UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Honeywell International Inc. |
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March 13, 2008
To Our Shareowners:
You are cordially invited to attend the Annual Meeting of Shareowners of Honeywell, which will be held at 10:30 a.m. on Monday, April 28, 2008 at our headquarters, 101 Columbia Road, Morris Township, New Jersey.
The accompanying notice of meeting and proxy statement describe the matters to be voted on at the meeting.
YOUR VOTE IS IMPORTANT. We encourage you to read the proxy statement and vote your shares as soon as possible. Shareowners may vote via the Internet, by telephone or by completing and returning a proxy card. Specific voting instructions are set forth in the proxy statement and on both the Notice of Internet Availability of Proxy Materials and proxy card.
On behalf of the Board of Directors, I want to thank you for your continued support of Honeywell.
A map and directions to Honeywells headquarters appear at the end of the proxy statement.
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Sincerely, |
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DAVID M. COTE |
NOTICE OF ANNUAL MEETING OF SHAREOWNERS The Annual Meeting of Shareowners of Honeywell International Inc. will be held on Monday, April 28, 2008 at 10:30 a.m. local time, at Honeywells headquarters, 101 Columbia Road, Morris Township,
New Jersey to consider, if properly raised, and vote on the following matters described in the accompanying proxy statement:
Election of ten directors;
Appointment of PricewaterhouseCoopers LLP as independent accountants for 2008; A proposal to amend Honeywells Restated Certificate of Incorporation to give holders of at least 25% of the outstanding shares of Honeywells Common Stock the right to call a special meeting of
shareowners; A shareowner proposal described on pages 62-64 in the accompanying proxy statement; and to transact any other business that may properly come before the meeting. The Board of Directors has determined that shareowners of record at the close of business on February 29, 2008 are entitled to notice of and to vote at the meeting.
By Order of the Board of Directors,
Thomas F. Larkins Honeywell March 13, 2008
Vice President and Corporate Secretary
101 Columbia Road
Morris Township, NJ 07962
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62 PROPOSAL NO. 4: SHAREOWNER PROPOSALPAY-FOR-SUPERIOR-PERFORMANCE PRINCIPLE
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A
Back Cover
This proxy statement is being provided to shareowners in connection with the solicitation of proxies by the Board of Directors for use at the Annual Meeting of Shareowners of Honeywell International
Inc. (Honeywell or the Company) to be held on Monday, April 28, 2008. Your Vote is Very Important Whether or not you plan to attend the meeting, please take the time to vote your shares as soon as possible. Notice and Access The Securities and Exchange Commission (SEC) has adopted a Notice and Access rule that allows companies to deliver a Notice of Internet Availability of Proxy Materials (Notice) to
shareowners in lieu of a paper copy of the proxy statement and related materials and the Companys Annual Report to Shareowners (the Proxy Materials). The Notice provides instructions as to how
shareowners can access the Proxy Materials online and contains a listing of matters to be considered at the meeting and instructions as to how shares can be voted. Shareowners receiving the Notice can
request a paper copy of the Proxy Materials by following the instructions set forth in the Notice. Important Notice Regarding Availability of Proxy Materials: The Proxy Materials are available at www.proxyvote.com. Methods of Voting Shareowners of Record Shareowners of record can vote via the Internet at www.proxyvote.com, by calling (800) 690-6903 or by signing and returning a proxy card. Votes submitted by Internet or telephone must be received by 11:59 p.m. eastern standard time on April 27, 2008. Shareowners Holding Shares Through a Bank or Broker Shareowners who hold their shares through a bank or broker can vote via the Internet or by telephone if the bank or broker offers these options or by signing and returning a proxy card. Your bank or
broker will send you instructions for voting your shares. Votes directed by Internet or telephone through such a bank or broker must be received by 11:59 p.m. eastern standard time on April 27, 2008. Participants in Honeywell Savings Plans Participants in Honeywell stock funds within Honeywell savings plans can direct the trustee to vote their shares via the Internet at www.proxyvote.com, by calling (800) 690-6903 or by signing and returning a proxy card. Directions provided by Internet or telephone must be received by 5:00 p.m. eastern standard time on April
24, 2008. Revoking Your Proxy Whether you vote or direct your vote by mail, telephone or via the Internet, if you are a shareowner of record or a participant in Honeywell stock funds within Honeywell savings plans, unless otherwise
noted, you may later revoke your proxy by:
sending a written statement to that effect to the Corporate Secretary of Honeywell; submitting a properly signed proxy with a later date;
voting by telephone or via the Internet at a later time (if initially able to vote in that manner) so long as such vote or voting direction is received by the applicable date and time set forth above for
shareowners of record and participants in Honeywell savings plans; or
voting in person at the Annual Meeting (except for shares held in the savings plans).
If you hold your shares through a bank or broker and you have instructed the bank or broker to vote your shares, you must follow the directions received from your bank or broker to change those
instructions. Quorum; Vote Required; Abstentions and Broker Non-Votes The required quorum for the transaction of business at the meeting is a majority of the total outstanding shares of Honeywell common stock (Common Stock) entitled to vote at the meeting, either
present in person or represented by proxy. With respect to Proposal No. 1, Honeywells By-laws provide that in any uncontested election of directors (an election in which the number of nominees does not exceed the number of directors to be
elected), any nominee who receives a greater number of votes cast FOR his or her election than votes cast AGAINST his or her election will be elected to the Board of Directors. Shares not
represented in person or by proxy at the Annual Meeting and broker non-votes will have no effect on the election of directors. The By-laws also provide that any nominee who does not receive a majority of
votes cast FOR his or her election in an uncontested election is expected to promptly tender his or her resignation to the Chairman of the Board following the certification of the shareowner vote, which
resignation shall be promptly considered through a process managed by the Corporate Governance and Responsibility Committee, excluding any nominees who did not receive a majority vote. The affirmative vote of a majority of shares present or represented and entitled to vote on each of Proposal Nos. 2 and 4 is required for approval of these proposals. Abstentions will be counted toward
the tabulation of votes present or represented on these proposals and will have the same effect as votes AGAINST Proposal Nos. 2 and 4. New York Stock Exchange (NYSE) rules prohibit brokers from
voting on Proposal No. 4 without receiving instructions from the beneficial owner of the shares. In the absence of instructions, shares subject to such broker non-votes will not be counted as voted or as
present or represented on those proposals and so will have no effect on the vote. The affirmative vote of a majority of the issued and outstanding shares of Common Stock is required for approval of Proposal No. 3. NYSE rules prohibit brokers from voting on Proposal No. 3 without
receiving instructions from the beneficial owners of the shares. Because approval is based on a threshold of a majority of all shares outstanding, abstentions, broker non-votes and failures to vote or return
a proxy will have the same effect as votes against this proposal. Other Business The Board knows of no other matters to be presented for shareowner action at the meeting. If other matters are properly brought before the meeting, the persons named as proxies in the
accompanying proxy card intend to vote the shares represented by them in accordance with their best judgment. Confidential Voting Policy It is our policy that any proxy, ballot or other voting material that identifies the particular vote of a shareowner and contains the shareowners request for confidential treatment will be kept confidential,
except in the event of a contested proxy solicitation or as may be required by law. We may be informed whether or not a particular shareowner has voted and will have access to any comment written on a
proxy, ballot or other material and to the identity of the commenting shareowner. Under the policy, the inspectors of election at any shareowner meeting will be independent parties unaffiliated with
Honeywell. Shares Outstanding At the close of business on February 29, 2008, there were 740,999,503 shares of Common Stock outstanding. Each share outstanding as of the February 29, 2008 record date is entitled to one vote. 2
Householding Beneficial owners of Common Stock who share a single address may receive only one copy of the Notice or the Proxy Materials, as the case may be, unless their broker, bank or nominee has
received contrary instructions from any beneficial owner at that address. This practice, known as householding, is designed to reduce printing and mailing costs. If any beneficial shareowner(s) at such an
address wish to discontinue householding and receive a separate copy of the Notice or the Proxy Materials, as the case may be, they may contact Broadridge, either by calling (800) 579-1639, or by
writing to Broadridge, Householding Department, 51 Mercedes Way, Edgewood, New York, 11717. ATTENDANCE AT THE ANNUAL MEETING If you are a shareowner of record who plans to attend the meeting, please mark the appropriate box on your proxy card or follow the instructions provided when you vote via the Internet or by
telephone. If your shares are held by a bank or broker and you plan to attend, please send written notification to Honeywell Shareowner Services, P.O. Box 50000, Morris Township, New Jersey 07962,
and enclose evidence of your ownership of shares of Common Stock as of February 29, 2008 (such as a letter from the bank or broker confirming your ownership or a bank or brokerage firm account
statement). The names of all those planning to attend will be placed on an admission list held at the registration desk at the entrance to the meeting. All shareowners attending the meeting will be asked to
provide proof of identification. If your shares are held by a bank or broker and you have not provided advance written notification that you will attend the meeting, you will be admitted to the meeting only
upon presentation of evidence of ownership of shares of Common Stock as of February 29, 2008. 3
Proposal No. 1ELECTION OF DIRECTORS Honeywells directors are elected at each Annual Meeting of Shareowners and hold office for one-year terms or until their successors are duly elected and qualified. The Board has nominated ten
candidates for election as directors for a term ending at the 2009 Annual Meeting of Shareowners or when their successors are duly elected and qualified. All nominees are currently serving as directors. If
prior to the Annual Meeting any nominee should become unavailable to serve, the shares represented by a properly signed and returned proxy card or voted by telephone or via the Internet will be voted
for the election of such other person as may be designated by the Board, or the Board may determine to leave the vacancy temporarily unfilled or reduce the authorized number of directors in accordance
with the By-laws. Directors may serve until the Annual Meeting of Shareowners immediately following their 72nd birthday. In accordance with this policy, Mr. Howard will retire at the 2008 Annual Meeting, at which time
the authorized number of directors shall be reduced to ten. Certain information regarding each nominee is set forth below.
NOMINEES FOR ELECTION
GORDON M. BETHUNE, Chairman of the Board of Aloha Airgroup, Inc.
Director since 1999
Age 66
JAIME CHICO PARDO, Chairman of the Board of Telefonos de Mexico,
Director since 1999
Age 58 4
Mr. Bethune joined Aloha Airgroup, Inc. as Chairman of the Board in August 2006. Mr. Bethune is the retired Chairman of the Board and Chief Executive Officer of Continental Airlines,
Inc., an international commercial airline company. Mr. Bethune joined Continental Airlines, Inc. in February 1994 as President and Chief Operating Officer. He was elected President
and Chief Executive Officer in November 1994 and Chairman of the Board and Chief Executive Officer in 1996, in which positions he served until his retirement in December of 2004.
Prior to joining Continental, Mr. Bethune held senior management positions with the Boeing Company, Piedmont Airlines, Western Airlines, Inc. and Braniff Airlines. Mr. Bethune is also
a director of Prudential Financial Inc., Sprint Nextel Corporation and Willis Group Holdings Ltd. (Mr. Bethune will not stand for re-election to the board of Willis Group Holdings Ltd. in
2008.) He was a director of Honeywell Inc. from April 1999 to December 1999.
S.A. de C.V. (TELMEX)
Mr. Chico Pardo has been Chairman of the Board of TELMEX, a telecommunications company based in Mexico City, since October 2006. He joined TELMEX as its Chief Executive
Officer in 1995, a position which he held until October 2006. In November 2006, Mr. Chico Pardo became Co-Chairman of the Board of IDEAL, a company engaged in the development
and operation of infrastructure assets in Latin America. Prior to joining TELMEX, Mr. Chico Pardo served as President and Chief Executive Officer of Grupo Condumex, S.A. de C.V., a
manufacturer of products for the construction, automobile and telecommunications industries, and Euzkadi/General Tire de Mexico, a manufacturer of automotive and truck tires. Mr.
Chico Pardo is also a director of IDEAL, Carso Global Telecom, America Movil, America Telecom and Grupo Carso, all of which are affiliates of TELMEX. He was a director of
Honeywell Inc. from September 1998 to December 1999.
DAVID M. COTE, Chairman and Chief Executive Officer of Honeywell International Inc.
Director since 2002
Age 55
D. SCOTT DAVIS, Chairman and Chief Executive Officer of United Parcel Service, Inc. (UPS)
Director since 2005
Age 56
LINNET F. DEILY, Former Deputy U.S. Trade Representative and Ambassador
Director since 2006
Age 62 5
Mr. Cote has been Chairman and Chief Executive Officer since July 2002. He joined Honeywell as President and Chief Executive Officer in February 2002. Prior to joining Honeywell,
he served as Chairman, President and Chief Executive Officer of TRW Inc., a provider of products and services for the aerospace, information systems and automotive markets, from
August 2001 to February 2002. From February 2001 to July 2001, he served as President and Chief Executive Officer and from November 1999 to January 2001 he served as
President and Chief Operating Officer of TRW. Mr. Cote was Senior Vice President of General Electric Company and President and Chief Executive Officer of GE Appliances from
June 1996 to November 1999. He is also a director of JPMorgan Chase & Co.
Mr. Davis joined United Parcel Service, Inc., a leading global provider of package delivery, specialized transportation and logistics services in 1986, and has served as Chairman and
Chief Executive Officer since January 1, 2008. Prior to this, he served as Vice Chairman since December 2006 and as Senior Vice President, Chief Financial Officer and Treasurer
since January 2001. Previously, Mr. Davis held various leadership positions with UPS, primarily in the finance and accounting areas. Prior to joining UPS, he was Chief Executive
Officer of II Morrow, a developer of general aviation and marine navigation instruments.
Ms. Deily was Deputy U.S. Trade Representative and U.S. Ambassador to the World Trade Organization from 2001 to 2005. From 2000 until 2001, she was Vice Chairman of The
Charles Schwab Corp. Ms. Deily served as President of the Schwab Retail Group from 1998 until 2000 and President of Schwab InstitutionalServices for Investment Managers from
1996 to 1998. Prior to joining Schwab, she was the Chairman of the Board, Chief Executive Officer and President of First Interstate Bank of Texas from 1990 until 1996. She is also a
director of Alcatel-Lucent and Chevron Corporation.
CLIVE R. HOLLICK, Partner, Kohlberg Kravis Roberts & Co.
Director since 2003
Age 62
BRADLEY T. SHEARES, Former Chief Executive Officer of Reliant Pharmaceuticals, Inc.
Director since 2004
Age 51
ERIC K. SHINSEKI, General United States Army (Ret.)
Director since 2003
Age 65 6
In April of 2005, Lord Hollick joined Kohlberg Kravis Roberts & Co., a private equity firm, as a Managing Director, focusing on investments in the media and financial services sectors,
and was appointed Partner in April 2006. Prior to that time, and beginning in 1996, Lord Hollick was the Chief Executive of United Business Media, a London-based, international
information, broadcasting and publishing group. From 1974 to 1996, he held various leadership positions with United Business Media and its predecessor companies. Lord Hollick is
also a director of Diageo plc and ProSiebenSat.1 Media AG.
Dr. Sheares served as Chief Executive Officer of Reliant Pharmaceuticals, Inc., a pharmaceutical company with integrated sales, marketing and development expertise that markets a
portfolio of branded cardiovascular pharmaceutical products, from January 2007 through its acquisition by GlaxoSmithKline plc in December 2007. Prior to joining Reliant, Dr. Sheares
served as President of U.S. Human Health, Merck & Co. from March of 2001 until July 2006. Prior to that time, he served as Vice President, Hospital Marketing and Sales for Mercks
U.S. Human Health business. Dr. Sheares joined Merck in 1987 as a research fellow in the Merck Research Laboratories and held a wide range of positions within Merck, in business
development, sales, and marketing, before becoming Vice President in 1996. He is also a director of The Progressive Corporation.
General Shinseki served in the United States Army for 38 years, most recently as Chief of Staff from June 1999 until June 2003. Prior to that he held a number of key command
positions, including Commander of U.S. Army, Europe and Commander of the NATO-led Peace Stabilization Force in Bosnia-Herzegovina. General Shinseki is the highest-ranking
Asian-American in U.S. military history, a West Point graduate, and the recipient of numerous U.S. and foreign military decorations. He is also a director of Ducommun Incorporated
and Guardian Life Insurance Company of America.
JOHN R. STAFFORD, Retired Chairman and Chief Executive Officer of Wyeth
Director since 1993
Age 70
MICHAEL W. WRIGHT, Retired Chairman, President and Chief Executive Officer of SUPERVALU INC.
Director since 1999
Age 69 7
Mr. Stafford served as Chairman of the Board of Wyeth, a manufacturer of pharmaceutical, health care and animal health products, from 1986 until his retirement at the end of 2002.
He also served as Chief Executive Officer from 1986 to 2001. Mr. Stafford joined Wyeth in 1970 and held a variety of positions before becoming President in 1981. He is also a director
of Verizon Communications Inc.
Mr. Wright was elected President and Chief Operating Officer of SUPERVALU INC., a food distributor and retailer, in 1978, Chief Executive Officer in 1981, and Chairman of the Board
in 1982. He retired as President and CEO in June 2001, and as Chairman in May 2002. He joined SUPERVALU INC. as Senior Vice President of Administration and as a member of
the board of directors in 1977. Prior to 1977, Mr. Wright was a partner in the law firm of Dorsey & Whitney. Mr. Wright is also a director of Canadian Pacific Railway Company and Wells
Fargo & Company. He was a director of Honeywell Inc. from April 1987 to December 1999.
CORPORATE GOVERNANCE; BOARD OF DIRECTORS The Board of Directors held eight meetings during 2007. The average attendance at meetings of the Board and Board Committees during 2007 was 93%. During this period, all of the directors
attended or participated in more than 75% of the aggregate of the total number of meetings of the Board of Directors and the total number of meetings held by all Committees of the Board of Directors on
which each such director served. The Board holds executive sessions of its non-employee directors on at least a quarterly basis. Members serve as the chairperson, or presiding director, for these executive sessions on a rotating
basis (meeting-by-meeting) in accordance with years of service on the Board. The Company believes that this system best serves to encourage full engagement of all directors in the process, while
avoiding unnecessary hierarchy. Following an executive session of non-employee directors, the presiding director may act as a liaison between the non-employee directors and the Chairman, provide the
Chairman with input regarding agenda items for Board and Committee meetings, and coordinate with the Chairman regarding information to be provided to the non-employee directors in performing their
duties. The Board currently has the following Committees: Audit; Corporate Governance and Responsibility; Management Development and Compensation; and Retirement Plans. Each Committee consists
entirely of independent, non-employee directors (see Director Independence on pages 1112). The charter of each Committee of the Board of Directors is available free of charge on our website, www.honeywell.com, under the heading Investor Relations (see Corporate GovernanceBoard Committees) or by writing to Honeywell, 101 Columbia Road, Morris Township, NJ 07962, c/o Vice
President and Corporate Secretary. Name
Audit
Corporate Governance
Management Development
Retirement Mr. Bethune
X
X Mr. Chico Pardo
X
X Mr. Davis
X
*
X Ms. Deily
X
X Mr. Hollick
X
X Mr. Howard
X
X Dr. Sheares
X
X Mr. Shinseki
X
X Mr. Stafford
X
X
* Mr. Wright
X
X
* 2007 Meetings
9
3
6
3
* Committee Chairperson
The primary functions of each of the Board Committees are described below. Audit Committee The primary functions of this Committee are to: appoint (subject to shareowner approval), and be directly responsible for, the compensation, retention and oversight of, the firm that will serve as
independent accountants to audit our financial statements and to perform services related to the audit (including the resolution of disagreements between management and the independent accountants 8
The table below lists the Committees, current membership of each Committee and the number of Committee meetings held in 2007. (Prior to his resignation from the Board in February 2008, Mr.
