DEF 14A 1 litt2019_def14a.htm ITT INC. - DEF 14A ITT INC. - DEF 14A

UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

SCHEDULE 14A

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Exchange Act of 1934

 

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ITT Inc.

(Name of Registrant as Specified In Its Charter)

 

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ITT Inc.

1133 Westchester Avenue

White Plains, NY 10604

 

DEAR FELLOW

SHAREHOLDER

 

 

FRANK T. MACINNIS

CHAIRMAN OF THE BOARD

 

April 8, 2019

 

On behalf of the ITT Inc. Board of Directors, we would like to thank you for your continued investment in ITT Inc. The Company delivered strong performance in 2018, a testament to our focused strategy and the Board’s commitment to overseeing long-term shareholder value. It is my pleasure to invite you to attend the 2019 Annual Meeting of Shareholders of ITT Inc. to be held on May 22, 2019, at 9:00 a.m. Eastern Time, in White Plains, New York. Details regarding admission to the meeting and the business to be conducted are provided in the accompanying Notice of Annual Meeting and Proxy Statement.

 

Since last year’s Annual Meeting, Denise L. Ramos has retired from our Board and as Chief Executive Officer. The Board is extremely grateful to Denise for her significant contributions and many years of dedicated service to the Board and to our shareholders as a director and as CEO of ITT since 2011.

 

Your Board believes in strong corporate governance and is committed to having sound governance principles and practices. We believe that maintaining a robust governance structure helps ensure the sustainable success of our company, and the Board - along with our senior leadership team - sets the tone and drives our core values. We focus our attention on overseeing ITT’s business strategies, succession planning, board composition and engagement with our shareholders.

 

OVERSIGHT OF BUSINESS STRATEGY

 

ITT has a rich and vibrant legacy of transformation and growth, shaped by our highly engineered products and services, ongoing global expansion and successful strategic reinventions. We are committed to creating sustainable value for all of our stakeholders, supported by a balanced

strategy designed to achieve long-term profitable growth. The Board oversees ITT’s long-term strategy, the elements of which include disciplined organic and inorganic growth generated through global market expansion, new product development and smart investments, combined with operational advancements that improve overall productivity, quality and safety while reducing costs and cycle times.

 

SUCCESSFUL LEADERSHIP TRANSITION AND SUCCESSION PLANNING

 

One of our most important duties as a Board is to oversee the development of executive talent and ensure continuity in our senior leadership, and in particular to effect an orderly and stable CEO succession process. In 2018, we implemented a leadership transition under which Luca Savi, previously Chief Operating Officer, became President in August 2018 and for the remainder of 2018 worked together with Denise, the ITT leadership team and the Board to ensure a seamless transition. Luca assumed the role of CEO effective January 1, 2019 and was elected to serve as a director effective at that time. Luca brings broad knowledge of the Company’s operations and deep experience to his new role. We are very pleased with the initial progress the Company is making under his leadership.

 

BOARD COMPOSITION & REFRESHMENT

 

We also take Board succession planning very seriously and our goal is to ensure that the Board is composed of a group of directors who represent the long-term interests of our shareholders. We believe that periodic refreshment of the Board fosters critical thinking and introduces new perspectives and ideas.

 

In October 2018, as we prepared for Denise’s planned retirement and as we looked forward to other anticipated retirements over the next several years, we added two new directors to the Board. Cheryl L. Shavers and Sabrina Soussan each bring valued expertise and diverse perspectives to the Board. Our Board’s commitment over time to continuous self-evaluation, refreshment and proactive succession planning has resulted in the addition of nine new directors since 2013, a reduction in the average tenure on the Board, and rotation of all three Board committee chairs in 2017.

 

Our next planned transition is for my role as independent Chair of the Board. I had intended to retire at the 2019 Annual Meeting in May pursuant to our Corporate Governance Principles, under which directors typically do not stand for reelection after reaching age 72. As the Board evaluated


 

the timing of the CEO transition, and recognizing that significant management transitions can be disruptive to an organization, it determined that continuity of leadership in the non-executive Chair role would be beneficial for a short time following the CEO transition in order to provide for stability to ITT. At the Board’s request, I have agreed to serve through the 2020 Annual Meeting. The Board will be focused on the process for transitioning to a new independent Board Chair over the next year.

 

ENGAGEMENT WITH SHAREHOLDERS

 

We value the variety of perspectives received through engagement with our shareholders and a priority for this Board is understanding and considering the views of our shareholders as part of our decision-making process. We continue to actively engage with our shareholders through a program that is overseen by the Board. During fiscal 2018,

we engaged with governance professionals from our largest shareholders collectively representing approximately 43% of our outstanding shares. Our engagement discussions covered a number of topics including our leadership transition, the Board’s composition and governance overall, our executive compensation practices and our approach to sustainability.

 

Thank you for your continued support and confidence in ITT. We hope you can join us at the Annual Meeting.

 

Sincerely,

 

 

FRANK T. MACINNIS


 

 

 

NOTICE OF 2019 ANNUAL

MEETING OF SHAREHOLDERS

 

MEETING INFORMATION

WEDNESDAY, MAY 22, 2019

9:00 a.m. Eastern Time

 

ITT Inc.

1133 Westchester Avenue

White Plains, NY 10604

 

ITEMS OF BUSINESS

 

1. To elect the 13 nominees named in the attached Proxy Statement to the Board of Directors to serve until the 2020 annual meeting of shareholders or until their respective successors shall have been duly elected and qualified.
   
2. To ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the 2019 fiscal year.
   
3. To conduct an advisory vote on the compensation of the Company’s named executive officers.
   
4. To consider a shareholder proposal, if properly presented at the Annual Meeting.
   
5. To transact such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof.

 

WHO CAN VOTE, RECORD DATE

 

Holders of record of ITT Inc. common stock at the close of business on March 25, 2019 are entitled to vote at the Annual Meeting and any adjournment or postponement thereof.

MAILING OR AVAILABILITY DATE

 

Beginning on or about April 8, 2019, this Notice of 2019 Annual Meeting of Shareholders and the attached Proxy Statement are being mailed or made available, as the case may be, to shareholders of record on March 25, 2019.

 

ABOUT PROXY VOTING

 

It is important that your shares be represented and voted at the Annual Meeting. If you are a registered shareholder, you may vote online at www.proxyvote.com, by telephone or by mailing a proxy card. You may also vote in person at the Annual Meeting. If you hold shares through a bank, broker or other institution, you may vote your shares by any method specified on the voting instruction form that they provide. See details under “How do I vote?” under “Additional Information about Proxy Statement and Voting.” We encourage you to vote your shares as soon as possible.

 

By order of the Board of Directors,

 

 

LORI B. MARINO

Corporate Secretary

April 8, 2019


 

REVIEW YOUR PROXY STATEMENT AND VOTE IN ONE OF FOUR WAYS:

 

             
             
ONLINE   BY MAIL   BY PHONE   IN PERSON
Visit the website on   Sign, date and return your proxy   Call the telephone number   Attend the Annual Meeting in White Plains, NY
your proxy card   card in the enclosed envelope   on your proxy card   See page 77 for instructions on how to attend

 

Please refer to the enclosed proxy materials or the information forwarded by your bank, broker or other holder of record to see which voting methods are available to you.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR

ITT Inc.’s Annual Meeting of Shareholders to be held on Wednesday, May 22, 2019, at 9:00 a.m. Eastern Time
The Proxy Statement and 2018 Annual Report to Shareholders are available online at www.proxyvote.com

 
  TABLE OF CONTENTS   

 

PROXY STATEMENT EXECUTIVE SUMMARY  9
Annual Meeting of Shareholders of ITT Inc. 9
Voting Items 9
How to Vote 9
2018 Fiscal Highlights 10
Snapshot of 2019 Director Nominees 11
Corporate Governance Highlights 12
Shareholder Engagement and Responsiveness 12
Executive Compensation Highlights 13
   
CORPORATE GOVERNANCE AND RELATED MATTERS 15
Introduction 15
Corporate Governance Principles 15
Our Board Leadership Structure 16
The Board’s Role in Leadership Succession Planning 16
Directors’ Qualification and Selection Process 17
Board and Committee Evaluation Process 18
Director Orientation and Continuing Education 19
Shareholder Engagement 19
Board and Committee Meetings and Membership 21
Board and Committee Roles in Oversight of Risk 22
Overview of Committees 23
Executive Sessions of Directors 25
Director Independence 25
Code of Conduct 26
Compensation Committee Interlocks and Insider Participation 26
Communication with the Board of Directors 26
Policies for Approving Related Party Transactions 27
Corporate Responsibility and Sustainability 28
   
ELECTION OF DIRECTORS (PROXY ITEM NO. 1) 30
Election Procedures 30
2019 Director Nominees 30
   
RATIFICATION OF APPOINTMENT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PROXY ITEM NO. 2) 38
Independent Registered Public Accounting Firm Fees 39
Pre-Approval of Audit and Non-Audit Services 39
   
AUDIT COMMITTEE REPORT 40
Role of the Audit Committee 40
Audit Committee Charter 41
Regular Review of Financial Statements 41
Communications with Deloitte 41
Independence of Deloitte 41
Recommendation Regarding Annual Report on Form 10-K 41
   
ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION (PROXY ITEM NO. 3) 42

 

ITT INC. | 2019 PROXY STATEMENT    6

 
COMPENSATION DISCUSSION AND ANALYSIS 43
Executive Summary 43
Governance and Compensation 46
Elements of Compensation 48
2018 Annual Incentive Plan 49
2018 Long-Term Incentive Compensation 52
What’s New for 2019 54
Benefits and Perquisites 54
Other Compensation and Benefits 55
Policies 56
   
COMPENSATION TABLES 58
Summary Compensation Table 58
All Other Compensation Table 59
Grants of Plan-Based Awards in 2018 60
Outstanding Equity Awards at 2018 Fiscal Year End 61
Option Exercises and Stock Vested in 2018 62
2018 Pension Benefits 62
2018 Nonqualifed Deferred Compensation 64
Potential Post-Employment Compensation 67
CEO Pay Ratio 71
   
COMPENSATION AND PERSONNEL COMMITTEE REPORT 72
   
2018 NON-MANAGEMENT DIRECTOR COMPENSATION 72
   
CONSIDERATION OF A SHAREHOLDER PROPOSAL REGARDING THE CHAIR OF THE BOARD TO BE INDEPENDENT(PROXY ITEM NO. 4) 75
   
OTHER MATTERS 77
Information about the Proxy Statement & Voting 77
Voting Information 78
Stock Ownership of Directors, Executive Officers and Certain Shareholders 84
Section 16 Beneficial Ownership Reporting Compliance 85
Form 10-K 86
   
APPENDIX A 87

 

ITT INC. | 2019 PROXY STATEMENT    7

 

 

PROXY STATEMENT EXECUTIVE SUMMARY

 

This summary highlights selected information in this Proxy Statement. Please review the entire document before voting.

 

ANNUAL MEETING OF SHAREHOLDERS OF ITT INC.

 

Date May 22, 2019
Time 9:00 a.m. Eastern Time
Location ITT Inc., 1133 Westchester Avenue, White Plains, NY 10604
Admission Information See page 77 for instructions

 

VOTING ITEMS

 

Voting Item   Board Voting
Recommendation
  Further
Information (page)
1. To elect the 13 nominees named in the Proxy Statement to ITT’s Board of Directors   FOR
each nominee
  30
2. To ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for 2019   FOR   38
3. To conduct an advisory vote on the compensation of the Company’s named executive officers   FOR   42
4. To consider a shareholder proposal requiring a policy that the chair of the board be independent   AGAINST   75

 

HOW TO VOTE

 

Your vote is important. You are eligible to vote if you were a shareholder of record at the close of business on March 25, 2019. Even if you plan to attend the meeting, please vote as soon as possible using one of the following methods. In all cases, you should have your proxy card in hand.

 

YOUR VOTE IS IMPORTANT:
 
ONLINE BY MAIL BY PHONE IN PERSON
Visit the website on your proxy card Sign, date and return your proxy card in the enclosed envelope Call the telephone number on your proxy card Attend the Annual Meeting in White Plains, NY. See page 77 for instructions on how to attend

 

ITT INC. | 2019 PROXY STATEMENT    9

 

 

2018 FISCAL HIGHLIGHTS

 

In August 2018, we announced the results of our thorough, multi-year CEO succession planning process undertaken by our Board. On January 1, 2019, Luca Savi became our President and CEO, succeeding Denise L. Ramos, who had served as President and CEO for seven years. As a member of the ITT Leadership Team since joining ITT in 2011, Mr. Savi has helped shape and execute the strategies that have driven our strong ongoing performance, and he has a proven track record of leading innovation, business and market growth, and operational excellence, both at ITT and in other roles throughout his career. Mr. Savi has held various senior leadership roles since joining the Company, most recently the role of President and Chief Operating Officer where he oversaw all three of the Company’s business units.

 

The following are highlights from our reported fiscal 2018 performance (all financial comparisons are 2018 to 2017):

 

■    $2.89B Total Orders +10%; Organic Orders +8%
$2.75B Total Revenue +6%; Organic Revenue +4%
Segment Operating Income +27%; Adjusted Segment Operating Income +18%
$3.75 EPS +191%; $3.23 Adjusted EPS +25%
Operating Cash Flow +50%; Free Cash Flow +106%; Adjusted Free Cash Flow +34%

 

In 2018, we also returned $97 million to shareholders, in dividends and share repurchases, and we will continue to be disciplined and thoughtful in our capital deployment approach.

 

See the section titled “Key Performance Indicators and Non-GAAP Financial Measures” in our Annual Report on Form 10-K filed with the SEC for the reasons why we use non-GAAP financial measures and reconciliations to the comparable GAAP financial measures.

 

ITT INC. | 2019 PROXY STATEMENT    10

 

 

SNAPSHOT OF 2019 DIRECTOR NOMINEES

 

As a whole, our director nominees possess a variety of important qualifications, skills and attributes, including those set forth in the chart below.

 

DIRECTOR SNAPSHOT
                    Board Committees
            Other                
            Public               Nominating
        Director   Company           Compensation   and
Name   Age   Since   Boards   Position   Audit   and Personnel   Governance
Orlando D. Ashford   50   2011   0   President of Holland America Line        
Geraud Darnis   59   2015   0   Former President & CEO of UTC Building & Industrial Systems        
Donald DeFosset, Jr.   70   2011   3   Former Chairman, President & CEO of Walter Industries, Inc.        
Nicholas C. Fanandakis   62   2016   1   Executive Vice President of DowDuPont          
Christina A. Gold   71   1997   2   Former President & CEO of The Western Union Company          
Richard P. Lavin   67   2013   2   Former President & CEO of Commercial Vehicle Group, Inc.        
Mario Longhi   64   2017   1   Former President & CEO of United States Steel Corporation          
Frank T. MacInnis   72   2011   0   Former CEO of EMCOR Group, Inc.          
Rebecca A. McDonald   66   2013   0   Former CEO of Laurus Energy, Inc.          
Timothy H. Powers   69   2015   1   Former Chairman, President & CEO of Hubbell, Inc.        
Luca Savi   53   2018   0   President & CEO of ITT Inc.            
Cheryl L. Shavers   65   2018   2   Co-Founder, Chairman & Chief Executive Officer of Global Smarts, Inc.          
Sabrina Soussan   49   2018   0   CEO, Mobility Division of Siemens AG          
                             
Chair

 

* Is a citizen of a non-U.S. country (in some cases, in addition to the U.S.)

 

ITT INC. | 2019 PROXY STATEMENT    11

 

 

CORPORATE GOVERNANCE HIGHLIGHTS

 

We are committed to strong governance practices that protect the long-term interests of our shareholders and establish strong Board and management accountability. The “Corporate Governance and Related Matters” section beginning on page 15 describes our governance framework. We have adopted key corporate governance best practices, including:

 

WHAT WE DO
Independent Chair   Annual Board and committee evaluation and self-assessments
Highly independent and diverse Board   Active Board refreshment
Annual election of directors   Director skillsets aligned with corporate strategy
Majority voting for uncontested director elections   Formal limit on outside directorships
Regular executive sessions of the Board and its committees   Meaningful stock ownership guidelines for directors
Proxy access right   Formal director orientation and continuing education program
Shareholder right to call special meetings   Proactive engagement with shareholders

 

SHAREHOLDER ENGAGEMENT AND RESPONSIVENESS

 

We have taken a more proactive approach to engagement since formalizing our process in 2017. We increased the number of shareholders and percentage of shares covered by our outreach in late 2018 to 59% of our shares outstanding. This year, in addition to representatives from management, our independent Chairman also participated in engagement meetings upon request. The feedback we received was shared with the entire Board of Directors and members of senior management.

 

Given our recent CEO transition, our shareholders were particularly interested in understanding how our Board oversees succession planning, and investors appreciated ITT’s thoughtful long-term succession process and our smooth leadership transition over the past year. Other key themes included sustainability initiatives, human capital management and Board composition. These conversations continue to inform our Board’s actions, including our approach to Board refreshment and diversity, and our reporting efforts on sustainability topics. The Sustainability Report that ITT published in February 2019 was shaped by our discussions with investors and is intended to be a first step to more meaningful disclosure by the Company in this area.

 

We encourage our registered shareholders to use the space provided on the proxy card to let us know your thoughts about ITT or to bring a particular matter to our attention. If you hold shares through an intermediary or received the proxy materials electronically, please feel free to write directly to us.

 

ITT INC. | 2019 PROXY STATEMENT    12

 

 

EXECUTIVE COMPENSATION HIGHLIGHTS

 

As previously described in the Letter From Our Chairman, we recently completed a thorough, multi-year CEO succession planning process. On January 1, 2019, Luca Savi, previously President and Chief Operating Officer of the Company, was promoted to President and CEO. In setting compensation for our new CEO, the Compensation and Personnel Committee considered a number of factors, including peer group benchmarking and prior CEO compensation levels.

 

The Committee believes that CEO pay should increase with sustained individual and company performance. In light of the fact that 2019 will be Mr. Savi’s first year in the CEO role, the Committee set Mr. Savi’s target pay below the target pay of Ms. Ramos. For more information regarding CEO compensation, please see “CEO Succession and Pay Decisions” later in this Proxy Statement.

 

        2018 CEO Target   2019 CEO Target
        Pay   Pay
    Pay Component   Denise Ramos   Luca Savi
The Committee believes CEO target pay should increase with sustained individual and company performance.   Base Salary   $1,000,000   $900,000
  Annual Incentive Plan   $1,200,000   $900,000
  Target (“AIP”)   (120% of salary)   (100% of salary)
           
  Long-Term Incentives (“LTI”)(1)   $4,500,000   $3,200,000
  ANNUAL TARGET
COMPENSATION
  $6,700,000   $5,000,000
(1) The 2018 LTI value for Ms. Ramos differs from what is displayed in the Summary Compensation Table (“SCT”) and Grants of Plan-Based Awards table for 2018, each of which present the grant date fair value. Mr. Savi’s 2019 LTI award was granted in March 2019 and is not included in the SCT and the Grants of Plan-Based Awards table.

 

The Compensation and Personnel Committee firmly believes in pay-for-performance and has designed our compensation programs to align the pay of our senior executives with both our short-term and long-term financial results and the performance of our stock. The majority of pay for our CEO and other NEOs is “at risk” and is impacted by our financial results and stock price performance.

 

 

Our pay-for-performance approach is illustrated by the alignment of our CEO’s realized pay over the last three years to our three-year total shareholder return (“TSR”) and one-year adjusted EPS growth. See the section titled “2018 AIP Performance Metrics and Weightings” for the definition of adjusted EPS. For additional details about our CEO realized pay calculation, please see “CEO Realized Pay” later in this Proxy Statement.

 

ITT INC. | 2019 PROXY STATEMENT    13

 

 

 

Target pay for each calendar year includes: annual salary rate + AIP award at target payout + the grant date fair value of LTI awards granted during the year.

 

Realized pay for each calendar year includes: annual salary rate + actual AIP payout + the intrinsic value of RSU and stock option awards that vested during the year, and the most recent PSU award payout (for stock awards granted three years prior), calculated as of the vesting date.

 

ITT INC. | 2019 PROXY STATEMENT    14

 

CORPORATE GOVERNANCE AND RELATED MATTERS

 

INTRODUCTION

 

We strive to maintain the highest standards of corporate governance and ethical conduct. Maintaining full compliance with the laws, rules and regulations that govern our business, and reporting results with accuracy and transparency, are critical to those efforts. We monitor developments in the area of corporate governance, consider the feedback of our shareholders, and review our processes and procedures in light of this input. We also review federal and state laws affecting corporate governance, as well as rules and requirements of the New York Stock Exchange (the “NYSE”). We implement other corporate governance practices that we believe are in the best interests of the Company and its shareholders.

 

We also understand that corporate governance practices evolve over time, and we seek to maintain practices that provide the right framework for our operations at that time, that are of value to our shareholders and that positively aid in the governance of the Company.

 

The following sections provide an overview of ITT’s corporate governance structure and processes, including independence and other criteria we use in selecting director nominees, our leadership structure, and certain responsibilities and activities of the Board of Directors and its committees.

 

ITT’s key governance documents, including our Corporate Governance Principles (the “Principles”), and the charters for the Audit, Compensation and Personnel and Nominating and Governance Committees, are available on our website at www.itt.com/investors/governance/. Our Code of Conduct is available on our website at www.itt.com. We have included our website addresses only as inactive textual references and do not intend them to be active links to our website. Our website is not incorporated into or a part of this Proxy Statement. Shareholders may also obtain copies of these documents free of charge by sending a written request to ITT Inc., 1133 Westchester Avenue, White Plains, NY 10604, Attention: Corporate Secretary.

 

CORPORATE GOVERNANCE PRINCIPLES

 

The Board of Directors has adopted the Principles, which govern the operations of the Board and its committees and guide the Board and ITT’s leadership team in the execution of their responsibilities. The Nominating and Governance Committee is responsible for overseeing the Principles. The Nominating and Governance Committee reviews the Principles at least annually and makes recommendations to the Board for updates in response to changing regulatory requirements, issues raised by shareholders or other stakeholders, changing regulatory requirements or otherwise as circumstances warrant. The Board may amend, waive, suspend or repeal any of the Principles at any time, with or without public notice, as it determines necessary or appropriate in the exercise of the Board’s judgment or fiduciary duties. As noted above, we have posted the Principles on our website at: www.itt.com/investors/governance/. The Principles include the following items concerning the Board:

 

no director may stand for re-election after he or she has reached the age of 72;
directors must be able to devote the requisite time for preparation and attendance at regularly scheduled Board and committee meetings, as well as be able to participate in other matters necessary for good corporate governance;
directors are limited to service on four public company boards (including the ITT Board). If the director serves as an active CEO of a public company, the director is limited to service on two public company boards (including the ITT board) in addition to service on his or her own board;
the CEO reports at least annually to the Board on succession planning and management development;
the Board evaluates the performance of the CEO and other senior management personnel at least annually; and
the Board maintains a process whereby the Board and its committees are subject to annual evaluation and self-assessment.

 

ITT INC. | 2019 PROXY STATEMENT    15

 

OUR BOARD LEADERSHIP STRUCTURE

 

Our Board does not have a formal policy with respect to the separation of the roles of Chair of the Board and Chief Executive Officer. The Board believes that this is a matter that should be discussed and determined by the Board from time to time and that each of the possible leadership structures for a board of directors has its particular advantages and disadvantages. These factors must be considered in the context of the specific circumstances, giving due consideration to the individuals involved, the culture and performance of the Company, the needs of the business, fulfillment of the duties of the Board and the best interests of shareholders. Although the Board may determine to combine the roles of Chair and Chief Executive Officer in the future, since 2011 the Board has determined that having separate individuals holding the Chair and Chief Executive Officer positions is the right leadership structure for the Company. This structure allows our Chief Executive Officer to focus on the operations of our business while the independent Chair focuses on leading the Board in its responsibilities. The Board most recently considered the appropriate leadership structure for the Board as part of the recently completed CEO transition and confirmed that this separation continues to be in the best interests of ITT’s shareholders at this time as well as for the foreseeable future.

 

THE BOARD’S ROLE IN LEADERSHIP SUCCESSION PLANNING

 

The Board is actively engaged in our talent management program. The Compensation and Personnel Committee oversees the process for succession planning for the CEO and other senior executives and updates the full Board in its executive sessions. The full Board holds a formal succession planning and talent review session each summer. These sessions include the identification and development of internal candidates and assessment of key capabilities, desired leadership skills and the ability to influence our business and strategic direction consistent with our core values.

 

Directors interact with ITT leaders through Board presentations and discussions, as well as through informal events and interactions throughout the year such as lunch, dinner, small group and planned one-on-one sessions.

