DEF 14A 1 deere3159451-def14a.htm DEFINITIVE PROXY STATEMENT

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.            )
 
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Filed by a Party other than the Registrant [   ] 
 
Check the appropriate box:
 
[   ]        Preliminary Proxy Statement
[   ]   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[X]   Definitive Proxy Statement
[   ]   Definitive Additional Materials
[   ]   Soliciting Material Pursuant to §240.14a-12

  Deere and Company  
  (Name of Registrant as Specified In Its Charter)  
 
       
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
 

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Fee paid previously with preliminary materials.
 
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
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Table of Contents

Notice of 2017
Annual Meeting
and Proxy Statement
 
 
 
 
 
 
 
 
 
 
 
 
 

Deere & Company World Headquarters
Moline, Illinois
February 22, 2017





Table of Contents

Who we are

 

John Deere is a world leader in providing advanced products and services and is committed to the success of customers whose work is linked to the land — those who cultivate, harvest, transform, enrich, and build upon the land to meet the world’s dramatically increasing need for food, fuel, shelter, and infrastructure.

 
 
     

OUR COMMITMENT

We are committed to those linked to the land. We believe that by serving them we support improving the quality of life for people around the world. Through the excellence of our products and services, we help our customers meet two of the biggest challenges in the world: feeding a population growing in size and affluence and developing the infrastructure required to support growing urbanization.

John Deere, with agricultural and construction equipment businesses, is uniquely positioned to help our customers meet those challenges.

 

OUR CORE VALUES

In conducting our business, we are guided by four core values that company founder John Deere was known for — integrity, quality, commitment, and innovation.

We apply those values in creating our products and services, maintaining our relationships, and operating our factories.

 




Table of Contents

 
 
            

January 13, 2017
 

DEAR FELLOW STOCKHOLDERS,

On behalf of the Board of Directors and the senior management team, we cordially invite you to attend Deere & Company’s Annual Meeting of Stockholders, which will be held on Wednesday, February 22, 2017, at 10:00 a.m. Central Standard Time at Deere & Company World Headquarters, One John Deere Place, Moline, Illinois, 61265.

At this meeting, you will have a chance to vote on the matters set forth in the accompanying Notice of Annual Meeting and Proxy Statement, and we will share a report on our operations.

Your vote is important. Even if you plan to attend the Annual Meeting, please vote by internet, telephone, or mail as soon as possible to ensure your vote is recorded promptly. The instructions set forth in the Proxy Statement and on the proxy card explain how to vote your shares.

On behalf of the Board of Directors, thank you for your ongoing support of Deere & Company.

Sincerely,
 

 
Samuel R. Allen       Vance D. Coffman
Chairman and CEO Presiding Director



Table of Contents

Notice of 2017 Annual Meeting
of Stockholders
 

Your opinion is very important. Please vote on the matters described in the accompanying Proxy Statement as soon as possible, even if you plan to attend the Annual Meeting. You can find voting instructions on page 82.

In addition to the Proxy Statement, we are also sending you our Annual Report, which includes our fiscal 2016 financial statements. If you wish to receive future proxy statements and annual reports electronically rather than receiving paper copies in the mail, please turn to the section entitled “Electronic Delivery of Proxy Statement and Annual Report” on page 85 for instructions.

 

DATE
Wednesday, February 22, 2017

TIME
10 a.m. Central Standard Time

PLACE
Deere & Company
World Headquarters

One John Deere Place
Moline, Illinois 61265

   

At the 2017 Annual Meeting of Stockholders (the “Annual Meeting”), stockholders will be asked to:

1. Elect the twelve director nominees named in the Proxy Statement (see page 7).
 
2. Approve the compensation of Deere’s named executives on an advisory basis (“say-on-pay”) (see page 27).
 
3. Vote, on an advisory basis, on the frequency of future advisory votes regarding Deere’s executive compensation (see page 76).
 
   
4. Ratify the appointment of Deloitte & Touche LLP as Deere’s independent registered public accounting firm for fiscal 2017 (see page 77).
 
5. Vote on the stockholder proposal, if properly presented at the meeting (see pages 80).
 
6. Consider any other business properly brought before the meeting.
  
PLEASE VOTE YOUR SHARES
If you were a Deere stockholder of record at the close of business on December 30, 2016, we encourage you to vote promptly in one of the following ways:
   

BY TELEPHONE
In the U.S. or Canada, you can vote your shares by calling 1-800-690-6903.

BY INTERNET
You can vote your shares online at www.proxyvote.com. You will need the 16-digit control number on the Notice of Internet Availability or proxy card.

  
IMPORTANT NOTICE REGARDING
THE AVAILABILITY OF PROXY
MATERIALS FOR THE
STOCKHOLDER MEETING TO BE
HELD ON FEBRUARY 22, 2017:
The
Proxy Statement and Annual Report
are available on our website at www.
deere.com/stock.

BY MAIL
You can vote by mail by marking, dating, and signing your proxy card or voting instruction form and returning it in the postage-paid envelope.

IN PERSON
You can vote in person at the annual meeting. See page 84 for information on how to pre-register.

 
On behalf of the Board of Directors, I thank you for exercising your right to vote your shares.
 

For the Board of Directors,

Todd E. Davies, Corporate Secretary
Moline, Illinois, January 13, 2017




Table of Contents

Table of Contents

This Proxy Statement is issued in connection with the solicitation of proxies by the Board of Directors of Deere & Company for use at the Annual Meeting and at any adjournment or postponement thereof. On or about January 13, 2017, we will begin distributing print or electronic materials regarding the Annual Meeting to each stockholder entitled to vote at the meeting. Shares represented by a properly executed proxy will be voted in accordance with instructions provided by the stockholder.


Proxy Summary
 
2     Proxy Summary
 
Election of Directors
 
7   Item 1 — Election of Directors
15 Corporate Governance
21 Compensation of Directors
23 Security Ownership of Certain Beneficial Owners and Management
26 Review and Approval of Related Person Transactions
26 Section 16(a) Beneficial Ownership Reporting Compliance
 
Advisory Vote on Executive Compensation
 
27 Item 2 — Advisory Vote on Executive Compensation
28 Compensation Discussion & Analysis
29     Executive Summary
33 2016 Compensation Overview
35 Compensation Methodology and Process
39 Direct Compensation Elements
56 Indirect Compensation Elements
58 Risk Assessment of Compensation Policies and Practices
59 Compensation Committee Report
60 Executive Compensation Tables
75 Equity Compensation Plan Information
Advisory Vote on Frequency of Future Advisory Votes on Executive Compensation
 
76     Item 3 — Advisory Vote on Frequency of Future Advisory Votes on Executive Compensation
  
Ratification of Independent Registered Public Accounting Firm
 
77 Item 4 — Ratification of Independent Registered Public Accounting Firm
79 Audit Review Committee Report
 
Stockholder Proposals
 
80 Items 5 — Stockholder Proposal
 
Additional Information
 
82 Voting and Meeting Information
85 Annual Report
85 Householding Information
85 Electronic Delivery of Proxy Statement and Annual Report
86 Information not Incorporated into this Proxy Statement
86 Other Matters
86 2018 Stockholder Proposals and Nominations
87 Cost of Solicitation
 
Appendices
 
88 Appendix A — Director Independence Categorical Standards of Deere & Company Corporate Governance Policies
90 Appendix B — Deere & Company Reconciliation of Non-GAAP Measures


1       DEERE & COMPANY           2017 PROXY STATEMENT



Table of Contents

Proxy Summary

This summary highlights selected information contained in this Proxy Statement, but it does not contain all the information you should consider. We urge you to read the whole Proxy Statement before you vote. You also may wish to review Deere’s Annual Report on Form 10-K for the fiscal year ended October 31,2016.

Meeting Agenda and Voting Recommendations

Item Voting Standard Vote Recommendation Page Reference     
1.   Annual election of directors Majority of votes cast FOR
each nominee
7
2.   Advisory vote on executive compensation      Majority of votes present
in person or by proxy
     FOR      27
3. Advisory vote on frequency of future advisory votes on executive compensation Majority of votes present
in person or by proxy
FOR a frequency
of 1 YEAR
76
4. Ratification of independent registered public accounting firm Majority of votes present
in person or by proxy
FOR 77 to 79
5. Stockholder proposal Majority of votes present
in person or by proxy
AGAINST
the proposal
80 to 81

Director Nominees
Every member of our Board of Directors is elected annually. You are being asked to vote on the election of these twelve nominees, all of whom currently serve as directors.

All directors other than Samuel R. Allen are INDEPENDENT.

Committee Memberships
Name      Age      Director
Since
    Executive      Audit
Review
     Compensation      Corporate
Governance
     Finance
Samuel R. Allen
Chairman and CEO, Deere & Company
63 2009   CHAIR                
Crandall C. Bowles
Chairman Emeritus, The Springs Company
69 1990–1994,  
since1999
          CHAIR    
Vance D. Coffman
Retired Chairman, Lockheed Martin
72 2004         CHAIR      
Alan C. Heuberger
Senior Manager, BMGI
43 2016                
Dipak C. Jain
Director, Sasin Graduate Institute of Business
Administration
59 2002                
Michael O. Johanns
Retired United States Senator from Nebraska
66 2015                
Clayton M. Jones
Retired Chairman, Rockwell Collins
67 2007                
Brian M. Krzanich
CEO, Intel
56 2016                
Gregory R. Page
Retired Executive Director, Chairman and CEO, Cargill
65 2013               CHAIR
Sherry M. Smith
Former Executive VP and CFO, Supervalu
55 2011     CHAIR          
Dmitri L. Stockton
Special Advisor to Chairman and Senior VP, GE and
Chairman, President, and CEO, GE Asset Management
52 2015                
Sheila G. Talton
President and CEO, Gray Matter Analytics
64 2015                


2       DEERE & COMPANY           2017 PROXY STATEMENT




Table of Contents

Proxy Summary
Governance and Compensation Changes



Annual Meeting of Stockholders

You are entitled to vote at the meeting if you were a holder of record of our common stock at the close of business on December 30, 2016. Please see page 82 for instructions on how to vote your shares and other important annual meeting information. If you wish to attend the meeting in person, we encourage you to register on or prior to Tuesday, February 21, 2017, in order to obtain an admission ticket. See page 84 for additional instructions.

Governance and Compensation Changes
One thing we have learned during our nearly 180-year history is the importance of change, which is why we regularly assess what we do to determine how we can adapt and improve. This approach applies to our corporate governance and compensation plans as much as it does to our manufacturing processes and product innovation. Here is a summary of the changes we have made since our last annual meeting.

CORPORATE GOVERNANCE      

COMPENSATION

Prior to 2015, we had received strong stockholder support on the “say-on- pay” advisory vote, averaging more than 90% approval from 2011 through 2015. Last year, approximately 61% (71% excluding abstentions) of our stockholders voted in favor of our executive compensation programs. Following the February 2016 Annual Meeting of Stockholders, we invited our top 20 stockholders to discuss specific governance and compensation matters so we could understand the factors that lead to the decline in the say-on-pay vote. The outreach to stockholders was conducted by Deere management, both in person and by phone. We discussed the most recent revisions to our compensation plans and the proxy access by-law amendments with 17 of our top 20 stockholders, representing about 48% of our then outstanding shares. The feedback from these conversations regarding compensation plans was reported to the Compensation Committee and considered in their deliberations on subsequent compensation decisions. As a result of the feedback received from stockholders, we implemented a number of changes to our compensation program to ensure continued focus on returning value to our stockholders. See the Executive Summary of the Compensation Discussion & Analysis (“CD&A”) for details.

—   We adopted a by-law in 2016 allowing stockholders meeting certain requirements to nominate directors and have such nominees included in the proxy statement—commonly referred to as “proxy access.”
 
—   We increased the retirement age for board members to 75 to reflect recent industry trends and to provide stability in the composition of our board.

Fiscal 2016 Performance Highlights
In 2016, Deere & Company sales and earnings were among the 10 best in its history, despite depressed volumes due to the global farm recession and weak construction equipment markets. Net income attributable to Deere & Company was $1,524 million compared to early fiscal 2016 guidance of $1,400 million. Adept execution and the impact of a broad product portfolio aided performance while continuing to make progress in establishing a more efficient cost structure, positioning the company well for the future.

For more information regarding our fiscal year 2016 financial performance, please see our Annual Report, which is available at www.proxyvote.com.

      Other highlights include:  
 
— 

Equipment operations benefited from improved price realization and lower production costs
 

Selling, administrative, and general expenses were reduced by $110 million
 

Company invested nearly $1.4 billion in research and development
 

Company completed strategic acquisition of Monosem and secured controlling interest in Hagie Manufacturing Company to expand Deere’s agricultural product portfolio
 

Deere returned nearly $1 billion to stockholders in the form of dividends and share repurchases


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Table of Contents

Proxy Summary
Fiscal 2016 Performance Highlights
 



NET SALES
AND REVENUES
(Millions)
      NET INCOME
(Millions)
      EARNINGS PER SHARE
(Diluted)
      DEERE SHARE PRICE
(at Oct. 31)
 
 

Worldwide net sales and revenues decreased 8% in 2016 vs. 2015. Net sales for worldwide Equipment Operations declined 9% in 2016 vs. 2015, which was two points lower than guidance provided to investors early in fiscal 2016.

 

Net income* was down 21% to $1,524 million, though still represented the 10th highest total in our history. Net income exceeded guidance of $1,400 million given to investors early in fiscal 2016. Employees controlled costs (e.g., reducing selling, administrative, and general costs by almost $100 million) yet still produced award-winning advanced products and services and invested in future growth.

 

Earnings per share fell 17% vs. 2015, less than the decline in net income*, due to fewer shares outstanding.

Investors acknowledged the company’s ability to operate profitably despite extremely difficult conditions. Share price appreciation plus dividends gave Deere stockholders a total return of about 17% for the year, compared with a gain of about 5% for the overall U.S. equity market.

*Net income attributable
to Deere & Company


CASH FLOW FROM OPERATING ACTIVITIES
(Millions)
      

Consolidated cash flow from
operations totaled a healthy
$3,764 million, essentially the same as
the previous year. Cash flow funded
important projects and paid $761
million in dividends to our investors.
Deere has raised its common stock
dividend 12 times since 2004 and
over that period has returned more
than two-thirds of its consolidated
operating cash flow for dividend
payments and share repurchases
(net of issuances)
.

 


4       DEERE & COMPANY           2017 PROXY STATEMENT



Table of Contents

Proxy Summary
Fiscal 2016 Performance Highlights
 



PERFORMANCE IN RECENT DOWNTURNS      
       

Our Equipment Operations are
affected by economic factors such as
prices for commodities and health
of the housing and infrastructure
sectors. In 2002, we adopted a
strategy that enables management to
quickly respond to changing business
conditions. During this most recent
downturn our decrease in net income
relative to the decrease in sales is less
severe than we have experienced in
other recent cyclical downturns.


NET SALES AND EARNINGS PER SHARE (DILUTED)

Since 2002, Deere has maintained positive diluted EPS performance despite downturns in net sales. As discussed in the CD&A elsewhere in this proxy, we believe our compensation program contributes to these favorable results by encouraging executives to focus on metrics that create sustained value for stockholders.


5       DEERE & COMPANY           2017 PROXY STATEMENT



Table of Contents

Proxy Summary
Fiscal 2016 Executive Compensation Highlights
 



Fiscal 2016 Executive Compensation Highlights
Our compensation programs and practices are designed to create incentive opportunities for advancing our stockholders’ long-term interests. We use metrics that align with our business strategy and motivate our executives to create value for stockholders at all points in the business cycle. We have three separate variable pay components (described below) – Short-Term Incentive (“STI”), Mid-Term Incentive (“MTI”) and Long-Term Incentive (“LTI”) – which stimulate complementary behaviors.

This Metric For this type of compensation Contributes to this goal
Operating return on operating assets (OROA)* Annual cash bonus
(known within Deere as STI)
exceptional operating performance for Equipment Operations
Return on equity (ROE)* exceptional operating performance for Financial Services
Shareholder value added (SVA) Long-term cash
(known within Deere as MTI)
sustainable, profitable growth
Revenue growth Long-term equity
(known within Deere as LTI)
sustainable growth
Total shareholder return (TSR) LTI and MTI
 
exceptional equity appreciation

*The Equipment Operations OROA calculation excludes the assets from our captive financial services. ROE is based solely on the Financial Services segment. See appendix B for details.

For information about the metrics we use to measure compensation and the resulting payouts, see the Executive Summary of the CD&A on page 29.

The table below highlights the 2016 compensation for the CEO and, on average, for the named executive officers (“NEOs”) as disclosed in the summary compensation table on page 60. The table also shows how much compensation was delivered in cash (versus equity) and the significant portion that is performance-based, and therefore at risk.

Summary Compensation
Table Elements
Salary STI MTI Performance
Stock Units
Restricted
Stock Units and
Stock Options
Retirement
and Other
Compensation
Total
CEO
Compensation $1,500,000 $2,573,063 $1,919,363 $4,156,919 $5,016,272 $3,477,254 $18,642,871
% of Total 8% 14% 10% 22% 27% 19% 100%
Cash vs. Equity Total Cash 32% Total Equity 49% Other 19% 100%
Short-Term vs. Long-Term Short-Term 22% Long-Term 78% 100%
Fixed vs. Performance Based Fixed 8% Performance Based 73% Other 19% 100%
        
Average NEO
Compensation $649,384 $757,477 $551,672 $785,432 $947,900 $772,600 $4,464,465
% of Total 15% 17% 12% 18% 21% 17% 100%
Cash vs. Equity Total Cash 44% Total Equity 39% Other 17% 100%
Short-Term vs. Long-Term Short-Term 32% Long-Term 68% 100%
Fixed vs. Performance Based Fixed 15% Performance Based 68% Other 17% 100%

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Table of Contents

Election of Directors
 
 
Item 1 - Election of Directors

How We Identify and Evaluate Director Nominees
The Corporate Governance Committee of the Board is responsible for screening candidates and recommending director nominees to the full Board. The Board nominates the slate of directors for election at each annual meeting of stockholders, and also elects directors to fill vacancies or newly-created Board seats.

The Corporate Governance Committee considers candidates recommended by stockholders, directors, officers, and third-party search firms. If you wish to nominate a director, please review the procedures described under “2018 Stockholder Proposals and Nominations” on page 86 of this Proxy Statement. The Corporate Governance Committee evaluates all candidates in the same manner, regardless of the source of the recommendation.

Deere’s Corporate Governance Policies, which are described in the “Corporate Governance” section of this Proxy Statement, establish the general criteria and framework for assessing director candidates. In particular, the Corporate Governance Committee considers each nominee’s skills, experience, international versus domestic background, and age, as well as legal and regulatory requirements and the particular needs of the Board at the time. In addition, the Board assesses the diversity of its members and nominees as part of an annual performance evaluation by considering, among other factors, diversity in expertise, experience, background, ethnicity, and gender. We believe a Board composed of members with complementary skills, qualifications, experiences, and attributes is best equipped to satisfy its responsibilities effectively.

Any director who experiences a material change in occupation, career, or principal business activity, including retirement, must tender a resignation from the Board. Upon recommendation from the Corporate Governance Committee, the Board may decline to accept any such resignation. Directors must retire from the Board upon the first annual meeting of stockholders after reaching the age of 75, except as approved by the Board under rare circumstances.

Director Nominees
The Corporate Governance Committee has recommended, and the Board has nominated, each of Samuel R. Allen, Crandall C. Bowles, Vance D. Coffman, Alan C. Heuberger, Dipak C. Jain, Michael O. Johanns, Clayton M. Jones, Brian M. Krzanich, Gregory R. Page, Sherry M. Smith, Dmitri L. Stockton, and Sheila G. Talton to be elected for terms expiring at the annual meeting in 2018. All of the nominees are current members of the Board, but Deere’s Certificate of Incorporation and good governance practices require all members of the Board to be elected annually.

We have confidence that this talented slate of nominees will lead Deere capably in the year ahead. We discuss the nominees’ professional backgrounds and qualifications in the short biographies that follow.

The board of directors recommends that you vote “FOR” all twelve nominees.


7       DEERE & COMPANY           2017 PROXY STATEMENT



Table of Contents

Election of Directors
Item1 – Election of Directors



Board Diversity
The Corporate Governance Committee recognizes that our Board is most effective when it embodies a diverse set of viewpoints and practical experiences. To that end, the Corporate Governance Committee considers how each nominee’s particular background, experience, qualifications, attributes, and skills will contribute to Deere’s success. As shown below, the members of our Board have a range of viewpoints, backgrounds, and expertise.

