DEF 14A 1 d823905ddef14a.htm DEF 14A DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.     )

Filed by the Registrant  

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))

 

Definitive Proxy Statement

 

Definitive Additional Materials

 

Soliciting Materials Pursuant to § 240.14a-12

EMERSON ELECTRIC CO.

(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box)

 

   No Fee required.
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Table of Contents

LOGO


Table of Contents

LOGO

8000 W. Florissant Avenue

St. Louis, MO 63136

Dear Fellow Shareholder:

 

I am pleased to invite you to join us at the 2020 Annual Meeting of Shareholders of Emerson Electric Co. to be held on Tuesday, February 4, 2020 at 10:00 a.m., Central Time, at the Emerson headquarters located at 8000 W. Florissant Avenue, St. Louis, Missouri 63136.

 

At this year’s meeting, we will vote on the election of four Directors and the ratification of the selection of KPMG LLP as Emerson’s independent registered public accounting firm. We have once again proposed to amend our Restated Articles of Incorporation to declassify our Board of Directors. We will hold a non-binding advisory vote on the compensation of Emerson’s named executive officers. We will also report on our business and provide an opportunity for shareholders to ask questions.

 

2019 was a year of solid performance in a very challenging global business environment that included our 63rd consecutive year of increased dividends and decisions that put us in a position of even greater strength going into 2020 and beyond. Emerson’s Board has a long history of taking decisive action and executing changes to strengthen our organization for the future. The Board recognized early last year that the macro picture was changing and activated a comprehensive review to enhance shareholder value and help Emerson drive both near- and long-term success. Our push to understand and anticipate where the industry is going is part of our disciplined culture around value creation.

 

LOGO

As our customers explore ways to digitally transform, we are leading the charge – helping them navigate the latest automation capabilities to experience measurable results and reach high levels of safety, productivity, reliability and efficiency. As a technology leader, we are building on our software and analytics capabilities to create high-value solutions and profitable growth. Our Digital Transformation Roadmap with Emerson’s world-class consulting and implementation services is helping customers overcome barriers and realize the benefits of digital transformation through a flexible, tailored, actionable plan. Through strategic, bolt-on acquisitions, we offer a broad automation analytics portfolio to our customers. These acquisitions enable us to advance our use of data to help customers optimize their operations. For more information on our 2019 results, please see our 2019 Annual Report to Shareholders that is being made available with this Proxy Statement.

As we build on our technology capabilities, we are also making investments to help cultivate our strong and engaged workforce, the most valuable asset to our sustained success. I am proud to celebrate the diverse individuals who bring new ideas and innovative solutions to the industry’s toughest challenges. We rely on employee feedback to ensure that we are providing the resources employees need to develop, share ideas and deliver excellent work. I firmly believe that employee engagement is a critical element in delivering best-in-class solutions to customers.

None of this would be possible without the work and guidance of our exceptional Board of Directors. I want to extend a special welcome to our newest Board members Martin S. Craighead, former Chairman, President and CEO of Baker Hughes, who was elected to the Board in June, and Mark A. Blinn, former President and CEO of Flowserve, who was elected to the Board in November.

Your vote is very important. I encourage you to complete, sign and return your proxy card, or use telephone or internet voting prior to the meeting, so that your shares will be represented and voted at the meeting even if you cannot attend. On behalf of the Board of Directors and all of us at Emerson, we thank our shareholders for your continued trust and support.

December 13, 2019

Sincerely,

 

 

LOGO

DAVID N. FARR

Chairman and

Chief Executive Officer

 

       PROXY STATEMENT FOR EMERSON 2020 ANNUAL MEETING OF SHAREHOLDERS  


Table of Contents

Notice of Annual Meeting of Shareholders

for Emerson Electric Co.

   LOGO

 

 

DATE AND TIME:

  

 

Tuesday, February 4, 2020, 10 a.m. CST

 

 

PLACE:

  

 

Emerson Headquarters, 8000 W. Florissant Avenue, St. Louis, MO 63136

 

 

ITEMS OF BUSINESS:

  

 

1.  To elect as Directors the four nominees named in the accompanying proxy statement.

 

2.  To ratify the appointment of KPMG LLP as our independent registered public accounting firm.

 

3.  To approve, on an advisory basis, the compensation of Emerson’s named executive officers.

 

4.  To approve an amendment to the Company’s Restated Articles of Incorporation to declassify the Company’s Board of Directors.

 

5.  To transact other business, if any, properly brought before the meeting.

 

 

WHO CAN VOTE:

  

 

Record holders of Emerson common stock at the close of business on November 26, 2019

 

 

HOW TO VOTE:

  

 

Your vote is important, and we urge you to cast your vote in advance of the meeting by telephone, internet or mailing your completed and signed proxy card or voting instruction form, or in person at the meeting. If you attend the meeting, you may revoke your previously cast vote and vote in person. Each share is entitled to one vote on each matter to be voted upon at the Annual Meeting.

 

 

MEETING ADMISSION:

  

 

An admission ticket for record holders (or a satisfactory account statement for street name holders) is required to attend the meeting. Please see “Proxy Statement Summary” for information on attending the meeting. If you have questions regarding the required information, or to request an admission ticket, please contact the Emerson Investor Relations Department at 314-553-2197 in advance.

 

 

2019 ANNUAL REPORT AND DATE OF DISTRIBUTION:

  

 

For more complete information regarding Emerson, please review the Annual Report to Shareholders and the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2019. A copy of our Annual Report to Shareholders for the fiscal year ended September 30, 2019 accompanies this Notice of Annual Meeting of Shareholders and Proxy Statement. This Notice of Annual Meeting of Shareholders and Proxy Statement and the Annual Report to Shareholders are first being made available or mailed to shareholders on or about December 13, 2019.