 

CEO TRANSITION

 

Pursuant to our succession planning process, effective January 1, 2019, the Board appointed Mr. Savi as CEO to succeed Ms. Ramos. In appointing Mr. Savi to this role, the Board considered his significant experience in many of the Company’s most important end-markets as well as his extensive operational and manufacturing experience with industrial companies. The Board also considered his strong performance in senior leadership roles at ITT since joining in 2011, particularly as President of the Company’s largest business unit and as its Chief Operating Officer since January 2017.

 

As part of the succession planning process, the Board also reviews and maintains an emergency succession plan for the position of CEO.

 

INDEPENDENT CHAIR TRANSITION

 

Under the Company’s Corporate Governance Principles, directors shall not stand for reelection after reaching the age of 72. Pursuant to this provision, ITT’s non-executive Chairman, Frank T. MacInnis, was scheduled to retire at the 2019 Annual Meeting of Shareholders. However, in light of the Company’s CEO transition which was effective on January 1, 2019, the Board approved a one-year waiver to the Corporate Governance Principles to permit Mr. MacInnis to stand for reelection at the 2019 Annual Meeting of Shareholders and, should he be elected, to continue in his role as independent Chairman for up to one additional year. The Board recognizes that significant management events such as a CEO transition can be disruptive to an organization and believes that the Company will benefit from the stability provided by continuity of leadership in the independent Chair role for an additional year. As such, the Board requested that Mr. MacInnis continue his service for an additional year and he agreed to do so.

 

ITT INC. | 2019 PROXY STATEMENT    16

 

DIRECTORS’ QUALIFICATION AND SELECTION PROCESS

 

BOARD MEMBERSHIP CRITERIA

 

The Nominating and Governance Committee regularly considers and reviews with the Board the appropriate skills and characteristics for Board members in fulfilling its responsibility to identify and recommend qualified candidates for membership on the Board.

 

The Corporate Governance Principles state that as part of the membership criteria for new Board members, individuals who are nominated are expected to have significant accomplishments and recognized business stature and possess attributes and experiences such as diversity, management skills and business, technological and international experience. The Nominating and Governance Committee’s top priority is therefore ensuring that the Board is composed of directors who bring diverse viewpoints and perspectives, exhibit a variety of skills, professional experience and backgrounds, and effectively represent the long-term interests of shareholders.

 

Additional criteria for identifying and evaluating candidates for the Board include:

 

personal qualities and characteristics, accomplishments and reputation in the business community;
current knowledge and contacts in the communities in which the Company does business and in the Company’s industry;
the fit of the individual’s skills and personality with those of other directors in building a Board that is effective, collegial and responsive;
ability and willingness to commit adequate time to Board and committee matters;
diversity of viewpoints, background, experience and other demographics;
independence (including independence from the interests of a particular group of shareholders);
absence of potential conflicts with our interests; and
such other criteria as the Board may determine relevant.

 

DIRECTOR SKILLS

 

Our director nominees possess relevant experience, skills and qualifications that contribute to a well-functioning Board that effectively oversees the Company’s strategy and management. All of our director nominees bring to the Board a wealth of executive leadership experience derived from their diverse professional backgrounds and areas of expertise. As a group, they have global industrial and financial expertise, public company board experience and sound business acumen.

 

DIRECTOR SKILLS, EXPERIENCE AND EXPERTISE

 

 

BOARD DIVERSITY

 

The Board actively seeks to consider diverse candidates for membership on the Board when it has a vacancy to fill and includes diversity as a specific factor when conducting any search for candidates. In identifying and evaluating candidates for the Board, the Nominating and Governance Committee considers the diversity of the Board, including diversity of skills, experience and backgrounds, as well as ethnic and gender diversity. We believe that our Board nominees appropriately reflect a diversity of skills, of professional, gender, ethnic and personal backgrounds, and of experience.

 

 

BOARD TENURE

 

The Board also strives to maintain an appropriate balance of tenure and turnover among directors. The Board believes that there are significant benefits from the valuable experience and familiarity with the Company and its people and processes that longer-tenured directors bring, as well as significant benefits from the fresh perspective and ideas brought by new directors. We believe that our Board strikes the right balance of longer serving and newer directors.

 

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PROCESS FOR IDENTIFYING AND SELECTING NEW BOARD MEMBERS

 

The Nominating and Governance Committee identifies director candidates through a variety of sources including an independent search firm, personal references, business contacts and our shareholders.

 

Shareholders who wish to recommend candidates may contact the Nominating and Governance Committee in the manner described in “Communication with the Board of Directors.” Shareholder nominations must be made according to the procedures required by our Amended and Restated By-laws (the “By-laws”) and described in this Proxy Statement under the heading “Information about the Proxy Statement & Voting.” Shareholder-recommended candidates and shareholder nominees whose nominations comply with these procedures and who meet the criteria referred to above will be evaluated by the Nominating and Governance Committee in the same manner as other nominees.

 

A key component to the nomination (and re-nomination) process is the Nominating and Governance Committee’s consideration of the results of the Board’s evaluation process. The results generated from this evaluation process include nominee attributes and experiences that will individually and collectively complement the existing Board, taking into account the Board’s needs for expertise and recognizing that the Company’s businesses and operations are diverse and global in nature.

 

Prior to recommending nominees for election as directors, the Nominating and Governance Committee, and then the full Board of Directors, engages in a deliberative process and considers the following to ensure that the nominee will contribute to an effective Board of Directors:

 

the nominee’s fit with the membership criteria discussed above;
the nominee’s skills and attributes and overall complement to the skills matrix discussed above; and
the diversity that the nominee will add to the Board.

 

Biographical information for each candidate for election as a director is evaluated and candidates for election participate in interviews with existing Board members and management. Each candidate is subject to thorough background checks and nominees must meet the requirements of the Company’s By-laws and the Corporate Governance Principles.

 

BOARD AND COMMITTEE EVALUATION PROCESS

 

We recognize the critical role that Board and committee evaluations play in ensuring the effective functioning of our Board. Our Board annually evaluates the performance of the Board and its committees. As part of the Board’s self-assessment process, directors complete questionnaires that consider various topics related to Board composition, structure, effectiveness and responsibilities, as well as the overall mix of director skills, experience and backgrounds. As set forth in its charter, the Nominating and Governance Committee oversees the Board and committee evaluation process. Annually, the Nominating and Governance Committee reviews the questionnaires and the process and considers whether changes are recommended.

 

TOPICS CONSIDERED DURING THE BOARD AND COMMITTEE SELF-ASSESSMENTS INCLUDE:

 

Board and Committee Operations   Board Performance   Committee Performance
  Board and committee membership, including director skills, background, expertise and diversity   ■  Key areas of focus for the Board   ■  Performance of committee duties under committee charters
  Committee structure and process, including keeping the full Board abreast of committee matters   ■  Oversight of the Company’s strategy     Effectiveness of management support for committees
  Access to management, experts and internal and external resources     Effectiveness of risk oversight     Identification of topics that should receive more attention and discussion, particularly emerging risk areas
  Materials and information, including the quality and quantity of information received     Performance of Board Chair     Performance of committee chairs
  Conduct of meetings, including encouragement of and time allocated for candid dialogue        

 

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The Company’s Corporate Secretary aggregates and summarizes all of the directors’ responses to the questionnaires, highlighting comments and year-over-year trends. Responses are not attributed to specific Board or committee members to promote candor. These summaries are shared with the Board and committee members to inform their review and discussion. The Chair of the Nominating and Governance Committee, with support from the Corporate Secretary, leads a discussion of the Board and committee results at the Nominating and Governance Committee meeting as well as with the full Board. Each committee chair, with support from the Corporate Secretary, leads a discussion at their committee meeting of their individual assessments. As a result of these discussions, an action plan is created and practices are updated based on the self-assessment observations and suggestions. As an outcome of these discussions, directors share relevant feedback with management and suggest changes or areas of improvement or focus.

 

Following the in-person review of the results of the Board and committee self-assessments, our independent Chair has individual one-on-one discussions with each director to elicit any further information about their views on the functioning of the Board and its committees. Feedback from those discussions is also incorporated into the overall action plan.

 

Examples of changes made in response to the self-assessment process over the last several years include:

 

prioritizing diversity in the next director search;
increased Board exposure both formally and informally to key executives;
additional reserved time for “Board only” discussions to continue to foster openness and cohesiveness among the Board; and
a coordinated director education schedule to provide additional education on relevant topics as part of regularly scheduled meetings.

 

The Board of Directors has considered whether to engage an independent third party to conduct or facilitate the Board self-assessments and has to date concluded that an independent review is not necessary. The Board has agreed that it will consider this as needed.

 

The results of the self-assessment process in 2018 confirmed the Board’s belief that the Board and its committees are currently operating effectively.

 

DIRECTOR ORIENTATION AND CONTINUING EDUCATION

 

As part of ITT’s director orientation program, new directors participate in one-on-one introductory meetings with members of ITT’s leadership team and other functional leaders. This director orientation familiarizes the directors with our business and strategic plans, significant financial, accounting and risk management issues, human resources matters, our compliance programs and other controls, policies and procedures. The orientation also addresses Board procedures, our Principles and our Board committee charters. Finally, it provides directors with the opportunity to meet with our officers and other key members of senior management.

 

The Company endeavors to provide ongoing director education throughout the year. Our annual strategy session, where senior management presents the strategic plans for each of the businesses and the Company as a whole, is one component of that ongoing education. We aim to periodically hold the annual strategy session at an ITT facility in order to increase the Board’s understanding of the Company’s people, operations, product lines and overall business. Our senior management also presents topics throughout the year to the Board in order to increase their understanding of the Company’s business operations, strategies, risks and opportunities.

 

Directors may enroll in external continuing education programs at ITT’s expense on topics associated with a director’s service on a public company board in order to provide a forum for them to maintain their insight into leading governance practices, exchange ideas with peers and keep current their skills and understanding of their duties as directors.

 

SHAREHOLDER ENGAGEMENT

 

Our Board values the views of our shareholders, and the feedback we receive from shareholders is a key input to our corporate governance, executive compensation and sustainability practices.

 

ENGAGEMENT PROGRAM

 

We have taken a more proactive approach to engagement since formalizing our process in 2017, and through our expanded shareholder outreach efforts we increased the number of shareholders and percentage of shares engaged in our 2018 outreach. In 2018, in addition to representatives from management, our independent Chairman also participated in engagement meetings upon request.

 

We believe it is important for the Company to have a direct line of communication with shareholders so that the Board and management are better able to assess our policies and practices continually, all as informed by shareholder perspectives.

 

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2018 ENGAGEMENT FEEDBACK

 

An overview of the specific areas of focus for our shareholders during these meetings is provided in the table below:

 

Shareholder Engagement Outreach Efforts
Percent of Shares Outstanding Contacted:
58.8%
Percent of Shares Outstanding Engaged:
42.6%
Specific Areas of Focus and Feedback
Corporate Governance   Executive Compensation   Sustainability
Succession Planning   Compensation Program   Sustainability Reporting
■  Discussed Board’s active role in overseeing CEO transition     Shareholders appreciated straightforward program structure and connection between metrics and ITT’s long-term business strategy     Shareholders recognized rationale for publication of Sustainability Report in 2019 to allow for input from new CEO
  Discussed Board’s focus on independent oversight, including continuity provided by maintaining independent Chair through transition     Shareholders acknowledged alignment of pay and overall company performance, including reduced payouts at times in recent years driven by results     Shareholders encouraged updated sustainability disclosure, including discussion of areas most relevant to ITT’s business
  Shareholders were appreciative of thoughtful long-term succession process and smooth transition     Discussed component of AIP based on individual and team goals     Discussed investors’ views on various data sources and emerging reporting standards
         
Diversity and Refreshment   Transition-Related Decisions   Human Capital Management
  Shareholders recognized ITT’s commitment to Board diversity, including gender, race/ethnicity, age, geography and business experience     Discussed incoming and outgoing CEO pay arrangements     Discussed Board’s focus on measuring employee engagement and culture, and next steps to continue cultivating our culture
  Shareholders appreciated ITT’s regular Board refreshment, attention to balanced tenure and skillsets, and overall Board diversity     Shareholders were supportive of minimal use of transition-related compensation as a result of thoughtful succession planning    

 

BOARD ACTIONS IN RESPONSE TO SHAREHOLDER FEEDBACK

 

We have taken a number of actions as a result of the feedback we have received in recent years, including the following:

 

Disclosure. We have made concerted efforts to improve our disclosure on key areas of shareholder interest, including long-term strategy, shareholder engagement and information regarding sustainability practices and approach.
Board Refreshment. Our approach to Board refreshment and diversity was informed by our discussions with shareholders, and the actions we took in 2018 continued to decrease the average tenure of our Board and to increase its overall diversity.
Shareholder Rights. One area of particular focus during our engagements with investors in recent years was the right of our shareholders to call a special meeting. In part due to a shareholder proposal and shareholder feedback we received, the Board took action in 2018 to propose amendments to the Company’s Articles of Incorporation and By-laws to reduce the percentage of outstanding stock required for shareholders to call a special meeting of shareholders to 25%.
Sustainability. With respect to sustainability, we will continue to actively engage with investors and thought leaders regarding this evolving area of interest to inform and advance the dialogue and to assess appropriate next steps relating to disclosure of environmental, social and governance (“ESG”) metrics. ITT recently published a Sustainability Report, which was shaped by our discussions with investors and is intended to be a first step to more meaningful disclosure by the Company in this area.

 

We encourage shareholders to continue to engage with us and let us know your thoughts about ITT or to bring any matters to our attention. Please feel free to write directly to us at ITT Inc., 1133 Westchester Avenue, White Plains, NY 10604. Attention: Corporate Secretary.

 

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BOARD AND COMMITTEE MEETINGS AND MEMBERSHIP

 

The Board of Directors and its committees meet throughout the year on a set schedule, and also hold special meetings and act by written consent from time to time as appropriate. Under the Principles, directors are expected to attend all meetings of the Board and all meetings of the committees of which they are members. Members may attend by telephone or video conference, although in-person attendance at regularly scheduled meetings is strongly encouraged. The Board of Directors held 11 meetings during the 2018 fiscal year, and there were 17 meetings of standing committees. All directors attended at least 75% of the aggregate of all meetings of the Board and standing committees on which they served. It is Company practice that all directors attend our annual meetings. All directors who were on the Board at that time attended our 2018 Annual meeting of shareholders either in person or telephonically.

 

The Board of Directors has an Audit Committee, a Compensation and Personnel Committee and a Nominating and Governance Committee. The following table summarizes the current membership of each Committee:

 

Name Audit   Compensation
and Personnel
  Nominating and
Governance
Orlando D. Ashford      
Geraud Darnis      
Donald DeFosset, Jr.      
Nicholas C. Fanandakis        
Christina A. Gold        
Richard P. Lavin      
Mario Longhi        
Frank T. MacInnis        
Rebecca A. McDonald        
Timothy H. Powers      
Luca Savi          
Cheryl L. Shavers        
Sabrina Soussan        
Chair

 

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BOARD AND COMMITTEE ROLES IN OVERSIGHT OF RISK

 

 

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OVERVIEW OF COMMITTEES

 

The charters of each of the Audit, Compensation and Personnel and Nominating and Governance Committees conform with the applicable NYSE listing standards, and each committee reviews its charter at least annually, and as regulatory developments and business circumstances warrant. Each of the committees considers revisions to its respective charter from time to time to reflect evolving best practices. The descriptions below of the roles and responsibilities of each of the committees of the Board are qualified by reference to the complete committee charters, which are available on our website at www.itt.com/investors/governance/.

 

AUDIT COMMITTEE

     
Attendance Responsibilities

Meetings Held in 2018: 9

Committee Members
Timothy H. Powers (Chair)
Geraud Darnis
Donald DeFosset, Jr.
Nicholas C. Fanandakis
Richard P. Lavin
Sabrina Soussan
(appointed December 18, 2018)

Purpose: assist the Board of Directors in fulfilling its responsibility to oversee management’s conduct of the financial reporting process.
   
The Audit Committee is primarily responsible for:
   
reviewing and discussing with management and the independent auditor the annual audited and quarterly unaudited financial statements and approving those financial statements for inclusion in the Company’s public filings;
   
reviewing and overseeing the Company’s selection and application of accounting principles and matters relating to the Company’s internal controls and disclosure controls and procedures;
   
overseeing the Company’s compliance with legal and regulatory requirements, including reviewing the effect of regulatory and accounting initiatives on the Company’s financial statements;
   
overseeing the structure and scope of the Company’s internal audit function; and
   
overseeing the Company’s policies on risk assessment and management.
   
The Audit Committee is also directly responsible for the selection and oversight of the Company’s independent registered public accounting firm, including determining the firm’s qualifications, independence, scope of responsibility and compensation.
Audit Committee Report, Page 40

 

The Audit Committee has established policies and procedures for the pre-approval of all services by our independent registered public accounting firm. The Audit Committee also has established procedures for the receipt, retention and treatment, on a confidential basis, of complaints received regarding accounting, internal controls and auditing matters. Additional details on the role of the Audit Committee may be found in “Ratification of the Independent Registered Public Accounting Firm (Proxy Item No. 2)” later in this Proxy Statement.

 

The Board of Directors has determined that each member of the Audit Committee is financially literate and independent, as defined by the rules of the Securities and Exchange Commission (the “SEC”) and the NYSE’s listing standard, as well as independent under the Principles. Although more than one member of the Audit Committee satisfies the relevant requirements, the Board of Directors has identified Timothy H. Powers as the Audit Committee financial expert. The Board of Directors has evaluated the performance of the Audit Committee consistent with regulatory requirements.

 

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COMPENSATION AND PERSONNEL COMMITTEE

     
Attendance Responsibilities

Meetings Held in 2018: 4

Committee Members
Richard P. Lavin (Chair)
Orlando D. Ashford
Christina A. Gold
Mario Longhi

Rebecca A. McDonald

Purpose: provide oversight of the compensation and benefits provided to employees of the Company.
   
The Compensation and Personnel Committee reviews and approves the Company’s overall compensation philosophy and oversees the administration of the Company’s executive compensation and benefit programs, policies and practices. Its responsibilities also include:
   
establishing annual performance objectives, evaluating performance and approving individual compensation actions for the Chief Executive Officer and other executive officers;
   
reviewing and discussing the Company’s talent review and development process, succession planning process for senior executive positions and aspects of culture and diversity for the Company;
   
approving the Compensation Discussion and Analysis included in the Company’s annual proxy statement;
   
reviewing and approving the Company’s peer companies and data sources for purposes of evaluating our compensation competitiveness and the mix of compensation; and
   
leading the Company’s Chief Executive Officer succession process.
Compensation and Personnel Committee Report, Page 72

 

The Board of Directors has determined that each member of the Compensation and Personnel Committee is independent, as defined by the rules of the SEC and the NYSE’s listing standard, as well as independent under the Principles. In addition, each committee member is a “non-employee director” as defined in Rule 16b-3 under the Securities Exchange Act of 1934 (“Exchange Act”) and an “outside director” as defined in Section 162(m) of the Internal Revenue Code. The Board of Directors has evaluated the performance of the Compensation and Personnel Committee consistent with regulatory requirements.

 

NOMINATING AND GOVERNANCE COMMITTEE

     
Attendance Responsibilities

Meetings Held in 2018: 4

Committee Members
Donald DeFosset, Jr. (Chair)
Orlando D. Ashford
Geraud Darnis
Frank T. MacInnis
Timothy H. Powers
Cheryl L. Shavers
(appointed December 18, 2018)

Purpose: ensure that the Board of Directors is appropriately constituted to meet its fiduciary obligations to shareholders of the Company.
   
The Nominating and Governance Committee oversees the practices, policies and procedures of the Board and its committees. Responsibilities include:
   
evaluating the size, composition, governance and structure of the Board and the qualifications, compensation and retirement age of directors;
   
identifying, evaluating and proposing nominees for election to the Board;
   
considering the independence and possible conflicts of interest of directors and executive officers and ensuring compliance with applicable laws and NYSE listing standards; and
   
overseeing the Company’s overall enterprise risk management program.
   
The Committee is directly responsible for:
   
overseeing the self-evaluations of the Board and its committees;
   
reviewing the Principles;
   
reviewing material related party transactions in accordance with our Related Party Transactions Policy; and
   
monitoring our directors’ outside engagements and administering our director resignation procedures when there is a change in a director’s employment status.
   
The Committee also maintains an informed status on the Company’s sustainability initiatives and on activities involving community relations and philanthropy.

 

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The Board of Directors has determined that each member of the Nominating and Governance Committee is independent, as defined by the rules of the SEC and the NYSE’s listing standard, as well as independent under the Principles. The Board of Directors has evaluated the performance of the Nominating and Governance Committee consistent with regulatory requirements.

 

As stated above, the Nominating and Governance Committee evaluates the compensation program for the non-management directors and makes recommendations to the Board regarding their compensation. The Nominating and Governance Committee has retained Pay Governance LLC (“Pay Governance”) as an independent consultant for this purpose. Pay Governance’s responsibilities include providing market comparison data on non-management director compensation at peer companies, tracking trends in non-management director compensation practices, and advising the Nominating and Governance Committee regarding the components and levels of non-management director compensation. The Nominating and Governance Committee is not aware of any conflict of interest on the part of Pay Governance arising from these services or any other factor that would impair Pay Governance’s independence. Executive officers do not play any role in either determining or recommending non-management director compensation.

 

EXECUTIVE SESSIONS OF DIRECTORS

 

Agendas for meetings of the Board of Directors include regularly scheduled executive sessions led by the Board’s non-executive Chair for the independent directors to meet without management present. Board members have access to our employees outside of Board meetings, and the Board encourages directors to visit different Company sites and events periodically and meet with local management at those sites and events, either as part of a regularly scheduled Board meeting or otherwise.

 

DIRECTOR INDEPENDENCE

 

The Board of Directors, through the Nominating and Governance Committee, conducts an annual review of the independence of its members. With the assistance of legal counsel to the Company, the Nominating and Governance Committee has reviewed the applicable standards for Board and committee member independence, as well as the standards established by the Principles. A summary of the answers to annual questionnaires completed by each of the directors and a report of transactions with director-affiliated entities are also made available to the Nominating and Governance Committee to enable its comprehensive independence review. On the basis of this review, the Nominating and Governance Committee has delivered a report to the full Board of Directors, and the Board has made its independence determinations based upon the committee’s report and the supporting information.

 

Under NYSE listing standards, an independent director must not have any material relationship with the Company, either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company. The NYSE requirements pertaining to director independence also include a series of objective tests, such as the requirement that the director is not an employee of the Company and has not engaged in various types of business dealings with the Company. The Board also considers whether directors have any relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The SEC has a separate independence requirement for Audit Committee members that overlays the NYSE requirements. The NYSE also requires directors that serve on compensation committees to satisfy additional independence requirements specific to that service.

 

The Board of Directors has determined that Mr. Savi is not “independent” because of his employment as President and Chief Executive Officer of the Company. The Board of Directors has reviewed all relationships between the Company and each other member of the Board of Directors and has affirmatively determined that all of the members of the Board other than Mr. Savi are “independent” pursuant to the applicable listing standards of the NYSE. None of these directors were disqualified from “independent” status under the objective tests set forth in the NYSE standards. In assessing independence under the subjective relationships test described above, the Board of Directors took into account the criteria for disqualification set forth in the NYSE’s objective tests, and reviewed and discussed additional information provided by each director and the Company with regard to each director’s business and personal activities as they may relate to the Company and its management. Based on the foregoing, as required by the NYSE, the Board made the subjective determination as to each of these directors that no material relationships with the Company exist and no relationships exist which, in the opinion of the Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of such director. The Board also determined that the current members of the Audit Committee and of the Compensation and Personnel Committee meet the applicable SEC and NYSE listing standard independence requirements with respect to membership on such committees.

 

In making its independence determinations, the Board considered transactions occurring since the beginning of the Company’s 2016 fiscal year between the Company and entities

 

ITT INC. | 2019 PROXY STATEMENT    25

 

associated with the directors or members of their immediate family. All identified transactions that appear to relate to the Company and a person or entity with a known connection to a director were presented to the Board of Directors for consideration. The Board also considered in its analysis the Company’s contributions to tax-exempt organizations with respect to each of the non-management directors. In making its subjective determination that each non-management director is independent, the Board considered the transactions in the context of the NYSE objective standards, the special standards established by the SEC for members of audit committees, and the SEC and Internal Revenue Service (the “IRS”) standards for compensation committee members. In each case, the Board determined that, because of the nature of the director’s relationship with the entity and/or the amount involved in the transaction, the relationship did not impair the director’s independence. The Company did not make any contributions to any tax exempt organizations in which any non-management director serves as an executive officer within the past three fiscal years where such contributions exceeded the greater of $1 million or 2% of such organization’s consolidated gross revenues.

