500 | 1,125,000 | 2,250,000 | |||||||||
| CEO | 2/6/2007 (2) | 22,000 | 88,000 | 154,000 | 3,080,000 | |||||||
| 2/6/2007 (3) | 114,840 | 34.95 | 35.00 | 1,208,117 | ||||||||
| 8/3/2007 (5) | 253,274 | 11,166,851 | ||||||||||
| Robin J. Adams | 233,000 | 466,000 | 932,000 | - | ||||||||
| CFO | 2/6/2007 (2) | 8,350 | 33,400 | 58,450 | 1,169,000 | |||||||
| 2/6/2007 (3) | 43,460 | 34.95 | 35.00 | 457,199 | ||||||||
| Roger J. Wood | 167,900 | 335,800 | 671,500 | - | ||||||||
| President, TBS/E | 2/6/2007 (2) | 5,200 | 20,800 | 36,400 | 728,000 | |||||||
| 2/6/2007 (3) | 27,060 | 34.95 | 35.00 | 284,671 | ||||||||
| Cynthia A. Niekamp | 155,150 | 310,300 | 620,500 | - | ||||||||
| President, TTS | 2/6/2007 (2) | 3,800 | 15,200 | 26,600 | 532,000 | |||||||
| 2/6/2007 (3) | 19,700 | 34.95 | 35.00 | 207,244 | ||||||||
| Bernd W. Matthes | 155,100 | 310,300 | 620,500 | - | ||||||||
| President, TS | 2/6/2007 (2) | 3,800 | 15,200 | 26,600 | 532,000 | |||||||
| 2/6/2007 (3) | 19,700 | 34.95 | 35.00 | 207,244 | ||||||||
(1) 2007 bonus opportunity under the MIP. Estimated possible payout levels do not reflect carryover opportunities for the prior years. | ||||||||||||
| (2) 2007 Performance Share Grant: Value of grant = number of target shares times the closing stock price on grant date of $35.00. | ||||||||||||
| All amounts reflect values after December 17, 2007 stock split. | ||||||||||||
| (3) 2007 Stock Option Grant: Stock options granted same day as approved by Compensation Committee of the Board of Directors. | ||||||||||||
| FMV at grant date = number of shares times $10.52, excluding forfeitures in accordance with FAS123R. All amounts reflect | ||||||||||||
| values after December 17, 2007 stock split. | ||||||||||||
| (4) Exercise Price is the average of the high and the low stock price on day of grant. Value is adjusted to reflect December 17, 2007 stock split. | ||||||||||||
| (5) 2007 Recognition and Retention Grant: Value of Grant = number of stock units times the average of the high and low stock price on | ||||||||||||
| August 3, 2007 of $44.09. Values are adjusted to reflect December 17, 2007 stock split. Details of this grant were disclosed in an 8-K filing on August 7, 2007. | ||||||||||||
| Estimated Possible Payout Under | Estimated Future Payout Under | All Other Stock Awards: Number of Shares or Stock Units (#) | All Other Option Awards: Number of Securities Underlying Option (#) | Exercise or Base Price of Option Awards ($/Share) | Grant Date Fair Value of Stock and Option Awards ($) | ||||||||||||||||
| Non-Equity Incentive Plan Awards (1) | Equity Incentive Plan Awards | ||||||||||||||||||||
| Name | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | ||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | (k) | (l) | ||||||||||
| Timothy M. Manganello | 750,750 | 1,501,500 | 3,003,000 | ||||||||||||||||||
| 2/7/2011(2) | 12,225 | 48,900 | 97,800 | 3,445,983 | |||||||||||||||||
2/7/2011 (3) | 20,530 | — | — | 1,423,653 | |||||||||||||||||
| Robin J. Adams | 326,288 | 652,575 | 1,305,150 | ||||||||||||||||||
| 2/7/2011(2) | 4,575 | 18,300 | 36,600 | 1,289,601 | |||||||||||||||||
2/7/2011 (3) | 7,730 | — | — | 536,037 | |||||||||||||||||
| John G. Sanderson | 220,500 | 441,000 | 882,000 | ||||||||||||||||||
| 2/7/2011(2) | 2,900 | 11,600 | 23,200 | 817,452 | |||||||||||||||||
2/7/2011 (3) | 4,885 | — | — | 338,750 | |||||||||||||||||
| John J. Gasparovic | 148,125 | 296,250 | 592,500 | ||||||||||||||||||
| 2/7/2011(2) | 1,675 | 6,700 | 13,400 | 472,149 | |||||||||||||||||
2/7/2011 (3) | 2,845 | — | — | 197,287 | |||||||||||||||||
| James R. Verrier | 127,969 | 255,938 | 511,875 | ||||||||||||||||||
| 2/7/2011(2) | 1,375 | 5,500 | 11,000 | 387,585 | |||||||||||||||||
2/7/2011 (3) | 2,310 | — | — | 160,187 | |||||||||||||||||
| Dr. Thomas Waldhier | 174,857 | 349,715 | 699,430 | ||||||||||||||||||
| 2/7/2011(2)(4) | 1,825 | 7,300 | 14,600 | 514,431 | |||||||||||||||||
| 2/7/2011(3)(4) | 3,110 | — | — | 215,663 | |||||||||||||||||
(1) 2011 bonus opportunity under the MIP. Estimated possible payout levels do not reflect carryover opportunities for the prior years. Dr. Waldhier's Non-Equity Incentive Plan threshold, target, and maximum payout values are converted to US Dollar using an exchange rate of 1 Euro = 1.3919 USD, which is a periodic average rate for 2011.
30
(2) 2011 Performance Share Grant: Value of grant = number of target shares times the closing stock price on grant date of $70.47.
(3) 2011 Restricted Stock Grant: Granted same day as approved by Compensation Committee of the Board of Directors. FMV at grant date = number of restricted shares times the average of the high and low stock price on February 7, 2011 of $69.345 in accordance with ASC Topic 718.
(4) Grant forfeited on September 3, 2011 in connection with the resignation of Dr. Waldhier as disclosed in a Form 8-K filed on August 30, 2011.
The equity awards reflected in the Grants of Plan-Based Awards table are granted under the SIP. Further details regarding BorgWarner’sour incentive plans can be found in our Compensation Discussion and Analysis on pages xx-xx.22-23.
The peer group for the performance share grants includes publicly traded companies in the automotive supplier industry with at least $1 billion in sales that compete for stockholder investment dollars. For the performance periodperiods from January 1, 20072009 to December 31, 2009,2011, January 1, 2010 to December 31, 2012, and January 1, 2011 to December 31, 2013, the peer group includes the following companies (the “Peer Group Companies”):
| American Axle & Manufacturing Holdings, Inc. | Johnson Controls, Inc. | Tenneco |
| ArvinMeritor, Inc. | Lear Corporation | TRW Automotive |
| Autoliv, Inc. | Magna International Inc. | Visteon |
| Gentex Corporation | Modine Manufacturing | |
* Not included for the January 1, 2010 to December 31, 2012 performance period due to bankruptcy.
Our Board of Directors reserves the right to modify the list at any time in order to ensure that the peer group remains relevant as a measure for TSR performance in the automotive supply industry.