GENDER
TENURE

BOARD MEMBER SKILLS

Executive Manufacturing International Academic Government Law Finance Risk
Management
Corporate
Governance
Samuel R. Allen
Crandall C. Bowles  
Vance D. Coffman
Alan C. Heuberger
Dipak C. Jain  
Michael O. Johanns
Clayton M. Jones  
Brian M. Krzanich
Gregory R. Page  
Sherry M. Smith  
Dmitri L. Stockton
Sheila G. Talton

 Audit committee financial expert under Securities and Exchange Commission (“SEC”) rules

8       DEERE & COMPANY           2017 PROXY STATEMENT



Table of Contents

Election of Directors
Item 1 – Election of Directors



Samuel R. Allen Chairman and Chief Executive Officer of Deere

AGE:
63

DIRECTOR SINCE:
2009

COMMITTEES:
Executive (Chair)
 

  

Current and Past Positions

Positions at Deere:

Chairman and Chief Executive Officer since February 2010
 
President and Chief Executive Officer — August 2009 to February 2010
 
President and Chief Operating Officer — June 2009 to August 2009
 
President, Worldwide Construction & Forestry Division and John Deere Power Systems — March 2005 to June 2009
 
President, Global Financial Services, John Deere Power Systems, and Corporate Human Resources — November 2003 to March 2005

Other Current Directorships

Whirlpool Corporation (since 2010)
 
     

Key Qualifications, Experiences,
and Attributes

In addition to his professional background and prior Deere Board experience, the following qualifications led the Board to conclude that Mr. Allen should serve on Deere’s Board of Directors: his leadership experience as an officer of Deere since 2001; the breadth of his management experiences within, and knowledge of, each of Deere’s major global operations; and his subject matter knowledge in the areas of engineering, manufacturing, and industrial management.


Crandall C. Bowles Chairman Emeritus of The Springs Company

AGE:
69

DIRECTOR FROM:
1990 to 1994 and since 1999

COMMITTEES:
Corporate Governance (Chair),
Compensation, Executive

  

Current and Past Positions

Chairman Emeritus of The Springs Company (asset management) since April 2015
 
Chairman of The Springs Company — August 2007 to April 2015
 
Chairman of Springs Industries, Inc. (Springs Window Fashions) — January 2006 to June 2013
 
Co-Chairman and Co-Chief Executive Officer of Springs Global US, Inc. and Springs Global Participacoes S.A. — January 2006 to June 2007
 
Chairman and Chief Executive Officer of Springs Industries, Inc. — April 1998 to January 2006

Other Current Directorships

JPMorgan Chase & Co. (since 2006)

Previous Directorships

Sara Lee Corporation
 
     

Key Qualifications, Experiences,
and Attributes

In addition to her professional background and prior Deere Board experience, the following qualifications led the Board to conclude that Ms. Bowles should serve on Deere’s Board of Directors: her leadership qualities developed from her service as Chairman and Chief Executive Officer of Springs Industries; the breadth of her experiences in risk management and other areas of oversight while serving as a member of the boards of directors of other global corporations; and her subject matter knowledge in the areas of economics and sales and marketing of consumer products.


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Table of Contents

Election of Directors
Item 1 – Election of Directors



Vance D. Coffman Retired Chairman of Lockheed Martin Corporation

AGE:
72

DIRECTOR SINCE:
2004

COMMITTEES:
Compensation (Chair),
Corporate Governance, Executive

PRESIDING DIRECTOR SINCE 2016
 

  

Current and Past Positions

Positions at Lockheed Martin Corporation (aerospace, defense, and information technology):

Chairman — April 1998 to April 2005
 
Chief Executive Officer — August 1997 to August 2004

Other Current Directorships

3M Company (since 2002)
 
Amgen Inc. (since 2007)
     

Key Qualifications, Experiences,
and Attributes

In addition to his professional background and prior Deere Board experience, the following qualifications led the Board to conclude that Mr. Coffman should serve on Deere’s Board of Directors: his leadership qualities developed from his service as Chairman and Chief Executive Officer of Lockheed Martin; the breadth of his experiences in corporate governance and other areas of oversight while serving as a member of the boards of directors of other global corporations; and his subject matter knowledge in the areas of engineering, manufacturing, and finance.


Alan C. Heuberger Senior Manager, BMGI

AGE:
43

DIRECTOR SINCE:
2016

COMMITTEES:
Audit Review, Finance
 

  

Current and Past Positions

Positions at BMGI (private investment management):

Senior Manager since 2004
 
Investment Analyst — 1996 to 2004

Previous Directorships

GAMCO Investors, Inc.
     

Key Qualifications, Experiences,
and Attributes

In addition to his professional background, the following qualifications led the Board to conclude that Mr. Heuberger should serve on Deere’s Board of Directors: his leadership qualities developed from his service as Senior Manager of BMGI, the breadth of his experience in governance, strategy and other areas of oversight while serving as a member of the boards of directors and advisors of various asset management entities and privately-held corporations and his subject matter knowledge in the areas of agriculture industry investments, asset management, finance, and economics.


10       DEERE & COMPANY           2017 PROXY STATEMENT



Table of Contents

Election of Directors
Item 1 – Election of Directors



Dipak C. Jain Director, Sasin Graduate Institute of Business Administration

AGE:
59

DIRECTOR SINCE:
2002

COMMITTEES:
Audit Review, Finance

  

Current and Past Positions

Director, Sasin Graduate Institute of Business Administration (international graduate business school) since August 2014
 
Chaired Professor of Marketing, INSEAD (international graduate business school) — March 2013 to August 2014
 
Dean, INSEAD — May 2011 to March 2013
 
Dean, Kellogg School of Management, Northwestern University — July 2001 to September 2009
 
Associate Dean for Academic Affairs, Kellogg School of Management, Northwestern University — 1996 to 2001
 
Sandy and Morton Goldman Professor of Entrepreneurial Studies and Professor of Marketing, Kellogg School of Management, Northwestern University — 1994 to 2001 and since 2009

Other Current Directorships

Northern Trust Corporation (since 2004)
 
Reliance Industries Limited, India (since 2005)
 
Global Logistics Properties Limited, Singapore (since 2010)
 
     

Key Qualifications, Experiences,
and Attributes

In addition to his professional background and prior Deere Board experience, the following qualifications led the Board to conclude that Mr. Jain should serve on Deere’s Board of Directors: his leadership qualities developed from his experiences while serving as Director or Dean at several prominent graduate business schools and as a foreign affairs advisor for the Prime Minister of Thailand; the breadth of his experiences in compensation, corporate governance, and other areas of oversight while serving as a member of the boards of directors of other global corporations; and his subject matter knowledge in the areas of marketing, global product diffusion, and new product forecasting and development.


Michael O. Johanns Retired United States Senator from Nebraska

AGE:
66

DIRECTOR SINCE:
2015

COMMITTEES:
Audit Review, Corporate Governance
 

  

Current and Past Positions

United States Senator from Nebraska — January 2009 to January 2015
 
United States Secretary of Agriculture — January 2005 to September 2007
 
Governor of Nebraska — 1999 to 2005

Other Current Directorships

Burlington Capital Group, LLC. (since 2016)
     

Key Qualifications, Experiences,
and Attributes

In addition to his professional background and prior Deere Board experience, the following qualifications led the Board to conclude that Mr. Johanns should serve on Deere’s Board of Directors: his leadership qualities developed from his service in state and federal government, including serving as Governor of Nebraska; the breadth of his experiences in law, governance, and other areas of oversight while serving as a partner of a law firm and a member of the U.S. Senate and various Senate committees; and his subject matter knowledge in the areas of agriculture, banking, commerce, and foreign trade.


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Item 1 – Election of Directors



Clayton M. Jones Retired Chairman of Rockwell Collins, Inc.

AGE:
67

DIRECTOR SINCE:
2007

COMMITTEES:
Compensation, Corporate Governance
 

  

Current and Past Positions

Positions at Rockwell Collins, Inc. (aviation electronics and communications):

Chairman - July 2013 to July 2014
 
Chairman and Chief Executive Officer — September 2012 to July 2013
 
Chairman, President, and Chief Executive Officer —June 2002 to September 2012

Other Current Directorships

Cardinal Health, Inc. (since 2012)
 
Motorola Solutions, Inc. (since 2015)
     

Key Qualifications, Experiences,
and Attributes

In addition to his professional background and prior Deere Board experience, the following qualifications led the Board to conclude that Mr. Jones should serve on Deere’s Board of Directors: his leadership qualities developed from his service as Chairman and Chief Executive Officer of Rockwell Collins; the breadth of his experiences in finance, compensation, and other areas of oversight while serving as a member of the boards of directors of other global corporations; and his subject matter knowledge in the areas of government affairs and marketing.


Brian M. Krzanich Chief Executive Officer of Intel Corporation

AGE:
56

DIRECTOR SINCE:
2016

COMMITTEES:
Compensation, Corporate Governance
 

  

Current and Past Positions

Positions at Intel Corporation (advanced integrated digital technology platforms):

Chief Executive Officer since May 2013
 
Executive Vice President and Chief Operating Officer —2012 to May 2013
 
Senior Vice President and General Manager of Manufacturing and Supply Chain — 2010 to 2012
 
Vice President and General Manager of Worldwide Manufacturing and Systems — 2007 to 2010

Other Current Directorships

Intel Corporation (since 2013)
     

Key Qualifications, Experiences,
and Attributes

In addition to his professional background and prior Deere Board experience, the following qualifications led the Board to conclude that Mr. Krzanich should serve on Deere’s Board of Directors: his leadership qualities developed from his service as Chief Executive Officer and Chief Operating Officer of Intel; the breadth of his experiences in corporate governance, strategy, and other areas of oversight while serving as a member of the boards of directors of Intel and the Semiconductor Industry Association; and his subject matter knowledge in the areas of manufacturing, operations, information technology, human resources, and supply chain management.


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Gregory R. Page Retired Executive Director of Cargill, Incorporated

AGE:
65

DIRECTOR SINCE:
2013

COMMITTEES:
Finance (Chair), Audit Review, Executive

  

Current and Past Positions

Positions at Cargill, Incorporated (agricultural, food, financial, and industrial products and services):

Executive Director — September 2015 to August 2016
 
Executive Chairman — December 2013 to September 2015
 
Chairman and Chief Executive Officer — 2011 to December 2013
 
Chairman, Chief Executive Officer, and President — 2007 to 2011
 
President and Chief Operating Officer — 2000 to 2007

Other Current Directorships

Eaton Corporation plc (since 2003)
 
3M Company (since 2016)

Previous Directorships

Carlson, Inc.
 
Cargill, Incorporated
 
     

Key Qualifications, Experiences, and Attributes

In addition to his professional background and prior Deere Board experience, the following qualifications led the Board to conclude that Mr. Page should serve on Deere’s Board of Directors: his leadership qualities developed from his experiences while serving as Chairman and Chief Executive Officer of Cargill; the breadth of his experiences in auditing, corporate governance, and other areas of oversight while serving as a member of the boards of directors of other global corporations; and his subject matter knowledge in the areas of commodities, agriculture, operating processes, finance, and economics.


Sherry M. Smith Former Executive Vice President and Chief Financial Officer of Supervalu Inc.

AGE:
55

DIRECTOR SINCE:
2011

COMMITTEES:
Audit Review (Chair), Finance, Executive
 

  

Current and Past Positions

Positions at Supervalu Inc. (retail and wholesale grocery and retail general merchandise products):

Executive Vice President and Chief Financial Officer — December 2010 to August 2013
 
Senior Vice President, Finance — 2005 to 2010
 
Senior Vice President, Finance and Treasurer —2002 to 2005

Other Current Directorships

Piper Jaffray Companies (since 2016)
 
Realogy Holdings Corp. (since 2014)
 
Tuesday Morning Corporation (since 2014)
     

Key Qualifications, Experiences,
and Attributes

In addition to her professional background and prior Deere Board experience, the following qualifications led the Board to conclude that Ms. Smith should serve on Deere’s Board of Directors: her leadership qualities developed from her experience while serving as a senior executive and as Chief Financial Officer of Supervalu; the breadth of her experiences in auditing, finance, accounting, compensation, strategic planning, and other areas of oversight while serving as a member of the boards of directors of other public corporations; her family farming background; and her subject matter knowledge in the areas of finance, accounting, and food and supply chain management.


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Dmitri L. Stockton Special Advisor to Chairman and Senior Vice President of General Electric Company and Chairman, President, and Chief Executive Officer of GE Asset Management Incorporated

AGE:
52

DIRECTOR SINCE:
2015

COMMITTEES:
Compensation, Finance

  

Current and Past Positions

Special Advisor to the Chairman and Senior Vice President of General Electric Company (power and water, aviation, oil and gas, healthcare, appliances and lighting, energy management, transportation and financial services) since July 2016
 
Chairman, President, and Chief Executive Officer of GE Asset Management Incorporated (global investments) and Senior Vice President of General Electric Company since 2011
 
President and Chief Executive Officer of GE Capital Global Banking and Senior Vice President of GE London - 2008 to 2011
 
President and Chief Executive Officer of GE Consumer Finance, Central & Eastern Europe - 2005 to 2008

Previous Directorships

GE Asset Management Incorporated
 
General Electric RSP U.S. Equity Fund and General Electric RSP Income Fund
 
Elfun Funds (six directorships)
 
Synchrony Financial
     

Key Qualifications, Experiences,
and Attributes

In addition to his professional background and prior Deere Board experience, the following qualifications led the Board to conclude that Mr. Stockton should serve on Deere’s Board of Directors: his leadership qualities developed from his service as Chairman, President, and Chief Executive Officer of GE Asset Management and as a senior officer of other global operations; the breadth of his experiences in risk management, governance, regulatory compliance, and other areas of oversight while serving as a member of the boards of directors and trustees of global asset management, investment, and employee benefit entities; and his subject matter knowledge in the areas of finance, banking, and asset management.


Sheila G. Talton President and Chief Executive Officer of Gray Matter Analytics

AGE:
64

DIRECTOR SINCE:
2015

COMMITTEES:
Audit Review, Finance

  

Current and Past Positions

President and Chief Executive Officer of Gray Matter Analytics (data analytics consulting services for financial services and healthcare industries) since 2013
 
President and Chief Executive Officer of SGT Ltd. (strategy and technology consulting services) — 2011 to 2013
 
Vice President of Cisco Systems, Inc. (information technology and solutions) — 2008 to 2011

Other Current Directorships

OGE Energy Corporation (since 2013)
 
Wintrust Financial Corporation (since 2012)

Previous Directorships

Acco Brands Corporation
 
     

Key Qualifications, Experiences, and Attributes

In addition to her professional background and prior Deere Board experience, the following qualifications led the Board to conclude that Ms. Talton should serve on Deere’s Board of Directors: her leadership qualities developed from her service as President and Chief Executive Officer of Gray Matter Analytics and as an officer of other global technology and consulting firms; the breadth of her experiences in compensation, governance, risk management, and other areas of oversight while serving as a member of the boards of directors of other public corporations; and her subject matter knowledge in the areas of technology, data analytics, and global strategies.


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Corporate Governance



Corporate Governance

Corporate Governance Highlights
At Deere, we recognize that good corporate governance contributes to long-term stockholder value. We are committed to sound governance practices, including those shown below:

INDEPENDENCE       BEST PRACTICES
All of our director nominees are independent except for our CEO
 
The independent Presiding Director has a strong role with significant governance responsibilities
 
All standing Board committees other than the Executive Committee are composed wholly of independent directors
 
Independent directors meet regularly in executive session without management present
Directors may not stand for reelection after their 75th birthdays, absent Board approval under rare circumstances
 
Our recoupment policy requires an executive to return any incentive compensation found to have been awarded erroneously due to the accounting misconduct
 
Directors and executives are subject to stock ownership requirements
 
Directors and executives are prohibited from hedging or pledging their Deere stock

ACCOUNTABILITY       RISK OVERSIGHT
All directors are elected annually
 
In uncontested elections, directors are elected by majority vote
 
The Board and each Board committee conducts an annual performance self-evaluation
 
Stockholders have the ability to include nominees in our proxy statement (so-called proxy access rights)
The Board oversees Deere’s overall risk management structure
 
Individual Board committees oversee certain risks related to their specific areas of responsibility
 
We have robust risk management processes across the company

Our Values
At Deere, our actions are guided by our core values of integrity, quality, commitment, and innovation. We strive to live up to these values in everything we do—not just because it is good business, but because it is the right thing to do. We are committed to strong corporate governance as a means of upholding these values and ensuring that we are accountable to our stockholders.

Director Independence
aThe Board has adopted categorical standards (attached as Appendix A to this Proxy Statement) that help us evaluate each director’s independence. Specifically, these standards are intended to assist the Board in determining whether certain relationships between our directors and Deere or its affiliates are “material relationships” for purposes of the New York Stock Exchange (“NYSE”) independence standards. The categorical standards establish thresholds, short of which any such relationships are deemed not to be material. In addition, each director’s independence is evaluated under our Related Person Transactions Approval Policy, as discussed in the “Review and Approval of Related Person Transactions” section below. Deere’s independence standards meet or exceed the NYSE’s independence requirements.

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In November 2016, we reviewed the independence of each then-sitting director applying the independence standards set forth in our Corporate Governance Policies. The reviews considered relationships and transactions between each director (and the director’s immediate family and affiliates) and each of Deere, Deere’s management, and Deere’s independent registered public accounting firm. Based on this review, the Board affirmatively determined at its regular December 2016 meeting that no director other than Mr. Allen has a material relationship with Deere and its affiliates and that each director other than Mr. Allen is independent as defined in our Corporate Governance Policies and the NYSE’s listing standards. Mr. Allen is not an independent director because of his employment relationship with Deere.

Board Leadership Structure
The Chairman of the Board also serves as Deere’s Chief Executive Officer. The Board believes that combining the Chairman and Chief Executive Officer roles is the most appropriate structure for Deere at this time for three reasons:

1.    This structure has served our stockholders well through many economic cycles, business challenges, and leadership successions.
 
2. The Board’s governance processes preserve Board independence by ensuring discussion among independent directors and independent evaluation of and communication with members of senior management.
 
3. The enhanced role of the independent Presiding Director provides a strong counterbalance to the combined Chairman and Chief Executive Officer roles.

Presiding Director
Vance D. Coffman has served as our independent Presiding Director since the 2016 annual meeting.

The Presiding Director is elected by a majority of the independent directors upon a recommendation from the Corporate Governance Committee. The Presiding Director is appointed for a one-year term beginning upon election and expiring upon the selection of a successor.

The Board has assigned the Presiding Director the following duties and responsibilities:

  

Preside at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors;

 

Serve as liaison between the Chairman and the independent directors;

 

In consultation with the Chairman, review and approve the schedule of meetings of the Board, the proposed agendas, and the materials to be sent to the Board;

 

Call meetings of the independent directors when necessary; and

 

Remain available for consultation and direct communication with Deere’s stockholders.

The Board believes the role of the Presiding Director exemplifies Deere’s continuing commitment to strong corporate governance and Board independence.

Board Meetings
Under Deere’s by-laws, regular meetings of the Board are held at least quarterly. Our typical practice is to schedule at least one Board meeting per year at a company location other than our World Headquarters so directors have an opportunity to observe different aspects of our business first-hand. The Board met five times during fiscal 2016.

Directors are expected to attend Board meetings, meetings of committees on which they serve, and stockholder meetings. More to the point, directors are expected to spend the time needed and meet as frequently as necessary to properly discharge their responsibilities. During fiscal 2016, all incumbent directors attended 75% or more of the meetings of the Board and committees on which they served. Overall attendance at Board and committee meetings was 100%. All directors then in office attended the Annual Meeting of Stockholders in February 2016.

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Each Board meeting normally begins or ends with a session between the CEO and the independent directors. This provides a platform for discussions outside the presence of the non-Board management attendees. The independent directors may meet in executive session, without the CEO, at any time, but such non-management executive sessions are scheduled (and typically occur) at each regular Board meeting. The Presiding Director presides over these executive sessions.

Board Committees
The Board has delegated some of its authority to five committees: the Executive Committee, the Audit Review Committee, the Compensation Committee, the Corporate Governance Committee, and the Finance Committee. The Finance Committee, which replaced the Pension Plan Oversight Committee in February 2016, focuses and enhances the Board’s oversight of Deere’s financial affairs.

In addition to creating a new committee, the Board approved the rotation of certain directors’ committee memberships effective February 2016. The Board believes that committee rotation is generally desirable to ensure that committees regularly benefit from new perspectives.