 

CODE OF CONDUCT

 

The Company has also adopted the ITT Code of Conduct, which applies to all employees, including the Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer and, where applicable, to its non-management directors. We disclose on our website any changes or waivers from the Code of Conduct for the Company’s Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, our non-management directors and other executive officers. In addition, the Company will disclose within four business days any substantive changes in or waivers of the Code of Conduct granted to our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer, or persons performing similar functions. We intend to do this by posting such information on our website as set forth above rather than by filing a Form 8-K.

 

The Company has established a confidential ethics phone line and website to respond to employees’ questions and reports of ethical concerns. Also, the Audit Committee has established a policy with procedures to receive, retain and treat complaints received by the Company regarding accounting, internal controls or auditing matters, and to allow for the confidential, anonymous submission by employees of concerns regarding accounting or auditing matters.

 

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

 

None of the members of the Compensation and Personnel Committee during 2018 or as of the date of this Proxy Statement has been an officer or employee of the Company and no executive officer of the Company served on the compensation committee or board of any company that employed any member of our Compensation and Personnel Committee or Board of Directors.

 

COMMUNICATION WITH THE BOARD OF DIRECTORS

 

Shareholders and other interested parties may contact any of our directors (including the non-executive Chair), a committee of the Board, the Board’s non-management directors as a group, or the Board as a whole by writing to them c/o ITT Inc., 1133 Westchester Avenue, White Plains, NY 10604, Attention: Corporate Secretary. Communications are distributed to the Board, or to any individual director(s), as appropriate under the facts and circumstances. Junk mail, advertisements, product inquiries or complaints, resumes, spam and surveys are not forwarded to the Board. Material that is threatening, unduly hostile or similarly inappropriate will also not be forwarded, although any non-management director may request that any communications that have been excluded be made available.

 

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POLICIES FOR APPROVING RELATED PARTY TRANSACTIONS

 

The Board has adopted a written Related Party Transaction Policy (the “Policy”) that addresses the reporting, review and approval or ratification of transactions with related parties. The Policy covers (but is not limited to) those related party transactions and relationships required to be disclosed under Item 404(a) of the SEC’s Regulation S-K, and applies to each director or executive officer of the Company, any nominee for election as a director of the Company, any security holder who is known to the Company to own of record or beneficially more than 5% of any class of the Company’s voting securities, and any immediate family member of any of the foregoing persons (each, a “Related Party”).

 

The Company recognizes that transactions with Related Parties may involve potential or actual conflicts of interest and pose the risk that they may be, or be perceived to have been, based on considerations other than the Company’s best interests. Accordingly, as a general matter, the Company seeks to avoid such transactions. However, the Company recognizes that in some circumstances transactions between Related Parties and the Company may be incidental to the normal course of business, may provide an opportunity that is in the best interests of the Company to pursue or that may otherwise not be inconsistent with the best interests of the Company. In other cases it may be inefficient for the Company to pursue an alternative transaction. The Policy therefore is not designed to prohibit Related Party transactions; rather, it is designed to provide for timely internal reporting of such transactions and appropriate review, oversight and public disclosure of them. The Policy supplements the provisions of our Code of Conduct concerning potential conflict of interest situations. Under the Policy, an amendment to an arrangement that is considered a Related Party transaction is, unless clearly incidental in nature, considered a separate Related Party transaction.

 

The Policy provides for the Nominating and Governance Committee to review all Related Party transactions and, wherever possible, to approve such transactions in advance of any such transaction being given effect. In connection with approving or ratifying a Related Party transaction, the Nominating and Governance Committee considers, in light of the relevant facts and circumstances, whether or not the transaction is in, or not inconsistent with, the best interests of the Company, including, as applicable, consideration of the following factors:

 

the position within or relationship of the Related Party with the Company;
   
the materiality of the transaction to the Related Party and the Company, including the dollar value of the transaction, without regard to profit or loss;
   
the business purpose for and reasonableness of the transaction, taken in the context of the alternatives available to the Company for attaining the purposes of the transaction;
   
whether the transaction is comparable to a transaction that could be available on an arms-length basis or is on terms that the Company offers generally to persons who are not Related Parties;
   
whether the transaction is in the ordinary course of our business and was proposed and considered in the ordinary course of business; and
   
the effect of the transaction on our business and operations, including on the Company’s internal control over financial reporting and system of disclosure controls or procedures, and any additional conditions or controls (including reporting and review requirements) that should be applied to such transaction.

 

The Policy provides standing pre-approval for certain types of transactions that the Nominating and Governance Committee has determined do not pose a significant risk of conflict of interest, either because a Related Party would not have a material interest in a transaction of that type or due to the nature, size and/or degree of significance to the Company. The Policy is re-evaluated periodically.

 

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CORPORATE RESPONSIBILITY AND SUSTAINABILITY

 

Given that our business is rooted in manufacturing and industrial processes, we are focused on maintaining a strong governance and cultural framework that meaningfully impacts our employees, customers, communities and shareowners.

 

The Board understands that sustainability is a key focus for today’s investors and takes investor feedback on sustainability seriously. We continue to evaluate which ESG factors pose the most material risks to the Company and create the strongest opportunities to enhance our bottom line and sustain long-term financial value.

 

SUSTAINABILITY OVERSIGHT

 

Our governance processes and policies are designed to provide appropriate oversight of sustainability and inform our Board about significant ESG issues impacting the Company. These policies and processes, as well as areas of focus most relevant given our business and industry, are informed by proactive engagement with our shareholders as well as other stakeholders, including the Sustainability Accounting Standards Board (“SASB”).

 

At the Board level, the Nominating and Governance Committee and the Compensation and Personnel Committee have primary responsibility for sustainability-related topics. The Board also receives periodic reports from our internal Environment, Safety, Health & Security (“ESH&S”) team in order to stay apprised of the Company’s overall approach to these matters.

 

 

Sustainability was a key discussion topic for our investors during the Company’s 2018 shareholder engagement cycle (as discussed earlier in the Proxy Statement under “Shareholder Engagement”). We utilized these discussions as an opportunity to better understand how our shareholders are looking at this area, including emerging reporting standards, the various data sources available and companies’ reporting on this topic in general. We also used these engagement opportunities to discuss the Company’s current sustainability focus areas and recent successes we have had. The Company published a Sustainability Report in February 2019 that was informed by those discussions with investors and is intended to be a first step to more meaningful disclosure by the Company in this area. The Sustainability Report incorporated the SASB metrics relevant to the Company, as requested by many of our shareholders in our engagement discussions.

 

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SUSTAINABILITY FOCUS AREAS

 

ITT is dedicated to operating in an efficient, responsible and increasingly sustainable manner for the benefit of our stakeholders. A few of our key focus areas include:

     
Environmental
Sustainability
■   With manufacturing locations in more than 20 countries, we aim to ensure that our facilities are in compliance with local, federal and international environmental laws and strive to develop and sustain environmental excellence around the world.
“Green” Products The development of sustainable products that add value for our customers around the world is critical to our sustainability goals — over the past several years we are proud to have brought the following products to market:
  –   A powerful, innovative electric vehicle charging connector system enabling our customers to develop a smart charging station that is simple to use, easy to install, hassle-free to maintain and supports conversion to electric vehicles.
  Interior isolators for our aerospace customers that have the same performance but are significantly lighter than the traditional stainless steel isolators, reducing the overall weight of the aircraft and therefore saving on fuel consumption.
  Industrial off-the-shelf hydraulic shock absorbers that are filled with biodegradable industrial oil that is safer for both people and the environment.
We also manufacture products that address sustainability challenges.
  For example, the twin screw pumps developed by our Bornemann business help the oil industry eliminate methane flaring when processing multiphase mixtures of liquids and gases. This improves our customers’ production efficiency, reduces emissions and helps them comply with governmental regulations.
Human Capital
Management
Culture at ITT starts at the top — oversight of culture and diversity at ITT is delegated to our Compensation and Personnel Committee, and our full Board is focused on measuring and developing a high-performance culture.
We spend significant time and attention, both at the Board level and within management, in driving a robust and meaningful succession planning process.
We are focused on the attraction, retention and development of a diverse and engaged workforce.
We strive to make ITT a compelling place to work through providing strong, dynamic leadership, a supportive work environment with the opportunity to address challenging questions, maintaining industry-leading performance, providing competitive benefits and pay, and appropriately rewarding and recognizing outstanding performance.

 

ITT INC. | 2019 PROXY STATEMENT    29

 

ELECTION OF DIRECTORS

(PROXY ITEM NO. 1)

 

ELECTION PROCEDURES

 

Each director must be elected by a majority of the votes cast by the shareholders represented in person or by proxy at the Annual Meeting. A “majority of the votes cast” means that the number of votes cast “for” a director must exceed the number of votes cast “against” that director (with abstentions and broker non-votes not counted as votes cast with respect to that director). In a contested election for director (an election in which the number of nominees for election as director is greater than the number of directors to be elected), the vote standard would be a plurality of votes cast.

 

In accordance with our By-laws and the Principles, the Board will only nominate director candidates who agree to tender an irrevocable resignation promptly following their failure to receive the required vote for re-election in an uncontested election. In addition, the Board will fill director vacancies and new directorships only with candidates who agree to tender the same form of resignation promptly following their appointment to the Board.

 

If an incumbent director fails to receive the required vote for re-election in an uncontested election and submits his or her resignation to the Chair of the Board or the Corporate Secretary, then the Nominating and Governance Committee (or the equivalent committee then in existence) shall promptly consider the resignation and all relevant facts and circumstances concerning any vote and the best interests of the Company and its shareholders. After such consideration, the Nominating and Governance Committee will make a recommendation to the Board regarding whether the resignation should be accepted or rejected, or whether any other action should be taken. The Board will act on the committee’s recommendation no later than its next regularly scheduled Board meeting (after certification of the shareholder vote) or within 90 days after certification of the shareholder vote, whichever is earlier, and the Board will promptly publicly disclose its decision and the reasons for its decision.

 

Each nominee elected as a director will continue in office until the earlier of the 2020 Annual Meeting of Shareholders, his or her successor having been duly elected and qualified, or his or her death, resignation or removal.

 

The 13 nominees for election to the Board in 2019 have agreed to serve if elected, and management has no reason to believe that such nominees will be unavailable to serve. In the event that any of the nominees is unable or declines to serve as a director at the time of the Annual Meeting, then the persons named as proxies may vote for a substitute nominee chosen by the present Board to fill the vacancy. Alternatively, the Board may reduce the size of the Board of Directors. The individuals named as proxies in the proxy card intend to vote your proxy (if you are a shareholder of record) FOR the election of each of these nominees, unless you indicate otherwise on the proxy card.

 

2019 DIRECTOR NOMINEES

 

Thirteen members of our Board are standing for election to hold office until the 2020 Annual Meeting of Shareholders.

 

We believe our 2019 director nominees evidence our commitment to maintain an appropriate balance of tenure, turnover, diversity and skills on the Board. Of the 13 directors who are nominees for election at the Annual Meeting, four are female, three are racially or ethnically diverse and six are citizens of non-U.S. countries (in some cases in addition to the U.S.).As discussed in detail in our nominees’ biographies, the nominees come from diverse professional backgrounds and industries, including manufacturing, finance and technology.

 

ITT INC. | 2019 PROXY STATEMENT    30

 

The principal occupation and certain other information about the nominees is set forth on the following pages.

 

ORLANDO D. ASHFORD

 

Age: 50

 

Director since: December 2011

 

President of Holland America Line

  CAREER:  
  Orlando D. Ashford has served as the President of Holland America Line, a division of Carnival Corporation, since December 2014. Previously, Mr. Ashford was the President of the Talent business segment at Mercer, a global consulting leader and subsidiary of Marsh & McLennan Companies (“Marsh”). From 2008 to 2012, Mr. Ashford was the Senior Vice President, Chief Human Resources and Communications Officer for Marsh. Prior to joining Marsh in 2008, Mr. Ashford served as Group Director of Human Resources for Eurasia and Africa for the Coca-Cola Company and as Vice President of Global Human Resources Strategy and Organizational Development for Motorola, Inc. He has also held leadership positions with Mercer Delta Consulting, Ameritech and Andersen Consulting. Mr. Ashford serves on the board of directors for the Executive Leadership Council as immediate past chair, the Seattle chapter of the Positive Coaching Alliance and the Virginia Mason Medical Center. He also serves on the advisory board for Purdue University School of Technology.
  REASONS FOR ELECTION TO THE BOARD OF ITT:
  In considering Mr. Ashford for director of the Company, the Board considered his expertise in addressing talent, culture and human capital issues at the executive level, as well as his significant experience in multinational organizations, providing experience and skills relevant to the Company’s international sales operations.
  BOARD COMMITTEES:
    Compensation and Personnel Committee
    Nominating and Governance Committee
     
GERAUD DARNIS

Age: 59

 

Director since: October 2015

 

Former President & CEO of UTC Building & Industrial Systems

  CAREER:  
  Geraud Darnis served as the President & Chief Executive Officer of UTC Building & Industrial Systems, the world’s largest provider of high-technology building systems, whose brands include Otis, Carrier, Chubb, Kidde and Automated Logic, from September 2013 to December 2015. UTC Building & Industrial Systems is a unit of United Technologies Corporation. Mr. Darnis served as the President and Chief Executive Officer of UTC Climate, Controls and Security from September 2011 to September 2013. In 2001, he served briefly as President of UTC Power before being named President of Carrier, a position he held until 2011 when Carrier and UTC Fire & Security were combined into UTC Climate, Controls & Security. Prior to 2001, Mr. Darnis held a number of general management and financial positions at UTC in Latin America, Europe and Asia. Mr. Darnis currently serves as a director of Miliken & Company Inc. (Finance Committee and Nominating & Governance Committee). Mr. Darnis also served as a member on the Air-Conditioning, Heating and Refrigeration Institute from 2003 to 2006, including Chairman from November 2004 to November 2005, and then as an advisory member of the Executive Committee from 2007 to 2014.
  REASONS FOR ELECTION TO THE BOARD OF ITT:
  In considering Mr. Darnis for director of the Company, the Board considered his significant management experience as president of a major operating unit at a large global manufacturing company and his wide-ranging expertise in a variety of industries in which the Company operates, including industrial and aerospace.
  BOARD COMMITTEES:
  ■  Audit Committee
  ■  Nominating and Governance Committee
     

ITT INC. | 2019 PROXY STATEMENT    31

 
DONALD DEFOSSET, JR.

 

Age: 70

 

Director since: October 2011

 

Former Chairman, President & CEO of Walter Industries, Inc.

  CAREER:
  Donald DeFosset, Jr. retired in 2005 as Chairman, President and Chief Executive Officer of Walter Industries, Inc., a diversified public company with principal operating businesses in homebuilding and home financing, water transmission products and energy services. Mr. DeFosset had served since November 2000 as President and Chief Executive Officer, and since March 2002 as Chairman, of Walter Industries. Over his career, Mr. DeFosset held significant leadership positions in major multinational corporations, including Dura Automotive Systems, Inc., Navistar International Corporation and AlliedSignal, Inc. Mr. DeFosset is currently a director of the following public companies: National Retail Properties Inc. since 2008 (Non-Executive Chairman of the Board); Regions Financial Corporation since 2005 (Chairman of the Compensation Committee; Risk Committee); and Terex Corporation since 1999 (Chairman of the Nominating and Governance Committee; Audit Committee). Mr. DeFosset is also a director of various private companies and not-for-profit organizations.
  REASONS FOR ELECTION TO THE BOARD OF ITT:
  In considering Mr. DeFosset for director of the Company, the Board considered his extensive experience as a chief executive of a large diversified industrial company and as a senior executive of an international machinery manufacturer. His service on the boards of directors of a variety of large public companies further enhances his experience and adds value to the Company’s Board.
  BOARD COMMITTEES: OTHER PUBLIC COMPANY BOARDS:
  ■  Nominating and Governance Committee (Chair) ■  National Retail Properties, Inc.
  ■  Audit Committee ■  Regions Financial Corporation
    ■  Terex Corporation
       
NICHOLAS C. FANANDAKIS

 

Age: 62

 

Director since: October 2016

 

Executive Vice President of DowDuPont

  CAREER:  
  Nicholas C. Fanandakis currently serves as Executive Vice President of DowDuPont. From November 2009 to September 2017, he served as Executive Vice President and Chief Financial Officer of DuPont. He previously served as Group Vice President of DuPont Applied BioSciences in 2008 and the Vice President of Corporate Plans in 2007. Prior to 2007, Mr. Fanandakis served in several positions within the DuPont organization ranging from a variety of plant, marketing and product management positions within Petrochemicals, Chemicals & Pigments, and Specialty Chemicals, as well as in the Industrial Solutions market space. Mr. Fanandakis joined DuPont in 1979 as an accounting and business analyst in the Petrochemicals Department. Mr. Fanandakis is currently a director of the following public company: FTI Consulting, Inc. since January 2014 (Chairman of the Audit Committee).
  REASONS FOR ELECTION TO THE BOARD OF ITT:
  In considering Mr. Fanandakis for director of the Company, the Board considered his significant financial and business experience resulting from holding various management positions at a large public manufacturing company, his overall financial management abilities, including multinational legal, tax and banking expertise, and his experience and knowledge of global industrial markets.
  BOARD COMMITTEES: OTHER PUBLIC COMPANY BOARDS:
  ■  Audit Committee ■  FTI Consulting, Inc.
       

ITT INC. | 2019 PROXY STATEMENT    32

 
CHRISTINA A. GOLD  

 

Age: 71

 

Director since: December 1997

 

Former President & CEO of The Western Union Company

  CAREER:  
  Christina A. Gold was President and Chief Executive Officer of The Western Union Company, a leading company in global money transfer, from September 2006 to September 2010. She was President of Western Union Financial Services, Inc. and Senior Executive Vice President of First Data Corporation, former parent company of The Western Union Company, from May 2002 to September 2006. Prior to that, Ms. Gold served as Vice Chairman and Chief Executive Officer of Excel Communications, Inc., from October 1999 to May 2002. From 1998 to 1999, Ms. Gold served as President and CEO of Beaconsfield Group, Inc., a direct selling advisory firm that she founded. Ms. Gold began her career in 1970 at Avon Products, Inc., where she spent 28 years in a variety of significant leadership positions. She currently serves on the board of Carleton University. Ms. Gold is currently a director of the following public companies: International Flavors & Fragrances, Inc. since 2013 (Compensation Committee; Governance Committee) and Korn/Ferry International since 2014 (Compensation and Personnel Committee; Governance Committee). Ms. Gold has also served as a director since 2001 of New York Life Insurance Company and currently serves on the board of the Safe Water Network.
  REASONS FOR ELECTION TO THE BOARD OF ITT:
  In considering Ms. Gold for director of the Company, the Board considered her extensive experience as the Chief Executive Officer of a public company with wide ranging global leadership, management and marketing experience. The Board also considered her long history as a director and extensive knowledge of the Company, its operations and its people.
  BOARD COMMITTEES: OTHER PUBLIC COMPANY BOARDS:
  ■  Compensation and Personnel Committee ■  International Flavors & Fragrances, Inc.
    ■  Korn/Ferry International
       
RICHARD P. LAVIN

 

Age: 67

 

Director since: May 2013

 

Former President & CEO of Commercial Vehicle Group, Inc.

  CAREER:  
  Richard P. Lavin was Chief Executive Officer and President of Commercial Vehicle Group, Inc., a leader in the development, manufacturing and fulfillment of fully integrated system solutions for the commercial vehicle market from May 2013 to November 2015. Prior to joining Commercial Vehicle Group, Mr. Lavin spent 29 years in a variety of positions with Caterpillar Inc. (“Caterpillar”), including as Vice President of manufacturing operations for the Asia Pacific Division, serving as Chairman of Shin Caterpillar Mitsubishi Ltd. - now Caterpillar Japan Ltd. - and Chairman of Caterpillar (China) Investment Co., Ltd, and as a group president for Construction Industries and Growth Markets. Mr. Lavin is currently a director of the following public companies: USG Corporation since 2009 (Chairman of the Compensation Committee; Audit Committee) and Allison Transmission Holdings, Inc. since 2016 (Compensation Committee; Nominating & Governance Committee).
  REASONS FOR ELECTION TO THE BOARD OF ITT:
  In considering Mr. Lavin for director of the Company, the Board considered his experience overseeing Caterpillar’s largest operating division and extensive international experience through overseeing that company’s operations in China, India, Japan and the Asia-Pacific region. In addition, Mr. Lavin has a diverse legal and human resources background, having served as director of Corporate Labor and Human Relations and director of Compensation and Benefits, as well as the Vice President of Caterpillar’s Human Services Division.
  BOARD COMMITTEES: OTHER PUBLIC COMPANY BOARDS:
  ■  Compensation and Personnel Committee (Chair) ■  USG Corporation
  ■  Audit Committee ■  Allison Transmission Holdings, Inc.
     
    FORMER PUBLIC COMPANY BOARDS:
    ■  Commercial Vehicle Group, Inc. (2013-2015)
       

ITT INC. | 2019 PROXY STATEMENT    33

 
MARIO LONGHI

 

Age: 64

 

Director since: October 2017

 

Former President & CEO of United States Steel Corporation

  CAREER:
  Mario Longhi served as the President and Chief Executive Officer of United States Steel Corporation, an integrated producer and manufacturer of flat-rolled sheet and tubular steel products for a wide range of industries, from September 2013 to May 2017. Previously, Mr. Longhi was President of Gerdau Ameristeel Corporation from 2005 to 2006 and President and Chief Executive Officer from 2006 to 2011. He was also the Group President, Global Extrusions, at Alcoa Inc., where he served in a number of increasingly responsible roles over a more than 20-year career with the company. Throughout his career, he has gained experience in the appliance, container, mining, automotive and transportation, aerospace, power generation, industrial machinery and construction industries. Mr. Longhi is currently a director of the following public companies: Harsco Corporation (Management Development & Compensation Committee; Audit Committee).
  REASONS FOR ELECTION TO THE BOARD OF ITT:
  In considering Mr. Longhi for director of the Company, the Board considered his significant industrial leadership experience and global viewpoint, as well as his deep knowledge of the steel industry and commodities, which are important to understanding the Company’s overall business and results.
  BOARD COMMITTEES: OTHER PUBLIC COMPANY BOARDS:
  ■  Compensation and Personnel Committee ■  Harsco Corporation
     
    FORMER PUBLIC COMPANY BOARDS:
    ■  United States Steel Corporation (2013-2017)
       
FRANK T. MACINNIS

 

Age: 72

 

Director since: October 2001

 

Chairman Since: October 2011

 

Former CEO of EMCOR Group, Inc.

  CAREER:  
  Frank T. MacInnis was Chief Executive Officer of EMCOR Group, Inc., one of the world’s largest providers of electrical and mechanical construction services, energy infrastructure and facilities services, from 1994 to 2011 and Chairman of the Board from 1994 to 2013. Throughout his career Mr. MacInnis has managed construction and operations all over the world, including in Tehran, Baghdad, Bangkok, the United Arab Emirates, London, the United States and Canada. Mr. MacInnis is also a director of various private companies and not-for-profit organizations.
  REASONS FOR ELECTION TO THE BOARD OF ITT:
  In considering Mr. MacInnis for director of the Company, the Board considered his more than 25 years of broad-based experience as a chief executive officer of a leading, publicly held, international mechanical and electrical construction, energy infrastructure and facilities services provider. The Board also considered his experiences on the boards of various other public companies, his leadership and insights in many of the commercial and defense markets served by the Company, as well as his background in corporate governance, finance and accounting, legal, strategy and risk management. The Board also considered his long history as a director and extensive knowledge of the Company, its operations and its people.
  BOARD COMMITTEES: FORMER PUBLIC COMPANY BOARDS:
  ■  Nominating and Governance Committee ■  EMCOR Group, Inc. (1994-2015)
    ■  The Williams Companies, Inc. (1998-2016)
       

ITT INC. | 2019 PROXY STATEMENT    34

 
REBECCA A. MCDONALD

 

Age: 66

 

Director since: December 2013

 

Former CEO of Laurus Energy Inc.

  CAREER:
  Rebecca A. McDonald retired in July 2012, having served since December 2008 as Chief Executive Officer of Laurus Energy Inc., a company involved in underground coal gasification development. She previously served as President, Gas and Power, BHP Billiton from March 2004 to September 2007, and, from October 2001 to January 2004, she served as President of the Houston Museum of Natural Science. Ms. McDonald has more than 25 years of experience in the energy industry. She has been responsible for the development, construction and operation of natural gas and liquids pipelines, gas and electricity distribution companies, as well as power plant and gas processing facilities in North America, Asia, Africa and South America.
  REASONS FOR ELECTION TO THE BOARD OF ITT:
  In considering Ms. McDonald for director of the Company, the Board considered her significant expertise in the oil and gas industry, as well as her executive-level experience and extensive knowledge of business systems and operations. The Board also considered her experience as a director of a variety of public and private companies within the energy industry.
  BOARD COMMITTEES: FORMER PUBLIC COMPANY BOARDS:
  ■  Compensation and Personnel Committee ■  Aggreko plc (2001-2015)
    ■  Granite Construction Incorporated (1994-2015)
    ■  CRH public limited company (2015-2016)
    ■  Veresen Inc. (2008-2017)
       
TIMOTHY H. POWERS

 

Age: 69

 

Director since: February 2015

 

Former Chairman, President & CEO of Hubbell Inc.