Seidenberg served as Chairperson of the Corporate Governance and Responsibility Committee and a member of the Management Development and Compensation Committee.)
and Responsibility
and Compensation
Plans
regarding financial reporting); review the scope and results of the audit with the independent accountants; review with management and the independent accountants, prior to the filing thereof, the annual
and interim financial results (including Managements Discussion and Analysis) to be included in Forms 10-K and 10-Q, respectively; consider the adequacy and effectiveness of our internal accounting
controls and auditing procedures; review, approve and thereby establish procedures for the receipt, retention and treatment of complaints received by Honeywell regarding accounting, internal accounting
controls or auditing matters and for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters; and consider the accountants independence
and establish policies and procedures for pre-approval of all audit and non-audit services provided to Honeywell by the independent accountants who audit its financial statements. At each meeting,
Committee members meet privately with representatives of PricewaterhouseCoopers LLP, our independent accountants, and with Honeywells Vice PresidentCorporate Audit. The Board has determined
that Mr. Davis and Ms. Deily satisfy the accounting or related financial management expertise requirements set forth in the NYSE Corporate Governance Rules, and has designated Mr. Davis as the
audit committee financial expert, as such term is defined by the SEC. See page 60 for the Audit Committee Report. Corporate Governance and Responsibility Committee The primary functions of this Committee are to: identify individuals qualified to become Board members and recommend to the Board the nominees for election to the Board at the next Annual Meeting
of Shareowners; review and make recommendation to the Board regarding whether to accept a resignation tendered by a Board nominee who does not receive a majority of votes cast for his or her
election in an uncontested election of directors; review annually and recommend changes to the Corporate Governance Guidelines; lead the Board in its annual review of the performance of the Board and
its Committees; review policies and make recommendations to the Board concerning the size and composition of the Board, the qualifications and criteria for election to the Board, retirement from the
Board, compensation and benefits of non-employee directors, the conduct of business between Honeywell and any person or entity affiliated with a director, and the structure and composition of Board
Committees; and review Honeywells policies and programs relating to compliance with its Code of Business Conduct, health, safety and environmental matters, equal employment opportunity and such
other matters as may be brought to the attention of the Committee regarding Honeywells role as a responsible corporate citizen. See Identification and Evaluation of Director Candidates on pages 1213
and Director Compensation on pages 14-17. Management Development and Compensation Committee The Companys executive compensation program is administered by the Management Development and Compensation Committee. Each member of the Committee qualifies as an outside director
within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the Internal Revenue Code). The primary functions of this Committee are to: evaluate and approve executive
compensation plans, policies and programs, including review and approval of executive compensation-related corporate goals and objectives (i.e., determination of performance metrics under the
Companys incentive and equity-based compensation plans); review and approve the individual goals and objectives of the Companys executive officers; evaluate the CEOs performance relative to
established goals and objectives and, together with the other independent directors, determine and approve the CEOs compensation level based on this evaluation; review and determine the annual
salary and other remuneration (including under incentive compensation and equity-based plans) of all other officers; review, prior to the filing thereof, the Compensation Discussion and Analysis and other
executive compensation disclosure included in this proxy statement; review the management development program, including executive succession plans; recommend individuals for election as officers;
and review or take such other action as may be required in connection with the bonus, stock and other benefit plans of Honeywell and its subsidiaries. While the Committees charter authorizes it to
delegate its powers to sub-committees, the Committee did not do so during 2007. See page 37 for the Report of the Management Development and Compensation Committee. 9
Role of Consultant The Committee has sole authority to retain and terminate any compensation consultant to be used to assist in the evaluation of CEO or senior executive compensation, including sole authority to
approve the consultants fees and other retention terms. In 2007, the Committee retained Mercer to conduct a review of named executive officer compensation in the Peer Group set forth on page 22 of
this proxy statement, including information regarding the cash/equity and short-term/long-term components and mix of these companies executive compensation programs. The Committee also directed
Mercer to review the relative performance of the Company vs. the companies in the Peer Group with respect to financial metrics used in the Companys executive compensation program. The Committee
also reviewed survey data compiled and published by third parties, including other consulting firms. Neither the Committee nor the Company had any input into the scope of or companies included in these
surveys. Mercer reported to the Committee Chair and had direct access to Committee members. Mercer attended Committee meetings on request and also met with the Committee in person or by telephone in
executive session without management present. No other consultant was retained by the Committee or by the Company for the purpose of evaluating CEO or senior executive compensation. The Committee reviewed information provided by Mercer regarding the median and 75th percentile of compensation paid by the Peer Group as a general indicator of relevant market conditions, but
does not consider specific benchmark levels as a material factor in its compensation decisions. The Committee does not set specific benchmark targets for total executive compensation or for individual
elements of the Companys executive compensation program due to, among other things, the variability in the composition of executive compensation programs (elements, cash-equity mix, short-
term/long-term mix, targeted financial metrics, etc.), the one-year time lag in the availability of data and the multiple benchmark scenarios applicable to individual executive officers. The decisions made by
the Committee are the responsibility of the Committee and reflected factors and considerations other than the information and recommendations provided by Mercer. Mercer personnel involved in matters within the purview of any Board Committee did not participate in any other services provided by Mercer to the Company. The Committee believes that the other
services provided by Mercer to the Company did not impair Mercers ability to provide an objective perspective to the Committees deliberations regarding CEO compensation. In December 2007, the
Committee determined that, in line with emerging corporate governance best practices, commencing in 2008, it would retain a consultant that provides no other services to the Company. Input From Senior Management The Committee considers input from senior management in making determinations regarding the overall executive compensation program and the individual compensation of the executive officers. As
part of the Companys annual planning process, the CEO, CFO and Senior Vice PresidentHuman Resources and Communications develop targets for the Companys incentive compensation programs
and present them to the Committee. These targets are reviewed by the Committee to ensure alignment with the Companys strategic and annual operating plans, taking into account the targeted year-
over-year improvement as well as identified opportunities and risks. Based on performance appraisals, including an assessment of the achievement of pre-established financial and non-financial
management objectives, the CEO recommends base salary increases and cash and equity incentive award levels for the Companys other executive officers. See Compensation Discussion and Analysis
beginning on page 20 of this proxy statement for additional discussion of performance assessments. Each year, the CEO presents to the Committee and the full Board his evaluation of each executive
officers contribution and performance over the past year, strengths and development needs and actions, and reviews succession plans for each of the executive officers. Retirement Plans Committee The primary functions of this Committee are to: appoint the trustees for funds of the employee pension benefit plans of Honeywell and certain subsidiaries; review funding strategies; review and set
investment policy for fund assets; and oversee and appoint members of the committees that direct the investment of pension fund assets. 10
The Companys Corporate Governance Guidelines state that the Board intends that, at all times, a substantial majority of its directors will be considered independent under relevant NYSE and SEC
guidelines. The Corporate Governance and Responsibility Committee conducts an annual review of the independence of the members of the Board and its Committees and reports its findings to the full
Board. Based on the report and recommendation of the Corporate Governance and Responsibility Committee, the Board has determined that each person who served as a director during 2007, including
each of the non-employee directors and nomineesMessrs. Bethune, Chico Pardo, Davis, Hollick, Howard, Seidenberg, Sheares, Shinseki, Stafford and Wright and Ms. Deilysatisfies the independence
criteria (including the enhanced criteria with respect to members of the Audit Committee) set forth in the applicable NYSE listing standards and SEC rules. Each Board Committee member qualifies as a
non-employee director within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the Exchange Act). For a director to be considered independent, the Board must determine that the director does not have any direct or indirect material relationships (including vendor, supplier, consulting, legal,
banking, accounting, charitable and family relationships) with Honeywell, other than as a director and shareowner. NYSE listing standards also impose certain per se bars to independence, which are
based upon a directors relationships with Honeywell currently and during the three years preceding the Boards determination of independence. The Board considered all relevant facts and circumstances in making its determinations, including the following:
No non-employee director receives any direct compensation from Honeywell other than under the director compensation program described on pages 14-17 of this proxy statement. No immediate family member (within the meaning of the NYSE listing standards) of any non-employee director is an employee of Honeywell or otherwise receives direct compensation from
Honeywell. No non-employee director (or any of their respective immediate family members) is affiliated with or employed in a professional capacity by Honeywells independent accountants. No non-employee director is a member, partner, or principal of any law firm, accounting firm or investment banking firm that receives any consulting, advisory or other fees from Honeywell. No Honeywell executive officer is on the compensation committee of the board of directors of a company that employs any of our non-employee directors (or any of their respective immediate family
members) as an executive officer. No non-employee director (or any of their respective immediate family members) is indebted to Honeywell, nor is Honeywell indebted to any non-employee director (or any of their respective
immediate family members). No non-employee director serves as an executive officer of a charitable or other tax-exempt organization that received contributions from Honeywell.
Honeywell has commercial relationships (purchase and/or sale of products and services) with companies at which our current directors (or former directors who served during 2007) presently serve,
or at any time during the last completed fiscal year served, as officers (Merck, TELMEX, UPS and Verizon Communications). In each case, (i) the relevant products and services were provided on
the same terms and conditions as similar products and services provided by or to similarly situated customers and suppliers; (ii) the relevant director did not initiate or negotiate the relevant
transaction, each of which was in the ordinary course of business of both companies, and (iii) the combined amount of such purchases and sales was less than 0.25% of the consolidated gross
revenues of each of Honeywell and the other company in each of the last three completed fiscal years. This level is significantly below the relevant per se bar to independence set forth in the NYSE
listing standards, which uses a 2% of total revenue threshold and applies it to each of purchases and sales rather than the combination of the two.
11
While a non-employee directors service as an outside director of another company with which Honeywell does business is not within the NYSE per se independence bars and would generally not be
expected to raise independence issues, the Board also considered those relationships and confirmed the absence of any material commercial relationships with any such company. Specifically,
those commercial relationships were in the ordinary course of business for Honeywell and the other companies involved and were on terms and conditions available to similarly situated customers
and suppliers.
The Board also considered other relationships that are not within the NYSE per se independence bars and determined that those relationships were not material. These relationships consisted of: (i)
Mr. Cotes service on a KKR Advisory Board regarding the integration and operation of acquired companies (Mr. Hollick is a Partner in KKR); (ii) Honeywells pension fund commitments to KKR
funds ($20 million in 2007 and $40 million in 2006) (Mr. Hollick neither solicited nor had any role in connection with these commitments); and (iii) the service of Mr. Stafford as a member of the Board
of Directors of Verizon Communications Inc., a company for which Mr. Seidenberg serves as Chairman and Chief Executive Officer. (Mr. Seidenberg is not a current director of the Company.)
The above information was derived from the Companys books and records and responses to questionnaires completed by the directors in connection with the preparation of this proxy statement. IDENTIFICATION AND EVALUATION OF DIRECTOR CANDIDATES The Board has determined that its Corporate Governance and Responsibility Committee shall, among other responsibilities, serve as the nominating committee. The Committee consists entirely of
independent directors under applicable SEC rules and NYSE listing standards. The Committee operates under a written charter adopted by the Board of Directors. A copy of the charter is available at the
Companys website www.honeywell.com, under the heading Investor Relations (see Corporate GovernanceBoard Committees), or by writing to Honeywell, 101 Columbia Road, Morris Township, New Jersey 07962
c/o Vice President and Corporate Secretary. The Committee is charged with seeking individuals qualified to become directors and recommending candidates for all directorships to the full Board of
Directors. The Committee considers director candidates in anticipation of upcoming director elections and other potential or expected Board vacancies. The Committee considers director candidates suggested by members of the Committee, other directors, senior management and shareowners. The Committee has retained, at the expense of the
Company, a search firm to identify potential director candidates, and is also authorized to retain other external advisors for specific purposes, including performing background reviews of potential
candidates. The search firm retained by the Committee has been provided guidance as to the particular experience, skills and other characteristics that the Board is seeking. The Committee has delegated
responsibility for day-to-day management and oversight of the search firm engagement to the Chairman of the Board and/or the Companys Senior VPHuman Resources and Communications. Preliminary interviews of director candidates may be conducted by the Chairman of the Committee or, at his request, any other member of the Committee, the Chairman of the Board and/or a
representative of the search firm retained by the Committee. Background material pertaining to director candidates is distributed to the members of the Committee for their review. Director candidates who
the Committee determines merit further consideration are interviewed by the Chairman of the Committee and such other Committee members, directors and key senior management personnel as
determined by the Chairman of the Committee. The results of these interviews are considered by the Committee in its deliberations. Director candidates are reviewed by the Committee based on the needs of the Board and the Companys various constituencies, their relative skills and characteristics, and their age and against the
following qualities and skills that are considered desirable for Board membership: their exemplification of the highest standards of personal and professional integrity; their independence from management
under applicable securities law, listing standards, and the Companys Corporate Governance Guidelines; their experience and industry and educational background; their potential 12
contribution to the composition, diversity and culture of the Board; and their ability and willingness to constructively challenge management through active participation in Board and Committee meetings
and to otherwise devote sufficient time to Board duties. In evaluating the needs of the Board, the Committee considers the qualifications of sitting directors and consults with other members of the Board (including as part of the Boards annual self-
evaluation), the CEO and other members of senior management. At a minimum, all recommended candidates must possess the requisite personal and professional integrity, meet any required
independence standards, and be willing and able to constructively participate in, and contribute to, Board and Committee meetings. Additionally, the Committee conducts regular reviews of current
directors whose terms are nearing expiration, but who may be proposed for re-election, in light of the considerations described above and their past contributions to the Board. Shareowners wishing to recommend a director candidate to the Committee for its consideration should write to the Committee, in care of Vice President and Corporate Secretary, Honeywell, 101
Columbia Road, Morris Township, New Jersey 07962. To receive meaningful consideration, a recommendation should include the candidates name, biographical data, and a description of his or her
qualifications in light of the above criteria. Shareowners wishing to nominate a director should follow the procedures set out under Director Nominations on page 65 of this proxy statement. The Company did not receive in a timely manner, in accordance with SEC requirements, any recommendation of a director candidate from a shareowner, or group of shareowners, that beneficially
owned more than 5% of the Common Stock for at least one year as of the date of recommendation. PROCESS FOR COMMUNICATING WITH BOARD MEMBERS Interested parties may communicate directly with the presiding director for an upcoming meeting or the non-employee directors as a group by writing to Honeywell, 101 Columbia Road, Morris
Township, New Jersey 07962, c/o Vice President and Corporate Secretary. Communications may also be sent to individual directors at the above address. DIRECTOR ATTENDANCE AT ANNUAL MEETINGS The Company has no specific policy regarding director attendance at its Annual Meeting of Shareowners. Generally, however, Board and Committee meetings are held immediately preceding and
following the Annual Meeting of Shareowners, with directors attending the Annual Meeting. All but one of the directors attended last years Annual Meeting of Shareowners. 13
The Corporate Governance and Responsibility Committee reviews and makes recommendations to the Board regarding the form and amount of compensation for non-employee directors. Directors
who are employees of Honeywell receive no compensation for service on the Board. Honeywells director compensation program is designed to enable continued attraction and retention of highly qualified
directors by ensuring that director compensation is in line with peer companies competing for director talent, and is designed to address the time, effort, expertise and accountability required of active
Board membership. In general, the Corporate Governance and Responsibility Committee and the Board believe that annual compensation for non-employee directors should consist of both a cash
component, designed to compensate members for their service on the Board and its Committees, and an equity component, designed to align the interests of directors and shareowners and, by vesting
over time, to create an incentive for continued service on the Board. Annual Compensation Each non-employee director receives an annual Board cash retainer of $80,000. Each also receives a cash fee of $2,500 for each Board meeting attended, an annual cash retainer of $10,000 for
each Board Committee on which he or she serves ($15,000 for Audit Committee), and an additional Committee Chair cash retainer of $15,000 for the Audit Committee and $10,000 for all other Board
Committees. While no fees are generally paid for attending Committee meetings, a $1,000 cash fee is paid for attendance at a Committee meeting, or other extraordinary meeting related to Board
business, which occurs apart from a regularly scheduled Board meeting. At the commencement of each year, $60,000 in common stock equivalents is automatically credited to each directors account in the Deferred Compensation Plan for Non-Employee Directors, which
amounts are only payable after termination of Board service, and are paid, in cash, as either a lump sum or in equal annual installments. Each director receives an annual grant of options to purchase 5,000 shares of Common Stock at the fair market value on the date of grant, which is the date of the Annual Meeting of Shareowners.
Options have generally vested over a three-year period. Starting in 2007, the vesting period was extended to four years, with the vesting to occur in equal annual installments. These options also become
fully vested at the earliest of the directors retirement from the Board on or after the mandatory retirement age set by the Board and in effect on the date of grant, death, disability or change in control, as
set forth in the 2006 Stock Plan for Non-Employee Directors of Honeywell (the Non-Employee Director Plan) or applicable predecessor plan. Deferred Compensation A director may also elect to defer, until a specified calendar year or termination of Board service, all or any portion of his or her annual cash retainers and fees that are not automatically deferred, and
to have such compensation credited to his or her account in the Deferred Compensation Plan for Non-Employee Directors. Amounts credited either accrue interest (currently based on the Companys
annual cost of borrowing at a fixed rate for a 15-year term; 5.8% for 2007 and 6.3% for 2008) or are valued as if invested in a Honeywell common stock fund or one of the other funds available to
participants in our employee savings plan. The unit price of the Honeywell common stock fund is increased to take dividends into account. Upon a change of control, as defined in the Non-Employee
Director Plan, a director may elect a lump-sum payment of amounts deferred before 2006. The non-employee directors of the Company who were previously non-employee directors of Honeywell Inc. (Messrs. Bethune, Chico Pardo, Howard and Wright) participate in the Honeywell Inc. Non-
Employee Directors Fee and Stock Unit Plan. The last fee deferral under this plan occurred on December 1, 1999. Since that date, deferred amounts are increased only by cash dividends that are converted into
shares of Common Stock by dividing the cash amount by the closing price of the Common Stock on the dividend payment date. Payment will be made to a participating director in whole shares of Common Stock
following the earlier of a change in control or the directors termination of Board service for any reason. Fractional shares will be paid in cash. Share payments will be made to a participating director in 14
one payment or annual installments, as elected by the director. A director may elect to change the payment form if such election is made at least one year prior to the payment date. Other Benefits Non-employee directors are also provided with $350,000 in business travel accident insurance, and are eligible to elect $100,000 in term life insurance and medical and dental coverage for
themselves and their eligible dependents, the premiums for which are then paid by the Company. Honeywell also matches, dollar for dollar, any charitable contribution made by a director to any qualifying
educational institution or charity, up to a maximum of $25,000 in the aggregate per director, per calendar year. In addition, directors may use company aircraft in connection with traveling to and from
Board and Committee meetings. Restricted Share Grant Upon Election to Board Each new director receives a one-time grant of 3,000 shares of Common Stock which are subject to transfer restrictions until the directors service terminates with the consent of a majority of the
Board, provided termination occurs at or after age 65. During the restricted period, the director has the right to receive dividends on and the right to vote the shares. At the end of the restricted period, a
director is entitled to one-fifth of the shares granted for each year of service (up to five). However, the shares will be forfeited if the directors service terminates (other than for death or disability) prior to
the end of the restricted period. Stock Ownership Guidelines Director stock ownership guidelines have been adopted under which each non-employee director, while serving as a director of the Company, must (i) hold at least $250,000 of Common Stock
(including restricted shares) and/or common stock equivalents and (ii) hold net gain shares from option exercises for one year. Net gain shares means the number of shares obtained by exercising the
option, less the number of shares the director sells to cover the exercise price of the options and pay the Company withholding taxes. Directors have five years from election to the Board to attain the
prescribed ownership threshold. All directors have attained the prescribed ownership threshold. Director CompensationFiscal Year 2007 Director Name
Fees
Stock
Option
Change in
All Other
Total Gordon Bethune
$
181,000
$
47,195
$
25,597
$
253,792 Jaime Chico Pardo
$
177,500
$
47,195
$
10,943
$
235,638 D.
Scott Davis
$
204,000
$
27,626
$
1,665
$
1,260
$
234,551 Linnet Deily
$
184,000
$
27,626
$
30,358
$
241,984 Clive Hollick
$
181,000
$
47,195
$
1,454
$
229,649 James Howard
$
189,000
$
47,195
$
1,885
$
238,080 Russell Palmer
$
104,334
$
64,314
$
7,766
$
28,820
$
205,234 Ivan Seidenberg
$
186,000
$
47,195
$
12,038
$
25,004
$
270,237 Bradley Sheares
$
180,000
$
43,000
$
2,890
$
26,415
$
252,305 Eric Shinseki
$
186,500
$
47,195
$
15,335
$
249,030 John Stafford
$
196,500
$
47,195
$
42,024
$
23,605
$
309,324 Michael Wright
$
195,500
$
47,195
$
4,328
$
247,023
(1)
All fees earned, whether paid in cash or deferred under the Deferred Compensation Plan for Non-Employee Directors (including amounts treated as deferred in the Honeywell common stock fund).
15
Earned or
Paid in
Cash (1)
($)
Awards (2)
($)
Awards (2) (3)
($)
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings (4)
Compensation (5)
($)
($)
The number of outstanding stock awards and option awards held by each director at December 31, 2007 are set forth in the chart below:
Director Name
Outstanding Stock
Outstanding Option Mr. Bethune
3,000
28,000 Mr. Chico Pardo
3,000
28,000 Mr. Davis
3,000
10,000 Ms. Deily
3,000
10,000 Mr. Hollick
3,000
20,000 Mr. Howard
3,000
28,000 Mr. Palmer
4,000 Mr. Seidenberg
3,000
32,000 Dr.
Sheares
3,000
15,000 Mr. Shinseki
3,000
20,000 Mr. Stafford
6,000
32,000 Mr. Wright
3,000
28,000
(3)
For all current directors, the amounts set forth in this column represent $10,402 of compensation expense recognized by the Company in 2007 with respect to the annual option grants to acquire 5,000
shares issued to each director in April 2007, and any additional amounts represent compensation expense recognized in 2007 with respect to prior year option grants. The full grant date fair value of
the 2007 option grant $55,300 is determined by multiplying the number of options granted (5,000) by Honeywells $11.06 Black Scholes value per share. A discussion of the assumptions used in these
valuations with respect to awards made in fiscal year 2007 may be found in Notes 1 and 20 in the Companys Form 10-K for the year ended December 31, 2007. A discussion of the assumptions used
in these valuations with respect to awards made in fiscal years prior to fiscal year 2007 may be found in the corresponding sections of the Companys financial statement footnotes for the fiscal year in
which the award was made.