31
Outstanding Equity Awards at Fiscal Year End
The following table summarizes all equity awards to our Named Executive Officers that remain either unexercised and/or unvested as of December 31, 2007:2011:
| Option Awards | Stock Awards | ||||||||
Name | Number of Securities Underlying Unexercised Options Exercisable (1) | Number of Securities Underlying Unexercised Options Unexercisable (1) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | Option Exercise Price (1) | Option Expiration Date (2) | Number of Shares or Units of Stock That Have Not Vested (1)(3) | Market Value of Shares or Units of Stock That Have Not Vested (1)(3) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (1)(4) | Equity Incentive Plan Awards: Market or Payout of Unearned Shares, Units or Other Rights That Have Not Vested (1)(4) |
| (#) | (#) | (#) | (#) | (#) | ($) | (#) | ($) | ||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) |
| Timothy M. Manganello | 114,840 | 34.95 | 02/06/2017 | ||||||
| CEO | 100,000 | 29.09 | 07/26/2016 | ||||||
| 62,000 | 62,000 | 29.04 | 07/27/2015 | ||||||
| 25,072 | 22.28 | 07/28/2014 | |||||||
| 23,064 | 12.66 | 07/24/2012 | |||||||
| 2,304 | 12.07 | 07/25/2011 | |||||||
| 253,698 | 12,281,514 | ||||||||
| 311,500 | 15,079,715 | ||||||||
| Robin J. Adams | 43,460 | 34.95 | 02/06/2017 | ||||||
| CFO | 40,000 | 29.09 | 07/26/2016 | ||||||
| 15,000 | 15,000 | 29.04 | 07/27/2015 | ||||||
| 25,926 | 22.28 | 07/28/2014 | |||||||
| 40,000 | 22.15 | 04/26/2014 | |||||||
| 100,450 | 4,862,785 | ||||||||
| Roger J. Wood | 27,060 | 34.95 | 02/06/2017 | ||||||
| President, TBS/E | 28,000 | 29.09 | 07/26/2016 | ||||||
| 10,000 | 10,000 | 29.04 | 07/27/2015 | ||||||
| 14,686 | 22.28 | 07/28/2014 | |||||||
| 14,732 | 16.52 | 07/23/2013 | |||||||
| 74,900 | 3,625,909 | ||||||||
| Cynthia A. Niekamp | 19,700 | 34.95 | 02/06/2017 | ||||||
| President, TTS | 21,000 | 29.09 | 07/26/2016 | ||||||
| 8,000 | 8,000 | 29.04 | 07/27/2015 | ||||||
| 20,000 | 22.28 | 07/28/2014 | |||||||
| 54,950 | 2,660,130 | ||||||||
| Bernd W. Matthes | 19,700 | 34.95 | 02/06/2017 | ||||||
| President, TS | 21,000 | 29.09 | 07/26/2016 | ||||||
| 8,000 | 8,000 | 29.04 | 07/27/2015 | ||||||
| 6,840 | 22.28 | 07/28/2014 | |||||||
| 54,950 | 2,660,130 | ||||||||
(1) All amounts reflect values after December 17, 2007 stock split. | |||||||||
| (2) The stock options noted with expiration dates of 2011, 2012, 2013, and 2014 are fully vested. Stock options with an expiration date of | |||||||||
| 2015 are 50% vested, with the other 50% vesting on July 27, 2008. Stock options with an expiration date of 2016 will vest 50% on July 26, 2008 | |||||||||
| and 50% on July 26, 2009. Stock options with an expiration date of 2017 will vest 50% on February 6, 2009 and 50% on February 6, 2010. | |||||||||
| (3) The values in columns (g) and (h) represent the number of shares granted and the year-end value of the August 3, 2007 Recognition and | |||||||||
| Retention stock grant to Mr. Manganello, valued at $48.41 per share, which is the closing stock price on December 31, 2007. | |||||||||
| Dividend equivalents earned on Novemeber 15, 2007 are included. Details of this grant were disclosed in an 8-K filing on August 7, 2007. | |||||||||
| (4) The values of columns (i) and (j) are comprised of performance share grants made under the SIP, issued for the performance periods of | |||||||||
| 2006-2008 and 2007-2009. Column (i) represents the number of all outstanding unearned performance shares that would be paid out at the | |||||||||
| end of each performance period if maximum TSR performance is achieved. The maximum value was assumed based on actual performance | |||||||||
| over the most recent period at maximum levels. Column (j) represents the number of performance shares in column (i) times the closing | |||||||||
| stock price of $48.41 on December 31, 2007. Actual future payouts will depend on several factors, including (i) the number of performance | |||||||||
| shares that are earned, as determined after the end of the performance period based on the level at which the applicable performance goals | |||||||||
have been achieved, as described on pages XX–XX; and (ii) the fair market value of stock, as defined in the Plan. | |||||||||
| Option Awards | Stock Awards | ||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised and Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date (1) | Number of Shares or Units of Stock That Have Not Vested (2) (#) | Market Value of Shares or Units of Stock That Have Not Vested (2) ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (3) (#) | Equity Incentive Plan Awards: Market or Payout of Unearned Shares, Units or Other Rights That Have Not Vested (3) ($) | ||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | ||||||||
| Timothy M. Manganello | 114,840 | — | — | 34.95 | 02/06/17 | ||||||||||||
| 100,000 | 29.09 | 07/26/16 | |||||||||||||||
| 99,640 | 6,351,054 | ||||||||||||||||
| 306,800 | 19,555,432 | ||||||||||||||||
| Robin J. Adams | 43,460 | — | — | 34.95 | 02/06/17 | ||||||||||||
| 40,000 | 29.09 | 07/26/16 | |||||||||||||||
| 30,000 | 29.04 | 07/27/15 | |||||||||||||||
| 25,926 | 22.28 | 07/28/14 | |||||||||||||||
| 40,000 | 22.15 | 04/26/14 | |||||||||||||||
| 37,392 | 2,383,366 | ||||||||||||||||
| 115,000 | 7,330,100 | ||||||||||||||||
| John G. Sanderson | 20,480 | 1,305,395 | |||||||||||||||
| — | — | — | — | 66,400 | 4,232,336 | ||||||||||||
| John J. Gasparovic | 13,900 | — | — | 34.95 | 02/06/17 | ||||||||||||
| 13,707 | 873,684 | ||||||||||||||||
| 42,200 | 2,689,828 | ||||||||||||||||
| James R. Verrier | 10,289 | 655,821 | |||||||||||||||
| — | — | — | — | 34,600 | 2,205,404 | ||||||||||||
| Dr. Thomas Waldhier | 16,145 | 1,029,082 | |||||||||||||||
| — | — | — | — | — | — | ||||||||||||
(1) The stock options noted with expiration dates of 2014, 2015, 2016, and 2017 are fully vested.
(2) The values in column (g) represent the number of restricted shares of stock and/or stock units granted in 2009, 2010, and 2011. The dollar value in column (h) is calculated using the closing stock price on December 31, 2011 of $63.74 per share.