  CAREER:
  Timothy H. Powers was the Chairman, President and Chief Executive Officer of Hubbell Incorporated from 2004 to 2013. He was appointed to the position of Chairman after having served as the President and Chief Executive Officer of Hubbell from 2001 to 2004 and as the Senior Vice President and Chief Financial Officer from 1998 to 2001. Mr. Powers also served as Executive Vice President, Finance and Business Development Americas Region at ABB, Inc. and as Vice President and Corporate Controller for BBC Brown Boveri, Inc. Mr. Powers is currently a director of the following public company: WestRock Company (formerly MeadWestvaco Corporation) since 2006 (Audit Committee; Compensation Committee). In addition, Mr. Powers served as a director of the National Electric Manufacturers Association and as a trustee for Manufacturers Alliance for Productivity and Innovation until 2013.
  REASONS FOR ELECTION TO THE BOARD OF ITT:
  In considering Mr. Powers for director of the Company, the Board considered his significant experience as a Chief Executive Officer and finance officer in global manufacturing and engineering companies. The Board also considered his experience in the areas of management, strategic planning, and mergers and acquisitions in the manufacturing industry.
  BOARD COMMITTEES: OTHER PUBLIC COMPANY BOARDS:
  ■  Audit Committee (Chair) ■  WestRock Company
  ■  Nominating and Governance Committee  
    FORMER PUBLIC COMPANY BOARDS:
    ■  Hubbell Incorporated (2004-2014)
       

ITT INC. | 2019 PROXY STATEMENT    35

 
LUCA SAVI

 

Age: 53

 

Director since: January 2019

 

CEO & President of ITT Inc.

  CAREER:  
  Luca Savi was appointed President, Chief Executive Officer and a director of the Company in January 2019. He previously served as President and Chief Operating Officer of the Company since August 2018 and as Executive Vice President and Chief Operating Officer since January 2017. Prior to that, he served as Executive Vice President and President, Motion Technologies since February 2016 and as Senior Vice President and President, Motion Technologies since November 2011. Prior to joining the Company, Mr. Savi served as Chief Operating Officer, Comau Body Welding at Comau, a subsidiary of the Fiat Group responsible for producing and serving advanced manufacturing systems, from 2009 to 2011 and as Chief Executive Officer, Comau North America from 2007 to 2009. Mr. Savi previously held leadership roles at Honeywell International, Royal Dutch Shell and technical roles at Ferruzzi-Montedison Group.
  REASONS FOR ELECTION TO THE BOARD OF ITT:
  In considering Mr. Savi. for director of the Company, the Board considered Mr. Savi’s significant experience in many of the companies’ most important end markets. The Board also considered his extensive operational, strategy and growth and innovation experience with industrial companies and, in particular, his knowledge of the Company’s business and operations having served as the President of the Company’s largest business unit and as its Chief Operating Officer since January 2017.
   
CHERYL L. SHAVERS

 

Age: 65

 

Director since: October 2018

 

Chairman & CEO of Global Smarts, Inc.

  CAREER:
  Dr. Cheryl L. Shavers has served as the Chairman and Chief Executive Officer of Global Smarts, Inc., an advisory services and strategy firm that specializes in integration of capital, technology and information across national borders, since February 2001. From 1999 to 2001, Dr. Shavers served as the Undersecretary of Commerce for Technology at the U.S. Department of Commerce, where she oversaw the Office of Technology Policy and the Technology Administration, the focal point for partnerships between the U.S. government and the private sector pertaining to commercial and industrial innovation, productivity and economic growth. She also served as Undersecretary Designate from April 1999 to November 1999.
  REASONS FOR ELECTION TO THE BOARD OF ITT:
  In considering Dr. Shavers for director of the Company, the Board considered her extensive experience as a highly regarded and sought after technical and business expert and her extensive experience with technology development, innovation and management of growth opportunities.
  BOARD COMMITTEES: OTHER PUBLIC COMPANY BOARDS:
  ■  Nominating and Governance Committee ■  Knowles Corporation (2007 - Present)
     
    FORMER PUBLIC COMPANY BOARDS:
    ■  Rockwell Collins Corporation (2001- 2018)
    ■  Mentor Graphics Inc. (2016-2017)
    ■  Advanced Materials Technology Inc. (2008-2014)
       

ITT INC. | 2019 PROXY STATEMENT    36

 
SABRINA SOUSSAN

 

Age: 49

 

Director since: October 2018

 

CEO of Mobility Division Siemens AG

  CAREER:  
  Sabrina Soussan has served as the Chief Executive Officer of the Mobility Division of Siemens AG since October 2017. Previously she served as the Chief Executive Officer of Seimens AG’s High-Speed, Commuter Trains, Locomotive, Metro and Light Rail business unit from October 2015 to September 2017. Ms. Soussan has held several other leadership positions in various other divisions of Siemens, including the Vice President of Sustainability and Energy Management of the Siemens Switzerland Ltd. Building Technologies Division, the head of strategy, marketing and global account management for the Building Automation unit and the head of Powertrain business for Renault Nissan (Europe and Japan) for Siemens Automotive division. Ms. Soussan held various other positions at Siemens since she joined in 1997. Prior to Siemens, she was an Engine Research & Development Engineer for Renault.
  REASONS FOR ELECTION TO THE BOARD OF ITT:
  In considering Ms. Soussan for director of the Company, the Board considered her extensive business and technical experience in the automotive, building technology, rail systems and aeronautics markets, as well as her leadership experience in a multinational organization.
  BOARD COMMITTEES:
  ■  Audit Committee
 
RECOMMENDATION OF THE BOARD OF DIRECTORS
   
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF THE 13 NOMINEES LISTED ABOVE AS DIRECTORS. UNLESS A CONTRARY CHOICE IS SPECIFIED, PROXIES SOLICITED BY THE BOARD WILL BE VOTED FOR THE ELECTION OF THE 13 NOMINEES LISTED ABOVE AS DIRECTORS.

 

ITT INC. | 2019 PROXY STATEMENT    37

 

RATIFICATION OF APPOINTMENT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

(PROXY ITEM NO. 2)

 

The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the Company’s independent registered public accounting firm. To execute this responsibility, the Audit Committee engages in a comprehensive  annual evaluation of the independent registered public accounting firm’s qualifications, performance and independence and considers whether the independent registered public accounting firm should be rotated and the potential impact of selecting a different independent registered public accounting firm.

 

The Audit Committee selected, and the Board of Directors ratified the selection of, Deloitte & Touche LLP (“Deloitte”) to serve as our independent registered public accounting firm for 2018. Deloitte has served as the Company’s independent registered public accounting firm since 2002. In accordance with SEC rules and Deloitte policies, audit partners are subject to rotation requirements that limit the number of consecutive years an individual partner may provide service to our Company. For lead and concurring audit partners, the maximum number of consecutive years of service in that capacity is five years. The process for selection of the Company’s lead audit partner pursuant to this rotation policy involves a meeting between the Chair of the Audit Committee and the candidate for the role, as well as discussion by the full committee and with management.

 

The Audit Committee and Board of Directors believe that the continued retention of Deloitte as our independent registered public accounting firm is in the best interest of the Company and our shareholders, and we are asking our shareholders to ratify the selection of Deloitte as our independent registered public accounting firm for 2019. Although ratification is not required by our By-laws or otherwise, the Board is submitting the selection of Deloitte to our shareholders for ratification because we value our shareholders’ views on the Company’s independent registered public accounting firm and as a matter of good corporate practice. In the event that our shareholders fail to ratify the selection, it will be considered a recommendation to the Board of Directors and the Audit Committee to consider the selection of a different firm. In addition, even if shareholders ratify the selection of Deloitte, the Audit Committee may in its discretion select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our shareholders.

 

Deloitte is a registered public accounting firm regulated by the Public Company Accounting Oversight Board (the “PCAOB”). Representatives of Deloitte attended all regularly scheduled meetings of the Audit Committee during 2018. The Audit Committee discussed with the independent registered public accounting firm all communications required by auditing standards of the PCAOB. In addition, the committee discussed with the registered public accounting firm its independence from the Company and its management. The Audit Committee annually reviews and considers Deloitte’s performance of the Company’s audit, including the following performance factors:

 

independence
experience
technical capabilities
client service assessment
responsiveness
financial strength
industry insight
leadership
non-audit services
management structure
peer review program
commitment to quality report
appropriateness of fees charged
compliance and ethics program

 

The Audit Committee also reviewed the terms and conditions of Deloitte’s engagement letter including an agreement between the Company and Deloitte to submit disputes between Deloitte and the Company to a dispute resolution process.

 

The Audit Committee discussed the engagement letter, as well as Deloitte’s fees and services with Deloitte and Company management. The Audit Committee also determined that any non-audit services (services other than those described in the annual audit services engagement letter) provided by Deloitte were permitted under the rules and regulations concerning auditor independence promulgated by the SEC and rules promulgated by the PCAOB. Representatives of Deloitte will be present at the Annual Meeting to answer questions. Representatives of Deloitte also will have the opportunity to make a statement if they desire to do so.

 

ITT INC. | 2019 PROXY STATEMENT    38

 

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES

 

Aggregate fees billed to the Company for the fiscal years ended December 31, 2018 and 2017 represent fees billed by Deloitte and its foreign affiliates.

 

Fiscal Year Ended (in thousands)  2018   2017 
Audit Fees(1)  $3,862   $4,250 
Audit-Related Fees(2)   15    100 
Tax Fees:(3)          
Tax Compliance Services   168    418 
Tax Planning Services   150    154 
Total Tax Services (sum of Tax Fees)   318    572 
All Other Fees        
TOTAL  $4,195   $4,922 

 

(1) Fees for audit services billed in 2018 and 2017 consisted of:
  audit of the Company’s annual financial statements and internal control over financial reporting;
  reviews of the Company’s quarterly financial statements;
  statutory and regulatory audits, consents and other services related to SEC matters; and
  financial accounting and reporting consultations.
(2) Fees for audit-related services billed in 2018 and 2017 consisted of miscellaneous attest services.
(3) Fees for tax services billed in 2018 and 2017 consisted of tax compliance and tax planning and advice:
  tax compliance services are services rendered, based upon facts already in existence or transactions that have already occurred, to document, compute and obtain government approval for amounts to be included in tax filings consisting primarily of:
    - federal, foreign, state and local income tax return assistance;
    - Internal Revenue Code and foreign tax code technical consultations; and
    - transfer pricing analyses.
  tax planning services are services and advice rendered with respect to proposed transactions or services to analyze an anticipated tax result. Such services consisted primarily of tax advice related to intra-group restructuring.

 

PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES

 

The Audit Committee pre-approves audit services provided by Deloitte. The Audit Committee has a policy on pre-approval of permitted non-audit services provided by Deloitte. The purpose of the policy is to identify thresholds for services, project amounts and circumstances where Deloitte may perform permitted non-audit services. A second level of review and approval by the Audit Committee is required when such permitted non-audit services, project amounts or circumstances exceed the specified amounts.

 

The Audit Committee has determined that, where practical, all permitted non-audit services shall first be placed for competitive bid prior to selection of a service provider. Management may select the party deemed best suited for the particular engagement, which may or may not be Deloitte. The policy is reviewed and reaffirmed on a regular basis to assure conformance with applicable rules.

 

The Audit Committee has approved specific categories of audit, audit-related and tax services incremental to the normal auditing services, which Deloitte may provide without further Audit Committee pre-approval. These categories include, among others, the following:

 

  1. Due diligence, closing balance sheet audit services, purchase price dispute support and other services related to mergers, acquisitions and divestitures;
  2. Employee benefit advisory services, independent audits and preparation of tax returns for the Company’s defined contribution, defined benefit and health and welfare benefit plans, preparation of the associated tax returns or other employee benefit advisory services;
  3. Tax compliance and certain tax planning and advice work; and
  4. Accounting consultations and support related to U.S. generally accepted accounting principles (“GAAP”).

 

ITT INC. | 2019 PROXY STATEMENT    39

 

The Audit Committee has also approved specific categories of audit-related services, including the assessment and review of internal controls and the effectiveness of those controls, which outside internal audit service providers may provide without further approval.

 

If fees for any pre-approved non-audit services provided by either Deloitte or any outside internal audit service provider exceed a pre-determined threshold during any calendar year, any additional proposed non-audit services provided by that service provider must be submitted for second-level approval by the Audit Committee. Other audit, audit-related and tax services that have not been pre-approved are subject to specific prior approval. The Audit Committee reviews the fees paid or committed to Deloitte during regularly scheduled meetings and at other times as necessary.

 

The Company has policies and procedures in place prohibiting, in some cases, employment of former Deloitte employees who were members of the audit engagement team.

 

RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE RATIFICATION OF DELOITTE TO SERVE AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE 2019 FISCAL YEAR. UNLESS A CONTRARY CHOICE IS SPECIFIED, PROXIES SOLICITED BY THE BOARD WILL BE VOTED FOR THE RATIFICATION OF DELOITTE.

 

AUDIT COMMITTEE REPORT

 

ROLE OF THE AUDIT COMMITTEE

 

The Audit Committee of the Board of Directors provides oversight on matters relating to the Company’s financial reporting process and ensures that the Company develops and maintains adequate financial controls and procedures, and monitors compliance with these processes. This includes responsibility for, among other things:

 

determination of qualifications and independence of Deloitte, the Company’s independent registered public accounting firm;
appointment, compensation and oversight of Deloitte in preparing or issuing audit reports and related work;
review of financial reports and other financial information provided by the Company, its systems of internal accounting and financial controls, and the annual independent audit of the Company’s financial statements;  
oversight and review of procedures developed for consideration of accounting, internal accounting controls and auditing-related complaints;  
review of the Company’s policies with respect to risk assessment, risk management and the Company’s major financial risk exposures;  
monitoring all elements of the Company’s internal control over financial reporting; and  
adoption of and monitoring the implementation and compliance with the Company’s Non-Audit Services Policy.

 

The Audit Committee also has oversight responsibility for confirming the scope and monitoring the progress and results of internal audits conducted by the Company’s internal auditor. The Audit Committee discussed with the Company’s internal auditors and Deloitte the plans for their respective audits. The Audit Committee met with the internal auditors and Deloitte, with and without management present, and discussed the results of their examinations, their evaluation of the Company’s internal controls, and the Company’s financial reporting.

 

The Company’s management has primary responsibility for the financial statements, including the Company’s system of disclosure and internal controls. The Audit Committee may investigate any matter brought to its attention. In that regard, the Audit Committee has full access to all books, records, facilities and personnel of the Company, and the Audit Committee may retain outside counsel, auditors or other independent experts to assist the Committee in performing its responsibilities. Any individual may also bring matters to the Audit Committee by following the procedures set forth in this Proxy Statement under the heading “Communication with the Board of Directors.”

 

ITT INC. | 2019 PROXY STATEMENT    40

 

AUDIT COMMITTEE CHARTER

 

The Board of Directors has adopted a written charter for the Audit Committee, which the Board of Directors and the Audit Committee review, and at least annually update and reaffirm. The charter sets out the purpose, membership and organization, and key responsibilities of the Audit Committee.

 

REGULAR REVIEW OF FINANCIAL STATEMENTS

 

During 2018, the Audit Committee reviewed and discussed the Company’s audited financial statements with management. The Audit Committee, management and Deloitte reviewed and discussed the Company’s unaudited financial statements before the release of each quarter’s earnings report and filing on Form 10-Q, and the Company’s audited financial statements before the annual earnings release and filing on Form 10-K.

 

COMMUNICATIONS WITH DELOITTE

 

The Audit Committee has reviewed and discussed with management and Deloitte the matters required to be discussed under the standards of the PCAOB. These discussions included Deloitte’s responsibilities under generally accepted auditing standards in the United States, significant accounting policies and management judgments, the quality of the Company’s accounting principles and accounting estimates. The Audit Committee met privately with Deloitte eight times during 2018.

 

INDEPENDENCE OF DELOITTE

 

Deloitte is directly accountable to the Audit Committee and the Board of Directors. The Audit Committee has received the written disclosures and the letter from Deloitte required by applicable requirements of the PCAOB regarding Deloitte’s communications with the Audit Committee concerning independence and has discussed with Deloitte their independence from management and the Company, any disclosed relationships and the impact of those relationships on Deloitte’s independence.

 

RECOMMENDATION REGARDING ANNUAL REPORT ON FORM 10-K

 

In performing its oversight function with regard to the 2018 financial statements, the Audit Committee relied on financial statements and information prepared by the Company’s management. It also relied on information provided by the internal audit staff as well as Deloitte. The Audit Committee reviewed and discussed with management the Company’s audited financial statements as of and for the year ended December 31, 2018. Based on these discussions, and the information received and reviewed, the Audit Committee recommended to the Company’s Board of Directors that the Company’s financial statements be included in the Company’s 2018 Annual Report on Form 10-K.

 

This report is furnished by the members of the Audit Committee.

 

Geraud Darnis Donald DeFosset, Jr. Nicholas C. Fanandakis
Richard P. Lavin Timothy H. Powers (Chair) Sabrina Soussan

 

ITT INC. | 2019 PROXY STATEMENT    41

 

ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION
(PROXY ITEM NO. 3)

 

In accordance with the requirements of Section 14A of the Exchange Act and the related rules of the SEC, we are including in these proxy materials a separate resolution subject to shareholder vote to approve, in a non-binding vote, the compensation of our named executive officers as defined by the SEC in Item 402 of Regulation S-K (the “Named Executive Officers” or “NEOs”) as disclosed later in this Proxy Statement in the Compensation Discussion and Analysis. The following resolution will be submitted for a shareholder vote at the Annual Meeting:

 

“RESOLVED, that the shareholders of ITT Inc. (the “Company”) approve, on an advisory basis, the compensation of the Company’s Named Executive Officers, as disclosed in the Company’s Proxy Statement for the 2019 Annual Meeting of Shareholders pursuant to Item 402 of the Securities and Exchange Commission Regulation S-K, including the Compensation Discussion and Analysis, the compensation tables and narrative disclosures.”

 

In considering their vote, shareholders may wish to review with care the information on the Company’s compensation policies and decisions regarding the NEOs presented in this Proxy Statement in the Compensation Discussion and Analysis.

 

In particular, shareholders should note that the Company’s Compensation and Personnel Committee bases its executive compensation decisions on the following:

 

alignment of executive and shareholder interests by providing incentives linked to the performance of certain financial metrics;  
the ability for executives to achieve long-term shareholder value creation without undue business risk;  
creating a clear link between an executive’s individual contribution and performance and his or her compensation;  
the extremely competitive nature of the industries in which we operate and our need to attract and retain the most creative and talented industry leaders; and  
comparability to the practices of peers in the industries that we operate in and other comparable companies generally.

 

The vote on this resolution is not intended to address any specific element of compensation; rather, the vote relates to the compensation of our NEOs, as described in this Proxy Statement in accordance with the SEC’s compensation disclosure rules.

 

The Board values the opinions of the Company’s shareholders as expressed through their votes and other communications. This vote is advisory in nature and non-binding; however, the Board will review and consider the shareholder vote when determining executive compensation. The current frequency of non-binding advisory votes on executive compensation is an annual vote, and we anticipate that the next vote will be at next year’s annual meeting.

 

RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ADVISORY RESOLUTION APPROVING THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS AS DESCRIBED IN THIS PROXY STATEMENT. UNLESS A CONTRARY CHOICE IS SPECIFIED, PROXIES SOLICITED BY THE BOARD WILL BE VOTED FOR THIS MANAGEMENT PROPOSAL.

 

ITT INC. | 2019 PROXY STATEMENT    42

 

COMPENSATION DISCUSSION AND ANALYSIS

 

TABLE OF CONTENTS  
EXECUTIVE SUMMARY 43
GOVERNANCE AND COMPENSATION 46
ELEMENTS OF COMPENSATION 48
2018 ANNUAL INCENTIVE PLAN 49
2018 LONG-TERM INCENTIVE COMPENSATION 52
WHAT’S NEW FOR 2019 54
BENEFITS AND PERQUISITES 54
OTHER COMPENSATION AND BENEFITS 55
POLICIES 56
COMPENSATION TABLES 58

 

EXECUTIVE SUMMARY

 

BUSINESS ENVIRONMENT AND FINANCIAL RESULTS

 

During 2018, we achieved record financial results through strong operational execution and solid share gains across key end markets. The following are highlights from our reported fiscal 2018 performance (all financial comparisons are 2018 to 2017):

 

$2.89B Total Orders +10%; Organic Orders +8%
$2.75B Total Revenue +6%; Organic Revenue +4%
Segment Operating Income +27%; Adjusted Segment Operating Income +18%
$3.75 EPS +191%; $3.23 Adjusted EPS +25%
Operating Cash Flow +50%; Free Cash Flow +106%; Adjusted Free Cash Flow +34%

 

See the section titled “Key Performance Indicators and Non-GAAP Financial Measures” in our Annual Report on Form 10-K filed with the SEC for the reasons why we use non-GAAP financial measures and for reconciliations to the comparable GAAP financial measures.

 

OUR SAY ON PAY AND ENGAGEMENT WITH SHAREHOLDERS

 

Our annual advisory vote on executive compensation (“Say on Pay”) has received an average of 93% support over the last six years. Last year, our Say on Pay received 85% support.

 

Our investor outreach effort, as described under “Shareholder Engagement” on page 19, continued to evolve and develop last year. We increased the number of shareholders and percentage of shares covered by our outreach in late 2018 to 59% of our shares outstanding. While not all of these investors felt that a discussion on our governance and compensation program was necessary, through our discussions we heard the following general themes:

 

investors appreciated our thorough, multi-year CEO succession planning process and the thoughtful compensation decisions that resulted from that process;  
investors understood the alignment of our compensation program metrics to our business strategy and acknowledged our link between pay and performance, including below target payouts at times in recent years driven by financial results; and
investors supported our short-term incentive plan metrics and long-term incentive award metrics and mix.

 

ITT INC. | 2019 PROXY STATEMENT    43

 

OUR COMMITMENT TO PAY FOR PERFORMANCE ALIGNMENT

 

We have designed our compensation programs to align the pay of our senior executives with both our short-term and long-term financial results and the performance of our stock. The majority of pay for our CEO and other NEOs is “at risk” and is impacted by our financial results and stock price performance.

 

 

THE IMPACT OF BUSINESS RESULTS ON OUR 2018 INCENTIVE PLANS

 

Our business strategy drives the design and metrics of our incentive plans. Our 2018 AIP includes metrics and weightings that encourage both growth (30% Adjusted EPS and 20% Adjusted Revenue) and operational excellence (20% Adjusted Cash Flow and 20% Adjusted Operating Margin), in addition to a 10% component that rewards executive officers for individual and team performance. 2018 was the final performance year of our 2016 PSU award, which had a payout determined by (i) our relative return on invested capital (“ROIC”), which is intended to encourage efficient and disciplined use of capital and (ii) relative TSR, which is intended to directly align executive pay with shareholder return relative to our peer companies.

 

As a result of our above target financial performance in 2018, the payouts of our incentive plans were also above target.

 

Our CEO, Denise L. Ramos, received an AIP payout that was 148.5% of target, and the average payout to our other NEOs was also 148.5%.
   
All of our NEOs, including the CEO, received a 126% payout on their 2016 PSU awards.

 

 

CEO SUCCESSION AND PAY DECISIONS

 

As previously described in the Letter From Our Chairman, we recently completed a thorough, multi-year CEO succession planning process. On December 31, 2018, Denise L. Ramos stepped down as CEO and director of the Company and began a transition period as a special adviser to the new CEO through March 1, 2019. On January 1, 2019, Luca Savi, previously President and Chief Operating Officer of the Company, was promoted to President and CEO and became a director of the Company.

 

In setting compensation for our new CEO, the Committee considered a number of factors, including peer group benchmarking, prior CEO compensation levels, and increases in connection with Mr. Savi’s promotion to President and Chief Operating Officer in August 2018. The Committee believes that CEO pay should be evaluated each year and that increases should occur based on sustained individual and company performance. Given that 2019 will be Mr. Savi’s first year in the CEO role, the Committee set Mr. Savi’s target pay below the 2018 target pay of Ms. Ramos (see comparison table below).

