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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March 7, 2013 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 22, 2013 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. At this year’s meeting, you will be asked to elect directors, approve the appointment of the independent accountants, cast an advisory vote to approve executive compensation, and consider three
shareowner proposals. The Board of Directors recommends that you vote FOR Proposals 1, 2, and 3 and AGAINST Proposals 4, 5 and 6. 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 Honeywell’s headquarters appear at the end of the proxy statement.
Sincerely,
DAVID M. COTE
Chairman and Chief Executive Officer
NOTICE OF ANNUAL MEETING OF SHAREOWNERS The Annual Meeting of Shareowners of Honeywell International Inc. will be held on Monday, April 22, 2013 at 10:30 a.m. local time, at Honeywell’s headquarters, 101 Columbia Road, Morris Township, New Jersey to consider and vote on the following matters described in the accompanying proxy
statement:
•
Election of the twelve nominees listed in the accompanying proxy statement to the Board of Directors; • Approval of the appointment of PricewaterhouseCoopers LLP as independent accountants for 2013; • An advisory vote to approve executive compensation; and • If properly raised, three shareowner proposals described on pages 83-88 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 22, 2013 are entitled to notice of and to vote at the meeting. 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 of Internet Availability”) to shareowners in lieu of a paper copy of the proxy statement, related materials and the
Company’s Annual Report to Shareowners (the “Proxy Materials”). The Notice of Internet Availability provides instructions as to how shareowners can access the Proxy Materials online, contains a listing of matters to be considered at the meeting, and sets forth instructions as to how shares can be voted.
Shares must be voted either by telephone, online or by completing and returning a proxy card. Shares cannot be voted by marking, writing on and/or returning the Notice of Internet Availability. Any Notices of Internet Availability that are returned will not be counted as votes. Instructions for
requesting a paper copy of the Proxy Materials are set forth on the Notice of Internet Availability. This Notice of Annual Meeting of Shareowners and related Proxy Materials are being distributed or made available to shareowners beginning on or about March 7, 2013.
By Order of the Board of Directors,
Jeffrey N. Neuman Honeywell March 7, 2013
Vice President and Corporate Secretary
101 Columbia Road
Morris Township, NJ 07962
Table of Contents
Page
i-vi
1
8
8
8
8
9
13
14
15
16
16
16
17
20
21
22
22
23
24
25
25
55
55
56
58
59
62
63
68
71
79
80 PROPOSAL NO. 3: ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION
81
83
83
85 PROPOSAL NO. 6: ELIMINATE ACCELERATED VESTING IN A CHANGE IN CONTROL
87
89
91
92
A-1
Back Cover Reconciliation of non-GAAP financial measures used in the Compensation Discussion and Analysis section and elsewhere in this proxy statement, other than as part of disclosure of target levels, can be found in the Appendix. The Long-Term Targets referenced in the Compensation Discussion and Analysis
section of this proxy statement represent forward-looking statements that are based on management’s assumptions and assessments and are not guarantees of future performance.
The following executive summary is intended to provide a broad overview of the items that you will find elsewhere in this proxy statement. As this is only a summary, we encourage you to read the entire proxy statement for more information about these topics prior to voting.
Annual Meeting of Shareowners
•
Time and Date:
10:30 a.m., April 22, 2013
•
Place:
Honeywell
•
Record Date:
Shareowners as of February 22, 2013 are entitled to vote.
•
Admission:
Please follow the advance registration instructions on page 91.
Meeting Agenda and Voting Matters
Proposal
Board’s Voting
Page References
1.
Election of Directors
FOR EACH NOMINEE
1-7
2.
Approval of Independent Accountants
FOR
80
3.
Advisory Vote To Approve Executive Compensation
FOR
81-82
4.
Shareowner Proposal: Independent Board Chairman
AGAINST
83-85
5.
Shareowner Proposal: Right To Act By Written
Consent
AGAINST
85-86
6.
Shareowner Proposal: Eliminate Accelerated Vesting In A Change In Control
AGAINST
87-88
Director Nominees (Proposal No. 1) Each director nominee is elected annually by a majority of votes cast (see page 90 of this proxy statement for further detail).
Name
Age
Director Since
Independent
Committees Gordon M. Bethune
71
1999
X
CGRC, MDCC Kevin Burke
62
2010
X
AC, RPC Jaime Chico Pardo
63
1999
X
CGRC, RPC (C) David M. Cote
60
2002
NONE D. Scott Davis
61
2005
X
AC, MDCC (C) Linnet F. Deily
67
2006
X
AC, CGRC (C) Judd Gregg
66
2011
X
AC, CGRC Clive Hollick
67
2003
X
MDCC, RPC Grace D. Lieblein
52
2012
X
CGRC, MDCC George Paz
57
2008
X
CGRC, AC (C) Bradley T. Sheares
56
2004
X
MDCC, RPC Robin L. Washington
50
Nominated
X
AC*, RPC*
AC
Audit Committee
CGRC
Corporate Governance and Responsibility Committee
MDCC
Management Development and Compensation Committee
RPC
Retirement Plans Committee
C
Chair
*
Upon Election to the Board i
101 Columbia Road
Morris Township, New Jersey
Recommendation
(for more detail)
for Election
Attendance
Each director attended at least 75% of the aggregate number of Board and applicable Committee meetings.
Key Qualifications
Senior Leadership Experience, Industry/Global Experience, Financial Expertise, Regulated Industries/Government Experience, Public Company Board Experience (See pages 1-7 of this proxy statement for additional detail.) Key Corporate Governance Best Practices
•
All directors are independent other than the CEO • Annual election of directors and majority voting in uncontested elections • Authority of the Chair of the Corporate Governance and Responsibility Committee to call special meetings of the Board at any time for any reason (instituted in 2012 in response to shareowner feedback) • Chair of the Corporate Governance and Responsibility Committee designated as a point of contact for shareowner communications (instituted in 2013 in response to shareowner feedback) • Right of shareowners holding at least 20% of the outstanding stock of the Company (excluding derivatives) to call a special meeting of shareowners • Elimination of super-majority voting provisions in the Company’s organizational documents • Shareowner approval of poison pills • Recoupment of incentive compensation in the event of a significant restatement
•
Frequent engagement by management with major institutional investors
Auditors (Proposal No. 2) The Board of Directors recommends a vote FOR the approval of the appointment of PricewaterhouseCoopers LLP (“PwC”) as the Company’s independent accountants for 2013.
Type of Fees
2012
2011
(in millions) Audit Fees $
20.3 $
20.4 Audit-Related Fees $
1.5 $
2.7 Tax Fees $
5.2 $
6.4 All Other Fees $
—
— Total $
27.0
$
29.5
Advisory Vote To Approve Executive Compensation (Proposal No. 3) We are requesting that the shareowners approve, on an advisory basis, the compensation of the Named Executive Officers as disclosed in this proxy statement. The Board recommends a vote FOR Proposal No. 3 as it believes that the 2012 compensation decisions and Honeywell’s executive compensation
programs align the interests of shareowners and executives by emphasizing variable, at-risk compensation largely tied to measurable performance goals utilizing an appropriate balance of near-term and long-term objectives. This proposal was supported by approximately 90% of the votes cast in each of 2012,
2011 and 2010. Please see the Compensation Discussion and Analysis, Summary Compensation Table and other tables and disclosures beginning on page 25 of this proxy statement for a full discussion of our executive compensation. ii
Performance Highlights Record Year of Profitable Growth
•
Sales up 3% to $37.7 billion • Segment profit up 10%, with 90 basis points of margin expansion • Proforma Earnings Per Share (“EPS”) (excludes any pension mark-to-market adjustment) up 11% to $4.48 • Free cash flow (“FCF”) of $3.7 billion (prior to cash pension contributions), reflecting 103% FCF conversion (excludes the impact of any pension mark-to-market adjustment on net income) Creating Shareowner Value; Outperforming Market and Peers
•
Dividends: Dividend rate was increased by 10%, effective in the fourth quarter of 2012, the eighth increase of at least 10% in the last nine years • Share Repurchases: Repurchased 5.0 million shares in 2012 in order to return additional money to shareowners • Total Shareowner Return (“TSR”): Outperformed market and Honeywell’s compensation peer group Percentages reflect cumulative growth over the period. Peer Median reflects Compensation Peer Group median (see
pages 36-37 of this proxy statement). Honeywell percentile rank based on Compensation Peer Group. As of December 31, 2012; 1-year period begins January 1,
2012, 3-year period begins January 1, 2010, 5-year period begins January 1, 2008. Building for the Future—Honeywell Enablers and Highlights of Seed Planting Investments
•
Management continues to drive long-term shareowner value through the on-going strengthening, expansion and utilization of Honeywell’s key process initiatives that drive productivity and growth known as the “Honeywell Enablers”:
Ø Honeywell Operating System—drives sustainable improvements in our manufacturing operations; Ø Functional Transformation—Honeywell Operating System for our administrative functions; Ø Velocity Product Development—brings together research and development (“R&D”), manufacturing, marketing and sales to successfully launch new products; and Ø Organizational Efficiency—systematically applied initiatives to increase labor cost efficiency and employee productivity.
•
The Company completed $438 million (net of cash acquired) in acquisitions in 2012, including the acquisition of a 70% ownership interest in Thomas Russell L.L.C. (“Thomas Russell Co.”), a leader in technology and equipment for natural gas processing and treating, primarily serving the U.S. market. iii
• Expansion of Honeywell’s presence and sales in high growth regions and countries such as China, India, Eastern Europe, Middle-East, and Latin America. • R&D spending at 4.9% of revenues was targeted at such high growth areas as natural gas processing, low global warming refrigerants and blowing agents, and wireless control devices and technologies. • Capital expenditures grew 11% to $884 million including the construction or expansion of technology centers in India and Saudi Arabia. • The Company funded approximately $120 million of new restructuring actions which will provide continued productivity savings in years to come. 2012 Compensation Decisions The table below highlights the 2012 total annual direct compensation actions for each Named Executive Officer. These actions are aligned with the strong Company performance described above (see pages 28-32 of this proxy statement for additional detail):
Named Executive Officer
Base
Annual
Stock
Annualized
2012 Total David Cote
$
1,800,000
$
4,800,000
$
9,289,000
$
4,750,000
$
20,639,000 David Anderson
$
900,000
$
1,225,000
$
2,654,000
$
1,375,000
$
6,154,000 Roger Fradin
$
1,050,000
$
1,200,000
$
2,654,000
$
1,375,000
$
6,279,000 Timothy Mahoney
$
818,750
$
900,000
$
1,990,500
$
1,050,000
$
4,759,250 Andreas Kramvis
$
687,500
$
950,000
$
1,658,750
$
875,000
$
4,171,250 Total annual direct compensation consists of:
•
Base Salary: The base salaries of Messrs. Cote, Anderson and Fradin remained unchanged for the fourth consecutive year. Only Messrs. Mahoney and Kramvis received salary increases in 2012. • Annual Bonus: The Named Executive Officers received annual bonuses ranging from 110% to 152% of their target opportunities based in large part on three pre-established financial goals (EPS, FCF, and Working Capital Turns). Supplemental criteria were also considered: Honeywell’s short-
and long-term financial success such as year-to-year changes in revenue, segment profit and margin expansion; relevant industry and economic conditions; and the achievement of non-financial management objectives such as expanded sales in high growth regions, new product development and improved
utilization of the Honeywell Enablers. • Stock Options: Each of the Named Executive Officers received a stock option grant in 2012. Stock option awards and grant date values in 2012 were lower than 2011, but still represent the most significant component of an officer’s total annual target long-term incentive opportunity
(approximately two-thirds). Stock options are a long-term incentive vehicle that closely aligns the interests of shareowners and executives because executives realize value only if the stock price appreciates. • Growth Plan: The 2012-2013 Growth Plan performance cycle has three equally weighted performance goals: (i) total revenue, excluding the impact of acquisitions and divestitures; (ii) average return on investment; and (iii) segment margin expansion (added in 2012). If earned, these awards will
be payable 50% in the first quarter of 2014 and 50% in the first quarter of 2015 contingent upon continued employment. The amounts shown above for the Annualized Growth Plan Awards reflect the potential target award value for the 2012-2013 performance cycle which will be payable only if the
Company meets plan performance goals based on financial results for fiscal years 2012 and 2013. iv
Salary
Bonus
Options
Growth
Plan Award
(at Target)
Annual Direct
Compensation
Alignment of Pay with Performance The graph below demonstrates the strong alignment over the past five years of shareowner value creation with CEO total annual direct compensation (“Total ADC”). Total ADC consists of base salary, annual incentive compensation award, annual stock option grant, and annualized Growth Plan award (see
the section titled “Compensation Discussion and Analysis” beginning on page 25 of this proxy statement). Vertical axis on the left side reflects the year-to-year performance indexed
to 2007 base year TSR at 100. Prior year TSR is shown in order to correspond with the timing of compensation decisions during the first quarter of each year. Other Key Aspects of Honeywell’s Executive Compensation Practices In addition to executive compensation practices that strongly link pay and performance, Honeywell executive compensation practices demonstrate best practice in several ways (see page 52 for additional detail):
•
Executive compensation decisions are made by the Management Development and Compensation Committee comprised of all independent directors and advised by an independent compensation consultant. • Honeywell’s equity plans prohibit repricing and backdating and contain clawback and non-competition restrictions. • Honeywell eliminated tax gross-ups on perquisites and excise tax gross-ups for any new officers.
Shareowner Proposals (Proposal Nos. 4, 5 and 6) Three shareowner proposals, if properly raised, will also be considered at the Annual Meeting. The Board of Directors recommends that shareowners vote AGAINST each of these proposals:
•
Proposal No. 4 which seeks to require the Board to separate the role of CEO and Chairman. The Board believes that separating the role of Chair/CEO will not improve the Company’s performance. Requiring the Board to separate the role of Chair/CEO regardless of specific circumstances or Company
performance risks considerable harm and is not in the interests of shareowners. Hence, whether and when to separate these roles should continue to be left to the discretion of the Board.
Proposal No. 5 which seeks to require the Board to allow shareowners to act by written consent. The Board believes that permitting shareowners to act by written consent outside of the formal shareowner meeting process disregards certain procedural protections necessary to prevent abuse, waste of
Company resources and confusion by the shareowners. The lack of transparency and the ability of a small minority v
•
of shareowners to hijack the Company via a written consent is not consistent with true shareowner democracy. • Proposal No. 6 which seeks to eliminate accelerated vesting of stock options and other equity in a change in control. The Board believes that accelerated vesting of equity awards in the event of a change in control transaction best aligns the interests of management and shareowners. When negotiating a
change in control transaction on behalf of shareowners, executives should be focused solely on maximizing shareowner value and not on their own personal employment or career prospects. It is unlikely that Honeywell’s senior executives would be retained by an acquiring company following
completion of a merger or acquisition. Hence, if Proposal No. 6 is adopted, the incentive for Honeywell’s senior executives to maximize shareowner value in a change in control transaction could be comprised. The three shareowner proposals, the Company’s opposing statements and the Board’s recommendations that shareowners vote AGAINST these proposals are set forth on pages 83-88. vi
PROXY STATEMENT 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 22, 2013. Proposal No. 1: ELECTION OF DIRECTORS Honeywell’s 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. Honeywell’s 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 (see page 90 of this proxy statement for further detail). The Board has nominated twelve candidates
for election as directors for a term ending at the 2014 Annual Meeting of Shareowners or when their successors are duly elected and qualified. All nominees except Ms. Washington 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. The Board of Directors, acting through its Corporate Governance and Responsibility Committee (“CGRC”), is responsible for nominating a slate of director nominees who collectively have the complementary experience, qualifications, skills and attributes to guide the Company and function effectively as
a Board. See “Identification and Evaluation of Director Candidates” on pages 15-16 of this proxy statement for further discussion. The CGRC believes that each of the nominees has key personal attributes that are important to an effective board: integrity, candor, analytical skills, the willingness to engage
management and each other in a constructive and collaborative fashion, and the ability and commitment to devote significant time and energy to service on the Board and its Committees. Listed below are other key experiences, qualifications and skills of our director nominees that are relevant and important in light of Honeywell’s businesses and structure.
•
Senior Leadership Experience: Experience serving as CEO or a senior executive provides a practical understanding of how complex organizations like Honeywell function and hands-on leadership experience in core management areas, such as strategic and operational planning, financial reporting,
compliance, risk management and leadership development. • Industry/Global Experience: Experience in industries, end-markets and growth segments that Honeywell serves, such as aerospace, automotive, construction, transportation, infrastructure, and energy efficiency, as well as key geographic markets where it operates, such as the United States, Latin America
and Europe, enables a better understanding of the issues facing the Company’s businesses. • Financial Expertise: We believe that an understanding of finance and financial reporting processes is important for our directors to monitor and assess the Company’s operating and strategic performance and to ensure accurate financial reporting and robust controls. Our director nominees have relevant
background and experience in capital markets, corporate finance, accounting and financial reporting and several satisfy the “accounting or related financial management expertise” criteria set forth in the New York Stock Exchange (“NYSE”) listing standards. • Regulated Industries/Government Experience: Honeywell is subject to a broad array of government regulations and demand for its products and services can be impacted by changes in law or regulation in areas such as safety, security and energy efficiency. Several of our directors have experience in
regulated industries, providing them with insight and perspective in working constructively and proactively with governments and agencies, both foreign and domestic. • Public Company Board Experience: Service on the boards and board committees of other public companies provides an understanding of corporate governance practices and trends and insights into board management, relations between the board, the CEO and senior management, agenda-setting and
succession planning.
Each of the nominees, other than Mr. Cote, is also independent of the Company and management. See “Director Independence” on pages 14-15 of this proxy statement. In addition to the above, the CGRC also considered the specific experience described in the biographical details that follow in determining to nominate the individuals set forth below for election as directors. The Board of Directors unanimously recommends a vote FOR the election of each of the director nominees. NOMINEES FOR ELECTION
GORDON M. BETHUNE, Retired Chairman and Chief Executive Officer of Continental Airlines, Inc.
* * *
Areas of Relevant Experience: Commercial airlines, including marketing, branding, cost control and restructuring, international operations and government regulation; aircraft manufacturing, design, maintenance and repair; financial services; insurance; talent management.
Director since 1999
Age 71
KEVIN BURKE, Chairman, President and Chief Executive Officer of Consolidated Edison, Inc. (Con Edison)
* * *
Areas of Relevant Experience: Energy production and distribution; energy efficiency; alternative sources of energy; engineering and construction; development of new service offerings; government regulation.
Director since 2010
Age 62
2
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 (where,
among other things, he was responsible for the manufacture and design of the B757 and B737 aircraft programs), Piedmont Airlines, Inc., Western Airlines, Inc. and Braniff Airlines. He is licensed as a commercial pilot, type rated on the B757 and B767 airplanes and the DC-3 and is a
licensed airframe and power plant mechanic. Mr. Bethune is also a director of Prudential Financial Inc. and Sprint Nextel Corporation. He previously served as a director of Willis Group Holdings Ltd. (2004-2008). Mr. Bethune was a director of Honeywell Inc. from April 1999 to December
1999.