 

 

  

By order of the Board of Directors,

 

LOGO

December 13, 2019   

SARA YANG BOSCO

St. Louis, Missouri   

Secretary

 

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON FEBRUARY 4, 2020

Emerson’s Notice of Annual Meeting, Proxy Statement, Form of Proxy, and Annual Report to Shareholders for the fiscal year ended September 30, 2019 are available, free of charge, at www.proxyvote.com. You will need to input the Control Number located on the proxy card or notice of internet availability of proxy materials when accessing these documents. A separate notice of internet availability of such proxy materials is first being sent to our shareholders on or around December 13, 2019. Shareholders may access these materials and vote over the internet or request delivery of a full set of materials by mail or email. If you receive the separate notice of internet availability of proxy materials, you will not receive a paper or email copy of the proxy materials unless you request one in the manner set forth in the notice.

 

 

PROXY STATEMENT FOR EMERSON 2020 ANNUAL MEETING OF SHAREHOLDERS       ii


Table of Contents

 

Table of Contents

 

 

 

     Page  

Letter to Shareholders – Chairman and Chief Executive Officer

     i  

Notice of Annual Meeting of Shareholders

     ii  

Proxy Statement Summary

     1  

Letter to Shareholders – Lead Independent Director

     6  

Board and Committee Operations

     7  

Board and Corporate Governance

     7  

Corporate Governance and Nominating Committee

     12  

Audit Committee

     14  

Compensation Committee

     16  

Executive Compensation

     18  

Compensation Discussion and Analysis

     18  

Compensation Tables

     34  

Summary Compensation Table

     34  

Grants of Plan-Based Awards

     36  

Outstanding Equity Awards at Fiscal Year-End

     37  

Option Exercises and Stock Vested

     39  

Pension Benefits

     39  

Nonqualified Deferred Compensation

     40  

Potential Payments Upon Termination or Change of Control

     42  

Pay Ratio Disclosure

     46  

Management Proposals

     47  

Proxy Item No. 1: Election of Directors

     47  

Proxy Item No.  2: Ratification of Independent Registered Public Accounting Firm

     54  

Proxy Item No. 3: Advisory Vote on Executive Compensation

     55  

Proxy Item No.  4: Amendment to the Company’s Restated Articles of Incorporation to Declassify the Company’s Board of Directors

     56  

Ownership of Emerson Equity Securities

     57  

Ownership of Directors and Executive Officers

     57  

Ownership of Greater than 5% Shareholders

     58  

Questions and Answers About the 2020 Annual Meeting

     59  

Other Matters

     62  

Appendix A – Emerson Director Independence Standards

     A-1  

Appendix B – Proposed Amendment to Restated Articles of Incorporation

     B-1  


Table of Contents

 

Proxy Statement Summary

 

 

 

 

 

This summary highlights information contained elsewhere in this Proxy Statement and does not contain all of the information you should consider. You should read the entire Proxy Statement before voting.

Annual Meeting

 

2020 ANNUAL MEETING INFORMATION

For additional information about our Annual Meeting, see Questions and Answers on page 59.

 

LOGO   LOGO   LOGO   LOGO

 

Meeting Date:

Tuesday

February 4, 2020

 

 

Meeting Place:

Emerson Headquarters

8000 W. Florissant Ave.

St. Louis, MO 63136

 

 

Meeting Time:

10:00 a.m.

Central Time

 

 

Record Date:

November 26, 2019

 

Voting Matters

 

  

 

Board
Recommendation

 

  

Vote Standard

 

  

Page   

 

 

Management Proposals

 

              

Item 1 Election of Directors

  

 

FOR each

nominee

 

  

 

Majority present & entitled to vote

 

  

 

47   

 

 

Item 2 Ratification of appointment of KPMG LLP as Independent Registered Public Accounting Firm

 

  

 

FOR

 

  

 

Majority present & entitled to vote

 

  

 

54   

 

Item 3 Approval of named executive officer compensation

  

 

FOR

  

 

Majority present & entitled to vote

 

  

 

55   

 

 

Item  4 Approval of amendment to the Company’s Restated Articles of Incorporation to declassify the Company’s Board of Directors

 

  

 

FOR

 

  

 

85% of total voting power outstanding

 

  

 

56   

 

For the election of Directors, you have the choice of voting “FOR” all or individual nominees or to “Withhold Authority” to vote for all or individual nominees. For the other proposals, you have the choice to vote “FOR”, “AGAINST” or “ABSTAIN”.

Whether or not you plan to attend the meeting, please provide your proxy by internet, phone, or by filling in, signing, dating and promptly mailing your proxy card or voting instruction form.

 

 

LOGO

   

 

LOGO

   

 

LOGO

By Internet:

www.proxyvote.com

 

    

 

By Phone:

1-800-690-6903

(toll free within U.S.

and Canada)

 

    

 

By Mail:

Vote Processing,

c/o Broadridge

51 Mercedes Way

Edgewood, NY 11717

 

Attending the Meeting

You may also vote at the meeting. All attendees must present government-issued photo identification, such as a driver’s license or passport. If you are a shareholder of record, please check the box on your proxy card and bring the tear-off admission ticket with you. If you are a beneficial, or “street name”, holder and your shares are held in the name of someone else (such as a broker, bank or other nominee), please bring a letter or account statement from that firm showing you were a beneficial holder on November 26, 2019. Failure to provide such identification may result in your exclusion from the meeting.