 

ITT INC. | 2019 PROXY STATEMENT    44

 
    Pay Component   2018 CEO Target
Pay
Denise Ramos
  2019 CEO Target
Pay
Luca Savi
    Base Salary   $1,000,000   $900,000
The Committee believes CEO target pay should increase with sustained individual and company performance.   Annual Incentive Plan Target   $1,200,000   $900,000
    (120% of salary)   (100% of salary)
           
  Long-Term Incentives (“LTI”)(1)   $4,500,000   $3,200,000
           
  TOTAL DIRECT COMPENSATION   $6,700,000   $5,000,000
           

 

(1) The 2018 LTI value for Ms. Ramos differs from what is displayed in the Summary Compensation Table (“SCT”) and Grants of Plan-Based Awards table for 2018, each of which present the grant date fair value. Mr. Savi’s 2019 LTI award was granted in March 2019 and is not included in the SCT and the Grants of Plan-Based Awards table.

 

Ms. Ramos served as special advisor to the CEO, Mr. Savi, for a transition period January 1, 2019 through March 1, 2019, during which time she continued to receive her regular 2018 salary. Ms. Ramos did not receive an LTI award in 2019 and will not be eligible for a 2019 bonus payment under the Annual Incentive Plan.

 

In connection with the CEO succession plan and as disclosed in our August 2018 announcement of the CEO transition, the Committee granted Thomas M. Scalera, the Company’s Executive Vice President and Chief Financial Officer, $500,000 of PSUs and $500,000 of RSUs in August 2018. In making the decision to grant these awards, the Committee considered Mr. Scalera’s significant contributions and impact on the business and the importance of leadership continuity through the succession process. The Committee chose PSUs and RSUs, consistent with the Company’s regular long-term incentive award granting practices, to continue to align Mr. Scalera’s pay with the Company’s financial results and shareholder returns. These awards would be forfeited if Mr. Scalera voluntarily leaves the Company during their respective three-year vesting periods. The Committee has approved no other transition-related compensation arrangements for any other members of management. For a discussion of the CEO succession planning process, please see the “Board’s Role in Leadership Succession Planning” earlier in this Proxy Statement.

 

CEO REALIZED PAY

 

Our pay-for-performance approach is illustrated by the alignment of our CEO’s realized pay over the last three years to our three-year TSR and one-year adjusted EPS growth.

 

In 2018, our three-year TSR (2016-2018) was +38% and our adjusted EPS increased 25% from the previous year. Ms. Ramos’ realized pay increased to $9.6M after being significantly below target during 2017 ($5.4M) and 2016 ($3.9M).
   
In 2017, our three-year TSR (2015-2017) was +37% and our adjusted EPS increased 12% from the previous year, while Ms. Ramos’ realized pay was 21% below target at $5.4M because the 2015 PSUs paid below target and the stock option award that was granted in 2014 (and vested in 2017) did not have any intrinsic value at the time of vesting.
   
In 2016, our three-year TSR (2014-2016) was -8% and adjusted EPS decreased by 9% from the previous year. Ms. Ramos’ realized pay was 41% below target at $3.9M as a result of the 2014 PSU award having a 0% payout.

 

 

Target pay for each calendar year includes: annual salary rate + AIP award at target payout + the grant date fair value of LTI awards granted during the year.

 

Realized pay for each calendar year includes: annual salary rate + actual AIP payout + the intrinsic value of RSU and stock option awards that vested during the year, and the most recent PSU award payout (for stock awards granted three years prior), calculated as of the vesting date.

 

ITT INC. | 2019 PROXY STATEMENT    45

 

GOVERNANCE AND COMPENSATION

 

EXECUTIVE COMPENSATION PHILOSOPHY

 

We have designed our compensation programs to help us recruit and retain the executive talent required to successfully manage our business, achieve our business objectives and maximize their long-term contributions to our success. We include compensation elements that are designed to align the interests of executives with our goals of enhancing shareholder value and achieving our long-term strategies. We determine total annual compensation by reviewing the median of the competitive market, then position compensation at, above or below the median based on experience, performance, critical skills and the general talent market for each senior executive.

 

BEST PRACTICES THAT SUPPORT OUR EXECUTIVE COMPENSATION PHILOSOPHY

 

The Compensation and Personnel Committee oversees the design and administration of our executive compensation programs and evaluates these programs against competitive practices, legal and regulatory developments and corporate governance trends.

 

The Compensation and Personnel Committee has incorporated the following best practices into our programs:

 

WHAT WE DO   WHAT WE DON’T DO
  Emphasize Long-Term Compensation to Ensure Alignment of Pay With Long-Term Performance     No Hedging or Pledging of Company Stock
  Significant Majority of Pay is Performance-Based and Not Guaranteed     No Accelerated Vesting of Equity Awards or Severance Benefits Solely Upon a Change in Control
  Stock Ownership Requirements Require Meaningful Holdings (increased CEO from 5X to 6X in 2018)     No Tax Gross-Ups (unless related to international assignment or relocation)
  Double-Trigger Change in Control Vesting of Equity Awards     No Golden Parachutes
  Clawback Policy That Applies to Our Annual Incentive Plan and Equity Awards     No Repricing of Stock Options
  Proactive Engagement with Shareholders     No Supplemental Defined Benefit Pension for Executives
  Engages Independent Compensation Consultant     No Excessive Perquisites or Personal Benefits

 

KEY PARTICIPANTS IN THE COMPENSATION PROCESS

 

ROLE OF THE COMPENSATION AND PERSONNEL COMMITTEE

 

The Compensation and Personnel Committee reviews and approves the compensation elements and the compensation targets for each of our executive officers, including the NEOs. The Compensation and Personnel Committee also makes determinations with respect to the AIP as it relates to our executive officers, including the approval of annual performance goals and subsequent full-year achievement against those goals. It administers all elements of the Company’s long-term incentive plan, and approves the benefits and perquisites offered to executive officers. Further, the Compensation and Personnel Committee evaluates the Company’s compensation programs on an annual basis to ensure that our plans do not induce or encourage excessive risk-taking by participants. Pursuant to its charter, the Compensation and Personnel Committee may delegate authority to act upon specific matters to a subcommittee.

 

ROLE OF MANAGEMENT

 

During 2018, our CEO and our Chief Human Resources Officer made recommendations to the Compensation and Personnel Committee regarding executive compensation actions and incentive awards. The Chief Human Resources Officer serves as the liaison between the Compensation and Personnel Committee and Pay Governance, providing internal data on an as-needed basis so that Pay Governance can produce comparative analyses for the Compensation and Personnel Committee. In 2018, the Company’s human resources, finance

 

ITT INC. | 2019 PROXY STATEMENT    46

 

and legal departments supported the work of the Compensation and Personnel Committee by providing information, answering questions and responding to various requests of committee members.

 

ROLE OF THE INDEPENDENT COMPENSATION CONSULTANT

 

In 2018, the Compensation and Personnel Committee continued to use the services of Pay Governance in fulfilling its obligations under its charter, the material terms of which are described elsewhere in this Proxy Statement under the heading “Corporate Governance and Related Matters—Compensation and Personnel Committee.”

 

Pay Governance attended the four regularly scheduled meetings of the Compensation and Personnel Committee in 2018 and provided the Committee with objective expert analyses, assessments, research, and recommendations for executive compensation programs, incentives, perquisites and compensation standards. In this capacity, they provided services that related solely to work performed for, and at the direction of, the Compensation and Personnel Committee, including analysis of material prepared by management for the Committee’s review. Pay Governance provided no other services to the Company during 2018. The total amount of fees paid to Pay Governance for 2018 services was $89,602. In addition, the Company reimburses Pay Governance for reasonable travel and business expenses, and any fees related to the purchasing of compensation benchmarking data.

 

The Compensation and Personnel Committee selected Pay Governance to serve as its Independent Compensation consultant only after assessing the firm’s independence. As part of its independence review, the Compensation and Personnel Committee reviewed the Company’s relationship with Pay Governance and determined that no conflicts of interest existed. The Compensation and Personnel Committee has the sole authority to retain and terminate consultants, including Pay Governance.

 

EXTERNAL BENCHMARKING

 

In 2018, as in past years, the Compensation and Personnel Committee considers competitive market compensation data, in addition to other factors, in determining policies and programs that address executive compensation, benefits and perquisites.

 

For 2018 pay decisions for the CEO and CFO, the Committee reviewed a peer group of 16 companies comparable to ITT in terms of revenue, market capitalization and industry in order to better evaluate executive compensation market practices (the “Representative Peer Group”). When making pay decisions the Committee also considers other factors such as individual experience and performance, the need for critical skills and the general talent market for each senior executive. The Compensation and Personnel Committee annually reviews and evaluates this Representative Peer Group to ensure that it remains appropriate.

 

The 2018 Representative Peer Group consisted of the companies below, which included replacing Roper Industries Inc. (ROP) with WABCO Holdings (WBC) to better reflect ITT’s expanding portfolio related to the transportation industry:

 

Representative Peer Group
Actuant Corporation (ATU) EnPro Industries, Inc. (NPO) Nordson Corporation (NDSN)
AMETEK, Inc. (AME) Esterline Technologies Corp (ESL) SPX Flow, Inc. (FLOW)
Barnes Group, Inc. (B) Flowserve Corporation (FLS) WABCO Holdings (WBC)
Carlisle Companies, Inc. (CSL) Harsco Corporation (HSC) Woodward, Inc. (WWD)
Colfax Corporation (CFX) Hubbell Incorporated (HUB)    
Crane Co. (CR) IDEX Corporation (IEX)    

 

The Compensation and Personnel Committee’s review of external market data also included analysis of compensation benchmark data from Willis Towers Watson and other compensation survey information provided by Pay Governance. This data provides a broader view of executive compensation benchmarking for jobs that are not reported in the Proxy Statement.

 

In particular, the Committee’s analysis used a benchmark group from a Willis Towers Watson survey consisting of 64 companies from the Industrials, Materials and Energy sectors with annual revenue between approximately $1.25 billion and $5 billion (see Appendix A attached).

 

ITT INC. | 2019 PROXY STATEMENT    47

 

ELEMENTS OF COMPENSATION

 

NEO COMPENSATION ELEMENTS AT A GLANCE

 

The disclosure of our NEO compensation for 2018 covers the following executive officers:

 

Denise L. Ramos, Chief Executive Officer (through December 31, 2018);
Luca Savi, President and Chief Operating Officer (now President and Chief Executive Officer);
Thomas M. Scalera, Executive Vice President and Chief Financial Officer;
Mary Beth Gustafsson, Senior Vice President, General Counsel and Chief Compliance Officer; and
Farrokh Batliwala, Senior Vice President and President, Connect & Control Technologies.

 

As previously described in the “Executive Summary,” we recently completed a thorough, multi-year CEO succession planning process. On December 31, 2018, Denise Ramos stepped down as CEO and Luca Savi, previously President and Chief Operating Officer, was promoted to President and CEO effective January 1, 2019.

 

The compensation of our executive officers, including our NEOs, is reviewed in detail by the Compensation and Personnel Committee during the first quarter of every year. NEO direct compensation for 2018 consisted of a base salary, an AIP award and LTI awards, each of which is detailed below.

 

2018 Compensation Element   Form   Rationale for Providing
Base Salary   Cash   Base salary is a competitive fixed pay element tied to role, experience, performance and criticality of skills.
Annual Incentive Plan Award   Cash   The AIP is designed to reward achievement of Company, business segment (where applicable) and individual performance objectives. The AIP is structured to emphasize overall performance and collaboration across ITT. It uses metrics (adjusted earnings per share, adjusted cash flow, adjusted operating margin and adjusted revenue) that are fundamental short-term drivers of shareholder value. Each NEO also has 10% of his or her AIP tied to the achievement of individual and team goals.
Long-Term Incentive Awards   Stock  

The LTI plan is designed to reward performance that drives long-term shareholder value through the use of three-year cliff vesting:

 

PSUs (50% of LTI mix) provide rewards linked to absolute stock price performance (due to denomination as ITT share units) and can go up or down based on two key measures, equally weighted, and aligned with long-term growth:

 

Relative Total Shareholder Return (TSR)

 

Return on Invested Capital (ROIC)

 

RSUs (50% of LTI mix) link executive compensation to absolute stock price performance and strengthen retention value.

 

The grant date of PSUs and RSUs is determined on the date on which the Compensation and Personnel Committee approves these awards, which is typically in February or March.

 

The Company also provides benefits and limited perquisites to its NEOs that it believes are competitive with the external market for talent. For a more detailed discussion of these benefits and perquisites, see the discussion under the heading “Benefits and Perquisites.”

 

2018 BASE SALARY INCREASES

 

The Compensation and Personnel Committee reviewed the compensation level of each NEO based on the Representative Peer Group and the external survey data. Based on the Committee’s targeted pay positioning, the evaluation of each NEO’s performance and the external market data on competitive pay levels provided by Pay Governance, the Committee awarded base salary merit increases effective in February 2018 to Mr. Savi, Mr. Scalera, Ms. Gustafsson and Mr. Batliwala. In addition, Mr. Savi’s annual salary was further increased in August 2018 in connection with his appointment to the position of President and Chief Operating Officer and designation as successor CEO. Ms. Ramos did not receive a salary increase during 2018 because the Committee considered her salary as CEO to be competitively positioned.

 

ITT INC. | 2019 PROXY STATEMENT    48

 
   2017 Annual   2018 Annual   Percent
   Base Salary   Base Salary   Increase
Denise L. Ramos  $1,000,000   $1,000,000    
Luca Savi(1)   600,000    750,000    25.0%
Thomas M. Scalera   515,000    530,000    2.9%
Mary Beth Gustafsson   460,000    472,500    2.7%
Farrokh Batliwala   370,000    380,000    2.7%
(1) Mr. Savi received two increases to his salary during 2018. The first increase of 4% (from $600,000 to $625,000) was effective in February 2018 as part of the annual salary review process. The second increase of 20% (from $625,000 to $750,000) was effective in August 2018 and was associated with his promotion to President as part of the CEO transition. Mr. Savi is employed by ITT Italy Holding s.r.l. and has been paid in euros. His 2017 and 2018 base salaries were converted to U.S. dollars using the 2018 average exchange rate of 1.16 dollars per euro for both years.

 

2018 ANNUAL INCENTIVE PLAN

 

For 2018, AIP payouts averaged 148.5% of target for all of the NEOs, reflecting record financial results, including above target achievement, on average, of annual financial goals. The Company’s AIP provides for an annual cash payment to participating executives established as a target percentage of base salary. In setting AIP awards, the Compensation and Personnel Committee approves target AIP awards after careful consideration of external data, individual roles and responsibilities and individual performance.

 

The Company pays for AIP performance that demonstrates substantial achievement of plan goals. We established strong incentives and set aggressive goals for all financial metrics. The Company must achieve a certain threshold for each of the four financial performance metrics discussed below in order for each performance component to be considered in the calculation of the AIP payout. Performance below the threshold performance level results in a zero payout for that particular performance component.

 

The formula to determine each NEO’s AIP total potential payment is as follows:

 

  2018 AIP Potential Payout =  
  (Base Salary) x (Target Award Percentage) x (AIP Performance Factor)  

 

Both the individual performance component of the AIP and the overall AIP award payout are capped at 200% of an individual’s annual cash bonus target.

 

2018 AIP AWARDS PAID IN 2019

 

The 2018 AIP awards paid in March 2019 are as follows:

 

Named Executive Officer  2018 Target
AIP Awards as
Percentage of
Base Salary
  2018 AIP Target
Amounts
  2018 AIP
Awards
(Paid in 2019)
  2018 AIP
Awards as
Percentage
of Target
(Paid in 2019)
Denise L. Ramos   120%  $1,200,000   $1,782,000    148.5%
Luca Savi(1)   91.25%   590,995    877,630    148.5%
Thomas M. Scalera   75%   397,500    580,350    146.0%
Mary Beth Gustafsson   75%   354,375    526,250    148.5%
Farrokh Batliwala   75%   285,000    430,350    151.0%
(1) Mr. Savi’s AIP target was increased from 85% to 100% of salary in August 2018 in connection with his promotion to President and Chief Operating Officer and successor CEO. His target amounts are based on a prorated salary rate and target percentage for time worked in each position. His 2018 Target AIP Award and 2018 AIP Award paid have been converted from euros to U.S. dollars using the 2018 average exchange rate of 1.16.

 

ITT INC. | 2019 PROXY STATEMENT    49

 

2018 AIP PERFORMANCE METRICS AND WEIGHTINGS

 

Based on the Company’s 2018 business objectives, the Compensation and Personnel Committee identified financial performance metrics and an individual component, for the 2018 performance year, which together comprise the AIP Performance Factor. The following table shows the weighting assigned to each NEO for each AIP performance metric:

 

Adjusted EPS   Adjusted ITT Free
Cash Flow
  Adjusted ITT
Operating Margin
  Adjusted ITT
Revenue
  Individual
Component
30%   20%   20%   20%   10%

 

All NEO’s have AIP metrics and targets based on overall ITT results except for Mr. Batliwala. As Senior Vice President and President of Connect & Control Technologies, Mr. Batliwala’s metrics and targets are based on his business segment. As permitted by the ITT Annual Incentive Plan for Executive Officers, the Compensation and Personnel Committee may exclude the impact of acquisitions, dispositions and other special items in computing AIP awards. Special items represent significant charges or credits that impact current results, which management views as unrelated to the Company’s ongoing operations and performance. Special items may include, but are not limited to, asbestos-related costs, restructuring costs, realignment costs, pension settlement and other curtailment costs, certain acquisition-related expenses, income tax settlements or adjustments, and unusual and infrequent items. The four financial performance metrics applicable to each NEO are therefore non-GAAP financial measures and should not be considered a substitute for measures determined in accordance with GAAP. These non-GAAP financial measures may not be comparable to similar measures reported by other companies or those that we use in our Form 10-K or other external financial presentations. Descriptions of each of the performance metrics used for purposes of calculating the AIP Performance Factor are as follows:

 

Metric   Reason for Selection   Details
Adjusted Earnings Per Share   Important measure of the value provided to shareholders   Adjusted EPS is defined as income from continuing operations attributable to ITT Inc. per diluted share, adjusted to exclude special items on an after-tax basis. The after-tax basis of each special item is determined using the jurisdictional tax rate of where the expense or benefit occurred.
Adjusted ITT Cash Flow and Adjusted Segment Free Cash Flow   Important measure of how the Company converts its net earnings into deployable cash   Adjusted ITT Free Cash Flow is defined as net cash provided by operating activities less capital expenditures, cash payments for restructuring and realignment costs, other significant items that impact current results that management believes are not related to ongoing operations and performance, and the impact of foreign currency fluctuations. Adjusted Segment Free Cash Flow is defined as segment level net cash provided by operating activities less capital expenditures, adjusted for special items and the impact of foreign currency fluctuations.
Adjusted ITT Operating Margin and Adjusted Segment Operating Margin   Emphasizes the importance of maintaining healthy margins   Adjusted ITT Operating Margin is defined as the ratio of adjusted operating income, over Adjusted ITT Revenue. Adjustments to operating income include, but are not limited to, the impact of foreign currency fluctuations, unbudgeted acquisitions and divestitures and special items. Adjusted revenue is defined below. Adjusted Segment Operating Margin is defined as the ratio of adjusted segment operating income over Adjusted Segment Revenue. Adjustments to segment operating income items include, but are not limited to, the impact of foreign currency fluctuations, unbudgeted acquisitions and divestitures and special items.
Adjusted ITT Revenue and Adjusted Segment Revenue   Reflects the Company’s emphasis on growth   Adjusted ITT Revenue is defined as GAAP revenue excluding the estimated impact of foreign currency fluctuations and the impact from unbudgeted acquisitions and divestitures made in the last 12 months. Adjusted Segment Revenue is defined as segment level GAAP revenue excluding the estimated impact of foreign currency fluctuations and the segment impact from unbudgeted acquisitions and divestitures made in the last 12 months.
Individual Component   Provides focus on supporting enterprise initiatives that will create growth and increase shareholder value  

Each NEO establishes several personal or team goals related to Company initiatives or business segment initiatives that are aligned with the strategy of the business and the goals of the CEO. For 2018, five areas were established at the start of the performance period:

   Financial: Deliver on our financial commitments.

   Culture and Talent: Focus on our people and their work environment by continuing our culture journey through engaging and energizing employees around our strategy, purpose and principles, and increasing the skills of our leaders.

   Execution: Differentiate ourselves through safety, effectiveness and efficiency; ensure each part of the organization or segment is optimized and delivering on our commitments to our customers.

   Growth and Innovation: Advance technology and customer relationships to create new opportunities and growth.

   Capital Deployment: Drive actions to optimize the portfolio through mergers and acquisitions and organic investments.

 

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2018 AIP PERFORMANCE TARGETS AND RESULTS

 

The Adjusted EPS, Adjusted Free Cash Flow, Adjusted Operating Margin and Adjusted Revenue targets were based on the Company’s 2018 operating budget. These targets were set early in 2018. The Compensation and Personnel Committee reviewed the operating budget with management to ensure that the targets were appropriate and determined that the achievement of the combination of financial goals would be challenging and reflect strong performance considering the uncertainty in some of our key end markets. In addition to these metrics, ITT Corporate and each of the business Segments have working capital financial targets that if not achieved will result in up to a five point reduction of the AIP Performance Factor. In 2018, ITT Corporate and each business segment achieved working capital targets and no penalties were assessed. The table below sets forth the target and actual results for each 2018 AIP financial performance metric at the corporate level.

 

CORPORATE FINANCIAL PERFORMANCE TARGETS

 

The financial targets for Ms. Ramos, Mr. Savi, Mr. Scalera and Ms. Gustafsson reflect ITT Corporate targets.

 

   Threshold  Target  Maximum        
Metric  (50%)  (100%)  (200%)  2018 Results  2018 Payout
Adjusted Earnings Per Share  $2.55   $3.00   $3.60   $3.23    138%
Adjusted Cash Flow  $155.9M   $183.4M   $220.1M   $244.6M    200%
Adjusted Operating Margin   11.7%    13.0%    14.9%    13.5%    128%
Adjusted Revenue  $2,473M   $2,747M   $3,022M   $2,800M    119%

 

SEGMENT FINANCIAL PERFORMANCE TARGETS

 

The financial targets for Mr. Batliwala reflect the Connect & Control Technologies business segment, in addition to the ITT Corporate Adjusted Earnings Per Share target. The business segments, including Connect & Control Technologies, also receive an additional benefit to their financial score and bonus payout pool when ITT exceeds financial targets.

 

   Threshold  Target  Maximum        
Metric  (50%)  (100%)  (200%)  2018 Results  2018 Payout
Adjusted Segment Cash Flow  $82.5M   $97.1M   $116.5M   $107.2M    152%
Adjusted Segment Operating Margin   14.7%    16.4%    18.8%    16.1%    92%
Adjusted Segment Revenue  $560M   $623M   $685M   $650M    143%

 

AIP INDIVIDUAL COMPONENT CONSIDERATIONS

 

Each NEO has 10% of their AIP bonus target based on the individual component, which rewards achievement of their individual and team goals. The Compensation and Personnel Committee considered the following achievements when determining the individual component payout of each NEO.

 

Denise L. Ramos, Chief Executive Officer:
  Led ITT to record financial results for orders, revenue, operating income, margins, EPS and free cash flow
  Successfully transitioned the President and CEO role to Luca Savi
  Positioned ITT for future success through continued investments in people, production capabilities and R&D
Luca Savi, President and Chief Operating Officer:
  Delivered record operational results, including record cash flow and significant working capital improvements
  Drove market share gains in key end markets (automotive, rail, aerospace, connectors)
  Implemented an innovation approach across the segments to better enable long-term growth
Thomas M. Scalera, Executive Vice President and Chief Financial Officer:
  Managed investor relations including effective messaging of CEO transition and activities
  Improved the size and quality of the M&A pipeline
  Implemented a successful global tax strategy in light of U.S. tax reform

 

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Mary Beth Gustafsson, Senior Vice President, General Counsel and Chief Compliance Officer:
  Continued to successfully manage ITT’s asbestos liabilities
  Completed environmental activities to ensure the successful sale of a manufacturing location resulting in a $39M gain
  Continued to assist in the re-qualification of connector products for the defense industry
Farrokh Batliwala, Senior Vice President and President, Connect & Control Technologies:
  Drove strong revenue and margin growth in the Connectors business
  Expanded rotorcraft and electric vehicle charging revenue
  Delivered long-term contracts for significant aerospace platforms

 

2018 LONG-TERM INCENTIVE COMPENSATION

 

In 2018, the Committee approved two types of vehicles for the Company’s annual LTI awards with each addressing long-term shareholder value alignment in different ways. The Committee believed that granting a combination of PSUs and RSUs was appropriate to provide shareholder alignment, retention value and the opportunity to leverage awards up and down consistent with stock price performance, as well as Company performance over the long term. 2018 LTI for our NEOs was allocated as follows:

 

 

As discussed in more detail below, LTI awards for executive officers granted in March 2019 were comprised of 60% PSUs and 40% RSUs. The following table shows the target value of the LTI award grants made to NEOs in February 2018 as part of the Company’s regular annual compensation process. These LTI values were determined, taking into account base pay and annual incentive values, in developing market competitive total compensation levels and an appropriate mix of fixed versus variable and short-term versus long-term incentives. These values also considered each NEO’s role, potential long-term contribution, performance, experience and skills.