Each of our Board committees has adopted a charter that complies with current NYSE rules relating to corporate governance matters. Copies of the committee charters are available at www.deere.com/corpgov and may also be obtained upon request to the Deere & Company Stockholder Relations Department. Each committee (other than the Executive Committee, which did not meet in 2016 and of which Mr. Allen serves as chair) is composed solely of independent directors.

The committee structure and memberships described below reflect the changes that became effective in February 2016. Every committee other than the Executive Committee regularly reports on its activities to the full Board.

EXECUTIVE COMMITTEE

2016 meetings: 0
Members:
Samuel R. Allen (Chair)
Crandall C. Bowles
Vance D. Coffman
Gregory R. Page
Sherry M. Smith

     
Acts on matters requiring Board action between meetings of the full Board
 
Has authority to act on certain significant matters, limited by our by-laws and applicable law
 
All members, other than Mr. Allen, are independent
 
 

AUDIT REVIEW COMMITTEE

2016 meetings: 5
Members:

Sherry M. Smith (Chair)
Alan C. Heuberger
Dipak C. Jain
Michael O. Johanns
Gregory R. Page
Sheila G. Talton

Oversees the independent registered public accounting firm’s qualifications, independence, and performance
 
Assists the Board in overseeing the integrity of our financial statements, compliance with legal requirements, and the performance of our internal auditors
 
Pre-approves all audit and allowable non-audit services by the independent registered public accounting firm
 
With the assistance of management, approves the selection of the independent registered public accounting firm’s lead engagement partner
 
All members have been determined to be independent and financially literate under current NYSE listing standards
 
The Board has determined that Ms. Smith, Mr. Heuberger and Mr. Page are “audit committee financial experts” as defined by the SEC and that each has accounting or related financial management expertise as required by NYSE listing standards
 

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COMPENSATION COMMITTEE

2016 meetings: 6
Members:

Vance D. Coffman (Chair)
Crandall C. Bowles
Clayton M. Jones
Brian M. Krzanich
Dmitri L. Stockton

     
Makes recommendations to the Board regarding incentive and equity-based compensation plans
 

Evaluates and approves the compensation of our executive officers (except for the compensation of our CEO, which is approved by the full Board), including reviewing and approving the performance goals and objectives that will affect that compensation

Evaluates and approves compensation granted pursuant to Deere’s equity-based and incentive compensation plans, policies, and programs
 
Retains, oversees, and assesses the independence of compensation consultants and other advisors
 
Oversees our policies on structuring compensation programs for executive officers to preserve tax deductibility
 
Reviews and discusses the CD&A with management and determines whether to recommend to the Board that the CD&A be included in our filings with the SEC
 
All members have been determined to be independent under current NYSE listing standards, including those standards applicable specifically to compensation committee members
 
 

CORPORATE GOVERNANCE
COMMITTEE

2016 meetings:
4 Members:
Crandall C. Bowles (Chair)
Vance D. Coffman
Michael O. Johanns
Clayton M. Jones
Brian M. Krzanich

Monitors corporate governance policies and oversees our Center for Global Business Conduct
 
Reviews senior management succession plans and identifies and recommends to the Board individuals to be nominated as directors
 
Makes recommendations concerning the size, composition, committee structure, and fees for the Board
 
Reviews and reports to the Board on the performance and effectiveness of the Board
 
Oversees the evaluation of our management
 
All members have been determined to be independent under current NYSE listing standards
 
 

FINANCE COMMITTEE

2016 meetings: 3
Members:

Gregory R. Page (Chair)
Dipak C. Jain
Sherry M. Smith
Dmitri L. Stockton
Sheila G. Talton

Reviews the policies, practices, strategies, and risks relating to Deere’s financial affairs
 
Exercises oversight of the business of Deere’s Financial Services segment
 
Formulates our pension funding policies
 
Oversees our pension plans
 
All members have been determined to be independent under current NYSE listing standards
 

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Board Oversight of Risk Management
The Board believes that strong and effective internal controls and risk management processes are essential for achieving long-term stockholder value. The Board, directly and through its committees, is responsible for overseeing risks that may affect Deere.

RISK MANAGEMENT APPROACH
We maintain a structured risk management approach to facilitate our strategic business objectives. To that end, we identify and categorize risks, and then escalate them as needed. Our internal risk management structure is administered by a Management Risk Committee consisting of the CEO and his direct reports. This committee provides periodic reports to the Board regarding Deere’s risk management processes and reviews with the Board high-priority areas of enterprise risk.

Dedicated risk management reports typically take place at regularly-scheduled Board meetings each February and August, and risk management topics are discussed as needed at other Board and committee meetings.

BOARD AND COMMITTEE RISK OVERSIGHT RESPONSIBILITIES
Each Board committee is responsible for oversight of risk categories related to the committee’s specific area of focus, while the full Board exercises ultimate responsibility for overseeing the risk management function as a whole.

The areas of risk oversight exercised by the Board and its committees are as follows:

Who is responsible?       Primary areas of risk oversight

Full Board

Oversees overall risk management function, and regularly receives and evaluates reports and presentations from the chairs of the individual Board committees on risk-related matters falling within each committee’s oversight responsibilities.

Audit Review Committee

Monitors operational, strategic, and legal and regulatory risks by regularly reviewing reports and presentations given by management, including our Senior Vice President and General Counsel, Senior Vice President and Chief Financial Officer, and Vice President, Internal Audit, as well as other operational personnel.

Regularly reviews our risk management practices and risk-related policies (for example, Deere’s risk management and insurance portfolio, and legal and regulatory reviews) and evaluates potential risks related to internal control over financial reporting.

Compensation Committee

Monitors potential risks related to the design and administration of our compensation plans, policies, and programs, including our performance-based compensation programs, to promote appropriate incentives that do not encourage executive officers or employees to take unnecessary and excessive risks.

Corporate Governance Committee

Monitors potential risks related to our governance practices by, among other things, reviewing succession plans and performance evaluations of the Board and CEO, monitoring legal developments and trends regarding corporate governance practices, the Code of Business Conduct and evaluating potential related person transactions.

Monitors risks relating to environmental factors, as well as product safety and other compliance matters.

Finance Committee

Monitors operational and strategic risks related to Deere’s financial affairs, including capital structure and liquidity risks, and reviews the policies and strategies for managing financial exposure and contingent liabilities.

Monitors potential risks related to funding our U.S. qualified pension plans (other than the defined contribution savings and investment plans) and monitors compliance with applicable laws and internal policies and objectives.


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Stockholder Outreach
In order to ensure the continued delivery of sustainable, long-term value to our stockholders, we engage in regular dialogue with our stockholders. During 2016, we discussed governance, executive compensation, and other issues with stockholders representing more than 48% of our outstanding shares. The Board considers feedback from these conversations during its deliberations, and we regularly review and adjust our corporate governance structure and executive compensation policies and practices in response to comments from our stockholders.

Communication with the Board
If you wish to communicate with the Board you may send correspondence to: Corporate Secretary, Deere & Company, One John Deere Place, Moline, Illinois 61265-8098. The Corporate Secretary will submit your correspondence to the Board or the appropriate committee, as applicable.

You may communicate directly with the Presiding Director by sending correspondence to: Presiding Director, Board of Directors, Deere & Company, Department A, One John Deere Place, Moline, Illinois 61265-8098.

Corporate Governance Policies
Because we believe corporate governance is integral to creating long-term stockholder value, our Board of Directors has adopted company-wide Corporate Governance Policies, which are periodically reviewed and revised as appropriate to ensure that they reflect the Board’s corporate governance objectives.

Please visit the Corporate Governance portion of our website (www.deere.com/corpgov) to learn more about our corporate governance practices and to access the following materials:

  

Corporate Governance Policies

 

Code of Ethics

 

Guiding Principles

 

Global Conflict Minerals Policy

 

Charters for our Board Committees

 

Code of Business Conduct

 

Supplier Code of Conduct

Political Contributions
To promote transparency and good corporate citizenship, since 2012 we have provided voluntary disclosure relating to the political contribution activities of Deere and its political action committee. This information is publicly available at www.deere.com/politicalcontributions.

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Compensation of Directors



Compensation of Directors

We have structured the compensation of our nonemployee directors with the following objectives in mind:

  

Recognize the substantial investment of time and expertise necessary for the directors to discharge their duties to oversee Deere’s global affairs

 

Align the directors’ interests with the long-term interests of our stockholders

 

Ensure that compensation is easy to understand and is regarded positively by our stockholders and employees

We pay nonemployee directors an annual retainer. In addition, committee chairpersons and the Presiding Director receive fees for assuming those responsibilities. Directors who are employees receive no additional compensation for serving on the Board. We do not pay committee member retainers or meeting fees, but we do reimburse directors for expenses related to meeting attendance.

To supplement their cash compensation and align their interests with those of our stockholders, nonemployee directors are awarded restricted stock units (“RSUs”) after each annual meeting. A person who serves a partial term as a nonemployee director will receive a prorated retainer and a prorated RSU award.

Compensation for nonemployee directors is reviewed annually by the Corporate Governance Committee. At its December 2016 meeting, the Board approved increases as noted below for nonemployee directors as recommended by the Corporate Governance Committee. The cash components became effective on January 1, 2017 and the equity component is effective for the equity award following the annual stockholder meeting in February 2017.

The following chart describes amounts we pay and the value of awards we grant to nonemployee directors:

Date Approved by Corporate Governance Committee:
Effective Date of Annual Amounts:
      August 2013
January 2014
      December 2016
January & March 2017
Retainer       $ 120,000 $ 125,000
Equity Award $ 120,000 $ 145,000
Presiding Director Fee $ 20,000   $ 25,000
Audit Review Committee Chair Fee $ 20,000 $ 25,000
Compensation Committee Chair Fee $ 20,000 $ 20,000
Corporate Governance Committee Chair Fee $ 15,000 $ 15,000
Finance Committee Chair Fee $ 15,000 $ 15,000

Under our Nonemployee Director Deferred Compensation Plan, directors may choose to defer some or all of their annual retainers until they retire from the Board. For deferral elections up through December 2016, a director could elect to have these deferrals invested in either an interest-bearing account or an account with a return equivalent to an investment in Deere common stock. For deferrals effective in January 2017 and later, directors may choose from a list of investment options, none of which yield an above-market earnings rate.

Our stock ownership guidelines require each nonemployee director to own Deere common stock equivalent in value to at least three times the director’s annual cash retainer. This ownership level must be achieved within five years of the date the director joins the Board. Restricted shares (regularly granted to nonemployee directors prior to 2008), RSUs, and any common stock held personally by the nonemployee director are included in determining whether the applicable ownership threshold has been reached. Other than Mr. Johanns, Mr. Stockton, and Ms. Talton, who were first elected to the Board in 2015, and Mr. Krzanich and Mr. Heuberger, who were first elected to the Board in January and December of 2016, respectively, each nonemployee director has achieved stockholdings in excess of the applicable multiple as of the date of this Proxy Statement. 

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We require nonemployee directors to hold all equity awards until the occurrence of one of the following triggering events: retirement from the Board, total and permanent disability, death, or a change in control of Deere combined with a qualifying termination of the director. Directors may not sell, gift, or otherwise dispose of their equity awards before the occurrence of a triggering event. While the restrictions are in effect, nonemployee directors may vote their restricted shares (but not shares underlying RSUs) and receive dividends on the restricted shares and dividend equivalents on the RSUs.

In fiscal 2016, we provided the following compensation to our nonemployee directors:

Name*       Fees Earned or
Paid in Cash
(1)
      Stock
Awards
(2)
      Non-Qualified
Deferred Compensation
Earnings
(3)
      Total
Crandall C. Bowles $ 135,000 $ 119,991 $ $ 254,991
Vance D. Coffman $ 155,000 $ 119,991 $   $ 274,991
Charles O. Holliday, Jr. (5)   $ 53,333 $ $ $ 53,333
Dipak C. Jain $ 120,000 $ 119,991 $ 26,292 $ 266,283
Michael O. Johanns $ 120,000 $ 119,991 $ $ 239,991
Clayton M. Jones $ 120,000 $ 119,991   $ $ 239,991
Brian M. Krzanich (4) $ 100,000   $ 133,378 $ 607 $ 233,985
Joachim Milberg (5) $ 40,000 $ $ $ 40,000
Richard B. Myers (5) $ 40,000 $ $ $ 40,000
Gregory R. Page $ 131,250 $ 119,991 $ 878 $ 252,119
Thomas H. Patrick (5) $ 43,332 $ $   $ 43,332
Sherry M. Smith $ 135,000 $ 119,991 $ 2,441 $ 257,433
Dmitri L. Stockton $ 120,000 $ 119,991 $ $ 239,991
Sheila G. Talton $ 120,000 $ 119,991 $ $ 239,991
 
* Alan C. Heuberger did not receive any compensation in Fiscal 2016 and is not included in this table.
(1) All fees earned in fiscal 2016 for services as a director, including committee chairperson and Presiding Director fees, whether paid in cash or deferred under the Nonemployee Director Deferred Compensation Plan, are included in this column.
(2) Represents the aggregate grant date fair value of RSUs computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation – Stock Compensation, and does not correspond to the actual value that will be realized by the nonemployee directors. The values in this column exclude the effect of estimated forfeitures. All grants are fully expensed in the fiscal year granted based on the grant price (the average of the high and low price for Deere common stock on the grant date). For fiscal 2016, the grant date was March 2, 2016, and the grant price was $81.13.
       The nonemployee director grant date is seven calendar days after the Annual Meeting. The assumptions made in valuing the RSUs reported in this column are discussed in Note 24, “Stock Option and Restricted Stock Awards,” of our consolidated financial statements filed with the SEC as part of our Annual Report on Form 10-K for the fiscal year ended October 31, 2016. The following table lists the cumulative restricted shares and RSUs held by the nonemployee directors as of October 31, 2016:

       Director Name*            Restricted Stock            RSUs            Director Name            Restricted Stock            RSUs
Crandall C. Bowles 19,916 14,724 Brian M. Krzanich (4) 1,656
Vance D. Coffman   6,532 14,724 Gregory R. Page 5,176
  Dipak C. Jain 13,234   14,724   Sherry M. Smith     7,326
Michael O. Johanns 2,986 Dmitri L. Stockton 2,470
Clayton M. Jones 824 14,724 Sheila G. Talton 2,470
 
       Alan C. Heuberger was elected to the Board effective December 20, 2016. He did not hold any restricted shares or RSUs as of October 31, 2016, and is not included in this table.

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Security Ownership of Certain Beneficial Owners and Management



(3) Directors are eligible to participate in the Nonemployee Director Deferred Compensation Plan. Under this plan, participants may defer part or all of their annual cash compensation. Through fiscal 2016, two investment choices were available for these deferrals:
an interest-bearing alternative that pays interest at the end of each calendar quarter (i) for amounts deferred between fiscal 2010 and fiscal 2016, at a rate based on the Moody’s “A”-rated Corporate Bond Rate, and (ii) for amounts deferred prior to fiscal 2010, at a rate based on the prime rate as determined by the Federal Reserve Statistical Release plus 2%
an equity alternative denominated in units of Deere common stock that earns additional shares each quarter at the quarterly dividend rate on Deere common stock
Amounts included in this column represent the above-market earnings on any amounts deferred under the Nonemployee Director Deferred Compensation Plan. Above-market earnings represent the difference between the interest rate used to calculate earnings under the applicable investment choice and 120% of the applicable federal long-term rate.
(4) Mr. Krzanich was elected to the Board effective January 6, 2016. His compensation amounts reflect a pro-rated retainer fee for the period from January 2016 through October 2016, a pro-rated RSU award for the period from January 6, 2016, through the February 2016 annual meeting, and a full RSU award granted in March 2016.
(5) Mr. Holliday, Mr. Milberg, Mr. Meyers, and Mr. Patrick retired from the Board effective with the 2016 annual meeting (February 24, 2016). The compensation amounts reflect a pro-rated retainer fee covering the portion of fiscal 2016 during which they served as directors.

Security Ownership of Certain Beneficial Owners and Management

The following table shows the number of shares of Deere common stock beneficially owned as of December 31, 2016 (unless otherwise indicated) by:

each person who, to our knowledge, beneficially owns more than 5% of our common stock
each individual who was serving as a nonemployee director as of December 31, 2016
each of the named executive officers listed in the Summary Compensation Table of this Proxy Statement
all individuals who served as directors or executive officers on December 31, 2016, as a group

A beneficial owner of stock (represented in column (a)) is a person who has sole or shared voting power (meaning the power to control voting decisions) or sole or shared investment power (meaning the power to cause the sale or other disposition of the stock). A person also is considered the beneficial owner of shares to which that person has the right to acquire beneficial ownership (within the meaning of the preceding sentence) within 60 days. For this reason, the following table includes exercisable stock options (represented in column (b)), restricted shares, and RSUs that could become exercisable or be settled within 60 days of December 31, 2016, at the discretion of an individual identified in the table (represented in column (c)).

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Election of Directors
Security Ownership of Certain Beneficial Owners and Management



All individuals listed in the table have sole voting and investment power over the shares unless otherwise noted.
As of December 31, 2016, Deere had no preferred stock issued or outstanding.

   Shares Beneficially
Owned And Held
(a)
   Exercisable Options
(b)
   Options, Restricted Shares,
and RSUs
Available
Within 60 Days
(c)
   Total    Percent of Shares
Outstanding
Greater Than 5% Owners  
Cascade Investment, L.L.C. (1)
2365 Carillon Point      
Kirkland, WA 98033 31,423,573 31,423,573                9.9 %
 
The Vanguard Group, Inc.(2)
100 Vanguard Blvd.
Malvern, PA 19355 19,892,663 19,892,663 6.2 %
 
Non-Employee Directors (3)
Crandall C. Bowles 2,800 34,640 37,440 *
Vance D. Coffman 21,256 21,256 *
Alan C. Heuberger 100 259 359 *
Dipak C. Jain 27,958 27,958 *
Michael O. Johanns 2,986 2,986 *
Clayton M. Jones 15,548 15,548 *
Brian M. Krzanich 1,656 1,656 *
Gregory R. Page 1,100 5,176 6,276 *
Sherry M. Smith 7,326 7,326 *
Dmitri L. Stockton 2,470 2,470 *
Sheila G. Talton 2,470 2,470 *
 
Named Executive Officers (4)
Samuel R. Allen 176,467 1,013,115 159,055 1,348,637 *
James M. Field 33,090 98,466 0 131,556 *
Rajesh Kalathur 18,147 116,985 0 135,132 *
Michael J. Mack, Jr.(5) 45,744 144,436 30,414 220,594 *
John C. May 10,041 77,864 0 87,905 *
 
All directors and executive officers as a group
(22 persons)(6) 378,568 1,939,728 374,708 2,693,004 *
 

* Less than 1% of the outstanding shares of Deere common stock.
(1) The ownership information for Cascade Investment, L.L.C. is based on information supplied by Cascade in a statement on Form 4 filed with the SEC on August 16, 2016. All shares of common stock held by Cascade may be deemed beneficially owned by William H. Gates III as the sole member of Cascade. Cascade has sole voting power and sole dispositive power over 31,423,573 shares owned.
(2) The ownership information for The Vanguard Group, Inc. is based on information supplied by Vanguard in a statement on Schedule 13G filed with the SEC on February 10, 2016. Vanguard holds the shares in its capacity as a registered investment advisor on behalf of numerous investment advisory clients, none of which is known to own more than five percent of Deere’s shares. Vanguard has sole voting power over 581,732 shares owned and sole dispositive power over 19,272,592 shares owned.

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Election of Directors
Security Ownership of Certain Beneficial Owners and Management



(3) The table includes restricted shares and RSUs awarded to directors under the Deere & Company Nonemployee Director Stock Ownership Plan (see footnote (2) to the Fiscal 2016 Director Compensation Table). Restricted shares and RSUs may not be transferred prior to retirement as a director. RSUs are payable only in Deere common stock following retirement and have no voting rights until they are settled in shares of stock. In addition, directors own the following number of deferred stock units, which are payable solely in cash under the terms of the Nonemployee Director Deferred Compensation Plan:

Director       Deferred Units
Crandall C. Bowles 41,645
Vance D. Coffman 26,130
Dipak C. Jain 8,490
Michael O. Johanns 2,927
Gregory R. Page 3,818
Dmitri L. Stockton 2,352

(4) See the Outstanding Equity Awards at Fiscal 2016 Year-End table for additional information regarding equity ownership for NEOs as of October 31, 2016.
(5) Mr. Mack retired effective November 1, 2016. Figures shown are as of October 31, 2016.
(6) The number of shares shown for all directors and executive officers as a group includes 130,292 shares owned jointly with family members over which the directors and executive officers share voting and investment power

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Election of Directors
Review and Approval of Related Person Transactions



Review and Approval of Related Person Transactions

The Board has adopted a Related Person Transactions Approval Policy, which assigns our Corporate Governance Committee the responsibility for reviewing, approving, or ratifying all related person transactions.