 

PROXY STATEMENT FOR EMERSON 2020 ANNUAL MEETING OF SHAREHOLDERS       1


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PROXY STATEMENT SUMMARY

 

 

Our Board of Directors

Nominees and Continuing Directors

The Emerson Board is divided into three classes. You are being asked to vote on the four Director nominees indicated below for the specified terms. The seven continuing Directors were previously elected to terms ending at the Annual Meeting specified. All Directors are independent, except Mr. Farr. Please see “Proxy Item No. 1 – Election of Directors” for more information.

 

AC   Audit Committee

CC  Compensation Committee

FC   Finance Committee

NC  Corporate Governance and Nominating Committee

EC  Executive Committee

 

 

Nominees for Terms Ending in 2023
               
              

LOGO

   

LOGO

   

LOGO

   

LOGO

 

Martin S. Craighead

Former Chairman and Chief Executive Officer, Baker

Hughes, Inc.

 

Age: 59

Director Since 2019

Committees: NC, CC

            

David N. Farr

Chairman and
Chief Executive Officer,
Emerson

 

Age: 64

Director Since 2000

Committee: EC

            

Gloria A. Flach

Retired Corporate Vice

President and COO,
Northrop Grumman Corp.

 

Age: 60

Director Since 2017

Committees: CC, FC

            

Matthew S. Levatich

President and
Chief Executive Officer,
Harley-Davidson, Inc.

 

Age: 54

Director Since 2012

Committees: AC, CC

 

To Continue In Office Until 2021
               
              

LOGO

   

LOGO

   

LOGO

   

LOGO

 

Mark A. Blinn

Former Chief Executive
Officer and President,
Flowserve Corp.

 

Age: 57

Director Since 2019

 

        

 

Arthur F. Golden

Partner, Davis Polk
and Wardwell

 

Age: 73

Director Since 2000

Committees: EC, FC

            

Candace Kendle

Retired Chairman and
Chief Executive Officer,
Kendle International, Inc.

 

Age: 72

Director Since 2014

Committees: AC, NC

 

            

James S. Turley

Retired Chairman and
Chief Executive Officer,
Ernst & Young LLP

 

Age: 64

Director Since 2013

Committees: AC, EC, NC

To Continue in Office Until 2022
           
                                       

LOGO

   

LOGO

   

LOGO

 

Clemens A. H. Boersig

Retired Chairman of the
Supervisory Board,
Deutsche Bank AG

 

Age: 71

Director Since 2009

Committees: CC, EC, FC

   

Joshua B. Bolten

President and
Chief Executive Officer,
Business Roundtable

 

Age: 65

Director Since 2012

Committees: AC, EC, NC

   

Lori M. Lee

Chief Executive Officer

AT&T Latin America and Global

Marketing Officer, AT&T, Inc.

 

Age: 54

Director Since 2018

Committees: AC, FC


 

2       PROXY STATEMENT FOR EMERSON 2020 ANNUAL MEETING OF SHAREHOLDERS


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PROXY STATEMENT SUMMARY

 

 

Independent and Engaged Board

 

 

91%

 

 

 

of our Directors are independent

 

 

99%

 

 

 

attendance by Directors at committee meetings in fiscal 2019

 

 

100%

 

 

 

attendance by Directors at 9 Board meetings in fiscal 2019

 

 

100%

 

 

 

director attendance at the 2019 Annual Meeting

 

 

Proactive Governance in 2019

 

    Board refreshment – Added 4 new Directors in the last 3 years

 

    Recruitment of diverse Board

 

    Accelerated Corporate Social Responsibility reporting

 

    10 of 11 Directors are independent

 

    Management Proposal to Declassify Board of Directors

 

    Set Company wide greenhouse gas (GHG) reduction targets

 

    Confirmed a second Director as an Audit Committee Financial Expert

 

Refreshed and Diverse Board

 

 

36%

 

 

 

tenure: 0-3 years

 

 

36%

 

 

 

tenure: 4-8 years

 

 

27%

 

 

 

tenure: > 8 years

 

 

63

 

 

 

average age

 

 

Board Oversight

 

    Lead Independent Director position and annual leadership structure review  

 

    Balanced Director tenure  

 

    Implementation of key corporate governance policies  

 

  -

Stock ownership guidelines

 

 

  -

Blackout and stock-trading policies

 

 

  -

Clawback policies

 

 

  -

Pledging and anti-hedging policies

 
 

 

Board Diversity

 

 

 

THE BOARD SEEKS OUT HIGHLY-QUALIFIED DIVERSE CANDIDATES TO ADD TO THE RANGE OF

SKILLS AND EXPERIENCE REPRESENTED ON OUR BOARD.

 

Board Diversity Background

 

 

LOGO


 

PROXY STATEMENT FOR EMERSON 2020 ANNUAL MEETING OF SHAREHOLDERS       3


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PROXY STATEMENT SUMMARY

 

 

LOGO

Executive Compensation Highlights

Our pay for performance philosophy and key principles of our executive compensation program directed our performance objectives that drove solid fiscal 2019 results. We continued to focus on objectives that maximize shareholder value, make Emerson a good global citizen, enhance critical capabilities and encourage career-long commitments to the Company.

 

 

NEO Compensation. Fiscal 2019 NEO annual total compensation reflects our strong fiscal 2019 results and individual performance and accomplishments of our NEOs, including the Company’s strong fiscal 2019 financial performance, the continued repositioning of Emerson for growth in softening global markets, continued integration efforts for strategic acquisitions and the actions taken to maintain profitability during a changing business environment.

