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.
Our Compensation Committee’s review of the 2008 base salaries for our Named Executive Officers occurred in October 2007. The freezing of base salaries in 2007 as noted above resulted in salaries significantly below the median of the Comparator Group for all but one of our Named Executive Officers. Base salary increases ranging from 0 – 22% were therefore granted for 2008 in accordance with our stated philosophy to target the median of the competitive market, to reward strong 2007 performance, and to motivate continued strong performance.
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.
EstablishmentOur Compensation Committee determined that for the 2010-2012 cycle the following EV-based performance objectives represent realistic stretch goals that are calibrated to motivate continued excellent performance and delivery of 2005 - 2007 Cycle EV Levelsstockholder value. This plan also addresses overall competitiveness of compensation, which is critical to attraction and retention of talent.
| Year 1: 2005 | Year 2: 2006 | Year 3: 2007 |
Threshold | Base EV | Base EV | Base EV |
Target | Base + 1% of OI | Base + 2% of OI | Base + 3% of OI |
Maximum | Base + 2% of OI | Base + 4% of OI | Base + 6% of OI |
|
| | | |
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 |
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.
Because 2007 was the last year of a 3-year cycle of MIP, our Compensation Committee and management undertook a study in mid-2007 with the assistance of the Compensation Consultant to reassess the MIP design with regard to its relevance to current market practice and projections of the business environment for the 2008 – 2010 cycle. Subsequently, based on typical plan design features as compared with other companies, as well as dramatic shifts in the shrinking North American auto industry, our Compensation Committee determined that for the 2008-2010 cycle the following EV-based performance objectives represent realistic stretch goals that are calibrated to motivate continued excellent performance and delivery of shareholder value. This plan also addresses overall competitiveness critical to attraction and retention of talent.
Establishment of 2008 – 2010 Cycle EV 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 |
The results of this study completed in mid-2007 caused our Compensation Committee to also reassess the applicability of the 2007 MIP performance improvement factors established 3 years earlier. Our Compensation Committee therefore determined in November 2007 that the new EV performance improvement formula outlined above for the third year of the cycle should also be applied to the 2007 results (including the carryover calculation) to better reflect competitive market practices and to be more realistic in view of shifts in the automotive industry that have already occurred. This action supports a critical goal of the program to motivate employees to desired performance in a year where the Company’s stock price and total shareholder return increased significantly.
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% |
* In January 2005, BorgWarner acquired a majority stake in BERU, a leading global supplier of diesel cold starting technology, gasoline ignition technology, and electronic control units and sensor technology. For 2007, BERU was not included in “BorgWarner Inc.” for purposes of calculating incentive compensation, consistent with the MIP’s treatment for acquisitions. Beginning in 2008 BERU will be included in "BorgWarner Inc." for incentive compensation purposes. |
| | | |
| 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% |
In November 2007, our Compensation Committee revised these percentages for the three Presidents mentioned in the table above to reflect a split of 60% based on business unit, 15% based on business group and 25% based on BorgWarner Inc. corporate results for 2008 to further align their bonus opportunity to the results of their individual units, consistent with market practices.
In February 2008, our Compensation Committee determined that, for purposes of our MIP, during the 2007 plan year, the Company created economic value of $49.3 million, which resulted in a payout under the new performance improvement formula indicated above between the Target and Maximum levels for the BorgWarner Inc. component. A portion of the bonus payments for Mr. Manganello, Mr. Adams, Mr. Wood, Ms. Niekamp and Dr. Matthes included carryover from the previous year. For details of these amounts, as well as further information regarding the 2007 MIP bonuses paid to our Named Executive Officers, see the Summary Compensation Table on page ___.
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
with our stock ownership guidelines.
ESPP. The Executive Stock Performance Plan (“ESPP”) was approved by our stockholders and became effective on April 18, 1995. Under the terms of the ESPP, the final award of units was made in February 2004 for the three-year performance period beginning January 1, 2004 and ending on December 31, 2006. Therefore the final payment under the ESPP was made in February 2007 for the 2004 to 2006 performance period.Incentive Plan.