(3) The values of columns (i) and (j) are comprised of performance share grants made under the SIP, issued for the
32
performance periods of 2010-2012 and 2011-2013. Column (i) represents the number of all outstanding unearned performance shares that would be paid out at the end of each performance period if target TSR performance is achieved. The payout value was assumed based on actual performance over the most recent period at 200.00% of target level. Column (j) represents the number of performance shares in column (i) times the closing stock price of $63.74 on December 31, 2011. Actual future payouts will depend on several factors, including (i) the number of performance shares that are earned, as determined after the end of the performance period based on the level at which the applicable performance goals have been achieved, as described on pages 22-24; and (ii) the fair market value of stock, as defined in the SIP.
All outstanding stock option grants to officers and employees since 2000 had exercise periods of one year in the case of involuntary separations (without cause) and death, and three years in the case of retirement and disability. In July 2009, management recommended and our Compensation Committee approved the extension of these exercise periods as a tool to encourage retirement for some individuals and to ease the transition of employees who were subject to involuntary reductions. Therefore, the exercise period for all vested and unexercised 2001 - 2007 stock options granted to directors, officers and employees who leave the Company due to involuntary termination (without cause) or death between January 1, 2009 and December 31, 2010 or due to retirement or disability on or after January 1, 2009 has been extended to three years (or the end of the ten-year term of option, whichever is shorter) for involuntary terminations (without cause) and death and the full remaining term of the option in the case of retirement and disability. The original strike price of the grants and the original term of the options (ten years) did not change. The amended provisions of the SIP allow our Compensation Committee the flexibility to establish the exercise period applicable to any future stock option grants.
If an option-holder incurs a termination of employment due to cause, any stock options held by the option-holder will terminate. If termination of employment is voluntary and without cause, any vested and unexercised stock options may be exercised for a period of five business days from the date of termination or until expiration of the stock option, whichever period is shorter.
Our Compensation Committee may elect to accelerate the exercise date of a stock option in the event of employment termination, such as death, disability, or retirement. Stock options granted in 2005, 2006, and 2007 provided for immediate vesting in the event of retirement as defined under the SIP. Stock options granted in 2007 provided for immediate vesting in the event of death or disability.
In the event of a Change of Control, during the 60-day period from and after a Change of Control, our Compensation Committee may allow the option-holder to surrender all or part of his or her options to the Company and receive a cash payment equal to the difference between the Change of Control price and the exercise price of the option, less appropriate tax withholdings. However, if the Change of Control is within six months of the date of grant to an officer or director subject to Section 16(b) of the Exchange Act, then the option-holder is unable to elect to receive a cash payment until after six months from the date of grant.
Regarding adjustments to shares, in the event of any merger, reorganization, consolidation, recapitalization, stock dividend, stock split, extraordinary distribution with respect to the stock or other change in corporate structure affecting the stock, our Compensation Committee or our Board of Directors may make such substitution or adjustments in the aggregate number, kind and option price of shares or adjustments in the consideration receivable upon exercise as it may determine to be appropriate in its sole discretion.
33
Option Exercises and Stock Vested
The following table summarizes all option exercises and stock vestings by our Named Executive Officers during 2007:2011:
| Option Awards | Stock Awards | |||
| Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (1) (#) | Value Realized on Vesting (2) ($) |
| (a) | (b) | (c) | (d) | (e) |
| Timothy M. Manganello | 174,440 | 8,718,518 | 382,789 | 24,747,821 |
| Robin J. Adams | — | — | 142,833 | 9,233,220 |
| John G. Sanderson | — | — | 69,205 | 4,493,920 |
| John J. Gasparovic | — | — | 52,546 | 3,397,193 |
| James R. Verrier | 51,260 | 2,473,928 | 35,552 | 2,318,308 |
| Dr. Thomas Waldhier | — | — | 56,490 | 3,657,817 |
(1) Number of "shares" disclosed in column (d) represents the total number of performance shares earned for the 2009-2011 performance period and paid in 2012, the total number of shares of restricted stock granted in 2009 that lapsed in 2011, and the total number of shares of restricted stock granted in 2008 that lapsed in 2011. The performance shares are generally paid 60% in stock and 40% in cash.
| Option Awards | Stock Awards | |||
| Number of Shares Acquired on Exercise (1) | Value Realized On Exercise | Number of Shares Acquired on Vesting (2) | Value Realized On Vesting (3) | |
| Name | (#) | ($) | (#) | ($) |
| (a) | (b) | (c) | (d) | (e) |
| Timothy M. Manganello | - | - | 64,575 | 3,126,076 |
| CEO | ||||
| Robin J. Adams | - | - | 32,288 | 1,563,062 |
| CFO | ||||
| Roger J. Wood | - | - | 23,975 | 1,160,630 |
| President, TBS/E | ||||
| Cynthia A. Niekamp | - | - | 23,975 | 1,160,630 |
| President, TTS | ||||
| Bernd W. Matthes | 7,740 | 355,586 | 23,975 | 1,160,630 |
| President, TS | ||||
(1) Stock option exercises on June 19, 2007 were comprised of two exercises, 4,320 shares | ||||
| that were granted on July 23, 2003 and 3,420 shares granted on July 24, 2004. | ||||
| (2) Number of “shares” disclosed in column (d) represents the total number of performance | ||||
| shares earned for the 2005-2007 performance period and paid in 2008. The performance | ||||
| shares are actually paid 60% in stock and 40% in cash. | ||||
| (3) Amount in column (e) is equal to the number of units vested multiplied by $48.41, which | ||||
| is the closing stock price at the end of the performance period on December 31, 2007. | ||||
As previously stated in the Compensation Discussion and Analysis, the granting of performance shares is designed to provide competitive payouts at the end of a three-year period relative to how well the Company performs against its Peer Group Companies in TSR.
At the end of the 20052009 to 20072011 performance period, the Company’sCompany's TSR was above the 90th percentile relative to the peer group companies’ in effect at the timePeer Group Companies' TSR (see page 31 for listing of the grant. These companies were Arvin Meritor, Autoliv, Cummins Engine, Dana, Delphi, Dura, Eaton, Johnson Controls, Lear, Magna, Modine, Tenneco and Visteon. Tower Automotive was also originally in this peer group, but ceased trading on July 31, 2007.Peer Group Companies). The gross value of the payouts, before taxes, is reflected above in column (e) of the table.
34
Pension Benefits
| Name | Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefit (1) ($) | Payment During Last Fiscal Year ($) |
| (a) | (b) | (c) | (d) | (e) |
| Timothy M. Manganello | — | — | — | |
| Robin J. Adams | — | — | — | |
| John G. Sanderson | — | — | — | |
| John J. Gasparovic | — | — | — | |
| James R. Verrier | — | — | — | |
| Dr. Thomas Waldhier | Vereinbarung zur betrieblichen Altersversorgung | 4.3 | 487,627 | — |
| "Agreement regarding a Company Pension" | ||||
(1) Converted from Euro to US Dollar using an exchange rate of 1 Euro = 1.3919 US Dollar, which is a periodic average rate for 2011.