 

 

Alignment with Shareholders. We believe that our practice of setting a majority of our NEOs’ pay as “at-risk” pay underscores our commitment to our fundamental pay-for-performance principles. By tying a significant percentage of NEO annual total compensation (cash and annual long-term stock award) to performance-based pay that is dependent on achievement of the Company’s performance goals as well as the consistent attainment of strong individual performance, we maximize the value we can deliver to shareholders. In fiscal 2019, 91% of our CEO’s pay and an average of 84.4% of the other NEOs’ annual pay was comprised of “at-risk” compensation. In addition, our NEOs generally hold the stock they earn, substantially exceeding our stock ownership guidelines.

 

 

Long-Term Performance. In fiscal 2019, 100% of our NEOs’ annual long-term stock awards were again performance-based awards. These performance shares awards are subject to the Company’s achievement of established financial objectives over the Fiscal 2019 – 2021 performance period, benchmarked against a global growth rate target.

 

 

Competitive Compensation. We continued to target NEO annual total compensation in the median market range.

 

 

Retention and Succession Planning. We focused on critical retention and succession planning needs for our key executives, including in connection with the promotion of our Executive President Automation Solutions.

 

 

Focus on Values. We continued our global efforts to solidify and communicate our commitment to our Emerson core values.


 

4       PROXY STATEMENT FOR EMERSON 2020 ANNUAL MEETING OF SHAREHOLDERS


Table of Contents

PROXY STATEMENT SUMMARY

 

 

 

Shareholder Engagement

We value our shareholders’ perspective on our businesses and each year interact with shareholders and investment analysts through a variety of engagement activities. As part of our shareholder engagement, we have once again proposed to amend our Restated Articles of Incorporation to declassify our Board of Directors. These engagement activities include our annual investor conference in February and participation in industry conferences throughout the year. In addition, we routinely schedule additional engagement meetings with investors and analysts in various locations around the world, which in 2019 included meetings in New York, Chicago, London and Frankfurt, among other locations. In 2019, we also hosted analysts and investors at key operational headquarters in Shakopee, Minnesota and St. Louis, Missouri. Investors and analysts may schedule meetings with our Director of Investor Relations to request additional information regarding the Company. We reach out to our largest shareholders each year in connection with our Annual Meeting to discuss the matters that will be voted on at the meeting and respond to questions or concerns. Our Investor Relations department can be reached at 314-553-2197, investor.relations@emerson.com, or at www.Emerson.com, Investors, Investor Resources, Shareholder Information.

Corporate Governance Highlights

 

Topic

  

Highlight

 

Director Independence

  

 

  10 of 11 Directors are independent

 

  Strong Lead Independent Director with significant governance duties

 

  All Board Committees are independent pursuant to requirements of the NYSE and our governance documents

 

  Regular executive sessions attended by non-management Directors only

 

 

Management Proposal to Declassify Board of Directors

  

 

  In response to shareholder requests, we are once again submitting a management proposal to amend our Restated Articles to declassify our Board of Directors.

 

GHG Reduction Targets

  

 

  Announced a commitment to reduce GHG emissions by 20%, normalized to sales.

 

Two Audit Committee Financial Experts

  

 

  The Board has determined that two members of the Audit Committee are Audit Committee Financial Experts under SEC rules.

 

Shareholder Responsiveness

  

 

  In 2018, we proposed to amend our Restated Articles to allow shareholders the right to amend our Bylaws.

 

  We removed our forum selection Bylaw after it was not ratified by our shareholders.

 

 

Proxy Access Bylaw

  

 

  Proactive adoption in 2017 of proxy access for Director nominees

 

  A shareholder, or group of up to 20, holding 3% of Company stock for 3 years may place a limited number of Director nominees in the Company’s proxy statement for election.

 

 

Board Refreshment

and Diversity

  

 

  Recently added Martin Craighead, former Chairman and Chief Executive Officer of Baker Hughes, and Mark Blinn, former President and Chief Executive Officer of Flowserve.

 

  Balance of new and continuing Directors, with average tenure of 7 years and 4 new Directors in last 3 years

 

  Average Director age of 63

 

  Director retirement and resignation guidelines

 

  27% of Directors are women

 

 

Other Governance Practices

  

 

  Directors elected by majority voting

 

  Over 99% Board and Committee attendance in 2019

 

  All Directors then in office attended the 2019 Annual Meeting

 

  Comprehensive New Director Orientation

 

  No shareholder rights plan or “poison pill”

 

  Blackout, clawback, pledging and anti-hedging policies

 

  Director and executive officer stock ownership policies

 

  Annual Corporate Social Responsibility and Political Spending Reports

 


 

PROXY STATEMENT FOR EMERSON 2020 ANNUAL MEETING OF SHAREHOLDERS       5


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From Lead Independent Director

 

 

 

LOGO

 

 

CLEMENS A.H. BOERSIG

Dear Fellow Shareholder:

As Lead Independent Director, I am in a special position to closely observe and partner with the Board of Directors and David Farr in his role as chairman and CEO. I see firsthand the Company’s principled management style and unwavering focus on governance that have fueled long-term value for our shareholders.

An effective Board of Directors is invaluable to help oversee important decisions around strategy to ensure both near- and long-term success for the organization. Independence among these members is critical to keep the voice and interests of shareholders paramount as the Board consults on Company direction.

Emerson’s Board recently announced a comprehensive review of the Company’s operational, capital allocation and portfolio initiatives to further enhance shareholder value and position the Company for continued strong performance. The Board is leading the evaluation and stakeholder engagement with support from a leading consulting firm and independent legal and financial advisors.