Mr. Burke joined Con Edison, a utility provider of electric, gas and steam services, in 1973 and has held positions of increasing responsibility in system planning, engineering, law, nuclear power, construction, and corporate planning. He served as Senior Vice President from July 1998 to July
1999, with responsibility for customer service and for Con Edison’s electric transmission and distribution systems. In 1999, Mr. Burke was elected President of Orange & Rockland Utilities, Inc., a subsidiary of Con Edison. He was elected President and Chief Operating Officer of Consolidated
Edison Company of New York, Inc. in 2000 and elected Chief Executive Officer in 2005. Mr. Burke was appointed President and Chief Executive Officer of Con Edison in 2005, and elected Chairman in 2006. In addition, Mr. Burke is Chairman of the Board of Trustees of Consolidated
Edison of New York, Inc. and Chairman of the Board of Directors of Orange & Rockland Utilities, Inc., both of which are affiliates of Con Edison.
JAIME CHICO PARDO, President and Chief Executive Officer, ENESA, S.A. de C.V.
* * *
Areas of Relevant Experience: Telecommunications; automotive; manufacturing; engineering; construction; management of infrastructure assets; international business, operations and finance.
Director since 1999
Age 63
DAVID M. COTE, Chairman and Chief Executive Officer of Honeywell International Inc.
* * *
Areas of Relevant Experience: Senior leadership roles in global, multi-industry organizations; ability to drive a consistent One Honeywell approach across a large multinational organization; detailed knowledge and unique perspective and insights regarding the strategic and operational
opportunities and challenges, economic and industry trends, and competitive and financial positioning of the Company and its businesses; significant public policy experience, including service on the bipartisan National Commission on Fiscal Responsibility and Reform and the Bipartisan
Policy Center—Energy Project, and as Co-Chair of the U.S.-India CEO Forum.
Director since 2002
Age 60
3
Mr. Chico Pardo has been President and Chief Executive Officer of ENESA, S.A. de C.V., a private fund investing in the energy and health care sectors in Mexico since March 2010. He previously served as Co-Chairman of the Board of Telefonos de Mexico, S.A.B. de C.V. (TELMEX), a
telecommunications company based in Mexico City, from April 2009 until April 2010 and as its Chairman from October 2006 to April 2009 and its Vice Chairman and Chief Executive Officer from 1995 until 2006. Mr. Chico Pardo was Co-Chairman of the Board of IDEAL (Impulsora del
Desarrollo y el Empleo en América Latina, S.A. de C.V.), a publicly listed company in Mexico engaged in investment in and management of infrastructure assets in Latin America, from 2006 until 2010. He was also Chairman of Carso Global Telecom, S.A. de C.V. from 1996 until 2010.
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 has also spent a number of years in the international and investment banking business. Mr. Chico Pardo is a director of AT&T, Inc. He previously served as a director of Grupo Carso, S.A. de C.V. (1991-2010) and the following of its affiliates:
CICSA (Carso Infraestructura y Construcción S.A.B. de C.V.) (2008-2011), América Móvil, S.A.B. de C.V. (2001-2009); America Telecom, S.A.B. de C.V. (2001-2006); Carso Global Telecom, S.A. de C.V. (1996-2010); Telmex Internacional, S.A.B. de C.V. (2008-2010); TELMEX (1991-
2010) and IDEAL (2006-2013). He also previously served as a Board member of three mutual funds in the American Funds family of mutual funds (2011-2013). Mr. Chico Pardo was a director of Honeywell Inc. from September 1998 to December 1999.
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 TRW’s President and Chief Executive Officer and from November 1999 to January 2001 he served as its President and Chief
Operating Officer. 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.
D. SCOTT DAVIS, Chairman and Chief Executive Officer of United Parcel Service, Inc. (UPS)
* * *
Areas of Relevant Experience: Transportation and logistics services; international operations, global economic indicators and issues; public policy; financial reporting, accounting and controls.
Director since 2005
Age 61
LINNET F. DEILY, Former Deputy U.S. Trade Representative and Ambassador
* * *
Areas of Relevant Experience: International trade; capital markets; banking; corporate finance; government and public policy; telecommunications and information services; refinery and petrochemical industries; financial reporting; accounting and controls.
Director since 2006
Age 67
4
Mr. Davis joined UPS, 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 Inc., a developer of general aviation and
marine navigation instruments. Mr. Davis is a Certified Public Accountant. He previously served on the Board of the Federal Reserve Bank of Atlanta (2003-2009), serving as Chairman in 2009.
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 Institutional—Services 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 Chevron Corporation.
Ms. Deily previously served as a director of Alcatel-Lucent (2006-2008) and Lucent Technologies, Inc. (2005-2006).
JUDD GREGG, former U.S. Senator from New Hampshire
* * *
Areas of Relevant Experience: Government and public policy; financial regulatory reform; banking; tax; capital markets; science, renewable technology and research; environmental protection and conservation; healthcare; foreign policy.
Director since 2011
Age 66
CLIVE HOLLICK, former Chief Executive Officer of United Business Media.
* * *
Areas of Relevant Experience: International media (information, broadcasting, publishing and online); financial services; marketing and branding; technology and innovation; operating environment and trends in European markets; mergers and acquisitions, including in a private equity
context; public policy in the UK and Europe.
Director since 2003
Age 67 5
Senator Gregg has spent over three decades in public office, most recently serving as the United States Senator from the State of New Hampshire from January 1993 until January 2011. During his tenure in the Senate, Senator Gregg served on a number of key Senate Committees including
Budget; Appropriations; Government Affairs; Banking, Housing and Urban Affairs; Commerce, Science and Transportation; Foreign Relations; and Health, Education, Labor and Pensions. He has served as the Chairman and Ranking Member of the Health, Education, Labor and Pensions
Committee and the Chairman and Ranking Member of the Senate Budget Committee as well as chairman of various sub-committees. Senator Gregg served as a chief negotiator of the Emergency Economic Stabilization Act of 2008 and was the lead sponsor of the Deficit Reduction Act of
2005, and, along with the late Senator Ted Kennedy, co-authored the No Child Left Behind Act of 2001. In March 2010, Senator Gregg was appointed to President Obama’s bipartisan National Commission on Fiscal Responsibility and Reform. From 1989 to 1993, Senator Gregg was the
Governor of New Hampshire and prior to that was a U.S. Representative from 1981 to 1989. He is also a director of Intercontinental Exchange, Inc.
Lord Hollick was Chief Executive Officer of United Business Media and its predecessor companies from 1974 to 2005. United was a London-based, international information, broadcasting, financial services and publishing group. From 2005 to 2010, he was a partner, managing director and
adviser to Kohlberg Kravis Roberts & Co., a private equity firm focusing on businesses in the media and financial services sectors. Lord Hollick is a partner of GP Bullhound LLP, a director of ProSiebenSat.1 Media AG and a member of the Advisory Board of Jefferies Inc. He previously
served as a director of The Nielsen Company B.V. (2006-2009), Diageo plc (2001-2011), TRW Inc. (2000-2002) and BAE Systems (1992-1997).
GRACE D. LIEBLEIN, Vice President—Global Purchasing and Supply Chain of General Motors Corporation (GM)
* * *
Areas of Relevant Experience: Automotive; supply chain management; global manufacturing; engineering; product design and development; international business, operations and finance
Director since 2012
Age 52
GEORGE PAZ, Chairman, President and Chief Executive Officer of Express Scripts, Inc.
* * *
Areas of Relevant Experience: Employee health benefits; tax; financial reporting; accounting and controls; corporate finance; insurance and risk management; mergers and acquisitions; capital markets; government regulation.
Director since 2008
Age 57 6
Ms. Lieblein has served as Vice President, Global Purchasing and Supply Chain of GM, a company that designs, manufactures and markets cars, crossovers, trucks, and automobile parts worldwide, since December 2012. Prior to her current role, Ms. Lieblein served as the GM Brazil
President and Managing Director from June 2011 until December 2012, the GM Mexico President and Managing Director from January 2009 until June 2011 and Vehicle Chief Engineer from October 2004 to January 2009. Ms. Lieblein joined GM in 1978 as a co-op student at the General
Motors Assembly Division in Los Angeles and has held a variety of leadership positions at GM in engineering, product development and manufacturing.
Mr. Paz has served as Chairman of the Board of Express Scripts, Inc., a pharmacy benefit management company, since May 2006, as Chief Executive Officer since April 2005 and as President since October 2003. He has served as a director of Express Scripts since January 2004. Mr. Paz
joined Express Scripts as Senior Vice President and Chief Financial Officer in January 1998 and continued to serve as its Chief Financial Officer following his election as President until April 2004. Mr. Paz is a Certified Public Accountant.
BRADLEY T. SHEARES, Former Chief Executive Officer of Reliant Pharmaceuticals, Inc., Former President, U.S. Human Health, Merck & Co., Inc.
* * *
Areas of Relevant Experience: Healthcare; sales and marketing; advertising and promotion; brand management; research and development; complex regulatory and legal issues; risk management; mergers and acquisitions.
Director since 2004
Age 56
ROBIN L. WASHINGTON, Senior Vice President and Chief Financial Officer of Gilead Sciences, Inc. (Gilead).
* * *
Areas of Relevant Experience: Healthcare; tax; financial reporting; accounting and controls; corporate finance; information technology; mergers and acquisitions; capital markets.
Nominated for Election
Age 50 7
Dr. Sheares served as Chief Executive Officer of Reliant Pharmaceuticals, Inc., a pharmaceutical company with integrated sales, marketing and development expertise that marketed 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., Inc. from March of 2001 until July 2006. Prior to that time, he served as Vice President, Hospital Marketing and Sales for Merck’s 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, Covance Inc., and Henry Schein, Inc. Dr. Sheares previously served as a director of IMS Health Incorporated (2009-2010).
Ms. Washington joined Gilead, a research-based biopharmaceutical company, as Senior Vice President and Chief Financial Officer in May 2008. In this role, she oversees Gilead’s Global Finance, Investor Relations and Information Technology organizations. From 2006-2007, Ms.
Washington served as Chief Financial Officer of Hyperion Solutions, an enterprise software company that was acquired by Oracle Corporation in March 2007. Prior to that, Ms. Washington spent nearly 10 years at PeopleSoft, a provider of enterprise application software, where she served in
a number of executive positions, most recently in the role of Senior Vice President and Corporate Controller. Ms. Washington is a Certified Public Accountant. She previously served as a director of Tektronix, Inc. (acquired by Danaher Corporation) (2005-2007) and MIPS Technologies, Inc.
(acquired by Imagination Technologies Group PLC) (2008-2013).
The primary functions of Honeywell’s Board of Directors are:
•
To oversee management performance on behalf of shareowners; • To ensure that the long-term interests of the shareowners are being served; • To monitor adherence to Honeywell standards and policies; • To promote the exercise of responsible corporate citizenship; and • To perform the duties and responsibilities assigned to the Board by the laws of Delaware, Honeywell’s state of incorporation. The Board of Directors held seven meetings during 2012. The average attendance at meetings of the Board and Board Committees during 2012 was 96%. During this period, all of the directors attended or participated in at least 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 of Directors believes that Mr. Cote’s service as both Chairman of the Board and CEO is in the best interest of the Company and its shareowners. Mr. Cote possesses detailed and in-depth knowledge of the issues, opportunities and challenges facing the Company and its businesses. Considering
the size and complexity of the Company, Mr. Cote is best positioned to develop agendas that ensure that the Board’s time and attention are focused on the most critical matters for the Company and its shareowners. Mr. Cote’s combined role enables decisive leadership, ensures clear accountability, and enhances the Company’s ability to communicate its message and strategy clearly and consistently to the Company’s shareowners, employees, customers and suppliers, particularly during periods of volatile economic and
industry conditions. Mr. Cote has been instrumental in developing the “Honeywell Enablers”, important internal business processes which drive efficiency and service quality, bringing world-class products and services to markets faster and more cost-effectively for our customer. This has been beneficial in
driving a unified “One Honeywell” approach to core operating processes across a global, multi-industry organization of approximately 132,000 employees. Each of the directors other than Mr. Cote is independent and the Board believes that the independent directors provide effective oversight of management, including the CEO. Honeywell utilizes a “Presiding Director” position which rotates on a meeting-by-meeting basis in accordance with years of service
on the Board. The Presiding Director leads executive sessions of the independent, non-employee directors at each meeting of the Board. Following each executive session, the Presiding Director meets with the Chairman to provide feedback on matters discussed in the executive session and input regarding future
agenda items, information requests or other suggestions for future Board and Committee meetings. The Board believes that its Presiding Director system combined with the Board practices and procedures described below, rather than selection of a single individual to fill the role of “Lead Director”, encourages
full engagement of all of the independent directors in the executive sessions, avoids unnecessary hierarchy, and appropriately and effectively balances the combined Chairman/CEO role.
•
The Board’s Committees—Audit, Corporate Governance and Responsibility, Management Development and Compensation, and Retirement Plans—undertake extensive analysis and review of the Company’s activities in key areas such as financial reporting, internal controls, compliance, corporate governance,
succession planning and executive compensation. 8
• The Board and its Committees perform an annual review of the agenda and subjects to be considered for each meeting. During that review, each Board and Committee member is free to raise subjects that are not on the agenda at any meeting and to suggest items for inclusion on future agendas. • Each Director is provided in advance written material to be considered at every meeting of the Board and has the opportunity to provide comments and suggestions. • The Board and its Committees provide feedback to management and management is required to answer questions raised by the directors during Board and Committee meetings. • The Chair of the Corporate Governance and Responsibility Committee is permanently empowered and authorized to call special meetings of the Board at any time and for any reason (instituted in 2012 in response to shareowner feedback). • The Chair of the Corporate Governance and Responsibility Committee has been designated as a point of contact for shareowner communications (instituted in 2013 in response to shareowner feedback). Although the Company believes that the combination of the Chairman and CEO roles is appropriate in the current circumstances, Honeywell’s Corporate Governance Guidelines do not establish this approach as a fixed rule but as a matter that is best considered as part of the CEO succession planning process. 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 14-15. 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 Governance”—“Board Committees”) or by writing to Honeywell, 101 Columbia Road, Morris Township, NJ 07962, c/o Vice President and
Corporate Secretary. The table below lists the current membership of each Committee and the number of Committee meetings held in 2012. Name Audit Corporate Management Development Retirement Plans Mr. Bethune X X Mr. Burke X X Mr. Chico Pardo X X * Mr. Davis X X * Ms. Deily X X * Mr. Gregg X X Mr. Hollick X X Ms. Lieblein X X Mr. Paz X * X Dr. Sheares X X 2012 Meetings 9 5 6 3
* Committee Chairperson 9
Governance
and Responsibility
and Compensation
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 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 Management’s 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; • Review material legal and compliance matters and the effectiveness of the Company’s integrity and compliance program; and • Consider the accountants’ independence. The Committee seeks to ensure the exercise of appropriate professional skepticism by the independent accountants by reviewing and discussing, among other things, management and auditor reports regarding significant estimates and judgments and the results of peer quality review and PCAOB inspections
of the independent accountants, as well as review and pre-approval of all audit and non-audit services to be provided to Honeywell by the independent accountants in order to determine that such services would not adversely impact auditor independence and objectivity. The Committee also holds separate
executive sessions at each in-person meeting with representatives of PricewaterhouseCoopers LLP, our independent accountants, and with Honeywell’s Chief Financial Officer and Vice President—Corporate Audit. The Board has determined that Mr. Paz, Mr. Burke, Mr. Davis and Ms. Deily satisfy the
“accounting or related financial management expertise” requirements set forth in the NYSE listing standards, and has designated Mr. Paz as the “audit committee financial expert”, as such term is defined by the SEC. See page 79 for the Audit Committee Report. CORPORATE GOVERNANCE AND RESPONSIBILITY COMMITTEE The primary functions of this Committee are to:
•
Identify and evaluate potential Director candidates and recommend to the Board the nominees to be proposed by the Company for election to the Board; • Review and make a 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 Honeywell’s policies and programs relating to health, safety and environmental matters, equal employment opportunity and such other matters, including the Company’s Code of Business Conduct, as 10
•
may be brought to the attention of the Committee regarding Honeywell’s role as a responsible corporate citizen. See “Identification and Evaluation of Director Candidates” on pages 15-16 and “Director Compensation” on pages 17-19. MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE The Company’s 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 (“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; • Review and approve the individual goals and objectives of the Company’s executive officers; • Evaluate the CEO’s performance relative to established goals and objectives and, together with the other independent directors, determine and approve the CEO’s compensation level; • Review and determine the annual salary and other remuneration (including under incentive compensation and equity-based plans) of all other officers; • Review and discuss with management, the Compensation Discussion and Analysis and other executive compensation disclosure included in this proxy statement; • Produce the annual Committee Report included in this proxy statement; • Review the management development program, including executive succession plans; 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. See page 55 for the Management Development and Compensation Committee Report. Role of Consultant The Committee has sole authority to retain and terminate a compensation consultant to assist in the evaluation of CEO or senior executive compensation. Under the Committee’s established policy, its consultant cannot provide any other services to the Company. Since October 2009, the Committee has
retained Pearl Meyer & Partners (“PM&P”) as its independent compensation consultant. The Committee regularly reviews the services provided by its outside consultants and believes that PM&P is independent in providing executive compensation consulting services. The Committee conducted a specific review of its relationship with PM&P in 2013, and determined that PM&P’s work for the
Committee did not raise any conflicts of interest, consistent with the guidance provided under the Dodd-Frank Act, the SEC and the NYSE. In making this determination, the Committee reviewed information provided by PM&P on the following factors:
•
Any other services provided to the Company by PM&P; • Fees received by PM&P from the Company as a percentage of PM&P’s total revenue; • Policies or procedures maintained by PM&P to prevent a conflict of interest; • Any business or personal relationship between the individual PM&P consultants assigned to the Honeywell relationship and any Committee member; • Any business or personal relationship between the individual PM&P consultants assigned to the Honeywell relationship, or PM&P itself, and Honeywell’s executive officers; and • Any Company stock owned by the individual PM&P consultants assigned to the Honeywell relationship. 11
•
In particular, the Committee noted that PM&P did not provide any services to the Company or its management other than service to the Committee, and its services were limited to executive compensation consulting. Specifically it does not provide, directly or indirectly through affiliates, any non-executive
compensation services, including, but not limited to, pension consulting or human resources outsourcing. The Committee continues to monitor the independence of its compensation consultant on a periodic basis. PM&P compiles information and provides advice regarding the components and mix (short-term/long-term; fixed/variable; cash/equity) of the executive compensation programs of the Company and its “Compensation Peer Group” (see pages 36-37 of this proxy statement for further detail regarding the
Compensation Peer Group) and analyzes the relative performance of the Company and the Compensation Peer Group with respect to stock performance and the financial metrics generally used in the programs. PM&P also provides information regarding emerging trends and best practices in executive
compensation. In addition to information compiled by PM&P, the Committee also reviews general survey data compiled and published by third parties; neither the Committee nor the Company has any input into the scope of or the companies included in these third-party surveys. While the Committee reviews information provided by PM&P regarding compensation paid by the Compensation Peer Group, as well as third-party survey data, as a general indicator of relevant market conditions, the Committee does not target a specific competitive position relative to the market in making
its compensation determination. See “Peer Group Compensation Data” on pages 36-37 of this proxy statement for further discussion. PM&P reports to the Committee Chair, has direct access to Committee members, attends Committee meetings either in person or by telephone, and meets with the Committee in executive session without management present. 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 Company’s annual planning process, the CEO, CFO and Senior Vice President—Human
Resources and Communications develop targets for the Company’s incentive compensation programs and present them to the Committee. These targets are reviewed by the Committee to ensure alignment with the Company’s strategic and annual operating plans, taking into account the targeted year-over-year
and multi-year improvements 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, together with a review of supplemental performance measures and prior compensation
levels relative to performance, the CEO recommends base salary adjustments and cash and equity incentive award levels for the Company’s other executive officers. See “Compensation Discussion and Analysis” beginning on page 25 of this proxy statement for additional discussion. Each year, the CEO
presents to the Committee and the full Board his evaluation of each executive officer’s 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 investment policy for fund assets; and • Oversee members of the committees that direct the investment of pension fund assets. 12
BOARD’S ROLE IN RISK OVERSIGHT While senior management has primary responsibility for managing risk, the Board as a whole has responsibility for risk oversight, with review of certain areas being conducted by the relevant Board Committees that in turn report on their deliberations to the Board. The Board works with senior
management to develop a broad portfolio view that considers and balances risk-taking for sustainable growth and competitive advantage in a manner consistent with the Company’s long-term strategic plan with actions necessary to preserve assets and protect against losses. The oversight responsibility of the
Board and its Committees is enabled by management reporting processes that are designed to provide visibility to the Board about the identification, assessment and management of critical risks and management’s risk mitigation strategies and enable informed decision-making and intelligent risk-taking. These
areas of focus include strategic, competitive, economic, operational, financial (accounting, credit, liquidity, and tax), legal, regulatory compliance, health, safety and environment, political, and reputational risks. The Board and the Audit Committee review the Company’s enterprise risk management program at least annually. Throughout the year, management regularly communicates with the Board and its Committees regarding the identification, assessment and mitigation of specific risks. The Board and its
Committees oversee risks associated with their respective principal areas of focus, as summarized below. Each Committee meets in executive session with key management personnel and representatives of outside advisors (for example, the Vice President—Corporate Audit meets in executive session with the
Audit Committee).