SIP. All long-term incentive grants awarded in 2007 (performance2011 (two-thirds performance shares stock options and stock units)one-third restricted stock) were awarded under the BorgWarner Inc. Amended and Restated 2004 Stock Incentive Plan (the “SIP”). Although the SIP provides for the use of a variety of equity-related vehicles, our Compensation Committee determined in 20072011 to rely primarily on grants of restricted stock options and performance shares in order to motivate and reward executives for growth in total shareholderstockholder return as compared to our industry (in the case of performance shares) and officer retention and growth in the Company’sCompany's stock price (in the case of restricted stock options and performance shares).
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.
In February 2007, performance shares were granted to our Named Executive Officers to coincide with the beginning of the three-year performance period. Stock options were also granted at that time. In accordance with the SIP, the exercise price for the stock options was set at the average of the high and low price of our common stock on the date of grant.below).
At its November 2007 meeting, our Compensation Committee decided that restricted stock would be used for a portion of the 2008 long-term incentive award grants (replacing one-third of the value that would otherwise have been granted in stock options). This change, which will also be made for non-officer participants, is viewed as a more effective retention tool and reflects the increasing use of restricted stock in the competitive market. It also better aligns the officers’ equity compensation with that of the members of the Board of Directors, who receive their equity compensation through restricted stock.
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.
TheFor grants made in 2011, the actual number of performance shares earned at the time of payout will rangeranges from 0% to a maximum of 175%200% of target, depending on our TSR performance at the end of the three-year period relativeperiod. For grants made in 2011, the Company's TSR will be compared to the percentile distributionweighted average TSR of TSRthe Peer Group Companies. This approach takes into account the relative size of the Peer Group Companies. The actual number of performance forshares paid at the other companies inend of the peer group.three-year period will be determined based on the following scale.
Performance Share TSR Performance/Payout Table
BorgWarner TSR Percentile to Peer Group | Percent of Target Number of Performance Shares Earned |
Below 25th percentile
| 0.000% |
25th percentile
| 25.000% |
35th percentile
| 43.750% |
50th percentile
| 71.875% |
65th percentile
| 100.000% |
75th percentile
| 130.000% |
90th percentile
| 175.000% |
|
| | |
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.
The option term is ten years from the date of grant and each stock option grant is subject to a two-step vesting period. One-half of the stock option grantshares granted will become available for exerciselapse on the second anniversary of the grant and the restrictions on the remainder of the grantshares granted will become available for exerciselapse on the third anniversary of the grant ifprovided that the option-holderrecipient is still employed by the Company. Instead of restricted stock grants in February 2011, stock units were granted to our executives based outside the U.S. One-half of the stock units granted will vest on the second anniversary of the grant and the remaining one-half will vest on the third anniversary of the grant, provided that the recipient is still employed with the Company. Stock units are utilized outside the U.S. in order to provide similar tax treatment to the recipients as restricted stock holds for U.S. executives. Prior to vesting, the recipient has no rights as a stockholder associated with the stock units.
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:
|
| |
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.
The additionalAn executive perquisitesbenefit available to our U.S.-based Named Executive Officers include a company-leased vehicle, financial counseling, and limited personal use of corporate aircraft (we do not encourage personal use but recognize that at times it is appropriate). Each of our Named Executive Officers is eligible for a new vehicle at the earlier of 60,000 miles or three years. In addition to the cost of the lease, we pay for the cost of insurance, vehicle license, taxes, and maintenance. Financial counseling and annual income tax preparation services are provided to our Named Executive Officers through a third-party service to allow Named Executive Officers to better focus on meeting the considerable demands of their positions.
Other executive benefits available to our Named Executive Officers includein 2011 was the BorgWarner Inc. Retirement Savings Excess Benefit Plan (“Excess Plan”) and. This is the BorgWarner Inc. 2004 Deferred Compensationsame plan generally available to U.S.-based employees who exceed the qualified Retirement Savings Plan (“Deferred Compensation Plan”).limits within the year. All of our U.S.-based Named
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.
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.