The Related Person Transactions Approval Policy is concerned with three types of “related persons”:

(1) executive officers and directors of Deere

(2) any holder of 5% or more of Deere’s voting securities

(3) immediate family members of anyone in category (1) or (2)

Each year, our directors and executive officers complete questionnaires designed to elicit information about potential related person transactions. In addition, the directors and officers must promptly advise our Corporate Secretary if there are any changes to the information they previously provided. After consultation with our General Counsel, management, and outside counsel, as appropriate, our Corporate Secretary determines whether any transaction is reasonably likely to be a related person transaction. Transactions deemed reasonably likely to be related person transactions are submitted to the Corporate Governance Committee for consideration at its next meeting, unless action is required sooner. In such a case, the transaction would be submitted to the Chairperson of the Corporate Governance Committee, whose determination would be reported to the full committee at its next meeting.

When evaluating potential related person transactions, the Corporate Governance Committee or its Chairperson, as applicable, considers all reasonably available relevant facts and circumstances and approves only those related person transactions determined in good faith to be in compliance with or not inconsistent with our Code of Ethics and Code of Business Conduct, and in the best interests of our stockholders.



Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and related regulations require our directors, certain of our officers, and persons who own more than 10% of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC and to provide copies of those reports to Deere.

To assist with these required reports, we have established procedures whereby directors and officers provide us with the relevant information regarding their transactions in Deere shares and we prepare and file the ownership reports on their behalf. In addition, our directors and officers have provided written statements regarding their Deere stock ownership and reports. Based solely upon a review of these statements and reports, we believe that all Section 16(a) filing requirements applicable to our insiders were complied with during fiscal 2016.

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Advisory Vote on Executive Compensation
 
Item 2 – Advisory Vote on Executive Compensation

In accordance with Section 14A of the Exchange Act, we are asking our stockholders to approve, on an advisory basis, the compensation of the executives named in the Summary Compensation Table of this Proxy Statement. Deere’s practice, which was approved by our stockholders at the 2011 annual meeting, is to conduct this non-binding vote annually.

Supporting Statement
PAY FOR PERFORMANCE
Deere’s compensation philosophy is to pay for performance, support Deere’s business strategies, and offer competitive compensation. Our compensation programs consist of complementary elements that reward achievement of both short-term and long-term objectives. The metrics used for our incentive programs are either associated with operating performance or are based upon a function of Deere’s stock price with linkage to revenue growth and total shareholder return (“TSR”). See “Review of Pay for Performance Relative to Peer Group” (see page 37) in the CD&A, which highlights our success in aligning executive compensation with Deere’s financial performance.

PROGRAM DESIGN
The CD&A offers a detailed description of our compensation programs and philosophy. Our compensation approach is supported by the following principles, among others, as fully described in the CD&A:

We strive to attract, retain, and motivate high-caliber executives
As executives assume more responsibility, we increase the portion of their total compensation that is “at-risk” and that is tied to long-term incentives
We recognize the cyclical nature of our equipment businesses and the need to manage value throughout the business cycle
We provide opportunities for NEOs to be long-term stockholders of Deere
We structure our compensation program to be regarded positively by our stockholders and employees

At our 2016 Annual Meeting, we held a stockholder advisory vote on executive compensation in which stockholders approved the advisory vote on the compensation of our NEOs. However, in our evaluation of our executive compensation program in light of the percentage vote received in 2016 and in response to our stockholder feedback initiative following the 2016 Annual Meeting, the Compensation Committee took several actions to enhance the program by making the changes discussed in the CD&A.

The Board believes that the executive compensation as disclosed in the CD&A, the accompanying tables, and other disclosures in this Proxy Statement is consistent with our compensation philosophy and aligns with the pay practices of our peer group.

FOR THE REASONS STATED, THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE FOLLOWING NON-BINDING RESOLUTION:


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Advisory Vote on Executive Compensation
Compensation Discussion & Analysis



“RESOLVED, that the stockholders approve the compensation of the NEOs as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the SEC, including the CD&A, tabular disclosures, and other narrative executive compensation disclosures.”

Effect of Proposal
The say-on-pay resolution is non-binding, but the Board values your opinion as expressed through your votes and other communications. Therefore, the Board and the Compensation Committee will carefully consider the outcome of the advisory vote and those opinions when making future compensation decisions. However, the Board believes that the Compensation Committee is in the best position to consider the extensive information and factors necessary to make independent, objective, and competitive compensation recommendations and decisions that are in the best interests of Deere and its stockholders. Thus, the final decision regarding the compensation and benefits of our executive officers, and whether and how to address stockholder concerns, remains with the Board and the Compensation Committee.

Compensation Discussion & Analysis

In this section, we provide a detailed description of our compensation programs, including the underlying philosophy and strategy, the individual elements, the methodology and processes used by the Board and the Compensation Committee (the “Committee”) to make compensation decisions, and the relationship between Deere’s performance and compensation delivered in fiscal 2016. The discussion in this CD&A focuses on the compensation of our CEO, CFO, and the next three most highly compensated executive officers for the fiscal year ended October 31, 2016. These individuals, referred to as Deere’s named executive officers (or “NEOs”), were:

Name       Title
Samuel R. Allen Chairman and Chief Executive Officer
Rajesh Kalathur   Senior Vice President and Chief Financial Officer
James M. Field President, Agricultural Equipment Operations
Michael J. Mack Jr.* Group President, John Deere Financial Services, Global Human
Resources, and Public Affairs
John C. May President, Agricultural Solutions and Chief Information Officer
*Mr. Mack retired effective November 1, 2016.

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Executive Summary

Our business strategy emphasizes superior financial performance: maintaining aggressive goals for operating margin and asset turns and realizing sustainable Shareholder Value Added growth through disciplined expansion. Deere’s compensation program is designed to motivate NEOs to execute this strategy. In 2016, despite a global farm recession and weak construction equipment markets, we achieved net sales & revenue ($26,644 million) and net income ($1,524 million) that are among the 10 best in Deere & Company’s history.

These results reflect the success of our strategy. Employees controlled costs (e.g., reducing selling, administrative, and general costs by almost $100 million) and increased the productivity of our assets, yet still produced award-winning advanced products and services and invested in future growth. The results also reflect the benefits of our broad business lineup — including smaller tractors, turf equipment, forestry products, and service parts, as well as Financial Services — which partially offset continuing weakness in the agricultural and construction markets.

Since aligning the metrics of our compensation program with our strategy in 2002, we have operated profitably at every point in the business cycle.

Snapshot of Compensation Elements
The components of our 2016 compensation program are as follows:

Total Direct
Compensation
Total Indirect
Compensation
Short-Term Compensation Long-Term Compensation Other Compensation
and Benefits
Base Salary STI MTI LTI
Fixed cash component

Annual cash award for profitability and efficient operations during the fiscal year

Cash award for sustained profitable growth during a three-year period

Equity award for creating stockholder value as reflected by Deere’s stock price, revenue growth, and TSR

Perquisites; retirement benefits;deferred compensation benefits;additional benefits payable upon a change in control

 

Metrics:
Operating Return on Operating Assets (“OROA”) & Return On Equity (“ROE”)*

Metric:
Shareholder Value Added (“SVA”)

Metrics:
Revenue Growth & Total Shareholder Return

 

*The Equipment Operations OROA calculation excludes the assets from our captive financial services. ROE is based solely on the Financial Services segment. See appendix B for details.

Our incentive program design reflects the long-term, cyclical nature of our industry and provides a framework for both executive and broad-based, non-executive programs to ensure that all employees pursue the same financial and operational goals. The STI drives focus on near-term results, while a two-tiered long-term incentive program—MTI and LTI—reward growth and sustainable profitability over a longer period. Introduced in 2004, the cash-based MTI rewards sustained profitable growth and replaced an equity program that was costly and dilutive to stockholders. MTI differs from LTI in that it motivates actionable behavior for long-term profitability and asset management. Given the long-term, cyclical nature of our industry, the STI and MTI metrics create different, yet complementary, incentives. In the years since the Board adopted these two incentive plans, we have demonstrated the ability to manage through various business and market conditions more profitably and to consistently generate operating cash flow, (especially as compared to peer group companies; see the OROA chart on page 42 and the Return on Invested Capital (“ROIC”) chart on page 51.) The current combination of cash- and equity-based long-term compensation reflects the current peer group practice with about 50% maintaining a similar mix.

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Advisory Vote on Executive Compensation
Executive Summary

 

To align compensation with our business strategy of exceptional operating performance, we historically have used OROA and ROE as the metrics for our STI plan. These metrics are designed to inspire the efficient use of assets and capital. STI goals are determined each year based on where we are in the business cycle to ensure that goals are uniformly challenging in all economic conditions. Beginning in fiscal 2017, we will use two additional metrics—net sales & revenue and net income—to determine STI awards. These new metrics reflect the importance of near-term financial execution.

To align compensation with disciplined growth, we use SVA as the metric for our MTI plan. SVA measures our success in delivering sustained growth in economic profitability over a three-year performance period.

To align compensation with exceptional equity appreciation and to motivate and reward sustained outperformance, our Long-Term Incentive (“LTI”) plan uses stock options and restricted stock units (“RSUs”), whose ultimate values are tied to Deere’s stock price, and performance stock units (“PSUs”), which are earned (or not) based on Deere’s relative revenue growth and TSR as compared to the S&P Industrial Sector.

Here are some of the key drivers that affect the STI, MTI and LTI metrics on a short and long-term basis.

DRIVERS OF ONE-YEAR   DRIVERS OF THREE-YEAR   DRIVERS OF REVENUE
OROA AND ROE (STI)   SVA (MTI)   GROWTH AND TSR (LTI)
Operating cost management
Disciplined asset management
Efficient use of equity
Near-term business execution
Cost management decisions with a long-term focus
Efficient use of long-term assets
Long-term investment decisions for capital and R&D
World-class distribution systems
Technology innovation
Market conditions
Market share
Successful execution of business strategy
Stock price appreciation over the long-term

Financial Performance and Compensation Metrics
As outlined above, the metrics Deere uses to measure success in its business strategy are the same used in our compensation programs to ensure that employees are working as a high-performance team. Further details below illustrate how the company’s compensation plans are sensitive to fluctuations in business conditions. For example, payouts for STI and MTI are significantly lower for 2016 than for 2015, in line with lower metric outcomes. However, the payouts are above target, reflecting the level of difficulty in achieving the results during severe, extended downturns in global agricultural and construction markets. Deere’s goals for OROA remain above those of its major competitors.

    2015     2016     % Change
  OROA 15.7% 14.4% -9%
STI ROE 13.6% 10.4% -24%
Payout 199% 137% -31%
MTI SVA   $744   $338   -55%
Payout   200%   106%   -53%
LTI-Revenue Net Sales & Revenue $28,863 million   $26,644 million -8%
Growth PSU Payout 0% 0% n/a
Stock Price as of 31 Oct   $78.00 $88.30 13%
LTI-TSR 3-Year TSR as of 31 Oct -0.5% 5.4% +5.9 pts
PSU Payout 0% 67% +67 pts

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Advisory Vote on Executive Compensation
Executive Summary

 

After our fiscal 2016 earnings release on November 23, 2016, our investors recognized this performance and our stock price increased to $100.20 as of November 30, 2016—a 13% increase that was sustained through the end of December 2016.

Stockholder Outreach
Prior to 2016, we consistently received strong stockholder support on the “say-on-pay” advisory vote, averaging more than 90% approval from 2011 through 2015. In 2016, approximately 61% (71% excluding abstentions) of our stockholders voted in favor of our executive compensation programs.

Following the 2016 annual meeting, we invited our top 20 stockholders to participate in discussions regarding our executive compensation programs. During June to August, we met with 17 of our top 20 stockholders, representing about 48% of our then outstanding shares to discuss specific governance and compensation matters to better understand what drove the decline in the say-on-pay vote. The outreach was conducted by senior members of Human Resources (“HR”), including the then President and Vice President of HR, Investor Relations and Legal, both in person and by phone. We discussed our approach to executive compensation programs, stockholder views on the program design and the most recent revisions to our compensation plans and the proxy access by-law amendments. Here are some things we learned during these meetings.

     WHAT WE HEARD          HOW WE RESPONDED     

Most stockholders understand the cyclicality of our business and that one- or three-year TSR may not align to operating performance for any one given year. As long-term stockholders, they believe the STI and MTI metrics motivate employees to focus on actions and decisions within our control regardless of varied and changing business conditions.

Our stockholders understand how OROA, ROE and SVA are linked to successful operating performance. They believe the STI and MTI programs and associated financial metrics contribute to successful operating performance, drive the right employee behavior, provide long-term focus, and promote the creation of long-term value.

To further reinforce the alignment of the incentive programs with the cyclical nature of our business, the Committee revised our STI and MTI programs as described in this chart and detailed under “Recent Changes to Deere’s Executive Compensation Plans.”

The “Performance in Recent Downturns” graph in the Proxy Summary demonstrates that Deere has performed much better in this downturn compared to those in the past. We believe this success is due to the employees’ deep understanding of OROA, ROE and SVA. These will continue to be the primary metrics for our STI and MTI programs, respectively.

STI: STI:  

Maximum or near-maximum STI payouts in most of the recent fiscal years is not typical as compared to other companies, especially given the recent downturn in Deere’s business conditions. Stockholders generally agreed it was appropriate to increase OROA goals based on improved performance.

The Committee believes that additional metrics linked to our annual business plan would reflect the importance of near-term financial execution and foster accountability to short-term results.

In last year’s proxy, we announced higher OROA goals for 2016, primarily at mid-cycle and the peak of the business cycle to incentivize additional improvements in our operating performance. To further enhance the rigor of the performance goals, the Committee increased OROA goals for 2017 at the trough and mid-cycle of the business cycle. These increased OROA goals were applied to the NEOs beginning in fiscal 2016. The cumulative increases to OROA goals since 2015 are as follows (see details on page 43):
   
Cumulative Increase in OROA Goals since 2015 (as applied to NEOs)
Trough      Mid-Cycle     Peak
Maximum 33%      30%     29%
Target 50% 58% 30%
Threshold 100% 50% 33%
 
Starting in fiscal 2017, we have added two financial metrics—net sales & revenue and net income—to encourage executives (representing approximately 120 top level employees) to focus on near-term financial execution and foster accountability to short-term results.

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Advisory Vote on Executive Compensation
Executive Summary

 

     WHAT WE HEARD        HOW WE RESPONDED     

MTI:
Although stockholders strongly agree that SVA contributes to long-term value creation, our public disclosure did not clearly explain how the goals are determined and that the goals have significantly increased over time. This lack of clarity caused stockholders to question the rigor of our MTI goals.

 

MTI:
During our outreach, we discussed historical goals and the link between these goals and our business strategy of sustainable long-term growth. During our meetings, stockholders agreed the SVA goals have adequately increased over time. We have added more detailed disclosure and included graphics to assist the public in better understanding our MTI goals.

Stockholders strongly support the executive leadership team and our executive compensation programs generally. They believe Deere has strong alignment between business strategy and compensation design, though our proxy statements have not demonstrated that connection.

We focused on improving our disclosure by simplifying the language and using graphics to improve communications.

We regularly analyze our practices to ensure that we remain a leader in executive compensation best practices and remain aware of stockholder concerns. We will continue with regular stockholder engagement activities to understand firsthand their perspectives.

Recent Changes to Deere’s Executive Compensation Plans

The Committee regularly reviews our compensation programs and strives to enhance the connection with both company performance and stockholder interests. To that end, based upon feedback from our stockholders (obtained after the annual meeting) and in consultation with our independent compensation consultant, the Committee has adopted several changes to Deere’s executive compensation program. The table below summarizes those changes and indicates where you can find a complete discussion.

Compensation Element Description of change Page to find
 more information
STI Fiscal 2016: Increased goals for OROA, one of the two metrics for Deere’s STI, from the mid-cycle to the peak of the business cycle. These changes reflect more focus on Deere’s absolute results rather than relative peer benchmarks. 42
STI Fiscal 2016 for executives and Fiscal 2017 for all other employees increased OROA goals at the trough and mid-cycle of the business cycle to supplement the previously announced changes to OROA goals. 43
STI Fiscal 2017: Added two metrics—net sales & revenue and net income—to reflect the importance of near-term financial execution. 46
MTI Fiscal 2017: Added a TSR Modifier to MTI Payouts (approved in December 2014). 48
LTI Fiscal 2017: Added a cap on the payout for Performance Stock Units linked to TSR performance. 53
LTI Fiscal 2017: Increased the CEO stock ownership requirement from five to six times base salary to align with industry trends. 55
Deferred Compensation-
Above-Market Earnings
Modified the investment options available under the Defined Contribution Restoration Plan (Fiscal 2016), Nonemployee Director Deferred Compensation Plan and the Voluntary Deferred Compensation Plan (Fiscal 2017) to ensure participants cannot earn above-market returns on new deferrals. 57

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Advisory Vote on Executive Compensation
2016 Compensation Overview

2016 Compensation Overview

Deere is committed to a longstanding compensation philosophy that incorporates the principles of paying for performance, supporting business strategies, and paying competitively. The Committee believes this philosophy continues to drive our NEOs and salaried employees to produce sustainable, positive results for Deere and our stockholders.

Snapshot of Compensation Governance
To ensure that our compensation program meets Deere’s business objectives without compromising our core values, we regularly compare our compensation practices and governance against market best practices. Here are some of the best practices we have implemented.

 

WE DO THIS:

     

WE DON’T DO THIS:

 
 
use a combination of short-term and long-term incentives to ensure a strong connection between Deere’s operating performance and actual compensation delivered
regularly evaluate our peer group and pay positioning under a range of performance scenarios
annually review all our compensation plans, policies, and significant practices
annually review risks associated with compensation
include a “double-trigger” change in control provision in our executive Change in Control Severance Program, as well as our current equity plan, so participants will receive severance benefits only if both a change in control and a qualifying termination occur
annually review and limit executive perquisites
retain an independent compensation consultant that does not perform other significant services for Deere
have an Executive Incentive Compensation Recoupment Policy to ensure accountability in the presentation of our financial statements
enforce stock ownership requirements to ensure that directors and executives have common interests with our stockholders
provide executive officers with benefits (such as health care, life insurance, disability, and retirement plans) on the same basis as other full-time Deere employees
   
offer employment agreements to our U.S.-based executives
provide tax gross-ups for executives, except for those available to all employees generally
provide excise tax gross-ups upon a change in control to any employees
offer above-market earnings on new contributions to deferred compensation accounts
grant stock options with an exercise price less than the fair market value of Deere’s common stock on the date of grant
re-price stock options without the prior approval of our stockholders
cash out “underwater” stock options
include reload provisions in any stock option grant
permit directors or employees, or their respective related persons, to engage in short sales of Deere’s stock or to trade in instruments designed to hedge against price declines in Deere’s stock
permit directors or officers to hold Deere securities in margin accounts or to pledge Deere securities as collateral for loans or other obligations

 

 

 

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Advisory Vote on Executive Compensation
2016 Compensation Overview

Compensation Elements
The primary elements of our compensation program are summarized in the table below:

Component       Purpose       Characteristics       Fiscal 2016 Actions and Results
Base salary Based on level of responsibility, experience, and sustained individual performance Fixed cash component generally targeted at the peer group median Mr. Allen did not receive an increase to base salary for 2016; the other NEOs received increases of 3-12% based on market median
Short-Term Incentive
(“STI”)
 

Reward for achieving higher profitability through operating efficiencies and asset management during the fiscal year

 

Awarded in cash, a target STI award is designed to contribute to annual cash compensation and overall compensation at the peer group median Due to continued strong OROA and ROE results, the STI payout was 137% of target, resulting in an award of $2.6 million for the CEO and awards ranging from $0.7 million to $0.8 million for the other NEOs
Mid-Term Incentive
(“MTI”)
Reward for achieving sustained profitable growth over a three-year performance period Awarded in cash, a target MTI award is designed to contribute to overall compensation at the peer group median The MTI payout declined from 200% in fiscal 2015 to 106% of target in fiscal 2016, resulting in an MTI award of $1.9 million for the CEO and awards of approximately $0.6 million each for the other NEOs.
Long-Term Incentive
(“LTI”)
Reward for creating stockholder value   Awarded in a combination of PSUs, RSUs, and stock options, a base-level LTI award is designed to contribute to overall compensation at the peer group median; LTI awards can be increased by up to 20% to recognize individual performance   In December 2015, the CEO received an LTI award valued at $8.4 million, a 10% increase over the base-level award; LTI awards for the other NEOs were increased an average of 8% ranging from $1.5 to $1.7 million; adjustments reflect strong operating performance and rapid response to challenging business conditions.
Perquisites

Provide our executives with benefits comparable to those provided to executives at our peer group companies

Benefits like medical exams and financial planning services that personally benefit the employee, are not related to job performance, and are available to a select group of employees There were no changes to perquisites in fiscal 2016. We modified the investment options available under deferred compensation plans to ensure participants cannot earn abovemarket returns on new deferrals.
Retirement benefits Provide income upon retirement Defined benefit pension plans plus a 401(k) plan with a variable company match There were no changes to retirement benefits in fiscal 2016.