Our U.S.-based Named Executive Officers are eligible to participate in the BorgWarner Inc. Retirement Savings Plan (“RSP”). This plan, which is available to all U.S. salaried and hourly employees, allows our Named Executive Officers to take advantage of current tax-advantaged opportunities for accumulating future retirement income. The RSP is comprised of two primary components: a Company Retirement Account and a Savings Account with a match feature. In the Company Retirement Account, the Company makes a contribution to the employee's account each pay period based on years of service and eligible pay. For the majority of employees, including our Named Executive Officers, this ranges from 4% to 6% of compensation up to the Social Security wage base and from 8% to 11.5% of compensation above the Social Security wage base. In the Savings Account, participants may make contributions to the plan of 1% to 28% of their eligible earnings on a before-tax and/or after-tax basis (up to the statutorily prescribed annual limit on pre-tax contributions under the IRC). The Company matches 100% of the first 3% of the employee's pre-tax contributions. Participant contributions are held in trust as required by law. All employee contributions are 100% vested when contributed. The first 3% of compensation contributed to the Company Retirement Account vests immediately and any other employer contributions vest 100% after three years of service.
page 37
| Name | Plan Name | Number of Years Credited Service | Present Value of Accumulated Benefit (1) | Payment During Last Fiscal Year | |||||||||
| (#) | ($) | ($) | |||||||||||
| (a) | (b) | (c) | (d) | (e) | |||||||||
| Timothy M. Manganello | - | - | - | ||||||||||
| C CEO | |||||||||||||
| Robin J. Adams | - | - | - | ||||||||||
| CFO | |||||||||||||
| Roger J. Wood | - | - | - | ||||||||||
| President, TBS/E | |||||||||||||
| Cynthia A. Niekamp | - | - | - | ||||||||||
| President, TTS | |||||||||||||
| Bernd W. Matthes | BorgWarner Transmission Systems GmbH Pension Plan | 11.8 | 593,026 | - | |||||||||
| President, TS | |||||||||||||
| (1) Converted from Euro to US Dollar using an exchange rate of 1 Euro = 1.4598 US Dollar for SFAS 87/158 disclosure purposes. | |||||||||||||
The Present Value of the Accumulated Pension Benefits as of December 31, 20072011 for Dr. MatthesWaldhier is calculated using the following assumptions:
Discount Rate: 5.50%
Retirement Age: 65
Annual Pension Increase: 1.75%
35
Non-Qualified Deferred Compensation
The following table shows the non-qualified deferred compensation activity for our Named Executive Officers during 2007:2011.
| Name | Executive Contributions in Last FY | Registrant Contributions in Last FY | Aggregate Earnings in Last FY | Aggregate Withdrawals/ Distributions | Aggregate Balance at Last FYE | |||||||||||||||||
| ($) | ($) | ($) | ($) | ($) | ||||||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | |||||||||||||||||
| Timothy M. Manganello | ||||||||||||||||||||||
| CEO (1) | - | - | - | - | - | |||||||||||||||||
| (2 | ) | - | 169,385 | 292,008 | - | 1,795,324 | ||||||||||||||||
| Robin J. Adams | ||||||||||||||||||||||
| CFO (1) | - | - | - | - | - | |||||||||||||||||
| (2 | ) | - | 59,369 | 74,161 | - | 347,086 | ||||||||||||||||
| Roger J. Wood | ||||||||||||||||||||||
| President, TBS/E (1) | - | - | 21,313 | - | 273,551 | |||||||||||||||||
| (2 | ) | - | 72,476 | 60,144 | - | 486,045 | ||||||||||||||||
| Cynthia A. Niekamp | ||||||||||||||||||||||
| President, TTS (1) | - | - | - | - | - | |||||||||||||||||
| (2 | ) | - | 21,206 | 12,309 | - | 120,009 | ||||||||||||||||
| Bernd W. Matthes | ||||||||||||||||||||||
| President, TS (1) | - | - | - | - | - | |||||||||||||||||
| (2 | ) | - | 20,279 | 2,879 | - | 62,004 | ||||||||||||||||
(1) Deferred Compensation Plan | ||||||||||||||||||||||
| (2) Excess Plan | ||||||||||||||||||||||
| No Deferred Compensation elections were made by Named Executive Officers for fiscal year 2007 | ||||||||||||||||||||||
| Name | Executive Contributions in Last FY ($) | Registrant Contributions in Last FY ($) | Aggregate Earnings in Last FY ($) | Aggregate Withdrawls/Distributions ($) | Aggregate Balance at Last FYE ($) |
| (a) | (b) | (c) | (d) | (e) | (f) |
| Timothy M. Manganello | |||||
| (1) | — | — | — | — | — |
| (2) | — | 864,332 | (233,105) | — | 3,961,105 |
| (3) | — | — | (2,228,805) | — | 16,480,744 |
| Robin J. Adams | |||||
| (1) | — | — | — | — | — |
| (2) | — | 350,547 | (33,124) | — | 1,256,636 |
| John G. Sanderson | |||||
| (1) | — | — | — | — | — |
| (2) | — | 134,950 | 614 | — | 211,172 |
| John J. Gasparovic | |||||
| (1) | — | — | — | — | — |
| (2) | — | 127,394 | (1,527) | — | 316,970 |
| James R. Verrier | |||||
| (1) | — | — | — | — | — |
| (2) | — | 98,539 | (4,702) | — | 288,762 |
| Dr. Thomas Waldhier | |||||
| (4) | — | — | (234) | — | 27,753 |
(1) Deferred Compensation Plan. No deferred compensation elections were made by Named Executive Officers are eligible to participate in the BorgWarner Inc. Retirement Savings Plan (“RSP”). This plan, which is available to all U.S. salaried and certain hourly employees, allows our Named Executive Officers to take advantage of current tax-advantaged opportunities for accumulating future retirement income. The RSP is comprised of two components: a Company Retirement Account and a Savings Account with a match feature. In the Company Retirement Account, the Company makes a contribution to the employee’s account each pay period based on years of service and eligible pay ranging from 4% to 6% of compensation up to the Social Security wage base and from 8% to 11.5% of compensation above the Social Security wage base. In the Savings Account, participants may make contributions tofiscal year 2011 as the plan of 1% to 28% of their eligible earnings on a before-tax and/or after-tax basis (up to the statutorily prescribed annual limit on pre-tax contributions under the Internal Revenue Code). The Company will matchwas closed.
(2) Excess Plan
(3) August 3, 2007 Recognition and Retention Grant. Mr. Manganello is vested in 100% of the first 3%award. However, the actual receipt of the employee’s pre-tax contributions. Participant contributions are heldshares will not occur until termination of his employment as specified under the Award Agreement.
(4) Contractual Trust Agreement for Dr. Waldhier. Converted to US Dollar using an exchange rate of 1 Euro = 1.3919 USD, which is a periodic average rate for 2011.
Due to significant restrictions placed on deferred compensation by IRC Section 409A and the low participation rates in trustour plan, management recommended and our Board approved freezing the Deferred Compensation Plan as required by law. All employee contributions are 100% vested when contributed, and any employer contributions vest 100% after three years of service.December 31, 2008. Current balances will remain in the plan, but no future deferral elections will be allowed. Distribution options include a single lump sum or quarterly payments over a term of 5 or 10 years.