The amount reflected in this column for Mr. Palmer includes $36,045, the amount expensed by the Company for the acceleration of Mr. Palmers unvested options upon his retirement from the Board,
effective April 23, 2007. (4) Amounts invested in cash under the Deferred Compensation Plan for Non-Employee Directors are credited with the same rate of interest that applies to executives under the Honeywell Salary and
Incentive Award Deferral Plan for Selected Employees. Deferrals for the 2007 plan year and later earn a rate of interest, compounded daily, and based on the Companys 15-year cost of borrowing.
The rate is subject to change annually. For 2007, this rate was 5.8% and for 2008, the rate will be 6.3%. Deferrals for the 2005 plan year earn a rate of interest, compounded daily, which was set at an
above-market rate before the beginning of the plan year and is subject to change annually. Deferrals for the 2004 plan year and prior plan years earn a rate of interest, compounded daily, that was set
at an above-market rate before the beginning of each plan year. This rate is fixed until the deferral is distributed from the Deferred Compensation Plan for Non-Employee Directors. (5) All Other Compensation for 2007 consists of the amounts set forth in the following table, to the extent the value of all such benefits paid on behalf of a director exceeds $1,000. Director Name
Premiums paid for
Tax Reimbursement for
Charitable Matching Mr. Chico Pardo
$
943
$
10,000 Mr. Davis
$
802
$
458
Ms. Deily
$
6,299
$
24,059 Mr. Howard
$
4
$
1,881
Mr. Palmer
$
3,149
$
670
$
25,000 Mr. Seidenberg
$
4
$
25,000 Dr. Sheares
$
509
$
905
$
25,000 Mr. Shinseki
$
2,581
$
1,254
$
11,500 Mr. Stafford
$
2,605
$
21,000 Mr. Wright
$
2,477
$
1,851
16
(2)
Awards at 12/31/07
Awards at 12/31/07
Health, Term Life and
Accident Insurance (A)
Spousal Aircraft
Usage (B)
Contributions (C)
(A) Each director may elect noncontributory medical and dental coverage for themselves and their eligible dependents and group term life insurance coverage for themselves that is identical to
similar coverage offered to the Companys active salaried employees. The Company also pays the annual premium to cover each director under the Companys business travel accident
insurance policy. (B) Under the terms of the Companys aircraft usage policy, if the presence of the directors spouse at a Board function is requested by the Company and the spouse travels with the director to
such function on corporate aircraft, the Company imputes income to the director for spousal travel for income tax purposes and reimburses the director for the estimated taxes related to the
imputed income. (C) The Company matches, dollar for dollar, any charitable contribution made by a director to any qualifying educational institution or charity, up to a maximum of $25,000 in the aggregate per
director, per calendar year. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Applicable Policies and Procedures The Company has written policies and procedures for approval or ratification of related person transactions. Article EIGHTH of Honeywells Certificate of Incorporation provides that a related or
interested party transaction shall not be void or voidable if such transaction is duly authorized or ratified by a majority of the disinterested members of the Board of Directors. Consistent with SEC rules, a
related or interested party transaction includes a transaction between the Company and a director, director nominee or executive officer of the Company or a beneficial owner of more than 5% of the
Companys Common Stock or any of their respective immediate family members. Furthermore, the Honeywell Code of Business Conduct requires that each director and executive officer report to the
Board of Directors on an ongoing basis any relationship or transaction that may create or appear to create a conflict between the personal interests of those individuals (or their immediate family members)
and the interests of the Company. A conflict, or appearance of a conflict, might arise, for example, by accepting gifts or loans from a current or potential customer, supplier or competitor, owning a financial
interest in, or serving in a business capacity with, an outside enterprise that competes with or does or wishes to do business with, the Company, serving as an intermediary for the benefit of a third party in
transactions involving the Company or using confidential Company information or other corporate assets for personal profit. If a conflict of interest or related party transaction is of a type or a nature that falls within the scope of oversight of a particular Board Committee, it is referred to that Committee for review. The Board
or the responsible Committee thereof must review any potential conflict and determine whether any action is required, including whether to authorize, ratify or direct the unwinding of the relationship or
transaction under consideration, as well as ensure that appropriate controls are in place to protect the Company and its shareowners. In making that determination, the Board or responsible Committee
considers all relevant facts and circumstances, such as the benefits of the transaction to the Company; the terms of the transaction and whether they are arms-length and in the ordinary course of the
Companys business; the direct or indirect nature of the related persons interest in the transaction; the size and expected term of the transaction; and other facts and circumstances that bear on the
materiality of the related person transaction under applicable law and listing standards. In order to ensure that all material relationships and related person transactions have been identified, reviewed and disclosed in accordance with applicable policies, procedures and regulations, each
director and officer also completes and signs a questionnaire at the end of each fiscal year that requests confirmation that there are no material relationships or related person transactions between such
individuals and the Company other than those previously disclosed to the Company. Related Person Transaction The Honeywell ADI business leases its administrative office building in Melville, New York at a market value rent of $852,992 per year. Subsequent to the time that ADI entered into this lease, the 17
property was acquired by a partnership known as New Island Holdings. The terms of the lease have not been changed since the original negotiation between ADI and the prior owner. Mr. Fradin,
President and Chief Executive Officer, Honeywell Automation and Control Solutions, is a limited partner, holding a 12% ownership interest, in New Island Holdings. The limited partners of New Island
Holdings receive distributions based on total lease payments generated from the portfolio of buildings that the partnership owns, less applicable mortgage and other expenses. The amount of distributions
in 2007 from New Island Holdings to Mr. Fradin attributable to the ADI lease was approximately $48,000. Five Percent Owners of Company Stock The following table sets forth information as to those holders known to Honeywell to be the beneficial owners of more than 5% of the outstanding shares of Common Stock as of December 31, 2007. Name and Complete Mailing Address
Number
Percent of State Street Bank and Trust Company
76,714,683
(1)
10.3
(2) State Street Financial Center, FMR LLC
48,716,504
(3)
6.5 82 Devonshire Street, Boston, MA 02109 Barclays Global Investors, NA
41,250,238
(4)
5.5 45 Fremont Street
(1)
State Street has sole voting power in respect of 27,283,667 shares; shared voting power in respect of 49,431,016 shares; and shared dispositive power in respect of all 76,714,683 shares listed above. (2) State Street holds 6.6% of our outstanding Common Stock as trustee for certain Honeywell savings plans. Under the terms of the plans, State Street is required to vote shares attributable to any
participant in accordance with instructions received from the participant and to vote all shares for which it does not receive instructions in the same ratio as the shares for which instructions were
received.
(3) FMR LLC has sole voting power in respect of 2,099,357 shares; and sole dispositive power in respect of all 48,716,504 shares.
(4) The following Barclays entities had sole voting power and sole dispositive power with respect to the following number of shares:
Name
Sole Voting Power
Sole Dispositive Power Barclays Global Investors, NA
24,886,857
30,230,047 Barclays Global Fund Advisors
4,776,593
4,776,593 Barclays Global Investors, Ltd.
3,439,290
4,199,628 Barclays Global Investors Japan Limited
1,522,708
1,522,708 Barclays Global Investors Canada Limited
521,262
521,262 Stock Ownership of Directors and Executive Officers The following table sets forth information as of February 29, 2008 with respect to the beneficial ownership of Common Stock by each director or director nominee, each executive officer named in the
Summary Compensation Table herein, and by all directors (including nominees) and executive officers of Honeywell as a group. In general, beneficial ownership includes those shares a director or
executive officer has the sole power to vote or transfer, except as otherwise noted, and stock options 18
of Shares
Common Stock
Outstanding
One Lincoln Street, Boston, MA 02111
San Francisco, CA 94105
All
shares are held by the entities in trust accounts for the economic
benefit of the beneficiaries of those accounts.
that are exercisable currently or within 60 days. Directors and executive officers also have interests in stock-based units under Company plans. While these units may not be voted or transferred, we have
included them in the table below as they represent the total economic interest of the directors and executive officers in Honeywell stock. Name(1)
Total Number
Components of Beneficial Ownership
Common Stock
Right
Other Gordon M. Bethune
38,466
3,000
22,750
12,716 Jaime Chico Pardo
47,718
8,407
22,750
16,561 David M. Cote
5,076,667
65,290
4,667,200
344,177 D. Scott Davis
16,445
7,000
4,750
4,695 Linnet F. Deily
11,050
3,000
4,750
3,300 Clive R. Hollick
26,850
3,000
14,750
9,100 James J. Howard
96,749
9,320
22,750
64,679 Bradley T. Sheares
19,073
3,000
9,750
6,323 Eric K. Shinseki
32,092
3,228
14,750
14,114 John R. Stafford
73,439
25,541
24,750
23,148 Michael W. Wright
105,465
5,250
22,750
77,465 David J. Anderson
792,830
640
715,850
76,340 Roger Fradin
816,578
5,760
698,250
112,568 Robert J. Gillette
290,792
129,987
157,250
3,555 Larry E. Kittelberger
706,220
134,846
566,250
5,124 All directors, nominees and executive
10,222,760
(6)
464,264
8,857,400
901,096
(1)
c/o Honeywell International Inc., 101 Columbia Road, Morris Township, New Jersey 07962.
(2) The total beneficial ownership for any individual is less than .69% and the total for the group is approximately 1.38% of the shares of Common Stock outstanding.
(3) Includes the following number of shares subject to shared dispositive power: Mr. Stafford, 8,000 shares and Mr. Kittelberger, 132,594 shares; and all directors and executive officers as a group,
144,496 shares. (4) Includes shares which the named individual or group has the right to acquire through the exercise of vested stock options, and shares which the named individual or group has the right to acquire
through the vesting of restricted units and stock options within 60 days of the record date. (5) Includes shares and/or share-equivalents in deferred accounts, as to which no voting or investment power exists. (6) Includes 38,227 shares pledged by two executive officers who are not named executive officers (i.e., Chief Executive Officer, Chief Financial Officer and the three other most highly-compensated
executive officers). SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires our directors, executive officers, and persons who own more than 10% of our Common Stock to file reports of ownership and changes in ownership of our
Common Stock with the SEC. Based on the information available to us during fiscal year 2007, we believe that all applicable Section 16(a) filing requirements were met on a timely basis. 19
of Shares(2)
(Number of Shares)
Beneficially
Owned(3)
to
Acquire(4)
Stock-Based
Holdings(5)
officers as a group, including the
above-named persons (20 people)
Compensation Discussion and Analysis Introduction Honeywell is a diversified technology and manufacturing leader, with worldwide business operations organized into four strategic business groups, or SBGs: Aerospace; Automation and Control
Solutions, or ACS; Specialty Materials; and Transportation Systems. Since 2002, we have used the five Honeywell Initiatives and the twelve Honeywell Behaviors to drive a One Honeywell performance
culture based upon a common strategic direction and unified operating priorities. Honeywell Initiatives
Honeywell Behaviors
Growth
Growth and Customer
Intelligent Risk Taking
Equals One Honeywell Performance Culture
Before
Today Multiple businesses acting independently
One company, multiple businesses aligned
Productivity
Cash
People
Enablers
ØHoneywell Operating System
ØFunctional Transformation
ØVelocity Product Development
+
Focus
Leadership Impact
Gets Results
Makes People Better
Champions Change
Fosters Teamwork
and
Diversity
Global Mindset
Self-Aware/Learner
Effective Communicator
Integrated Thinker
Technical or Functional
Excellence
Product focused
Multiple operating structures
Fragmented, inconsistent and U.S. centric
and
integrated
Customer driven
Streamlined, functionalized and globalized
Standardized and aligned global mindset,
processes
and systems
Honeywells executive compensation program is designed to reinforce and support the One Honeywell performance culture by:
|
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|
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Attracting and retaining highly qualified executives with the leadership skills and experience necessary to drive results and change across global organizations, meet diverse strategic and operational challenges, and build long-term shareowner value; |
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|
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|
Rewarding and differentiating among executives based on the achievement of specific Company, SBG and functional goals, both financial and non-financial, based on the Honeywell Initiatives; and |
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Aligning the interests of executives with those of shareowners by providing the appropriate balance of near-term and long-term objectives and fixed vs. at-risk compensation. |
These objectives are reinforced by types of compensation and design principles that emphasize variable, at-risk compensation tied to both short and long-term performance. The combination of the One Honeywell performance culture, the focus provided by the Honeywell Initiatives and a management team assembled, retained and incentivized through a results-driven executive compensation program has yielded consistent and sustained improvement in the Companys results of operations.
20
2003
2007
CAGR Sales
$
23.1
$
34.6
11
% Segment Profit
$
2.5
$
4.7
17
% Earnings Per Share - diluted
$
1.52
$
3.16
20
% Free Cash Flow
$
1.5
$
3.1
20
% Year-end Stock Price
$
33.43
$
61.57
16
% Notes: All $ in billions, except earnings per share and year-end stock price.Segment profit is the aggregate operating profit of each of the Companys segments.Free cash flow is cash flow from operations
less capital expenditures.CAGR = compounded annual growth rate. Shareowner Value Creation Through
Dividends
$3.5 Four consecutive 10% dividend
rate increases Stock Repurchase
$7.8
Share count down 13%
Acquisitions
$5.0
Building growth platforms
Divestitures
$2.3
Proceeds from sales of non-
core businesses We describe the objectives, design principles and elements of Honeywells executive compensation program below and provide an analysis of the 2007 compensation decisions with respect to the
Companys named executive officers made by the Management Development and Compensation Committee (referred to as the Committee throughout the Executive Compensation section of this proxy
statement). The Committee consists entirely of independent directors and is responsible for all compensation decisions regarding the Companys officers (acting together with the other independent
directors with respect to the Chief Executive Officer (CEO)). For a complete description of the Committees responsibilities, please see Board CommitteesManagement Development and Compensation
Committee on pages 910 of this proxy statement. The named executive officers for 2007 were Messrs. Cote (CEO), Anderson (Chief Financial Officer), Fradin (PresidentACS), Gillette (PresidentAero)
and Kittelberger (Senior Vice PresidentTechnology and Operations). This discussion should be read in conjunction with the detailed tabular and narrative information regarding executive compensation
contained elsewhere in this proxy statement. Objectives and Design Principles Attraction and Retention The Committee believes that the attraction and retention of world-class leadership talent is essential to the successful execution of business strategies by an enterprise with the Companys scale,
breadth, complexity and global footprint. The Company seeks to attract highly qualified executives by providing total compensation that is competitive with peer compensation levels and tied to and
differentiated based on the achievement of measurable results and other objectives and the creation of shareowner value. The Committee maintains its awareness of market conditions through a review of compensation data regarding a peer group of companies having one or more of the following attributes: business
operations in the industries and markets in which Honeywell participates, similar revenue and market capitalization, similar breadth of portfolio and complexity, and/or competes with Honeywell for 21
Key Metrics: 2003 vs. 2007
Effective Capital Allocation: 2003-2007
Note: All $ in billions.
management talent. For executive officers, this peer group consists of: Alcoa, Boeing, Dow Chemical, DuPont, Emerson Electric, General Dynamics, General Electric, General Motors, Johnson Controls,
Lockheed Martin, Northrop Grumman, Raytheon, Textron and United Technologies (the Peer Group). The Committee periodically reviews the appropriateness of the Peer Group and the purposes for
which it is used. The Committee reviewed information provided by Mercer, the consultant retained by the Committee, regarding the median and 75th percentile of compensation paid by the Peer Group as a general
indicator of relevant market conditions, but does not consider specific benchmark levels as a material factor in its compensation decisions. The Committee does not set specific benchmark targets for total
executive compensation or for individual elements of the Companys executive compensation program due to, among other things, the variability in the composition of executive compensation programs
(elements, cash-equity mix, short-term/long-term mix, targeted financial metrics, etc.), the one-year time lag in the availability of data and the multiple benchmark scenarios applicable to individual
executive officers. See Board CommitteesManagement Development and Compensation Committee on pages 910 of this proxy statement for additional discussion of the Committees use of the
compensation consultant. In light of the training, experience and industry backgrounds of the Companys senior executives, as well as the sustained top-line and bottom-line growth achieved by the Company over the last five
years, there is a significant risk that these leaders will be presented with other career opportunities, including more senior positions and at higher levels of compensation. The Committee recognizes that
retention of the Companys management talent is critical to the continued performance of the Company and to successful succession planning. In addition to its efforts to maintain competitively attractive
compensation levels, the Company seeks to retain executives by spacing payouts and vesting of awards over multiple years and by requiring continued employment at the time of payout or vesting. Key Ratios: Fixed/At-Risk; Short-Term/Long-Term; Cash/Equity The Committee believes that at-risk compensation should comprise a substantial portion of annual direct compensation (base salary, annual incentive bonus, annualized value of Growth Plan
awards and stock options), as this element is designed to motivate executive officers to drive performance and shareowner value. Between 80% and 90% of each executive officers annual direct
compensation, including annual bonuses, is variable and dependent upon the achievement of pre-established financial goals, individual performance objectives and stock price appreciation. Honeywells executive compensation program is designed to drive top-line and bottom-line growth that is sustainable and aligned with the strategic plans of the Company and each SBG. Accordingly,
the program has both short-term and long-term elements. Long-term incentive compensation (i.e., annualized Growth Plan targets and stock options) generally comprises approximately 60%70% of the
total annual direct compensation of executive officers, of which approximately two-thirds is equity-based and one-third is cash-based. The equity components of the executive compensation program, coupled with the stock ownership guidelines discussed below, ensure that a significant portion of the executive officers wealth
accumulation is not only at risk, but also tied to long-term stock price appreciation. Annual stock option grants effectively tie a significant portion of an executive officers annual direct compensation
(generally 40%45%) to the performance of the Companys stock over the vesting period. They also create an incentive for the executive officers to stay with the Company through the vesting period. The
Company also periodically grants service-based restricted units to executive officers for retention and/or succession planning purposes. The Committee recognizes that the stock price of the Company may be affected by factors other than corporate performance, such as general economic and political conditions and differing investor
perspectives about market conditions, the economy and specific industries and companies. The cash-based elements (i.e., annual incentive bonus and Growth Plan units) of the incentive compensation
program are designed to recognize achievement of specific annual and multi-year financial objectives that are designed to drive consistent, sustainable growth, but are independent of fluctuations in the
stock price. 22
Compensation Decisions: Factors Considered Performance Assessments When assessing the performance of individual named executive officers, the Committee considers performance against pre-established financial objectives, prior year results and the performance of
relevant industry segments, as well as the executives achievement of management objectives aligned with the key drivers of the Companys annual operating plan, strategic plan and the Honeywell
Initiatives and Behaviors (in the case of the CEO, with respect to the Company overall and in the case of the other named executive officers, with respect to the relevant SBG or function), and potential
future contributions to leadership and sustained growth and improvement of the Company. Specific factors impacting compensation decisions include:
Growth: organic revenue growth; segment profit and margin growth; results of identified priority growth programs; development of superior sales and marketing capability; on-time delivery and
product quality performance; implementation of processes to drive technology innovation and new product introductions; expansion into new global markets; and successful completion and
integration of portfolio actions (acquisitions, divestitures and joint ventures) that better position the Company for future growth. Productivity: fixed and variable cost performance; expansion of global production and sourcing; site consolidations; implementation of standardized sales, inventory and order planning processes;
health, safety and environmental compliance; risk management; implementation of enterprise resource planning solutions; and organizational simplification. Cash: working capital improvement; conversion rate of income to cash; and effective reinvestment and deployment of cash generated. People: organizational effectiveness; internal promotion rate; retention of key talent; effectiveness of management development programs and actions; succession planning, effective sourcing of new
talent; and Honeywell Hometown Solutions programs aligned with educational, community and charitable partners. Enablers: implementation of Honeywell Operating System at designated sites; achievement of Functional Transformation objectives regarding improvement and standardization of functional
processes and reduction of functional cost; and reduction of cycle time of new product introductions through Velocity Product Development. Judgment and Discretion of the Committee The Committee does not believe that the factoring of the various items considered by the Committee into its decisions regarding the overall compensation of, and/or the specific individual awards to,
each named executive officer should or can be reduced to a linear formula. The Committees compensation decisions reflect the exercise of significant judgment by the Committee in weighing Company
performance, individual performance, future potential, leadership qualities, effectiveness in driving organizational, process and functional excellence, and demonstrated commitment to integrity, compliance
and learning in the workplace. The Committee has the discretion to adjust bonus pools and individual awards under each element of the Companys executive compensation program upward or downward as it deems appropriate to
reflect factors that enhance or detract from results achieved relative to the established targets and objectives, as well as unforeseen factors beyond managements control that impacted performance. The
exercises of material discretion by the Committee in setting bonus pools or individual awards is explained below in the discussion of the relevant element of the Companys executive compensation
program. Overall Compensation Data The Committee reviews each executive officers three-year compensation history with respect to all elements of annual direct compensation (base salary, annual incentive bonus, annualized value of
Growth Plan awards and stock options), as well as projected payouts under the Companys retirement and deferred compensation plans, prior non-recurring types of awards or grants (e.g., sign on or 23
make whole awards upon joining Honeywell and restricted unit awards for retention and/or succession planning purposes). The Committee considers historical award and/or grant levels when setting
bonus pools and determining individual option grants, as well as unvested equity holdings in connection with reviewing the need for retention arrangements. The Committee also considers potential
payouts and circumstances involving a change in control of the Company and/or termination of the executive officers employment, whether by the Company or the executive officer upon resignation or
retirement, which arrangements generally do not affect the Committees decisions regarding other compensation elements. Disparity Among Named Executive Officers There are no policy differences with respect to the compensation of individual named executive officers. The compensation disparity between the CEO and the other named executive officers is due to
the difference in nature between the positions, market factors and the terms of the CEOs employment agreement. The Company has not entered into any fixed-term employment agreements with any
other named executive officer. CEO Employment Agreement The recruitment of Mr. Cote to be CEO was part of an extensive search for a successor to his predecessor in the second half of 2001 and early 2002. This was a period of significant and continuous
change for the Company generated by the European Unions rejection of the Companys proposed merger with General Electric, three CEOs in a twelve-month span, and major organizational realignment.