 

   PSUs      
Named Executive Officer  (Target Award)  RSUs  Total(1)
Denise L. Ramos  $2,250,000   $2,250,000   $4,500,000
Luca Savi   750,000    750,000    1,500,000
Thomas M. Scalera   487,500    487,500    975,000
Mary Beth Gustafsson   365,000    365,000    730,000
Farrokh Batliwala   220,000    220,000    440,000
(1) The values in this table reflect target amounts approved by the Compensation and Personnel Committee; the values reported in the SCT and the Grants of Plan-Based Awards tables present the grant date fair value.

 

PERFORMANCE UNITS

 

PSUs are settled in shares after a three-year performance vesting period, with performance tied equally to the Company’s ROIC and the Company’s three-year TSR performance relative to a group of peer companies.

 

Delivery of shares generally requires employment throughout the three-year performance period. PSUs therefore provide alignment with absolute stock performance, relative stock performance, Company financial performance and potential retention value. There are up to three outstanding PSU awards at any time. No dividend equivalents are paid on unvested PSUs.

 

ROIC (50% WEIGHTING)

 

The Committee approved ROIC as a metric to align executive pay with the Company’s result in driving efficient and disciplined deployment of capital. In 2018, absolute ROIC, with specific targets, replaced relative ROIC, which was used for the 2016 and 2017 PSU awards. The Committee approved the change for the following reasons: (1) absolute ROIC provides a tighter alignment with our strategy and timing of our capital investments, which may be different than our peer companies and (2) absolute ROIC targets are easier to communicate to executives and for executives to take into consideration when making decisions as compared to relative ROIC.
ROIC for the 2018 PSUs is a percentage that will be calculated by dividing (A) pre-tax income from continuing operations attributable to the Company, adjusted to exclude the pre-tax impact from special items, interest income or expense and amortization of expense from intangible assets by (B) average total assets from continuing operations, less asbestos-related assets (including deferred tax assets on asbestos-related matters) and non-interest bearing current liabilities for the five preceding quarterly periods. Special items represent significant charges or credits that impact results, such as unbudgeted acquisitions or divestitures, but may not be related to the Company’s ongoing operations and performance, as disclosed in the Company’s filings with the SEC.

 

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RELATIVE TSR (50% WEIGHTING)

 

Relative TSR was again selected as a metric by the Committee to ensure executive compensation is aligned with shareholder value creation.
In 2018, the relative TSR peer group was expanded beyond the S&P 400 Capital Goods index to include additional transportation and industrial pump/flow companies. This change was made to better align the relative TSR peer group to ITT’s portfolio mix. Before this change was approved by the Committee, we tested the impact of expanding the peer group on our unvested 2015, 2016 and 2017 PSU awards. The expanded peer group did not change the current estimated payouts of the unvested PSU awards by more than 5%, which supported the Committee’s objective of better aligning the relative TSR peer group to ITT’s portfolio without driving a substantially different performance outcome. The outstanding 2017 PSU awards continue to have relative TSR measured against the S&P 400 Capital Goods index only.
TSR performance is measured for companies in the TSR peer group by comparing the average closing stock price for the month of December prior to the start of the three-year performance cycle, to the average closing stock price for the month of December that concludes the three-year performance, including reinvestment of dividends during the period.
Vesting at the end of the applicable three-year performance period is based on the Company’s TSR performance ranked against the TSR performance of the other companies within the index.

 

If Company’s Relative Total Shareholder Return Performance is: Payout Factor for TSR Component of PSUs*
at the 80th percentile or greater 200%
at the 50th percentile 100%
at the 35th percentile 50%
less than the 35th percentile 0%
* Payouts for performance between the percentiles shown are interpolated.

 

PAYOUT ON PSUs GRANTED IN 2016

 

In 2016, ITT granted PSUs to certain executives, including each of the NEOs. The three-year performance targets were based equally on the Company’s TSR performance relative to the performance of the S&P 400 Capital Goods Index and the Company’s ROIC performance relative to the results of the companies in the 2016 Representative Peer Group. The payout of the 2016 PSUs was 126% and based on the following:

 

2016-2018 TSR Results (50% weighting): During the three-year performance period, ITT’s TSR was at the 45th percentile of the index of companies, which corresponded to an 83.9% payout.
2016-2018 ROIC Results (50% weighting): ITT’s relative ROIC performance was at the 71st percentile of the 2016 Representative Peer Group companies. The payout for the ROIC metric was 168.6% of target.

 

RESTRICTED STOCK UNITS

 

RSUs are settled in shares after a three-year vesting period and provide alignment with stock performance and retention value. Grants of RSUs provide NEOs with stock ownership of unrestricted shares after the restrictions lapse. NEOs receive RSU awards because, in the judgment of the Compensation and Personnel Committee and based on management recommendations, these individuals are in positions most likely to influence the achievement of the Company’s long-term value creation goals and to create shareholder value over time. The Compensation and Personnel Committee reviews all grants of RSUs for executive officers prior to the award, including awards based on performance, retention-based awards, and awards contemplated for new employees as part of employment offers. The CEO has the authority to grant RSUs to other employees in certain situations. These grants are reviewed by the Compensation and Personnel Committee at its next scheduled meeting. RSUs do not grant dividend or voting rights to the holder over the vesting period, however, dividend equivalents are accrued and paid after vesting. In certain cases, such as for new hires or to facilitate retention, selected employees may receive RSUs subject to different vesting terms.

 

TRANSITION-RELATED GRANTS

 

In addition to annual LTI awards, the Compensation and Personnel Committee may award other grants in the form of PSUs, RSUs or stock options. These grants are used to attract new senior executives to ITT, provide additional retention incentive or reward extraordinary performance.

 

As previously described above in “Executive Compensation Highlights,” in connection with the CEO succession plan and as disclosed in our August 2018 announcement of the CEO transition, the Committee granted Thomas M. Scalera, the Company’s Executive Vice President and Chief Financial

 

ITT INC. | 2019 PROXY STATEMENT    53

 

Officer, $500,000 of PSUs and $500,000 of RSUs. In making the decision to grant these awards, the Committee considered Mr. Scalera’s significant contributions and impact on the business and the importance of leadership continuity through the succession process. The Committee chose PSUs and RSUs, consistent with the Company’s regular long-term incentive award granting practices, to continue to align Mr. Scalera’s pay with the Company’s financial results and shareholder returns. These awards will be forfeited if Mr. Scalera voluntarily leaves the Company during their respective three-year vesting periods. The Committee has approved no other transition-related compensation arrangements for any other members of management.

 

WHAT’S NEW FOR 2019?

 

The Compensation and Personnel Committee approved the 2019 LTI awards for executive officers to be comprised of 60% PSUs and 40% RSUs. In 2018 the LTI awards were comprised of 50% PSUs and 50% RSUs. The Committee made the decision to increase the relative percentage of PSUs to more directly align executive pay with ITT’s financial performance.

 

In addition, although we received support for our LTI program design during our meetings with investors, we did receive feedback that increasing the mix of PSUs would be viewed favorably. These awards were granted on March 4, 2019 and therefore are not included in the Compensation Tables in this Proxy Statement.

 

BENEFITS AND PERQUISITES

 

All of the NEOs, except for Mr. Savi who is employed by ITT Italy Holding s.r.l., are eligible to participate in the Company’s broad-based U.S. employee benefits program. The program includes the ITT Retirement Savings Plan, which provides before-tax and after-tax savings features, group medical and dental coverage, group life insurance, group accidental death and dismemberment insurance and other benefit plans. Prior to the spin-off of our defense and water businesses on October 31, 2011 which established us as a new diversified global, multi-industrial company (the “Spin Transaction”), employees also participated in a pension program.

 

All of the NEOs, except for Mr. Savi, together with most of the Company’s other salaried employees who work in the United States, participate in the ITT Retirement Savings Plan, a tax-qualified savings plan, which allows employees to contribute to the plan on a before-tax basis, on an after-tax basis or as a Roth contribution. The Company makes a core contribution of 3% or 4% of pay to the plan for all eligible employees, and matches 50% of employee contributions, up to 6% of pay. The core contribution is 3% for employees whose age plus years of service is less than 50, and 4% for employees whose age plus years of service is at least 50.

 

The Company provides only those perquisites that it considers to be reasonable and consistent with competitive practices. Perquisites available for our NEOs are financial and estate planning reimbursement of up to $15,000 per year. Mr. Savi is on an international assignment from Italy to China and receives a transportation allowance in connection with that assignment. Since 2011, the Company has not provided any tax gross-up for personal income taxes due on these perquisites.

 

Amounts reported as perquisites also include reimbursement of certain relocation-related expenses, which are described in detail in the notes to the “All Other Compensation Table” later in this Proxy Statement.

 

RETIREMENT AND BENEFITS PLAN FOR MR. SAVI

 

Mr. Savi participates in a supplemental retirement plan provided under the terms of the collective bargaining agreement applicable to Dirigenti (Executives) of Industrial companies. These benefits are provided in addition to the Italian government-provided retirement benefits. Under the terms of the plan, Mr. Savi can contribute up to €6,000 annually and receive a company matching contribution of up to €6,000.

 

Mr. Savi is eligible for other statutory retirement and health and welfare benefits that are generally provided to our employees in Italy that have the classification of Dirigenti (Executives). During Mr. Savi’s assignment in China, he and his family have been covered by ITT’s international healthcare coverage plan, which covers all employees that participate in an international assignment.

 

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OTHER COMPENSATION AND BENEFITS

 

CEO EMPLOYMENT AGREEMENT

 

Ms. Ramos had an employment agreement with the Company that governed the terms of her employment. The agreement was entered into on October 31, 2011 and amended on May 16, 2016 and does not have a stated expiration date.

 

The employment agreement for Ms. Ramos is attached as Exhibit 10.3 to the Current Report on Form 8-K filed with the SEC on May 16, 2016. Ms. Ramos retired as CEO on December 31, 2018. Mr. Savi does not have an employment agreement with the Company.

 

POST-EMPLOYMENT COMPENSATION

 

ITT DEFERRED COMPENSATION PLAN

 

Our NEOs, except Mr. Savi, are eligible to participate in the ITT Deferred Compensation Plan. This plan provides United States executives an opportunity to defer receipt of between 2% and 90% of any AIP awards they earn. The amount of deferred compensation ultimately received reflects the performance of benchmark investment funds made available under the ITT Deferred Compensation Plan as selected by the executive. Participants in the ITT Deferred Compensation Plan may elect a fund that tracks the performance of the Company’s common stock.

 

ITT SALARIED RETIREMENT PLAN

 

Until October 31, 2011, most of our salaried employees who work in the United States participated in the ITT Salaried Retirement Plan. Under the plan, participants could elect, on an annual basis, to be covered by either a Traditional Pension Plan (described elsewhere in this Proxy Statement under the heading “Compensation Tables—2018 Pension Benefits”) or a Pension Equity Plan formula for future pension accruals. The ITT Salaried Retirement Plan was a tax-qualified plan, which provided a base of financial security for employees after they cease working. The ITT Salaried Retirement Plan was transferred by the Company to Exelis Inc., our defense business that was spun off in the Spin Transaction, effective on October 31, 2011. Both service credit and accrued benefits were frozen as of that date, and certain participants were eligible to receive transition employer contributions into the ITT Retirement Savings Plan.

 

SEVERANCE PLAN ARRANGEMENTS

 

The Company maintains severance arrangements for most of its senior executives, including all of the NEOs. These arrangements are included in two plans, one covering most severance circumstances (the ITT Senior Executive Severance Pay Plan), and the other covering severance following a change-in-control event (the ITT Senior Executive Change in Control Severance Pay Plan). These plans do not allow for the payment of tax gross-ups on severance pay or other benefits. These plans are regularly reviewed by the Compensation and Personnel Committee.

 

The purpose of the ITT Senior Executive Severance Pay Plan is to provide a period of transition for senior executives. The terms of the ITT Senior Executive Severance Pay Plan apply to all of our NEO’s, however the length of Mr. Scalera’s severance benefit is specified in a 2011 employment letter entered into at the time of the Spin Transaction. The severance terms for Ms. Ramos were covered under her employment agreement. The severance terms for Mr. Savi are covered under the National Collective Agreement for the Industrial Sector Managers in Italy. This agreement provides Mr. Savi with termination benefits in the event his employment is terminated for other than cause. The plan generally provides for severance payments if the Company terminates a senior executive’s employment without cause. In the event that any payment would constitute an excess parachute payment within the meaning of Section 280G of the Code, then the aggregate of all payments would be reduced so that the present value of the aggregate of all payments is maximized, but is not subject to excise tax under Section 4999 of the Code or the deduction limitation of Section 280G of the Code.

 

The purpose of the ITT Senior Executive Change in Control Severance Pay Plan is to provide compensation in the case of termination of employment in connection with an acceleration event (defined under the heading “Potential Post-Employment Compensation—Change in Control Arrangements”) including a change in control. The ITT Senior Executive Change in Control Pay Plan applies to all of our NEOs with the exception of Ms. Ramos. The severance terms for Ms. Ramos in the event of an acceleration event were covered under her employment agreement. The provisions of this plan are specifically designed to address the inability of senior executives to influence the Company’s future performance after certain change of control events. The plan is structured to encourage executives to act in the best interests of shareholders by providing for certain compensation and retention benefits and payments in the case of an acceleration event.

 

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These plans, including the potential post-employment payments that our NEOs would receive pursuant to these plans, are described in more detail elsewhere in this Compensation Discussion and Analysis under the heading “Potential Post-Employment Compensation.” The severance plans apply to our key employees as defined by Section 409A.

 

POLICIES

 

THE ROLE OF RISK AND RISK MITIGATION

 

In 2018, the Compensation and Personnel Committee evaluated risk factors associated with our businesses in determining compensation structure and pay practices. The structure of the Board of Directors’ committees facilitates this evaluation and determination. More specifically, during 2018, the Chair of the Compensation and Personnel Committee was a member of the Audit Committee. This membership overlap provides insight into the Company’s business risks and affords the Compensation and Personnel Committee access to the information necessary to consider the impact of business risks on compensation structure and pay practices.

 

Further, overall enterprise risk is considered and discussed at Board meetings, providing additional important information to the Compensation and Personnel Committee. The Chief Executive Officer and the Chief Financial Officer attend those portions of the Compensation and Personnel Committee meetings at which plan features and design configurations of our annual and long-term incentive plans are considered and approved.

 

We believe our executive compensation program appropriately balances risk with maximizing long-term shareholder value. The following features of our executive compensation program help to contribute to the achievement of this goal.

 

Emphasis on Long-Term Compensation   By granting long-term incentive compensation at 40% to 67% of our NEOs’ total compensation package, the Compensation and Personnel Committee believes that it is encouraging strategies that correlate with the long-term interests of the Company. Our LTI awards, described elsewhere in this Compensation Discussion and Analysis under the heading “2018 Long-Term Incentive Compensation,” feature a three-year vesting threshold at the senior vice president level and above, encouraging behavior focused on long-term value creation. PSUs focus on ITT’s three-year TSR and ROIC performance, encouraging behavior focused on long-term goals.
Pay Mix   15% to 34% of total target compensation is fixed for NEOs while the remaining total compensation is tied to performance, consistent with our pay-for-performance philosophy. As scope of responsibility increases, the amount of performance-based pay increases and fixed pay decreases relative to other officers. Our incentive design provides multiple performance time frames and a variety of financial measures that are intended to drive profitable and sustained growth.
Clawback Policy   We have a policy that provides for recoupment of performance-based compensation if the Board of Directors determines that a senior executive has engaged in fraud or willful misconduct that caused or otherwise contributed to the need for a material restatement of the Company’s financial results. In such a situation, the Board will review all compensation awarded to or earned by that senior executive on the basis of our financial performance during fiscal periods materially affected by the restatement. This would include annual cash incentive and bonus awards and all forms of equity-based compensation. If, in the Board’s view, the compensation related to our financial performance would have been lower if it had been based on the restated results, the Board will, to the extent permitted by applicable law, seek recoupment from that senior executive of any portion of such compensation as it deems appropriate after a review of all relevant facts and circumstances. The policy covers all executives that receive PSUs, including our NEOs.
Required Executive Stock Ownership   NEOs are required to own Company shares or share equivalents with a value equal to a multiple of their base salary, as discussed in more detail below. We believe this requirement aligns their interests with the interests of the Company’s shareholders and also discourages behavior that is focused only on the short-term.
Prohibition Against Speculating, Hedging or Pledging Stock   We have a policy prohibiting employees from hedging and speculative trading in and out of the Company’s securities, including short sales and leverage transactions, such as puts, calls, and listed and unlisted options. We also prohibit employees from pledging Company securities as collateral for a loan.
Rule 10b5-1 Trading Plans   The Board of Directors has authorized the use by executive officers of prearranged trading plans under Rule 10b5-1 under the Exchange Act. Rule 10b5-1 permits insiders to adopt predetermined plans for selling specified amounts of stock or exercising stock options under specified conditions and at specified times. Executive officers may only enter into a trading plan during an open trading window and they must not possess material nonpublic information regarding the Company at the time they adopt the plan. Using trading plans, insiders can diversify their investment portfolios while avoiding concerns about transactions occurring at a time when they might possess material nonpublic information. Generally, under these trading plans, the individual relinquishes control over the transactions once the plan is put into place. Accordingly, sales may occur at any time, including possibly before, simultaneously with, or immediately after significant events involving the Company. Both new plans and modifications are subject to a mandatory “waiting period” designed to safeguard the plans from manipulation or market timing. Trading plans adopted by executive officers are reviewed and approved by the Legal Department.

 

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EXECUTIVE STOCK OWNERSHIP GUIDELINES

 

In 2018, the Compensation and Personnel Committee approved an increase of the ownership requirements for the CEO from 5x to 6x of annual base salary. The Company maintains stock ownership guidelines for all of its executive officers, including the NEOs. Executive officers have five years in order to meet the guidelines.

 

Stock ownership guidelines for officers specify the desired levels of Company stock ownership and encourage a set of behaviors for each officer to reach the guideline levels. The guidelines specify expected stock ownership levels expressed as a multiple of base salary, as set forth in the table below. Only the following equity holdings count toward achieving these ownership levels: shares owned outright, Company unvested RSUs, shares held in the Company’s dividend reinvestment plan, shares owned in the ITT Retirement Savings Plan, and “phantom” shares held in a fund that tracks an index of the Company’s stock in the deferred compensation plan. Stock options and unvested PSUs, which may comprise a significant percentage of total compensation for the CEO and other NEOs, do not count towards the achievement of our executive stock ownership guidelines.

 

Until an executive has attained the ownership levels set forth in the guidelines, executives are prohibited from selling any restricted stock that vests and becomes unrestricted, as well as required to hold all shares acquired through the exercise of stock options (except to the extent necessary to meet tax and exercise price obligations). Both the guidelines, and compliance with the guidelines, are monitored periodically. As of the date of this Proxy Statement, all NEOs either have met the guidelines, or are on track to meet the guidelines.

 

Chief Executive Officer 6 x Annual Base Salary
Executive Vice Presidents 3 x Annual Base Salary
Senior Vice Presidents 2 x Annual Base Salary
Selected Vice Presidents 1 x Annual Base Salary

 

CONSIDERATIONS OF TAX AND ACCOUNTING IMPACTS

 

In establishing total compensation for the executive officers, the Compensation and Personnel Committee has considered the effect of Section 162(m) of the Internal Revenue Code and the accounting rules associated with the Company’s compensation programs. Prior to 2018, Section 162(m) generally disallowed a tax deduction for compensation over $1,000,000 paid for any fiscal year to the CEO and the three other highest-paid NEOs, other than the CFO. However, Section 162(m) contained an exception from this $1,000,000 limit for compensation that qualified as “performance-based.” The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) made several changes to Section 162(m), the most significant of which was removing this exception for “performance-based” compensation. In addition, the Tax Act extended the application of Section 162(m) to the CFO and to any employee who, at any time after 2016, was the CEO, CFO or one of the other three highest-paid NEOs for a fiscal year. The changes made by the Tax Act apply beginning January 1, 2018, other than with respect to compensation paid pursuant to written binding contracts that were in effect on November 2, 2017.

 

The primary objective of the Company’s compensation program is to support the Company’s business strategy. Prior to the adoption of the Tax Act, the Compensation and Personnel Committee generally sought to preserve the deductibility of most compensation paid to executive officers, but believed it also should have flexibility to award non-deductible compensation. As a result of these considerations in 2017, our AIP awards, as well as awards under our LTI program (including PSUs, RSUs and stock options), were intended to qualify as performance-based compensation that was deductible under Section 162(m), provided, however, that there is no guarantee that such awards would be treated as qualified performance-based compensation under Section 162(m). As a result of the Tax Act’s elimination of the exception for performance-based compensation, the Compensation and Personnel Committee did not design the 2018 executive compensation program to preserve the deductibility of most compensation that is paid to executive officers, as it did in 2017 and prior years. The elimination of the performance-based pay exemption did not otherwise affect the Company’s 2018 executive compensation program.

 

For purposes of Section 162(m) compliance for PSUs and RSUs granted in 2017 and prior years, the payout of awards requires the Company to meet a threshold adjusted EBITDA target during the three-year performance period. If the threshold is achieved, the Compensation and Personnel Committee may use discretion on the PSU awards and approve payouts that range from zero to 200% of the units initially awarded, depending on the Company’s performance.

 

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COMPENSATION TABLES

 

SUMMARY COMPENSATION TABLE

 

The following table provides information regarding the compensation earned by each of our NEOs.

 

Name and
Principal Position
  Year  Salary  Bonus    Stock
Awards(1)
  Option
Awards(2)
  Non-Equity
Incentive Plan
Comp(3)
  Change in
Pension
Value and
Non-qualified
Deferred
Comp
Earnings(4)
  All Other
Comp(5)
  Total
Denise L. Ramos
Chief Executive Officer
   2018   $1,000,000   $   $4,745,826   $   $1,782,000   $   $183,821   $7,711,647 
   2017    1,000,000        4,766,404        1,500,000    39,555    208,028    7,513,987 
   2016    1,000,000        3,500,125    1,125,012    805,000    35,585    211,818    6,677,540 
Luca Savi
President and Chief Operating Officer(6)
   2018    649,309        1,582,038        877,630        738,900    3,847,877 
   2017    539,575        1,112,329        697,131        604,058    2,953,093 
   2016    468,541        466,760    150,002    491,800        635,070    2,212,173 
Thomas M. Scalera
Executive Vice President and Chief Financial Officer
   2018    527,694        2,080,799        580,350        85,488    3,274,331 
   2017    512,692        980,005        571,650    8,359    73,535    2,146,241 
   2016    497,526        700,224    225,002    300,000    4,017    78,681    1,805,450 
Mary Beth Gustafsson
Senior Vice President and General Counsel
   2018    470,579        770,277        526,250        55,503    1,822,609 
   2017    457,923        741,553        524,400    2,412    58,766    1,785,054 
   2016    445,103        625,188    168,752    274,598    1,828    67,288    1,582,757 
Farrokh Batliwala
Senior Vice President and President, Connect & Control Technologies
   2018    378,462        464,103        430,350        46,041    1,318,956 

 

(1) Amounts include the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 for PSUs and RSUs. A discussion of the assumptions used in calculating these values may be found in Note 17 to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K.
   
(2) Amounts in this column include the aggregate grant date fair value of non-qualified stock option awards in the year of grant based on a binomial lattice valuation. A discussion of assumptions relating to stock option awards may be found in Note 17 to the Consolidated Financial Statements in the Company’s 2018 Form 10-K.
   
(3) As described in the “2018 Annual Incentive Plan” section of the Compensation Discussion and Analysis, the amounts reported reflect compensation earned for performance under the annual incentive compensation program for that year.
   
(4) The change in pension value is reported as a value of zero in the above table for 2018. This is the result of the present value of future pension benefits decreasing from the values reported in last year’s Proxy Statement. Assumptions used to calculate these amounts can be found immediately after the 2018 Pension Benefits table.
   
(5) Amounts in this column for 2018 represent items specified in the All Other Compensation Table.
   