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
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. | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The following table details(1) Amounts credited by the tax reimbursement amounts listed in Column (g)Company on behalf of its Named Executive officers during 2011 pursuant to the provisions of the above table: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 | |
| | ($) | | | ($) | | | ($) | | | ($) | | | ($) | |
(a) | | (b) | | | (c) | | | (d) | | | (e) | | | (f) | |
Timothy M. Manganello | | | 2,846 | | | | 6,828 | | | | 427 | | | | - | | | | 10,101 | |
CEO | | | | | | | | | | | | | | | | | | | | |
Robin J. Adams | | | 2,846 | | | | 4,404 | | | | - | | | | - | | | | 7,250 | |
CFO | | | | | | | | | | | | | | | | | | | | |
Roger J. Wood | | | 2,846 | | | | 4,404 | | | | 444 | | | | 1,250 | | | | 8,944 | |
President, TBS/E | | | | | | | | | | | | | | | | | | | | |
Cynthia A. Niekamp | | | - | | | | 4,404 | | | | 657 | | | | - | | | | 5,061 | |
President, TTS | | | | | | | | | | | | | | | | | | | | |
Bernd W. Matthes | | | 2,798 | | | | 4,404 | | | | 270 | | | | 78,319 | | | | 85,791 | |
President, TS | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Grants of Plan Based Awards
The following table summarizes the grants of equity and non-equity plan awards to our Named Executive Officers in 2007: 2011:
Name | Grant Date | Estimated Possible Payout Under | Estimated Future Payout Under | All Other Stock Awards: Number of Shares or Stock Units | All Other Option Awards: Number of Securities Underlying Option | Exercise or Base Price of Option Awards (4) | Closing Market Price on Date of Option Grant | Grant Date Fair Value of Stock and Option Awards |
| | Non-Equity Incentive Plan Awards (1) | Equity Incentive Plan Awards | | | | | |
| | Threshold | Target | Maximum | Threshold | Target | Maximum | | | | | |
| | ($) | ($) | ($) | (#) | (#) | (#) | (#) | (#) | ($/Share) | ($/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.
(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 Automotive Inc. |
ArvinMeritor, Inc. | Lear Corporation | TRW Automotive Inc.Holdings Corp. |
Autoliv, Inc. | Magna International Inc. | Visteon CorporationCorporation* |
Gentex Corporation | Modine Manufacturing Co.Company | |
* 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.
To the extent a stock option is exercisable in the event of death of the option holder, the option may be exercised for a period of one year from the date of such death or until the expiration of the stock option, whichever period is shorter. To the extent a stock option is exercisable in the event of disability or retirement, the option may be exercised for a period of three years from the date of such disability or retirement or until the 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 due to 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 Plan. Stock options granted in 2007 provided for immediate vesting in the event of death or disability. Our Compensation Committee decided to incorporate these provisions into these award agreements in order to provide for consistency in the acceleration of options in the event of retirement, death or disability. Our Compensation Committee took competitive practice into consideration.
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. If termination of employment is involuntary and without cause, any vested and unexercised stock options may be exercised for one year or until the expiration of the stock option, whichever period is shorter.
In the event of a Change of Control, during the sixty 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.
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
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.
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. |
(2) Amount in column (e) is equal to the number of performance shares vested multiplied by $63.74, which is the closing stock price at the end of the performance period on December 31, 2011, the FMV of the shares of restricted stock granted in 2009 that lapsed and were paid in 2011, and the FMV of the shares of restricted stock granted in 2008 that lapsed and were paid in 2011.
As previously stated in the Compensation Discussion and Analysis, the granting of performance shares is designed to provide competitive payouts at the end of a three-year period relative to how well the Company performs against its Peer Group Companies in TSR.
At the end of the 20052009 to 20072011 performance period, the Company’sCompany's TSR was above the 90th percentile relative to the peer group companies’ in effect at the timePeer Group Companies' TSR (see page 31 for listing of the grant. These companies were Arvin Meritor, Autoliv, Cummins Engine, Dana, Delphi, Dura, Eaton, Johnson Controls, Lear, Magna, Modine, Tenneco and Visteon. Tower Automotive was also originally in this peer group, but ceased trading on July 31, 2007.Peer Group Companies). The gross value of the payouts, before taxes, is reflected above in column (e) of the table.
Pension Benefits
|
| | | | |
Name | Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefit (1) ($) | 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.