In light of these circumstances, the Committee determined it was necessary and appropriate to enter into an employment agreement in order to attract and retain an experienced, highly-qualified individual
to serve as CEO at a critical time in the Companys history. In negotiating Mr. Cotes compensation package, the Committee considered competitive market data regarding total CEO compensation at large
industrial companies, Honeywells compensation strategy (in determining the mix of pay components) and the desirability of linking a significant portion of pay to the performance of the CEO and the
Company, as well as the need to compensate Mr. Cote for significant cash and equity awards from his former employer that were forfeited as a direct result of his acceptance of employment with
Honeywell. Mr. Cotes employment agreement has a rolling three-year term. Per his employment agreement, Mr. Cote has an annual target bonus opportunity equal to 125% of his base salary and is
eligible for annual equity awards based on a target value of 230% of the sum of his current base salary and annual incentive bonus target. 2007 Compensation Decisions: Annual Direct Compensation Total Mix: Annual Direct Compensation The table below illustrates how 2007 total annual direct compensation for the named executive officers was allocated between fixed and variable, short-term and long-term, and cash and equity
elements of the Companys executive compensation program. Named
Executive Officer Mr.
Cote Mr.
Anderson Mr.
Fradin Mr.
Gillette Mr.
Kittelberger 85% 35% 65% 56% 44% (1) Base
salary (2) Annual
incentive bonus, annualized value of Growth Plan target, stock options (3) Base
salary, annual incentive bonus (4) Annualized
value of Growth Plan target, stock options (5) Base
salary, annual incentive bonus, annualized value of Growth Plan target (6) Stock
options 24
Term(4)
Based(5)
Based(6)
Although not part of annual direct compensation, the performance shares granted to Mr. Cote (see Performance Shares below) and the equity components of Mr. Fradins and Mr. Gillettes retention
arrangements (see Retention Actions below) serve to reinforce and increase the emphasis on the variable, long-term and equity-based elements of their respective overall compensation. Base Salary The Committee reviews the base salaries of named executive officers on an annual basis, at the time of any promotion or change in responsibilities, and as otherwise may be appropriate (e.g., in
connection with retention arrangements). Annual merit increases for the named executive officers are based on performance assessments by the CEO (for the named executive officers other than the
CEO), and the Committee (for all officers). See Compensation Decisions: Factors ConsideredPerformance Assessments" above. In 2007, the named executive officers (other than the CEO) received merit increases of approximately 48%. Mr. Fradin and Mr. Gillette each received an additional increase in base salary as part of a
broader set of compensation actions approved by the Committee for retention purposes. See Retention Actions below. In line with the Companys emphasis on at risk/variable compensation, base salary generally comprises only approximately 10-18% of the annual direct compensation of executive officers, and
approximately 10% of Mr. Cotes annual direct compensation. Mr. Cote did not receive a base salary increase in 2007. The Committee has increased Mr. Cotes base salary only once (10% in 2006) since
he joined the Company in 2002. Annual Incentive Bonus Bonus Pool; Performance Metrics Annual incentive bonuses under the Companys Incentive Compensation Plan for Executive Employees (ICP) are paid from a pool that is funded based upon Honeywells achievement of annual
corporate financial objectives established by the Committee in February of each year. Annual incentive bonuses for 2007 were based on the achievement of financial objectives relating to earnings per
share (EPS), free cash flow (FCF) and working capital turns (WCT). Metric ICP Definition Rationale
for Use EPS 50% Earnings
per share of common stockassuming dilution The Committee
believes that EPS is the most effective measure of delivery of shareowner
value at the corporate level. Increasing EPS is reflective of strong
growth that is driven by innovation, customer satisfaction, successful
acquisitions, leverage of operational capacity around the world, and
effective management of costs and capital structure. FCF 25% Cash flow
from operations minus capital expenditures Free cash
flow is used by management and the Board to evaluate the Companys
ability to generate cash from business operations that can be used
to invest in future growth through reinvestment in the Companys
businesses and through acquisitions, to repay debt obligations, and
to return capital to shareowners through dividends and stock repurchases. 25
Weighting
Metric ICP Definition Rationale
for Use WCT 25% Sales divided
by working capital (in each case, excluding the impact of current year
acquisitions), calculated based on a 13-month rolling average. Working
capital is defined as trade accounts receivable plus inventory less
accounts payable and customer advances. WCT was first
added as a metric in 2006 to drive more efficient use of capital. The
key drivers of working capitalcycle time, inventory and accounts
receivable and payableare influenced by how efficiently and effectively
the Companys businesses operate. The Committee believes that
inclusion of working capital turns as an ICP objective serves to drive
accountability, efficiency and discipline across a series of key business
processes. In early February 2007, the Committee established the following objectives for the 2007 ICP, which were consistent with the Companys annual operating plan:
2007 Objectives
Increase vs. EPS
$
2.95
17.1% FCF (in $M)
$
2,556
3.1% WCT
5.9
0.4 turns Funding Formulas The corporate bonus pool is funded based on calculations regarding each of the established financial metrics. For EPS and FCF, the corporate bonus pool is funded as follows:
Performance Level vs. Target
ICP Funding Level Below Threshold
<75%
0% Threshold
75% of target
50% Target
100% of target
100% Maximum
133% of target
200% Performance between threshold and target performance levels and between target and maximum performance levels is interpolated. To ensure that relative, and not just absolute, performance has a direct impact on executive compensation levels (as it does on shareowner value), the EPS component of the annual incentive bonus
pool is also subject to upward or downward adjustment, up to a maximum of 25% in either direction, based on Honeywells relative EPS growth performance versus a 33-company peer group reflecting the
Conglomerates, Aerospace & Defense, Industrial Machinery, Specialty Chemicals, Diversified Chemical and Auto Parts & Equipment subgroups of the S&P 500 Index. We use this expanded thirty-three
company peer group for this purpose (rather than just the Peer Group discussed above) due to its broader representation of each of the relevant industry groups in which the Companys segments
participate. For each percentile that Honeywells EPS growth exceeds or is below the median EPS growth of its peers, the EPS component of the Companys annual incentive bonus pool is increased or
decreased, as appropriate, by approximately 1%. We refer to this adjustment as the peer EPS growth adjustment. 26
Weighting
2006 Actual
With respect to working capital turns, the corporate bonus pool is funded as follows: Results vs. Target
Pool Funding +0.2 points
200% of target +0.1 points
150% of target At
Target
100% of target -0.1 points
75% of target -0.2 points
50% of target >-0.2 points
0% of target Each tenth of a point improvement in working capital turns frees up approximately $80-90 million of cash that can be used to fund operations and/or for acquisitions, dividends and share repurchases.
Actual turns achieved between threshold and target levels and between target and maximum performance levels are not interpolated, but have discrete funding levels associated with them as set forth
above. Each SBGs bonus pool is similarly funded based on the achievement of corresponding SBG financial objectives (substituting net income for EPS). Unusual, infrequently occurring and/or extraordinary
items, which we refer to below as extraordinary items, are excluded in determining achievement of the established financial objectives. 2007 ICP Performance For the 2007 ICP, Honeywell exceeded all three of its targeted corporate financial objectives. The EPS component of the pool was increased by 25% as a result of the peer EPS growth adjustment.
There were no material adjustments for extraordinary items.
2007
2007
Actual vs.
Actual vs. EPS
$
2.95
$
3.16 107%
125% FCF (in $M)
$
2,556
$
3,144
123%
127% WCT
5.9
6.0
↑ 0.1 turns
↑ 0.5 turns Based on these results and the formulas and weightings described above, the overall Company bonus pool was calculated to fund at 156%. This percentage was reduced by the Committee, upon the
recommendation of the CEO, to 121% of target in order to moderate the year-over-year volatility of the bonus pool, particularly in light of a potential softening economic environment in 2008. Based on the performance of the SBGs, the calculated and actual funding of the SBG bonus pools is as follows:
SBG
Calculated
Actual ACS
163
%
135
% Aerospace
123
%
120
% Specialty Materials
152
%
118
% Transportation Systems
143
%
110
% At the CEOs recommendation, the Committee decreased the SBG funding percentages set forth above (i) in light of positive relevant industry conditions and in order to moderate the year-over-year
volatility of the SBG bonus pools and (ii) due to the different performance of individual businesses within the SBGs. Annual Incentive Bonus Awards Target Levels Each of the named executive officers is eligible to receive an annual incentive bonus. Per his employment agreement, Mr. Cote has an annual target bonus opportunity equal to 125% of his base
salary. Each of the other named executive officers has a bonus target equal to 100% of base salary. Each named executive officers bonus may be adjusted upward or downward based on performance
relative to financial and non-financial objectives (see Judgment and Discretion of the Committee above). 27
Objective
Actual
Objective
Prior Year
Funding
Funding
The calculated bonus award is computed according to the following formula: Corporate/SBG Funding % x NEOs target % of base salary x NEOs base salary The calculated awards for Messrs. Fradin and Gillette are based upon the relevant SBG funding percentage (ACS and Aerospace, respectively). The calculated awards for the other named executive
officers are based on the overall corporate funding percentage. The Committee then considers whether the calculated awards should be adjusted upward or downward based on the factors described above in Compensation Decisions: Factors Considered. Set forth below is a discussion of the 2007 annual incentive bonus awards determined by the Committee for each of the named executive officers: Mr. Cote was awarded a bonus of $4,200,000 for 2007. In addition to the financial performance of the Company against the established objectives discussed above, the Committee recognized Mr.
Cotes superior achievement of management objectives related to:
Driving growth and globalization: completion of twelve acquisitions contributing approximately $700 million in annualized revenues; divestiture of four non-core businesses; expansion of sales,
income and census in emerging regions; execution and development of key growth programs in each SBG; and leveraged global government relations function to drive future growth; (e.g.,
promotion of energy efficiency and air traffic modernization); Achieving operational improvements: year-over-year improvements in quality and on-time delivery performance; drove cost savings and cash generation through global real estate consolidations and
the development and implementation of savings and control plans for each category of indirect procurement spending; People and organizational effectiveness: strengthened succession planning through continued improvement in executive internal promotion rate and decrease in executive attrition rate;
standardization of global incentive and benefits plans; reinvigoration of Six Sigma training and certification programs; continued implementation of diversity strategy, including senior leader mentoring
program; and global expansion of Honeywell Hometown Solutions programs; and Supporting the five Initiatives and the Honeywell Behaviors: continued deployment of Honeywell Operating System (now initiated with respect to approximately 50% of the Companys manufacturing
cost base); reduced functional cost and standardized functional processes through Functional Transformation initiative; and drove new product introductions and reduction in development cycle time
through Velocity Product Development. Mr. Anderson was awarded a bonus of $1,100,000 for 2007, which reflected the Companys performance against the financial objectives discussed above and the Committees recognition of superior
performance of management objectives related to successful deployment of approximately $6.0 billion of cash through acquisitions, share repurchases and dividends, execution of disciplined acquisition
process, driving functional cost reduction and functional process standardization through Company-wide Functional Transformation, driving functional excellence through comprehensive SBG reviews and
expanded learning programs, increasing visibility to indirect spending, and continued strengthening of internal controls. Mr. Fradin was awarded a bonus of $1,150,000 for 2007, which reflected ACS performance against the financial objectives discussed above and the Committees recognition of superior achievement
of management objectives related to global sales expansion (all ACS businesses exceeded their non-U.S sales growth plans), successful launches of new products, improvement in product quality,
execution of key growth programs pertaining to sales and marketing excellence, successful completion and integration of eight acquisitions, including expansion into high-growth automatic identification
and data collection segment, and deployment of Honeywell Operating System. Mr. Gillette was awarded a bonus of $900,000 for 2007, which reflected Aerospace performance against the financial objectives discussed above and the Committees recognition of superior
achievement of management objectives related to key program and contract wins in each of Aerospaces principal end-markets, driving productivity and margin expansion through sourcing initiatives and
reductions in functional and indirect costs, and improvement in product quality. 28
Mr. Kittelberger was awarded a bonus of $800,000 for 2007, which reflected the Companys performance against the financial objectives discussed above and the Committees recognition of superior
achievement of management objectives related to ERP implementation, expansion of global technology centers, driving engineering functional excellence through Velocity Product Development and
product lifecycle management, driving operational improvement through improvement in product quality and on-time delivery performance and deployment of Honeywell Operating System, and driving
functional cost reduction and functional process standardization through driving Company-wide Functional Transformation. The Committee believes that the fiscal 2007 annual incentive bonus awards are reasonable performance-based payments that are consistent with the objectives of the Companys executive
compensation program discussed above and that reflect achievement of business and individual goals and objectives that produced measurable, sustainable improvement in the Companys results of
operations. Consistent with SEC disclosure rules, the annual incentive compensation awards to the named executive officers are included in the amounts reflected in the Non-Equity Incentive Plan
Compensation column of the Summary Compensation Table on page 38 of this proxy statement. Growth Plan The Committee oversees administration of a long-term, cash-based compensation program under which executive officers are granted awards in the form of Growth Plan units, which have a target
value of $100 per unit. The Growth Plan was established in 2003 to encourage executive officers to focus on the Companys achievement of specific, financial objectives over a two-year performance cycle
aimed at increasing shareowner value by emphasizing and rewarding sustainable, profitable growth consistent with the Growth component of the Honeywell Initiatives and the Companys strategic plan.
Performance cycles under the Growth Plan run consecutively. Growth Plan Performance Metrics The following metrics were selected by the Committee in connection with the 2007-2008 Growth Plan performance cycle. These metrics were also utilized with respect to the 2003-2004 and 2005-
2006 performance cycles as, for the reasons stated below, the Committee believes that they are significant drivers of shareowner value creation.
Metric
Weighting
Definition
Organic
50%
Organic revenue growth is a measure of the Companys ability
to increase top-line sales, excluding the impact of acquisitions
and divestitures during the performance cycle.
Improvement in
50%
ROI measures the Companys ability to convert investments
(such as inventory and plant, property and equipment) into
profits, and is a ratio of net income before interest expense to
cash employed in the Companys businesses. The ROI
calculation excludes the impact of acquisitions and divestitures
during the performance cycle (unless there is deemed to be
sufficient certainty as to their completion at the time of the
setting of the targets for the performance cycle) and pension
income/expense. For SBG executives, 50% of the payouts are based on the achievement of the corporate organic growth and ROI improvement objectives (weighted equally), with the remaining 50% based on the
achievement of corresponding SBG objectives (weighted equally). 2007-2008 Performance Cycle Objectives For each metric, management recommends proposed threshold, target and maximum performance objectives for the performance cycle that are reviewed with the Committee at the beginning of the
first year of each performance cycle to ensure alignment with the Companys annual operating plan and strategic plan. 29
Revenue
Growth
Return on
Investment
(ROI)
Set forth below are the specific objectives for the 2007-2008 performance cycle, as well as the funding levels associated with the respective levels of performance.
Organic Revenue Growth
ROI Improvement
Funding Below Threshold
<$4.070 billion
<5.0 points
0
% Threshold
$4.070 billion
5.0 points
50
% Target
$4.898 billion
6.2 points
100
% Maximum
$5.677 billion
7.3 points
200
% In order to ensure focus on sustainable growth, performance against each of these metrics is measured on a cumulative basis. For each metric, the cumulative results for the 2007-2008 performance
cycle will be calculated by adding (i) the difference between the relevant metric at the end of 2007 vs. at the end of 2006, to (ii) the difference between the relevant metric at the end of 2008 vs. at the end
of 2006. For both measures, performance between threshold and target performance levels and between target and maximum performance levels is interpolated. As with the ICP, extraordinary items are
excluded in determining achievement of the established financial objectives. The Growth Plan pool for each performance cycle does not fund unless the Company achieves at least a 3% annual minimum EPS growth rate over the two-year cycle. Growth Plan Unit Awards The number of units awarded to each named executive officer is equal to 10% of the number of stock options awarded to that individual in the first year of each performance cycle. Accordingly, Mr.
Cote was granted 70,000 Growth Plan units and each of the other named executive officers was granted 17,500 Growth Plan units for the performance cycle commencing on January 1, 2007 and ending
on December 31, 2008. The Growth Plan thus serves as a bridge between the annual ICP and the longer-term equity components of the Companys executive compensation program. Growth Plan Payouts Fifty percent of the earned value of Growth Plan units is paid in the first quarter of the year immediately following completion of a two-year performance cycle. To promote executive retention, the
remaining 50% is paid one year later and is subject to forfeiture if the executive officer is not employed by the Company on the date of payment. In the first quarter of 2007, the named executive officers
received 50% of the earned value of their Growth Plan units for the 2005-2006 performance cycle, with the remaining 50% being paid in March 2008. See footnote 3 to the Summary Compensation Table
on page 39 of this proxy statement. Stock Options Stock options are the major equity-based component of the long-term incentive element of the Companys executive compensation program for executive officers. Stock options directly align the
interests of executive officers and shareowners as the options only have value to the recipients if Honeywells stock price increases above the exercise price of the options and the executive officer
remains employed with the Company for the period required for the options to vest, subject to certain exceptions discussed below. Principal Terms The Committee makes annual grants of stock options to executive officers, including the named executive officers, at the beginning of each year. Under the Companys stock incentive plans, these
options have an exercise price equal to the fair market value of Common Stock on the date of grant. Fair market value is defined as the average of the highest and lowest sales prices reported on the
New York Stock Exchange on the date of grant. The Company utilizes this measure of fair market value, rather than the closing price on the date of grant, to mitigate the artificial impact, in either direction,
of intra-day trading volatility on the exercise price. Both the 2003 and 2006 Stock Incentive Plans expressly prohibit (1) the granting of stock options with an exercise price less than the fair market value of
Common Stock on the date of grant, and (2) the repricing of awards or the cancellation of awards in exchange for new awards with lower exercise prices without shareowner approval. The 30
(cumulative)
(cumulative)
Level
2006 Stock Incentive Plan also prohibits the payment of dividend equivalents with respect to stock options (which were not paid under prior plans even though not expressly prohibited). Prior to 2007, options generally vested over a three-year period. Starting in 2007, the Committee extended the vesting period to four years (in equal annual installments) to further promote retention
and long-term stock ownership by executive officers, with limited exceptions possible for new hire grants and grants made in connection with acquisitions by the Company. Under the terms of the 2006
Stock Incentive Plan, no more than two million shares (approximately 4.6% of the shares available under this Plan) may be used for stock options or stock appreciation right awards that fully vest in less
than three years. As more fully discussed below, the vesting of options accelerates upon a change in control of the Company. Options expire no later than the tenth anniversary of the grant date, subject to early termination in the event of termination of employment. In the event of death, disability or retirement at or after age
60 with 10 years of service (full retirement), all unvested options granted prior to 2007 vest and remain exercisable for three years. In December 2006, the Committee determined that future option grants
would not provide for the vesting of unvested options upon full retirement. In the event of a termination of employment (other than for cause) at or after age 55 with 10 years of service, all unvested options
are forfeited and vested options remain exercisable for three years. In the event of voluntary termination (other than as described above), all unvested options are forfeited and vested options remain
exercisable for 30 days. In the event of involuntary termination other than for cause (other than after age 55 with 10 years of service), all unvested options are forfeited and vested options remain
exercisable for one year. In the event of involuntary termination for cause, all vested and unvested stock options are immediately cancelled. For options issued under the 2003 and 2006 Stock Incentive Plans, the Company reserves the right to (a) cancel all unexercised options, and (b) recover any gains attributable to options that were
exercised during the period beginning six months before the termination date, and ending 24 months after the termination date, in the event the executive officer commences employment with, or otherwise
provides services to, a Honeywell competitor without the Committees prior approval. Annual Option Grants The Companys regular annual option grant generally takes place in February of each year, during an open trading window period following the release of our final results for the preceding fiscal year
(Company policy limits trading by executive officers in Honeywell securities to thirty day window periods commencing on the third business day following the announcement of results by the Company).