The Excess Plan is an unfunded, non-qualified retirement plan, which keeps certain highly compensated U.S. employees whole with regard to Company contributions that are otherwise limited under the RSP by Internal Revenue CodeIRC provisions. Participation is automatic once these limits are reached in a plan year. The contributions vest in the same manner as under the RSP. Distributions are made only when,following a participant's separation from service, with distributions attributable to amounts earned or vested before January 1, 2005 distributed within 30 days of participant's separation from service and if,amounts earned or vested after December 31, 2004 distributed in the participant is entitled to benefits underseventh month following the RSP.month in which the participant's separation from service occurs. No in-service withdrawals or loans are available.
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| BorgWarner | ||
| Buffalo Small | ||
| Harbor International | ||
| Vanguard Mid Cap | ||
| Northern Trust S&P 500 Index Fund - Non Lending - Tier 2 | 2.10% | |
| Northern Trust Focus 2010 Fund | 3.01% | |
| Northern Trust Focus 2015 Fund | 1.94% | |
| Northern Trust Focus 2020 Fund | 0.71% | |
| Northern Trust Focus 2025 Fund | (0.44)% | |
| Northern Trust Focus 2030 Fund | (1.51)% | |
| Northern Trust Focus 2035 Fund | (2.70)% | |
| Northern Trust Focus 2040 Fund | (3.04)% | |
| Northern Trust Focus 2045 Fund | (2.98)% | |
| Northern Trust Focus 2050 Fund | (2.95)% | |
| Northern Trust Focus 2055 Fund | (2.88)% | |
| Northern Trust Focus Income Fund | 5.07% | |
| Northern Trust Collective Aggregate Bond Index Fund | 7.86% | |
| T. Rowe Price Stable Value Common Trust Fund - Schedule N | 3.35% | |
Dr. Waldhier is eligible to participate in a deferred compensation retirement arrangement whereby he has the option to defer up to 50% of his annual base salary into a Contractual Trust Agreement (“CTA”). For the amount that Dr. Waldhier elects to contribute each year, BERU withholds this part of his salary and pays it into the CTA, which is then invested. The account balance is payable to Dr. Waldhier upon normal retirement at age 65, or early retirement at age 63 with deductions, or at age 60 in case of disability. The investment funds are based on a life cycle model. This model included three funds in 2011 as noted below. Annual rates of return for the Investment Contracts Fundcalendar year ended December 31, 2011 as reported by the plan administrator are as follows:
| DWS Institutional Euroland Equities | (15.66)% |
| DWS Institutional Euro Government Bonds | (0.71)% |
| DWS Institutional Money Plus | 1.08% |
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Potential Payments Uponupon Termination or Change of Control
The following table shows the post-employment payments that would be paid to each of our Named Executive Officers under the various employment-related scenarios.certain Change of Control (“COC”) related events. The calculations assume each Named Executive Officer’sOfficer's employment is terminated on December 31, 2007.2011. For purposes of the calculations, the closing stock price on the last business day of 20072011 ($48.41)63.74) was used to determine the vested market value of stock options and stock units.
restricted stock.
restricted stock.
| Name | Payment Triggering Events Not In Connection with a Change of Control ("CoC") | Payment Triggering Events In Connection with a CoC | |||||||||||
| Involuntary Termination | Voluntary Termination | Involuntary Termination | Voluntary Termination | ||||||||||
| with Cause (1) | without Cause (2) | with Good Reason (3) | without Good Reason (3) | Retirement (2) | Death (4) | Disability (2) | CoC only | with Cause (6) | without Cause (5) | For Good Reason (5) | without Good Reason (7) | ||
| ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ||
| Timothy M. Manganello | 1,795,324 | 10,259,153 | 4,559,606 | 4,559,606 | 14,938,414 | 12,305,474 | 11,805,474 | - | - | 34,949,750 | 34,949,750 | - | |
| CEO | |||||||||||||
| Robin J. Adams | 347,086 | 4,943,330 | 2,365,582 | 2,365,582 | 6,591,869 | 5,994,519 | 5,528,519 | - | - | 8,232,553 | 8,232,553 | - | |
| CFO | |||||||||||||
| Roger J. Wood | 759,596 | 3,642,755 | 1,806,845 | 1,806,845 | 4,741,778 | 4,402,118 | 4,007,118 | - | - | 6,612,416 | 6,612,416 | - | |
| President, TBS/E | |||||||||||||
| Cynthia A. Niekamp | 120,009 | 2,798,941 | 797,569 | 797,569 | 3,624,882 | 3,429,202 | 3,064,202 | - | - | 4,486,334 | 4,486,334 | - | |
| President, TTS | |||||||||||||
| Bernd W. Matthes | 62,004 | 2,026,886 | 574,422 | 574,422 | 2,852,827 | 2,622,147 | 2,292,147 | - | - | 4,492,694 | 4,492,694 | �� - | |
| President, TS | |||||||||||||
| (1) Includes vested balance of the Excess Plan and vested balance of the Deferred Compensation Plan (Mr. Wood only). | |||||||||||||
| (2) Includes 2007 MIP payment, value of vested stock options, 2005-2007 PSP payment, vested balance of the | |||||||||||||
| Excess Plan, and vested balance of the Deferred Compensation Plan (Mr. Wood only). | |||||||||||||
| (3) Includes value of vested stock options, vested balance of the Excess Plan, and vested balance of the Deferred | |||||||||||||
| Compensation Plan (Mr. Wood only). | |||||||||||||
| (4) Includes 2007 MIP payment, value of vested stock options, 2005-2007 PSP payment, vested balance of the | |||||||||||||
| Excess Plan, vested balance of the Deferred Compensation Plan (Mr. Wood only), and life insurance. | |||||||||||||
| (5) Includes cash severance payment based on three times the average of base plus bonus, 2007 MIP payment, | |||||||||||||
| stock option payment, 2007 stock unit payment, 2006-2008 and 2007-2009 performance share payment, retirement benefit based on | |||||||||||||
| three times the 2007 Company contributions to the RSP, value of welfare benefits (i.e. health care, life | |||||||||||||
| insurance, and disability insurance coverage for 3 years), outplacement services, and excise tax and tax | |||||||||||||
| gross-up payment. | |||||||||||||
| (6) While there are no additional payments associated with Involuntary Termination for Cause associated with a | |||||||||||||
| Change of Control, each Named Executive Officer would be eligible for the same payments listed under footnote (1) above. | |||||||||||||
| (7) While there are no additional payments associated with Voluntary Termination without Good Reason associated | |||||||||||||
with a Change of Control, each Named Executive Officer would be eligible for the same payments listed under footnote (3) above. | |||||||||||||
| Payment Triggering Events in Connection with a COC | |||||
| Involuntary Termination | Voluntary Termination | ||||
| Name | COC Only ($) | with Cause ($) | without Cause (1) ($) | with Good Reason (1) ($) | without Good Reason (2) ($) |
| (a) | (b) | (c) | (d) | (e) | |
| Timothy M. Manganello | — | — | 35,812,905 | 35,812,905 | 11,830,569 |
| Robin J. Adams | — | — | 15,014,171 | 15,014,171 | 4,437,951 |
| John G. Sanderson | — | — | 5,710,642 | 5,710,642 | 2,469,713 |
| John J. Gasparovic | — | — | 5,538,424 | 5,538,424 | 1,627,973 |
| James R. Verrier | — | — | 3,323,378 | 3,323,378 | 1,274,099 |
| Dr. Thomas Waldhier | — | — | — | — | — |
(1) For all Named Executive Officers, includes cash severance payment based on three times (two times for Mr. Gasparovic) the average of base plus bonus, value of unvested restricted stock, prorated 2010-2012 and 2011-2013 performance share payments, retirement benefit based on three times (two times for Mr. Gasparovic) the 2011 Company contributions to the RSP, value of welfare benefits (i.e. health care, life insurance, and disability insurance coverage for three years [two years for Mr. Gasparovic]), outplacement services, and excise tax and tax gross-up payment (except Mr. Sanderson and Mr. Verrier).