Pension BenefitsDr. Waldhier, formerly President of BERU Systems and Emissions Systems, is eligible for a cash balance retirement plan as part of his employment contract. This plan provides for annual contributions of 20% of pensionable compensation (base salary) to be made by BERU, which is in line with the competitive market. Dr. Waldhier may also make voluntary contributions of up to 50% of his annual base salary into the plan. Further details of this deferral feature are described on
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. | |
Dr. Matthes, formerly an employee of BorgWarner Transmission Systems GmbH. Upon eligible retirement, the accumulated balance is to be paid in Germany and now a U.S.-based employee, wasten installments unless mutually agreed otherwise. The value reported above, which is fully vested, in a defined benefit pension plan while an employee in Germany and is therefore entitled to receive an annual retirement benefit from the Transmission Systems GmbH pension plan based on 11.8his 4.3 years of credited service for the time he was employed in Germany.with BERU and its predecessor.
The Present Value of the Accumulated Pension Benefits as of December 31, 20072011 for Dr. MatthesWaldhier is calculated using the following assumptions:
. Mortality Tables: Heubeck 2005G |
. Discount Rate: 5.75% |
. Retirement Age: 65 |
. Annual Pension Increase: 1.75% |
Discount Rate: 5.50%
Retirement Age: 65
Annual Pension Increase: 1.75%
The discount rate of 5.75% is based on yields of bonds in the iBoxx EUR AA 10+ index as of December 31, 2007 and takes into account the duration of plan liabilities. A "pension increase" assumption of 1.75% is applied annually, beginning at retirement age. The Heubeck 2005G tables are generational mortality tables introduced in 2005 and allow for improved longevity. Use of these tables was phased in over three years, with 100% of the new tables being used to value plan liabilities at year-end 2007.
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 | | | | | |
Our |
| | | | | |
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.
The Deferred Compensation Plan is a non-qualified plan that allows executives to defer from 1% to 20% of their base salary and up to 100% of their bonus (if any bonus is paid) in 1% increments. Participants in this plan receive market earnings. When making a deferral election, a participant may elect to have his or her account paid out at retirement, disability, or death in either a single lump sum or quarterly payments over a term of 5, 10, or 15 years. If the participant’s employment is terminated prior to retirement, disability, or death, the account will be paid out in a single lump sum. The Plan also provides for distributions for hardship upon approval of our Compensation Committee and lump sum payments upon the occurrence of a Change of Control.
Participants in the Excess Plan may elect to invest their deferralsbalances are invested in the same investment choices that are offered inselected by the participants under the RSP. Participants in the Deferred Compensation Plan may elect to invest their deferrals in the same investment choices that are offered in the RSP, except for the BorgWarner Stock Fund.Units. As the Excess Plan and the Deferred Compensation Plan are unfunded, no money is actually invested. Rather, a notional account is maintained which mirrors the returns of these mutual funds.investments. The funds available and their annual rate of return for the calendar year ended December 31, 20072011 as reported by the plan administrator are as follows:
Barclays Equity Index: | 5.38% |
Barclays Life Path 2010: | 5.08% |
Barclays Life Path 2015: | 4.73% |
Barclays Life Path 2020: | 4.42% |
Barclays Life Path 2025: | 4.01% |
Barclays Life Path 2030: | 3.82% |
Barclays Life Path 2035: | 3.52% |
Barclays Life Path 2040: | 3.34% |
Barclays Life Path 2045: | 3.06% |
Barclays Life Path RET: | 5.24% |
BGI US Debt Index: | 6.95% |
BorgWarner Company Stock:Stock Units | 65.41%(11.91)% |
Buffalo Small Cap:Cap Fund | (.33%) (4.66)% |
Harbor International Fund:Fund | 21.82% |
TRP Stable Value Fund, Sched N1:
| 4.73%(11.13)% |
Vanguard Mid Cap Index:Index Fund, Inst | 6.22% (1.96)% |
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% |
1 Formerly known
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% |
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 ($48.41)63.74) was used to determine the vested market value of stock options and stock units.
restricted stock.