(6) Mr. Savi’s compensation was converted from euros to U.S. dollars based on the average exchange rate for the year Mr. Savi was paid. The exchange rates used were 1.16, 1.13 and 1.11 for 2018, 2017 and 2016, respectively.

 

ITT INC. | 2019 PROXY STATEMENT    58

 

ALL OTHER COMPENSATION TABLE

 

   Denise L.
Ramos
  Luca Savi  Thomas M.
Scalera
  Mary Beth
Gustafsson
  Farrokh
Batliwala
Executive Perquisites:                         
Financial Counseling(1)  $15,000   $   $9,000   $11,065   $10,467 
Assignment and Relocation Expense(2)       418,088             
Total Perquisites   15,000    418,088    9,000    11,065    10,467 
All Other Compensation:                         
Tax Reimbursements(3)       187,563             
Insurance Benefits(4)   7,524    24,523    860    2,170    395 
Retirement Plan Contributions(5)   161,297    108,726    75,628    42,268    35,179 
Total All Other Compensation  $183,821  $738,900   $85,488   $55,503   $46,041 

 

(1) Amounts represent taxable financial and estate planning services fees paid during 2018.
   
(2) Amounts represent the following:
   
  Mr. Savi started an international assignment in China during 2015. This assignment placed one of ITT’s senior leaders in China, which is a country with significant potential growth for ITT. Mr. Savi plans to relocate his family to the U.S. during 2019. In connection with his assignment and pursuant to the ITT International Assignment policy, ITT provides allowances for the costs that Mr. Savi and his family incur in excess of their costs had they remained in Italy. The total amount includes: housing costs in China ($137,712), costs for his children to attend school in China ($126,953), cost of living and hardship allowances ($87,356), transportation costs ($34,579) and other assignment-related costs including China immigration fees.
     
  Mr. Savi’s assignment cost was converted from Chinese renminbi to U.S. dollars based on the average exchange rate for the year Mr. Savi was paid. The exchange rate used was 0.151 for 2018.
     
(3) Under ITT’s International Assignment policy, employees on assignment to another country maintain the tax treatment they would have received if they remained in their home country. Any incremental home or host country taxes associated with the assignment are paid by the Company. The Company paid $76,329 for taxes and gross-ups for Mr. Savi in connection with his assignment from Italy to China. In addition, Mr. Savi is a U.S. green card holder and as a result had a U.S. tax liability of $111,234 that was paid by the Company for the 2017 tax year.
   
(4) Amounts include taxable group term-life insurance premiums attributable to each NEO, except Mr. Savi. Mr. Savi’s insurance benefits include taxable amounts for medical, business trip, life and disability.
   
(5) Amounts represent the total employer contributions under the ITT Retirement Savings Plan and the ITT Supplemental Retirement Savings Plan. 2018 contributions to the ITT Retirement Savings Plan are: $19,034 for Ms. Ramos, $17,924 for Mr. Scalera, $19,400 for Ms. Gustafsson and $16,650 for Mr. Batliwala. Contributions to the ITT Supplemental Retirement Savings Plan are discussed in the 2018 Nonqualified Deferred Compensation table. The amount for Mr. Savi is the employer contribution to the Italian statutory termination indemnity fund (Previndai) that would be paid upon termination from the Company.

 

ITT INC. | 2019 PROXY STATEMENT    59

 

GRANTS OF PLAN-BASED AWARDS IN 2018

 

The following table provides information about 2018 equity and non-equity awards for the NEOs. The table includes the grant date for equity-based awards, the estimated future payouts under non-equity incentive plan awards (which consist of potential payouts under the 2018 AIP) and estimated future payouts under 2018 equity incentive plan awards, which consist of potential payouts related to the PSUs granted in 2018 for the 2018-2020 performance period. Also provided is the number of shares underlying all other stock awards, which for 2018 were composed solely of RSU awards. The grants in the following table were made under the 2011 Omnibus Incentive Plan.

 

      Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards(1)
  Estimated Future Payouts
Under Equity Incentive
Plan Awards(2)
  All Other
Stock
Awards:
    Grant Date
Fair Value:
Equity
Name  Grant
Date
  Threshold
($)
   Target
($)
   Maximum
($)
   Threshold
(#)
   Target
(#)
   Maximum
(#)
   Number of
Shares of
Stock or
Units(3) (#)
   Incentive
Plan
Awards(4)
($)
Denise L. Ramos  2/26/2018  $600,000   $1,200,000   $2,400,000                          
  2/26/2018                  21,778    43,555    87,110        $  2,495,702 
    2/26/2018                                 42,240   $2,250,125 
Luca Savi  2/26/2018  $295,498   $590,995  $1,181,990                          
  2/26/2018                  7,260    14,520    29,040        $831,996 
  2/26/2018                                 14,080   $750,042 
Thomas M. Scalera  2/26/2018  $198,750  $397,500  $795,000                          
  2/26/2018                  4,720    9,440    18,880        $540,912 
  2/26/2018                                 9,155   $487,687 
  8/6/2018                  4,115    8,230    16,460        $551,904 
  8/6/2018                                 8,055   $499,571 
Mary Beth Gustafsson  2/26/2018  $177,188 $354,375   $708,750                          
  2/26/2018                  3,535    7,070    14,140        $405,111 
  2/26/2018                                 6,855   $365,166 
Farrokh Batliwala  2/26/2018  $142,500  $285,000   $570,000                          
  2/26/2018                  2,130    4,260    8,520        $244,098 
  2/26/2018                                 4,130   $220,005 

 

(1) Amounts reflect the threshold, target and maximum payment levels, respectively, if an award payout is achieved under the AIP. These potential payments are based on achievement of specific performance metrics and are completely at risk. The AIP target award is computed based upon the applicable range of net estimated payments denominated in dollars where the target award is equal to 100% of the award potential, the threshold is equal to 50% of target, and the maximum is equal to 200% of target. Zero payment is possible for performance below the threshold. Mr. Savi is employed by ITT Italy Holding s.r.l. and his amounts have been converted from euros to U.S. dollars using a 2018 average exchange rate of 1.16.
   
(2) Amounts reflect the threshold, target and maximum unit levels, respectively, of potential PSU award payouts. These potential unit amounts are based on achievement of specific performance metrics and are completely at risk. The PSU is computed based upon the applicable range of net estimated payments denominated in units where the target award is equal to 100% of the award potential, the threshold is equal to 50% of target and the maximum is equal to 200% of target.
   
(3) Amounts reflect RSU awards granted in 2018 to the NEOs.
   
(4) Amounts represent the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 for PSU and RSU awards granted to the NEOs in 2018. A discussion of assumptions relating to these LTI awards may be found in Note 17 to the Consolidated Financial Statements in our 2018 Form 10-K.

 

ITT INC. | 2019 PROXY STATEMENT    60

 

OUTSTANDING EQUITY AWARDS AT 2018 FISCAL YEAR END

 

      Option Awards  Stock Awards 
Name  Grant
Date
  Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
   Number of
Securities
Underlying
Unexercised
Options
Unexercisable(1)
(#)
   Equity
Incentive
Plan Award:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
   Option
Exercise
Price
($)
   Option
Expiration
Date
   Number
of Shares
or Units
of Stock
That
Have Not
Vested(2)
(#)
   Market
Value of
Shares or
Units of
Stock That
Have Not
Vested(3)
($)
   Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other Rights
That Have
Not Vested(2)
(#)
   Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested(3)
($)
 
Denise L. Ramos  3/4/2014   74,470            43.52    3/4/2024                 
  2/25/2015   92,720            41.52    2/25/2025                 
  2/19/2016       123,900        33.01    2/19/2026    34,085    1,645,283    89,945    4,341,645 
  2/23/2017                       53,985    2,605,856    28,028    1,352,912 
  2/26/2018                       42,240    2,038,925    21,778    1,051,224 
Luca Savi  3/8/2012   13,295            22.80    3/8/2022                 
  3/5/2013   10,290            26.76    3/5/2023                 
  3/4/2014   6,385            43.52    3/4/2024                 
  2/25/2015   7,095            41.52    2/25/2025                 
  2/19/2016       16,520        33.01    2/19/2026    4,545    219,387    11,995    578,999 
  2/23/2017                       12,600    608,202    6,540    315,686 
  2/26/2018                       14,080    679,642    7,260    350,440 
Thomas M. Scalera  3/4/2014   13,830            43.52    3/4/2024                 
  2/25/2015   17,455            41.52    2/25/2025                 
  2/19/2016       24,780        33.01    2/19/2026    6,820    329,201    17,993    868,522 
  2/23/2017                       11,100    535,797    5,763    278,180 
  2/26/2018                       9,155    441,912    4,720    227,834 
  8/6/2018                       8,055    388,815    4,115    198,631 
Mary Beth Gustafsson  3/4/2014   13,405            43.52    3/4/2024                 
  2/25/2015   14,185            41.52    2/25/2025                 
  2/19/2016       18,585        33.01    2/19/2026    8,145    393,159    13,495    651,404 
  2/23/2017                       8,400    405,468    4,360    210,457 
  2/26/2018                       6,855    330,891    3,535    170,634 
Farrokh Batliwala  2/19/2016       8,950        33.01    2/19/2026    2,465    118,986    6,502    313,852 
  2/23/2017                       5,100    246,177    2,648    127,819 
  2/26/2018                       4,130    199,355    2,130    102,815 

 

(1) Stock options vest on the third anniversary of the grant date.
(2) RSUs vest on the third anniversary of the grant date. PSUs vest upon the completion of a three-year performance period beginning January 1 of the grant year and are shown at threshold payout with the exception of the PSUs granted on February 19, 2016, which are shown at 126% of target based on the actual three-year TSR and ROIC results.
(3) Reflects the Company’s closing stock price of $48.27 on December 31, 2018. Under the Equity Incentive Plan Awards column, the 2016 PSUs granted on February 19, 2016 vested on December 31, 2018 and are shown at 126% of target based on three-year TSR and ROIC results.

 

ITT INC. | 2019 PROXY STATEMENT    61

 

OPTION EXERCISES AND STOCK VESTED IN 2018

 

The following table provides information regarding the values realized by our NEOs upon the exercise of stock options and the vesting of stock awards in 2018.

 

   Option Awards  Stock Awards
Named Executive Officer  # of Shares
Acquired on
Exercise
  Value Realized
on Exercise
       # of Shares
Acquired on
Vesting
  Value Realized
on Vesting
Denise L. Ramos   105,295      $ 2,735,449    63,733       $ 3,377,212 
Luca Savi           14,515    769,150 
Thomas M. Scalera           16,822    891,398 
Mary Beth Gustafsson           9,751    516,706 
Farrokh Batliwala           5,845    336,964 

 

2018 PENSION BENEFITS

 

Effective on October 31, 2011, all of the Company’s pension benefits described in this section were frozen, and the cumulative liability of these benefits was assumed by Exelis Inc. only. Ms. Ramos and Mr. Scalera participated in the plans described below, and they remain eligible for frozen pension benefits under the ITT Salaried Retirement Plan.

 

ITT SALARIED RETIREMENT PLAN

 

Under the ITT Salaried Retirement Plan, participants had the option, on an annual basis, to elect to be covered under either a Traditional Pension Plan or a Pension Equity Plan formula for future pension accruals. The ITT Salaried Retirement Plan was a funded and tax-qualified retirement program. The plan is described in detail below.

 

While the Traditional Pension Plan formula paid benefits on a monthly basis after retirement, the Pension Equity Plan formula enabled participants to elect to have benefits paid as a single sum payment upon employment termination, regardless of the participant’s age. The Traditional Pension Plan benefit payable to an employee depended upon the date an employee first became a participant under the plan.

 

TRADITIONAL PENSION PLAN

 

A participant first employed prior to January 1, 2000, under the Traditional Pension Plan would receive an annual pension that would be the total of:

 

2% of his or her average final compensation (as defined below) for each of the first 25 years of benefit service, plus
   
1.5% of his or her average final compensation for each of the next 15 years of benefit service, reduced by
   
1.25% of his or her primary Social Security benefit for each year of benefit service up to a maximum of 40 years.
   
A participant first employed on or after January 1, 2000, under the Traditional Pension Plan would receive an annual pension that would equal:
   
1.5% of his or her average final compensation for each year of benefit service up to 40 years, reduced by
   
1.25% of his or her primary Social Security benefit for each year of benefit service up to a maximum of 40 years.
   
For a participant first employed prior to January 1, 2005, average final compensation (including salary and approved bonus or AIP awards) is the total of:
   
The participant’s average annual base salary for the five calendar years of the last 120 consecutive calendar months of eligibility service that would result in the highest average annual base salary amount, plus
   
The participant’s average annual pension eligible compensation, not including base salary, for the five calendar years of the participant’s last 120 consecutive calendar months of eligibility service that would result in the highest average annual compensation amount.

 

For a participant first employed on or after January 1, 2005, average final compensation is the average of the participant’s total pension eligible compensation (salary, bonus and annual incentive payments for NEOs and other exempt salaried employees) over the highest five consecutive calendar years of the participant’s final 120 months of eligibility service.

 

ITT INC. | 2019 PROXY STATEMENT    62

 

As it applies to participants first employed prior to January 1, 2000, under the Traditional Pension Plan, Standard Early Retirement is available to employees at least 55 years of age with 10 years of eligibility service. Special Early Retirement is available to employees at least age 55 with 15 years of eligibility service or at least age 50 whose age plus total eligibility service equals at least 80. For Standard Early Retirement, if payments begin before age 65, payments from anticipated payments at the normal retirement age of 65 (the “Normal Retirement Age”) are reduced by one-fourth of one percent for each month that payments commence prior to the Normal Retirement Age. For Special Early Retirement, if payments begin between ages 60-64, benefits will be payable at 100%. If payments begin prior to age 60, they are reduced by five-twelfths of one percent for each month that payments start before age 60 but not more than 25%. For participants first employed from January 1, 2000 through December 31, 2004, under the Traditional Pension Plan, Standard Early Retirement was available as described above. Special Early Retirement was also available to employees who attained at least age 55 with 15 years of eligibility service (but not earlier than age 55). For Special Early Retirement, the benefit payable at or after age 62 would be at 100%; if payments commenced prior to age 62 they would be reduced by five-twelfths of one percent for each of the first 48 months prior to age 62 and by an additional four-twelfths of one percent for each of the next 12 months and by an additional three-twelfths of one percent for each month prior to age 57.

 

For participants first employed on or after January 1, 2005, and who retire before age 65, benefits may commence at or after age 55 but they would be reduced by five-ninths of one percent for each of the first 60 months prior to age 65 and an additional five-eighteenths of one percent for each month prior to age 60.

 

PENSION EQUITY PLAN

 

A participant under the Pension Equity Plan would receive a single sum pension that would equal the total accumulated percentage (as described below) times final average compensation (as defined above).

 

Total accumulated percentage is the sum of annual percentages earned for each year of benefit service. The percentage earned for any given year of benefit service ranges from three percent to six percent based on age:

 

Under age 30: 3% per year of benefit service
   
Age 30 to age 39: 4% per year of benefit service
   
Age 40 to age 49: 5% per year of benefit service
   
Age 50 and over: 6% per year of benefit service

 

Effective January 1, 2008, the ITT Salaried Retirement Plan was amended to provide for a three-year vesting requirement. In addition, for employees who were already vested and who were involuntarily terminated and entitled to severance payments from the Company, additional months of age and service (not to exceed 24 months) were to be imputed based on the employee’s actual service to his or her last day worked, solely for purposes of determining eligibility for early retirement.

 

The 2018 Pension Benefits table provides information on the pension benefits for the NEOs. Ms. Ramos and Mr. Scalera participated under the terms of the plan in effect for employees hired after January 1, 2005. The Traditional Pension Plan accumulated benefit an employee earned over his or her career with the Company is payable on a monthly basis starting after retirement. Employees may retire as early as age 50 under the terms of the plan. Pensions may be reduced if retirement starts before age 65. Possible pension reductions are described above. The Pension Equity Plan benefit can be received as a lump sum or an annuity following termination. Mr. Scalera participated in the Pension Equity Plan formula prior to 2011. Ms. Ramos has always participated only under the Traditional Pension Plan formula. Benefits under this plan are subject to the limitations imposed under Sections 415 and 401(a)(17) of the Internal Revenue Code in effect as of December 31, 2011. Section 415 limits the amount of annual pension payable from a qualified plan. For 2018, this limit is $220,000 per year for a single-life annuity payable at an IRS-prescribed retirement age. This ceiling may be actuarially adjusted in accordance with IRS rules for items such as employee contributions, other forms of distribution and different annuity starting dates. Section 401(a) (17) limits the amount of compensation that may be recognized in the determination of a benefit under a qualified plan. For 2018, this limit is $275,000.

 

2018 PENSION BENEFITS TABLE

 

           Present Value of         
        Number of      Accumulated Benefit      Payments  
        Years Credit      at Earliest Date for      During  
Named Executive Officer  Plan Name    Service (#)      Unreduced Benefit      Last Fiscal Year  
Denise L. Ramos  ITT Salaried Retirement Plan   4.33   $  178,124   $    — 
Thomas M. Scalera(1)  ITT Salaried Retirement Plan   5.77    51,203     
Luca Savi(2)  ITT Salaried Retirement Plan   N/A    N/A    N/A 
Mary Beth Gustafsson(3)  ITT Salaried Retirement Plan   N/A    N/A    N/A 
Farrokh Batliwala(3)  ITT Salaried Retirement Plan   N/A    N/A    N/A 

 

(1) Mr. Scalera has an accrued benefit under both the Traditional Pension Plan formula and the Pension Equity Plan formula. His lump sum Pension Equity Plan benefit is $52,105 under the ITT Salaried Retirement Plan as of December 31, 2018.
   
(2) Mr. Savi receives statutory retirement benefits under Italian law and additional benefits applicable to Dirigenti employees.
   
(3) Ms. Gustafsson and Mr. Batliwala were hired after October 31, 2011, the date on which the plans were frozen, therefore they are not eligible to participate in the plans.

 

ITT INC. | 2019 PROXY STATEMENT    63

 

Assumptions used to determine present value as of December 31, 2018 are generally consistent with those used by Harris Corporation (the acquirer of the ITT Salaried Retirement Plan from Exelis Inc. in 2015). The assumptions utilized were as follows:

 

Measurement date: December 31, 2018
   
Discount Rate: 4.14%
   
Mortality (pre-commencement): None
   
Mortality (post-commencement): RP-2014 Annuitant Mortality Table, separate rates for males and females
   
Mortality projection (post-commencement): Generational projection with MP-2018 Mortality Improvement Scale from 2006.
   
Normal retirement date: age 65
   
Unreduced retirement date: age 65
   
Assumed benefit commencement date: age 65
   
Accumulated benefit is calculated based on credited service and pay as of October 31, 2011
   
For benefits under the Traditional Pension Plan formula, present value is based on the single life annuity payable at assumed benefit commencement date.
   
For benefits under the Pension Equity Plan formula, present value is based on projected lump sum value at assumed benefit commencement date; Pension Equity Plan value is projected from December 31, 2018, to age 65 using an interest crediting rate of 1.55% for the ITT Salaried Retirement Plan.
   
All results shown are estimates only; actual benefits will be based on precise credited service and compensation history, which will be determined at benefit commencement date.

 

2018 NONQUALIFIED DEFERRED COMPENSATION

 

ITT DEFERRED COMPENSATION PLAN

 

The ITT Deferred Compensation Plan is a tax deferral plan. The ITT Deferred Compensation Plan permits eligible employees with a base salary of at least $200,000 to defer between 2% and 90% of their AIP payment. The AIP amount deferred is included in the Summary Compensation Table under Non-Equity Incentive Plan Compensation. Withdrawals under the plan are available on payment dates elected by participants at the time of the deferral election. The withdrawal election is irrevocable, except in cases of demonstrated hardship due to an unforeseeable emergency as provided by the ITT Deferred Compensation Plan. Amounts deferred will be unsecured general obligations of the Company to pay the deferred compensation in the future and employees will have the rights of an unsecured general creditor with respect to those funds.

 

Participants can elect to have their account balances allocated into one or more of the 25 phantom investment funds (including a phantom Company stock fund) and can change their investment allocations on a daily basis. All plan accounts are maintained on the accounts of the Company and investment earnings are credited to a participant’s account (and charged to corporate earnings) to mirror the investment returns achieved by the investment funds chosen by that participant.

 

A participant can establish up to six “accounts” into which AIP award deferrals are credited and he or she can elect a different form of payment and a different payment commencement date for each “account.” One account may be selected based on a termination date (the “Termination Account”) and five accounts are based on employee-specified dates (each a “Special Purpose Account”). Each Special Purpose and Termination Account may have different investment and payment options. Termination Accounts will be paid in the seventh month following the last day worked. Changes to Special Purpose Account distribution elections must be made at least 12 months before any existing benefit payment date, may not take effect for at least 12 months, and must postpone the existing benefit payment date by at least five years. Additionally, Termination Account distribution elections are irrevocable.

 

ITT INC. | 2019 PROXY STATEMENT    64

 

The table below shows the annual rate of return for the funds available under the ITT Deferred Compensation Plan, as reported by the administrator for the calendar year ended December 31, 2018.

 

     Rate of         Rate of  
     Return         Return  
     1/1/18 to         1/1/18 to  
Name of Fund    12/31/18    Name of Fund    12/31/18  
Fixed Rate Option(1)   3.00%  American Funds EuroPacific Growth (REREX)   -15.22%
PIMCO Total Return Institutional (PTTRX)   -0.26%  First Eagle Overseas A (SGOVX)   -10.29%
PIMCO Real Return Institutional (PRRIX)   -1.97%  Lazard Emerging Markets Equity Open (LZOEX)   -18.32%
T Rowe Price High Yield (PRHYX)   -3.33%  Clearbridge Small Cap Growth IS (LMOIX)   4.58%
Dodge & Cox Stock (DODGX)   -7.07%  DFA US Targeted Value I (DFFVX)   -15.78%
Vanguard Developed Markets Index Inv (VDVIX)   -14.56%  Invesco Global Real Estate A (AGREX)   -6.16%
Vanguard 500 Index (VFINX)   -4.52%  Model Portfolio(2) — Conservative   -1.92%
American Funds Growth Fund of America R4 (RGAEX)   -2.95%  Model Portfolio(2) — Moderate Conservative   -4.05%
Artisan Mid Cap (ARTMX)   -4.02%  Model Portfolio(2) — Moderate   -6.16%
Vanguard Selected Value Inv (VASVX)   -19.73%  Model Portfolio(2) — Moderate Aggressive   -7.77%
Vanguard Federal Money Market Inv (VMFXX)   1.78%  Model Portfolio(2) — Aggressive   -9.52%
Hartford Schroders Int’l Multi-Cap Value S (SIDRX)   -15.23%  ITT Stock Fund (ITT)   -8.66%
Vanguard Total Bond Market Index (VBMFX)   -0.13%        

 

(1) The Fixed Rate Option rate is based on guaranteed contractual returns from the insurance company provider.
   
(2) The returns shown in the model portfolio are not subsidized by the Company, but represent returns for a managed portfolio based on funds available to deferred compensation participants.

 

ITT SUPPLEMENTAL RETIREMENT SAVINGS PLAN

 

Since federal law limits the amount of compensation that can be used to determine employee and employer contribution amounts to the tax-qualified plan to $275,000 in 2018, the Company has established and maintains a non-qualified unfunded ITT Supplemental Retirement Savings Plan to allow for Company contributions based on base salary and actual annual bonus paid in excess of these limits. All balances under this plan are maintained on the books of the Company and earnings are credited to the accumulated savings under the plan based on the earnings in the Stable Value Fund in the tax-qualified plan. Benefits will be paid in a lump sum in the seventh month following the last day worked. Effective January 1, 2012, the plan was amended to no longer permit employee contributions.

 

ITT INC. | 2019 PROXY STATEMENT    65

 

2018 NONQUALIFIED DEFERRED COMPENSATION TABLE

 

The table below shows nonqualified deferred compensation activity for the NEOs for 2018.

 

Name  Executive
Contributions
Last Fiscal Year(1)
   Registrant
Contributions
Last Fiscal Year(2)
   Aggregate
Earnings Last
Fiscal Year
   Aggregate
Withdrawals/
Distributions
   Aggregate
Balance at Last
Fiscal Year End
 
Denise L. Ramos                         
Non-qualified savings            $             $142,263             $25,395             $             $1,169,737 
Deferred compensation           100,530    220,303    3,450,931 
TOTAL  $   $142,263   $125,925   $220,303   $4,620,668 
Luca Savi                         
Non-qualified savings  $   $   $   $   $ 
Deferred compensation                    
TOTAL  $   $   $   $   $ 
Thomas M. Scalera                         
Non-qualified savings  $   $57,704   $5,757   $   $298,202 
Deferred compensation                    
TOTAL  $   $57,704   $5,757   $   $298,202 
Mary Beth Gustafsson                         
Non-qualified savings  $   $22,868   $1,996   $   $110,483 
Deferred compensation   393,300    27,531    (36,104)       1,060,966 
TOTAL  $393,300   $50,399   $(34,108)  $   $1,171,449 
Farrokh Batliwala                         
Non-qualified savings  $   $18,529   $715   $   $45,265 
Deferred compensation                    
TOTAL  $   $18,529   $715   $   $45,265 

 

Note: “Non-qualified savings” represent amounts in the ITT Supplemental Retirement Savings Plan. “Deferred compensation” earnings under the ITT Deferred Compensation Plan are calculated by reference to actual earnings of the investment funds as provided in the table above.