(2) Includes the value of unvested restricted stock, prorated 2010-2012 and 2011-2013 performance share payments.
Change of Control Employment Agreements
New COC Agreements were implemented beginning in 2009 for new and future officers of the Company. The new COC Agreements eliminate excise tax gross-up provisions, allow a portion of the benefit to be attributable to a non-compete agreement in order to reduce the potential for the excise tax, and allow executives to forego a portion of benefits if the benefit triggers the excise tax.
Below is a general description of certainthe material terms and conditions of our existing Change of Control Agreements.COC Agreements for U.S.-based executives.
In the event that a Change of Control of the Company is followed within three years by (1) the termination of a Named Executive Officer’s employment for any reason other than death, disability, or Cause or (2) such Named Executive Officer terminates his or her employment for Good Reason then underor the ChangeCompany terminates a Named Executive Officer's employment with the Company without Cause within two to three years of Control Agreements,a COC or in anticipation of a COC, the Named Executive Officer shall be paid is entitled to the following:
a lump sum cash amount equal to two or three times his or her annual base salary and average annual bonus for the most recent three years, and years;
a lump sum cash amount equal to two to three times the Company’sCompany's retirement contributions whichthat would have been made on his or her behalf in the first year after termination of employment. If anemployment;
for Executives who entered into COC Agreements prior to 2009, a tax gross-up for any excise tax istaxes imposed underpursuant to IRC Section 4999 of the Internal Revenue Code on payments received byIRC so that the Named Executive Officer due to a Change of Control ofwill be in the Companysame after tax
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position he or any interest or penalty is incurred by the Named Executive Officer with respect to suchshe would have been in had no excise tax been imposed;
Executives who entered into COC Agreements in or after 2009 may elect to forego a portion of COC payments which could otherwise trigger IRC Section 4999 excise taxes as the Companytax will paynot be “grossed-up” under the Named Executive Officer an amount that will net the Named Executive Officer the amount the Named Executive Officer would have received if the excise or penalty had not been imposed. In addition, the Named Executive Officer is entitled to continued employee welfareCOC Agreement;
continuation of medical, dental and life insurance benefits for two to three years after termination of employment.years; and
outplacement services at a cost not to exceed $40,000.
“Cause” generally means the willful and continued failure of the executive to perform substantially the executive’sexecutive's duties or the willful engaging by the executive in illegal conduct or gross misconduct materially injurious to us.
“Good Reason” generally means the diminution of responsibilities, assignment to inappropriateauthority or duties, our failure to comply with compensation or benefit provisions, transfer to a new work location more than 35 miles from the executive’sexecutive's previous work location, a purported termination of the Change of Control EmploymentCOC Agreement by us other than in accordance with the Change of Control EmploymentCOC Agreement, or our failure to require any successor to us to comply with the Change of Control EmploymentCOC Agreement.
Terminations Not Related to a COC
In the event of an involuntary or voluntary termination with or without cause not in connection with a COC, no additional payments are made to Named Executive Officers.
In the event of termination of employment by retirement not in connection with a COC, no additional payments are made to Named Executive Officers.
The stated amounts do not include life or disability insurance benefits or vested benefits under the qualified RSP or under the TIP, as these benefit plans are available to all U.S.-based salaried employees. The provisions of each plan would determine the timing and method of payments made under the above scenarios.
39
Director Compensation
The following table details the compensation earned by each non-employee director who served on the Board of Directors in 2007.2011. Directors who are employees of BorgWarner are not compensated for their service on the Board:board:
| Name | Fees Earned or Paid in Cash ($) | Stock Awards (1) ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Changes in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation | Total | Aggregate Number of Outstanding Stock and Option Awards (2) (#) | ||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | ||||||||
| Phyllis O. Bonanno | 68,500 | — | — | — | — | — | 68,500 | 3,096 | ||||||||
| David T. Brown | 68,500 | 86,003 | — | — | — | — | 154,503 | 1,096 | ||||||||
| Jan Carlson | 68,500 | 86,003 | — | — | — | — | 154,503 | 1,096 | ||||||||
| Dennis C. Cuneo | 68,500 | 86,003 | — | — | — | — | 154,503 | 1,096 | ||||||||
| Jere A. Drummond | 77,000 | — | — | — | — | — | 77,000 | 12,320 | ||||||||
| John R. McKernan, Jr. | 68,500 | — | — | — | — | — | 68,500 | 4,320 | ||||||||
| Alexis P. Michas | 83,000 | — | — | — | — | — | 83,000 | 3,096 | ||||||||
| Ernest J. Novak, Jr. | 91,000 | — | — | — | — | — | 91,000 | 10,320 | ||||||||
| Richard O. Schaum | 69,500 | — | — | — | — | — | 69,500 | 3,096 | ||||||||
| Thomas T. Stallkamp | 68,500 | — | — | — | — | — | 68,500 | 3,096 | ||||||||
(1) The values in column (c) reported for 2011 represent the grant date fair market value of the restricted stock award granted on April 27, 2011. (FMV at grant date = number of restricted shares times the average of the high and low stock price on April 27, 2011 of $78.47)
| Name | Fees Earned or Paid in Cash | Stock Awards (1) | Option Awards | Aggregate Number of Outstanding Stock and Option Awards (2) | Non-Equity Incentive Plan Compensation | Changes in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compensation | Total | ||||||||||||||||||||||||
| ($) | ($) | ($) | (# | ) | ($) | ($) | ($) | ($) | ||||||||||||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | ||||||||||||||||||||||||
| Phyllis O. Bonanno | 55,000 | 80,284 | - | 27,782 | - | - | - | 135,284 | ||||||||||||||||||||||||
| David T. Brown | 55,000 | 55,002 | - | 1,894 | - | - | - | 110,002 | ||||||||||||||||||||||||
| Jere A. Drummond | 73,000 | 80,276 | - | 32,316 | - | - | - | 153,276 | ||||||||||||||||||||||||
| Paul E. Glaske | 58,000 | 61,933 | - | 29,894 | - | - | - | 119,933 | ||||||||||||||||||||||||
| Alexis P. Michas | 53,500 | 80,284 | - | 27,782 | - | - | - | 133,784 | ||||||||||||||||||||||||
| Ernest J. Novak, Jr. | 85,000 | 80,276 | - | 12,316 | - | - | - | 165,276 | ||||||||||||||||||||||||
| Richard O. Schaum | 57,000 | 73,353 | - | 3,782 | - | - | - | 130,353 | ||||||||||||||||||||||||
| Thomas T. Stallkamp | 56,500 | 55,019 | - | 3,782 | - | - | - | 111,519 | ||||||||||||||||||||||||
(1) 2007 compensation expense of aggregate grant date fair value of the 2005, 2006, 2007 Restricted Stock Awards, excluding forfeitures, in accordance with FAS 123R. | ||||||||||||||||||||||||||||||||
| (2) Aggregate number of outstanding shares of restricted stock and outstanding vested and unvested stock options at fiscal year-end. Values reflect 12/17/2007 stock split. | ||||||||||||||||||||||||||||||||
Annual compensation for our non-employee directors for 20072011 was comprised of the following components: annual retainer, Boardboard meeting fees, Committeecommittee meeting fees, special committee retainer and equity compensation consisting of restricted stock. Our non-employee directors were not granted any Stock Option Awards and did not receive any Non-Equity Incentive Plan Compensation for 2007. After review of non-employee director compensation paid by peer and other corporations, the Board approved an increase in non-employee director compensation to be effective January 1, 2008, the first increase since 2005.2011.