Board/Committee
Primary Areas of Risk Oversight
Full Board
Strategic, financial and execution risks and exposures associated with the annual operating plan, and five-year strategic plan (including matters affecting
capital allocation); major litigation and regulatory exposures and other current matters that may present material risk to the Company’s operations, plans,
prospects or reputation; acquisitions and divestitures (including through post-closing reviews); senior management succession planning.
Audit Committee
Risks and exposures associated with financial reporting, tax, accounting, disclosure, internal control over financial reporting, financial policies, investment
guidelines, credit and liquidity and legal and compliance matters.
Corporate Governance and Responsibility
Management Development and Compensation Committee Risks and exposures associated with leadership assessment, management succession planning, and executive compensation programs and arrangements,
including incentive plans.
Retirement Plans Committee
Risks and exposures associated with Honeywell’s employee pension and savings plans, including their relative investment performance, asset allocation
strategies and funded status. 13
Committee
Risks and exposures relating to Honeywell’s programs and policies relating to corporate governance; director succession planning; diversity; health, safety,
and environment.
The Company’s 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 of the non-employee nominees standing for election to the Board at
the Annual Meeting—Messrs. Bethune, Burke, Chico Pardo, Davis, Gregg, Hollick, Paz, and Sheares and Mses. Deily and Lieblein—satisfies 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.
Ms. Washington, who is standing for election to the Board for the first time, is also independent under these standards. 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 director’s relationships with Honeywell currently and during the three years preceding the Board’s determination of independence. The Board considered all relevant facts and circumstances in making its determinations, including the following:
•
No non-employee director or nominee receives any direct compensation from Honeywell other than under the director compensation program described on pages 17-19 of this proxy statement. • No immediate family member (within the meaning of the NYSE listing standards) of any non-employee director or nominee is an employee of Honeywell or otherwise receives direct compensation from Honeywell. • No non-employee director or nominee is an employee of Honeywell’s independent accountants and no non-employee director or nominee (or any of their respective immediate family members) is a current partner of Honeywell’s independent accountants, or was within the last three years, a partner or
employee of Honeywell’s independent accountants and personally worked on Honeywell’s audit. • No non-employee director or nominee 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 nominees (or any of their respective immediate family members) as an executive officer. • No non-employee director or nominee (or any of their respective immediate family members) is indebted to Honeywell, nor is Honeywell indebted to any non-employee director or nominee (or any of their respective immediate family members). • No non-employee director or nominee 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 directors serve as officers (UPS, Con Edison and General Motors). In each case, (i) the relevant products and services were provided on terms and conditions determined on an arm’s-
length basis and consistent with those 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 1% 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 14
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. • While a non-employee director’s or nominee’s 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 above information was derived from the Company’s books and records and responses to questionnaires completed by the director nominees 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 free of charge on our website www.honeywell.com, under the heading “Investor Relations” (see “Corporate Governance”—“Board 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, evaluating the qualifications of individuals suggested or nominated by third parties, and recommending to the Board the nominees to be proposed by the Company
for election to the Board and actions with respect to individuals nominated by third parties. 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 Company’s Senior Vice President—Human Resources and Communications. Preliminary interviews of director candidates may be conducted by the Chairman of the Committee or, at his or her 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 whom the Committee determines merit further consideration are interviewed by 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. The Committee annually reviews with the Board the requisite skills and characteristics of Board members, as well as the composition of the Board as a whole. This assessment includes a consideration of independence, diversity, age, skills, experience and industry backgrounds in the context of the needs of
the Board and the Company, as well as the ability of current and prospective directors to devote sufficient time to performing their duties in an effective manner. Directors are expected to exemplify the highest standards of personal and professional integrity; and to constructively challenge management through
their active participation and questioning. In particular, the Committee seeks directors with established strong professional reputations and expertise in areas relevant to the strategy and operations of the Company’s businesses. The Committee conducts regular reviews of current directors in light of the
considerations described above and their past contributions to the Board. 15
Our Commitment to Board Diversity While the Company’s Corporate Governance Guidelines do not prescribe a diversity policy or standards, as a matter of practice, the Committee is committed to enhancing both the diversity of the Board itself and the perspectives and values that are discussed in Board and Committee meetings.
Our current Board composition reflects this approach and the Board’s commitment to diversity:
• Three director nominees are women (including two standing for election to the Board by shareowners for the first time) • Three director nominees are Hispanic; • Two director nominees are African-American; and • Two director nominees are non-U.S. citizens. 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 candidate’s 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 forth in the Company’s By-laws and described under “Director Nominations” on page 92 of this proxy
statement. This year, two director nominees, Grace D. Lieblein and Robin L. Washington, are nominated for election to the Board of Directors who have not previously been nominated for election to the Board by the shareowners. Mses. Lieblein and Washington were identified by a third-party search firm. Ms.
Lieblein was elected to the Board by the directors, effective December 14, 2012. The Company did not receive any recommendation of a director candidate from a shareowner, or group of shareowners, that beneficially owned more than 5% of Honeywell’s common stock (“Common Stock”) for at least one year as of the date of recommendation. DIRECTOR ORIENTATION AND CONTINUING EDUCATION As part of the Company’s director orientation program, new directors participate in one-on-one introductory meetings with Honeywell business and functional leaders and are given presentations by members of senior management on the Company’s strategic plans, financial statements and key issues,
policies and practices. Directors may enroll in director continuing education programs at the Company’s expense on corporate governance and critical issues associated with a director’s service on a public company board. Our senior management meets regularly with the Board and, annually, meets and reviews
with the Board the operating plan of the Company and each of our strategic business groups. The Board also periodically participates in site visits to the Company’s facilities. PROCESS FOR COMMUNICATING WITH BOARD MEMBERS Shareowners, as well as other interested parties, may communicate directly with the Chair of the Corporate Governance and Responsibility Committee, 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. The Corporate Secretary of the Company reviews and promptly forwards communications to the directors as appropriate. Communication involving substantive
accounting or auditing matters are forwarded to the Chair of the Audit Committee. Certain items that are unrelated to the duties and responsibilities of the Board will not be forwarded such as: business solicitation or advertisements; product or service related inquires; junk mail or mass mailings; resumes or other
job-related inquires; spam and overly hostile, threatening, potentially illegal or similarly unsuitable communications. 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 of the
directors attended last year’s Annual Meeting of Shareowners. 16
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. Honeywell’s director
compensation program is designed to enable continued attraction and retention of highly qualified directors 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 director’s 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. Dividend equivalents are credited with respect to these amounts. Beginning in 2012, each non-employee director received an annual equity grant with a target value of $75,000 consisting of 50% restricted stock units (“RSUs”) and 50% options to purchase shares of Common Stock at a price per share equal to the fair market value of a share of Common Stock on the
date of grant, which is the date of the Annual Meeting of Shareowners. The options vest in equal annual installments over the four years following the grant date. The options also become fully vested at the earliest of the director’s retirement from the Board on or after the mandatory retirement age set by the
Board and in effect on the date of grant (currently age 72), 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”) and the relevant award agreements. The RSUs will vest on the earliest of the third anniversary of
the date of grant, the director’s death or disability, or change in control. Prior to 2012, non-employee directors received options to purchase a fixed number of shares (5,000) rather than a target value equity grant split between options and RSUs. DEFERRED COMPENSATION A non-employee director may 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, and have such compensation credited to his or her account in the Deferred Compensation Plan for Non-Employee Directors. Amounts
credited either accrue interest (3.65% for 2012 and set at 2.90% for 2013) 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. In addition to payments at the termination of Board service, upon a change of control, as defined in the Non-Employee Director Plan, a director may receive, pursuant to a prior election, a lump-sum payment for amounts deferred before 2006. The non-employee directors of the Company who were previously non-employee directors of Honeywell Inc. (Messrs. Bethune and Chico Pardo) participate in the legacy 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 dividend equivalents. Payment will be made to a participating director in whole shares of Common Stock following the earlier of a change in control or the director’s termination of Board service for any reason, in one payment or annual installments, as
elected by the director. 17
OTHER BENEFITS Non-employee directors are also provided with $350,000 in business travel accident insurance. They are also eligible to elect to receive $100,000 in term life insurance and medical and dental coverage for themselves and their eligible dependents which is consistent with similar coverage offered to the
Company’s active salaried employees. In September 2008, the Board determined that new directors would be responsible for paying premiums for term life insurance and medical and dental coverage which they elected to receive. 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 utilize available Company aircraft for travel to and from Board and Committee meetings. RESTRICTED STOCK UNIT GRANT UPON ELECTION TO BOARD New non-employee directors receive a one-time grant of 3,000 RSUs upon their election to the Board that vest on the earliest of the fifth anniversary of continuous Board service, death, disability or change in control. During this period, the director will receive dividend equivalents that will be
automatically reinvested into additional RSUs which vest according to the same schedule as the underlying RSUs to which they relate. The director may defer the receipt of the RSUs on substantially the same terms and conditions as officers of the Company with respect to new grants of RSUs. 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 Common Stock (including restricted shares and RSUs and/or Common Stock equivalents) with a market value of at least five times the annual cash
retainer (or $400,000; up from the previous requirement of $300,000 in 2011) 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 applicable taxes. Directors have five years from election to the Board to attain the prescribed ownership threshold. All current directors other than Ms. Lieblein (elected to the Board on December 14, 2012) have attained the prescribed ownership threshold. Director Compensation—Fiscal Year 2012
Director Name
Fees
Stock
Option
Change in
All Other
Total Gordon Bethune
$
180,500
$
37,519
$
37,511
$
42,858
$
4
$
298,392 Kevin Burke
$
186,500
$
37,519
$
37,511
—
$
25,004
$
286,534 Jaime Chico Pardo
$
186,000
$
37,519
$
37,511
—
$
26,415
$
287,445 D. Scott Davis
$
197,500
$
37,519
$
37,511
$
4,872
$
1,217
$
278,619 Linnet Deily
$
196,000
$
37,519
$
37,511
—
$
32,374
$
303,404 Judd Gregg
$
187,500
$
37,519
$
37,511
—
$
4
$
262,534 Clive Hollick
$
178,500
$
37,519
$
37,511
$
4,739
$
38,142
$
296,411 Grace Lieblein
$
6,667
$
185,010
(7)
—
—
—
$
191,677 George Paz
$
201,000
$
37,519
$
37,511
—
$
25,004
$
301,034 Bradley Sheares
$
178,500
$
37,519
$
37,511
$
9,030
$
25,790
$
288,350
(1)
Includes 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). (2) The table below reflects all outstanding stock awards and option awards held at December 31, 2012 by each of the listed individuals. 18
Earned or
Paid Cash(1)
($)
Awards(2)(3)
($)
Awards(2)(4)
($)
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings(5)
($)
Compensation(6)
($)
($)
Director Name
Outstanding
Outstanding Option Mr. Bethune
649
44,926 Mr. Burke.
3,896
12,926 Mr. Chico Pardo
649
44,926 Mr. Davis
649
32,926 Ms. Deily
649
32,926 Mr. Gregg
3,790
7,926 Mr. Hollick
649
42,926 Ms. Lieblein
3,000
— Mr. Paz
3,896
17,926 Dr. Sheares
649
37,926
(3)
The amounts set forth in this column represent the aggregate grant date fair value of stock awards computed in accordance with FASB ASC Topic 718. The fair value of each stock award is estimated on the date of grant by averaging the high and low of the Company’s stock price on the date of grant. Stock
awards of 637 shares were made to Non-Employee Directors in April 2012 with a value of $58.90 per share. A more detailed discussion of the assumptions used in the valuation of stock awards made in fiscal year 2012 may be found in Note 20 of the Notes to the Financial Statements in the Company’s
Form 10-K for the year ended December 31, 2012. (4) The amounts set forth in this column represent the aggregate grant date fair value of option awards computed in accordance with FASB ASC Topic 718. The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. Option awards of 2,926 shares were
made to non-employee directors in April 2012 with a Black-Scholes value of $12.82 per share. A more detailed discussion of the assumptions used in the valuation of option awards made in fiscal year 2012 may be found in Note 20 of the Notes to the Financial Statements in the Company’s Form 10-K for
the year ended December 31, 2012. (5) Amounts included in this column reflect above-market earnings on deferred compensation. 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 2006 plan year and later earn a rate of interest, compounded daily, based on the Company’s 15-year cost of borrowing. The rate is subject to change annually. For 2012, this rate was 3.65%, and is set at 2.90% for 2013. 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. (6) See “Director Compensation”—“Other Benefits” above for a description of the items included in the All Other Compensation column for 2012. Honeywell matched charitable contributions in the amounts of:
Director Name
Matched Charitable Contributions Mr. Burke $ 25,000 Mr. Chico Pardo $ 25,000 Ms. Deily. $ 25,000 Mr. Hollick. $ 25,000 Mr. Paz $ 25,000 Dr. Sheares $ 25,000
(7)
Reflects 3,000 RSUs granted to Ms. Lieblein upon her election to the Board in December 2012 with a value of $61.67 per share. 19
Stock Awards at 12/31/12
Awards at 12/31/12
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 Honeywell’s Amended and Restated 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 Company’s 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 arm’s-length and in the ordinary course of the Company’s business; the direct or indirect nature of the related person’s 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 current rent of approximately $1,023,000 per year. Subsequent to the time that ADI entered into this lease, the property was acquired by a partnership known as “New Island Holdings.” There have been no
material amendments to the lease since the property was acquired by New Island Holdings. Each of Mr. Fradin, President and Chief Executive Officer, Honeywell Automation and Control Solutions and Mr. Kramvis, President and Chief Executive Officer, Honeywell Performance Materials and Technologies, is
a limited partner in New Island Holdings, holding 12% and 9% ownership interests, respectively. 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. 20
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 5% or more of the outstanding shares of Common Stock as of December 31, 2012. State Street Corporation is listed in the table below because one of its subsidiaries (State Street Bank and
Trust Company) holds 5.6% of our outstanding Common Stock as trustee for certain Honeywell savings plans. See notes below for additional details.
Name and Complete Mailing Address
Number of
Percent of State Street Corporation
73,547,438
(1)
9.4%
(2) State Street Financial Center, One Lincoln Street, Boston, MA 02111 BlackRock Inc.
42,876,733
(3)
5.47% 40 East 52nd Street, New York, NY 10022 Massachusetts Financial Services Company
39,300,294
(4)
5.0% 111 Huntington Avenue Boston, MA 02199
(1)
State Street Corporation has shared voting power and shared dispositive power in each case in respect of the 73,547,438 shares listed above. State Street Bank and Trust Company, a subsidiary of State Street Corporation, has shared voting power and shared dispositive power in each case in respect of 57,369,620 shares included above. (2) State Street Bank and Trust Company holds 5.6% 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) BlackRock Inc. has sole voting power and sole dispositive power in respect of all 42,876,733 shares. (4) Massachusetts Financial Services Company and certain related entities have sole voting power in respect of 32,279,653 shares and sole dispositive power in respect of all 39,300,294 shares. STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth information as of February 22, 2013 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. Except as otherwise noted, the individuals listed in the following table have the sole power to vote or transfer the shares reflected in the table. 21
Shares
Common Stock
Outstanding
Name(1)
Total Number
Components of Beneficial Ownership
Common Stock
Right
Other Gordon M. Bethune
65,515
5,000
38,981
21,534 Kevin Burke
19,854
8,000
6,981
4,873 Jaime Chico Pardo
84,334
19,410
38,981
25,943 David M. Cote
6,986,172
643,439
5,475,000
867,733 D. Scott Davis
50,328
11,000
26,981
12,347 Linnet F. Deily
37,730
—
26,981
10,749 Judd Gregg
12,058
2,000
3,231
6,827 Clive Hollick.
57,369
3,000
36,981
17,388 Grace D. Lieblein
985
—
—
985 George Paz.
20,081
1,000
11,981
7,100 Bradley T. Sheares.
48,402
2,212
31,981
14,209 Robin L. Washington(5)
—
—
—
— David J. Anderson
1,723,366
119,104
1,328,750
275,512 Roger Fradin.