This latest review builds on a longtime focus of the Board: guiding the organization through shifting economic trends, while continuing to invest in strategic ways that position the company to deliver value well into the future. Our Board has deep expertise in business leadership, manufacturing and corporate governance in all types of socioeconomic landscapes. This wealth of experience positions Emerson well to navigate and address the quickly changing macro issues impacting companies of all sizes and industries.

At the same time as it evaluates outside factors, the Board is charged with helping the company take the right steps to maintain its strong foundation for the next generation of leaders. Emerson’s Board is active and highly engaged with clear, defined goals for the Company and governance priorities. Chief among these priorities is CEO and Director succession planning. It’s a responsibility the Board takes seriously and approaches with the highest level of thoughtful intention.

Since 2017, our Board has welcomed four new members who build on our balanced approach to evaluating strategy and important investment decisions. New Board members help cultivate fresh perspectives and opportunities – critical for a company that is focused on innovating for the future.

Our current Board and the Emerson management team have reinforced the Company’s focus on environmental sustainability and our shared role in managing energy use effectively and reducing greenhouse gas (GHG) emissions. Emerson recently announced a commitment to reducing GHG emissions by 20%, normalized to sales, across more than 200 global manufacturing facilities by the year 2028. Emerson has expanded upon this and other efforts in its latest Corporate Sustainability Report, at Emerson.com/CSR.

On behalf of the entire Board, thank you for your continued support and engagement.

Sincerely,

 

 

LOGO

Clemens A.H. Boersig

Lead Independent Director, Emerson

 

6       PROXY STATEMENT FOR EMERSON 2020 ANNUAL MEETING OF SHAREHOLDERS


Table of Contents

 

Board and Committee Operations

 

 

 

Board and Corporate Governance

Board Responsibility

The primary responsibility of our Board is to foster our long-term success. In fulfilling this role, each Director must exercise good faith business judgment in the best interests of Emerson, our shareholders, employees and communities in which we operate. Our Board has responsibility for establishing broad corporate policies, setting strategic direction and overseeing management. Management has responsibility for our day-to-day operations, implementing these policies and strategic direction, subject to Board oversight.

Governance Principles and Ethics Program

Our Board has adopted Corporate Governance Principles and Practices that govern the structure and operations of our Board, Board oversight of management and relations between the Board and our shareholders. In addition, our Board has adopted an ethics program that applies to all Emerson employees and our Directors, and includes an employee code of conduct, supplements that are specifically applicable to our Directors and executive officers, and an additional code of ethics applicable to our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and Controller.

The Company’s Corporate Governance Principles and each component of its ethics program are available on the Company’s website at www.Emerson.com, Investors, Corporate Governance, Business Ethics. Printed copies of these documents are available to shareholders upon written request to Emerson Electric Co., 8000 West Florissant Avenue, St. Louis, Missouri 63136, Attn: Secretary. The Company intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K by posting any amendments and/or waivers to its ethics code at the same location on its website.

The Board of Directors annually reviews its governance policies and practices, taking into account changes in applicable law, trends in corporate governance and input from shareholders.

Recent Corporate Governance Changes

Our Corporate Governance and Nominating Committee regularly considers a broad range of corporate governance issues and is committed to adopting governance practices that are the most beneficial to the Company and its shareholders. As part of its review process, the Board recently made changes to Emerson’s corporate governance polices:

 

 

Board Refreshment. To ensure that the Board continues to evolve and be refreshed in a manner that serves the Company’s changing business and strategic needs, 3 new Directors have joined the Company within the last 18 months.

 

 

GHG Reduction. We have committed to reducing our GHG emissions by 20%, normalized to sales, by the year 2028. This goal was developed in partnership with environmental experts to demonstrate our progress toward reducing emissions while accounting for growth and changes across our dynamic global business.

 

 

Our Proposals to Declassify Our Board and to Allow Shareholders the Right to Amend Our Bylaws. We recognize that a declassified Board of Directors and the right of shareholders to amend bylaws are increasingly considered important aspects of good corporate governance. In response to these trends and shareholder requests, we have acted. This year, we are again asking our shareholders to amend our Restated Articles to declassify our Board of Directors. See Proxy Item No. 4. Amendment to the Company’s Restated Articles of Incorporation to Declassify the Company’s Board of Directors. We made a similar proposal in 2013.

In 2018, we approved and submitted for shareholder approval amendments to our Restated Articles providing shareholders the right to amend our Bylaws. However, under our Restated Articles, that amendment required the vote of 85% of outstanding shares in favor for approval, which was not attained. Similarly, the 2013 amendment to declassify our Board also required such an 85% vote and did not attain the required approval level.

 

 

Lead Independent Director. In 2016, we amended our Corporate Governance Principles to provide for a Lead Independent Director, as discussed below in “Board Leadership Structure” on page 8.

 

 

Proxy Access Bylaw. In 2017, we amended our Bylaws to adopt proxy access, which provides eligible shareholders a process for including their director nominees in the Company’s proxy materials. Proxy access is discussed below at “Corporate Governance and Nominating Committee—Proxy Access” on page 13.

 

 

Removal of Forum Selection Bylaw. In 2018, we submitted a proposal to shareholders to ratify our forum selection Bylaw, which provided that the sole and exclusive forum for specified legal actions would be courts located in Missouri. The proposal was not approved. As a result, the Board has subsequently reconsidered the provision and removed it from the Bylaws.