As allowed under the BorgWarner Inc. Amended and Restated 2004 Stock Incentive Plan,SIP, ending in 2010, each non-employee director received $165,000$258,000 worth of restricted stock in the initial year of each three-year term. In April 2007, two2011, the Company began a transition toward annual rather than triennial awards of equity compensation to non-employee directors. Class III non-employee directors (Drummond and Novak) were elected for a three-year term. These two directors were each awarded 2,158 sharesto new terms in April 2011 received $86,000 worth of restricted common stock, determined by dividing the total value of $165,000 by the average of the high and low of the Company’s stock price at the time of the grant. The restrictionsstock. Restrictions on the shares of stock will expire overon the three-year term, one third in each year andfirst anniversary of the date of grant. The Compensation Committee has the authority to accelerate vesting in the event of retirement. During the period that the restrictions are in place, directors have all of the rights of a stockholder of the Company holding the same class or series of stock as the restricted stock, including the right to vote the shares and the right to receive any cash dividends. Non-employee directors elected to new terms in 2008 will receive $258,000 worth of restricted stock in the initial year of each three-year term. Non-employee directors continuing to serve without re-election will receive pro-rated increases in equity compensation to equalize the equity compensation increase.
The annual retainer for non-employee directors in 20072011 was $40,000$55,000 for service on the Board of Directors. Beginning January 1, 2008 the annual retainer for non-employee directors was increased to $55,000. The annual retainer is prorated when a new member joins or a current member leaves our Board. Mr. Glaske will retire from the Board at the 2008 Annual Meeting in accordance with retirement guidelines adopted by the Board. When a qualified candidate is identified, a new director will be appointed to Class III by the Board of Directors.board.
40
Each non-employee director received $1,500 for each Boardboard meeting attended. Each Committeecommittee member also received $1,500 ($3,000 if he or she was the Chairman of the committee) for each committee meeting attended. In recognition of increasedgreater time commitments, the Chairman of the Audit Committee received $5,000 for each committee meeting attended since January 1, 2005. Meeting and attendance fees were not changed for 2008.attended. The Lead Director (Mr. Michas) received $10,000 annually in recognition of his additional services to the Company. The Company pays for the expenses associated with attendance at Boardboard and Committeecommittee meetings and other functions attended at the request of the Company. The Company maintains a directors’directors' deferred compensation plan under which directors may defer receipt of retainer fees only. Four directors deferred fees under the plan in 2007.2011.
PROPOSAL 3 —2 - RATIFICATION OF SELECTION OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
If the appointment of PwC as auditors for 2012 is not ratified by the stockholders, the adverse vote will be considered a direction to the Audit Committee to consider other auditors for next year. However, because of the difficulty in making any substitution of auditors so long after the beginning of the current year, the appointment for 2012 will stand unless the Audit Committee finds other good reason for making a change.
The Board of Directors anticipates that representatives of DeloittePwC will be present at the meeting to respond to appropriate questions, and will have an opportunity, if they desire, to make a statement.
Recommendation
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES AND SERVICES
41
| 2007 | 2006 | |||||||
| Audit Fees and Expenses | $ | 4,268,900 | $ | 4,236,600 | ||||
| Audit-Related Fees | $ | 253,700 | $ | 348,900 | ||||
| Tax Fees | $ | 362,000 | $ | 346,700 | ||||
| All Other Fees | $ | — | $ | — | ||||
| Totals | $ | 4,884,600 | $ | 4,932,200 | ||||
| 2011 | 2010 | ||||||
| Audit Fees | $ | 4,370,982 | $ | 3,824,849 | |||
| Audit-Related Fees (1) | $ | 166,270 | $ | 195,392 | |||
| Tax Fees (2) | $ | 808,531 | $ | 980,000 | |||
| All Other Fees Totals | ___ | ___ | |||||
| $ | 5,345,783 | $ | 5,000,241 | ||||
(1) Includes audits of financial statements of employee benefit plans.
(2) Includes fees connected with tax compliance, tax planning and expatriate services. The expatriate services were $475,353 in 2011.
Your Audit Committee has adopted procedures for pre-approving all audit and non-auditaudit-related services provided by the independent registered public accounting firm, including the fees and terms of such services. These procedures include reviewing detailed back-up documentation for audit and permitted non-auditaudit-related services. The documentation includes a description of, and a budgeted amount for, particular categories of non-auditaudit-related and tax services that are recurring in nature and therefore anticipated at the time that the budget is submitted. Audit Committee approval is required to exceed the pre-approved amount for a particular category of non-auditaudit services, audit-related services or tax-services, and to engage the independent registered public accounting firm for any non-audit services not included in those pre-approved amounts. For boththese types of pre-approval, the Audit Committee considers whether such services are consistent with the rules on auditor independence promulgated by the SEC and the PCAOB. The Audit Committee also considers whether the independent registered public accounting firm is best positioned to provide the most effective and efficient service, based on such reasons as the auditor’sauditor's familiarity with the Company’sCompany's business, people, culture, accounting systems, risk profile, and whether the services enhance the Company’sCompany's ability to manage or control risks and improve audit quality. The Audit Committee may form and delegate pre-approval authority to subcommittees consisting of one or more members of the Audit Committee, and such subcommittees must report any pre-approval decisions to the Audit Committee at its next scheduled meeting. All of the services provided by the independent registered public accounting firm were pre-approved by your Audit Committee.
PROPOSAL 3 - ADVISORY APPROVAL OF THE COMPANY'S EXECUTIVE COMPENSATION
Our executive team delivered another record year of financial performance. In 2011, our net sales grew by 25.9%, our operating income was 11.2% of net sales, and net earnings increased by 46% from 2010 results. Our Company continued its long-standing tradition of excellence and delivery of performance for our stockholders, customers, and the communities in which we operate.