1,568,275
120,641
1,328,750
118,884 Timothy Mahoney
481,431
44,950
430,100
6,381 Andreas Kramvis
585,916
29,987
551,000
4,929 All directors, nominees and executive officers as a group, including the above-named persons (21 people)
13,488,042
1,152,359
10,933,747
1,401,936
(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 1% and the total for the group is approximately 1.72% of the shares of Common Stock outstanding. (3) 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 performance shares, RSUs and stock options within 60 days of February 22, 2013. (4) Includes shares and/or share-equivalents in deferred accounts, as to which no voting or investment power exists. (5) Ms. Washington is a nominee for election to the Board at the 2013 Annual Meeting of Shareowners. 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 2012, we believe
that all applicable Section 16(a) filing requirements were met on a timely basis. SEC FILINGS AND REPORTS; KEY CORPORATE GOVERNANCE DOCUMENTS We maintain an internet website at http://www.honeywell.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, current Reports on Form 8-K, and any amendments to those reports, are available free of charge on our website under the heading “Investor Relations” (see “SEC
Filings & Reports”) immediately after they are filed with or furnished to the SEC. Honeywell’s Code of Business Conduct, Corporate Governance Guidelines and Charters of the Committees of the Board of Directors are also available free of charge on our website under the heading “Investor Relations” (see
“Corporate Governance”), or by writing to Honeywell, 101 Columbia Road, Morris Township, New Jersey 07962, c/o Vice President and Corporate Secretary. Honeywell’s Code of Business Conduct applies to all directors, officers (including the Chief Executive Officer, Chief Financial Officer and Controller)
and employees. Amendments to or waivers of the Code of Business Conduct granted to any of the Company’s directors or executive officers will be published on our website. 22
of Shares(2)
(Number of Shares)
Beneficially
Owned
To Acquire(3)
Stock-Based
Holdings(4)
SUSTAINABILITY; CORPORATE RESPONSIBILITY Honeywell takes seriously its commitment to corporate social responsibility, protection of our environment, and creation of Sustainable Opportunity everywhere it operates. Honeywell’s Sustainable Opportunity policy is based on the principle that by integrating health, safety, and environmental
considerations into all aspects of its business, Honeywell protects its people and the environment, achieves sustainable growth and accelerated productivity, drives compliance with all applicable regulations, and develops the technologies that expand the sustainable capacity of our world. Nearly 50% of
Honeywell’s product portfolio is linked to energy efficiency, and the United States could reduce its energy consumption 20-25% by immediately and comprehensively adopting existing Honeywell technologies. (For additional detail, see our website, www.honeywell.com, under the heading Corporate
Citizenship.) Below are a few of Honeywell’s environmental and safety goals and achievements:
•
Greenhouse Gas Reduction and Energy Efficiency: The majority of Honeywell’s greenhouse gas emissions are reflected in public reports submitted to the U.S. Environmental Protection Agency and the United Kingdom Environmental Agency. In 2007, the Company established five-year greenhouse gas
and energy efficiency objectives for its internal operations for the period 2007-2011. By the end of 2011, Honeywell reduced its greenhouse gas emissions by more than 30%, and increased its energy efficiency by more than 20%, in each case, from a 2004 baseline year. The Company is pursuing
additional greenhouse gas and energy efficiency improvements through annual goals. • Water: Honeywell has developed a global inventory of water usage in its manufacturing operations. In 2013, the Company will be implementing water conservation projects at sites that are significant water consumers in areas that are experiencing “water stress” as defined by the World Resources
Institute. • Safety: Honeywell has received worker safety awards from governments around the world. We maintain a Company-wide global Total Case Incident Rate (the number of occupational injuries and illnesses per 100 employees) of less than half of the combined U.S. averages of the industries in which we
operate. The Company’s Heath, Safety and Environmental matters are managed by a global team of trained professionals with extensive knowledge and hundreds of years of collective experience in occupational health, hydrology, geology, engineering, safety engineering, industrial hygiene, materials management
and energy efficiency. Honeywell utilizes a comprehensive Health, Safety, Environment and Remediation (“HSER”) Management System based on recognized third-party certified standards, including ISO 14001 and OHSAS 18001, and industry best practices. The management system is fully integrated into the
Honeywell Operating System, which drives continuous sustainable operational improvement. Compliance with standards and regulatory requirements is monitored through a Company-wide, HSER-led audit process. The timely development and implementation of process improvements and corrective action
plans are closely monitored. Honeywell’s Vice President of HSER reports to the Company’s Senior Vice President & General Counsel and has overall responsibility for HSER and Sustainability programs. A Corporate Energy & Sustainability Team, led by the Vice President of HSER and the Vice President of Global Real Estate, helps
drive the Company’s greenhouse gas and energy efficiency goals. Progress on these goals is reported to Honeywell’s CEO on a monthly basis and is reviewed with the Company’s Board of Directors and its Corporate Governance and Responsibility Committee at least annually. In addition, Honeywell’s Integrity and Compliance program reflects our vision and values and helps our employees, representatives, contractors, consultants, and suppliers comply with a high standard of business conduct globally. At the core of the Integrity and Compliance program is the Company’s Code
of Business Conduct (the “Code”) which applies across the Company in all businesses and in all countries. The Code is a baseline set of requirements that enables employees to recognize and be aware of how to report integrity, compliance, and legal issues. In addition, the Code outlines the Company’s pledge
to recognize the dignity of each individual, respect each employee, provide compensation and benefits that are competitive, promote self-development through training that broadens work-related skills, and value diversity of perspectives and ideas. In our continuing effort to have a world class Integrity and
Compliance program, in 2011, the Company revised the 23
Code to improve readability and to address emerging areas. The updated Code has included additional guidance on a number of topics, including data privacy, respect for human rights, and the appropriate use of information technology and social media. Honeywell demonstrates its commitment to corporate social responsibility and community involvement through Honeywell Hometown Solutions, which focuses on five important societal needs that align with Honeywell’s culture, products and people: Science and Math Education, Family Safety and
Security, Housing and Shelter, Habitat and Conservation and Humanitarian Relief. These programs have delivered results in communities around the world, including teaching children potentially life-saving lessons to help prevent abduction and common childhood accidents, repairing homes and community
centers for low-income, the elderly and disabled, academic programs that inspire students to pursue careers in Science, Technology, Engineering and Math (STEM), partnering with environmental organizations to provide students with unique learning opportunities and teaching tools for educators to promote
science in the classroom, and helping Honeywell employees and communities recover from natural disasters such as Hurricane Sandy, the Colorado Springs Wildfires, the Great Japan Earthquake and Tsunami and the Mexicali, Haitian and Sichuan Earthquakes. POLITICAL CONTRIBUTIONS AND EXPENDITURES The Company engages responsibly in the political process. Our products and services are closely aligned with several key public policy priorities, including safety, security, energy efficiency and clean energy generation. The Corporate Governance and Responsibility Committee oversees the Company’s
political activities on behalf of the Board. The Committee receives an annual report on the Company’s policies and practices regarding political contributions. Use of corporate funds for political expenditures requires the prior approval of the Company’s Senior Vice President and General Counsel and is rarely
approved. No corporate funds were used for political contributions to candidates and political parties in 2010, 2011, or 2012. In prior years, any corporate contributions were de minimis (less than $5,000). No corporate payments have been made, directly or indirectly, to influence the outcome of ballot measures.
A description of our policy and procedures for political activity and contributions and a description of the non-partisan Honeywell International Political Action Committee (HIPAC), which is funded exclusively through voluntary contributions from eligible U.S.-based employees, are available on the Company’s
website at www.honeywell.com; see “Investors/Corporate Governance/Political Contributions”. 24
COMPENSATION DISCUSSION AND ANALYSIS In this section, we review the objectives and elements of Honeywell’s executive compensation program and discuss and analyze the 2012 compensation decisions regarding our Named Executive Officers (the CEO, CFO and three other most highly compensated executive officers):
•
David Cote—Chairman and Chief Executive Officer • David Anderson—Senior Vice President and Chief Financial Officer • Roger Fradin—President and Chief Executive Officer—Automation and Control Solutions • Timothy Mahoney—President and Chief Executive Officer—Aerospace • Andreas Kramvis—President and Chief Executive Officer—Performance Materials and Technologies OVERVIEW Honeywell is a diversified technology and manufacturing leader, with global businesses organized into four strategic business groups or SBGs: Aerospace, Automation and Control Solutions (“ACS”), Performance Materials and Technologies (“PMT”) and Transportation Systems (“TS”). We seek
sustainable profitable growth through great positions in good industries. Our product and service offerings are aligned with important global macro trends—safety, security, energy efficiency and infrastructure. Our focus is on continuous execution of a clear, consistent business strategy to deliver high quality
earnings, make “seed planting” investments to build for the future and create long-term value for shareowners. Our executive compensation program supports this focus through four key objectives:
•
Attract and Retain World-Class Leadership Talent with the leadership abilities and experience necessary to develop and execute business strategies, drive superior results, meet diverse challenges and build long-term shareowner value in an enterprise with the Company’s scale, breadth,
complexity and global footprint; • Pay for Superior Results and Sustainable Growth by rewarding and differentiating among executives based on the achievement of Company, SBG and functional objectives; • Drive Performance that Creates Shareowner Value by emphasizing variable, at-risk compensation with an appropriate balance of near-term and long-term objectives that align executive and shareowner interests; and • Manage Risk through Oversight and Compensation Design features and practices that balance short-term and long-term incentives, are not overly leveraged and cap maximum payments. The annual direct compensation program has three basic elements:
•
Base salary; • Annual incentives—cash awards under the Incentive Compensation Plan or “ICP”; and • Long-term incentives (“LTI”)—cash incentive awards under the Growth Plan (two-year, non-overlapping performance cycles) and equity awards in the form of stock options. ALIGNMENT OF PAY WITH PERFORMANCE For our Named Executive Officers, variable incentives made up 82%-91% of total compensation opportunity in 2012. The graph below demonstrates the strong alignment over the past five years of shareowner value creation and key operational metrics with CEO total annual direct compensation (“Total
ADC”). Total ADC consists of base salary, ICP award, annual stock option grant, and annualized Growth Plan award. 25
(1) Reflects the year-to-year performance indexed to a 2007 base year for total shareowner return (“TSR”), and a 2008 base year for other performance metrics, at 100. Prior year TSR is shown to correspond with the timing of compensation decisions. TSR consists of stock price appreciation plus reinvested dividends. (2) The 2012 CEO ADC bar includes 50% of the potential award payout for the 2012-2013 Growth Plan cycle, based on target performance. Actual payout value will be determined at the end of the two-year performance cycle. The 2010 and 2011 CEO ADC bars each include 50% of the actual award earned for the 2010-2011 Growth Plan performance cycle. Similarly, the 2008
CEO ADC bar includes 50% of the actual award earned under the 2007-2008 growth plan performance cycle. There was no Growth Plan award relating to 2009. (3) Represents actual business performance for the year noted indexed to 2008. (4) The TSR point above each column is the TSR for the preceding year as long-term incentive compensation decisions (annual stock options and biennial Growth Plan unit awards) are made in February with reference to prior year TSR as a measure of the alignment between pay and performance. For 2012, our incentive pay elements are aligned with:
•
Annual business results: 2012 ICP awards are based on the Board of Directors Management Development and Compensation Committee’s (“Committee”) evaluation of Company performance. The Committee considers, among other things, pre-established ICP goals for EPS, Free Cash Flow
(“FCF”), and Working Capital Turns which are consistent with the Company’s annual operating plan and external guidance. The Committee also evaluates other measures in order to further correlate ICP awards to the Company’s short- and long-term success. These include year-to-year changes in
revenue, segment profit and margin expansion, relevant industry and economic conditions, and the achievement of non-financial management objectives such as expanded sales in high growth regions, new product development and improved utilization of the Honeywell Enablers, key process initiatives
that drive productivity and growth (see the discussion of ICP on pages 38-39). 26
• Future growth: Honeywell’s Growth Plan is designed to focus executives on specific two-year financial goals that are aligned with business fundamentals. Awards are made every two years. Awards for a new two-year (2012-2013) performance cycle were made in 2012. The 2012-2013 Growth
Plan metrics are total revenue (excluding the impact of acquisitions and divestitures), average return on investment and segment margin expansion (new goal for 2012-2013). The three metrics are equally weighted. If the Company achieves the 2012-13 Growth Plan metrics, executives will receive 50% of
the cash payout in 2014 and 50% in 2015. The Company believes that the Growth Plan aligns compensation to the Company’s Long-Term Targets (see page 31). • Shareowner value creation: Annual stock option awards are long-term incentives intended to motivate and reward executives for making strategic decisions and taking actions that drive year-over-year improvements in company performance that translate into future increases in the Company’s
stock price. Stock options are directly aligned with the interests of our shareowners because executives only realize value if the stock price appreciates. This alignment is further strengthened by the Company’s Stock Ownership Guidelines that require executives to hold net gain shares from option
exercises for at least a year after exercise. The one-year holding period increases the likelihood that any stock price appreciation will be sustainable because the executive must wait a year after exercise to realize value. The Committee does not believe that the factoring of the various items it considers in making its compensation-related decisions for each Named Executive Officer should be, or can be, reduced to a linear formula. However, the Committee does believe in ensuring a clear alignment between pay and
performance as evidenced by the strong correlation between TSR, financial performance and executive compensation. SAY ON PAY In 2012, shareowners were presented with an advisory vote to approve executive compensation which, for the third straight year, was approved by approximately 90% of the votes cast on the proposal. These results continue to demonstrate strong shareowner support for Honeywell’s overall executive
compensation objectives. The Committee takes into account the outcome of Say on Pay votes and discussions with investors when considering future executive compensation arrangements and potential changes to the executive compensation program. Since our 2012 Annual Meeting, we have engaged in discussions with our institutional investors that highlight the financial performance of the Company and our track record of shareowner value creation. We have used these meetings as an opportunity to demonstrate the alignment between the Company’s
key performance objectives and the features of our incentive compensation program, and to provide context for understanding the decisions made by the Committee on executive pay. These discussions have generated constructive dialogue with our shareowners and an overall indication of support for our pay-
for-performance philosophy and approach. Upon considering Say on Pay votes and the outcome of investor discussions, the Committee did not make any material changes to the design of the compensation program in 2012. 27
2012 PERFORMANCE HIGHLIGHTS—PROFITABLE GROWTH DESPITE A LOW GDP 2012 marked another year of impressive top- and bottom-line growth well ahead of competitors despite a continued challenging political and macro-economic environment. The Company overcame continued uncertainty associated with slower than expected economic growth in the United States, recession
in the European Union, political unrest in the Middle East, and slowing growth in China and other emerging economies. Despite lower growth in World GDP and Industrial Production, Honeywell grew sales by 3%, while absorbing an approximate 2% foreign exchange headwind. Continued operational
excellence contributed to strong sales conversion and margin expansion: earnings grew at a multiple of over three times sales growth, or 11% year-over-year. Margin expansion in 2012 did not come at the expense of future growth and seed planting: R&D spending at 4.9% of revenues and capital expenditures
grew 11% to $884 million. The Company also strengthened its investment and commitment to the Honeywell Enablers. Further, the Company generated strong cash flows, which were deployed to fund investments in technology centers, new manufacturing capabilities and strategic bolt-on acquisitions, as well
as return of capital to shareowners through an 11.5% increase in dividends paid (vs. 2011) and share repurchases. The company remains on track to achieve its 2014 sales and segment margin targets set in February 2010. Profitable Growth Setting the Bar High and Delivering Results:
•
Initial targets for sales, segment margins and EPS were set and communicated in December 2011. • The segment margin and EPS targets were achieved or exceeded despite a slower growth environment. • Sales results were just short of the target (after unfavorable foreign exchange movements of 2%), but remained ahead of growth in World GDP. Target represents external guidance provided in December 2011 28
ENVIRONMENT, BUILDING FOR THE FUTURE, CREATING SHAREOWNER VALUE
* Proforma, excludes any pension mark-to-market adjustment
New Levels of Peak Performance (2012 vs. 2011):
•
EPS (proforma, excludes any pension mark-to-market adjustment) was up 11% to $4.48. • Sales were up 3% to a new company record of $37.7 billion. • Segment margins increased 90 basis points to a record 15.6%, with segment profit up 10% to a new peak of $5.9 billion. • FCF remained strong at $3.7 billion and FCF conversion was 103% (prior to cash pension contributions and excluding the impact of any pension mark-to-market adjustment on net income). These positive results are after the impact of 2012 funding for capital expenditures of $884 million, an increase of
11% vs. 2011. • Dividends paid increased 11.5% (vs. 2011). Proforma, excludes any pension * 2012 FCF prior to $1.0 billion cash pension contributions; 2011 FCF prior to $1.8 billion cash pension contributions. ** FCF Conversion = FCF/Net Income (excludes any pension mark-to-market adjustment); 2012 FCF Conversion prior to $1.0 billion cash pension contributions. 29
mark-to-market adjustment
Continued to Outperform Peer Group:
•
Delivered impressive operational outperformance vs. the Compensation Peer Group. Reflects calendar year 2012 results * Refers to the median performance of the Company’s 14-company Compensation Peer Group (see pages 36-37). ** Proforma EPS excludes any pension mark-to-market adjustment. Building for the Future Portfolio Evolution through Smart Acquisitions: Honeywell continued to augment organic growth and expand capacity with disciplined acquisitions of companies with great positions in good industries, including;
•
Thomas Russell Co. (acquired 2012) is a leader in technology and equipment for natural gas processing and treating, primarily serving the U.S. market.
Honeywell acquired a 70% stake in Thomas Russell Co. with an option to acquire the remaining 30% stake in the future. Ø By leveraging UOP’s global footprint, Honeywell has the potential to expand Thomas Russell Co. into regions outside of the U.S. where natural gas exploration and production are growing rapidly.
•
Inncom (acquired 2012) is a manufacturer of advanced software-based energy management solutions and in-room controls for lodging, healthcare and educational institutions.
Inncom’s business profile is well-aligned with Honeywell’s core expertise. Inncom devices and solutions make guest rooms and common areas “smarter” and more energy efficient. Ø Inncom has strong relationships with global hospitality brands helping to expand channel access, as well as exposure to hospitals, colleges-universities and military housing facilities.
•
EMS Technologies (acquired 2011) is a leading provider of connectivity solutions for mobile networking, rugged mobile computers and satellite communications.
The value of this acquisition was demonstrated when post-closing, EMS Technologies was awarded an exclusive $2.8 billion contract to supply GX Aviation satellite network connectivity hardware to Inmarsat for its air transport and business aviation customers. Rigorous Focus on Seed Planting to Support Future Growth and Improved Productivity: Growth in 2012 segment margin and EPS were achieved without compromising future growth. The Company continued its long-term seed planting initiatives in several key areas:
R&D Spend at 4.9% of revenues was targeted at such high growth areas as natural gas processing, low global warming refrigerants and blowing agents, and wireless control devices and technologies. 30
Ø
Ø
Ø
•
Capital Expenditures increased 11% as Honeywell made investments for the future growth of key business units. • High Growth Region (“HGR”) Sales increased 8% organically vs. 2011 which brings overall HGR sales to approximately 20% of total revenue. Key seed planting actions taken in 2012 include:
Ø
Appointed an HGR leader and continued to develop our leadership structure in key countries such as Indonesia, Turkey, Mexico, Brazil and Russia as well as in the Middle-East. Ø Emphasized R&D efforts to develop and commercialize new products from technology centers located in our HGRs that can be produced and sold in HGRs.