As this table suggests, we compare each component of compensation to the median level for that component awarded by our peers. In addition, we strive to have each NEOs’ total annual cash compensation and overall compensation at target compare favorably to the median levels for comparable executives. For example, in fiscal 2016, our CEO’s base salary and STI was 25% of his overall compensation, compared to an average of 22% for CEOs in our peer group.

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Advisory Vote on Executive Compensation
Compensation Methodology and Process


2016 Target Direct Compensation Mix
Pay for performance is an essential element of our compensation philosophy. We believe compensation should motivate our executives to substantially contribute—both individually and collaboratively—to Deere’s long-term, sustainable growth. To that end, our performance-based compensation program consists of three components (STI, MTI, and LTI), all driven by metrics that align with Deere’s business strategy and reflect the cyclical nature of the industries in which Deere operates.

To enhance the connection between pay and performance, as our NEOs assume greater responsibility, we award a larger portion of their total compensation in the form of “at risk” incentive awards, and a larger portion of their incentive awards in the form of equity. This practice is apparent in the following charts, which illustrate the allocation of all fiscal 2016 Direct Compensation components at target for our CEO and for our other NEOs as a group.

CEO TARGET COMPENSATION MIX

     

NEO TARGET COMPENSATION MIX

 * “at risk” implies awards that are subject to performance conditions and stock price performance

Compensation Methodology and Process

Independent Review and Approval of Executive Compensation
The Committee is responsible for reviewing and approving goals and objectives related to incentive compensation for the majority of salaried employees. In particular, the Committee evaluates the NEOs’ performance in relation to established goals and ultimately approves compensation for the NEOs (except for the CEO). All substantive responsibilities related to the compensation of the NEOs are undertaken exclusively by the members of the Committee, all of whom are independent under current NYSE listing standards.

The Committee periodically reviews the components of our compensation program to ensure the program is aligned with our business strategy, Deere’s performance, and the interests of our employees and stockholders. In addition, the Committee regularly reviews market practices for all significant elements of executive compensation and approves necessary adjustments to ensure Deere remains competitive.

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Generally, at the Board meeting in August, the full Board (in executive session without the CEO present) evaluates the CEO’s performance. The Committee considers the results of that evaluation when providing recommendations to the independent members of the Board for the CEO’s compensation, which they then approve. The CEO does not play a role in, and is not present during, discussions regarding his own compensation.

The CEO plays a significant role in setting the compensation for the other NEOs. At the Committee meeting in December, the CEO evaluates each NEO’s individual performance, and also recommends changes to the NEOs’ base salaries and LTI awards. (The CEO is not involved in setting the STI and MTI awards because they are calculated using predetermined factors.) The Committee has the discretion to accept, reject, or modify the CEO’s recommendations.

The Role of the Compensation Consultant
The Committee has retained Pearl Meyer, LLC (“Pearl Meyer”) as its compensation consultant. Pearl Meyer reviews our executive compensation program design and assesses our compensation approach relative to our performance and the market. The Committee has sole responsibility for setting and modifying the fees paid to Pearl Meyer, determining the nature and scope of its services, evaluating its performance, and can terminate Pearl Meyer’s engagement or hire another compensation consultant at any time.

Pearl Meyer periodically meets independently with the Chair of the Committee, and regularly participates in executive sessions with the Committee (without any Deere personnel or executives present) to review compensation data and discuss compensation matters. While the Committee values this expert advice, ultimately the Committee’s decisions reflect many factors and considerations. Management works with Pearl Meyer at the Committee’s direction to develop materials and analysis, such as competitive market assessments and summaries of current legal and regulatory developments, which are essential to the Committee’s compensation determinations.

During fiscal 2016, Pearl Meyer performed the following specific services:

Provided information on executive compensation trends and external developments, including regulatory changes

Provided a competitive evaluation of total compensation for the NEOs, as well as overall compensation program share usage, dilution, and LTI expense

Reviewed the peer group used for market analyses

Reviewed the competitiveness of actual pay delivered in relation to performance as compared against the peer group, as further discussed below

Provided recommendations on CEO total compensation

Reviewed our CEO’s compensation recommendations with respect to the other NEOs

Reviewed Committee agendas and supporting materials in advance of each meeting, and raised questions or issues with management and the Committee Chair, as appropriate

Provided guidance and recommendations on incentive plan design, including rigor of metrics and goals

Reviewed drafts and commented on this CD&A and the related compensation tables

Pearl Meyer does not provide other significant services to Deere and has no other direct or indirect business relationships with Deere or any of its affiliates. Taking these and other factors into account, the Committee has determined that the work performed by Pearl Meyer does not raise any conflicts of interest. Additionally, based on its analysis of the factors identified in the Committee’s charter as being relevant to compensation consultant independence, the Committee has concluded that Pearl Meyer is independent of Deere’s management.

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Market Analysis
PEER GROUP
The companies in the peer group for our fiscal 2016 market analysis process, listed in the chart below, are similar to Deere in terms of sales volume, products, services, market capitalization, and global presence.

Company Fiscal year       Employees*       Revenue*
($MM)
      Market Value 10/31/16
($MM)
3M Company Dec-15   89,446 $ 30,274 $ 99,422
Alcoa Corp. Dec-15 16,000 $ 11,199 $ 12,593
Boeing Company Dec-15 161,400 $ 96,114 $ 87,903
Caterpillar Inc. Dec-15 105,700 $ 47,011 $ 48,830
Cummins Inc. Dec-15 55,200 $ 19,130 $ 21,556
E. I. du Pont de Nemours and Company Dec-15 52,000 $ 25,268 $ 59,802
Eaton Corp. Plc Dec-15 97,000 $ 20,855 $ 28,996
Emerson Electric Co. Sep-16 74,500 $ 14,522 $ 32,576
General Dynamics Corporation Dec-15 99,900 $ 31,469 $ 45,903
Honeywell International Inc. Dec-15 129,000 $ 38,581 $ 83,590
Illinois Tool Works Inc. Dec-15 48,000 $ 13,405   $ 39,864
Johnson Controls International plc Sep-16 209,000 $ 37,674 $ 37,768
Lockheed Martin Corporation Dec-15 126,000   $ 46,132 $ 72,184
Northrop Grumman Corporation Dec-15 65,000 $ 23,526 $ 40,364
PACCAR Inc. Dec-15 23,000 $ 19,115 $ 19,255
Raytheon Company Dec-15 61,000 $ 23,247 $ 40,115
United Technologies Corporation Dec-15 197,200 $ 56,450 $ 84,152
Whirlpool Corporation Dec-15 97,000 $ 20,891 $ 11,253
Xerox Corporation Dec-15 143,600 $ 18,161 $9,905
75th Percentile 126,750 $ 37,901 $ 62,897
Median 93,223 $ 24,397 $ 39,989
25th Percentile 56,400 $ 19,126 $ 26,212
Deere & Company Oct 16 56,800 $ 26,644 $ 27,764
Deere Percentile 26th 58th 26th

Source: Factset Research Systems, Inc.

* Reflects employees and revenues for last reported fiscal year

Compensation paid by our peer group is representative of the compensation we believe is required to attract, retain, and motivate executive talent. The Committee, in consultation with Pearl Meyer, periodically reviews the peer group to confirm that it remains an appropriate point of reference for NEO compensation. No changes were made to the peer group for fiscal 2016.

REVIEW OF PAY FOR PERFORMANCE RELATIVE TO PEER GROUP
To ensure that total compensation for our NEOs aligns with the market, we compared our compensation and performance against the companies in our peer group. As part of this comparison, we evaluate our peers’ mix of cash versus equity and short-term versus long-term components.

In addition, we reviewed the relationship between total realizable compensation and our performance for the three fiscal years ended October 31, 2015—the most recent fiscal year-end for which we can obtain corresponding compensation information for our peer companies. This review, helps the Committee understand whether total compensation delivered to our NEOs aligns with our performance relative to our peer group. For purposes of this review, we use TSR to measure performance.

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The analysis, as shown in the graphs below, reveals that realizable pay for Deere’s CEO and Other NEOs was reasonably aligned with Deere’s relative TSR over the relevant time period. Deere had the second lowest TSR in the peer group, and our NEOs’ realizable pay levels were between the 25th and 50th percentiles. Based on these results and the results of similar past comparisons of pay and performance alignment, we believe our pay programs ensure that compensation for our executives is aligned with performance and market norms.
 

DEERE 3-YEAR PAY FOR PERFORMANCE AS OF OCTOBER 31, 2015
REALIZABLE PAY VS. TOTAL SHAREHOLDER RETURN

       CEO      OTHER NEOS

“Total realizable pay” for Deere’s NEOs is defined as the sum of the following components:
 
1.       Actual base salaries paid over the three-year period from 2014 to 2016
 
2. Actual STI awards paid over the three-year period
 
3. Actual MTI awards paid over the three-year period
 
4. The Black-Scholes value as of October 31, 2015, of any stock options granted over the three-year period
 
5. The value as of October 31, 2015, of RSUs granted over the three-year period
 
6. The value as of October 31, 2015, of PSUs (reflecting actual performance for the 2013-2015 performance cycle and the in-process 2014-2016 and 2015-2017 performance cycles)

For peer companies, total realizable pay includes cash- and equity-based long-term incentive plan and performance share plan payouts for performance cycles that are completed within the three-year period. Award values are then multiplied by a factor that reflects grant frequency and long-term incentive vehicle mix.

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Direct Compensation Elements

The following information describes each direct compensation element, including the applicable performance metrics.

Base Salary

In determining salary levels for each of our NEOs, the Committee considers factors such as the financial and operational performance, leadership, development of people, time in position, internal equity, and potential. The Committee also considers each NEO’s current salary as compared to the salary range and median salary practices of our peer group.

After considering all relevant information, the Board determined that the CEO’s base salary for fiscal 2016 should remain unchanged. The other NEOs received increases ranging from 3% to 12%. Mr. Kalathur and Mr. May received higher-than-average increases because their base salaries have been significantly below market since they became senior officers in 2012. The NEOs’ salary levels remain below the market median for similar positions.

Officer Base Salary as of
Dec. 1, 2014
   Salary
Increase %
   Base Salary as of
Dec. 1, 2015
Samuel R. Allen             $ 1,500,000    0%                $ 1,500,000
Rajesh Kalathur $ 554,328 12% $ 620,856
James M. Field $ 667,896 3% $ 687,936
Michael J. Mack Jr. $ 677,484 3% $ 697,812
John C. May $ 554,124 9% $ 603,995


Short-Term Incentive (“STI”)

PERFORMANCE METRICS FOR STI

The Committee believes that operating margins and efficient deployment of Deere’s assets (both fixed and working capital) are key drivers in creating long-term stockholder value. For this reason, the Committee has designed the STI program to motivate Deere’s executives and most other salaried employees to focus on reducing costs and optimizing asset and capital efficiency no matter where we are in the business cycle each fiscal year. By consistently managing OROA results through all points in the business cycle, Deere has been able to return more than two-thirds of cash flow from our operations to investors through dividends and net share repurchases since 2004.

In fiscal 2016, we used two distinct metrics to motivate employees; reflecting key differences between our manufacturing and financing businesses. For the two businesses that make up our Equipment Operations segment— Agriculture and Turf Operations and Construction and Forestry Operations—the metric is OROA. For our Financial Services segment, the metric is ROE. As described below, the performance results for these metrics are combined to determine STI awards.

For fiscal 2016, the various business results were weighted to calculate STI as follows:

Equipment Operations OROA 50%
Agriculture and Turf Operations OROA 25%
Construction and Forestry Operations OROA 15%
Financial Services ROE 10%

The emphasis on the OROA performance of the Equipment Operations and its constituent divisions in calculating STI reflects the critical position these operations have as drivers of Deere’s business: Equipment Operations’ net sales accounted for 89% of Deere’s net sales & revenues in fiscal 2016. The 50% weighting for the combined Equipment Operations reflects the importance of employees aligning with the overall business strategies and not optimizing within a business segment.

We explain the metrics and the reasons behind them in this section. You can see how OROA and ROE were calculated for fiscal 2016 in Appendix B, “Deere & Company Reconciliation of Non-GAAP Measures.”

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OROA
Deere is primarily a manufacturing company with high investment in fixed assets, such as buildings and machinery, and significant expenses with longer term payoffs, such as research and development. Over the past few decades, Deere’s Equipment Operations businesses have weathered many business cycles. Among other things, this segment is affected by economic factors such as prices for commodities (like corn and other crops) and the health of the housing and infrastructure sectors because we make the equipment that farmers and contractors rely on. When commodity prices are low or the housing and infrastructure sectors are weak, our customers delay equipment purchases and upgrades.

In 2004, Deere adopted a strategy designed to enable management to respond quickly and purposefully to changing business conditions in order to drive sustained operational results across volatile business cycles. A focus on OROA performance was, and continues to be, a key component of this strategy. The Committee believes OROA effectively measures the efficient use of the Equipment Operations’ assets and the ability to manage operating margins under varying business conditions, and is an appropriate metric for STI awards. Using OROA as an STI performance metric aligns employee decisions with our strategic approach to sound investment of capital and asset utilization. Because business conditions can quickly change, the Committee sets a range of OROA goals for a range of potential conditions rather than for a static forecast. This allows us to be agile and encourages us to prepare in advance for a variety of business conditions so we are ready for any scenario.

Foundational to understanding how we determine the OROA goals for a given fiscal year is the concept of mid-cycle sales. We calculate mid-cycle sales annually by gathering historical information on the size of the industry (for example, the total number of tractors sold in the U.S. market) and Deere’s market share for every product line (in this example, the number of tractors sold by Deere). This information helps us understand the cyclical nature, from peak to trough, of our business. Mid-cycle sales are determined for each product line which could be in varying business cycles within the same performance period. This allows us to set meaningful operating performance goals at the product line level while maintaining a unified incentive program for the salaried employee population. For most of our Agricultural and Turf products, a typical business cycle is around seven years. For the Construction and Forestry products, the cycle tends to be a bit shorter. As shown in the graph below, we use that historical information to determine mid-cycle sales— essentially our best estimate of what “normal” looks like.

WHAT IS MID-CYCLE?

Generally speaking, at the peak of a typical business cycle, actual sales constitute 120% of mid-cycle sales; at the trough, actual sales constitute 80% of mid-cycle sales. OROA goals vary each year to reflect where we are on this spectrum. We have relied on the process of analyzing mid-cycle sales for decades to make decisions related to measuring the achievement of long-term business strategies, allocating manufacturing capacity and workforce, and determining standard costs.

Mid-cycle goals. The Committee first established OROA goals for STI purposes by comparing Deere’s OROA performance to that of the companies in the peer group. The median OROA for the peer group is in the range of 10-15% (see “OROA Deere vs. Peers 1997-2016” on next page). Accordingly, Deere’s original target OROA at mid-cycle (the “normal” part of a business cycle) was set at 12%. That goal provided a reasonable approximation of Deere’s cost of capital, and aligned with our compensation strategy of awarding median pay for median performance. The Committee then set OROA goals for threshold and maximum

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STI payouts at mid-cycle to approximate 25th and 75th percentile performance, respectively, relative to the peer group. The Committee has reviewed and approved the goals each year but because peer group OROA performance has essentially remained consistent, the OROA goals at mid-cycle also remained unchanged until recently, as discussed below. The OROA goals are the same for Equipment Operations, Agriculture & Turf Operations and Construction and Forestry Operations.

Goals for peak and trough conditions. To maintain the rigor of the program, the Committee cannot just set goals for  mid-cycle, “normal” conditions. If OROA goals were consistent regardless of where we are in a business cycle, our employees would be unduly rewarded when the economy is strong and penalized for poor economic conditions that have a ripple effect on our sales. Thus, the Committee fixes threshold, target, and maximum OROA goals that are more ambitious at the peak  of a business cycle, when it is easier to cover fixed costs and achieve a high asset turnover (and thus a better OROA), and less ambitious at the trough. This model encourages us to quickly make necessary structural changes, such as those related to cost reduction, capacity, and assets (especially inventory), as business conditions change during the year.

As shown in the following graph, the goals for a given year are determined based on where we are in the business cycle.

How do OROA goals work?
For an example of how our multi-tiered OROA goals work in practice, assume we determined that mid-cycle sales are  $30 billion. If actual sales for the year are $27 billion, that means we are at 90% of mid-cycle (27 ÷ 30 = .90). In that case,  OROA goals would be lower than the goals for mid-cycle. On the other hand, if actual sales are $33 billion, that means  we are at 110% of mid-cycle (33 ÷ 30 =1.1). In that case, OROA goals would be greater than the goals for mid-cycle. Both scenarios are illustrated below:

EXAMPLE


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Recent changes in the OROA goals. In the years since we adopted OROA as an enterprise-wide performance metric, Deere has significantly restructured its Equipment Operations to enable more rapid responses to changing business conditions. As a result, for over a decade Deere’s OROA results have consistently outpaced the peer group, as depicted in the following graph.

OROA DEERE VS. PEERS 1997–2016*


*Peer group data for 2016 is not yet available. OROA calculations for Deere and the peers exclude assets for any captive financial services (if applicable).

The products we sell are subject to cycles that differ from our peers. To put these cycles in perspective, the table shows our OROA and net sales over this same period of time. Note that since the adoption of OROA as an enterprise-wide metric in 2004, our OROA performance has exceeded the peer group even we experienced volatile business conditions (as indicated by net sales):

  1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
OROA     18%     17%     3%     8%     -1%     6%     10%     26%     22%     22%     25%     27%     13%   28%     30%     29%     32%     28%     16%     14%
Net Sales $11 $12 $10 $11 $11 $12 $13 $18 $19 $20 $21 $26 $21 $24 $29 $34 $35 $33 $26 $23
(billions)                

Deere’s sustained success in delivering OROA performance under varying business conditions has resulted in maximum or near-maximum STI payouts in recent fiscal years. To further incentivize stronger operational performance and seize the benefits of Deere’s structural transformation, the Committee recently raised OROA goals for STI purposes. In making this decision, the Committee determined that we should no longer set Deere’s OROA goals solely by looking at our performance relative to the peer group. Instead, the Committee believes Deere should be measured relative to its own capabilities and aspirations. For this reason, the OROA goals in effect beginning with fiscal 2016 were significantly more rigorous at mid-cycle and peak than they have been in the past, as shown in the chart on the following page. The Committee made only minor increases to the goals at trough since our experience at that part of the business cycle was limited and had not yet proven to be sustainable.

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OROA GOAL INCREASES

As challenging business conditions continued into fiscal 2016 and Deere’s OROA remained strong, the Committee determined that additional increases in the OROA goals were warranted. Feedback from stockholders confirmed that increased goals for the bottom of our business cycle were appropriate. The Committee approved the following OROA goal increases in August 2016. The more rigorous goals were applied to the NEOs and other senior executives immediately, and they will be effective for all employees starting in fiscal 2017.

ADDITIONAL OROA GOAL INCREASES


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The following table displays the cumulative OROA goal increases since fiscal 2015 which are significant:

2015 OROA Goals 2016 OROA Goals Revised 2016 OROA Goals Cumulative Increase
(as a %) since 2015
Trough Mid-Cycle Peak Trough Mid-Cycle Peak Trough Mid-Cycle Peak Trough Mid-Cycle Peak
Maximum 12% 20% 28% 13% 24% 36% 16% 26% 36% 33% 30% 29%
Target 8% 12% 20% 10% 18% 26% 12% 19% 26% 50% 58% 30%
Threshold 4% 8% 12% 8% 12% 16% 8% 12% 16% 100% 50% 33%

ROE
ROE is the STI performance metric for Financial Services. The Financial Services business is a key differentiator for how Deere delivers value to our dealers and customers, so we think it is important to consider Financial Services’ performance as part of STI. The Committee believes ROE effectively measures the efficient use of the segment’s equity and it is commonly used in the financial services industry for that purpose. We have two distinct business models within Financial Services, and we use different ROE goals for each.