 

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Corporate Social Responsibility Reporting. In 2015, at the Board’s direction, we published our first Corporate Social Responsibility Report highlighting the Company’s environmental stewardship, integrity and ethics, corporate governance, political spending and lobbying, human resources and diversity, supply chain practices and community involvement. In 2019, the Company published its fourth Corporate Social Responsibility Report.

We believe these actions are indicators of good governance and enhance our accountability to shareholders.

Board Meetings and Attendance

There were nine meetings of the Board during fiscal 2019. All Directors attended at least 75% of the meetings of the Board and committees on which he or she served. Moreover, Directors had 100% Board meeting attendance and the Directors’ average attendance rate at meetings of the committees on which they serve was 99%. Directors are strongly encouraged to attend the Annual Meeting, although the Company has no policy requiring attendance. All of the Directors then in office attended the 2019 Annual Meeting.

Board Leadership Structure

The Board believes that it should have the flexibility to determine whether the same person should serve as both Chair and CEO based on what it believes will provide appropriate Company leadership and deep global industry knowledge. The Board believes that its current structure, with Mr. Farr serving as both Chair and CEO, is appropriate given Mr. Farr’s past success and extensive experience in these roles, the efficiencies of having the CEO serve as Chair, the Company’s strong corporate governance structure, including Mr. Boersig’s strong leadership role as Lead Independent Director, and the Company’s financial performance under Mr. Farr’s leadership.

As part of its leadership structure review, in 2016 the Board established the Lead Independent Director position to strengthen the independent leadership of the Board. The Lead Independent Director is elected from the independent Directors for a three-year term. Among other things, the Lead Independent Director chairs regularly scheduled meetings of non-management Directors, reviews Board agendas and information, calls meetings of the independent Directors, acts as the Board’s key liaison with the Chairman and serves on the Board’s executive committee. The Lead Independent Director is available for consultation with shareholders. The Chair and CEO consults periodically with the Lead Independent Director and the committee Chairs, all of whom are independent, on Board matters and on issues facing the Company.

Each year the Board, through its Corporate Governance and Nominating Committee, reviews its leadership structure including the combined Chair and CEO, to ensure that it remains appropriate for the Company.

Board Role in Risk Oversight

The Board has responsibility for oversight of the Company’s risk management process. This process is designed to provide to the Board timely visibility into the identification, assessment and management of critical risks. The Audit Committee assists the Board by annually reviewing and discussing with management this process and its functionality. The areas of critical risk include strategic, operational, cyber security, compliance, environmental, sustainability, financial and reputational. The full Board, or the appropriate committee, receives this information through updates from management to enable it to understand and monitor the Company’s risk management process.

Board Composition

Our Board consists of eleven Directors. We have added three new Directors in the last two years.

As required by our Restated Articles of Incorporation, our Board is divided into three classes, with the terms of office of each class ending in successive years. The Directors in one class are elected at each Annual Meeting to serve for a three-year term and until their successors are duly elected and qualified, subject to their earlier death, resignation or removal. Periodically, a Director is elected to a shorter term, or moved into a different class between meetings, to rebalance the classes as a result of the early departure of a Director.

Pursuant to the Company’s Bylaws, a Director may not stand for election after age 72 without Board review and assessment. If our Board determines that continued service beyond this period is in the best interests of Emerson and our shareholders, our Board may amend the Bylaws to waive this requirement and allow election to additional one-year terms, subject to our classified Board structure and key business issues.

Proposal to Declassify Board of Directors

Based on feedback from shareholders, management is resubmitting a proposed amendment to our Restated Articles of Incorporation that would eliminate our classified board structure and allow all Directors to be elected annually. We encouraged shareholders at the Annual Meeting in 2013 to approve the same amendment but the amendment did not receive the required vote to pass. We recognize that many of our shareholders would prefer a declassified Board structure and are therefore resubmitting the proposal at this year’s Annual Meeting. We urge all shareholders to vote FOR the declassification proposal. Please see Proxy Item No. 4. Amendment to the Company’s Restated Articles of Incorporation to Declassify the Company’s Board of Directors.

 

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We are committed to reviewing our Board’s composition to ensure that we continue to have the right mix of skills, diversity, background and tenure. The diversity and tenure composition of our Board is as follows:

 

Diversity

 

LOGO

 

  

Tenure

 

LOGO

 

Our Board’s membership represents a balanced approach to Director tenure, allowing our Board to benefit from the experience of longer-serving Directors as well as the fresh perspectives of newer Directors. The Board is continually seeking out highly-qualified, diverse candidates to add to the range of skills and experiences represented on our Board.

Our Directors have a wide range of skills and experience in a variety of professions and industries, including:

 

 

DIRECTOR SKILLS AND EXPERIENCE

 

 

  Global business experience

 

  

 

  Chief executive officer experience

 

  Financial expertise, including chief financial officer experience

 

  

 

  Expertise in technology and innovation

 

  Corporate governance expertise

 

  

 

  Operational leadership, including as chief operating officer

 

  Experience doing business in emerging markets and China

  Expertise in cybersecurity and IT

  

 

  Business development expertise, including investment banking, mergers and acquisitions and financial markets

 

      

The specific background, skills and experience of each of our Directors is detailed under Proposal 1 – Election of Directors.