The Committee may also make grants of equity awards to executive officers at other times during the year due to special circumstances, such as new hires or internal promotions, which are granted at the
first regularly scheduled Committee meeting following the date of hire or promotion. In February 2007, the Committee allocated a pool of 6.6 million shares to be utilized for stock option grants in that year, with a maximum of 2.5 million shares available for option grants to officers. The
Committee is committed to using shares available under the Companys equity compensation plan at appropriate rates that do not result in excessive dilution of shareowner equity. Accordingly, the size of
this pool is consistent with the Companys annual run rate (shares subject to awards made under the Companys equity compensation plans as a percentage of total shares outstanding), which has
ranged between 1.1%1.4% in recent years. Under his employment agreement, Mr. Cote is eligible for annual equity awards based on a target value of 230% of the sum of his current base salary and annual incentive bonus target. In
accordance with its charter, in reviewing the long-term incentive component of CEO annual direct compensation, the Committee considered the Companys performance and relative shareowner return,
the value of similar incentive awards to CEOs at comparable companies, and awards previously made to Mr. Cote. Based on these considerations, in February 2007, the Committee granted Mr. Cote
options to acquire 700,000 shares in recognition of his leadership in driving consistent, sustained improvement in financial and operational performance. With respect to the other named executive officers, the Committee considered historical grant levels, as well as the executive officers performance in the prior fiscal year, his impact on overall 31
Company performance and his potential to contribute to the future performance of the Company and to assume increased leadership responsibilities. Based on these considerations, in February 2007, the
Committee granted each of the other named executive officers options to acquire 175,000 shares. In the case of each of the named executive officers, the 2007 grants have an exercise price of $47.38 per share and the number of underlying shares is consistent with the individuals prior year option
grant. Other 2007 Compensation Decisions Retention Actions During 2007, the Committee considered and approved the following compensation actions regarding Mr. Fradin for retention purposes: (i) increased his annual base salary from $700,000 to $1 million,
(ii) approved the grant of 203,000 restricted stock units, vesting in one-third increments on each of the first three anniversaries of the date of grant, (iii) established a fixed value of $2 million (to be
determined using the Companys Black-Scholes valuation methodology) for his annual stock option grant, commencing with the 2008 grant, and (iv) approved an additional annual nonqualified pension
benefit equal to 50% of his final average compensation for the last 3 years of his employment, provided that he remains continuously employed by the Company until age 60 (August 5, 2013). Also during 2007, the Committee considered and approved the following compensation actions regarding Mr. Gillette for retention purposes: (i) increased his annual base salary from $650,000 to $1
million effective January 1, 2008, (ii) approved the grant of 200,000 restricted stock units, vesting in one-third increments on the third, fifth and seventh anniversaries of the date of grant, respectively, and
(iii) established a fixed value of $2 million (to be determined using the Companys Black-Scholes valuation methodology) for his annual stock option grant, commencing with the 2008 grant. See Objectives and Design PrinciplesAttraction and Retention on pages 21-22 of this proxy statement. Restricted Units Restricted units are not granted to executive officers on an annual basis. The Committee, however, may from time to time award restricted units to individual executive officers primarily for retention
and succession planning purposes. The Committee believes that service-based restricted units are the best and most appropriate tool for these programs. Each restricted unit entitles the holder to one
share of Common Stock at the end of an extended vesting period, typically vesting one-third on each of the third, fifth and seventh anniversaries of the date of grant, subject to continued employment. As
more fully discussed below, the vesting of restricted units accelerates upon a change in control of the Company. During the restricted period, executive officers are entitled to receive dividend equivalents on the underlying shares, if and when declared by the Board, on the same basis as shareowners. In
December 2006, the Committee determined that future grants would provide that dividend equivalents will accrue with interest (currently based on the Companys annual cost of borrowing at a fixed rate
for a 15-year term; 5.8% for 2007) and will be paid out only as the underlying shares vest. The Committee reexamined the issue in December 2007, and determined that grants made on or after January 1,
2008 would provide for the deemed automatic reinvestment of dividend equivalents into additional restricted units to be paid out only as the underlying shares vest. The Committee did so as a means of
further reinforcing the alignment of the interests of executive officers and shareowners. Prior to 2007, unvested restricted units would vest on retirement at or after age 60 with 10 years of service. In
December 2006, the Committee determined that only a pro-rata portion of unvested restricted units will vest upon retirement, with the amount to be determined based on the number of complete years of
service between the grant date and the retirement date as a percentage of the vesting period. Deferred dividends on deferred restricted units that were granted prior to July 2004 earn interest at a rate of
10%. Dividends on deferred restricted units granted after June 2004 cannot be voluntarily deferred by executive officers. 32
In February 2007, the Committee allocated 2.9 million shares to be available for restricted unit grants in 2007, of which 2.2 million shares could be utilized for restricted unit grants to executives,
including the named executive officers. The size of the pool is consistent with the Companys annual run rate (see discussion above with respect to stock options). Other than the restricted units granted to
Messrs. Fradin and Gillette in connection with their respective retention arrangements (see Retention Actions above), the Committee did not grant any restricted units to named executive officers in 2007. Performance Shares In 2006, the Committee retained Mercer to provide competitive market data and recommendations related to CEO compensation. In February 2007, the Committee recommended and the Board
approved a special grant of 125,000 performance shares to Mr. Cote to (1) reward and recognize Mr. Cote for his contribution to the Companys strong financial performance, (2) further align Mr. Cotes
total compensation package with the creation of shareowner value, and (3) continue to maintain a competitive total compensation package for Mr. Cote. These performance shares represent potential
payments of Common Stock on a one-for-one conversion basis based on the Companys relative 4-year Total Shareholder Return (TSR) performance versus the companies comprising the S&P 100 (as of
January 1, 2007) for the 4-year period of January 1, 2007 through December 31, 2010 (the Performance Period"). The Committee selected the S&P 100 as the appropriate peer group against which to
measure the Companys performance because it reflects a large, diverse population of companies with whom Honeywell competes for investor dollars. In addition, it is a large enough sample size so that
overall relative performance will not be unduly impacted by extreme volatility in the performance of a small number of companies in the S&P 100. Actual payouts may range from zero to 250,000 shares as follows: Performance-Award Scale 4 Year TSR Ranking vs.
Payout as a % of
Payout (# of shares) (2) Below 40th percentile
0
%
0 40th percentile
25
%
31,250 50th percentile
50
%
62,500 55th percentile
75
%
93,750 60th percentile
100
%
125,000 65th percentile
120
%
150,000 70th percentile
140
%
175,000 75th percentile
160
%
200,000 80th percentile
180
%
225,000 85th percentile or higher
200
%
250,000
(1)
Intermediate points interpolated (2) Dividend equivalents will be earned in the form of additional shares of Common Stock. The amount of dividend equivalents will be calculated by dividing the total cash dividends on the earned
performance shares for the four year performance period by the average closing price of Common Stock for the 30 days preceding December 31, 2010. If Honeywells absolute TSR is negative for the Performance Period, then relative performance must be at least at the 60th percentile in order to receive a payout, with such payout based on the
schedule above. Fifty percent of any shares of Common Stock earned by Mr. Cote in accordance with the above formula will be paid in the first quarter of 2011, with the remaining 50% to be paid on February 15,
2012, subject to Mr. Cotes continued employment through the date of payout (subject to exceptions for death or disability). Consistent with the terms of Mr. Cotes employment agreement and the terms of
the 2006 Stock Incentive Plan, all the Performance Shares will be forfeited if Mr. Cotes employment with Honeywell ends for any reason other than death or disability prior to the scheduled payout date of
the first installment of any earned awards. In the event of Mr. Cotes death or disability prior to the end of the Performance Period, the payout will be based on greater of (i) target or (ii) actual performance 33
S&P 100
Target Award (1)
through the date of death or disability. If death or disability occurs after the Performance Period ends, payout of any earned awards will be accelerated to occur as soon as practicable after the date of
death or disability. Other Elements of Executive Compensation Program Retirement Plans Executive officers, including the named executive officers, participate in Honeywells Retirement Earnings Plan, a tax-qualified defined benefit pension plan, on the same terms as the rest of the
Companys salaried employees. Because the Internal Revenue Code limits the pension benefits that can be accrued under a tax-qualified defined benefit pension plan, the Company maintains unfunded
non-tax-qualified supplemental retirement plans for its executive officers (including the named executive officers) to provide these individuals the pension benefits to which they would be entitled but for
those limitations. In addition, Messrs. Cote, Fradin, Anderson and Kittelberger are entitled to enhanced supplemental retirement benefits. The Committee believes these benefits were necessary and appropriate in light
of circumstances surrounding the hiring or need to retain these executive officers. Nonqualified Deferred Compensation Plans Certain executive officers, including the named executive officers, may participate in the Companys Deferred Incentive Compensation Plan, or DIC Plan. The DIC Plan allows participants to defer all
or any (in 10% increments) of their annual incentive bonus as part of their personal retirement or financial planning. Deferral elections must be made annually prior to the start of the year in which the
services to which such bonus relates are to be performed. Executive officers may also participate in the Honeywell Supplemental Savings Plan, or SS Plan, which is maintained to permit the deferral of amounts that cannot be contributed to the Companys
tax-qualified 401(k) plan due to the Internal Revenue Codes limits on annual compensation and annual deferral limits. Participants may elect to defer up to 25% of base salary into the SS Plan before the
beginning of the year in which the services are performed. Amounts deferred into the DIC Plan or the SS Plan earn interest. In order to reduce the long-term cost of these plans, in July 2005, the Committee amended these plans (1) to reduce the rate of
notional interest credited to a participants deferred amounts from an above-market rate set annually (which generally varied between 8% and 11%) to a rate based on the Companys annual cost of
borrowing at a fixed rate for a 15-year term (5.3%, 5.8%, and 6.3% for 2006, 2007 and 2008, respectively) that is subject to change annually, and (2) to eliminate the ability to defer salary into the DIC
Plan. After one year of service, the Company matches deferrals to the SS Plan up to a maximum of 8% of base salary for the next five years at the rate of 50 cents on the dollar, and up to 8% of base
salary on a dollar for dollar basis thereafter. In order to promote the long-term focus of the executive compensation program, Company matching contributions with respect to the SS Plan are credited in
the form of common stock equivalents. Dividends are accounted for as though reinvested in additional shares. Amounts representing matching contributions under the SS Plan are ultimately distributed in
shares of Common Stock. As a result of the requirements applicable to non-tax qualified deferred compensation arrangements under Section 409A of the Internal Revenue Code and related guidance, in July 2005, the
Committee approved changes to the DIC Plan and the SS Plan to ensure compliance with the new law, to simplify the administration of these plans and to minimize any adverse tax consequences to
participants in these plans. These changes included, among others, limiting the form of distribution with respect to amounts deferred on or after January 1, 2006 to a lump sum payment, or for a retired
participant, to up to ten annual installments. Severance Plan If Mr. Cotes employment is terminated by the Company other than for gross cause, he will receive benefits under the Honeywell International Inc. Severance Plan for Senior Executives (Senior 34
Severance Plan), which also covers the Companys other named executive officers. Under the Senior Severance Plan, if their employment is terminated by the Company other than for gross cause,
Messrs. Cote, Anderson and Kittelberger would be entitled to payments equivalent to base salary and annual incentive bonus (and continuation of certain benefits, such as group life and medical insurance
coverage) for a period of 36 months. Mr. Fradin and Mr. Gillette would receive comparable severance payments and benefits for a period of 18 months. Payments and benefits offered under the Senior Severance Plan are triggered by events that are beyond the control of the recipient. The Committee believes that these payments and benefits (1) are
consistent with those offered by the Companys Peer Group and (2) help in the recruitment and retention of senior executives by protecting them in the event that their positions are adversely impacted by
an unexpected change in circumstance. Change in Control Provisions The Companys severance, retirement and equity compensation plans provide certain benefits to executive officers upon a change in control of the Company. Under all of the Companys executive
compensation plans, change in control benefits cannot be triggered prior to the completion of the transaction or other relevant event. Under the equity compensation plans, all outstanding equity awards
automatically vest upon a change in control. Under the Companys severance and retirement plans, if, within two years following a change in control of the Company, an executive officer is terminated
either involuntarily other than for cause, death or disability or voluntarily for good reason, he or she is entitled to: lump sum payment of all severance amounts; an incremental six months severance for
named executive officers otherwise entitled to 18 months severance; and a tax reimbursement payment sufficient to compensate the executive officer for the amount of any excise tax imposed by Section
4999 of the Internal Revenue Code and for incremental taxes imposed on the additional payment. In addition, Messrs. Anderson and Kittelberger would be entitled to have their retirement benefits
calculated using an additional three years of age and service. The Committee believes that these benefits allow senior executives to assess takeover bids objectively without regard to the potential impact on their own job security. The Committee also believes
that these benefits are reasonable (taking into account the double trigger for such obligations), are generally in line with current market practices, and are necessary for the Company to compete for and
retain highly-qualified executives. Perquisites Honeywell provides named executive officers with certain limited perquisites (primarily a cash flexible perquisite allowance) that the Committee believes are reasonable, competitive and consistent
with the objective of the executive compensation program to attract and retain the best leaders. The Committee has determined that the cash flexible perquisite allowance will be eliminated beginning in
2008, and that each of the named executive officers will receive a corresponding increase in 2008 base salary in lieu of this allowance. Under the Companys security policy, the CEO is required to use company aircraft for all air travel, whether personal or business, to have home security and back-up power systems, and to use
security personnel as drivers. The Committee believes that these measures enhance the personal security of the CEO, protect the confidentiality of the CEOs travel and the Companys business, and
allow the CEO to minimize and more effectively utilize his travel time. Other Benefits The Company maintains life, medical and dental insurance, accidental death insurance, and disability insurance programs for all of its employees, as well as customary vacation, leave of absence and
other similar policies. Executive officers, including the named executive officers, are eligible to participate in these programs on the same basis as the rest of the Companys salaried employees. In
addition, the Company maintains relocation and excess liability coverage for executive officers. Messrs. Cote and Kittelberger are entitled to certain additional life insurance benefits, which the Committee
believed were necessary and appropriate in light of the circumstances at the times they were hired. 35
Guidelines and Policies Stock Ownership Guidelines The Committee believes that executives will more effectively pursue the long-term interests of the Companys shareowners if they are shareowners themselves. Accordingly, the Committee adopted
minimum stock ownership guidelines in May 2003 for all Honeywell officers. Under these guidelines, the CEO must hold shares of Common Stock equal in value to six times his current annual base salary. Other executive officers (including the named executive officers other
than the CEO) are required to own shares equal in value to four times their current base salary, with the remaining officers having an ownership threshold set at two times base salary. Shares used in
determining whether these guidelines are met include shares held personally, share equivalents held in qualified and nonqualified retirement accounts, and restricted units. Officers have five years to meet
these guidelines. As of December 31, 2007, each of the named executive officers held shares in excess of these guidelines. In addition, the stock ownership guidelines call for officers to hold for at least one year the net shares from restricted unit vesting (with respect to restricted units granted after the adoption of the
stock ownership guidelines) or the net gain shares of Common Stock that they receive by exercising stock options. Net shares means the number of shares obtained from restricted unit vesting, less
the number of shares the officer sells to pay withholding taxes. Net gain shares means the number of shares obtained by exercising the option, less the number of shares the officer sells to cover the
exercise price of the options and pay the Company withholding taxes. After the one-year holding period, officers may sell net shares or net gain shares, provided that following any sale, they continue to
hold shares of Common Stock in excess of the prescribed minimum ownership level. The stock ownership guidelines do not apply to executives at or over age 60 who have at least 10 years of service. As of the date of this proxy statement, all of the named executive officers are
subject to the stock ownership guidelines. These guidelines are periodically reviewed by the Committee. Recoupment of Incentive Compensation In December 2006, the Board amended the Companys Corporate Governance Guidelines to provide for the recoupment of incentive compensation paid to senior executives in the event of a
significant restatement of financial results (a Restatement). Under the amended guidelines, the Board can seek recoupment if and to the extent that (i) the amount of incentive compensation was
calculated based upon the achievement of financial results that were subsequently reduced due to a Restatement, (ii) the senior executive engaged in misconduct, and (iii) the amount of incentive
compensation that would have been awarded to the senior executive had the financial results been properly reported would have been lower than the amount actually awarded. The complete text of the
amended Corporate Governance Guidelines is posted on our website at www.honeywell.com (see Investor Relations; Corporate Governance). Tax Deductibility of Executive Compensation Section 162(m) of the Internal Revenue Code restricts deductibility for federal income tax purposes of annual individual compensation in excess of $1 million to the named executive officers (excluding the Chief Financial Officer) if certain conditions are not satisfied. Honeywell intends, to the extent practicable, to preserve deductibility of compensation paid to its executive officers while maintaining
compensation programs that effectively attract, motivate and retain exceptional executives in a highly competitive environment. The Company has designed its annual and long-term cash incentive awards to permit full deductibility. The plans under which these awards are made have been approved by the shareowners and
provide for awards that are eligible for deductibility as performance-based compensation. The Committee may use its discretion to set actual compensation below the maximum amount calculated by
application of the relevant performance criteria. The Committee intended that all annual incentive bonus and Growth Plan payments to the named executive officers for 2007 would be deductible for federal
income tax purposes. 36
The Companys stock option grants have been and are made under shareowner-approved plans and are designed to comply with Section 162(m) so that the compensation expense associated with
their exercise will generally be tax deductible. The Committee does not believe, however, that it would be in the best interests of the Company or its shareowners to restrict the Committees discretion and flexibility to craft compensation plans and
arrangements that may result in non-deductible compensation expenses. Accordingly, the Committee from time to time has approved elements of compensation for certain named executive officers that
were consistent with the objectives of the Companys executive compensation program, but that were not fully deductible (which may include, among other things, cash sign on awards, time-based
restricted unit awards and a portion of the CEOs base salary). For 2007, the Company believes that approximately $2.1 million in compensation paid to the named executive officers was not deductible for
federal income tax purposes. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During fiscal year 2007, all of the members of the Management Development and Compensation Committee were independent directors, and no member was an employee or former employee of
Honeywell. No Committee member had any relationship requiring disclosure under Certain Relationships and Related Transactions on page 17 of this proxy statement. During fiscal year 2007, none of
our executive officers served on the compensation committee (or its equivalent) or board of directors of another entity whose executive officer served on our Management Development and Compensation
Committee. MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE REPORT The Management Development and Compensation Committee reviewed and discussed Honeywells Compensation Discussion and Analysis with management. Based on this review and discussion,
the Committee recommended that the Board of Directors include the Compensation Discussion and Analysis in this proxy statement and the Form 10-K for the year ended December 31, 2007 filed with
the Securities and Exchange Commission. THE MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE John R. Stafford, Chair
* Former member of the Board of Directors
37
Gordon M. Bethune
Clive R. Hollick
Ivan G. Seidenberg*
Bradley T. Sheares
Name
and Year Salary($) Bonus($) Stock Option Non-Equity Change
in All
Other Total($) David
M. Cote Chairman
of the Board
and Chief 2007 $ 1,618,269 $ 2,632,174 $ 6,161,992 $ 4,200,000 $ 3,619,021 $ 407,930 $ 18,639,386 Executive
Officer 2006 $ 1,610,192 $ 1,440,909 $ 7,769,527 $ 11,400,000 $ 5,013,713 $ 461,306 $ 27,695,647 David
J. Anderson Senior
Vice President,
Chief 2007 $ 773,846 $ 1,366,411 $ 1,426,933 $ 1,100,000 $ 458,084 $ 81,985 $ 5,207,259 Financial
Officer 2006 $ 753,365 $ 1,207,874 $ 2,030,620 $ 2,950,000 $ 599,569 $ 81,653 $ 7,623,081 Roger
Fradin President & Chief Executive
Officer, Automation
and 2007 $ 775,962 $ 3,705,718 $ 1,354,343 $ 1,150,000 $ 154,939 $ 115,220 $ 7,256,182 Control
Solutions 2006 $ 645,077 $ 687,992 $ 1,623,733 $ 2,870,000 $ 164,506 $ 111,270 $ 6,102,578 Robert
J. Gillette President & Chief Executive
Officer, 2007 $ 635,577 $ 633,922 $ 1,354,121 $ 900,000 $ 212,313 $ 101,871 $ 3,837,804 Aerospace 2006 $ 585,769 $ 520,618 $ 1,542,837 $ 2,850,000 $ 254,271 $ 98,421 $ 5,851,916 Larry
E. Kittelberger Senior
Vice President, Technology
and 2007 $ 606,250 $ 391,000 $ 1,354,343 $ 800,000 $ 743,207 $ 180,848 $ 4,075,648 Operations 2006 $ 594,692 $ 391,000 $ 1,623,820 $ 2,625,000 $ 988,756 $ 177,784 $ 6,401,052
(1)
Amounts included for 2007 reflect expense recognized for financial reporting purposes, as follows. For Mr. Cote, represents $1,413,610 of compensation expense recognized in 2007 with respect to a
grant of 125,000 performance shares in February 2007, with the remaining amount reflecting compensation expense recognized in 2007 with respect to prior year restricted unit grants. For Mr. Fradin,
represents $3,124,799 of compensation expense recognized in 2007 with respect to a grant of 203,000 restricted units in July 2007, with the remaining amount reflecting compensation expense
recognized in 2007 with respect to prior year restricted unit grants. For Mr. Gillette, represents $167,905 of compensation expense recognized in 2007 with respect to a grant of 200,000 restricted units
in December 2007, with the remaining amount reflecting compensation expense recognized in 2007 with respect to prior year restricted unit grants. For the other named executive officers, the amounts
reflect compensation expense recognized in 2007 with respect to prior year grants. In each case, the amount of compensation expense was calculated excluding forfeiture assumptions.