•
Restructuring Actions were funded through operations to enable sustainable productivity:
Funded restructuring actions in 2012 totaling approximately $120 million gross ($53 million net). Ø Continued execution on previously funded projects to improve our cost structure; $323 million of restructuring projects still ongoing that will yield benefits in 2013 and beyond. Continued Evolution of Core Operating Systems—The Honeywell Enablers: Honeywell continued to extend the use of the Honeywell Enablers to drive performance improvements compared to 2011:
•
The Honeywell Operating System (“HOS”) drives sustainable improvements in our manufacturing operations to generate exceptional performance in safety, quality, delivery, cost, and inventory management. • Functional Transformation (“FT”) is HOS for our administrative functions—Finance, Legal, HR, IT and Purchasing—standardizing the way we work, reducing costs and improving service quality. FT initiatives enabled a reduction in functional costs of 20 basis points to 6.2% of sales in 2012. • Velocity Product Development (“VPD”) is a process which brings together all of the functions necessary to successfully launch new products—R&D, manufacturing, marketing and sales—to increase the probability that in commercializing new technologies Honeywell delivers the right products at the right
price. • Organizational Efficiency (“OEF”) is, in its simplest form, the cost of labor. Improvements in OEF represent the success of Honeywell’s initiatives to increase labor cost efficiency and employee productivity. In 2012, our OEF initiatives reduced employee costs by 80 basis points as a percentage of
2012 sales while still growing sales and successfully retaining our workforce. On Track to Achieve Long-Term Targets: Honeywell’s strong operational performance in 2012, together with the seed planting actions described above (as well as those in prior years), make the Company well positioned to achieve the five-year revenue and segment margin goals initially established in February 2010 (“Long-Term Targets”). CAGR: compound annual growth rate bps: basis points 31
•
Ø
Creating Value for Shareowners
•
Dividends: Honeywell’s dividend rate was increased by 10%, effective in the fourth quarter of 2012, the eighth increase of at least 10% in the last nine years. • Share Repurchases: Honeywell repurchased 5.0 million shares in 2012 in order to return additional money to its shareowners. • Total Shareowner Return: Honeywell continues to outperform its peer group and the broader market. The following graph displays Honeywell’s cumulative TSR growth relative to the S&P 500 Index and the Company’s Compensation Peer Group for the one, three and five-year periods ending December
31, 2012. Percentages reflect cumulative growth over the period. Peer Median Reflects Compensation Peer Group Median (see pages 36-37 of this proxy statement). Honeywell percentile rank based on Compensation Peer Group. As of December 31, 2012; 1-year period begins January 1, 2012, 3-year period begins January 1, 2010, 5-year period begins January 1, 2008. 2012 COMPENSATION DECISIONS—SUMMARY Compensation decisions made for 2012 were aligned with the Company’s strong operational performance and reflected continued emphasis on variable, at-risk compensation and long-term compensation that reinforces our focus on sustainable profitable growth and stock price appreciation. The following charts display the target mix of total annual direct compensation for the CEO and other Named Executive Officers for 2012. Fixed: Base Salary Variable: Annual target ICP, stock options at grant date value, Growth Plan at annualized target value. 32
Short-Term: Base Salary and annual target ICP Long-Term: Stock options at grant date value, Growth Plan at annualized target value. The following chart displays the mix of short-term vs. long-term compensation for our Compensation Peer Group. Data from proxy statements filed by the companies in our Compensation Peer Group. See the “Peer Group Compensation Data” section below for a complete list of the companies in our Compensation Peer Group. The Committee believes that placing greater emphasis on long-term incentives helps focus Company executives on creating sustainable long-term value for shareowners. Based on the factors discussed in this Compensation Discussion and Analysis, the Committee took the following key compensation actions in 2012:
•
Base salaries: The base salaries of Messrs. Cote, Anderson and Fradin remained unchanged and have not been increased in any of the last four years. The base salaries of Messrs. Mahoney and Kramvis were increased in April of 2012 by 3.1% and 7.7%, respectively, based primarily on the
performance of their respective SBGs and the Committee’s view of their compensation positioning relative to the Compensation Peer Group. • ICP awards: The Committee determined to pay 2012 ICP bonuses to the Named Executive Officers in amounts ranging from 110% to 152% of their target opportunities based on the Company’s performance against the pre-established 2012 ICP goals, as well as versus prior year performance,
relative performance against peers and other measures which correlate to the Company’s short- and long-term success. • Long-term incentive (“LTI”) awards: In light of Company performance and in an effort to reinforce our goals of motivation and retention, the Named Executive Officers participated in the following LTI awards in 2012: Stock Options, Growth Plan participation, and performance-adjusted
RSUs. 33
Ø
Stock Options: Each of the Named Executive Officers received a stock option grant in 2012. Stock option awards and grant date values in 2012 were lower than 2011 (grant date values were 5% to 24% lower) but still represent the most significant component of an officer’s total annual target
LTI opportunity (approximately two-thirds). In determining the stock option awards, the Committee considered the aggregate amount of vested and unvested equity held by the Named Executive Officers, as well as the annualized target value of the 2012 portion of the 2012-2013 two-year Growth Plan
award made in February, 2012, in the context of market compensation data. All stock options vest ratably over four years. Ø Growth Plan Units. Under Honeywell’s Growth Plan, units are granted every two years and earned based on achievement of specific two-year financial performance metrics. At target, Growth Plan awards represent approximately one-third of an officer’s total annual target LTI opportunity. For
the 2012-2013 performance cycle, the Growth Plan metrics are organic revenue growth, return on investment, and segment margin expansion (new goal for 2012-2013 – see “Long-Term Incentive Compensation (Cash)” on page 42). If earned, awards will be paid in cash 50% in 2014 and 50% in 2015,
contingent on continued employment by the executive on each applicable payment date. The two-year performance cycles of the Growth Plan do not overlap, so grants are not made annually and only one award cycle is in effect at any time. Ø Performance-adjusted restricted stock units (“RSUs”). In connection with the annual succession planning review conducted by the Committee and the full Board in July 2012 (see Succession Planning on page 37), four Named Executive Officers were awarded discretionary RSUs with the
target award subject to adjustment up or down by 30% based on Honeywell’s relative TSR performance ranking against its Compensation Peer Group (as defined below). These RSUs were structured to vest over an extended period of time (three to seven years) in order to align with retention and
succession planning objectives. The CEO did not receive a performance-adjusted RSU award in 2012 and has not received any RSUs for five years. OUR PHILOSOPHY FOR COMPENSATION DECISIONS General Considerations The Committee considers many company and individual performance measures (discussed in detail herein) in making compensation decisions. The factors that generally shape the Committee’s overall assessment of compensation include:
•
Overall operational and financial performance—Corporate and SBG (as discussed above and below); • Stock price performance and TSR; • Named Executive Officer compensation history, including experience in the position (as discussed below); • Executive’s individual record of performance consistent with the Honeywell Initiatives of Growth, Productivity, Cash, People and the Honeywell Enablers (Honeywell Operating System, Velocity Product Development, Functional Transformation and Organizational Efficiency); • Executive’s relative level of responsibility within Honeywell and the impact of his or her position on Honeywell’s performance with recognition that both the amount and “at-risk” nature of the compensation should increase with the level of responsibility; • Executive’s long-term leadership potential with Honeywell and associated retention risk (as discussed in “Succession Planning” on page 37); • The senior executive succession plan (see “Succession Planning” below); • Stock ownership levels (as discussed in “Stock Ownership Guidelines” below); • Annual share utilization and shareowner dilution levels resulting from the compensation plans; • Trends and best practices in executive compensation; • Peer group comparisons, including pay levels and practices for the competitive marketplace and company performance relative to the competitive marketplace (as discussed below); • Industry and macroeconomic conditions; and 34
• Results of the most recent annual Say on Pay vote and discussions with shareowners through the Company’s outreach program. Final compensation determinations are ultimately made by the Committee (together with the other independent directors in the case of the CEO) after review and evaluation of these considerations and the other items discussed in this Compensation Discussion and Analysis. Compensation Mix In setting total compensation, the Committee seeks to achieve the optimal balance between:
•
Fixed and variable (or “at-risk”) pay elements; • Short- and long-term pay elements; and • Cash and equity-based elements. The Company’s executive compensation program is designed to emphasize variable elements that align compensation with performance and shareowner value. The mix of compensation elements for Named Executive Officers, and especially the CEO, is more heavily leveraged toward variable,
performance-based compensation than for the balance of the executive population. The Committee also believes that the CEO should have greater emphasis on variable compensation than all other executives because his actions can have a greater influence on the performance of the Company. The 2012 compensation elements that comprise “target total annual direct compensation opportunity” for the Named Executive Officers are shown below.
Compensation Element
Key Objectives
Base Salary
Fixed Annual Cash
Attract and compensate high-performing and experienced
leaders at a competitive level of cash compensation.
Annual ICP (Bonus) Awards
Variable Annual
Cash
Motivate and reward executives for achieving annual
corporate, SBG and functional goals in key areas of
financial and operational performance.
Long-Term Incentive Awards
Variable
The Growth Plan drives the achievement of specific two-
year financial performance goals directly aligned with
Honeywell’s operating and strategic plans. Stock options
only have realizable value for executives if the operating
performance driven by the annual ICP and Growth Plan
results in stock price appreciation. For 2012, the target weighting of each of the elements of total annual direct compensation for the CEO and other Named Executive Officers was as follows: The percentages above are based on “target total ADC”. The 2012 portion of the 2012-2013 Growth Plan award is included assuming that the Company achieves the target financial metrics over the course of the 2012-2013 measurement period. This does not correspond to, and is not a substitute for,
percentages derived from the amounts required to be disclosed in the Summary Compensation Table and supplemental tables. RSUs, including performance-adjusted RSUs, are not considered a component of a Named Executive Officer’s target total annual direct compensation, as they are not granted on an annual basis, awards are 35
Type of
Compensation
Ø Growth Plan Units
Ø Stock Options
Ø Cash
Ø Equity
discretionary so that executives receiving RSU awards in 2012 may not receive awards in a subsequent year and there is no target award level. Four Named Executive Officers received discretionary performance-adjusted RSUs in 2012 in connection with the annual succession planning review conducted by the
Committee and the full Board. The CEO did not receive discretionary RSUs in 2012 and none of the Named Executive Officers received discretionary RSUs in 2011. Peer Group Compensation Data The Committee does not target a specific competitive position relative to the market for executive compensation. However, the Committee believes it is important to understand the relevant market for executive talent to ensure that the Company’s executive compensation program supports the attraction and
retention of highly qualified leaders. The Committee annually assesses market conditions through a review of compensation data compiled by the Committee’s independent compensation consultant regarding a peer group of companies (listed below) (the “Compensation Peer Group”) with whom the Company competes for talent and which
have 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; • global scope of operations and/or diversified product lines; and • demonstrated competitor for executive talent. The Committee believes that Honeywell executives are potentially attractive candidates for such companies because of their performance and visibility at Honeywell, and the depth of experience and management skill sets required to manage a global company of Honeywell’s scope and complexity. The
Committee regularly reviews the appropriateness of the Compensation Peer Group and the purposes for which it is used. The Committee did not make any changes to the Compensation Peer Group in 2012.
Compensation Peer Group
Alcoa
Johnson Controls
Boeing
Lockheed Martin
Dow Chemical
Northrop Grumman
DuPont
Raytheon
Emerson Electric
Textron
General Dynamics
3M
General Electric
United Technologies
Comparison with Compensation Peer Group (as of December 31, 2012)
Revenues
Market
Employees
Three-Year
Five-Year Honeywell
$37.7 billion
$49.7 billion
132,000
75.3%
18.5% Peer Median
$33.4 billion
$34.1 billion
89,938
30.6%
1.7% Honeywell Percentile Rank
57th
73rd
67th
100th
83rd Note: Reflects calendar year 2012 results. TSR percentages reflect cumulative growth over the period. 36
Capitalization
TSR
TSR
For each Company in the Compensation Peer Group, the Committee reviews data including base salary, actual annual cash incentive compensation, total annual cash compensation, long-term incentive compensation and total annual direct compensation of the Named Executive Officers. The Committee also
reviews general industry survey data published by third parties as a general indicator of relevant market conditions and pay practices and as a broader reference point for specific business units where the breadth and relevance of Compensation Peer Group data may not be as comprehensive as desired. Neither
the Committee nor the Company has any input into the scope of or the companies included in these general industry surveys. Compensation History Each year, the Committee reviews each Named Executive Officer’s three-year compensation history in total and with respect to each element of compensation, as well as projected payouts under the Company’s retirement and deferred compensation plans, and prior non-recurring types of awards or grants
(e.g., “sign on” or “make whole” awards upon joining Honeywell and RSU awards for retention and/or succession planning purposes). This enables the Committee to understand how each element of compensation interacts with the other elements and to see how current compensation decisions may affect
future wealth accumulation and executive retention. The Committee considers historical award and/or grant levels when determining individual annual ICP awards and option grants, as well as the value and vesting dates of unvested equity holdings. Succession Planning The Committee recognizes that retention of highly qualified leadership talent is critical to the Company’s continued performance and to successful succession planning. The Committee annually considers, and reviews with the full Board, succession candidates for the CEO and other senior leadership
positions under both near-term and long-term planning scenarios, taking into account demonstrated performance, leadership qualities and potential to take on more complex responsibilities. As part of this process, the Committee considers the potential retention risk regarding incumbent senior executives and the
identified succession candidates, the competitive landscape for executive talent, the specific succession planning time horizon for each senior executive position, and the extent of disruption likely to be caused by unplanned attrition. Since January 2004, all of the Company’s open executive officer positions have
been filled with executives promoted from within Honeywell. Due to the sustained improvement in key performance metrics, strong long-term relative TSR outperformance and the breadth of our business operations, Honeywell’s senior executives are recognized as industry leaders with backgrounds and experience that are highly attractive to competitors. The
Committee believes that these leaders may be presented with other career opportunities given the scope and complexity of the Company and each of its business segments. Where the Committee believes it to be necessary, it will take appropriate compensation actions to reinforce the succession plan and to guard against competitive activity. These retention actions are designed to:
•
Motivate the executive to forego outside career opportunities; • Generate value for the recipient only if he or she remains employed by the Company for the period of time deemed optimal for succession planning purposes; and • Strengthen restrictive covenants (e.g., non-competition, non-solicitation) and/or provide for transition periods that will guard against competitive harm to the Company at the time of the executive’s departure from the Company. In connection with the annual succession planning review conducted by the Committee and the full Board in July 2012, four Named Executive Officers were awarded discretionary performance-adjusted RSUs with the target award subject to adjustment up or down by 30% based on Honeywell’s relative
TSR performance ranking against its Compensation Peer Group (as defined above). These RSUs were structured to vest over an extended period of time (three to seven years) in order to align with specific retention and succession planning objectives. 37
COMPENSATION ELEMENTS AND DECISIONS FOR 2012 Each element of Honeywell’s executive compensation program is described below. Base Salary. Base salaries are primarily based on scope of responsibility and years of experience. Decisions regarding salary adjustments are based on the Committee’s evaluation of current performance, the assumption of material additional responsibilities and positioning relative to the Compensation Peer
Group. In 2012, base salary was 9% of the CEO’s total annual direct compensation and approximately 17% of total annual direct compensation for the other Named Executive Officers. In 2012, the base salaries of Messrs. Cote, Anderson and Fradin remained unchanged. Base salary increases of 3.1% and 7.7% were approved in February 2012 (effective in April) for Messrs. Mahoney and Kramvis respectively, based on the Committee’s view of the performance of their respective SBGs in
the prior year and their compensation positioning relative to the Compensation Peer Group. It is anticipated that there will be no merit increases for any NEOs in 2013. Annual Incentive Bonus (“ICP”). Each Named Executive Officer has an annual target ICP opportunity expressed as a percentage of base salary. The CEO’s target opportunity is 175% of base salary, while the other Named Executive Officers have target opportunities equal to 100% of base salary.
Individual ICP awards are capped at 200% of each Named Executive Officer’s annual ICP target opportunity. The aggregate annual ICP payout for all senior executive employees, including the Named Executive Officers, is limited to 2% of the Company’s consolidated earnings, as such term is defined in the Incentive Compensation Plan approved by shareowners in 2011. Consolidated earnings excludes, among
other things, the effects of any annual pension mark-to-market adjustment that recognizes net actuarial gains and losses outside the corridor (calculated as 10% of the greater of plan assets or projected benefit obligation) and extraordinary and unusual items. At the beginning of each year, the Committee sets specific annual corporate financial objectives (“Pre-Established ICP Goals”) consistent with the Company’s annual operating plan and external guidance which reflects then-current assumptions regarding macro-economic and key end-market conditions. At
the end of the year, the Committee first determines whether the Company achieved the consolidated earnings targets necessary to fund the plan at the levels approved by shareowners, and determines the related funding caps. Next, the Committee determines actual ICP pool funding and individual ICP awards for
the Named Executive Officers, at levels below the funding caps, based on achievement of the Pre-Established ICP Goals, as well as an evaluation of other key performance measures and relevant factors necessary to both ensure that the results against the Pre-Established ICP Goals are viewed in context and to
recognize individual performance (“Supplemental Criteria”). The Pre-Established ICP Goals are based on the following metrics:
Metric
Rationale for Metric
Earnings Per Share (“EPS”)
Measures delivery of shareowner value at the Corporate level
Free Cash Flow (“FCF”)
Measures the Company’s ability to generate cash from operations that may be reinvested in its businesses, used to make acquisitions, or
returned to shareowners in the form of dividends or share repurchases
Working Capital Turns (“WCT”)(1)
Measures efficiency and effectiveness of the Company’s business operations
(1) Defined as sales divided by working capital, which is trade accounts receivable plus inventory less accounts payable and customer advances. 38
Supplemental Criteria considered in determining ICP awards include: Ø Other key performance measures which assess both the strength and degree of difficulty of actual corporate and SBG performance, such as:
•
Year-over-year variance in revenue, segment profit and margin expansion; • Performance vs. pre-recession/prior peak levels; • Quality of earnings; • Relative performance of SBGs or business units within each SBG; • Relevant industry and economic conditions; • Performance compared to companies in the Compensation Peer Group; and • Degree of stretch in targets; Ø Level of ICP awards relative to award levels and performance in prior years; Ø Achievement of individual management objectives aligned with the Honeywell Initiatives and met through expanded use of the Honeywell Enablers; and Ø Demonstrated leadership behaviors. While emphasis is placed on the achievement of the EPS target, the Committee does not assign specific weights to the Pre-Established ICP Goals or Supplemental Criteria but looks at annual performance (absolute and relative) across all relevant metrics within the context of the overall strength or weakness
of the economic environment and the Company’s end markets. 2012 Pre-Established ICP Goals: Robust Targets and Results Annual ICP targets are set to drive meaningful, sustainable improvement in key metrics on a year-over-year basis and to ensure progress toward attaining the Company’s five-year plan goals. To fully assess results vs. target, the Committee considers both the absolute results and the strength of the
comparable prior year results. Consistent with the Company’s planning and external guidance, the EPS target and EPS actual results set forth below exclude the impact of any pension mark-to-market adjustment, and the FCF target and FCF actual results are shown prior to cash pension contributions. Performance vs. ICP Targets (T = Target; A = Actual)
2012T
2012A EPS (proforma)
$4.25 - $4.50
$4.48 FCF
$3.45 billion
$3.67 billion WCT
7.1 turns
7.0 turns Metrics shown above are at the Honeywell Corporate level. Each SBG also has corresponding objectives, with net income being used in lieu of EPS; unusual, infrequently occurring items, extraordinary items and any pension mark-to-market adjustment are excluded in determining achievement of Corporate and SBG objectives. EPS (proforma): 2012 Target range represented a 5-11% increase over 2011 EPS of $4.05; 2012 Actual reflects an 11% increase over 2011 and record Company performance at the top of the Target range despite challenging global economic conditions. FCF: 2012 Target recognized higher planned levels of capital expenditures and cash commitments. 2012 Actual exceeded Target by approximately $220 million with 103% free cash flow conversion (excludes the impact of any pension mark-to-market adjustment on net income), reflecting
continued strong quality of earnings. WCT: Although 2012 Actual was slightly lower than 2012 Target, WCT performance improved by 0.1 turns over 2011, representing a new record of performance by the Company. 39
2012 Supplemental Criteria: Overall, 2012 financial results reflected a strong positive response to challenging global economic conditions and changes in outlook experienced during the year. Other key performance measures and factors considered by the Committee in determining ICP awards were:
•
10% segment profit improvement and segment margin expansion of 90 basis points to a record 15.6% for the Company; • 3% organic sales growth driven by new product introductions, geographic expansion and commercial excellence; • Sales, segment profit, segment margin, proforma EPS, FCF (prior to cash pension contributions) and WCT all exceeded pre-recession (2008) levels; • Outperformance of peers on key operational and TSR metrics; • Continued progress toward attaining the Company’s 2014 Long-Term Targets for sales and segment margin, and • The relative performance of the SBGs. Individual ICP Awards. Based on 2012 business results against the Pre-Established ICP Goals and the Supplemental Criteria discussed above, the Committee (and the independent members of the Board in the case of the CEO), in the first quarter of 2013, awarded annual ICP bonuses to the CEO and other Named Executive
Officers in the following amounts: Mr. Cote
$
4,800,000
* Mr. Anderson
$
1,225,000 Mr. Fradin
$
1,200,000 Mr. Mahoney
$
900,000 Mr. Kramvis
$
950,000
*
The Committee determined that only $4.3 million of Mr. Cote’s 2012 ICP bonus should be used for calculating the pension value under the terms of Mr. Cote’s pension plan. Mr. Cote’s retirement benefits were agreed to by the Company in 2002 when Mr. Cote was first recruited to Honeywell. The $4.3 million of ICP bonus that will be used in Mr. Cote’s pension formula is
hereinafter referred to as “2012 Pensionable Bonus”.