Name | Payment Triggering Events Not In Connection with a Change of Control ("CoC") | | | | Payment Triggering Events In Connection with a CoC | |
| Involuntary Termination | Voluntary Termination | | | | | | Involuntary Termination | Voluntary Termination |
| with Cause (1) | without Cause (2) | with Good Reason (3) | without Good Reason (3) | Retirement (2) | Death (4) | Disability (2) | | CoC only | with Cause (6) | without Cause (5) | For Good Reason (5) | without Good Reason (7) |
| ($) | ($) | ($) | ($) | ($) | ($) | ($) | | ($) | ($) | ($) | ($) | ($) |
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. | |
The stated amounts do not include vested benefits under the qualified RSP or under the TIP, as these benefit plans are available to all salaried employees. The provisions of each plan would determine the timing and method of payments made under the above scenarios. |
| | | | | |
| 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
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.
“Change“Change of Control” generally means (a) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934)party of beneficial ownership of 20% or more of either (i) the then outstanding shares of our common stock or (ii) the combined voting power of our then outstanding voting securities entitled to vote generally in the election of our directors, (b) a change in the majority of our Board of Directors, (c) a major corporate transaction, such as a merger or sale of substantially all of our assets, which results in a change in the majority of our Board of Directors or a majority of stockholders or (d) a complete liquidation or dissolution of the Company.
“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.
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. | |
(2) Aggregate number of outstanding shares of restricted stock and outstanding vested stock options at fiscal year-end only.
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.
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 2 – TO VOTE TO APPROVE AN AMENDMENT TO THE COMPANY’S RESTATED CERTIFICATE OFINCORPORATION TO INCREASE THE AUTHORIZED COMMON STOCK OF THE COMPANY
FROM 150,000,000 SHARES TO 400,000,000 SHARESOur non-employee directors are expected to own Company stock in an amount equivalent to three times the amount of the annual retainer within five years of joining the Board of Directors. All of our directors met the expected stock ownership guidelines in 2011.
On February 7, 2008, your BoardEffective January 1, 2012 non-employee director compensation was increased; the first increase since 2008. In 2012 non-employee directors' cash retainer will be increased to $75,000 and annual equity compensation will increase to $105,000 worth of Directors unanimously approved a proposalrestricted stock. The Lead Director will receive an additional $20,000 annually to increase the authorized capital stock ofcompensate him for his additional services to the Company. If approved by our stockholders, the proposed increase in our authorized capital stockBoard and committee attendance fees will be accomplished through an amendment to the Company’s restated certificate of incorporation that will increase the total authorized common stock of the Company from 150,000,000 shares to 400,000,000 shares. A copy of the proposed amendment is attached to this proxy statement as Annex B. On March 3, 2008 there were _______issued and ________outstanding shares of common stock and 9,117,590 shares reserved for business purposes, including for equity compensation awards in accordance with shareholder approved equity plans.remain unchanged.
Your Board of Directors approved the proposed increase in authorized common stock because it believes that the continued availability of shares of common stock is advisable to provide the Company with the flexibility to take advantage of opportunities to issue such stock to obtain capital, or as consideration for possible acquisitions or for other purposes (including, without limitation, the issuance of additional shares of common stock through stock splits and stock dividends in appropriate circumstances). There are, at present, no plans, understandings, agreements or arrangements concerning the issuance of additional shares of common stock or preferred stock.
Recommendation
For the foregoing reasons, your Board of Directors believes that this proposal is in the best interests of BorgWarner and its stockholders and unanimously recommends that you vote FOR this proposal.
If a majority of our outstanding shares of common stock are voted FOR the amendment, then the amendment will be approved.
If your shares are held in the name of a nominee and you do not tell the nominee by ______ how to vote your shares, then your nominee may not be permitted to vote your shares on this proposal (a so-called “broker nonvote”). For purposes of this proposal, a broker nonvote and an abstention are the functional equivalents of a “no” vote.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TheYour Board of Directors proposes that the stockholders approveratify the selection by the Audit Committeeappointment of Deloitte & TouchePricewaterhouseCoopers LLP, theits member firms, of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, “Deloitte”“PwC”) to serve as the Company’sCompany's independent registered public accounting firm for the 20082012 fiscal year. Stockholder ratification of the selection of our auditors requires the affirmative vote of a majority of the votes cast “for” or “against” this proposal. Accordingly, an abstention or a broker non-vote will not affect this proposal.