The Corporate Governance and Nominating Committee has the primary responsibility for developing a Director succession plan. The Committee periodically reviews our Board composition and, as discussed above, identifies the appropriate mix of experiences, skills, attributes and tenure for our Board in light of our Company’s current and future business environment and strategic direction, all with the objective of recommending a group of Directors that can best continue our success and represent our shareholders’ interests. The Committee and our Board are committed to developing a diverse pool of potential candidates for future Board service. As part of this process, the Board recently added Martin Craighead, former Chairman and Chief Executive Officer of Baker Hughes and Mark Blinn, former Chief Executive Officer and President of Flowserve. Among other attributes, Mr. Craighead brings deep knowledge in the energy sector, coupled with a proven record of global leadership and financial expertise. Among other attributes, Mr. Blinn brings a breadth of knowledge in energy and automation end markets, as well as significant financial expertise and board experience.

Other Key Governance Policies

We have adopted corporate governance policies which encourage significant long-term stock ownership and align the interests of our executives with our shareholders. These policies include:

 

 

Executive compensation practices that incentivize long-term performance with equity compensation using multi-year performance and vesting periods; align executive and shareholder interests and reward for superior performance rather than creating a sense of entitlement. See “Executive Compensation – Compensation Discussion and Analysis” on page 18.

 

 

Stock ownership guidelines that require NEOs to hold stock equal to at least a specified multiple of their base salaries.

 

 

Blackout and stock trading policies that require permission to trade in Emerson stock.

 

 

Clawback policies that allow us to reduce, cancel or recover incentive compensation tied to intentional misconduct that led to a material restatement of our financial statements. See “Policies Supporting Our Fundamental Principles” on page 31.

 

 

Pledging and anti-hedging policies that prohibit certain speculative transactions that are not in alignment with our shareholders. Specifically, our hedging policy prohibits any officer (including any executive officers) and Directors from engaging in transactions to hedge or offset value declines in the value of our stock, regardless of how acquired, such as short selling, put or call options, forward sale or purchase contracts, equity swaps and exchange funds. Our pledging policy prohibits pledging of Company shares as collateral for a loan by Directors or elected officers. See “Policies Supporting Our Fundamental Principles” on page 31.

Review, Approval or Ratification of Transactions with Related Persons

We have developed and implemented processes to obtain and review all transactions and relationships in which the Company and any of our Directors, Director nominees or executive officers, or any of their immediate family members, are participants, and to determine

 

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whether any of these individuals have a direct or indirect material interest in any such transaction. Transactions that are determined to be material to a related person are disclosed as required. Pursuant to these processes, all Directors and executive officers annually complete a Director and Executive Officer Questionnaire and a Conflict of Interest Questionnaire that are designed to identify related person transactions and both actual and potential conflicts of interest. We also review the nature and extent of business between the Company and other companies affiliated with our Directors or executive officers. Under the Company’s ethics program, an executive officer is required to immediately disclose all the relevant facts and circumstances of any actual or potential conflict of interest to the Company’s Ethics Committee. If the Ethics Committee determines that there is a conflict, it will refer the matter to the Board of Directors. A Director is required to immediately disclose all the relevant facts and circumstances of any actual or potential conflict of interest to the Board. In each case, the Board will review the matter to make a final determination as to whether a conflict exists, and, if so, the appropriate resolution.

The Company has a written ethics program applicable to all Directors and executive officers of the Company that prohibits Directors and executive officers from entering into transactions, or having any relationships, that would result in a conflict of interest with the Company. Waivers of the ethics program requirements for Directors and executive officers may only be granted by the Board of Directors. The Company’s ethics program documents can be found on the Company’s website at www.Emerson.com, Investors, Corporate Governance, Business Ethics.

Certain Business Relationships and Related Party Transactions

Based on the review described above, there were no transactions from October 1, 2018 through the date of this proxy statement, and there are no currently proposed transactions, in which the Company was or is to be a participant, in which the amount involved exceeded $120,000 and in which any of the Company’s Directors or executive officers or any of their immediate family members, or any beneficial holder of more than 5% of our common stock, either had or will have a direct or indirect material interest.

Director Independence

The Board has determined that all current Directors, other than Mr. Farr, are independent, as defined under the general independence standards of the New York Stock Exchange (“NYSE”). All Directors identified as independent meet the Board adopted independence standards. These standards are included in Appendix A and are available on the Company’s website at www.Emerson.com, Investors, Corporate Governance, Principles & Practices.

In the course of the Board’s independence determinations, it considered any transactions, relationships and arrangements as required by the Company’s independence standards. In particular, with respect to each of the three most recently completed fiscal years, the Board considered for:

 

 

Flach, Levatich and Lee, the annual amount of sales to Emerson by the company which the Director serves or served as an executive officer, and purchases by that company from Emerson, and determined that in each case the amounts of such sales and purchases in fiscal 2019 were less than 0.021% of such other company’s annual revenue and in each year were immaterial and well below the threshold set in the Emerson independence standards.

 

 

Golden, the annual amount paid by Emerson to the law firm of which he is a partner and determined that the amount of such payments in fiscal 2019 was less than 0.50% of such firm’s annual revenues and was in each year immaterial and well below the threshold set in the Emerson independence standards.

 

 

Levatich, Boersig, and Turley, the annual amount of contributions by Emerson to charitable organizations for which the Director serves as a director, officer or trustee and determined that such contributions were immaterial, below the threshold set in the Emerson independence standards, were made through the Company’s normal corporate charitable donation approval process and were not made on behalf of any Director. For 2019, the amount of such contributions were: Boersig: $5,000 to the New York Philharmonic; Levatich: $3,250 to Northwestern University; and Turley: $4,154 to the Boy Scouts of America-Greater St. Louis Area Council, $932,000 to the St. Louis Municipal Opera Theatre and $655,000 to Forest Park Forever. These last three organizations are prominent St. Louis civic organizations to which Emerson, as a St. Louis headquartered company, has provided substantial support for over 30 years, long before Mr. Turley joined the Emerson Board or the boards of these organizations.