Our compensation programs are substantially tied to our key business objectives and creation of economic value. If the value we deliver to our stockholders declines, so does the compensation we deliver to our executives. In order to maintain this link of pay to performance and better assure our ability to attract and retain talent:
We maintain the highest level of corporate governance over our executive pay programs
We closely monitor the compensation programs and pay levels of executives from companies in related industries of similar size and complexity, as well as trends in executive compensation, so that we may ensure that our compensation programs are within the norm of a range of market practices
Our Board of Directors, our Chairman and Chief Executive Officer, and our head of Human Resources engage in a rigorous talent review process annually to address succession and executive development for our CEO and other key executives.
Our Compensation Committee is committed to creating an executive compensation program that enables us to attract and retain a superior management team with appropriate incentives to build long-term value for our
42
stockholders. The Company's compensation package uses a mixture of cash and equity awards to align executive compensation with our annual and long-term performance. These programs reflect the Committee's philosophy that executive compensation should provide greater rewards for superior performance, as well as accountability for underperformance. At the same time, we believe our programs do not encourage excessive risk-taking by management. The board believes that our philosophy and practices have resulted in executive compensation decisions that are appropriate and that have benefited the Company over time.
For these reasons, the board requests our stockholders approve the compensation of the Company's Named ExecutiveOfficers as described in this proxy statement, including the Compensation Discussion and Analysis, the executive compensation tables and the related footnotes and narrative which accompany the tables.
The Company has in the past sought approval from stockholders regarding incentive plans that we use to motivate, retain and reward our executives. Those incentive plans, including the BorgWarner Inc. Amended and Restated 2004 Stock Incentive Plan and the BorgWarner Inc. Executive Incentive Plan, govern a majority of the compensation that the Company provides to our executives. Over the years, the Company has made a number of changes to its disclosures concerning executive compensation to improve transparency for stockholders.
In accordance with the Dodd-Frank Act, and in alignment with last year's stockholder vote in favor of annual advisory votes on executive compensation, the Company seeks your advisory vote on our executive compensation programs. The Company asks that you support the compensation of our Named Executive Officers as disclosed in the Compensation Discussion and Analysis section and the accompanying tables contained in this Proxy Statement. Because your vote is advisory, it will not be binding on the board or the Company. The board will review the voting results and take them into consideration when making future decisions regarding executive compensation.
Recommendation
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE COMPANY'S COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THE COMPENSATION DISCUSSION AND ANALYSIS SECTION AND THE ACCOMPANYING COMPENSATION TABLES CONTAINED IN THIS PROXY STATEMENT.
PROPOSAL 4 - APPROVAL OF AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO AFFIRM MAJORITY VOTING STANDARD
Four years ago, your Board of Directors adopted Corporate Governance Guidelines that implement a majority voting standard for the election of directors in uncontested elections. Under the Corporate Governance Guidelines, any director who does not receive more votes cast "for" than votes cast "against" him or her must resign from the board. The Company has observed this majority voting standard in each subsequent election.
Article V, Section 3 of the Company's Restated Certificate of Incorporation states that directors shall be elected by a plurality voting standard. To eliminate the possibility of a conflict between the Restated Certificate of Incorporation and the Corporate Governance Guidelines, and to ensure that the Company continues to observe a majority voting standard, the board of directors proposes to delete the final sentence of Article V, Section 3 of the Restated Certificate of Incorporation. That sentence provides that "At each annual meeting of the stockholders of the Corporation, commencing with the annual meeting to be held in 1994, the successors of the class of directors whose term expires at that meeting shall be elected by a plurality vote of all votes cast at such meeting to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election."
If Proposal 4 is not approved by the stockholders, we expect to continue to observe a majority voting standard in uncontested elections through our Corporate Governance Guidelines.
Recommendation
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION.
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OTHER INFORMATION
The Company is not aware of any business to come before this annual meeting other than the matters described in this proxy statement. However, if any other matters should properly come before this meeting, votes pursuant to the proxy will be cast thereon in accordance with the discretion of the persons named in the accompanying proxy.
Expenses of Solicitation
The cost of solicitation of proxies will be borne by the Company. In addition to solicitation of proxies through the internet and by use of the mail,mails, proxies may be solicited by directors, officers and regularly engaged employees of the Company. None of these directors, officers or employees will receive any extra compensation for doing this. We have also retained GeorgesonAlliance Advisors L.L.C. to assist us in soliciting proxies for a fee of $_____$7,000 plus reasonable out-of-pocket expenses. Brokers, nominees and other similar record holders will be requested to forward solicitation material and will be reimbursed by the Company upon request for their reasonable out-of-pocket expenses.
Stockholder Proposals
Stockholder proposals whichthat are intended to be presented at the 20092013 Annual Meeting of Stockholders pursuant to SEC Rule 14a-8 must be received by the Company on or before November 22, 2008,15, 2012, for inclusion in the proxy statement relating to that meeting.
A stockholder who intends to present business, including the election of a director, at the 20092013 Annual Meeting of Stockholders other than pursuant to Rule 14a-8, must comply with the requirements set forth in the Company’s Amended and Restated By-Laws.Company's By-laws. Among other things, under the Company’s BylawsCompany's By-laws to bring business before an annual meeting a stockholder must give written notice to the Secretary of the Company not less than 90 days and not more than 120 days prior to the first anniversary of the preceding year’syear's annual meeting. Therefore, for stockholder proposals to be presented other than pursuant to Rule 14a-8, the Company must receive notice no sooner than December 27, 2008,26, 2012, and no later than January 28, 2009.25, 2013. The notice should contain (a) as to each person whom the stockholder proposes to nominate for election as director, all information that is required to be disclosed in solicitations of proxies for election of directors under the securities laws, including the person’sperson's written consent to serve as a director if elected, and (b) as to any other business: the reason for conducting such business; any material interest in such business the stockholder has; the name and address of the stockholder proposing such business as it appears in the Company’sCompany's books; and the number of shares of the Company that are beneficially owned by the stockholder. Stockholders should consult the Company’sCompany's Amended and Restated By-LawsBy-laws to ensure that all of the specific requirements of such notice are met.
Available Information on Corporate Governance and SEC Filings
Through its website (www.borgwarner.com)(www.borgwarner.com), the Company makes available, free of charge, the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, all amendments to those reports, and other filings with the Securities and Exchange Commission, as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The Company also makes the following documents available on its website: the Audit Committee Charter; the Compensation Committee Charter; the Corporate Governance Committee Charter; the Company’sCompany's Corporate Governance Guidelines; the Company’sCompany's Code of Ethical Conduct; and the Company’sCompany's Code of Ethics for CEO and Senior Financial Officers. You may also obtain a copy of any of the foregoing documents, free of charge, if you submit a written request to Mary Brevard, Vice President, Investor Relations, 3850 Hamlin Road, Auburn Hills, Michigan 48326.
No person is authorized to give any information or make any representation other than that contained in this proxy statement, and if given or made, such information may not be relied upon as having been authorized.
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