In determining Mr. Cote’s ICP award, the Committee considered Honeywell’s strong 2012 operating results, the relative performance of the Company versus its peers, continued investments made to position the Company for continued growth and other factors discussed in this Compensation Discussion
and Analysis. In determining 2012 ICP awards for the other Named Executive Officers, the Committee considered overall Honeywell and individual performance, as well as the relevant SBG performance for Messrs. Fradin, Mahoney and Kramvis. See “Named Executive Officers—Performance & Direct
Compensation” for further discussion of individual performance highlights for each Named Executive Officer. Long-Term Incentive Compensation (Equity and Cash). All LTI awards to officers are approved by the Committee (and by all of the independent directors in the case of the CEO). Since 2003, the Company has generally provided long-term incentive awards in a mix of annual stock option grants and
cash-based Growth Plan Units (“GPUs”), with GPUs issued only in the first year of each two-year performance cycle. In addition to annual LTI awards, the Committee periodically considers discretionary RSU awards as may be deemed necessary for retention, recruitment, and succession planning. Long-Term Incentive Compensation (Equity). Annual stock option grants are made in February of each year during an open trading window period following the release of Honeywell’s financial results for the preceding fiscal year. Equity grants are subject to vesting restrictions that require executives to
remain employed with the Company to receive value. 40
Stock Options: Options are granted with an exercise price which is set equal to the fair market value of the Company’s Common Stock on the grant date (see footnote (3) on page 56 for the basis used for determining fair value) and only have value to recipients if the stock price increases over the
exercise price. Options granted to Named Executive Officers vest in equal 25% increments over a four-year period and represent approximately two-thirds of their target total annual LTI opportunity. The Committee considers both the estimated grant date fair value of stock options and the number of stock
options in determining award size, as well as vested and unvested equity held by the Named Executive Officers. The following stock option awards were made with respect to 2012:
CEO: In reviewing the LTI component of the CEO’s total ADC in February of each year, the Committee considers the Company’s operational performance and relative total shareowner return for the prior fiscal year, the value of similar incentive awards to chief executive officers at Compensation Peer
Group companies, and awards previously made to Mr. Cote. In 2012, the Committee also considered the Company’s sustained growth and consistent improvement over the course of Mr. Cote’s tenure, the amount of vested and unvested equity he holds, the grant date fair value of any proposed award
compared to prior years and the annualized target value of the 2012 portion of the 2012-2013 two-year Growth Plan award made in 2012. Based on these considerations, in February 2012, the Committee granted Mr. Cote stock options, subject to vesting requirements, to acquire 700,000 shares in
recognition of his anticipated leadership in driving sustained financial and operational performance. The grant date value of the 2012 option award was 5% lower than the grant date value of the option award made to the CEO in 2011. • Other Named Executive Officers: For each of the other Named Executive Officers, the Committee considers the executive officer’s performance in the prior fiscal year, his impact on overall Company performance and his potential to contribute to the future performance of the Company. In addition, the
Committee considers the amount of vested and unvested equity each executive holds, the grant date fair value of any proposed award compared to prior years, the annualized target value of the 2012 portion of the 2012-2013 two-year Growth Plan award made in 2012, and the value of similar incentive
awards to comparable named executive officers at Compensation Peer Group companies. Based on these considerations, in February 2012, the Committee granted each of the other Named Executive Officers a number of stock options as follows: Mr. Anderson
200,000 Mr. Fradin
200,000 Mr. Mahoney
150,000 Mr. Kramvis
125,000 The grant date value of 2012 option awards to these other Named Executive Officers was 23% to 24% lower than the grant date value of option awards made to them in 2011. Restricted Stock Units: RSUs represent a right to receive Company stock only if certain conditions are met (e.g., continued employment through a specific date and/or the attainment of certain performance conditions). RSUs are linked with shareowner value since their value rises or falls along
with the stock price. The Committee periodically grants RSUs on a discretionary basis for retention and succession planning purposes. Grants are not considered annually (e.g., no RSUs were granted to Named Executive Officers in 2011) and vest over an extended period of time (three to seven years). In July 2012, in
connection with their succession plan reviews, the Committee awarded performance-adjusted RSUs to the following four Named Executive Officers, with the target grant amounts subject to a maximum 30% up or down adjustment based on Honeywell’s relative TSR performance ranking against its
Compensation Peer Group over both a one-year period (ending July 31, 2013) and 30-month period ending (December 31, 2014): Mr. Anderson
44,000 Mr. Fradin
53,000 Mr. Mahoney
45,000 Mr.
Kramvis
40,000 41
•
Long-Term Incentive Compensation (Cash). In 2003, the Company introduced the Growth Plan which provides cash based LTI awards to focus executives on achievement of specific two-year financial performance goals that are aligned with business fundamentals as a complement to stock options which
are tied to stock price appreciation. The Growth Plan is designed to reward sustainable, profitable growth, consistent with the Honeywell Initiative on Growth and the Company’s strategic plan. GPUs are awarded in February of the first year of a two-year performance cycle. The two-year performance cycles do
not overlap (e.g., there will be no Growth Plan award in 2013 because the 2012-2013 performance cycle has not been concluded). For the Named Executive Officers, the Growth Plan represents approximately one-third of their target annual total LTI opportunity. The Committee believes that a two-year performance cycle provides the necessary line of sight to set realistic targets aligned with Company objectives. Non-overlapping cycles avoid the potential confusion associated with different targets on the same metric in the same year. In order to promote retention,
50% of an earned award is paid in the first quarter of the year following the completion of a performance cycle and the remaining 50% is paid a year later (3.2 years after the commencement of the performance cycle), with each payment contingent on the executive being employed with Company on the date the
payment is made. The 2012-2013 Growth Plan performance cycle has three equally weighted performance goals: (i) total revenue, excluding the impact of acquisitions and divestitures, (ii) average return on investment (“ROI”), and (iii) segment margin expansion. Segment margin expansion was added as a performance
metric in 2012 in order to focus executives on driving continued improvement in bottom line results despite the prospect of slower growth in the global environment and to directly align the Growth Plan goals with the Company’s Long-Term Targets (see page 31). The following table presents the 2012-2013 Growth Plan performance goals at the total Company level. Actual performance against these goals will be determined at the end of the two-year performance period. 2012-2013 Growth Plan Performance Goals (Total Company Level)
Performance Level
Growth Plan
Total Revenue(1)
ROI(2)
Segment Margin Expansion(3)
2-Yr Total
CAGR
2-Yr Avg.
Change
2-Yr Change
2013 Margin Below Threshold
0
%
<$76.31 Billion
<22.9%
<50 bps
<15.2
% Threshold
50
%
$76.31 Billion
3
%
22.9%
50 bps
50 bps
15.2
% Target
100
%
$79.08 Billion
6
%
23.5%
130 bps
130 bps
16.0
% Maximum
200
%
$81.85 Billion+
8
%
25.0%+
210 bps
210 bps+
16.8
%+ Overall funding threshold = 1.25% EPS CAGR(4)
Funding Level
|
||||||||||||||||||||
(1) |
|
|
Total Revenue is cumulative total revenue for 2012 and 2013, excluding the impact of acquisitions and divestitures. |
|||||||||||||||||
|
||||||||||||||||||||
|
(2) |
|
ROI is defined as the ratio of net income before interest expense to cash employed in the Company’s businesses. ROI is a measure of the Company’s ability to convert investments such as inventory, property, plant and equipment into profits. The ROI calculation excludes the impact of acquisitions and divestitures during the performance cycle and pension income/expense. The Growth Plan goal uses an arithmetic average of ROI for 2012 and 2013. |
||||||||||||||||||
|
||||||||||||||||||||
|
(3) |
|
Segment Margin Expansion represents the change in 2013 total company segment margins from the base year of 2011. The segment margin calculation excludes the impact of acquisitions and divestitures during the performance cycle and pension income/expense. |
||||||||||||||||||
|
||||||||||||||||||||
|
(4) |
|
Per the terms of the Growth Plan, excludes pension income/expense. |
||||||||||||||||||
42
Growth Plan performance goals are intended to complement, but not duplicate, the primary annual corporate financial objectives utilized for ICP purposes and are consistent with the Growth Plan’s focus on sustainable improvement. Growth Plan performance targets for each goal were set at the beginning
of the performance cycle. The revenue goal was set in February 2012 at a level above the Company’s annual operating plan for 2012 and strategic plan targets for 2013 and reflects aggressive growth rates for the SBGs based on then-current projections of growth in our end markets. ROI goals were based on the
two-year revenue targets and the projected income using 2012 annual operating plan and historical rates of incremental sales conversion of income for 2013. Net investment values were projected taking into account anticipated working capital improvements over the two-year period. Segment margin expansion
targets were set to reflect progress needed to achieve the mid-point of the range of the Company’s 2014 segment margin expansion goals consistent with external guidance. At the end of a performance cycle, Growth Plan awards are determined on a purely formulaic basis. Each Growth Plan unit has a target value of $100, with performance goals weighted equally in determining final payout. For each performance goal, a minimum level of achievement (i.e., threshold) must be
met before the plan will fund an award for that goal. In addition, no awards will be funded if the Company does not achieve 1.25% compound annual growth in EPS for the 2012-2013 period (excluding pension income/expenses). Plan payouts are capped at 200% of target to the extent plan maximums are met
or exceeded. For SBG executives (Messrs. Kramvis, Fradin, and Mahoney), 50% of their potential payout for the 2012-2013 performance cycle will be based on achievement of total Company metrics, and the remaining 50% will be based on achievement of corresponding SBG objectives for their respective
SBG. For Corporate executives (Messrs. Cote and Anderson), payouts will be based solely on the achievement of total Company-level metrics. In order to focus the executive team on driving initiatives aimed at achieving these aggressive two-year performance goals, in February 2012, the Committee (and the independent members of the Board in the case of the CEO), granted the Named Executive Officers a number of GPUs as follows: Mr. Cote
95,000 Mr. Anderson
27,500 Mr. Fradin
27,500 Mr. Mahoney
21,000 Mr. Kramvis
17,500 As noted above, half (50%) of any earned award will be paid in the first quarter of 2014, and the other half will be paid in the first quarter of 2015, contingent on the executive being employed with the Company on the date the payment is made. Retirement Plans. The Company offers certain retirement benefits to our Named Executive Officers. Specifically, Named Executive Officers may participate in broad-based plans including a defined benefit pension plan and a 401(k) savings plan that provides matching Company contributions. The
Company also maintains an unfunded supplemental retirement plan to replace the portion of an executive’s pension benefit that cannot be paid under the broad-based plans because of Internal Revenue Service (“IRS”) limitations. In addition, certain Named Executive Officers, including the CEO, are entitled to
supplemental retirement benefits that were provided under separate arrangements deemed necessary to either recruit the executive at the time of their hiring or retain the executive as circumstances demanded. These plans are explained in detail beginning on page 63. The 2012 Change in Pension Value reflected on the Summary Compensation Table for Mr. Cote is not the result of a pension enhancement action taken by the Committee in 2012. Instead, the change is primarily due to two factors: (1) the impact of Mr. Cote’s decision to forego an annual bonus for 2009
(as approved by the Committee); and (2) a decline in the discount rate. To be specific, in determining his 2012 year-end pension value using a pension formula based on his three-year final average compensation, Mr. Cote’s annual bonus from 2009 (which was $0) was replaced with his 2012 Pensionable Bonus
($4.3 million). Over 70% of the change in Mr. Cote’s 2012 aggregate pension value is attributable to this change in three-year final average compensation. Additionally, Mr. Cote’s 2012 year-end pension value also increased due to a decline in the required discount rate used to determine reportable pension
values from 4.89% at December 31, 2011 to 4.06% at December 31, 2012. Twenty-five percent of the change in Mr. Cote’s 2012 aggregate pension value is attributable to this decline in 43
discount rate. The combination of these two factors resulted in a year-over-year change in pension value that is anomalous and not reflective of a change in compensation philosophy or approach in 2012. Mr. Cote also attained the required minimum age under the provisions of the pension arrangement agreed at
the time of his recruitment in 2002. Assuming no further declines in the assumed discount rate and consistent levels of pensionable compensation, Mr. Cote’s pension value is expected to decline in future periods. Nonqualified Deferred Compensation Plans. Executive officers (including the Named Executive Officers) may choose to participate in certain nonqualified deferred compensation plans to permit retirement savings in a tax-efficient manner. Executive officers can elect to defer up to 100% of their annual
ICP awards. In addition, executive officers may also participate in the Honeywell Supplemental Savings Plan maintained in order to permit deferral of base salary that cannot be contributed to the Company’s 401(k) savings plan due to IRS limitations. These amounts are matched by the Company only to the
extent required to make up for a shortfall in the available match under the 401(k) savings plan due to such IRS limitations. Deferred compensation balances earn interest at a fixed rate based on the Company’s 15-year cost of borrowing, which is subject to change on an annual basis (3.65% in 2012, set at 2.90%
for 2013). Consistent with the long-term focus of the executive compensation program, matching contributions are treated as if invested in Company Common Stock. These plans are explained in detail beginning on page 68. Benefits and Perquisites. Our Named Executive Officers are entitled to participate in Company-wide benefits such as life, medical, dental, accidental death and disability insurance that are competitive with other similarly-sized companies. The Named Executive Officers participate in these programs on the
same basis as the rest of the Company’s salaried employees. The Company maintains excess liability coverage for management personnel, including the Named Executive Officers. The CEO also receives additional life insurance benefits agreed at his time of hire in 2002 to replace lost benefits from his prior
employer. The Company’s security policy requires the CEO to use Company aircraft for all air travel (business or personal) to ensure the personal security of the CEO and protect the confidentiality of the Company’s business, and to have home security and back-up power systems. The Company may also
permit limited personal usage of Corporate aircraft by other executive officers. 44
NAMED EXECUTIVE OFFICERS—PERFORMANCE & DIRECT COMPENSATION In deciding upon the direct compensation of the Named Executive Officers, the Committee gave strong consideration to the Company’s solid top- and bottom-line growth for 2012, on both an absolute and relative basis, despite challenging global economic conditions. The Committee has confidence that the
leadership team is making appropriate seed planting investments that will drive future growth and differentiate Honeywell from its peers. The Committee also recognized that consistency in strategy, a focus on execution and smart decisions enabled Honeywell to fully recover and exceed levels of performance
experienced prior to the 2008-2009 economic downturn and have kept the Company on track for meeting its five-year plan set out in 2010 (see Long-Term Targets on page 31). * Proforma, excludes any pension mark-to-market adjustment ** 2012 FCF prior to cash pension contributions, 2008 FCF prior to cash pension contributions and also excludes cash taxes related to the sale of the Consumables Solutions business Post-Recession Stock Performance Indexed (January 1, 2009 to December 31, 2012); Comp Peers Reflects Compensation Peer Group Median 45
Set forth below is a discussion of the compensation actions for each Named Executive Officer, which reflects how the Committee viewed their 2012 performance. Included is a table summarizing the Committee’s 2012 ADC actions for each Named Executive Officer. Discretionary RSU awards made in
2012 for retention and succession planning purposes which are not a part of ADC are also set forth in the tables. The tables in this section differ from, and are not a substitute for, the Summary Compensation Table, which presents similar information in the format required by the SEC. David Cote—Chairman and Chief Executive Officer 2012 Performance Summary:
•
Effectively led Honeywell to meeting or exceeding the 2012 expectations set at the start of the year despite challenging global economic conditions.
Resulted in segment margin expansion of 90 basis points to a new record of 15.6%, and EPS up 11% to $4.48.
Exceeded prior-year peaks on key financial metrics: EPS, segment profit, segment margin, working capital turns and sales. • Continued portfolio evolution through smart “bolt-on” acquisitions in adjacent, high growth, spaces. • Drove “seed planting” investments which will provide a tailwind for future growth and productivity.
•
Increased capital expenditures by 11%, including 16% in PMT to expand capacity in high growth, high margin product lines. • R&D spending at 4.9%, while also expanding the organization’s focus on VPD to improve R&D effectiveness. • Continued focus on HGR penetration and capabilities, including appointing a HGR leader, resulting in an increase of 8% organically.
•
Continued to advance and evolve Honeywell’s key process initiatives and the Honeywell Enablers.
Honeywell Operating System—over 70% of operations now at Bronze level or better.
David Cote:
Annual Compensation:
2012
2011 Base Salary
$
1,800,000
$
1,800,000 Annual ICP Award
$
4,800,000
(a)
$
4,300,000 Total Annual Cash Compensation
$
6,600,000
$
6,100,000 Growth Plan (Target)(b)
$
4,750,000
$
4,750,000 Stock Options(c)
$
9,289,000
$
9,726,250 Target Total Annual LTI Compensation
$
14,039,000
$
14,476,250 Growth Plan (Earned Increment above Target)(d)
—
$
4,750,000 Total Annual Direct Compensation
$
20,639,000
$
25,326,250
•
•
•
|
||||||||||||||||||||
(a) |
|
|
The Committee determined that only $4.3 million of Mr. Cote’s 2012 ICP award should be used for calculating the pension value under the terms of Mr. Cote’s pension formula. |
|||||||||||||||||
|
||||||||||||||||||||
|
(b) |
|
Represents the annualized value of Growth Plan Units for meeting the target performance goals. 2011 reflects the actual amount earned for the 2010-2011 performance cycle. 2012 reflects the potential target award value for the 2012-2013 performance cycle which will be payable only if the Company meets plan performance goals based on financial results for 2012 and 2013. |
||||||||||||||||||
|
||||||||||||||||||||
|
(c) |
|
2012—700,000 stock options with a grant date Black-Scholes value of $13.27 (vests over 4 years - exercise price of $59.87/ share). 2011—775,000 stock options with a grant date Black-Scholes value of $12.55 (vests over 4 years - exercise price of $57.05/ share). |
||||||||||||||||||
|
||||||||||||||||||||
|
(d) |
|
Represents the annualized value of Growth Plan Units earned for exceeding target performance goals. 2011 reflects the actual amount earned for exceeding target for the 2010-2011 performance cycle. Any 2012 amount will only be earned if the Company exceeds the 2012-2013 performance cycle goals based on financial results for 2012 and 2013. |
||||||||||||||||||
46
The Committee recognized the consistently strong performance of the Company over the course of Mr. Cote’s tenure with Honeywell (2002-2012), on both an absolute and relative basis. The following charts set forth a comparison of Honeywell’s Long Term Stock Price Performance and TSR over the past 10 years versus both
the S&P 500 and our Compensation Peer Group, demonstrating strong performance in comparison to both groups. Long-term (10-Year) Stock Performance The Committee also recognized Mr. Cote’s ability to grow the revenue of the Company and deliver strong operational performance, while at the same time reducing the number of ICP-eligible employees and not materially increasing the aggregate level of annual ICP payments. Since Mr. Cote’s first full year with
Honeywell (2003), proforma EPS has increased 197% and segment profit has increased 150%. This strong performance was achieved with only a 13% increase in the amount of ICP paid in 2012 versus 2003 and 6% fewer ICP-eligible executives in 2012 compared to 2003. * Proforma EPS (excludes any pension mark-to-market adjustment). The Company does not define specific pay equity ratios for its senior executives or Named Executive Officers. The compensation disparity between the CEO and the other Named Executive Officers is primarily due to the CEO having significantly greater responsibilities for management and oversight of a diversified,
global enterprise. 47
Group Median.