Historically, approximately 65% of Financial Services’ business is subsidized. Under the “subsidized business” model, the Equipment Operations provide subsidies to Financial Services to reduce the interest rates that our customers and dealers would otherwise pay on financial products. These subsidies were created to facilitate sales by the Equipment Operations, not to maximize Financial Services’ profitability. For this reason, the ROE goal for the subsidized business—10%—is the same regardless of the business cycle and is based on the implied after-tax cost of equity for Financial Services. Analysis shows that our threshold ROE goal of 10% represents upper quartile performance as compared to other financial institutions.

The remaining Financial Services offerings are referred to as the “non-subsidized business.” The objective of the non- subsidized business is to efficiently utilize equity in order to earn a profitable return. Consequently, this business has more traditional (and progressively more challenging) goals for threshold, target, and maximum ROE. The Committee establishes goal levels based on benchmarking against ROEs attained by similar financial services businesses with similar debt-to-equity leverages, and by evaluating cost of equity financial models. The threshold goal equals the implied after-tax cost of equity for Financial Services; the target and maximum ROE goals are set at progressively higher levels to encourage management and employees to efficiently utilize equity relative to industry norms and market conditions while facilitating sales by the Equipment Operations. The ROE goals of 13% at target and 16% at maximum represent an even greater level of stretch such that the difficulty attain target payouts is rigorous. We regularly review the ROE of other financial institutions to ensure the appropriate level of stretch.

ROE goals are weighted based on the actual mix of subsidized versus non-subsidized business in a fiscal year. The Committee approved the following ROE goals at the beginning of fiscal 2016:

Fiscal 2016 ROE Goals       Subsidized business            Non-subsidized business            Weighted Goals
% of Business                                  66% 34%
Maximum 16% 12%
Target 10% 13% 11%
Threshold

10% 10%

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APPROVAL OF STI AWARD RATES
At the beginning of the fiscal year, after review and consideration of Deere’s peer group data for target cash bonuses, the Committee approves target STI rates as a percentage of each NEO’s base salary. The target STI rates for fiscal 2016 are as follows:

Target Rate
CEO 125%
Other NEOs 85%

Regardless of the award amount reached by applying this formula, no individual award under the STI plan may exceed $5 million or 200% of target. Payouts at 200% of target can only be achieved when our businesses meet or exceed the maximum performance goal for each component of the weighted STI performance formula.

FISCAL 2016 PERFORMANCE RESULTS FOR STI
The chart below shows OROA results for the Agriculture and Turf Operations, the Construction and Forestry Operations, and Equipment Operations as a whole based on actual sales volumes:

Those results, together with ROE for Financial Services, are weighted to determine STI, as follows:

Fiscal 2016 Performance Results for STI Fiscal 2016
Performance Results
   Performance
as % of Target
   Fiscal 2016
Award Weighting
   Weighted
Award Results
Equipment Operations OROA 14.4% 160% 50% 80%
Agriculture and Turf Operations OROA 17.6% 200% 25% 50%
Construction and Forestry Operations OROA 5.3% 0% 15% 0%
Financial Services ROE 10.4% 71% 10% 7%
Actual Performance as % of Target 137%

The Equipment Operations OROA calculation excludes the assets from our captive financial services. ROE is based solely on the Financial Services segment. See appendix B for details.

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The amount of the STI award paid to an NEO is calculated as follows:

STI AWARD CALCULATIONS

Base salary for
the fiscal year
 ✕ Target STI rate  ✕ Actual performance
as a percent of target
= STI award amount

Actual STI awards paid to NEOs are shown in the table to the right, and detailed in the Fiscal 2016 Summary Compensation Table under footnote (4).

The STI plan and the results for fiscal 2016 described above are also used to determine the STI awards paid to most other salaried employees worldwide. For fiscal 2016, STI awards paid to the NEOs consisted of approximately 1.4% of the total amount of STI awards paid to all eligible employees.

Officer Fiscal 2016
STI award
Samuel R. Allen   $ 2,573,063
Rajesh Kalathur $ 717,734
James M. Field $ 800,499
Michael J. Mack, Jr. $ 811,990
John C. May $ 699,686



The STI plan is periodically approved by our stockholders and was last approved at the annual meeting in February 2015.

REVISED PERFORMANCE METRICS STARTING FISCAL 2017
In response to the say-on-pay vote outcomes and discussions with stockholders that followed, the Committee added two financial metrics—net sales & revenue and net income—to the STI calculation for senior executives starting in fiscal 2017. The Committee selected these metrics to tie annual incentive compensation to measures of our financial performance that are both meaningful and readily accessible to our stockholders and to reflect the importance of near-term financial execution. Moreover, basing annual incentive awards on a larger set of metrics ensures that executives take a comprehensive view of our business.

The Committee will set target goals for net sales & revenue and net income at the beginning of each fiscal year based upon input from management regarding our expected performance in the upcoming year. As shown in the chart below, the goal for a target payout for each metric will match the number established in our annual operating budget forecast—what we call the Original Budget. net sales & revenue that falls more than 10% below target, and net income that falls more than 15% below target, will result in no payout for those metrics. Conversely, net sales & revenue that exceeds target by at least 10%, and net income that exceeds target by at least 15%, will result in a maximum (200%) payout for those metrics. The metric spread for net income is wider because there are more factors that affect net income than there are for net sales & revenue.

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NEW PERFORMANCE METRICS FOR FISCAL 2017


Beginning in fiscal 2017, the various business results will be weighted to calculate STI as follows:

Equipment Operations OROA 25.0%
Agriculture and Turf Operations OROA 12.5%
Construction and Forestry Operations OROA 7.5%
Financial Services ROE 5.0%
Net Sales & Revenue 25.0%
Net Income 25.0%

Mid-Term Incentive (“MTI”)
MTI is a long-term cash award based on Deere’s performance against ambitious goals for Shareholder Value Added (“SVA”) over a three-year performance period.

SHAREHOLDER VALUE ADDED PERFORMANCE METRIC
The MTI plan is designed to motivate executives and other salaried employees to consistently create lasting value. To that end, since the MTI plan was first implemented, the performance metric has been Deere’s SVA, which essentially measures earnings in excess of our cost of capital.

SVA was selected as the MTI performance metric because the Committee believes Deere should:

earn, at a minimum, its weighted average cost of capital each year

ensure that investments in capital and research and development earn their cost of capital

ensure that acquisitions do not deteriorate stockholder value


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Put another way, we believe Deere can realize sustainable improvement in SVA through a combination of revenue growth and high returns on invested capital. SVA incorporates both of these concepts, and therefore serves as a barometer of long-term value.

SVA is measured on an enterprise-wide level. As a result, the MTI plan encourages teamwork across all of our business units. How do we know it works? In fiscal years 1994 through 2003 (the ten years before we implemented the MTI plan), accumulated SVA was negative $1.4 billion. In the ten most recent fiscal years, accumulated SVA rose to $17.8 billion. This demonstrates that management has become adept at investing for the future while still delivering consistent stockholder returns.

We demonstrate how SVA is calculated in Appendix B, “Deere & Company Reconciliation of Non-GAAP Measures.”

MODIFICATION OF AWARDS BASED ON RELATIVE TSR
In an effort to further align executive compensation with stockholder interests, the Committee added a relative TSR modifier to potential MTI payouts for our NEOs and certain other executive officers. Starting with the performance period that began in fiscal 2015, we compare Deere’s TSR for the performance period to TSR for the S&P Industrial Sector during the same time frame. The Committee chose the S&P Industrial Sector as a benchmark because it is an independently selected comparator group that includes a majority of our peer group companies. This index is also used to measure relative performance for PSUs under our long-term incentive plan. If Deere’s TSR is at or below the 25th percentile of the index, the final MTI payout for our senior executives will be reduced by 25%. If Deere’s TSR is between the 25th and 50th percentiles, the final MTI payout for our senior executives will be reduced by up to 25%, as shown in the graph below. The TSR modifier ensures that senior executives will not get the full MTI award unless Deere’s TSR is at least at the median of the index. There is no upside for outperforming the 50th percentile.

TSR MODIFIER FOR MTI PAYMENTS


THREE-YEAR PERFORMANCE PERIODS
The Committee approved three-year performance periods for MTI awards to emphasize the importance of consistent, sustained operating performance. We believe employees are motivated to achieve consistently strong SVA results because, as we illustrate below under “Historical Accumulated SVA, MTI Goals and MTI Payouts”, each year affects award calculations in three separate rolling performance periods. Whether positive or negative, SVA results for each year become part of the MTI award calculation for that year and the next two years. Consequently, negative SVA in one year can offset positive SVA in another. A single year of strong performance will not result in a high MTI payout if it follows one or two years of weak performance. Conversely, MTI payouts will not necessarily be low after a year of weak performance if results in the two preceding years were strong.

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SETTING SVA GOALS
Each year, two principles guide the Committee in fixing the accumulated maximum SVA goal for the next three-year performance period. First, the goal for a maximum payout reflects return on invested capital performance in the top 25% relative to our peer group. Second, the goal for a maximum payout is calculated based on estimated enterprise SVA at mid-cycle sales levels (described above under “Performance Metrics for STI”) for the first year of the performance period. We cannot confidently forecast SVA for the second and third years of the performance period. Instead, we assume a compounded 7% annual growth rate (a number that corresponds to Deere’s historical sales growth rate) for each of those remaining two years to arrive at a cumulative three-year SVA goal. Once set, the goal is a fixed amount for the performance period.

As mentioned above, the maximum SVA goal represents top quartile invested capital performance, which is an aggressive stretch under “normal” business conditions. Accordingly, the target SVA goal is set at half of that amount. A threshold MTI award for the performance period that just ended required $1 million of accumulated SVA. The threshold accumulated SVA goal was raised to $5 million starting with the performance period that began in fiscal 2015. The threshold goal was increased to avoid nominal payouts to eligible participants.

The chart below details the threshold, target, and maximum accumulated SVA goals for each performance period that includes fiscal 2016. The SVA goals grew significantly more challenging for the performance periods ending in 2016 and 2017: sales volumes for agricultural equipment increased in recent years, which led to a substantial increase in mid-cycle sales and increased expectations for SVA. As the recent business downturn has become part of the business cycle, mid-cycle volumes have decreased resulting in a lower mid-cycle SVA for the performance period ending in 2018. Although the SVA goals have decreased, the same level of goal rigor exists due to the downturn in business conditions. The SVA goals have increased 273% since the MTI plan was introduced in 2004 (a compounded annual growth rate of 14%).

SVA Goals for MTI Fiscal 2014
through
Fiscal 2016
      Fiscal 2015
through
Fiscal 2017
      Fiscal 2016
through
Fiscal 2018
Threshold SVA Required for Payout $1 million $5 million $5 million
SVA Goal for Target Payout $3,605 million $4,495 million $4,200 million
SVA Goal for Maximum Payout $7,210 million $8,990 million $8,400 million

APPROVAL OF MTI AWARD RATES
At the beginning of each performance period, after considering data for our peer group, the Committee approves target MTI award rates as a percentage of the median salary for each NEO’s salary grade. The following table shows the target payout rates approved by the Committee for the performance period ended October 31, 2016:

Target Rate
CEO 121%
Other NEOs 93%

Regardless of the amount calculated for each award using these payout rates, no employee can receive an award under the MTI plan that exceeds $4.5 million or 200% of target.

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FISCAL 2016 PERFORMANCE RESULTS FOR MTI
The following table shows Deere’s accumulated SVA, calculated as described in Appendix B, for the three-year performance period ended October 31, 2016, which resulted in a payout of 106%.

The payout percentage for fiscal 2016 was calculated as follows:

Fiscal Year SVA (in millions)
2014 $ 2,694
2015 $ 774
2016                   $ 344
Accumulated SVA for 2014–2016 performance period $ 3,812
SVA Goal for Target Payout $ 3,605
Actual Performance as % of Target 106%

The following table shows historical MTI information and how SVA for fiscal 2016 will affect MTI awards for the performance periods ending October 31, 2016, 2017, and 2018. Note that continued downturn business conditions will likely result in below-target payouts for the performance periods ending in 2017 and 2018.

HISTORICAL ACCUMULATED SVA, MTI GOALS AND MTI PAYOUTS


As noted above, a maximum MTI payout requires Deere to achieve superior return on invested capital performance relative to our peer group over a three-year period. The payout awarded to our employees for the performance period that just ended adheres to that requirement. As the graph below demonstrates, Deere’s ROIC results have consistently exceeded 75th percentile performance relative to our peers.

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ROIC DEERE VS. PEERS 1997–2015

*Peer group data for 2016 is not yet available. ROIC is adjusted for captive financial services for Deere and peers.

CALCULATION OF MTI AWARDS
The amount of the MTI award paid to an NEO is calculated as follows:

Median of actual
salaries for the
relevant salary grade
(a)

× Target MTI rate × Actual performance
as a percent of target
= MTI award amount

(a)   Median (or midpoint) is the basis of the MTI calculation for all employees so that within a given salary structure and level, the employees receive the same MTI payout.

Actual MTI awards paid to the NEOs are shown in the table to the right, and detailed in the Fiscal 2016 Summary Compensation Table under footnote (4).

The results for the performance period ended in fiscal 2016 are also used to determine the MTI awards for other eligible employees worldwide. MTI awards paid to the NEOs for fiscal 2016 consisted of approximately 4.1% of the total amount of MTI awards paid to all eligible employees.

Officer       Fiscal 2016
MTI award
Samuel R. Allen $ 1,919,363
Rajesh Kalathur $ 551,672
James M. Field $ 551,672
Michael J. Mack, Jr. $ 551,672
John C. May $ 551,672


The MTI plan is periodically approved by our stockholders, most recently at the annual meeting in February 2013.

Long-Term Incentive (“LTI”)
The LTI is designed to reward the NEOs for creating sustained stockholder value, to encourage ownership of Deere stock, to foster teamwork, and to retain and motivate high-caliber executives while aligning their interests with those of our stockholders. LTI awards consist of three components: restricted stock units (RSUs), market-priced stock options, and performance stock units (PSUs), all awarded annually under the John Deere Omnibus Equity and Incentive Plan (“Omnibus Plan”). The Omnibus Plan is periodically approved by our stockholders and was last approved at the annual meeting in February 2015.

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FISCAL YEAR 2016 LTI AWARD OVERVIEW FOR NEOS

      PSUs       RSUs       Stock Options

LTI Mix

Performance measurements

 

50% revenue growth* and 50% TSR relative to the S&P Industrial Sector over a three-year performance period

 

Stock price appreciation

 

Stock price appreciation

Vesting period

Cliff vest on the third anniversary of the grant date

Cliff vest on the third anniversary of the grant date

Vest in approximately equal annual installments over three years

Conversion/ expiration

Converted to Deere common stock upon vesting

Converted to Deere common stock upon vesting

Expire ten years from the grant date

Objective

Motivate and reward relative outperformance

Encourage ownership and retention while providing immediate alignment with stockholders

Reward for stock price appreciation

*Based on Deere’s compound annual growth rate

APPROVAL OF LTI AWARD VALUES
The Committee established LTI grants for the NEOs based on the following criteria: level of responsibility, individual performance, current market practice, peer group data, and the number of shares available under the Omnibus Plan. Awards granted in previous years are not a factor in determining the current year’s LTI award; nor is potential accumulated wealth.

At the first Committee meeting of each fiscal year, after consideration of peer group data on median values for long-term incentives, the Committee approves a dollar value for a base-level LTI award and the mix of awards to be delivered. The grant price for all LTI awards prior to February 25, 2015 is the average of the high and low common stock price on the grant date as reported on the NYSE. For awards made thereafter, the grant price is the closing price of Deere common stock on the NYSE on the grant date. The grant price is used to determine the number of PSUs, RSUs, and stock options to be awarded.

As has been the practice for several years, the Committee can increase (up to 20%) or decrease (down to $0) an individual NEO’s base-level award to distinguish that executive’s performance, deliver a particular LTI value, or reflect other adjustments as the Committee deems appropriate. For fiscal 2016, the Committee approved adjustments to base-level award values ranging up to 20% to recognize the accomplishments of the individual NEOs. LTI awards were approved for the NEOs as follows:

   Adjusted Award Values*
Samuel R. Allen                         $ 8,360,000
Rajesh Kalathur $ 1,562,000
James M. Field $ 1,562,000
Michael J. Mack, Jr. $ 1,491,000
John C. May $ 1,704,000

*The amounts shown include PSUs valued at the grant price on the date of grant. These amounts differ from the value of equity awards shown in the Fiscal Year 2016 Summary Compensation Table and Grants of Plan-Based Awards table because those tables reflect the probable outcome of the performance metrics for PSUs.



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See the Fiscal 2016 Grants of Plan-Based Awards table and footnotes for more information on LTI awards delivered, as well as the terms of the awards.

For fiscal 2016, the number of RSUs and PSUs granted to the NEOs represented 50% of all RSUs and PSUs granted to eligible salaried employees; the number of stock options granted to the NEOs represented approximately 8% of all stock options granted to eligible salaried employees.

CHANGE TO LTI AWARD VALUE FOR FISCAL 2017
After consideration of peer group data on target long-term incentives, the Committee approved an increase in the base-level LTI award for the NEO’s (excluding the CEO) from $1,420,000 to $1,560,000 for fiscal 2017. As compared to the peer group, the equity award values for the NEOs have been below market median for several years.

CONVERSION OF PSUs TO DEERE STOCK
For PSUs granted in fiscal 2016, the actual number of shares to be issued upon conversion will be based equally on Deere’s revenue growth and TSR for the three-year performance period ending in 2019. Deere’s performance will be measured relative to the companies in the S&P Industrial Sector as of the end of the performance period. The Committee chose the S&P Industrial Sector as a benchmark because it is an independently selected comparator group that includes a majority of our peer group companies.

PERFORMANCE TARGETS (PERFORMANCE PERIOD ENDING IN 2019)

Revenue Growth Payout %
× 50% of
PSUs Awarded
+ TSR Payout %
× 50% of
PSUs Awarded
= Final Award

The number of PSUs that vest and convert to shares can range from 0% to 200% of the number of PSUs awarded, depending on Deere’s relative performance during the performance period, as illustrated in the following table:

Deere’s Revenue Growth and TSR
Relative to the S&P Industrial Sector
      % of Target Shares
Earned (Payout %) *
Below 25th percentile 0%
At 25th percentile 25%
At 50th percentile 100%
At or above 75th percentile 200%
* Interim points are interpolated

These performance targets reflect the Committee’s belief that median levels of relative performance should lead to median levels of compensation.

PAYOUT CAP ON PSUs
In response to stockholder concerns, beginning with the PSUs that vest at the end of fiscal 2019, the payout will be capped at target if Deere’s TSR is negative, regardless of how Deere compares to its peers.

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2014-2016 PSUs
The performance period for PSUs granted in fiscal year 2014 ended on October 31, 2016. The final number of shares earned was based on Deere’s revenue growth and TSR relative to the S&P Industrial Sector over the three-year performance period. The Committee made its final payout determination in December 2016 following a review of the relative performances of Deere and the S&P Industrial Sector. Deere’s revenue growth and TSR were comparable to the 3rd and 39th percentiles, respectively. This resulted in an overall payout of 33.5% of target.

Deere’s Revenue Growth and TSR
Relative to the S&P Industrial Sector
  

3rd Year Results

   Performance Results
for Performance
Period Relative to S&P
Industrial Sector
   % of Target
Shares
Earned
   Award
Weighting
   Weighted
Payout %
Revenue Growth

-11.1%

3rd percentile

0%

50% 0%
TSR

5.4%

39th percentile

67%

50% 33.5%
Final Payout as % of Target 33.5%

LTI REPORTED VERSUS REALIZABLE VALUE

The values for Stock and Option Awards included on the Summary Compensation Table on page 60 are presented in accordance with SEC requirements. Although this allows for comparison across companies, the Committee feels the prescribed calculation does not fully represent the Committee’s annual decision and does not support a valid CEO pay-for-performance assessment. The following chart compares the LTI values reported on the Summary Compensation Table to Mr. Allen’s realizable LTI value for each of the grants in 2014, 2015 and 2016. The 3-year TSR as of October 31, 2016 is 5.4%.

REPORTED VS. REALIZABLE LTI VALUE






(a)   See footnotes (2) and (3) to the Summary Compensation Table for an explanation of these valuations.
(b) Realizable LTI is calculated as:
      – 

The Black-Scholes value as of October 31, 2016, of the stock options granted in 2014, 2015, and 2016

     – 

The value as of October 31, 2016, of RSUs granted in 2014, 2015, and 2016

– 

The value as of October 31, 2016, of PSUs granted in 2014, 2015, and 2016 (reflecting actual performance for the 2014–2016 performance cycle and the in-process 2015–2017 and 2016–2018 performance cycles)



Summary of Direct Compensation
The Committee believes each pay element included in Direct Compensation is consistent with our compensation philosophy. The Committee reviews Direct Compensation for the NEOs in the aggregate (excluding the CEO) as well as for each NEO individually, and compares this compensation to the market position data of our peer group. This market position data takes into account the level of responsibility (including the level of sales volume) for each NEO’s respective operations.