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
Your Board of Directors believes that this proposal is in the best interests of BorgWarner and its stockholders and unanimously recommends that you voteYOUR BOARD OF DIRECTORS BELIEVES THAT THIS PROPOSAL IS IN THE BEST INTERESTS OFBORGWARNER AND ITS STOCKHOLDERS AND RECOMMENDS THAT YOU VOTE FOR this proposal.THISPROPOSAL.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES AND SERVICES
AggregateThe aggregate fees including expenses billed to us for the years ended December 31, 20072011 and 2006,2010 by PwC for professional services performed by Deloitte & Touche, were as follows:
| | 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
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.
OTHER INFORMATIONOur Company has had a long-standing tradition of delivering performance for our stockholders, customers, and our communities. The executive compensation programs have played a material role in our ability to drive strong financial results and attract and retain a highly experienced, successful team to manage our Company worldwide. Our executive compensation programs also support our vision, values and the BorgWarner Beliefs.
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.
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.
CHARTER
BORGWARNER INC.
AUDIT COMMITTEE
The BorgWarner Inc. Audit Committee (the "Committee") is responsible for providing assistance to the Board of Directors in monitoring (i) the integrity of the financial statements of the Corporation, (ii) the independent auditor’s qualifications and independence (iii) the performance of the Corporation’s internal audit function and independent auditors, and (iv) the compliance by the Corporation with legal and regulatory requirements.
The Committee shall be composed of three or more directors who are free of any relationship that, in the opinion of the Board of Directors, would interfere with their individual exercise of independent judgment as a Committee member and who meet the independence and experience requirements of the New York Stock Exchange and applicable regulations of the Securities and Exchange Commission (the “Commission”). All members of the Committee shall be generally knowledgeable in financial and auditing matters and at least one member of the Committee shall be “an audit committee financial expert” as defined by the Commission. Committee members shall not simultaneously serve on the audit committees of more than two other public corporations.
In its audit capacity, the Committee shall provide assistance to the Board in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing and financial reporting practices of the Corporation. The Committee shall report regularly to the Board and establish and maintain free and open communication between the directors, the independent accountants, the internal auditors and the financial management of the Corporation. The Committee will:
1. | Be directly responsible for the selection of, and compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work. The independent auditor shall report directly to the Committee. |
2. | Pre-approve all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for the Corporation by its independent auditor, subject to the de minimus exceptions for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act that are approved by the Committee prior to the completion of the audit. Discuss and consider the independence of the independent auditors, including the auditors' written affirmation of independence. |
3. | Discuss and review with the independent auditors and financial management of the Corporation the proposed scope of the audit for the current year and the nature and thoroughness of the audit process; and at the conclusion thereof, receive and review audit reports including any comments or recommendations of the independent auditors. |
4. | Review with the independent auditor any audit problems or difficulties and management’s response. |
5. | Adopt hiring policies for employees or former employees of the independent auditor who participated in any capacity in the audit of the Corporation. |
6. | Review with the independent auditors, the Corporation's Director of Internal Audit and with the Corporation's financial and accounting managers, the adequacy and effectiveness of the Corporation's internal auditing, accounting and financial policies, procedures and controls; and elicit any recommendations for the improvement of existing internal control procedures or the establishment of controls or procedures. Particular emphasis should be given to the adequacy of the internal controls to expose payments, transactions or procedures which might be deemed illegal or otherwise improper. |
7. | Review the internal audit function of the Corporation including proposed audit plans for the coming year, the coordination of its programs with the independent auditors and the results of the internal programs. |
8. | Review and discuss recurring financial statements (including quarterly reports and disclosures made in management’s discussion and analysis) to be issued to the stockholders or the public with management and the independent auditor and recommend to the Board the inclusion of the Corporation's audited financial statements in the Corporation's Annual Report on Form 10-K. |
(a) | All critical accounting policies and practices to be used. |
(b) | All alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditor. |
(c) | Other material written communication between the independent auditor and management, such as any management letter or schedule of unadjusted differences. |