Percentages represent cumulative
growth over the period.
David Anderson—Senior Vice President and Chief Financial Officer 2012 Performance Summary:
•
Drove working capital and cost reduction initiatives which contributed to the Company exceeding its plan and external guidance for segment margin, and meeting its commitment for EPS and FCF despite challenging global economic conditions. • Ensured balanced, disciplined deployment of capital which funded growth through strategic acquisitions, allowed reinvestment in the Company’s businesses, and returned value to shareowners.
•
Continued to drive disciplined acquisition valuation and integration processes, including maintaining a robust pipeline of new targets and conducting monthly assessments of actionable opportunities. • Enabled the Board to approve a return of value to shareowners by increasing the dividend 10% in the fourth quarter of 2012, consistent with the increase in 2011, and ahead of the traditional track record of increases in the first quarter. • Funded investment in technology centers and new manufacturing capacity.
•
Continued to drive sustainable productivity improvements through restructuring actions.
Funded approximately $120 million of gross restructuring projects through operations. • Maintained organizational focus on the significant pipeline of previously-funded restructuring projects.
•
Effectively led Honeywell’s OEF and FT initiatives to improve customer satisfaction while reducing the cost to serve.
Organizational Efficiency—productivity initiatives resulting in a reduction in employee costs of 80 basis points as a percentage of 2012 sales, while still growing sales and successfully retaining the workforce. • FT—activities resulted in a reduction in functional costs of 20 basis points to a low of 6.2% of sales.
David Anderson:
Annual Compensation:
2012
2011 Base Salary
$
900,000
$
900,000 Annual ICP Award
$
1,225,000
$
1,225,000 Total Annual Cash Compensation
$
2,125,000
$
2,125,000 Growth Plan (Target)(a)
$
1,375,000
$
1,375,000 Stock Options(b)
$
2,654,000
$
3,451,250 Target Total Annual LTI Compensation
$
4,029,000
$
4,826,250 Growth Plan (Earned Increment above Target)(c)
—
$
1,375,000 Total Annual Direct Compensation
$
6,154,000
$
8,326,250 Non-Annual Retention Grant: Performance Adjusted RSUs(d)
$
2,789,160
—
•
•
|
||||||||||||||||||||
(a) |
|
|
Represents the annualized value of GPUs for meeting the target performance goals. 2011 reflects the actual amount earned for the 2010-2011 performance cycle. 2012 reflects the potential target award value for the 2012-2013 performance cycle which will be payable only if the Company meets plan performance goals based on financial results for 2012 and 2013. |
|||||||||||||||||
|
||||||||||||||||||||
|
(b) |
|
2012—200,000 stock options with a grant date Black-Scholes value of $13.27 (vests over 4 years - exercise price of $59.87/ share). |
||||||||||||||||||
|
||||||||||||||||||||
|
(c) |
|
Represents the annualized value of GPUs earned for exceeding target performance goals. 2011 reflects the actual amount earned for exceeding target for the 2010-2011 performance cycle. Any 2012 amount will only be earned if the Company exceeds the 2012-2013 performance cycle goals based on financial results for 2012 and 2013. |
||||||||||||||||||
|
||||||||||||||||||||
|
(d) |
|
2012—Grant date fair value of 44,000 performance-adjusted RSUs at a grant date value of $63.39 issued for retention and succession planning purposes; vests over 3 years. |
||||||||||||||||||
48
Roger Fradin—President and Chief Executive Officer—Automation and Control Solutions (ACS) 2012 Performance Summary:
•
Grew ACS sales 2% (3% organic) in a tough environment, outperforming its key end-markets and building on its leading positions. • Converted incremental sales at 43% bringing segment profit to $2.2 billion. Expanded ACS segment margin 70 basis points by driving price and productivity, net of inflation while continuing to invest for future growth. • Continued ACS global organic sales expansion in emerging markets, with the Middle East up 9%, India up 5%, and China up 1%. • Improved WCTs by 0.3 turns to 7.3 and delivered 103% FCF conversion. • Launched over 540 new products across the ACS portfolio, aligned to the mega-trends of energy efficiency, safety and security, and globalization. These new product launches are expected to drive $700 million to $800 million of future sales. Removed more than $80 million in cost from existing product
designs. • Successfully completed key strategic acquisitions (Inncom and Saia-Burgess Controls) that expand ACS’ position and capabilities in intelligent building controls, building automation and energy management systems. • Significant wins in wireless mobile devices with new mobile computing solutions for Deutsche Post smart grid technologies and demand response deployments with the China State Grid and Hawaiian Electric; over 100 new Attune Software as a Service (SaaS) energy management advisory contracts; and entered
into nearly $500 million of new energy savings performance contracts including the largest domestic energy retrofit project for the U.S. Air Force at Tinker Air Force Base.
Roger Fradin:
Annual Compensation:
2012
2011 Base Salary
$
1,050,000
$
1,050,000 Annual ICP Award
$
1,200,000
$
1,300,000 Total Annual Cash Compensation
$
2,250,000
$
2,350,000 Growth Plan (Target)(a)
$
1,375,000
$
1,375,000 Stock Options(b)
$
2,654,000
$
3,451,250 Target Total Annual LTI Compensation
$
4,029,000
$
4,826,250 Growth Plan (Earned Increment above Target)(c)
—
$
1,361,250 Total Annual Direct Compensation
$
6,279,000
$
8,537,500 Non-Annual Retention Grant: Performance Adjusted RSUs(d)
$
3,359,670
—
|
||||||||||||||||||||
(a) |
|
|
Represents the annualized value of GPUs for meeting the target performance goals. 2011 reflects the actual amount earned for the 2010-2011 performance cycle. 2012 reflects the potential target award value for the 2012-2013 performance cycle which will be payable only if the Company meets plan performance goals based on financial results for 2012 and 2013. |
|||||||||||||||||
|
||||||||||||||||||||
|
(b) |
|
2012—200,000 stock options with a grant date Black-Scholes value of $13.27 (vests over 4 years - exercise price of $59.87/ share). |
||||||||||||||||||
|
||||||||||||||||||||
|
|
|
2011—275,000 stock options with a grant date Black-Scholes value of $12.55 (vests over 4 years - exercise price of $57.05/ share). |
||||||||||||||||||
|
||||||||||||||||||||
|
(c) |
|
Represents the annualized value of GPUs earned for exceeding target performance goals. 2011 reflects the actual amount earned for exceeding target for the 2010-2011 performance cycle. Any 2012 amount will only be earned if the Company exceeds the 2012-2013 performance cycle goals based on financial results for 2012 and 2013. |
||||||||||||||||||
|
||||||||||||||||||||
|
(d) |
|
2012—Grant date fair value of 53,000 performance-adjusted RSUs at a grant date value of $63.39 issued for retention purposes; vests over 6 years. |
||||||||||||||||||
49
Timothy Mahoney—President and Chief Executive Officer—Aerospace 2012 Performance Summary:
•
Grew Aerospace sales by 5%, driven by strong growth in both commercial original equipment and commercial aftermarket sales. • Increased year-over-year Aerospace segment profit by 13% to $2.3 billion, with segment margin expanding 130 basis points to 18.9%. • Successfully integrated the Aerospace portion of the EMS Technologies Acquisition and, as a result of the acquisition, captured a sole source position as the equipment manufacturer for the Ka satellite constellation with a total estimated value of $2.8 billion. • Secured wins with a total estimated value of approximately $3 billion in the Aerospace Components business. • Made significant progress in improving our delivery performance to our Customers. • Secured over $3.5 billion in new contract wins in Defense and Space (“D&S”) with approximately 25% secured outside the U.S. as a result of the D&S globalization efforts. • Entered into new or renewal contracts with Boeing worth approximately $7.6 billion for the Air Transport & Regional Aviation (“ATR”) business. • Won contracts with Embraer worth over $2.8 billion across the Business & General Aviation and ATR businesses.
Timothy Mahoney:
Annual Compensation:
2012
2011 Base Salary
$
818,750
$
763,385 Annual ICP Award
$
900,000
$
800,000 Total Annual Cash Compensation
$
1,718,750
$
1,563,385 Growth Plan (Target)(a)
$
1,050,000
$
1,050,000 Stock Options(b)
$
1,990,500
$
2,635,500 Target Total Annual LTI Compensation
$
3,040,500
$
3,685,500 Growth Plan (Earned Increment above Target)(c)
—
$
546,000 Total Annual Direct Compensation
$
4,759,250
$
5,794,885 Non-Annual Retention Grant: Performance Adjusted RSUs(d)
$
2,852,550
—
|
||||||||||||||||||||
(a) |
|
|
Represents the annualized value of GPUs for meeting the target performance goals. 2011 reflects the actual amount earned for the 2010-2011 performance cycle. 2012 reflects the potential target award value for the 2012-2013 performance cycle which will be payable only if the Company meets plan performance goals based on financial results for 2012 and 2013. |
|||||||||||||||||
|
||||||||||||||||||||
|
(b) |
|
2012—150,000 stock options with a grant date Black-Scholes value of $13.27 (vests over 4 years - exercise price of $59.87/ share). |
||||||||||||||||||
|
||||||||||||||||||||
|
|
|
2011—210,000 stock options with a grant date Black-Scholes value of $12.55 (vests over 4 years - exercise price of $57.05/ share). |
||||||||||||||||||
|
||||||||||||||||||||
|
(c) |
|
Represents the annualized value of GPUs earned for exceeding target performance goals. 2011 reflects the actual amount earned for exceeding target for the 2010-2011 performance cycle. Any 2012 amount will only be earned if the Company exceeds the 2012-2013 performance cycle goals based on financial results for 2012 and 2013. |
||||||||||||||||||
|
||||||||||||||||||||
|
(d) |
|
2012—Grant date fair value of 45,000 performance-adjusted RSUs at a grant date value of $63.39 issued for retention purposes; vests over 7 years. |
||||||||||||||||||
50
Andreas Kramvis—President and Chief Executive Officer—Performance Materials and Technologies (PMT) 2012 Performance Summary:
•
Increased PMT sales by 9% (4% organic) to $6.2 billion through new product offerings and the effective globalization of PMT; sales outside the U.S. accounted for 55% of the total. Record backlog at PMT was led by UOP, (UOP backlog exceeded $2.8 billion) and continued wins in the new solstice low
global warming product platform. • Against a generally weakening margin environment for chemical businesses, increased PMT segment profit $112 million to a record $1.2 billion; and expanded, segment margin by 30 basis points to a record 18.7%. • Formed a new gas division within UOP and acquired 70% (with definitive agreement to acquire the rest) of Thomas Russell Co., a leader in cryogenic separation of natural gas liquids thus establishing a strong globally competitive presence in a high growth market. • Continued rigorous focus on new product introductions, improving development capabilities and global commercial excellence—launched over 60 new products generating in excess of $300 million in 2012 sales. Enhanced technology growth platforms including gas to chemicals, low global warming
refrigerants, blowing agents and solvents and oil and petrochemical catalysts. • Executed pricing, strategic sourcing, and supply chain management initiatives in a period of commodity volatility contributing to record profit and margin performance. Expanded sourcing capabilities in China, India, Brazil, and Malaysia to enhance productivity. • Invested to upgrade engineering capabilities and operating effectiveness of PMT manufacturing facilities as well as initiated a record number of multi-year capital projects to enhance asset reliability, expand capacity to meet market demand, and improve productivity. Nineteen production units performed at
new record levels in 2012. • Delivered significant year-over-year improvement in WCTs to 10.6 turns (1.9 turns improvement, 1.1 organically).
Andreas Kramvis:
Annual Compensation:
2012
2011 Base Salary
$
687,500
$
623,846 Annual ICP Award
$
950,000
$
875,000 Total Annual Cash Compensation
$
1,637,500
$
1,498,846 Growth Plan (Target)(a)
$
875,000
$
875,000 Stock Options(b)
$
1,658,750
$
2,196,250 Target Total Annual LTI Compensation
$
2,533,750
$
3,071,250 Growth Plan (Earned Increment above Target)(c)
—
$
875,000 Total Annual Direct Compensation
$
4,171,250
$
5,445,096 Non-Annual Retention Grant: Performance Adjusted RSUs(d)
$
2,535,600
—
|
||||||||||||||||||||
(a) |
|
|
Represents the annualized value of GPUs for meeting the target performance goals. 2011 reflects the actual amount earned for the 2010-2011 performance cycle. 2012 reflects the potential target award value for the 2012-2013 performance cycle which will be payable only if the Company meets plan performance goals based on financial results for 2012 and 2013. |
|||||||||||||||||
|
||||||||||||||||||||
|
(b) |
|
2012—125,000 stock options with a grant date Black-Scholes value of $13.27 (vests over 4 years - exercise price of $59.87/ share). |
||||||||||||||||||
|
||||||||||||||||||||
|
|
|
2011—175,000 stock options with a grant date Black-Scholes value of $12.55 (vests over 4 years - exercise price of $57.05/ share). |
||||||||||||||||||
|
||||||||||||||||||||
|
(c) |
|
Represents the annualized value of GPUs earned for exceeding target performance goals. 2011 reflects the actual amount earned for exceeding target for the 2010-2011 performance cycle. Any 2012 amount will only be earned if the Company exceeds the 2012-2013 performance cycle goals based on financial results for 2012 and 2013. |
||||||||||||||||||
|
||||||||||||||||||||
|
(d) |
|
2012—Grant date fair value of 40,000 performance-adjusted RSUs at a grant date value of $63.39 issued for retention purposes; vests over five years. |
||||||||||||||||||
51
OTHER COMPENSATION PRACTICES AND POLICIES Best Practices The Committee regularly reviews best practices in governance and executive compensation and has revised Honeywell’s policies and practices over time to:
•
Upon a change in control, pay ICP awards at the time they would typically be paid (no acceleration) and based on business performance rather than target; • Guard the Company against competitive harm by obtaining enhanced restrictive covenants in connection with annual equity grants and certain succession planning actions; • Require executive officers to maintain specific stock ownership levels, holding Common Stock equal in value to at least four times their base salary (six times for the CEO). In 2012, eliminated the previous provision that suspended officer ownership requirements upon age 60 with 10 years of service
(guidelines now apply to all officers at all times); • Require officers to hold the net shares from RSU vesting and the net gain shares from option exercises for at least one year (see “Stock Ownership Guidelines” below); • Add a relative TSR performance-based adjustment mechanism to discretionary RSU grants to officers and make a larger portion of the award performance-based (design improvement in 2012); • Require automatic reinvestment of dividend equivalents on RSUs into additional RSUs, which vest according to the same schedule as the underlying RSUs to which they relate; • Permit the recapture of incentive compensation from senior executives in the event of a significant financial restatement; • Permit the cancellation and recovery of gains attributable to equity awards from employees who leave the Company to join a competitor; • Eliminate tax reimbursement payments (known as “tax gross-ups”) on both perquisites received by officers and excise taxes that may become due upon a change in control for new participants in the Company’s severance plan (in each case, effective January 1, 2010); • Prohibit the Committee’s independent compensation consultant from performing any services for the Company; • Eliminate the annual cash flexible perquisite allowance for executive officers; • Reduce the interest rate on deferred compensation by tying it to the Company’s cost of capital; • Prohibit the granting of stock options with an exercise price less than the fair market value of the Company’s Common Stock on the date of grant; and • Prohibit the repricing (reduction in exercise price) or reloading of stock options. Risk Considerations The Committee believes that the balanced utilization of the various elements of the Company’s executive compensation program:
•
Supports the achievement of competitive revenue, earnings and cash performance in variable economic and industry conditions without undue risk; and • Mitigates the potential to reward risk-taking that may produce short-term results that appear in isolation to be favorable, but that may undermine the successful execution of the Company’s long-term business strategy and destroy shareowner value. The following risk oversight and compensation design features guard against excessive risk-taking:
•
Processes for developing strategic and annual operating plans, approval of capital investments, internal control over financial reporting and other financial, operational and compliance policies and practices (see 52
page 13 of this proxy statement for a full discussion of the role of the Board of Directors in the risk oversight process); • Diversified nature of the Company’s overall portfolio of businesses with respect to industries and markets served (types, long cycle/short cycle), products and services sold, and geographic footprint; • Review and approval of corporate, SBG and individual executive officer objectives by the Committee to ensure that these goals are aligned with the Company’s annual operating and strategic plans, achieve the proper risk/reward balance, and do not encourage unnecessary or excessive risk-taking; • Positioning of base salaries consistent with executives’ responsibilities so that they are not motivated to take excessive risks to achieve a reasonable level of financial security; • Determination of incentive awards based on a review of a variety of indicators of performance, thus diversifying the risk associated with any single indicator of performance; • Design of long-term compensation to reward executives for driving sustainable, profitable, growth for shareowners; • Vesting periods for equity compensation awards that encourage executives to focus on sustained stock price appreciation; • The mix between fixed and variable, annual and long-term, and cash and equity compensation are designed to encourage strategies and actions that are in the Company’s long-term best interests; • Incentive plans are not overly leveraged and cap the maximum payment; design features are intended to balance pay for performance with an appropriate level of risk taking. The Committee has discretionary authority to adjust annual ICP payments, which further reduces any business risk associated with
such plan; • Adoption of “clawback” policies, which provide for the recoupment of incentive compensation paid to senior executives in event of a significant restatement of Company financial results; • “Clawback” provisions in the Company’s current stock plan that allow the Company to cancel shares or recover gains realized by an executive if non-competition provisions are violated; • Prohibition on hedging and pledging of shares by our executive officers and directors; and • Ownership thresholds in the Company’s stock ownership guidelines that require Named Executive Officers to hold shares of Common Stock equal to four times their current annual base salary (six times for the CEO), as detailed below. Accordingly, based upon the foregoing, the Company believes that the risks arising from its compensation policies and practices are not reasonably likely to have a material adverse effect on the Company. Stock Ownership Guidelines The Committee believes that executives will more effectively pursue the long-term interests of the Company’s shareowners if these executives hold substantial amounts of stock. Accordingly, the Committee adopted minimum stock ownership guidelines in May 2003 for all executive 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 are required to own shares equal in value to four times their current 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 RSUs. Executive officers have five years to meet these guidelines. Each of the Named Executive Officers has attained the prescribed ownership threshold. In addition, the stock ownership guidelines require officers to hold for at least one year the “net shares” from an RSU vesting or the “net gain shares” of Common Stock that they receive by exercising stock options. “Net shares” means the number of shares obtained from an RSU vesting, less the number