A discussion of the assumptions used in the valuation of stock awards made in fiscal year 2007 may be found in Notes 1 and 20 of the Notes to the Financial Statements in the Companys Form 10-K
for the year ended December 31, 2007. A discussion of the assumptions used in the valuation of stock awards made in fiscal years prior to fiscal year 2007 may be found in the corresponding sections
of the Companys financial statement footnotes in the Form 10-K for the fiscal year in which the award was made. (2) Amounts included for 2007 reflect expense recognized for financial reporting purposes, as follows. For Mr. Cote, represents $1,509,070 of compensation expense recognized in 2007 with respect to
his annual option grant made in February 2007, with the remainder representing compensation expense recognized in 2007 with respect to prior year option grants. For the other named executive
officers, represents $377,267 of compensation expense recognized in 2007 with respect to annual option grants made in February 2007, with the remainder representing compensation expense
recognized in 2007 with respect to prior year option grants. In each case, the amount of compensation expense was calculated excluding forfeiture assumptions. A discussion of the assumptions used
in the valuation of option awards made in fiscal year 2007 may be found in Notes 1 and 20 of the Notes to the Financial Statements in the Companys Form 10-K for the year ended December 31,
2007. A discussion of the assumptions used in the valuation of option awards made in fiscal years prior to fiscal year 2007 may be found in the corresponding sections of the 38
Principal Position
Awards(1)($)
Awards(2)($)
Incentive
Plan
Compensation(3)($)
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings(4)($)
Compensation(5)($)
Companys financial statement footnotes in the Form 10-K for the fiscal year in which the award was made. (3) Represents the full earned award for the 2007 annual Incentive Compensation Plan (ICP). ICP awards earned in 2007 were paid to the named executive officers in February 2008, subject to any
deferrals that they may have elected to make under the Salary and Incentive Award Deferral Plan for Selected Employees. Since 2007 ICP awards are paid in February 2008, any deferrals of 2007
ICP awards elected by named executive officers are not yet reflected as executive contributions in the Nonqualified Deferred CompensationFiscal Year 2007 table below. In accordance with
applicable rules, the full earned award for the 2005-2006 Growth Plan performance cycle is shown as earned in 2006. The actual payment of this award is made in two equal installments in March
2007 and March 2008 (subject to the executives continued employment through the payment date). No amount is reflected in the above table for the 2007-2008 Growth Plan as this performance cycle
will end December 31, 2008 and no amount has yet been earned. Accordingly, 2006 amounts include aggregate annual ICP and both installments of the Growth Plan awards for the 2005-2006
performance cycle, whereas 2007 amounts include only annual ICP awards. (4) 2007 amounts represent the aggregate change in the present value of each named executive officers accumulated benefit under the Companys pension plans from 2006 to 2007 (as disclosed in the
Pension Benefits table below) and the above-market interest earned on deferred compensation in 2007, as follows: Mr. Cote: $3,321,460 (change in aggregate pension value), $297,561 (above-market
interest); Mr. Anderson: $344,186 (change in aggregate pension value), $113,898 (above-market interest); Mr. Fradin: $57,412 (change in aggregate pension value), $97,527 (above-market interest);
Mr. Gillette: $201,594 (change in aggregate pension value), $10,719 (above-market interest); and Mr. Kittelberger: $684,657 (change in aggregate pension value), $58,550 (above-market interest).
Amounts of above-market interest earned with respect to amounts deferred prior to January 1, 2005 under the Salary and Incentive Award Deferral Plan for Selected Employees and the SS Plan
represent the difference between market interest rates determined pursuant to SEC rules and the 811% interest credited by the Company on such deferred amounts. Generally, for amounts deferred before January 1, 2006 under the Salary and Incentive Award Deferral Plan for Selected Employees, the named executive officer must remain employed by the
Company for at least three years following the deferral or retire in order to obtain the full stated interest rate. With respect to amounts deferred after January 1, 2005, the Company changed the rate of
interest under the Salary and Incentive Award Deferral Plan for Selected Employees and the SS Plan to a rate of interest, compounded daily, based on the Companys 15-year cost of borrowing, as
more fully described on pages 50-51 of this proxy statement. In addition, above-market interest earned with respect to dividend equivalents on restricted units that were deferred prior to July 2004
represents the difference between market interest rates determined pursuant to SEC rules and the 10% interest credited by the Company on such amounts.
(5)
For 2007, other compensation consists of the following:
Item
Year
Mr. Cote
Mr. Anderson
Mr. Fradin
Mr. Gillette
Mr. Kittelberger Cash flexible perquisite payments(A)
2007
$
50,000
$
50,000
$
50,000
$
50,000
$
50,000 Excess liability insurance(B)
2007
$
1,025
$
1,025
$
1,025
$
1,025
$
1,025 Executive life insurance(C)
2007
$
62,000
$
80,235 Matching Contributions(D)
2007
$
64,731
$
30,954
$
62,077
$
50,846
$
47,538 Personal use of company aircraft(E)
2007
$
158,739
Security Protection(F)
2007
$
6,126
Security Systems(G)
2007
$
1,942
Tax reimbursement payments(H)
2007
$
63,367
$
6
$
2,118
$
2,050 Totals
2007
$
407,930
$
81,985
$
115,220
$
101,871
$
180,848
(A)
Represents the cash amount paid to each named executive officer under our cash flexible perquisite program that is designed to permit an executive to purchase such benefits as he or 39
she may choose, including, but not limited to, tax and financial planning, car leases, and executive life insurance. (B) Represents the annual premiums paid by the Company to purchase excess liability insurance coverage for each named executive officer. (C) Under the terms of Mr. Cotes employment agreement, the Company is obligated to provide Mr. Cote with $10 million in life insurance coverage at the Companys cost. The Company does so
pursuant to an arrangement whereby Mr. Cote maintains the insurance on his own, subject to reimbursement by the Company for the cost of the annual premium and the estimated taxes on such
reimbursement until the death of Mr. Cote and his spouse. The annual premium cost of the life insurance coverage is $62,000. The Company will no longer be required to continue to reimburse
Mr. Cote for these costs if (i) Mr. Cotes employment with the Company terminates before he reaches age 55, (ii) his employment is terminated for cause (as defined in Mr. Cotes employment
agreement), (iii) the insurance policy is no longer in force, (iv) Mr. Cote provides more than de minimis services to a competitor of the Company during the three year period following his
termination of employment, or (v) Mr. Cote and the Company agree to terminate the agreement. As of December 31, 2007, a maximum of 46 payments remained to be made, and the approximate
present value of this stream of payments was $2.1 million using a discount rate equal to 120% of the annual long-term applicable federal rate in effect in December 2007 (5.66%). (D) Represents total Company contributions to each named
executive officers accounts in the tax-qualified Honeywell Savings
and Ownership Plan and the non-tax qualified SS Plan. (E) Mr. Cote is required by Company policy to use Company aircraft for all business and personal travel. The amount shown represents the aggregate incremental cost of personal travel by Mr. Cote
or a family member. This amount is calculated by multiplying the total number of personal flight hours times the average direct variable operating costs (expenses for aviation employees, business
meals, aircraft maintenance, telecommunications, transportation charges (including but not limited to hangar and landing fees), aviation fuel, and commissaries) per flight hour for company aircraft. (F) Represents the cost of security protection provided pursuant to the Companys security policy to Mr. Cote with respect to personal assignments. (G) Represents the annual costs paid by the Company for monthly monitoring fees relating to a personal home security system. (H) For Mr. Cote, represents reimbursement for taxes associated with the life insurance premium reimbursement and personal aircraft usage required by the Company for Mr. Cote. Aircraft usage by
Mr. Cotes family results in the imputation of income to Mr. Cote, for which there is no associated tax reimbursement. For the other named executive officers, the amount shown represents
reimbursement for the estimated taxes related to the income imputed to the named executive officer for spousal travel if the presence of the named executive officers spouse at a Company
function is requested by the Company and the spouse travels with the named executive officer to such function on corporate aircraft. 40
For Mr. Kittelberger, this amount represents premiums paid by the Company for a term life insurance policy ($26,700) and a universal life insurance policy ($53,535).
Grants of Plan-Based AwardsFiscal Year 2007 Name Plan Award
Type(1) Grant Estimated Estimated All All Exercise Closing Grant Target Maximum Threshold Target Maximum David
M. Cote ICP ICP $ 1,031,250 $ 2,062,500 (3) $ 4,640,625 2006
SIP(2) GP $ 3,500,000 $ 7,000,000 (4) $ 14,000,000 2006
SIP NQSO 2/26/2007 700,000 $ 47.38 $ 47.62 $ 7,140,000 2006
SIP PS 2/16/2007 31,250 125,000 250,000 $ 6,282,713 David
J. Anderson ICP ICP 2006
SIP GP $ 875,000 $ 1,750,000 (4) $ 3,500,000 2006
SIP NQSO 2/26/2007 175,000 $ 47.38 $ 47.62 $ 1,785,000 Roger
Fradin ICP ICP $ 407,603 $ 815,205 (3) $ 1,834,211 2006
SIP GP $ 875,000 $ 1,750,000 (4) $ 3,500,000 2006
SIP NQSO 2/26/2007 175,000 $ 47.38 $ 47.62 $ 1,785,000 2006
SIP RSU 7/27/2007 203,000 $ 12,015,570 Robert
J. Gillette ICP ICP $ $ $ 2006
SIP GP $ 875,000 $ 1,750,000 (4) $ 3,500,000 2006
SIP NQSO 2/26/2007 175,000 $ 47.38 $ 47.62 $ 1,785,000 2006
SIP RSU 12/7/2007 200,000 $ 11,652,000 Larry
E. Kittelberger ICP ICP $ $ 2006
SIP GP $ 875,000 $ 1,750,000 (4) $ 3,500,000 2006
SIP NQSO 2/26/2007 175,000 $ 47.38 $ 47.62 $ 1,785,000
(1)
Award Type:
ICP = Incentive Compensation Plan
2006 SIP = 2006 Stock Incentive Plan (3) Represents awards under the ICP based on Company and individual performance in 2007. Additional details can be found beginning on page 25 of this proxy statement. (4) Represents the value of Growth Plan Units awarded under the 2006 SIP for the performance period January 1, 2007 through December 31, 2008, as follows: Mr. Cote 70,000 units, Messrs. Anderson,
Fradin, Gillette, and Kittelberger 17,500 units each. Additional details can be found beginning on page 29 of this proxy statement. (5) Represents award of performance shares granted in 2007. Performance shares granted to Mr. Cote will vest if certain performance conditions are met and will be paid in shares of Common Stock on a
one-for-one conversion basis as follows: 50% in the first quarter of 2011 and the remaining 50% will be paid on February 15, 2012. Additional details can be found beginning on page 33 of this proxy
statement. (6) Represents restricted unit awards granted in 2007 under the 2006 SIP. Restricted units granted to Mr. Fradin will vest as follows: 67,666 on each of July 27, 2008 and July 27, 2009, and 67,668 on
July 27, 2010. Restricted units granted to Mr. Gillette will vest as follows: 66,000 on each of December 7, 2010 and December 7, 2012, and 68,000 on December 7, 2014. (7) Represents stock options granted in 2007 as part of our annual option grant to executives. These stock options will vest in equal 25% increments on each of the first four anniversaries of the grant
date. Additional details can be found beginning on page 30 of this proxy statement. 41
Name
Date
Future Payouts
Under Non-Equity
Incentive Plan Awards
Future Payouts
Under Equity
Incentive Plan Awards(5)
Other
Awards:
Number
of
Shares
of Stock
Units(6)
(#)
Other
Awards:
Number
of
Securities
Under-
lying
Options(7)
(#)
or Base
Price of
Option
Awards(8)
($/Sh))
Price
on Date
of
Grant
of
Option
Awards
($/Sh)
Date
Fair
Value
of
Stock
and
Option
Awards(9)
($)
Threshold
($)
($)
($)
(#)
(#)
(#)
$
395,124
$
790,247
$
1,778,056
318,904
637,808
1,435,068
$
309,452
618,904
1,392,534
GP = Growth Plan
NQSO = Non-Qualified Stock Option
PS = Performance Shares
RSU = Restricted Stock Units
(2)
(8) Exercise price for stock options is based on the average of the high and low trading prices of a share of Common Stock on the date of grant in accordance with the provisions of the 2006 Stock
Incentive Plan. (9) Grant date fair value of Mr. Cotes performance shares is based on the expense recognized for financial reporting purposes. Additional details can be found on pages 33-34 of this proxy statement.
Grant date fair value of Mr. Fradins 203,000 restricted units is based on the average of the high and low trading prices of a share of Common Stock on July 27, 2007 ($59.19). Grant date fair value of
Mr. Gillettes 200,000 restricted units is based on the average of the high and low trading prices of a share of Common Stock on December 7, 2007 ($58.26). All stock options are valued using the
Black-Scholes-Merton option valuation model. The assumptions used for awards granted in 2007 may be found in Notes 1 and 20 in the Companys Form 10-K for the year ended December 31, 2007. 42
Outstanding Equity Awards at 2007 Fiscal Year-End Option Awards
Stock Awards Name
Grant Year
Number of
Number of Option Option
Number of
Market
Equity
Equity David M. Cote
2007
700,000
(2)
$
47.38
2/25/2017
125,000
(8)
$
7,696,250
2006
280,000
420,000
(3)
$
42.32
2/16/2016
2005
420,000
180,000
(4)
$
36.51
2/1/2015
2004
600,000
$
35.65
2/5/2014
2003
600,000
$
23.93
2/6/2013
2002
2,104,700
97,500
(5)
$
33.38
2/18/2012
378,200
(9)
$
23,285,774
Total
4,004,700
1,397,500
378,200
$
23,285,774
125,000
$
7,696,250 David J. Anderson
2007
175,000
(2)
$
47.38
2/25/2017
2006
70,000
105,000
(3)
$
42.32
2/16/2016
75,000
(10)
$
4,617,750
2005
105,000
45,000
(4)
$
36.51
2/1/2015
2004
150,000
$
35.65
2/5/2014
2003
249,600
(6)
12,400
(7)
$
28.13
7/24/2013
75,750
(11)
$
4,663,928
Total
574,600
337,400
150,750
$
9,281,678
Roger Fradin
2007
175,000
(2)
$
47.38
2/25/2017
203,000
(12)
$
12,498,710
2006
70,000
105,000
(3)
$
42.32
2/16/2016
2005
105,000
45,000
(4)
$
36.51
2/1/2015
50,000
(13)
$
3,078,500
2004
150,000
$
35.65
2/5/2014
2003
75,000
$
23.93
2/6/2013
2002
75,000
$
32.43
7/28/2012
2001
67,000
$
36.27
7/15/2011
2000
15,000
$
34.54
7/9/2010
Total
557,000
325,000
253,000
$
15,577,210
Robert J. Gillette
2007
175,000
(2)
$
47.38
2/25/2017
200,000
(14)
$
12,314,000
2006
105,000
(3)
$
42.32
2/16/2016
2005
45,000
(4)
$
36.51
2/1/2015
50,000
(15)
$
3,078,500
2002
17,000
(16)
$
1,046,690
1999
16,000
$
63.00
12/2/2009
Total
16,000
325,000
267,000
$
16,439,190
Larry E. Kittelberger
2007
175,000
(2)
$
47.38
2/25/2017
2006
70,000
105,000
(3)
$
42.32
2/16/2016
2005
105,000
45,000
(4)
$
36.51
2/1/2015
40,000
(17)
$
2,462,800
2004
150,000
$
35.65
2/5/2014
2002
100,000
$
40.15
3/14/2012
Total
425,000
325,000
40,000
$
2,462,800
(1)
Market value determined using the closing price of a share of Common Stock on December 31, 2007 as reported on the New York Stock Exchange ($61.57). (2) 2007 option grant vests in four annual installments at the rate of 25% per year on February 26, 2008, February 26, 2009, February 26, 2010, and February 26, 2011. (3) 2006 option grant vests in three annual installments at the rate of 40%, 30%, and 30%. The first two installments vested on January 1, 2007 and January 1, 2008. The remaining installment will vest
January 1, 2009. (4) 2005 option grant vests in three annual installments at the rate of 40%, 30%, and 30%. The last installment vested on January 1, 2008. (5) These options vested on February 19, 2008. (6) The vesting of 30,000 of these options was accelerated from July 25, 2009 to May 18, 2007 due to the satisfaction of performance criteria relating to Honeywell stock trading 75% higher than the
exercise price for 20 consecutive trading days. 43
Securities
Underlying
Unexercised
Options (#)
Exercisable
Securities
Underlying
Unexercised
Options (#)
Unexercisable
Exercise
Price ($)
Expiration
Date
Shares or
Units of
Stock That
Have Not
Vested
(#)
Value of
Shares or
Units of
Stock That
Have Not
Vested(1)($)
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units, or
Other Rights
That Have
Not Vested
(#)
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units, or
Other
Rights
That Have
Not
Vested(1)
($)
(7) These options will vest on July 25, 2008. (8) 50% of the earned Performance Shares will vest on March 15, 2011, and the remaining 50% will vest on February 15, 2012, provided that the relevant performance criteria are met. Additional details
are provided on pages 33-34 of this proxy statement. (9) These restricted units will vest on July 1, 2012. (10) 50% will vest on July 28, 2009, and the remaining 50% will vest on July 28, 2011. (11) 50,250 of these restricted units will vest on July 25, 2008, with the remaining restricted units vesting on July 25, 2009. (12) 33% of these restricted units will vest on each of July 27, 2008 and July 27, 2009, with the remaining restricted units vesting on July 27, 2010. (13) 33% of these restricted units will vest on each of July 29, 2008 and July 29, 2010, with the remaining restricted units vesting on July 29, 2012. (14) 33% of these restricted units will vest on each of December 7, 2010 and December 7, 2012, with the remaining restricted units vesting on December 7, 2014. (15) 33% of these restricted units vested January 7, 2008, 33% of these restricted units will vest on January 7, 2010, with the remaining restricted units vesting on January 7, 2012. (16) These restricted units will vest on October 25, 2009. (17) These restricted units will vest on July 29, 2009. Option Exercises and Stock VestedFiscal Year 2007 Name
Option Awards
Stock Awards
Number of Shares
Value Realized on
Number of Shares
Value Realized on David M. Cote
David J. Anderson
49,500
(2)
$
3,029,895 Roger Fradin
23,750
(3)
$
180,716
37,500
(4)
$
2,215,875 Robert J. Gillette
541,200
(5)
$
11,269,956
16,500
$
967,560 Larry E. Kittelberger
400,000
(6)
$
14,750,449
(1)
Represents the in-the-money value at exercise calculated as (a) times (b), where (a) equals the difference between the fair market value at exercise and the exercise price, and (b) equals the total
number of options exercised. (2) Payout of shares acquired on vesting has been deferred until the year following separation of service from Honeywell. Shares will be paid in ten equal annual installments. (3) In connection with his exercise, Mr. Fradin sold shares sufficient to cover the aggregate exercise price and applicable taxes and retained the remaining 2,134 net gain shares in accordance with the
Companys Executive Stock Ownership Guidelines. (4) Lump sum payout of shares acquired on vesting has been deferred until the year following separation of service from Honeywell. (5) In connection with his exercise, Mr. Gillette sold shares sufficient to cover the aggregate exercise price and applicable taxes and retained the remaining 105,201 net gain shares in accordance with the
Companys Executive Stock Ownership Guidelines. (6) In connection with his exercise, Mr. Kittelberger sold shares sufficient to cover the aggregate exercise price and applicable taxes and retained the remaining 132,594 net gain shares in accordance with
the Companys Executive Stock Ownership Guidelines. 44
Acquired on
Exercise
(#)
Exercise
($)(1)
Acquired on
Vesting
(#)
Vesting
($)
The following table provides summary information about the pension benefits that have been earned by our named executive officers under two pension plans, the Honeywell International Inc.