A key element of these individual performance evaluations is a careful analysis of each NEO’s collaboration and contribution to the success of a high-performing team. Thus, while the market data for each position is a factor in reviewing Direct Compensation, the Committee also considers individual fulfillment of duties, teamwork, development, time in position, experience, and internal equity among NEOs (other than the CEO). The Committee recognizes individual performance through adjustments to base salary and LTI.

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Direct Compensation for the CEO is higher than for the other NEOs due to the CEO’s breadth of executive and operating responsibilities for the entire global enterprise. The Committee does not target CEO compensation as a certain multiple of the compensation of the other NEOs. The relationship between the CEO’s compensation and that of the other NEOs is influenced by our organizational structure, which does not currently include a chief operating officer. The ratio of Mr. Allen’s Direct Compensation to that of the other NEOs is generally comparable to that found among the companies in our peer group.

Other Compensation Matters
RULES RELATED TO STOCK OWNERSHIP, HOLDING REQUIREMENTS, AND ANTI-HEDGING AND ANTI-PLEDGING POLICIES
NEOs are required to hold a certain amount of Deere stock. The CEO is expected to hold stock equivalent to 5 times base salary (a level that will rise to 6 times base salary next year), and the other NEOs are expected to hold stock equivalent to 3.5 times base salary. These ownership levels must be achieved within five years of the date the NEO is first appointed as CEO or as an executive officer. NEOs who have not achieved the requisite ownership level may not transfer any of the stock they acquire through our equity incentive plan. Only vested RSUs and any common stock held personally by an NEO are included in determining whether the applicable ownership requirement has been met. Once an NEO achieves the appropriate ownership level, the number of shares held at that time becomes that individual’s fixed stock ownership requirement for three years, even if base salary increases or Deere’s stock price decreases. Other than Mr. Kalathur and Mr. May, who were first appointed senior officers in September, 2012, each NEO has achieved stockholdings in excess of the applicable multiple as of the date of this Proxy Statement.

Our Insider Trading Policy precludes all directors and employees, including our NEOs, and their related persons from engaging in short sales of Deere’s stock or trading in instruments designed to hedge against or offset price declines by any Deere securities. Our Insider Trading Policy also prohibits our directors and officers from holding Deere stock in margin accounts or pledging Deere stock as collateral for loans or other obligations.

LIMITATIONS ON DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code generally limits to $1 million the U.S. federal income tax deductibility of compensation paid in one year to a company’s CEO or any of its three next-highest-paid executive officers (other than its Chief Financial Officer). Performance-based compensation is not subject to this limit on deductibility so long as such compensation meets certain requirements, including stockholder approval of material terms. The Committee strives to provide the NEOs with incentive compensation programs that will preserve the tax deductibility of compensation paid by Deere, to the extent reasonably practicable and consistent with Deere’s other compensation objectives. The Committee believes, however, that stockholder interests are best served by not restricting the Committee’s discretion and flexibility in structuring compensation programs, even though such programs may result in non-deductible compensation expenses.

RECOUPMENT OF PREVIOUSLY PAID INCENTIVE COMPENSATION
Deere’s Executive Incentive Compensation Recoupment Policy authorizes the Committee to determine whether to require recoupment of cash and equity incentive compensation paid to or deferred by certain executives under certain conditions. Under the policy, the Committee may require recoupment if the Committee determines an executive received incentive compensation that was artificially inflated because the executive engaged in misconduct that:

contributed to the need for a restatement of all or a portion of Deere’s financial statements filed with the SEC; or
contributed to an incorrect calculation of operating metrics that are used to determine incentive plan payouts

The Committee is closely monitoring the proposed rules and rule amendments issued by the SEC to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act relating to recoupment of incentive-based compensation and will amend the Recoupment Policy if necessary when the final rules are adopted.

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Indirect Compensation Elements

Perquisites
We offer our NEOs various perquisites that the Committee believes are reasonable in order to remain competitive. These perquisites, which are described in footnote (6) to the Fiscal 2016 Summary Compensation Table, constitute a small percentage of the NEOs’ total compensation. The Committee conducts an annual review of the perquisites offered to the NEOs.

In addition to the items listed in footnote (6), NEOs, as well as other selected employees, are provided indoor parking and access to Deere-sponsored skyboxes at local venues for personal use when not occupied for business purposes, both at no incremental cost to Deere.

The Board requires the CEO to use company-owned aircraft for all business and personal travel because the ability to travel safely and efficiently provides substantial benefits that justify the cost. The geographic location of Deere’s headquarters in the Midwest, outside of a major metropolitan area, makes personal and business travel challenging. Moreover, traveling by company aircraft allows the CEO to conduct business confidentially while in transit. Personal use of company aircraft by other NEOs is minimal and must be approved by the CEO. The Committee has limited the CEO’s annual personal usage of company aircraft to approximately 100 hours.

Retirement Benefits
All NEOs are covered by the same defined benefit pension plans, which include the same plan terms as apply to most qualifying U.S. salaried employees. We also maintain two additional defined benefit pension plans in which NEOs may participate: the Senior Supplementary Pension Benefit Plan (the “Senior Supplementary Plan”) and the John Deere Supplemental Pension Benefit Plan (the “Deere Supplemental Plan”).

The defined benefit pension plans have compensation limits imposed by the Internal Revenue Code. The Senior Supplementary Plan provides participants with the same benefit they would have received without those limits. This avoids the relative disadvantage that participants would experience compared to other qualified plan participants. The Deere Supplemental Plan is designed to reward career service at Deere above a specified grade level by utilizing a formula that takes into account only years of service above that grade level. We believe the defined benefit plans serve as important retention tools, provide a level of competitive income upon retirement, and reward long-term employment and service as an officer of Deere. In addition, the fact that the Senior Supplementary and Deere Supplemental Plans are unfunded (with benefit payments under these plans being made out of the general assets of Deere) and therefore at-risk (if Deere were to seek bankruptcy protection), creates a strong incentive for the NEOs to minimize risks that could jeopardize Deere’s long-term financial health. For additional information, see the Fiscal 2016 Pension Benefits Table, along with the accompanying narrative and footnotes.

We also maintain a tax-qualified defined contribution plan, the John Deere Savings and Investment Plan (“SIP”), which is available to most of our U.S. employees, including the NEOs. We make matching contributions to participant SIP accounts on up to six percent of an employee’s pay. The actual amount of the company match varies based on two factors: the STI results for the most recently completed fiscal year (see the “Fiscal 2016 Performance Results for STI” section above), and the pension option in which the employee participates (see the narrative preceding the Fiscal 2016 Pension Benefits Table). The following table illustrates Deere’s match for calendar 2016, which is reported for our NEOs under the “All Other Compensation” column of the Fiscal 2016 Summary Compensation Table:

Contemporary Option match on first 2% of eligible earnings:       300%
 
Contemporary Option match on next 4% of eligible earnings: 100%

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Deferred Compensation Benefits
We also maintain certain deferred compensation plans that provide the NEOs with longer-term savings opportunities on a tax-efficient basis. Similar deferred compensation benefits are commonly offered by companies with which we compete for talent.

As of November 1, 2015 for the Defined Contribution Restoration Plan and as of November 1, 2016 for the Deferred Plan, the investment options now parallel the investment options offered under our 401(k) plan (with certain limited exceptions). Funds deferred prior to these effective dates may remain invested under the previous options, although participants also may move these funds into the new options. Additionally, participants may change investment options at any time. These changes effectively ensure that participants cannot earn above-market interest on new deferrals.

See the “Nonqualified Deferred Compensation” section below for additional details.

Potential Payments upon Change in Control
Deere’s Change in Control Severance Program (the “CIC Program”) covers certain executives, including each of the NEOs, and is intended to facilitate continuity of management in the event of a change in control. The Committee believes the CIC Program:

encourages executives to act in the best interests of stockholders when evaluating transactions that, without a change in control arrangement, could be personally detrimental

keeps executives focused on running the business in the face of real or rumored transactions

protects Deere’s value by retaining key talent despite potential corporate changes

protects Deere’s value after a change in control by including restrictive covenants (such as non-compete provisions) and a general release of claims in favor of Deere

helps Deere attract and retain executives as a competitive practice

For more information, see “Fiscal 2016 Potential Payments upon Change in Control” and the corresponding table.

Other Potential Post-Employment Payments
Deere’s various plans and policies provide payments to NEOs upon certain types of employment terminations that are not related to a change in control. These events and amounts are explained in the section under Executive Compensation Tables entitled “Fiscal 2016 Potential Payments upon Termination of Employment Other than Following a Change in Control.”

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Risk Assessment of Compensation Policies and Practices



Risk Assessment of Compensation Policies and Practices

As shown in the adjacent diagram, management conducted a comprehensive risk assessment of Deere’s compensation policies and practices, as we have done each year since 2010.

The inquiries in the risk assessment questionnaire focus on: pay-for-performance comparison against our peer group; balance of compensation components; program design and pay leverage; program governance; and mitigating factors that offset program risks.

Based on its most recent review, the Risk Assessment Team concluded that Deere’s compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the company. The Committee, along with its independent compensation consultant, reviewed the risk assessment and concurred with that conclusion. The Committee believes the following key factors support the Risk Assessment Team’s conclusion:

  

the performance metrics for our STI and MTI incentive plans are based on enterprise publicly reported metrics with only minor adjustments and, therefore, are not easily susceptible to manipulation

 

the metrics for our STI and MTI compensation (and the related potential payouts) are capped to reduce the risk that executives might be motivated to attain excessively high “stretch” goals in order to maximize payouts

In addition, Deere maintains stock ownership requirements that are designed to motivate our management team to focus on Deere’s long-term sustainable growth, and a Recoupment Policy designed to prevent misconduct relating to financial reporting.

Convened a Risk Assessment Team comprising management personnel representing relevant areas of oversight.

ê

Completed an inventory of Deere’s compensation programs globally for both executive and non-executive employees.

ê

Updated our existing detailed risk assessment questionnaire to take account of any relevant changes in our compensation structure or philosophy.

ê

Applied the updated questionnaire to the compensation programs that, due to their size, potential payout, or structure, could potentially have a material adverse effect on Deere.



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Compensation Committee Report



The reports of the Compensation Committee and the Audit Review Committee that follow do not constitute soliciting material and will not be deemed filed or incorporated by reference by any general statement incorporating by reference this Proxy Statement or future filings into any filing under the Securities Act of 1933 or under the Securities Exchange Act of 1934, except to the extent that Deere specifically incorporates the information by reference, and will not otherwise be deemed filed under these statutes.

Compensation Committee Report

The Compensation Committee of the Board of Directors has reviewed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K and discussed it with Deere’s management. Based on the Compensation Committee’s review and discussions with management, the Compensation Committee recommends to the Board of Directors that the Compensation Discussion and Analysis be included in Deere’s Proxy Statement.

Vance D. Coffman, Chair
Crandall C. Bowles
Clayton M. Jones
Brian M. Krzanich
Dmitri L. Stockton


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Executive Compensation Tables



Executive Compensation Tables

In this section, we provide tabular and narrative information regarding the compensation of our NEOs for the fiscal year ended October 31, 2016. Fiscal 2016 is the first year Mr. May met the criteria for inclusion. Therefore only data for fiscal 2016 is included for Mr. May.

FISCAL 2016 SUMMARY COMPENSATION TABLE

Name & Position    Fiscal
Year
   Salary
(1)
   Stock Awards
(2)
   Option Awards
(3)
   Non-Equity
Incentive Plan
Compensation
(4)
   Change in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings
(5)
   All Other
Compensation
(6)
   Total
Samuel R. Allen 2016 $ 1,500,000       $ 6,246,874         $ 2,926,317        $ 4,492,426             $ 3,005,568           $ 471,686 $ 18,642,871
Chairman and 2015 $ 1,500,000 $ 5,612,187 $ 2,660,623 $ 5,519,363 $ 2,931,274 $ 477,883 $ 18,701,330
Chief Executive Officer 2014 $ 1,495,204 $ 6,606,197 $ 3,058,680 $ 5,397,891 $ 3,137,079 $ 578,245 $ 20,273,296
Rajesh Kalathur 2016 $ 615,312 $ 1,167,110 $ 546,760 $ 1,269,406 $ 352,821 $ 155,296 $ 4,106,705
Senior Vice President and 2015 $ 552,128 $ 1,153,349 $ 546,826 $ 1,953,632 $ 284,820 $ 146,875 $ 4,637,630
Chief Financial Officer 2014 $ 525,437 $ 1,073,209 $ 496,928 $ 1,879,751 $ 190,760 $ 131,124 $ 4,297,209
James M. Field 2016 $ 686,266 $ 1,167,110 $ 546,760 $ 1,352,171 $ 632,142 $ 185,457 $ 4,569,906
President, Agricultural 2015 $ 666,274 $ 1,048,459 $ 497,120 $ 2,146,607 $ 506,345 $ 180,826 $ 5,045,631
Equipment Operations 2014 $ 646,353 $ 1,180,392 $ 546,630 $ 2,083,579 $ 459,197 $ 167,586 $ 5,083,737
Michael J. Mack, Jr. 2016 $ 696,118 $ 1,114,096 $ 521,896 $ 1,363,662 $ 1,027,382 $ 186,066 $ 4,909,220
Group President, JD Financial, 2015 $ 675,839 $ 1,258,151 $ 596,532 $ 2,162,777 $ 848,211 $ 182,619 $ 5,724,129
Global HR & Public Affairs 2014 $ 656,147 $ 1,212,742 $ 561,549 $ 2,100,089 $ 822,000 $ 185,218 $ 5,537,745
John C. May 2016 $ 599,840 $ 1,273,139 $ 596,455 $ 1,251,358 $ 388,506 $ 162,727 $ 4,272,025
President, Ag Solutions
Chief Information Officer

(1) Includes amounts deferred by the NEO under the John Deere Voluntary Deferred Compensation Plan. Salary amounts deferred in fiscal 2016 are included in the first column of the Fiscal 2016 Nonqualified Deferred Compensation Table.
(2)

Represents the aggregate grant date fair value of PSUs and RSUs computed in accordance with FASB ASC Topic 718. The values in this column exclude the effect of estimated forfeitures. Assumptions made in the calculation of these amounts are included in Note 24, “Stock Option and Restricted Stock Awards,” of our consolidated financial statements filed with the SEC on Form 10-K for the fiscal year ended October 31, 2016 (“2016 Form 10-K”). For PSUs, the value at the grant date is based upon the probable outcome of the performance metrics over the three-year performance period. If the highest level of payout was achieved, the value of the PSU awards as of the grant date would be as follows: $8,313,838 (Allen); $1,553,230 (Kalathur); $1,553,230 (Field); $1,482,702 (Mack); and $1,694,290 (May). RSUs will vest three years after the grant date, at which time they may be settled in Deere common stock. Refer to the Fiscal 2016 Grants of Plan-Based Awards table and footnote (7) for a detailed description of the grant date fair value of stock awards.

(3) Represents the aggregate grant date fair value of stock options computed in accordance with FASB ASC Topic 718. The values in this column exclude the effect of estimated forfeitures. The assumptions made in valuing option awards reported in this column and a more detailed discussion of the binomial lattice option pricing model appear in Note 24, “Stock Option and Restricted Stock Awards,” of our consolidated financial statements filed with the SEC in the 2016 Form 10-K. Refer to the Fiscal 2016 Grants of Plan-Based Awards table and footnote (7) for a detailed description of the grant date fair value of option awards.
(4)   Non-equity incentive plan compensation includes cash awards under the STI and MTI plans. Cash awards earned under the STI and MTI plans for the performance period ended in fiscal 2016 were paid to the NEOs on December 15, 2016, unless deferred under the Voluntary Deferred Compensation Plan. Deferred STI and MTI amounts are included in the first column of the Fiscal 2016 Nonqualified Deferred Compensation Table.

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The following table shows the awards earned under the STI and MTI plans:

STI (a)   MTI (b)
Name       Target
Award as %
of Salary
      Actual
Performance
as % of Target
      Award
Amount
      Target
Award as %
of Salary
      Actual
Performance
as % of Target
      Award
Amount
      Total Non-Equity
Incentive Plan
Compensation
Samuel R. Allen 125% 137% $ 2,573,063 121% 106% $ 1,919,363         $ 4,492,426
Rajesh Kalathur 85% 137% $ 717,734 93% 106% $ 551,672 $ 1,269,406
James M. Field 85% 137% $ 800,499 93% 106% $ 551,672 $ 1,352,171
Michael J. Mack, Jr. 85% 137% $ 811,990 93% 106% $ 551,672 $ 1,363,662
      John C. May 85% 137% $ 699,686 93% 106% $ 551,672 $ 1,251,358

  (a)   Based on actual performance, as discussed in the CD&A under “Fiscal 2016 Performance Results for STI,” the NEOs earned an STI award equal to 137% of the target opportunity.
      (b) Based on actual performance, as discussed in the CD&A under “Fiscal 2016 Performance Results for MTI,” the NEOs earned an MTI award equal to 106% of the target opportunity.

(5) The following table shows the change in pension value and above-market earnings on nonqualified deferred compensation during fiscal 2016.
       
      Name       Change in
Pension Value (a)
      Nonqualified Deferred
Compensation Earnings (b)
      Total
Samuel R. Allen              $ 2,972,724                                   $ 32,844 $ 3,005,568
Rajesh Kalathur $ 349,214 $ 3,607 $ 352,821
James M. Field $ 620,967 $ 11,175 $ 632,142
Michael J. Mack, Jr. $ 971,694 $ 55,688 $ 1,027,382
John C. May $ 386,124 $ 2,382 $ 388,506

  (a)   Represents the change in the actuarial present value of each NEO’s accumulated benefit under all defined benefit plans from October 31, 2015, to October 31, 2016. The pension value calculations include the same assumptions as used in the pension plan valuations for financial reporting purposes. For more information on the assumptions, see footnote (4) under the Fiscal 2016 Pension Benefits Table.
      (b)
Represents above-market earnings on compensation that is deferred by the NEOs under our nonqualified deferred compensation plans. Above-market earnings represent the difference between the interest rate used to calculate earnings under the applicable plan and 120% of the applicable federal long-term rate prescribed by the Internal Revenue Code. See the Fiscal 2016 Nonqualified Deferred Compensation Table for additional information.
 
Over the past two years, modifications have been made for the investment options available under the Nonemployee Director Deferred Compensation Plan and the Voluntary Deferred Compensation Plan for employees to ensure that participants cannot earn above-market returns on new deferrals. Minimal amounts may be reported in future years for prior year’s deferrals.
       
(6) The following table provides details about each component of the “All Other Compensation” column in the Fiscal 2016 Summary Compensation Table:

Name       Personal
Use of
Company
Aircraft
(a)
      Financial
Planning
(b)
      Medical
Exams
(c)
      Misc
Perquisites
(d)
      Company
Contributions
to Defined
ContributionPlans
(e)
      Total All
Other
Compensation
      Samuel R. Allen    $ 30,102       $   $ 9,488           $ 2,410                   $ 429,686 $ 471,686
Rajesh Kalathur $ $ $ $ 422 $ 154,874 $ 155,296
James M. Field $ $ 2,185 $ $ 2,005 $ 181,267 $ 185,457
Michael J. Mack, Jr. $ $ $ 896 $ 1,301 $ 183,869 $ 186,066
John C. May $ $ 4,532 $ 4,315 $ 588 $ 153,292 $ 162,727

  (a) Per IRS regulations, the NEOs recognize imputed income on the personal use of Deere’s aircraft. For SEC disclosure purposes, the cost of personal use of Deere’s aircraft is calculated based on the incremental cost to Deere. To determine the incremental cost, we calculate the variable costs for fuel on a per mile basis, plus any direct trip expenses such as on-board catering, landing/ramp fees, and crew expenses. Fixed costs that do not change based on usage, such as pilot salaries, depreciation of aircraft, and maintenance costs, are excluded. Mr. Allen’s personal usage of company aircraft in fiscal 2016 amounted to approximately 23 hours of travel, which represents less than 0.5% of the total hours flown by company aircraft.
      (b)

This column contains amounts Deere paid for financial planning assistance to the NEOs. Each year, the CEO may receive up to $15,000 of assistance and the other NEOs may receive up to $10,000.