 

(1) Ms. Gustafsson deferred a portion of her 2017 bonus that was paid in March 2018. None of the other NEOs elected to defer their 2017 bonus.
   
(2) Amounts represent the core, match and applicable transition employer contributions into the ITT Supplemental Retirement Savings Plan (Non-qualified savings) and the ITT Deferred Compensation Plan (Deferred compensation).

 

ITT INC. | 2019 PROXY STATEMENT    66

 

POTENTIAL POST-EMPLOYMENT COMPENSATION

 

The potential post-employment compensation tables reflect the amount of compensation payable to each of the NEOs in the event their ITT employment ceases, including voluntary termination, termination for cause, death or disability, termination without cause, or termination in connection with a change of control. Post-separation compensation of our NEOs, other than Mr. Savi, is governed by the ITT Senior Executive Severance Pay Plan. In addition, post-separation compensation of all of our NEOs is governed by the ITT Senior Executive Change in Control Severance Pay Plan (applicable to situations involving a change of control) and our equity award agreements. In the case of Mr. Scalera, the length of his severance benefit is specified in a 2011 employment letter entered into at the time of the Spin Transaction.

 

The amounts shown in the potential post-employment compensation tables are estimates, assuming that the triggering event occurred on December 31, 2018, including amounts that would be earned through such date (or that would be earned during a period of severance), and where applicable, are based on the closing price of the Company’s stock on December 31, 2018, the last trading day of 2018, which was $48.27.

 

The actual amounts to be paid out can only be determined at the time of such executive’s separation from the Company.

 

PAYMENTS AND BENEFITS PROVIDED GENERALLY TO SALARIED EMPLOYEES

 

The amounts shown in the tables in this section do not include payments and benefits to the extent these payments and benefits are provided on a non-discriminatory basis to salaried employees generally upon termination of employment. These include:

 

Accrued salary and vacation pay.
   
Regular pension benefits under the ITT Salaried Retirement Plan (frozen as of the date of the Spin Transaction and transferred to Exelis Inc., which was later acquired by Harris Corporation). ITT participants do not accrue any additional service credit under the plan in the event of a termination. See the section “Post-Employment Compensation” in the Compensation Discussion and Analysis for more information.
   
Health care benefits provided to retirees under the ITT Salaried Retirement Plan, including retiree medical and dental insurance (if eligible as of the date of the Spin Transaction). Employees who terminate prior to retirement are eligible for continued benefits under COBRA.
   
Distributions of plan balances under the ITT Retirement Savings Plan and amounts under the ITT Supplemental Retirement Savings Plan.

 

No perquisites are available to any NEOs in any of the post-employment compensation circumstances. With respect to the ITT Salaried Retirement Plan, frozen benefits under such plan may be deferred to age 65, but may become payable at early retirement age, or earlier for benefits under the Pension Equity Plan formula. Employees of the Company do not have to terminate employment in order to receive their benefits from the ITT Salaried Retirement Plan since the plan is now sponsored by Harris Corporation.

 

ITT SENIOR EXECUTIVE SEVERANCE PAY PLAN

 

The ITT Senior Executive Severance Pay Plan provides overall cash severance benefits to executives, provides participants with outplacement assistance for one year and does not allow for the vesting of equity awards during the severance period. The amount of severance pay under this plan depends on the executive’s base pay and years of service, not to exceed 12 months of base pay. The Company considers these severance pay provisions appropriate transitional provisions given the job responsibilities and competitive market in which senior executives function.

 

No severance is provided if an employee is terminated for cause, because the Company believes employees terminated for cause should not receive additional compensation.

 

In addition, the Company’s obligation to continue severance payments stops if the executive does not comply with the Company’s Code of Conduct. We consider this cessation provision to be critical to the Company’s emphasis on ethical behavior. The Company’s obligation to continue severance payments also stops if the executive does not comply with non-competition provisions of the ITT Senior Executive Severance Pay Plan. These provisions protect the integrity of our businesses and are consistent with typical commercial arrangements.

 

If a covered executive receives or is entitled to receive other compensation from another company, the amount of that other compensation could be used to offset amounts otherwise payable under the ITT Senior Executive Severance Pay Plan. For six months following the termination date, the executive will continue to be eligible for healthcare benefits and for 12 months the executive will entitled to outplacement support. Severance pay will start within 60 days following the covered executive’s scheduled termination date.

 

ITT INC. | 2019 PROXY STATEMENT    67

 

CEO EMPLOYMENT AGREEMENT

 

Ms. Ramos retired as CEO on December 31, 2018 and did not receive any severance benefits, therefore she is not included in the Potential Post-Employment Compensation Table below.

 

ITT SENIOR EXECUTIVE CHANGE IN CONTROL SEVERANCE PAY PLAN

 

This plan provides two levels of benefits for covered executives, based on their position within the Company. The Compensation and Personnel Committee considered two levels of benefits appropriate based on the relative ability of each level of employee to influence future Company performance. The President, Executive Vice Presidents and Senior Vice Presidents receive the higher level and certain Vice Presidents the second level. Under the ITT Senior Executive Change in Control Severance Pay Plan, if a covered executive is terminated within two years of a change in control or in contemplation of a change in control event that ultimately occurs or if the covered executive terminates his or her employment for good reason within two years of a change in control, he or she would be entitled to:

 

Any accrued but unpaid base salary, bonus (AIP award), vacation and unreimbursed expenses;
   
Two or three times the current base salary and target annual incentive as of the termination date;
   
A lump sum payment equal to two or three times the highest annual base salary rate during the three years preceding termination or an acceleration event times the highest percentage rate of the Company’s contributions to the ITT Retirement Savings Plan and the ITT Supplemental Retirement Savings Plan, such percentage rate not to exceed 7% per year;
   
Subsidized healthcare benefits for six months after termination; and
   
One year of outplacement assistance.

 

All of the NEOs, other than Ms. Ramos, are covered at the highest level of benefits. The severance terms for Ms. Ramos in the occurrence of an acceleration event were covered under her employment agreement.

 

CHANGE IN CONTROL ARRANGEMENTS

 

There are change in control provisions in various Company plans, which were adopted to mitigate the concern that, in the event the Company is considering a change in control transaction, the employees involved in considering the transaction might otherwise be motivated to act in their own interests rather than in the interests of the shareholders.

 

The payment or vesting of awards or benefits under certain of the plans listed below are accelerated solely upon the occurrence of a change in control of the Company. As described on the next page, our equity plans and our severance pay plans have “double triggers,” requiring both a change in control and a termination of employment to accelerate the vesting of unvested awards.

 

The following Company plans have change in control provisions:

 

2011 Omnibus Incentive Plan
   
2003 Equity Incentive Plan
   
ITT Annual Incentive Plan for Executive Officers
   
ITT Senior Executive Change in Control Severance Pay Plan
   
ITT Change in Control Severance Pay Plan
   
ITT Deferred Compensation Plan
   
ITT Supplemental Retirement Savings Plan
   
Ramos Employment Agreement

 

The 2011 Plan, 2003 Equity Incentive Plan, ITT Annual Incentive Plan for Executive Officers, ITT Senior Executive Change in Control Severance Pay Plan, and ITT Change in Control Severance Pay Plan consider a change in control to have occurred if one of the following acceleration events occurs:

 

1. A report on Schedule 13D was filed with the SEC disclosing that any person, other than the Company or one of its subsidiaries or any employee benefit plan that is sponsored by the Company or a subsidiary, had become the beneficial owner of 20% or more of the Company’s outstanding stock.
   
2. A person other than the Company or one of its subsidiaries or any employee benefit plan that is sponsored by the Company or a subsidiary purchased the Company’s shares in connection with a tender or exchange offer, if after consummation of the offer the person purchasing the shares is the beneficial owner of 20% or more of the Company’s outstanding stock.

 

ITT INC. | 2019 PROXY STATEMENT    68

 
3. The shareholders of the Company approved, and the Company fully executed:

 

  (a) Any consolidation, business combination or merger of the Company other than a consolidation, business combination or merger in which the shareholders of the Company immediately prior to the merger would hold 50% or more of the combined voting power of the Company or the surviving corporation of the merger and would have the same proportionate ownership of common stock of the surviving corporation that they held in the Company immediately prior to the merger; or
     
  (b) Any sale, lease, exchange or other transfer of all or substantially all of the assets of the Company.

 

4. A majority of the members of the Board of Directors of the Company changed within a 12-month period, unless the election or nomination for election of each of the new directors by the Company’s shareholders had been approved by two-thirds of the directors still in office who had been directors at the beginning of the 12-month period or whose nomination for election or election was recommended or approved by a majority of directors who were directors at the beginning of the 12-month period.
   
5. Any person other than the Company or one of its subsidiaries or any employee benefit plan sponsored by the Company or a subsidiary became the beneficial owner of 20% or more of the Company’s outstanding stock.

 

The ITT Supplemental Retirement Savings Plan and ITT Deferred Compensation Plan consider a change in control to have occurred if one of the following acceleration events occurs:

 

1. A majority of the members of the Board of Directors of the Company changed within a 12-month period, unless the election or nomination for election of each of the new directors by the Company’s shareholders had been approved by two-thirds of the directors still in office who had been directors at the beginning of the 12-month period or whose nomination for election or election was recommended or approved by a majority of directors who were directors at the beginning of the 12-month period.
   
2. Any one person, or more than one person acting as a group (as defined in Treasury Regs. 1.409A-2(i)(5)(v)(B)), acquires ownership of shares that, together with shares held by such person or group constitutes more than 50% of the total fair market value or total voting power of the shares of the Corporation.
   
3. Either (i) a person, or more than one person acting as a group (as defined in Treasury Regs. 1.409A-2(i)(5)(v)(B)), acquires ownership of shares possessing 30% or more of the total voting power of the shares of the Corporation, taking into account all such shares acquired during the 12-month period ending on the date of the most recent acquisition, or (ii) a majority of the members of the Board of Directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of such Board of Directors prior to the date of the appointment or election, but only if no other corporation is a majority shareholder.
   
4. A change in the ownership of a substantial portion of assets occurs on the date on which any one person, or more than one person acting as a group (as defined in Treasury Regs. 1.409A-2(i)(5)(v)(B)), other than a person or group of persons that is related to the Company, acquires assets that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions, taking into account all such assets acquired during the 12-month period ending on the date of the most recent acquisition.

 

Beginning with the Company’s annual grant cycle in March 2014, all long-term incentive awards (PSUs, RSUs and stock options) have included a “double trigger” provision, whereby no benefits will be paid to an executive unless (i) a change in control of the Company has occurred and (ii) there has been a specified change in the employment status of the executive within a period of time following the change in control. For example, if a covered executive is terminated without cause within two years of a change in control or terminates his or her employment for good reason within two years of a change in control, or is terminated before the change in control occurs, but after its announcement or at the request of a participant, he or she would be entitled to vesting of long-term incentive awards pursuant to the award agreements. The ITT Senior Executive Change in Control Severance Plan and ITT Change in Control Severance Pay Plan also have double trigger provisions. We utilize “double trigger” vesting to ensure management talent will be available to assist in the successful integration following a change in control and to align with prevailing governance practices.

 

ITT INC. | 2019 PROXY STATEMENT    69

 

Potential post-employment compensation arrangements are more fully described for the NEOs in the following table. As noted above, this table assumes a triggering event as of December 31, 2018.

 

   Resignation or
Termination for
Cause
   Death or
Disability
   Termination
Not For Cause
   Termination Not For
Cause or With Good
Reason After Change
of Control
 
Luca Savi                    
Cash Severance(1)        $   $   $2,087,243   $2,250,000 
AIP               2,250,000 
Unvested Equity Awards(2)       3,670,586    2,239,307    3,670,586 
ITT Supplemental Retirement Savings Plan(3)                
Other Benefits(4)   551,046    3,277,046    593,370    593,370 
TOTAL(5)  $551,046   $6,947,632   $4,919,920   $8,763,956 
Thomas M. Scalera                    
Cash Severance(1)  $   $   $618,333   $1,590,000 
AIP               1,192,500 
Unvested Equity Awards(2)       4,351,623    2,685,131    4,351,623 
ITT Supplemental Retirement Savings Plan(3)               111,300 
Other Benefits(4)           38,692    38,692 
TOTAL(5)  $   $4,351,623   $3,342,156   $7,284,115 
Mary Beth Gustafsson                    
Cash Severance(1)  $   $   $472,500   $1,417,506 
AIP               1,063,130 
Unvested Equity Awards(2)       2,826,693    2,024,618    2,826,693 
ITT Supplemental Retirement Savings Plan(3)               99,226 
Other Benefits(4)           38,692    38,692 
TOTAL(5)  $   $2,826,693   $2,535,810   $5,445,247 
Farrokh Batliwala                    
Cash Severance(1)  $   $   $321,538   $1,140,000 
AIP               855,000 
Unvested Equity Awards(2)       1,476,147    999,951    1,476,147 
ITT Supplemental Retirement Savings Plan(3)               68,400 
Other Benefits(4)           32,657    32,657 
TOTAL(5)  $   $1,476,147   $1,354,146   $3,572,204 

 

(1) Under the ITT Senior Executive Severance Pay Plan, Mr. Scalera’s 2011 employment letter entered into at the time of the Spin Transaction, and as described elsewhere in this section, the following executives would receive base salary after termination without cause for the following severance periods: Mr. Scalera 14 months, Ms. Gustafsson 12 months, and Mr. Batliwala 44 weeks. Although also eligible under the ITT Senior Executive Severance Pay Plan (12 months), Mr. Savi would receive the higher severance benefits afforded by his status as a Dirigenti (executive level employee) under the Italy national labor contract, which is equal to 20 months of pay based on his average annual compensation over the past three years. In the event of termination following a change of control, all NEOs are covered under the Company’s ITT Senior Executive Change in Control Severance Pay Plan described elsewhere in this section and, under the terms of the plan, would be paid a lump sum payment equal to the sum of (x) three (3) times the current annual base salary rate paid at the time of termination of employment, and (y) three (3) times the annual bonus awarded (whether or not deferred). For Mr. Savi, this amount was greater than the benefit afforded to him by his status as a Dirigenti, and therefore the higher amount has been reported in the table. Mr. Savi’s potential payouts have been converted from euros to U.S. dollars using the 2018 average exchange rate of 1.16.
   
(2) Unvested equity awards reflect the market value of stock and in the money value of stock options based on the Company’s December 31, 2018 closing stock price of $48.27. Termination provisions are set forth in the specific award agreements.
   
(3) No additional ITT Supplemental Retirement Savings Plan payments are made in the event of voluntary or involuntary termination, or termination for cause. Amount reflects the additional cash payment representing Company contributions, which would be made following a change of control as described in the ITT Senior Executive Change in Control Severance Pay Plan.

 

ITT INC. | 2019 PROXY STATEMENT    70

 
(4) Under the ITT Senior Executive Severance Pay Plan and the ITT Senior Executive Change in Control Severance Pay Plan, eligible executives will continue to receive subsidized healthcare benefits during the severance period for the first six months after termination without cause. Senior executives are eligible for up to one year of outplacement services. Mr. Savi would be eligible to receive payment under the Italian statutory termination indemnity plan (Previndai) upon separation for any reason in the amount of $551,046. In the event of death, Mr. Savi’s estate would be eligible to receive $2,726,000 from an insurance policy for Dirigenti and a Company-sponsored life insurance policy. In the event of Mr. Savi being disabled, as a Dirigenti, he would be eligible for a benefit of $406,000, which is not included in the table above.
   
(5) Values in this table show the full payments per the applicable plan documents under the potential termination scenarios. In the event of a change of control a “best net” provision would apply, which provides either an unreduced benefit or a reduction in payments sufficient to avoid triggering an excise tax, whichever is better after-tax.

 

CEO PAY RATIO

 

We are required to calculate and report a reasonable estimate of the ratio of the annual total compensation of our CEO to the median total compensation of our other employees. For 2018, we calculated the CEO Pay Ratio to be 148.

 

The date used to determine the median employee was December 31, 2018. We used annual salary rate as the consistently applied measure to determine the median employee. To account for employees paid in currencies other than the U.S. dollar, we used currency exchange rates as of December 31, 2018 to convert their compensation into U.S. dollars. We started with 10,446 full time, part-time and temporary employees who were paid directly by ITT or our subsidiaries, and also included contractors for whom ITT or our subsidiaries determine compensation, but were employed by third parties as of December 31, 2018.

 

We then excluded all of our 432 employees in Poland under an applicable exemption for limited numbers of non-U.S. employees. The excluded employees in Poland represented less than 5% of our total employee population. No cost of living adjustments were utilized in identifying our median employee or calculating the annual total compensation.

 

We identified the median employee to be a full-time hourly employee located in the U.S. We then determined the annual total compensation of the median employee, which included actual annual salary, overtime and company contributions toward benefits (medical and dental premiums and contributions to the employee’s 401(k) account). The total annual compensation of our median employee was determined to be $52,048. For 2018, the annual compensation for Ms. Ramos was $7,729,030 which is $17,383 higher than the amount shown in the Summary Compensation Table because of the inclusion of company-paid medical and dental benefits, which are not reflected in the Summary Compensation Table in accordance with SEC rules. Last year we did not include the company contributions toward benefits when we calculated the CEO pay ratio.

 

ITT INC. | 2019 PROXY STATEMENT    71

 

COMPENSATION AND PERSONNEL COMMITTEE REPORT

 

ITT’s Compensation and Personnel Committee is responsible for the overall design and governance of the Company’s executive compensation program, senior leadership development and talent management programs. The Compensation and Personnel Committee’s primary objective is to establish a competitive executive compensation program that clearly links executive compensation to business performance and shareholder return. The Compensation and Personnel Committee considers and monitors appropriate risk factors in structuring compensation to discourage unnecessary or excessive risk-taking behaviors and encourage long-term value creation.

 

RECOMMENDATION REGARDING COMPENSATION DISCUSSION AND ANALYSIS

 

In performing its governance function, with regard to the Compensation Discussion and Analysis, the Compensation and Personnel Committee relied on statements and information prepared by the Company’s management. It also relied on information provided by Pay Governance. The Compensation and Personnel Committee reviewed and discussed the Compensation Discussion and Analysis included in this Proxy Statement with management. Based on this review and discussion, the Compensation and Personnel Committee recommended to the Company’s Board of Directors that the Compensation Discussion and Analysis be included in the Company’s 2018 Annual Report on Form 10-K and this Proxy Statement.

 

This report is furnished by the members of the Compensation and Personnel Committee.

 

  Orlando D. Ashford Christina A. Gold Richard P. Lavin (Chair)
  Mario Longhi Rebecca A. McDonald    

 

2018 NON-MANAGEMENT DIRECTOR COMPENSATION

 

The table below represents the 2018 compensation for our non-management directors. As discussed in more detail in the narrative following the table, all non-management directors receive the same cash fees and stock awards for their service, which consists of a $100,000 annual cash retainer and an annual RSU award with a value of $100,000, except for the following: Mr. MacInnis, as Non-Executive Chairman, received an additional $62,500 cash payment and an additional RSU award with a value of $62,500; Mr. Powers as Audit Committee Chair, received an additional $15,000 cash payment; Mr. Lavin as Compensation and Personnel Committee Chair, received an additional $10,000 cash payment; and Mr. DeFosset as the Nominating and Governance Committee Chair received an additional $10,000 cash payment. As a management director, Mr. Savi does not receive compensation for Board service.

 

Compensation is paid to non-management directors in a lump sum following the annual meeting at which they are elected. Non-management directors who join the Board of Directors during the course of a year receive their compensation promptly following their election, in amounts that are pro-rated to reflect their partial year of service on the Board. Non-management directors may also choose to defer receipt of either or both of their cash retainer and equity retainer. The grant date fair value of stock awards granted to non-management directors in 2018 is provided in footnote (2) to the table below. Stock awards are composed of RSUs.

 

ITT INC. | 2019 PROXY STATEMENT    72

 
Name  Fees Earned
or Paid in
Cash(1)
   Stock
Awards(2)
   Total  
Orlando D. Ashford  $100,000   $100,031   $200,031 
Geraud Darnis   100,000    100,031    200,031 
Donald DeFosset, Jr.   110,000    100,031    210,031 
Nicholas C. Fanandakis   100,000    100,031    200,031 
Christina A. Gold   100,000    100,031    200,031 
Richard P. Lavin   110,000    100,031    210,031 
Mario Longhi   100,000    100,031    200,031 
Frank T. MacInnis   162,500    162,523    325,023 
Rebecca A. McDonald   100,000    100,031    200,031 
Timothy H. Powers   115,000    100,031    215,031 
Cheryl L. Shavers(3)   66,667    66,704    133,371 
Sabrina Soussan(3)   66,667    66,704    133,371 

 

(1) Fees may be paid in cash at the time they are earned, or deferred, at the election of the director. Non-management directors may irrevocably elect deferral into an interest-bearing cash account or into the ITT Stock Fund, which is a tracking fund that invests in Company stock.
   
(2) Awards are made in RSUs and they reflect a grant date fair value computed in accordance with GAAP. The grant date fair value of the RSUs granted to Mr. MacInnis on May 23, 2018, the date of our 2018 Annual Meeting, was $162,523. The grant date fair value of the RSUs granted to the other non-management directors on May 23, 2018 was $100,031. The closing price of ITT stock on that date was $53.78. The equity component of the non-management director compensation program was increased from $90,000 to $100,000 in May 2016 after a review by Pay Governance of market comparison data.
   
(3) Dr. Shavers and Ms. Soussan were elected to the Board of Directors on October 15, 2018 and therefore they received compensation that was pro-rated to reflect their partial year of service on the Board for the 2018-2019 director term. They were paid $66,667 in cash and were granted 1,272 RSUs on October 15, 2018 with a grant date fair value of $66,704. The closing price of ITT stock on that date was $52.44.

 

NON-MANAGEMENT DIRECTOR STOCK AWARDS AND OPTION AWARDS OUTSTANDING AT DECEMBER 31, 2018 FISCAL YEAR-END

 

Non-Management Director Name  Stock Awards  Option Awards 
Orlando D. Ashford  1,860   
Geraud Darnis  1,860   
Donald DeFosset, Jr.  9,338   
Nicholas C. Fanandakis  1,860   
Christina A. Gold  19,997   
Richard P. Lavin  1,860   
Mario Longhi  1,860   
Frank T. MacInnis  22,669  1,430 
Rebecca A. McDonald  6,430   
Timothy H. Powers  9,290   
Cheryl L. Shavers  1,272   
Sabrina Soussan  1,272   

 

Outstanding stock awards include unvested RSUs granted under the 2011 Plan and vested but deferred restricted shares and RSUs granted under the 2011 Plan, the ITT 1996 Restricted Stock Plan for Non-Employee Directors and the Amended and Restated 2003 Equity Incentive Plan. RSUs granted to non-management directors vest one business day prior to the next annual meeting. Unvested RSUs do not earn dividends or carry voting rights while unvested, however dividend equivalents are accrued during this period and are paid out in cash following vesting of the award.

 

ITT reimburses directors for expenses they incur to travel to and from Board, Committee and shareholder meetings and for other Company business-related expenses (including travel expenses of spouses if they are specifically invited to attend an event for appropriate business purposes).

 

ITT INC. | 2019 PROXY STATEMENT    73

 

NON-MANAGEMENT DIRECTOR STOCK OWNERSHIP GUIDELINES

 

ITT’s stock ownership guidelines currently provide for non-management directors to achieve stock ownership levels of five times the annual base cash retainer amount within five years of joining the Board. Non-management directors receive a portion of their retainer in RSUs, which are paid in shares when the RSUs vest. Non-management directors are required to hold such shares until their total share ownership meets or exceeds the ownership guidelines. Both the guidelines, and compliance with the guidelines, are monitored periodically. All non-management directors with at least one full year of service on the Board of Directors own stock in the Company. Directors are also subject to the Company’s policy prohibiting hedging and speculative trading in and out of the Company’s securities, including short sales and leverage transactions, such as puts, calls, and listed and unlisted options.

 

The Company also prohibits directors from pledging Company securities as collateral for a loan.