Supplemental Executive Retirement Plan (the SERP) and the Honeywell International Inc. Retirement Earnings Plan (the REP). The SERP and REP benefits depend on the length of each named
executive officers employment with us (and companies that have been acquired by us and, with respect to Messrs. Anderson and Kittelberger, service with certain prior employers). This information is
provided in the table below under the column entitled Number of years of credited service. The column in the table below entitled Present value of accumulated benefit represents a financial calculation
that estimates the cash value today of the full pension benefit that has been earned by each named executive officer. It is based on various assumptions, including assumptions about how long each
named executive officer will live and future interest rates. Additional details about the pension benefits for each named executive officer follow the table. Pension BenefitsFiscal Year 2007 Name
Plan name
Number of years of
Present value of David M. Cote
REP
5.9
$
40,416
SERP
5.9
$
27,418,164
Total
$
27,458,580 David J. Anderson
REP
4.5
$
52,053
SERP
8.1
$
2,228,502
Total
$
2,280,555 Roger Fradin
REP
31.6
$
416,570
SERP
31.6
$
411,143
Total
$
827,713 Robert J. Gillette
REP
11.0
$
148,107
SERP
11.0
$
879,368
Total
$
1,027,475 Larry E. Kittelberger
REP
10.7
$
164,809
SERP
18.8
$
3,589,761
Total
$
3,754,570
(1)
The service taken into account in calculating Mr. Andersons SERP benefit includes 3.6 years of employment with his former employer. The portion of the present value of the accumulated SERP
benefit attributable to these additional years of service is $1,023,329.
The service taken into account in calculating Mr. Kittelbergers SERP benefit includes 1.7 years of employment with his former employer. The portion of the present value of the accumulated SERP
benefit attributable to these additional years of service is $352,379. In addition, Mr. Kittelberger is also credited under the SERP for two years of service for each year of his employment with us after
August 7, 2001, resulting in an additional 6.4 years of credited service through December 31, 2007. The portion of the present value of the accumulated SERP benefit attributable to these additional
years of service (including the 1.7 years of service from his former employer) is $987,483.
The pay and service taken into account in calculating a named executive officers SERP benefits may include up to an additional twelve months of pay and service if he is entitled to severance benefits
following his termination of employment. No portion of the present value of the accumulated benefit included in the table above is attributable to that possibility. (2) The present value of the accumulated retirement benefit for each named executive officer is calculated using a 6.5% discount rate, the RP-2000 mortality table and a retirement age of 60 for Mr. Cote,
62 for Messrs. Anderson, Gillette and Kittelberger and 65 for Mr. Fradin, the earliest ages at which the named executive officer can retire without an early retirement benefit reduction. 45
credited service(1)
(#)
accumulated benefit(2)
($)
Summary Information
The REP is a tax-qualified pension plan in which substantially all of our U.S. employees participate. The REP complies with tax requirements applicable to broad-based pension plans, which impose dollar limits on the amount of benefits that can be provided. As a result, the pensions that can be
paid under the REP for higher-paid employees represent a much smaller fraction of current income than the pensions that can be paid to less highly paid employees. We make up for this difference,
in part, by providing supplemental pensions through the SERP. In addition, Messrs. Cote, Fradin and Anderson are entitled to additional supplemental pension benefits which are described under the Contractual formula below. These additional supplemental
pension benefits are also provided by the SERP. Pension Benefit Calculation Formulas Within the REP and the SERP a variety of formulas are used to determine pension benefits. Different benefit formulas apply for different groups of employees for historical reasons. Generally, as we
have grown through acquisitions, we have in many cases retained the benefit formulas under pension plans that were maintained by the companies that we acquired, in order to provide continuity for
employees. The differences in the benefit formulas for our named executive officers reflect this history. The explanation below describes the formulas that are used to determine the amount of pension
benefits for each of our named executive officers under the REP and the SERP.
Name of Formula
Benefit Calculation
REP
Lump sum equal to (1) 6% of final average compensation (annual average compensation for the five calendar years out of the previous 10 calendar years that produces highest
average) times (2) credited service
Allied Salaried
Single life annuity equal to (1)(A) 2% of final average compensation (average of compensation for the 60 consecutive months out of prior 120 months that produces highest
average) times (B) credited service (up to 25 years), minus (2) 64% of estimated Social Security benefits
Signal
Single life annuity equal to (1)(A) 1.5% of final average compensation (average compensation for the 60 consecutive months out of the last 120 that produces the highest
average) times (B) credited service (with no limit on service) minus (2)(A) 1.5% of estimated Social Security times (B) credited service up to 331/3 years
Pittway
Single life annuity equal to (1) 1.2% of eligible compensation each year, up to the average of the Social Security wage bases, plus (2) 1.85% of eligible compensation in excess
of such average
Contractual
For Mr. Cote, single life annuity at age 60 equal to 60% of the average of final three years of base salary and bonus
For Mr. Anderson, an annual amount equal to $125,000 payable in the form of a single life annuity if retirement occurs at or after age 60 or in the event of involuntary
termination without cause or a change in control, or $175,000 if retirement occurs at or after age 62
For Mr. Fradin, single life annuity at later of age 60 or termination of employment equal to 50% of the average of final three years of base salary and bonus For each formula listed in the chart above, compensation taken into account in calculating pension benefits includes base pay, short-term incentive compensation, payroll based rewards and
recognition and lump sum incentives. Calculations for pension formulas other than the REP formula include the annual incentive compensation earned by each named executive officer in 2007, as
reflected in the Summary Compensation Table. The amount of compensation taken into account under the REP is limited by the tax rules. The amount of compensation taken into account under the SERP
and under 46
the Contractual formula is unlimited, except SERP compensation under the Pittway formula is limited to $300,000. The benefit formulas set forth above describe the pension benefits in terms of a lump sum cash payment (for the REP formula) or a single life annuity (for the other formulas). Participants are entitled
to receive their benefits in other payment forms, including, for example joint and survivor annuities, period certain annuities and level income payments. However, the value of each available payment form
is the same. In accordance with the requirements specified by Code section 409A, Messrs. Cote and Fradin have elected to receive their SERP benefits and Contractual benefits in the form of a lump
sum, and Messrs. Anderson and Kittelberger have elected to receive their SERP benefits and Contractual benefits in the form of an annuity. Until he makes an election between receiving his SERP
benefits in the form of an annuity or a lump sum, Mr. Gillette may receive payments from the SERP in the same form and at the same time as payments from the REP. The Allied Salaried formula also provides for early retirement benefits. A participant is eligible for early retirement if the participants age and years of service equal or exceed 60 and the participant
has attained age 50 with at least five years of service or if the participants age and years of service equal or exceed 80 regardless of the participants age. If the participant retires early, the participants
benefit at normal retirement age is reduced by 1/4 of 1% for each month payments begin before age 62 (3% per year). In addition, the Social Security benefit reduction portion of the formula is reduced by
1/180 for each month benefits are paid between ages 60 and 65, and 1/360 for each month benefits are paid before the participants 60th birthday. As stated above, the pension formula used to determine the amount of pension benefits under each of the plans for our named executive officers differs. The table below describes which formulas are
applicable to each of our named executive officers.
Named Executive
Description of Total Pension Benefits
Mr. Cote
Mr. Cotes total pension benefits are equal to his Contractual formula
benefits. The amount payable pursuant to the Contractual formula is
reduced by amounts calculated under the REP formula and payable
under the REP and the SERP plans. Mr. Cotes Contractual formula
benefits are also reduced by amounts he will receive from the
retirement plans of his former employer, General Electric Company.
Mr. Cotes Contractual formula benefits are reduced by 4% per year
for each year payment commences before Mr. Cotes 60th birthday
and are forfeitable if he is terminated by the Company for cause.
Mr. Cote is currently eligible for early retirement benefits payable under
his Contractual formula. Due to subsidized early retirement, the
difference between the value of his benefit payable on December 31,
2007 and the benefit shown in the table is $5,160,951.
If Mr. Cote dies (whether or not benefits have commenced) his
surviving spouse will receive an annual benefit of 75% of the
Contractual formula benefits.
At or after age 60, Mr. Cote is entitled to a monthly pension benefit
from his former employer, General Electric Company, in an amount of
$5,649.
Mr. Anderson
Mr. Andersons total pension benefits are equal to the sum of his
Allied Salaried formula benefits and his Contractual formula benefits.
Mr. Andersons Allied Salaried formula benefits are determined by
including his years of employment with a former employer, ITT
Industries (3.6 years). Mr. Anderson is currently eligible for early
retirement benefits payable under the Allied Salaried formula. Due to
subsidized early retirement, the difference between the value of his
benefit payable on December 31, 2007 and the benefit shown in the
table is $474,169.
47
Officer
Named Executive
Description of Total Pension Benefits
Mr. Andersons Contractual formula benefits are payable only if he
retires from the Company on or after attaining age 60, he is
terminated by the Company for reasons other than cause or there is a
change in control of the Company.
Mr. Andersons pension benefits under the REP and a portion of his
SERP benefits are determined under the REP formula. These amounts
are part of, not in addition to, his Allied Salaried formula benefits.
Due to legislation requiring a change in the vesting schedule of the
REP formula, Mr. Anderson vested in his REP formula benefits on
January 1, 2008.
Mr. Fradin
Mr. Fradins total pension benefits are equal to the sum of his Pittway
formula benefits, his REP formula benefits and his Contractual formula
benefits.
Mr. Fradins 26.5 years of service before July 1, 2003 will be used for
his Pittway formula benefits.
Mr. Fradins years of service after June 30, 2003 will be used for his
REP formula benefits.
Mr. Fradins Contractual formula benefits are reduced by 4% per year
for each year payment commences before his 60th birthday, and are
forfeitable if he voluntarily leaves the Company before age 60 or is
terminated by the Company for cause before age 60. If Mr. Fradins
Contractual benefits were included as part of his SERP benefits in the
table, the present value of accumulated SERP benefit would increase
to $4,760,143.
If Mr. Fradin dies before he has received a lump sum of his
Contractual formula benefits, his surviving spouse will receive an
annual benefit of 50% of the Contractual formula benefits.
Mr. Gillette
Mr. Gillettes total pension benefits are equal to his Allied Salaried
formula benefits.
A portion of Mr. Gillettes pension benefits under the REP and a
portion of his SERP benefits are determined under the Signal formula
(based on 8.4 years of service). These amounts are part of, not in
addition to, his Allied Salaried formula benefits.
Mr. Kittelberger
Mr. Kittelbergers total pension benefits are equal to his Allied Salaried
formula benefits.
Mr. Kittelbergers Allied Salaried formula benefits are determined by
including his years of service with a former employer, Lucent (1.7
years), and counting each year of credited service with the Company
after August 7, 2001 as two years (currently 6.4 years).
Mr. Kittelberger is currently eligible for early retirement benefits under
the Allied Salaried formula. Due to subsidized early retirement, the
difference between the value of his pension benefits payable on
December 31, 2007 and the benefits shown in the table is $640,923.
Mr. Kittelbergers pension benefits under the REP and a portion of his
SERP benefits are determined under the REP formula. These amounts
are part of, not in addition to, his Allied Salaried formula benefits. 48
Officer
Nonqualified Deferred CompensationFiscal Year 2007
Name
Plan
Executive
Registrant
Aggregate
Aggregate
Aggregate David M. Cote
Supplemental
$
113,961
$
56,981
$
58,080
$
1,289,387
Deferred
$
859,202
$
9,155,750
Deferred
$
29,963
$
20,769,162
Growth Plan(2)
$
4,050,000
$
4,050,000
Total
$
113,961
$
4,106,981
$
947,246
$
35,264,299 David J. Anderson
Supplemental
$
61,885
$
23,204
$
19,754
$
445,245
Deferred
$
295,777
$
3,108,533
Deferred
$
3,029,895
$
5,338
$
4,645,148
Growth Plan(2)
$
1,012,500
$
1,012,500
Total
$
3,091,780
$
1,035,704
$
320,869
$
9,211,425 Roger Fradin
Supplemental
$
240,567
$
46,577
$
27,559
$
797,720
Deferred
$
875,000
$
312,150
$
4,107,085
Deferred
$
2,215,875
$
54,975
$
6,998,326
Growth Plan(2)
$
997,500
$
997,500
Unvested
$
102,597
$
102,597
Total
$
3,331,442
$
1,044,077
$
497,281
$
12,900,630 Robert J. Gillette
Supplemental
$
35,346
$
35,346
$
35,156
$
626,359
Deferred
Deferred
Growth Plan(2)
$
1,125,000
$
1,125,000
Total
$
35,346
$
1,160,346
$
35,156
$
1,751,359 Larry E. Kittelberger
Supplemental
$
184,562
$
31,346
$
44,221
$
21,626
$
1,028,909
Deferred
$
540,000
$
206,235
$
2,863,163
Deferred
Growth Plan(2)
$
1,012,500
$
1,012,500
Total
$
724,562
$
1,043,846
$
250,456
$
21,626
$
4,904,572
(1)
For deferred restricted units, the value of executive contributions in the last fiscal year is calculated by multiplying the number of restricted units that vested in 2007 and were previously deferred by the
named executive officer by the average of the high and low prices of a share of Common Stock on the vesting date. This column reflects the following: 49,500 units vested on July 25, 2007 for Mr. 49
contributions
in last FY(3)
($)
contributions
in last FY(3)
($)
earnings
in last FY(3)
($)
withdrawals/
distributions
($)
balance
at last FYE(3)($)
Savings
Salary and
Incentive
Restricted
Units(1)
Savings
Salary and
Incentive
Restricted
Units(1)
Savings
Salary and
Incentive
Restricted
Units(1)
Dividend
Equivalents
Savings
Salary and
Incentive
Restricted
Units(1)
Savings
Salary and
Incentive
Restricted
Units(1)
Anderson ($61.21 per share value) and 37,500 units vested on July 29, 2007 for Mr. Fradin ($59.09 per share value on the next trading day, July 30, 2007). The value of the aggregate balance at the
last fiscal year is calculated by multiplying the total number of vested and deferred restricted units on December 31, 2007 by the average of the high and low prices of a share of Common Stock on
December 31, 2007 ($61.45), and then adding the cash value of deferred dividend equivalents and subsequent interest credited on those dividend equivalents. This column reflects the following:
336,300 units and $105,208 in cash for Mr. Cote, 74,250 units and $82,857 in cash for Mr. Anderson and 109,563 units and $266,227 in cash for Mr. Fradin. (2) The growth plan amounts represent 50% of the growth plan award included in the Summary Compensation Table for the calendar year ending December 31, 2006. This portion of the growth plan
amount will be paid in cash no later than March 15, 2008. Generally, to receive a growth plan payment, the named executive officer must be actively employed on the payment date. (3) The following table details the extent to which amounts reported in the contributions and earnings columns are reported in the Summary Compensation Table and the extent to which amounts reported
in the aggregate balance column were reported for previous years.
Name
Executive
Registrant
Earnings
Portion of Aggregate Balance David M. Cote
$
113,961
$
56,981
$
297,561
$
22,411,959 David J. Anderson
$
61,885
$
23,204
$
113,898
$
5,636,199 Roger Fradin
$
240,567
$
46,577
$
97,527
$
3,519,579 Robert J. Gillette
$
35,346
$
35,346
$
10,719
$
1,209,269 Larry E. Kittelberger
$
184,562
$
31,346
$
58,550
$
1,787,012 Honeywell Supplemental Savings Plan The Supplemental Savings Plan (the SS Plan), allows executives of the Company, including the named executive officers, to defer (i) amounts that cannot be contributed to the Companys tax-
qualified 401(k) plan due to the annual deferral and compensation limits imposed by the Internal Revenue Code, and/or (ii) up to an additional 25% of eligible pay (as defined below). After a participant
earns one year of vesting service, the Company matches deferrals to the SS Plan at the rate of 50% on the first 8% of eligible pay the participant defers for the first five years of match participation, and
100% on the first 8% of eligible pay deferred thereafter. Matching contributions to the SS Plan are always vested. Eligible pay includes base annual salary for the plan year including salary deferred under
the SS Plan, and excludes premium pay, bonus, and incentive, severance or other extra compensation. Participant deferrals for the 2005 plan year (salary earned in 2005) and later are increased by a rate of interest, compounded daily, and based on the Companys 15-year cost of borrowing. The rate is
subject to change annually, and for 2007, this rate was 5.8%. Participant deferrals for the 2004 plan year and prior plan years are increased by a rate of interest, compounded daily, that was set by the
Committee before the beginning of each plan year. Before 2005, the Committee would set the rate at an above-market rate to retain executives. This rate is fixed until the deferral is distributed from the SS
Plan. Matching contributions are treated as invested in Common Stock. Dividends are treated as reinvested in additional shares of Common Stock. Amounts deferred for the 2005 plan year and later will be distributed in a lump sum no later than January 31st of the year following the termination of the participants active employment for any
reason. For the 2006 plan year and later, the participant may elect to receive up to 10 installments in lieu of the lump sum payment, which election will take effect only if the participant terminates
employment after reaching age 55 with 10 years of service. Amounts deferred for the 2004 plan year and prior plan years will be distributed either by January 31st of any year following the deferral year or by January 31st of the year following termination of the
participants employment for any reason, as elected by the participant. The participant can elect to receive such distribution in a lump sum or in up to 15 annual installments. Participant deferrals to the SS Plan are distributed in cash only. Matching contributions are distributed in shares of Common Stock. 50
Contributions in SCT
Contributions in SCT
in SCT
Included in Prior SCTs
Amounts deferred for the 2005 plan year and later cannot be withdrawn before the distribution date for any reason. Amounts deferred for the 2004 plan year and prior plan years may be withdrawn
before the distribution date if a hardship exists or the participant wishes to request an immediate withdrawal subject to a penalty of 6%. Honeywell Salary and Incentive Award Deferral Plan for Selected Employees The Honeywell Salary and Incentive Award Deferral Plan for Selected Employees (the DIC Plan) allows executives of the Company, including the named executive officers, to defer their annual
discretionary cash incentive compensation. Participants may defer all or any portion of the incentive compensation payment, in 10% increments. Amounts deferred for the 2005 plan year (incentive compensation earned in 2005, but paid in 2006) and later are increased by a rate of interest, compounded daily, based on the Companys 15-year
cost of borrowing. The rate is subject to change annually, and for 2007, this rate was 5.8%. Amounts deferred for the 2004 plan year (incentive compensation earned in 2004, but paid in 2005) and prior
plan years are increased by a rate of interest, compounded daily, that was set by the Committee before the beginning of each plan year and included a portion that was fully vested and a portion that
vested only after three years of service. The Committee would set the total rate at an above-market rate to retain executives. This rate is fixed until the deferral is distributed from the DIC Plan. Amounts deferred for the 2006 plan year (incentive compensation earned in 2006, but paid in 2007) and later will be distributed in a lump sum no later than January 31st of the year following the
termination of the participants active employment for any reason. The participant may elect to receive up to ten installments in lieu of the lump sum payment, which election will take effect only if the
participant terminates employment after reaching age 55 with 10 years of service. Amounts deferred for the 2005 plan year and prior plan years will be distributed either by January 31st of any year beginning three full years after the incentive compensation was earned or by
January 31st of the year following termination of the participants employment for any reason, as elected by such participant. The participant could elect to receive such distribution in a lump sum or in up
to 15 annual installments. Amounts deferred for the 2002 plan year and later cannot be withdrawn before the distribution date for any reason. Amounts deferred for the 2001 plan year and prior plan years may be withdrawn
before the distribution date if a hardship exists or the participant wishes to request an immediate withdrawal subject to a penalty that ranges from 0 to 6% and that is based on the 10-year Treasury bond
rate as of the first business day of the calendar quarter. Deferral of Restricted Units During the 30-day period following a grant of restricted units, executives, including the named executive officers, may elect to defer up to 100% of their restricted units. The executive may elect
payment as of a specified year that is four or more years from the vesting year, or in the year following the executives termination of active employment with the Company for any reason, including
retirement. The executive may elect a lump sum payment or up to 15 annual installment payments. The executive may also elect to accelerate the form and timing of payment following a change in control
to a lump sum paid no later than 90 days following the change in control. For grants made before July 2004, an executive could elect to defer dividend equivalents in cash and such amounts are credited
with interest until payment. For executives such as the named executive officers, interest is compounded daily and is calculated each quarter at 10%. For grants made between July 2004 and December
2006, dividend equivalents related to deferred restricted units could not be deferred and were paid in cash at the same time dividends were paid on shares of Common Stock. Unvested Dividend Equivalents For grants made between December 2006 and December 2007, dividend equivalents on unvested restricted units accrue with interest (currently based on the Companys annual cost of borrowing at a
fixed rate for a 15-year term; 6.3% for 2008) and will be paid out only as the underlying restricted units 51
vest. For grants made in or after December 2007, cash dividend equivalents on unvested restricted units are converted to additional restricted units as of the dividend payment date and will be paid out
only as the underlying restricted units vest. These additional restricted units are subject to the same restrictions (including vesting, transferability and payment restrictions) that apply to the restricted units
to which they relate. The terms of the SERP Plan, the SS Plan, the DIC Plan, the deferred restricted units and the unvested dividend equivalents are subject to the requirements of, and regulations and guidance published
pursuant to, Section 409A of the Internal Revenue Code. POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL Overview This section describes the benefits payable to our named executive officers in two circumstances:
When their employment ends If control of our company were to change These benefits are determined primarily under a plan that we refer to as our Senior Severance Plan. In addition to the Senior Severance Plan, other of our benefits plans, such as our annual
incentive compensation plan, also have provisions that impact these benefits. For Mr. Cote, these benefits are also affected by provisions of his employment agreement. In addition, a termination of employment or change in control would affect outstanding stock options, restricted units and performance shares held by our named executive officers. The consequences