  (c)

This column contains the amounts Deere paid for annual medical exams for the NEOs.

  (d)

Miscellaneous perquisites include spousal attendance at company events.

  (e)  

Deere makes contributions to the John Deere Savings and Investment Plan for all eligible employees. Deere also credits contributions to the John Deere Defined Contribution Restoration Plan for all employees covered by the Contemporary Option under our tax-qualified pension plan whose earnings exceed relevant IRS limits. All of our current NEOs are covered by the Contemporary Option.


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The following table provides additional information regarding fiscal 2016 grants of RSU, PSU, and stock option awards under the Omnibus Plan, and the potential range of awards that were approved in fiscal 2016 under the STI and MTI plans for payout in future years. These awards are further described in the CD&A under “Direct Compensation Elements.”

FISCAL 2016 GRANTS OF PLAN-BASED AWARDS

Name
Grant Date
(1)
  

Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
(2)
Estimated Future Payouts Under
Equity Incentive Plan Awards
(3)
   All Other
Stock
Awards:
Number of
Shares of
Stock or
Units
(4)
  All Other
Option
Awards:
Number of
Securities
Underlying
Options
(5)
  Exercise
or Base
Price of
Option
Awards
($ / Sh)
(6)
 
Grant Date Fair
Value of Stock
and Option
Awards
(7)
Threshold    Target    Maximum Threshold    Target        Maximum
Samuel R. Allen 12/01/2015-STI       $   $ 1,875,000   $ 3,750,000
  12/01/2015-MTI $ 1,100 $ 1,815,000 $ 3,630,000
12/9/15 26,375         $ 2,089,955
12/9/15 10,550 42,200       84,400 $ 4,156,919
12/9/15 173,360     $ 79.24 $ 2,926,317
$ 1,100 $ 3,690,000 $ 7,380,000         10,550      42,200 84,400 26,375 173,360 $ 9,173,191
Rajesh Kalathur 12/01/2015-STI $ $ 523,015 $ 1,046,030
12/01/2015-MTI $ 400 $ 576,370 $ 1,152,740
12/09/15 4,928 $ 390,495
12/09/15 1,971 7,884 15,768 $ 776,615
12/09/15 32,391 $ 79.24 $ 546,760
$ 400 $ 1,099,385 $ 2,198,770 1,971 7,884 15,768 4,928 32,391 $ 1,713,870
James M. Field 12/01/2015-STI $ $ 583,326 $ 1,166,652
12/01/2015-MTI $ 400 $ 576,370 $ 1,152,740
12/09/15 4,928 $ 390,495
12/09/15 1,971 7,884 15,768 $ 776,615
12/09/15 32,391 $ 79.24 $ 546,760
$ 400 $ 1,159,696 $ 2,319,392 1,971 7,884 15,768 4,928 32,391 $ 1,713,870
Michael J. Mack, Jr. 12/01/2015-STI $ $ 591,700 $ 1,183,400
12/01/2015-MTI $ 400 $ 576,370 $ 1,152,740
12/09/15 4,704 $ 372,745
12/09/15 1,881 7,526 15,052 $ 741,351
12/09/15 30,918 $ 79.24 $ 521,896
$ 400 $ 1,168,070 $ 2,336,140 1,881 7,526 15,052 4,704 30,918 $ 1,635,992
John C. May 12/01/2015-STI $ $ 509,864 $ 1,019,728
12/01/2015-MTI $ 400 $ 576,370 $ 1,152,740
12/09/15 5,376 $ 425,994
12/09/15 2,150 8,600 17,200 $ 847,145
12/09/15 35,335 $ 79.24 $ 596,455
$ 400 $ 1,086,234 $ 2,172,468 2,150 8,600 17,200 5,376 35,335 $ 1,869,594

(1) For the non-equity incentive plan awards, the grant date is the date the Committee approved the range of estimated potential future payouts for the performance periods noted under footnote (2) below. For equity awards, the grant date is seven calendar days after the first regularly scheduled Board meeting of the fiscal year.
(2)

These columns show the range of potential payouts under the STI and MTI plans. The performance period for STI in this table covers November 1, 2015, through October 31, 2016. For actual performance between threshold, target, and maximum, the earned STI award will be prorated.

The range of the MTI award covers the three-year performance period beginning in fiscal 2016 and ending in fiscal 2018. Awards will not be paid unless Deere generates at least $5 million of SVA for the performance period. The target MTI award will be earned if $4,200 million of SVA is accumulated and the maximum MTI award will be earned if $8,400 million or more of SVA is accumulated during the performance period. The MTI award will be reduced (i) by 25% if Deere’s TSR for the performance period is at or below the 25th percentile relative to the companies in the S&P Industrial Sector and (ii) up to 25% if TSR falls between the 25th and 50th percentiles. The amounts shown in the table represent potential MTI awards based on the median salary of the NEOs’ respective salary grades as of September 30, 2015. The actual MTI awards will depend upon Deere’s actual SVA performance, Deere’s relative TSR performance, and the median salaries of the NEOs’ respective salary grades as of September 30, 2017.

(3)  

Represents the potential payout range of PSUs granted in December 2015. The number of shares that vest is equally based on TSR and revenue growth, both relative to companies in the S&P Industrial Sector. Performance and payouts are determined independently for each metric. At the end of the three-year performance period, the actual award, delivered as Deere common stock, can range from 0% to 200% of the original grant.


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(4) Represents the number of RSUs granted in December 2015. RSUs will vest three years after the grant date, at which time they will be settled in Deere common stock. Prior to settlement, RSUs earn dividend equivalents in cash at the same time as dividends are paid on Deere’s common stock.
(5)

Represents the number of options granted in December 2015. These options vest in three approximately equal annual installments on the first, second, and third anniversaries of the grant date.

(6)

The exercise price is the closing price of Deere common stock on the NYSE on the grant date.

(7)  

Amounts shown represent the grant date fair value of equity awards granted to the NEOs in fiscal 2016 calculated in accordance with FASB ASC Topic 718. The values in this column exclude the effect of estimated forfeitures. For RSUs, fair value is the market value of the underlying stock on the grant date (which is the same as the exercise price in column (6) for stock options). For options, the fair value on the grant date was $16.88, which was calculated using the binomial lattice option pricing model. The grant date fair value of the PSUs subject to the TSR metric was $103.66 based on a lattice valuation model, excluding dividends. The grant date fair value of the PSUs subject to the revenue growth metric was $72.93 based on the market price of a share of underlying common stock, excluding dividends.


For additional information on the valuation assumptions, refer to Note 24, “Stock Option and Restricted Stock Awards,” of Deere’s consolidated financial statements filed with the SEC in the 2016 Form 10-K.

OUTSTANDING EQUITY AWARDS AT FISCAL 2016 YEAR-END
The following table itemizes outstanding options, RSUs, and PSUs held by the NEOs as of October 31, 2016:

Option Awards Stock Awards
Name   Number of
Securities
Underlying
Unexercised
Options
Exercisable
(1)
  Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(1)
  Option
Exercise
Price
  Intrinsic Value
of Unexercised
Options
(2)
  Option
Expiration
Date
(3)
  Number
of Shares
or Units
of Stock
That
Have Not
Vested
(4)
  Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
(5)
 

Equity Incentive
Plan Awards:
Number of
Unearned Shares,
Units or Other
Rights That Have
Not Vested
(6)

  Equity Incentive
Plan Awards:
Market or Payout
Value Unearned
Shares, Units or
Other Rights That
Have Not Vested
(7)
Samuel R. Allen 28,808     $ 88.82 $ 12/05/17 $              $
62,704 $ 39.67 $ 3,049,609 12/17/18 $ $
269,353 $ 52.25 $ 9,710,176 12/09/19 $ $
114,253 $ 80.61 $ 878,606 12/08/20 $ $
135,897 $ 74.24 $ 1,910,712 12/14/21 $ $
128,899 $ 86.36 $ 250,064 12/12/22 $ $
82,834 40,799 $ 87.46 $ 103,852 12/11/23 38,372 $ 3,388,248 $
  45,989 89,274 $ 88.19 $ 15,555 12/10/24 21,545 $ 1,902,424 34,472 $ 3,043,878
173,360 $ 79.24 $ 1,570,642 12/09/25 26,375 $ 2,328,913 42,200 $ 3,726,260
868,737 303,433 $ 17,489,216 86,292 $ 7,619,585 76,672 $ 6,770,138
Rajesh Kalathur 5,816 $ 48.38 $ 232,204 12/06/16 $ $
4,519 $ 88.82 $ 12/05/17 $ $
11,133 $ 39.67 $ 541,453 12/17/18 $ $
12,151 $ 52.25 $ 438,044 12/09/19 $ $
7,379 $ 80.61 $ 56,745 12/08/20 $ $
7,996 $ 74.24 $ 112,424 12/14/21 $ $
24,083 $ 86.36 $ 46,721 12/12/22 $ $
13,457 6,629 $ 87.46 $ 16,872 12/11/23 6,233 $ 550,374 $
9,452 18,348 $ 88.19 $ 3,197 12/10/24 4,428 $ 390,992 7,084 $ 625,517
32,391 $ 79.24 $ 293,462 12/09/25 4,928 $ 435,142 7,884 $ 696,157
95,986 57,368        $ 1,741,122 15,589    $ 1,376,508 14,968 $ 1,321,674

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Option Awards Stock Awards
Name   Number of
Securities
Underlying
Unexercised
Options
Exercisable
(1)
  Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(1)
  Option
Exercise
Price
  Intrinsic Value
of Unexercised
Options
(2)
  Option
Expiration
Date
(3)
  Number
of Shares
or Units
of Stock
That
Have Not
Vested
(4)
  Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
(5)
 

Equity Incentive
Plan Awards:
Number of
Unearned Shares,
Units or Other
Rights That Have
Not Vested
(6)

  Equity Incentive
Plan Awards:
Market or Payout
Value Unearned
Shares, Units or
Other Rights That
Have Not Vested
(7)
James M. Field 28,229 $ 52.25          $ 1,017,655 12/09/19 $               $
21,735 $ 80.61 $ 167,142 12/08/20 $ $
25,391 $ 74.24 $ 356,997 12/14/21 $ $
23,036 $ 86.36 $ 44,690 12/12/22 $ $
14,803 7,292 $ 87.46 $ 18,560 12/11/23 6,856 $ 605,385 $
8,592 16,681 $ 88.19 $ 2,906 12/10/24 4,025 $ 355,408 6,440 $ 568,652
32,391 $ 79.24 $ 293,462 12/09/25 4,928 $ 435,142 7,884 $ 696,157
  121,786 56,364 $ 1,901,412 15,809 $ 1,395,935 14,324 $ 1,264,809
Michael J. Mack, Jr. 24,388 $ 88.82 $ 12/05/17 $ $
21,347 $ 80.61 $ 164,158 12/08/20 $ $
23,183 $ 74.24 $ 325,953 12/14/21 $ $
21,989 $ 86.36 $ 42,659 12/12/22 $ $
15,207 7,491 $ 87.46 $ 19,066 12/11/23 7,044 $ 621,985 $
10,311 20,016 $ 88.19 $ 3,488 12/10/24 4,830 $ 426,489 7,728 $ 682,382
30,918 $ 79.24 $ 280,117 12/09/25 4,704 $ 415,363 7,526 $ 664,546
116,425 58,425 $ 835,441 16,578 $ 1,463,837 15,254 $ 1,346,928
John C. May 7,606 $ 88.82 $ 12/05/17 $ $
5,411 $ 80.61 $ 41,611 12/08/20 $ $
5,597 $ 74.24 $ 78,694 12/14/21 $ $
25,130 $ 86.36 $ 48,752 12/12/22 $ $
14,803 7,292 $ 87.46 $ 18,560 12/11/23 6,856 $ 605,385 $
9,452 18,348 $ 88.19 $ 3,197 12/10/24 4,428 $ 390,992 7,084 $ 625,517
35,335 $ 79.24 $ 320,135 12/09/25 5,376 $ 474,701 8,600 $ 759,380
67,999 60,975 $ 510,949 16,660 $ 1,471,078 15,684 $ 1,384,897

(1) Options become vested and exercisable in three approximately equal annual installments on the first, second, and third anniversaries of the grant date.
(2)

The amount shown represents the number of options that have not been exercised (vested and unvested) multiplied by the difference between the closing price for Deere common stock on the NYSE on October 31, 2016, which was $88.30, and the option exercise price. No value is shown for “underwater” options.

(3)

Options expire ten years from the grant date.

(4)
RSUs vest three years after the grant date, at which time they are settled in Deere common stock. 
 
The three-year performance period for PSUs granted in fiscal 2014 ended on October 31, 2016. The final payout determination was made by the Committee in December 2016 and was settled in Deere common stock on December 11, 2016 (the third anniversary of the grant date). As discussed in the CD&A under “2014-2016 PSUs,” the final payout under the award was equal to 33.5% of the target opportunity. The number of shares earned by the applicable NEOs were as follows: 13,390 (Allen), 2,175 (Kalathur), 2,392 (Field), 2,458 (Mack) and 2,392 (May).
(5)

The amount shown represents the number of RSUs that have not vested multiplied by the closing price for Deere common stock on the NYSE on October 31, 2016, which was $88.30.

(6)  

The amount shown represents actual achievement of the PSUs granted in fiscal years 2015 and 2016 relative to the S&P Industrial Sector, assuming truncated performance measurement periods. The final number of shares earned, if any, will be based upon performance as determined by revenue growth and TSR relative to the S&P Industrial Sector at the end of the applicable performance period. 


        PSU Grant Date December 10, 2014 December 9, 2015
Truncated performance period 11/1/2014-10/31/2016        11/1/2015-10/31/2016
Actual performance period ending date 10/31/17 10/31/18
Payout of shares (as a % of target) based on revenue growth 0% 0%
Payout of shares (as a % of target) based on TSR 116% 200%
Combined payout of shares (as a % of target) 58% 100%

(7)   The amount shown represents the number of PSUs described in footnote (6) to this table multiplied by the closing price for Deere common stock on the NYSE on October 31, 2016, which was $88.30.

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FISCAL 2016 OPTION EXERCISES AND STOCK VESTED
The following table provides information regarding option exercises and vesting of RSUs and PSUs during fiscal 2016. These options and stock awards were granted in prior fiscal years and are not related to performance in fiscal 2016:

Option Awards Stock Awards
Name       Number of Shares
Acquired on Exercise
(1)
      Value Realized
on Exercise
(2)
   

Number of Shares
Acquired on Vesting
(3)

      Value Realized
on Vesting
(4)
     
Samuel R. Allen                         $             25,301         $ 1,952,225
Rajesh Kalathur 4,366 $ 196,813 4,727 $ 364,735
James M. Field $ 4,521 $ 348,840
Michael J. Mack, Jr. $ 4,316 $ 333,023
John C. May $ 4,932 $ 380,553

(1) Represents the total number of shares that were exercised before any withholding of shares to pay the exercise price and taxes.
(2) Value realized on exercise is based on the market price upon exercise minus the exercise price (the grant price).
(3)  
Represents the number of RSUs and PSUs that vested during fiscal 2016, all of which were granted in fiscal 2013.
 
The three-year performance period for PSUs granted in fiscal 2013, ended on October 31, 2015, and vested on December 12, 2015. The final number of shares earned was based on Deere’s revenue growth and TSR relative to the S&P Industrial Sector over the performance period. The final payout determination, made by the Committee in December 2016, reflects revenue growth and TSR comparable to the 3rd and 8th percentiles, respectively, of the S&P Industrial Sector. Accordingly, there were no payouts for these PSUs.
 
       The following table shows the number of RSUs and PSUs that vested during fiscal 2016:
Name RSUs                     PSUs
Samuel R. Allen 25,301
Rajesh Kalathur 4,727
James M. Field 4,521
Michael J. Mack, Jr. 4,316
John C. May 4,932
 
4)   Represents the number of RSUs and PSUs vested multiplied by the closing price ($77.16) of Deere common stock on the NYSE as of the vesting date.

Pension Benefits
The NEOs are eligible to participate in pension plans that provide benefits based on years of service and pay. Pension benefits are provided under a qualified defined benefit pension plan called the John Deere Pension Plan for Salaried Employees (the “Salaried Plan”) and two nonqualified pension plans called the Senior Supplementary Pension Benefit Plan (the “Senior Supplementary Plan”) and the John Deere Supplemental Pension Benefit Plan (the “Deere Supplemental Plan”).

In 1996, we introduced a new pension option under the Salaried Plan known as the “Contemporary Option.” At that time, participants could elect to remain in the existing Salaried Plan option, known as the “Traditional Option,” or convert to the new Contemporary Option. New employees hired between January 1, 1997, and October 31, 2015, automatically participated in the Contemporary Option. For new employees hired on or after November 1, 2015, pension benefits under the Salaried Plan are calculated based on a cash balance methodology instead of the Traditional or Contemporary Option formulas. None of the NEOs participate in the Traditional or cash balance plan.

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SALARIED PLAN
The Salaried Plan is a qualified plan subject to certain IRS limitations on benefits and is subject to the Employee Retirement Income Security Act of 1974. Deere makes contributions to, and benefits are paid from, a tax-exempt pension trust. Pension benefits provided by the Salaried Plan under the Contemporary Option are summarized below.

Under the Contemporary Option, “Career Average Pay” is used in computing retirement benefits. Career Average Pay is calculated using salary plus STI (up to IRS limits). For participants hired before January 1, 1997, the transition to Career Average Pay includes salary and STI awards from 1992 until retirement. Deere makes contributions to the 401(k) retirement savings accounts of salaried employees participating in this option.

The formula for calculating benefits under the Contemporary Option is:

                           
Career Average Pay   × Years of Service   ×   1.5%
     

Early retirement eligibility under the Contemporary Option is the earlier of:

      (1)  age 55 with ten or more years of service; or
(2) age 65 with five or more years of service

Pension payments are reduced by 4% for each year the employee is under the unreduced benefits age upon retirement. Mr. Mack is the only NEO currently eligible to retire early with reduced benefits under the Contemporary Option.

Eligibility to retire with unreduced benefits under the Contemporary Option occurs at age 67 for all participating employees who were hired on or after January 1, 1997. For participants hired before this date, the eligibility age to retire with unreduced benefits is based on years of service as of January 1, 1997, and ranges from ages 60 to 67. Mr. Allen is the only NEO currently eligible to retire with unreduced benefits under the Contemporary Option.

SENIOR SUPPLEMENTARY PLAN
The Senior Supplementary Plan is an unfunded, nonqualified excess defined benefit plan that provides additional pension benefits in an amount comparable to those the participant would have received under the Salaried Plan in the absence of IRS limitations. Benefit payments for the Senior Supplementary Plan are made from the assets of Deere and are at-risk in the event Deere seeks bankruptcy protection.

The Senior Supplementary Plan uses the same formula as the Salaried Plan to calculate the benefit payable, except that eligible earnings include only amounts above qualified plan limits.

DEERE SUPPLEMENTAL PLAN
The Deere Supplemental Plan is an unfunded, nonqualified supplemental retirement plan for certain employees, including all the NEOs. Benefit payments for the Deere Supplemental Plan are made from the assets of Deere and are at-risk in the event Deere seeks bankruptcy protection. The Deere Supplemental Plan was closed to new participants effective November 1, 2015, although benefits will continue to accrue for employees who were already participating in the plan as of that date.

The formula for calculating benefits is:

Career Average Pay ×   × .05%
Years of Service
            (at grade 13 and above since January 1, 1997)            
 

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FISCAL 2016 PENSION BENEFITS TABLE

Name       Plan Name
(1)
      Assumed
Retirement Age
(2)
      Number of Years
of Credited Service
(3)
      Present Value of
Accumulated Benefit
(4)
Samuel R. Allen Salaried Plan 63 41.4          $ 1,890,339
Senior Supplementary Plan 63 41.4 $ 14,093,736
Deere Supplemental Plan 63 19.8 $ 2,461,957
TOTAL $ 18,446,032
Rajesh Kalathur Salaried Plan 65 19.4 $ 377,692
Senior Supplementary Plan 65 19.4 $ 599,146
Deere Supplemental Plan 65 10.8 $ 199,587
TOTAL $ 1,176,425
James M. Field Salaried Plan 65 22.5 $ 545,969
Senior Supplementary Plan 65 22.5 $ 1,628,402
Deere Supplemental Plan 65 17.7 $ 600,518
TOTAL $ 2,774,889
Michael J. Mack, Jr. Salaried Plan 65 30.3 $ 1,030,409
Senior Supplementary Plan 65 30.3 $ 3,433,714
Deere Supplemental Plan 65 19.8 $ 979,596
TOTAL $ 5,443,719
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