10. | Discuss with management the Corporation’s earnings press releases, including the use of “proforma” or “adjusted” non-GAAP information, as well as financial information and earnings guidance provided to analysts and rating agencies. Such discussion may be done generally (consisting of discussing the types of information to be disclosed and the types of presentations to be made.) |
11. | Investigate any matter brought to its attention within the scope of its duties and retain outside counsel or other experts for this or any other purpose, if, in its judgment, such retention is appropriate. The Corporation shall provide appropriate funding, as determined by the Committee, for payment of compensation to the independent auditor for the purpose of rendering or issuing an audit report and to any advisors employed by the Committee and for other expenses necessary or appropriate in carrying out its duties. |
12. | Report Committee activities to the full Board and annually issue a summary report (including appropriate oversight conclusions) suitable for submission to stockholders. |
13. | Review disclosures made to the Committee by the Corporation’s CEO and CFO during their certification process for the Form 10-K and Form 10-Q about any significant deficiencies in the design or operation of internal controls or material weaknesses therein and any fraud involving management or other employees who have a role in the Company’s internal controls. |
14. | Ensure the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law. |
15. | Obtain and review a report from the independent auditor at least annually regarding (a) the independent auditor’s internal quality-control procedures, (b) any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or any inquiry or investigation by governmental or professional authorities within the preceding five years respecting one or more independent audits carried out by the firm, (c) any steps taken to deal with any such issues, and (d) all relationships between the independent auditor and the Corporation. Evaluate the qualifications, performance and independence of the independent auditor, including considering whether the auditor’s quality controls are adequate and the provision of permitted non-audit services is compatible with maintaining the auditor’s independence, taking into account the opinions of management and internal auditors. The Committee shall present its conclusions with respect to the independent auditor to the Board. |
16. | Establish procedures for the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. |
17. | Discuss with the Corporation’s General Counsel legal matters that may have a material impact on the financial statements or the Corporation’s compliance policies. |
| 18. | Discuss with management the Corporation’s risk assessment and risk management policies. |
The Committee's charter, policies and procedures will be reassessed at least annually to allow reaction to changing conditions and environment and to assure that the Corporation's accounting and reporting practices are in accordance with all requirements and are of the highest quality. The Committee may amend or repeal its charter, policies and procedures, as the Committee deems appropriate. The Committee shall annually review the Committee’s own performance.
The Committee shall meet as often as it determines necessary, but not less frequently than quarterly. The Committee shall meet periodically with management, the internal auditors and the independent auditor in separate executive sessions. These meetings shall include the independent auditors' evaluation of the Corporation's financial, accounting and auditing personnel and an assessment of the cooperation the independent auditors received during the review. The Committee may request any officer or employee of the Corporation or the Corporation’s outside counsel or independent auditor to attend a meeting of the Committee or to meet with any members of, or consultants to, the Committee.
The Committee may form and delegate authority to subcommittees consisting of one or more members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that decisions of such subcommittee shall be presented to the full Committee at its next scheduled meeting.
The Chair of the Committee shall establish such rules for the Committee and its members as may from time to time be necessary and proper for the conduct of the Committee’s business, in conformity with applicable laws, rules and regulations.
PROPOSED AMENDMENT TO THE RESTATED
CERTIFICATE OF INCORPORATION OF BORGWARNER INC.
The proposed amendment to the Company’s restated certificate of incorporation would amend and restate the first sentence of Article IV in its entirety to read as follows:
The total number of shares of all classes of stock which the Corporation shall have the authority to issue is 430,000,000 shares, consisting of 400,000,000 shares of Common Stock, par value $0.01 per share (“Common Stock”), 25,000,000 shares of Non-Voting Common Stock, par value $0.01 per share (“Non-Voting Common Stock” and, together with the Common Stock, the “Junior Stock”), and 5,000,000 shares of Preferred Stock, par value $0.01 per share (“Preferred Stock”).
This Proxy is Solicited by the Board of Directors in Connection
With the Annual Meeting of Stockholders
9:00 A.M. (local time)
April 30, 2008
| | | | |
| | PLACE: | BorgWarner Inc. |
| | | | 3850 Hamlin Road |
| | | | Auburn Hills, Michigan 48326 |
PROXY: JOHN J. GASPAROVIC and LAURENE H. HORISZNY and each of them, are hereby appointed by the undersigned as attorneys and proxies with full power of substitution, to vote all the shares of Common Stock held of record by the undersigned on March 3, 2008 at the Annual Meeting of Stockholders of BorgWarner Inc. or at any adjournment(s) or postponement(s) of the meeting.