for these awards are described in the section below entitled Impact on Equity-Based Awards. There are three concepts that are important to understanding these benefits: when cause exists for us to terminate the employment of any of our executives, when good reason exists for our
employees to terminate their own employment; and when a change in control of our Company has occurred. These terms are specifically defined in our plans and arrangements, and those definitions are
summarized at the end of this section. The principal reason that we provide these benefits is that they help to ensure that our executives are motivated primarily by the needs of the businesses for which they are responsible, rather than by
personal considerations, in certain circumstances that are outside the ordinary course of businessi.e., circumstances that might lead to the termination of an executives employment or that might lead to a
change in control of the Company. Generally, this is achieved by assuring our named executive officers that they will receive a level of continued compensation if their employment is adversely affected in
these circumstances, subject to certain conditions. We believe that these benefits help ensure that affected executives act in the best interests of our shareholders, even if that might otherwise be clearly
contrary to their personal interests. This is critical because these are circumstances in which the actions of our named executive officers may have a material impact upon our shareholders. Accordingly,
we set the level and terms of these benefits in a way that we believe is necessary in order to obtain the desired result. We believe that these benefits are generally in line with current market practices. Summary of Benefits The following table summarizes the employment termination and change in control benefits payable to our named executive officers. No termination benefits are payable to named executive officers
who voluntarily quit (other than voluntary resignations for good reason) or whose employment is terminated by us for cause. The information in the table below is based on the assumption, in each case, that termination of employment occurred on December 31, 2007. Pension and non-qualified deferred compensation
benefits, which are described elsewhere in this proxy, are not included in the table below, even though they may become payable at the times specified in the table, in accordance with the applicable proxy
disclosure requirements. The effect of a termination of employment or change in control on outstanding 52
stock options, restricted units and performance shares is described in the section below entitled Impact on Equity-Based Awards. Payments and
Name
Termination
Death
Disability
Change in
Change in Cash Severance (Base Salary + Bonus)
David M. Cote
$
11,137,500
$
11,137,500
David J. Anderson
$
4,800,000
$
4,800,000
Roger Fradin
$
3,000,000
$
4,000,000
Robert J. Gillette
$
1,950,000
$
2,600,000
Larry E. Kittelberger
$
3,750,000
$
3,750,000 ICP (Year of Termination)
David M. Cote
$
2,062,500
$
2,062,500
$
2,062,500
$
2,495,625
$
2,495,625
David J. Anderson
$
968,000
$
1,152,615
Roger Fradin
$
1,350,000
$
1,350,000
Robert J. Gillette
$
780,000
$
780,000
Larry E. Kittelberger
$
756,250
$
900,481 Growth Plan
David M. Cote
$
7,550,000
$
7,550,000
$
11,050,000
$
11,050,000
David J. Anderson
$
1,887,500
$
1,887,500
$
2,762,500
$
2,762,500
Roger Fradin
$
1,872,500
$
1,872,500
$
2,747,500
$
2,747,500
Robert J. Gillette
$
2,000,000
$
2,000,000
$
2,875,000
$
2,875,000
Larry E. Kittelberger
$
1,887,500
$
1,887,500
$
2,762,500
$
2,762,500 Benefits and Perquisites
David M. Cote
$
48,024
$
48,024
David J. Anderson
$
33,192
$
217,807
Roger Fradin
$
17,946
$
23,928
Robert J. Gillette
$
16,218
$
21,624
Larry E. Kittelberger
$
24,372
$
168,603 All Other
David M. Cote
David J. Anderson
$
652,542
$
1,893,842
Roger Fradin
$
9,095,840
$
2,089,158
$
9,198,437
$
102,597
$
8,696,687
Robert J. Gillette
$
689,541
$
1,509,493
Larry E. Kittelberger
$
374,463 Parachute Tax Gross-Up
David M. Cote
$
22,872,336
David J. Anderson
$
5,597,688
Roger Fradin
$
9,874,626
Robert J. Gillette
$
8,215,213
Larry E. Kittelberger
$
3,427,181 Total
David M. Cote
$
13,248,024
$
9,612,500
$
9,612,500
$
13,545,625
$
47,603,485
David J. Anderson
$
5,485,734
$
1,887,500
$
1,887,500
$
3,730,500
$
16,424,453
Roger Fradin
$
12,113,786
$
3,961,658
$
11,070,937
$
4,200,097
$
26,692,741
Robert J. Gillette
$
2,655,759
$
2,000,000
$
2,000,000
$
3,655,000
$
16,001,330
Larry E. Kittelberger
$
3,774,372
$
1,887,500
$
1,887,500
$
3,518,750
$
11,383,228 53
Benefits
by the
Company
Without
Cause
ControlNo
Termination of
Employment
Control
Termination of
Employment
by Company
Without
Cause, by
NEO for
Good
Reason or
Due to Disability
Payments/
Benefits
Explanation of Benefits The following describes the benefits that are quantified in the table above. In regard to each portion of the benefit, the benefits that are paid in the context of a change in control are, except as noted,
the same as the benefits paid other than in a change in control. Severance Benefits Severance benefits are payable upon involuntary termination of employment by us without cause and, following a change in control, upon voluntary termination of employment by a named executive
officer for good reason. For Mr. Kittelberger, these benefits are payable if his employment is terminated for good reason, without regard to the occurrence of a change in control. The amount and terms of
the payments are as follows: Other
than upon a Change in Control Upon
a Change in Control
three
years of base salary and bonus for Messrs. Cote, Anderson and Kittelberger,
and 18 months of base salary and bonus for Messrs. Fradin and Gillette For
Messrs. Fradin and Gillette, severance period is increased from 18
months to two years
paid
in cash Amounts
are paid in a lump sum within 30 days following the later of the date
of termination or the change in control date
paid
in accordance with our normal payroll practices bonus
is based on the average of the target percentages for the three years
before the year in which these benefits are determined, if greater
than target percentage for that year
bonus
is equal to target percentage of base salary
payment
conditioned upon a general release in favor of the Company, a non-compete
agreement (two years for Mr. Cote and the duration of the severance
period for other named executive officers), non-disclosure and non-solicitation
covenants (2 years for customers and 1 year for employees) and the
named executive officer refraining from certain other misconduct Annual Bonus for the Year of Termination An annual bonus is payable to named executive officers for the year in which a change in control occurs. In addition, an annual bonus is payable to Mr. Cote if his employment is terminated by us
without cause, by Mr. Cote for good reason, or upon his death or disability. The amount and timing of the payments are as follows: Other
than upon a Change in Control Upon
a Change in Control
equal
to target for the year in which these benefits are determined, prorated
through date of termination (Mr. Cote only) equal
to target for the year in which these benefits are determined, prorated
for full months of employment through the change in control date
paid
in cash immediately following termination date (Mr. Cote only) if
the performance year ended prior to the change in control, then the
amount would be based on the performance for the year, if greater paid
within 90 days of the change in control 54
Growth Plan Growth plan awards are paid out in the event of death, disability and change in control, as follows: Other
than upon a Change in Control Upon
a Change in Control
benefits
are paid only in the event of death or disability full
payment of the 2007-2008 Growth Plan would be made at target
the
2nd installment
of the 2005-2006 Growth Plan would be paid out as soon as practicable payment
would be made in a lump sum within 90 days of the change in control
the
2007-2008 Growth Plan would be paid out pro rata to the time elapsed
based on actual plan performance as determined at the end of the performance
cycle. Payment would be made in March of 2009. The amount in the summary
table above reflects payouts at target for the full cycle. Certain Perquisites Certain perquisites are payable upon involuntary termination of employment by us without cause and, following a change in control, upon voluntary termination of employment by a named executive
officer for good reason. For Mr. Kittelberger, these benefits are payable if his employment is terminated for good reason, without regard to the occurrence of a change in control. The amount and terms of
these payments are as follows: Other
than upon a Change in Control Upon
a Change in Control
life
insurance coverage is continued at the Companys cost for the
severance period. funds
sufficient to pay all projected annual reimbursements needed to satisfy
such life insurance reimbursement agreement for Mr. Cote are set aside
in a trust for Mr. Cotes benefit.
medical
and dental benefits are continued during the severance period at active
employee contribution rates. 55
All Other Payments/Benefits Certain pension enhancements are provided upon change in control, death, disability, involuntary termination of employment by us without cause and, following a change in control, upon voluntary
termination of employment by a named executive officer for good reason. For Mr. Kittelberger, certain enhancements are provided if his employment is terminated for good reason, without regard to the
occurrence of a change in control. These enhancements are as follows: Other
than upon a Change in Control Upon
a Change in Control
service
credit for pension purposes during the first 12 months of his severance
period; however, for Mr. Cote and Mr. Kittelberger, there is no incremental
value attributable to this credit because the benefit formula does
not include service as a component thereof (Mr. Cote), and because
of a required deferral in the commencement of the payment of the pension
(Mr. Kittelberger). Mr.
Andersons pension will be augmented by an annual amount of $125,000,
commencing January 1, 2010.
In
the event of Mr. Cotes death, Mr. Cotes surviving spouse
is entitled to a survivor annuity, commencing on the date Mr. Cote
would have attained the age of 60, in an amount equal to 75% of Mr.
Cotes SERP benefit. Messrs.
Anderson and Kittelberger receive credit for an additional three years
of age and service credit for pension purposes.
In
the event of Mr. Fradins death, Mr. Fradins surviving spouse
is entitled to a survivor annuity, commencing on the date Mr. Fradin
would have attained the age of 60, in an amount equal to 50% of Mr.
Fradins special SERP benefit.
In
the event Mr. Anderson is terminated other than for cause, his pension
will be augmented by an annual amount of $125,000, commencing January
1, 2010.
contingent
interest under the Companys deferred salary and deferred incentive
compensation plan vests. Parachute Tax Reimbursement U.S. tax laws impose an excise tax on employees who receive benefits in connection with a change in control in certain circumstances and subject to certain conditions. We have agreed to pay this
tax for our named executive officers, and to pay any taxes that result from our payment of the excise tax. Impact on Equity-Based Awards This section describes the impact of a termination of employment or a change in control on outstanding stock options, restricted units and performance awards held by our named executive officers.
Additional information about these awards is set forth in the Outstanding Equity Awards Table on page 43 of this proxy statement. Summary of Outstanding Award Values The following table sets forth the value of outstanding unvested stock option, restricted units and performance share awards held by our named executive officers as of December 31, 2007, based on 56
the closing price of a share of Common Stock as reported on the New York Stock Exchange on that date ($61.57). These awards are scheduled to vest and to expire on various dates in the future, subject to continued employment. As described below, the vesting of these awards will be accelerated in certain
termination of employment circumstances and upon a change in control. In addition, stock options will remain outstanding for different periods depending on the circumstances. The value to a named
executive officer of these provisions depends on the vesting period and remaining terms of the awards. For example, the value to a named executive officer of accelerating the vesting of an option by one
month is very different from the value of accelerating the vesting of an option by three years. The table below does not distinguish between acceleration of vesting in these two different circumstances, or
assign a value to the other provisions. Rather, it only indicates the aggregate amount of the awards to which these provisions would apply at December 31, 2007.
In-the-Money Value of
Unvested Value of
Unvested Value of Mr. Cote
$
25,277,325
$
23,285,744
$
7,696,250 Mr. Anderson
$
6,046,856
$
9,281,678
Mr. Fradin
$
5,632,200
$
15,577,210
Mr. Gillette
$
5,632,200
$
16,439,190
Mr. Kittelberger
$
5,632,200
$
2,462,800
Impact on Outstanding Awards The treatment of stock options, restricted units and performance shares following termination of employment depends on the plan under which the awards were granted, as follows:
1993 Stock Plan for Employees of Honeywell International Inc. and its Affiliates. Following termination of employment, participants (or their beneficiaries) have the following periods in which to
exercise vested options: (i) the full remaining term if termination is on account of death, disability, or an involuntary termination after qualifying for early or normal retirement under a qualified defined
benefit pension plan, (ii) three years in the case of any other involuntary termination without cause; (iii) 90 days if termination is voluntary without good reason. If an employee dies, becomes
disabled or terminates after becoming eligible for normal retirement benefits under a qualified defined benefit plan, unvested options become vested. In other circumstances, unvested options
immediately lapse. 2003 Stock Incentive Plan of Honeywell International Inc. and its Affiliates. Following termination of employment, participants (or their beneficiaries) have the following periods in which to exercise
vested options: (i) three years in the event of death, disability or a voluntary or involuntary termination (other than for cause) after qualifying for early retirement (age 55 and 10 years of service) or
full retirement (age 60 and 10 years of service), (ii) one year in the case of any other involuntary termination without cause, and (iii) 30 days in the case of a voluntary termination without good
reason. If an employee dies, becomes disabled or retires after meeting the requirements of full retirement, unvested options become vested. Restricted units become vested upon full retirement,
death, disability or a change in control. In other circumstances, unvested options and restricted units immediately lapse. 2006 Stock Incentive Plan of Honeywell International Inc. and its Affiliates. The rules under this plan are the same as under the 2003 Stock Incentive Plan described above, except that for stock
options granted after 2006 full retirement will not result in vesting acceleration, with the effect that unvested options immediately lapse following full retirement. Similarly, instead of full vesting,
restricted units awarded after 2006 vest pro-rata based on the number of complete years of service between the grant date and the retirement date. Under each of the foregoing plans, unvested stock options and restricted units vest upon a change in control. Performance shares vest at target upon a change in control. Restricted units and
performance shares that vest upon a change in control shall be paid out within 90 days (subject to any existing deferral elections). 57
Unvested Stock Options
Restricted Units
Performance Shares
at Target
For Mr. Cote, stock options and restricted units (other than his sign-on performance stock option grant) continue to remain outstanding and vest as scheduled if his employment is terminated by us
other than for cause or by him for good reason. In addition, Mr. Cotes unvested options and restricted units vest immediately if he dies or becomes disabled. For Mr. Kittelberger, stock options and
restricted units continue to vest as scheduled following a termination of his employment for good reason. Mr. Fradin received a special grant of 203,000 restricted units in 2007. Pursuant to Mr.
Fradins grant agreement, if his employment is terminated by us other than for cause or by virtue of his death or disability, such restricted units shall vest immediately and shall be paid out as soon
as practicable (subject to any existing deferral election). In the event of a change in control, such restricted units shall vest immediately and shall be paid out within 90 days of the change in control
(subject to any existing deferral election). In such case, the amount to be paid out shall be determined by multiplying the number of restricted units by the greater of the highest price paid by the
acquiring entity, or the highest trading price for the 90-day period ending on the change in control date. Defined Terms Used in This Section As used in our plans, the following terms are assigned the meanings summarized below. Term
Summary of Definition Change in control
(a) the acquisition of 30% or more of Common Stock; (b) the purchase of all or part of Common Stock pursuant to a tender offer or exchange offer; (c) a merger where Honeywell
does not survive as an independent, publicly-owned corporation; (d) a sale of substantially all of Honeywells assets; or (e) a substantial change in Honeywells the Board over a
two year period.
Termination for
cause (for Mr. Cote)
(a) in carrying out his duties, Mr. Cote engages in conduct that constitutes willful gross neglect or gross misconduct resulting in material economic harm to Honeywell or (b) Mr.
Cote is convicted of a felony.
Termination for
gross cause (for
other named
executive officers)
(a) fraud, misappropriation of Honeywell property, or intentional misconduct which is damaging to us or our businesses or (b) the commission of a crime. For purposes of our
disclosure, if we terminate a named executive officers employment other than for gross cause or due to death or disability, we will refer to this as a termination of employment by
the Company without cause. In the event of a change in control only, termination for gross cause means termination of a named executive officers employment for a felony
committed against Honeywell, Honeywell property or Honeywells business. For purposes of our disclosure, if we terminate a named executive officers employment after a change
in control other than for gross cause or due to death or disability, we will refer to this as a termination of employment by the Company without cause.
Termination for good
reason (for Mr. Cote)
(a) the Board assigns Mr. Cote duties that are inconsistent with the duties associated with his position as Chairman of the Board and CEO of the Company; (b) the failure of Mr.
Cote to be retained as Honeywells Chairman of the Board and CEO; (c) any significant diminution of Mr. Cotes position, authority, duties or responsibilities; (d) the failure of the
Company to have any successor entity expressly assume Honeywells obligations under the Cote Agreement; (e) the occurrence of acts or conduct by the Company, the Board or
our officers, representatives or stockholders that prevent Mr. Cote from, or substantively hinder him in, performing his duties or responsibilities under the Cote Agreement; (d) any
material breach of the Cote Agreement by the Company that goes unremedied; (e) the provision of notice by the Company to Mr. Cote that the Cote Agreement will not be
extended; or (f) any other action that would be considered Good Reason under the Senior Severance Plan. 58
Term
Summary of Definition
Termination for good
reason (for other
named executive
officers)
(a) a material change in the named executive officers duties or responsibilities; (b) any significant reduction (more than 10%) in the named executive officers base salary or
incentive compensation; (c) a significant reduction in the named executive officers medical or life insurance benefits or a significant increase (more than 10%) in the premiums paid
for such benefits; (d) any reduction in the economic value of any long term incentive awards; (e) any significant reduction in the rate of the Companys contributions to the named
executive officers 401(k) plan or any significant reduction in the rate of benefit accrual under the named executive officers defined benefit plan; (f) any significant reduction in the
benefits under the Companys long term disability plan; (g) any geographic relocation of the named executive officers position to a location which is more than 50 miles from his or
her previous work location; (h) any action that constitutes a constructive discharge; (i) any failure to pay benefits within the time required; or (j) the failure of a successor to assume
these obligations under the Senior Severance Plan.
For Mr. Kittelberger, good reason shall also include any change in Mr. Kittelbergers direct reporting relationship to Honeywells CEO or the removal of Mr. Kittelberger from the
Honeywell Leadership Council other than for gross cause. 59
The Audit Committee consists of the six directors named below. Each member of the Audit Committee is an independent director as defined by applicable SEC rules and NYSE listing standards. In
addition, the Board of Directors has determined that Mr. Davis is the audit committee financial expert as defined by applicable SEC rules and that Mr. Davis and Ms. Deily satisfy the accounting or
related financial management expertise criteria established by the NYSE. The Audit Committee operates under a written charter adopted by the Board of Directors, which is available free of charge on our
website under the heading Investor Relations (see Corporate GovernanceBoard Committees), or by writing to Honeywell, 101 Columbia Road, Morris Township, New Jersey 07962, c/o Vice President
and Corporate Secretary. Management is responsible for the Companys internal controls and preparing the Companys consolidated financial statements. The Companys independent accountants are responsible for
performing an independent audit of the consolidated financial statements in accordance with generally accepted auditing standards and issuing a report thereon. The Committee is responsible for
overseeing the conduct of these activities and, subject to shareowner ratification, appointing the Companys independent accountants. As stated above and in the Committees charter, the Committees
responsibility is one of oversight. The Committee does not provide any expert or special assurance as to Honeywells financial statements concerning compliance with laws, regulations or generally
accepted accounting principles. In performing its oversight function, the Committee relies, without independent verification, on the information provided to it and on representations made by management
and the independent accountants. The Audit Committee reviewed and discussed the Companys consolidated financial statements for the year ended December 31, 2007 with management and the independent accountants.
Management represented to the Audit Committee that the Companys consolidated financial statements were prepared in accordance with generally accepted accounting principles. The Audit Committee
discussed with the independent accountants matters required to be discussed by Statement on Auditing Standard No. 61, Communication with Audit Committees. The Committee also reviewed, and
discussed with management and PwC, managements report and PwCs report and attestation on internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. The Companys independent accountants provided to the Audit Committee the written disclosures required by Independence Standards Board Standard No. 1, Independence Discussions with Audit
Committees, and the Committee discussed with the independent accountants their independence. The Audit Committee concluded that PwCs provision of non-audit services, as described in the following
section of this proxy statement, to the Company and its affiliates is compatible with PwCs independence. Based on the Audit Committees discussion with management and the independent accountants and the Audit Committees review of the representations of management and the report of the
independent accountants, the Committee recommended that the Board of Directors include the audited consolidated financial statements in the Form 10-K for the year ended December 31, 2007 filed with
the SEC. THE AUDIT COMMITTEE D. Scott Davis (Chair) 60
Linnet Deily
James J. Howard
Eric K. Shinseki
John R. Stafford
Michael W. Wright
Proposal No. 2APPROVAL OF INDEPENDENT ACCOUNTANTS The Audit Committee, which consists entirely of independent directors, is recommending approval of its appointment of PricewaterhouseCoopers LLP (PwC) as independent accountants for Honeywell
to audit its consolidated financial statements for 2008 and to perform audit-related services, including review of our quarterly interim financial information and periodic reports and registration statements
filed with the SEC and consultation in connection with various accounting and financial reporting matters. If the shareowners do not approve, the Audit Committee will reconsider the appointment. PwC provided audit and other services during 2007 and 2006 as set forth below:
(in millions of $)
2007
2006 Audit Fees
25.6
25.6
Annual audit of the Companys consolidated financial
statements, including Sarbanes-Oxley Section 404 work,
statutory