of shares withheld or sold to pay applicable 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 applicable taxes. 53
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 stock ownership level. Previously, the stock ownership guidelines were suspended for officers at or over age 60 who have at least ten years of service. In 2012, the ownership guidelines were amended to eliminate this provision. All officers of Honeywell remain subject to the stock ownership guidelines until such time as they are
no longer an officer. Recoupment The Company’s Corporate Governance Guidelines provide for the recoupment (or “clawback”) of incentive compensation paid to senior executives in the event of a significant restatement of financial results (a “Restatement”). Under the 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 Corporate Governance Guidelines is posted on our website at www.honeywell.com (see “Investor Relations”—”Corporate Governance”). In the event that during the two-year period following an executive officer’s termination of employment with Honeywell, he or she commences employment with or otherwise provides services to a Honeywell competitor without the Committee’s prior approval, the Company reserves the right, for awards
issued under the 2003, 2006 and 2011 Stock Incentive Plans, to (i) cancel all unexercised options and (ii) recover any gains attributable to options that were exercised, and any value attributable to GPUs and RSUs that were paid, during the period beginning six months before and ending two years after the
executive officer’s termination of employment. In addition, the Company has entered into non-competition agreements with its executive officers that preclude them from going to work for a competitor for up to two years after termination of employment with Honeywell for any reason. The list of competitors and the duration of the non-competition
covenant has been tailored, in each case, to the executive officer’s position and the competitive threat presented thereby. Because money damages cannot adequately compensate Honeywell for violations of these non-competition covenants, the Company has a full range of equitable remedies at its disposal to
enforce these agreements, including the application of injunctive relief. 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 Named Executive Officers while maintaining compensation programs that effectively attract, motivate and retain exceptional executives in a highly competitive environment. The Company believes that its annual and long-term cash incentive and stock option awards qualify for 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 ICP payments earned by the Named Executive Officers for 2012 and all Growth Plan payments earned by the Named
Executive Officers for 2012-2013 would be deductible for federal income tax purposes. The Committee does not believe, however, that it would be in the best interests of the Company or its shareowners to restrict the Committee’s discretion and flexibility (an integral part of our compensation philosophy) to design 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 Company’s executive compensation 54
program, but that were not fully deductible (which includes, among other things, the time-vested portion of RSU awards and a portion of the CEO’s base salary, both of which occurred in 2012). Pledging and Hedging Transactions in Company Securities It is the Company’s policy that pledging Honeywell’s securities or using Honeywell’s securities to support margin debt by executive officers and directors is prohibited. All other employees must exercise extreme caution in pledging Honeywell’s securities or using Honeywell’s securities to support margin
debt. It is the Company’s policy that hedging by directors, executive officers and employees on the Company’s restricted trading list is prohibited and is strongly discouraged for all other employees. For this purpose, hedging means purchasing financial instruments (including forward sale contracts, swaps, collars
and interests in exchange funds) that are designed to offset any decrease in the market value of Company stock held, directly or indirectly by them, whether the stock was acquired pursuant to a compensation arrangement or otherwise. In addition, no employee or director may engage in short sales of Honeywell securities. Also, selling or purchasing puts or calls or otherwise trading in or writing options on Honeywell’s securities by employees, officers and directors is prohibited. MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE REPORT The Management Development and Compensation Committee reviewed and discussed Honeywell’s 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, 2012. THE MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During fiscal year 2012, 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 20 of this proxy statement. During fiscal year 2012, 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 the Management Development and Compensation Committee. 55
D. Scott Davis, Chair
Gordon M. Bethune
Clive Hollick
Grace D. Lieblein
Bradley T. Sheares
Named Executive Officer
Year
Salary($)
Bonus($)(1)
Stock
Option
Non-Equity
Change in
All Other
Total David M. Cote Chairman of the
2012
$
1,800,000
$
4,800,000
$
0
$
9,289,000
$
0
$
16,968,206
(5a)
$
389,972
$
33,247,178 Board and Chief
2011
$
1,800,000
$
4,300,000
$
0
$
9,849,750
$
19,000,000
$
2,464,474
$
428,499
$
37,842,723 Executive Officer
2010
$
1,800,000
$
4,300,000
$
0
$
8,483,500
$
0
$
5,341,583
$
228,929
$
20,154,012 David J. Anderson Senior Vice
2012
$
900,000
$
1,225,000
$
2,789,160
$
2,654,000
$
0
$
1,299,579
$
50,500
$
8,918,239 President, Chief
2011
$
900,000
$
1,225,000
$
0
$
3,451,250
$
5,500,000
$
1,907,615
$
96,360
$
13,080,225 Financial Officer
2010
$
900,000
$
1,150,000
$
3,090,750
$
2,455,750
$
0
$
1,526,121
$
37,000
$
9,159,621 Roger Fradin President & Chief
2012
$
1,050,000
$
1,200,000
$
3,359,670
$
2,654,000
$
0
$
659,129
$
153,339
$
9,076,138 Executive Officer
2011
$
1,050,000
$
1,300,000
$
0
$
3,451,250
$
5,472,500
$
484,143
$
66,200
$
11,824,093 Automation and
2010
$
1,050,000
$
1,300,000
$
3,068,000
$
2,455,750
$
0
$
525,344
$
66,290
$
8,465,384 Control Solutions Timothy O. Mahoney President & Chief
2012
$
818,750
$
900,000
$
2,852,550
$
1,990,500
$
0
$
1,508,898
$
46,039
$
8,116,737 Executive Officer,
2011
$
763,385
$
800,000
$
0
$
2,635,500
$
3,192,000
$
955,005
$
35,153
$
8,381,043 Aerospace
2010
$
660,000
$
700,000
$
2,377,500
$
1,875,300
$
0
$
749,734
$
45,829
$
6,408,363 Andreas C. Kramvis President & Chief
2012
$
687,500
$
950,000
$
2,535,600
$
1,658,750
$
0
$
270,862
$
58,882
$
6,161,594 Executive Officer,
2011
$
623,846
$
875,000
$
0
$
2,196,250
$
3,500,000
$
205,825
$
58,540
$
7,459,461 Performance Materials
2010
$
550,000
$
750,000
$
6,996,000
$
1,562,750
$
0
$
197,831
$
35,605
$
10,092,186
(1)
Amounts reflect annual ICP awards. The Committee determined that only $4.3 million of Mr. Cote’s 2012 ICP award should be used for calculating the pension value under the terms of Mr. Cote’s pension formula. Mr. Cote’s pension arrangement was established in 2002 when Mr. Cote was recruited to join
Honeywell. (2) Mr. Cote did not receive a stock award in 2012, 2011 or 2010. For the other Named Executive Officers, the 2012 amounts reflect the aggregate grant date fair value of performance-adjusted RSU awards, computed in accordance with FASB ASC Topic 718. For RSU awards made in 2012, the grant date fair
value per share includes an assumption with respect to the achievement of the performance adjustment attached to the award (refer to footnotes to the Outstanding Equity Awards table for a description of the performance adjustment). Specifically, the grant date fair value of the performance-adjusted RSUs
granted in July 2012 was $63.39 per share, calculated in accordance with FASB ASC Topic 718 based on a multifactor Monte Carlo model which simulates Honeywell’s stock price and TSR relative to each of the other companies in the Compensation Peer Group. (3) Amounts reflect the aggregate grant date fair value of stock option awards computed in accordance with FASB ASC Topic 718, using the Black-Scholes option-pricing model at the time of grant, with the expected-term input derived from a risk-adjusted Monte Carlo simulation model that considers
historical exercise behavior and probability-weighted movements in Honeywell’s stock price over time. 2012 option awards were made on February 29, 2012 with a Black-Scholes value of $13.27 per share. A discussion of the assumptions used in the valuation of option awards made in fiscal year 2012 may
be found in Note 20 of the Notes to the Financial Statements in the Company’s Form 10-K for the year ended December 31, 2012. (4) 2011 values reflect the full earned amount under the Growth Plan with respect to the 2010-2011 performance cycle, reported in a single year as required by applicable SEC rules. Actual payment of earned Growth Plan awards are made in two equal installments following the performance period and
contingent on continued active employment on each applicable payment date. The first payment for the 2010-2011 Growth Plan performance cycle award was made in March 2012 and the second will be made in March 2013. (5) 2012 values represent (a) the aggregate change in the present value of each Named Executive Officer’s accumulated benefit under the Company’s pension plans from December 31, 2011 to December 31, 2012 (as disclosed in the Pension Benefits table on page 63 of this proxy statement) and (b) interest
earned in 2012 on 56
and Principal Position
Awards($)(2)
Awards($)(3)
Incentive
Plan
Compensation($)(4)
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings($)(5)
Compensation($)(6)
and Technologies
deferred compensation that is considered “above-market interest” under SEC rules (as discussed beginning on page 69 of this proxy statement). Each of these components is shown in the following table:
Named Executive Officer
Change in Aggregate
Above Market David M. Cote
$
16,481,850
(a)
$
486,356 David J. Anderson
$
1,112,435
$
187,144 Roger Fradin
$
511,539
$
147,590 Timothy O. Mahoney
$
1,440,708
$
68,190 Andreas Kramvis
$
191,508
$
79,354
(a)
No part of the 2012 change in aggregate pension value for Mr. Cote is the result of a pension enhancement action taken by the Committee in or for 2012. The change is primarily due to two factors: (1) the impact of replacing the zero bonus for 2009 (Mr. Cote agreed to forego a bonus in 2009
during the economic downturn) with his 2012 Pensionable Bonus ($4.3 million) in the determination of his final 3-year average pensionable earnings as required by the pension formula as of December 31, 2012, and (2) a decline in the discount rate required to be used to determine his reportable
pension value as of December 31, 2012 (from 4.89% at December 31, 2011 to 4.06% at December 31, 2012). Over 70% of the 2012 change in Mr. Cote’s aggregate pension value is attributable to the change in final average earnings (i.e., from the zero bonus year falling off) and 25% of the
change is due to the decline in the discount rate. As Mr. Cote’s pension benefit does not improve with additional years of service and he has now reached full retirement age under his pension arrangement, assuming no further declines in the assumed discount rate and consistent levels of pensionable compensation, Mr. Cote’s pension value is
expected to decline in future periods.
(6)
For 2012, all other compensation consists of the following:
Item
Mr. Cote
Mr. Anderson
Mr. Fradin
Mr. Mahoney
Mr. Kramvis Excess liability insurance(A)
$
1,000
$
1,000
$
1,000
$
1,000
$
1,000 Executive life insurance(B)
$
62,000
—
—
—
— Matching Contributions(C)
$
99,000
$
49,500
$
57,750
$
45,039
$
37,827 Personal use of Company aircraft(D)
$
162,337
$
—
$
94,589
—
$
20,055 Security Systems(E)
$
65,635
—
—
—
— Totals
$
389,972
$
50,500
$
153,339
$
46,039
$
58,882
(A)
Represents the annual premiums paid by the Company to purchase excess liability insurance coverage for each Named Executive Officer. (B) Under the terms of Mr. Cote’s 2002 employment agreement, which was entered into upon his joining the Company, the Company is obligated to provide Mr. Cote with $10 million in life insurance coverage at the Company’s cost. The Company reimbursed Mr. Cote a total of $62,000 for life insurance
premiums paid by him in 2012. (C) Represents total Company contributions to each Named Executive Officer’s accounts in the tax-qualified Honeywell Savings and Ownership Plan and the non-tax-qualified Supplemental Savings Plan. (D) For security reasons, Mr. Cote is required by Company policy to use Company aircraft for all business and personal travel. The amount shown for each Named Executive Officer represents the aggregate incremental cost of personal travel by the Named Executive Officer. This amount is calculated by
multiplying the total number of personal flight hours times the average direct variable operating costs (expenses for aviation employees, business meals, aircraft maintenance, telecommunications, transportation charges, including but not limited to hangar and landing fees, aviation fuel, and
commissaries) per flight hour for Company aircraft. The incremental cost of locating aircraft to the origin of a personal trip or returning aircraft from the completion of a personal trip is also included in this calculation. Use of Company aircraft saves substantial time and allows the CEO better access to
employees and customers around the world. Over 98% of the use of Company aircraft is for business purposes. (E) In accordance with the Company’s CEO security plan, represents the total cost paid by the Company in 2012 for equipment and expenses relating to personal home security systems provided to Mr. Cote. 57
Pension Value
Interest
GRANTS OF PLAN-BASED AWARDS—FISCAL YEAR 2012
Named Executive Officer
Award
Grant
Estimated Future Payouts
Estimated Future Payouts
All Other
Exercise
Closing
Grant Date
Units
Threshold($)
Target($)
Maximum($)
Threshold(#)
Target(#)
Maximum(#) David M. Cote
NQSO
2/29/12
—
—
—
—
—
—
—
700,000
$
59.87
$
59.57
$
9,289,000
GPU
2/29/12
95,000
$
4,750,000
$
9,500,000
$
19,000,000
—
—
—
—
—
—
— David J. Anderson
NQSO
2/29/12
—
—
—
—
—
—
—
200,000
$
59.87
$
59.57
$
2,654,000
GPU
2/29/12
27,500
$
1,375,000
$
2,750,000
$
5,500,000
—
—
—
—
—
—
—
RSU
7/25/12
—
—
—
—
30,800
44,000
57,200
—
—
—
$
2,789,160 Roger Fradin
NQSO
2/29/12
—
—
—
—
—
—
—
200,000
$
59.87
$
59.57
$
2,654,000
GPU
2/29/12
27,500
$
1,375,000
$
2,750,000
$
5,500,000
—
—
—
—
—
—
—
RSU
7/25/12
—
—
—
—
24,500
35,000
45,500
—
—
—
$
2,218,650
RSU
7/26/12
—
—
—
—
12,600
18,000
23,400
—
—
—
$
1,141,020 Timothy O. Mahoney
NQSO
2/29/12
—
—
—
—
—
—
—
150,000
$
59.87
$
59.57
$
1,990,500
GPU
2/29/12
21,000
$
1,050,000
$
2,100,000
$
4,200,000
—
—
—
—
—
—
—
RSU
7/25/12
—
—
—
—
31,500
45,000
58,500
—
—
—
$
2,852,550 Andreas C. Kramvis
NQSO
2/29/12
—
—
—
—
—
—
—
125,000
$
59.87
$
59.57
$
1,658,750
GPU
2/29/12
17,500
$
875,000
$
1,750,000
$
3,500,000
—
—
—
—
—
—
—
RSU
7/25/12
—
—
—
—
28,000
40,000
52,000
—
—
—
$
2,535,600
(1)
Award Type: NQSO = Nonqualified Stock Option GPU = Growth Plan Unit RSU = Performance-Adjusted Restricted Stock Unit (2) Represents GPUs awarded for the performance period of January 1, 2012 through December 31, 2013. Any earned award is paid out in equal installments as follows: 50% in March 2014, and 50% in March 2015 subject to the Named Executive Officer’s continued active employment on the applicable
payment dates. Additional details can be found beginning on page 42 of this proxy statement. (3) The amounts in the Target column represent the number of RSUs granted to the Named Executive Officers in July 2012. These RSUs are subject to a 30% performance adjustment (increase or decrease) based on Honeywell’s relative TSR ranking against the Compensation Peer Group over both a one-year
period (ending July 31, 2013) and 30-month period (ending December 31, 2014). All grants are eligible to receive dividend equivalents in the form of additional shares which vest in accordance with the vesting schedules of the underlying performance-adjusted RSUs so that dividend equivalents are only
paid when and to the extent that the performance-adjusted RSUs vest. Vesting of the RSU awards is as follows, subject to continued active employment on the applicable vesting dates:
•
Mr. Anderson: 100% on July 25, 2015 • Mr. Fradin: 100% of 35,000 RSUs on July 25, 2015 and 100% of 18,000 RSUs on July 26, 2018 • Mr. Mahoney: 33% on July 25, 2015, 33% on July 25, 2017, and 34% on July 25, 2019 • Mr. Kramvis: 50% on July 25, 2016 and 50% on July 25, 2017
(4)
Represents annual stock options granted to the Named Executive Officers on the grant date. The stock options vest in equal annual installments over a period of four years. (5) The grant date fair value of each stock option was $13.27 calculated in accordance with FASB ASC Topic 718, using the Black-Scholes option valuation model at the time of grant, with the expected-term input derived from a risk-adjusted Monte Carlo simulation model that considers historical exercise
behavior and probability-weighted movements in Honeywell’s stock price over time. The grant date fair value of the performance-adjusted RSU awards was $63.39 per share, calculated in accordance with FASB ASC Topic 718 based on a multifactor Monte Carlo model which simulates Honeywell’s stock
price and TSR relative to each of the other companies in the Compensation Peer Group. 58
Type(1)
Date
Under Non-Equity
Incentive Plan Awards(2)
Under Equity
Incentive Plan Awards(3)
Option
Awards:
Number of
Securities
Underlying
Options(#)(4)
or Base
Price of
Option
Awards($/Sh)
Price on
Date of
Grant of
Option
Awards($/Sh)
Fair Value
of Stock
and
Option
Awards(5)
DESCRIPTION OF PLAN BASED AWARDS All NQSO, GPU and RSU awards granted to the Named Executive Officers in fiscal year 2012 were granted under the Company’s 2011 Stock Incentive Plan and are governed by and subject to the terms and conditions of the 2011 Stock Incentive Plan and the relevant award agreements. A detailed
discussion of stock options, GPUs and RSUs can be found beginning on page 41 of this proxy statement. OUTSTANDING EQUITY AWARDS AT 2012 FISCAL YEAR-END
Named Executive Officer
Grant
Option Awards
Stock Awards
Number of
Number of
Option
Option
Number of
Market Value
David M. Cote
2012
—
700,000
(2)
$
59.87
2/28/22
—
—
2011
193,750
581,250
(3)
$
57.05
2/24/21
—
—
2010
475,000
475,000
(4)
$
40.17
2/25/20
—
—
2009
712,500
237,500
(5)
$
28.35
2/23/19
—
—
2008
650,000
—
$
58.48
2/25/18
—
—
2007
700,000
—
$
47.38
2/25/17
—
—
2006
700,000
—
$
42.32
2/16/16
—
—
2005
600,000
—
$
36.51
2/1/15
—
—
2004
600,000
—
$
35.65
2/5/14
—
—
Total
4,631,250
1,993,750
0
$
0
David J. Anderson
2012
—
200,000
(2)
$
59.87
2/28/22
44,568
(6)
$
2,828,731
2011
68,750
206,250
(3)
$
57.05
2/24/21
—
—
2010
137,500
137,500
(4)
$
40.17
2/25/20
82,625
(7)
$
5,244,209
2009
206,250
68,750
(5)
$
28.35
2/23/19
—
—
2008
160,000
—
$
58.48
2/25/18
—
—
2007
175,000
—
$
47.38
2/25/17
—
—
2006
175,000
—
$
42.32
2/16/16
—
—
2005
150,000
—
$
36.51
2/1/15
—
—
Total
1,072,500
612,500
127,193
$
8,072,940
Roger Fradin
2012
—
—
18,232
(8)
$
1,157,185
2012
—
200,000
(2)
$
59.87
2/28/22
35,452
(6)
$
2,250,138
2011
68,750
206,250
(3)
$
57.05
2/24/21
—
—
2010
137,500
137,500
(4)
$
40.17
2/25/20
82,625
(9)
$
5,244,209
2009
206,250
68,750
(5)
$
28.35
2/23/19
Year
Securities
Underlying
Unexercised
Options(#)
Exercisable
Securities
Underlying
Unexercised
Options(#)
Unexercisable
Exercise
Price($)
Expiration
Date
Shares or
Units of
Stock That
Have Not
Vested(#)
of Shares
or Units
of Stock
That Have
Not Vested($)(1)