WITH RESPECT TO ANY MATTER THAT SHOULD PROPERLY COME BEFORE THE ANNUAL MEETING THAT IS NOT SPECIFIED HEREIN, THIS PROXY WILL BE VOTED IN THE DISCRETION OF THE PROXY HOLDER.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY
Address Change/Comments (Mark the corresponding box on the reverse side)
/\ FOLD AND DETACH HERE /\
You can now access your BorgWarner account online.
Access your BorgWarner stockholder account online via Investor ServiceDirect® (ISD).
The transfer agent for BorgWarner, now makes it easy and convenient to get current information on your stockholder account.
| | |
• View account status | | • View payment history for dividends |
• View certificate history | | • Make address changes |
• View book-entry information | | • Obtain a duplicate 1099 tax form |
| | • Establish/change your PIN |
Visit us on the web at http://www.bnymellon.com/shareowner
For Technical Assistance Call 1-877-978-7778 between 9am-7pm
Monday-Friday Eastern Time
***TRY IT OUT***
www.bnymellon.com/shareowner/isd
Investor ServiceDirect®
Available 24 hours per day, 7 days per week
TOLL FREE NUMBER: 1-800-370-1163
![](https://capedge.com/proxy/PRE 14A/0000908255-12-000012/scan02.jpg)
46
IF NO CHOICE IS SPECIFIED, this Proxy will be voted “FOR” the election of all listed nominees, “FOR” proposals 2 and 3, all in accordance with the recommendations of the Board of Directors. | | Please
Mark Here
for Address Change or
Comments
SEE REVERSE SIDE
|
1. | | Election of two Class III Directors: | | for all nominees
| | withhold authority |
| | | | listed (except as indicated) | | to vote for all nominees listed |
| | 01 Robin J. Adams | | | | |
| | 02 David T. Brown | | | | |
| | | | | | |
(INSTRUCTION: To withhold authority to vote for any individual nominee, write that nominee’s name on the space provided below.)
| | | | FOR | | AGAINST | | ABSTAIN |
2. | | To approve the Amendment to the Company’s Restated Certificate of Incorporation to increase the authorized common stock of the Company from 150,000,000 shares to 400,000,000 shares. | | | | | | |
| | | | | | | | |
| | | | FOR | | AGAINST | | ABSTAIN |
3. | | To ratify the appointment of Deloitte & Touche LLP as Independent Registered Public Accounting Firm for the Company for 2008.
| | | | | | |
| | |
4. | | To transact such other business as may properly come before the meeting or any adjourment or postponement thereof. |
Dated: | | __________________________________________2008 |
| | |
| | __________________________________________ |
60; Signature |
| | | | |
| | Signature if held jointly | | |
Please sign exactly as your name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee, or guardian, please give full title as such. If a corporation, please sign in full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person.
/\ FOLD AND DETACH HERE /\
WE ENCOURAGE YOU TO TAKE ADVANTAGE OF INTERNET OR TELEPHONE VOTING,
BOTH ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK.
Internet and telephone voting is available through 11:59 PM Eastern Time
the day prior to annual meeting day.
Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card.
Internet
http://www.proxyvoting.com/bwa
Use the internet to vote your proxy.
Have your proxy card in hand when
you access the web site.
| OR | Telephone
1-866-540-5760
Use any touch-tone telephone to
vote your proxy. Have your proxy
card in hand when you call.
|
If you vote your proxy by Internet or by telephone, you do NOT need to mail back your proxy card.
To vote by mail, mark, sign and date your proxy card and return it in the enclosed postage-paid envelope.
Choose MLinkSM for fast, easy and secure 24/7 online access to your future proxy materials, investment plan statements, tax documents and more. Simply log on to Investor ServiceDirect® at www.bnymellon.com/shareowner/isd where step-by-step instructions will prompt you through enrollment.
You can view our summary annual report and Proxy Statement on the internet at www.borgwarner.com/invest/proxy.