Committees of Our Board of Directors

Our Board of Directors has delegated certain of its responsibilities to committees to provide for more efficient Board operations and allow Directors to engage in deeper analysis and oversight in specific areas of importance. The members and Committee Chairs are designated by the Board based on recommendations from the Corporate Governance and Nominating Committee. The Chair of each Committee helps develop the agenda for that Committee and provides a report to our Board on Committee activities. Each Committee annually reviews the adequacy of its Charter and conducts an evaluation of its performance.

 

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Our Board has adopted written Committee charters which are available on our website, www.Emerson.com, Investors, Corporate Governance, Committee Charters. The primary responsibilities and membership of each Committee are below:

 

 
  COMMITTEE    PRIMARY RESPONSIBILITIES AND MEMBERSHIP
 

Audit

  

The Audit Committee assists the Board in providing oversight of the systems and procedures relating to the integrity of the Company’s financial statements, financial reporting process, systems of internal accounting and financial controls, internal audit process, risk management (including technology and cybersecurity), compliance with legal and regulatory requirements and the independent audit of the annual financial statements. The Committee is directly responsible for the appointment, oversight, qualification, independence, performance, compensation and retention of the Company’s independent registered public accounting firm, including audit fee negotiations. The Committee reviews with management major financial risk exposures and the steps management has taken to monitor, mitigate and control such exposures.

 

The members of the Audit Committee are J. S. Turley (Chair), J. B. Bolten, C. Kendle, L. M. Lee and M. S. Levatich. The Board has determined that each member is independent under the enhanced audit committee independence standards in the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and NYSE listing standards. The Board has also determined that L. M. Lee and J. S. Turley are Audit Committee Financial Experts under SEC rules. The Committee met four times in fiscal 2019.

 

Compensation

  

The Compensation Committee discharges the Board’s oversight of the Company’s executive compensation program and produces the Committee’s proxy statement report on executive compensation. Among other things, the Committee approves goals and objectives, evaluates performance and sets compensation for the CEO; approves elements of compensation for and oversees the evaluation of certain other officers, including the NEOs; oversees the Company’s equity incentive plans; and monitors the Senior Management Succession Plan.

 

The current Compensation Committee members are C. A. H. Boersig (Chair), M. Craighead, G. A. Flach and M. S. Levatich. The Board has determined that each member meets the enhanced NYSE independence standards and qualifies as an “outside director” under Section 162(m) of the Internal Revenue Code, as amended (“IRC”) and as a “non-employee director” under Rule 16b-3 of the Exchange Act. The Committee met seven times in fiscal 2019.

 

Corporate Governance and Nominating

  

The Corporate Governance and Nominating Committee oversees the Company’s corporate governance; reviews its governance principles and independence standards; oversees the annual Board and Committee evaluations; discharges the Board’s responsibilities related to Director compensation; identifies, evaluates and recommends individuals for Board and Committee membership; makes recommendations as to the size and composition of the Board and its Committees; and reviews the Company’s conflict of interest policies, codes of ethics, corporate social responsibility and sustainability policies and reporting; political activities and compliance with related laws and regulations, and oversees management’s implementation thereof.

 

The members of the Committee are J. B. Bolten (Chair), M. Craighead, C. Kendle and J. S. Turley. The Board has determined that all members are independent under NYSE listing standards. The Committee met five times in fiscal 2019.

 

Executive

  

The Executive Committee exercises Board authority between Board meetings on matters in which specific direction has not been given by the Board, to the extent permitted by law and except for certain specified matters.

 

The members of the Committee are D. N. Farr (Chair), C. A. H. Boersig, J. B. Bolten, A. F. Golden, and J. S. Turley. The Committee did not meet in fiscal 2019.

 

Finance

  

The Finance Committee advises the Board with respect to the Board’s oversight of the Company’s financial affairs, including long-range financing requirements and strategy, capital structure, dividend and share repurchase policies, short-term investment policy and hedging strategies, and retirement plans, as well as Company charitable contributions and the Emerson Charitable Trust.

 

The members of the Committee are A. F. Golden (Chair), C. A. H. Boersig, G. A. Flach and L. M. Lee. The Committee met five times in fiscal 2019.

 

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Board and Committee Evaluations

Our Board assesses annually its effectiveness and that of its Committees. All Directors complete an evaluation form for the Board and for each Committee on which they serve. These forms include numerical ratings for certain key metrics, as well as the opportunity for written comments. The comments provide key insights into the areas Directors believe the Board can improve or in which its performance is strong. The evaluation results are reported to the full Board, and each Committee is provided with its Committee evaluation results. The Corporate Governance and Nominating Committee oversees the process. Evaluation topics include number and length of meetings, topics covered and materials provided, Committee structure and activities, Board composition, including any comments on other members of the Board and their expertise, succession planning, Director participation and interaction with management and promotion of ethical behavior. Our Board discusses the results of each annual evaluation and, as appropriate, implements enhancements and other modifications identified during the evaluation.

Corporate Governance and Nominating Committee

Nomination Process

The Corporate Governance and Nominating Committee is primarily responsible for identifying and evaluating director candidates and for recommending re-nomination of incumbent directors. The Committee, which consists entirely of independent directors under applicable SEC rules and NYSE listing standards, regularly reviews the appropriate size and composition of the Board and anticipates vacancies and required expertise. The Committee reviews potential nominees from several sources, including Directors, management, shareholders or others. The Committee is also authorized to retain search firms to identify potential director candidates, as well as other external advisors, including for purposes of performing background reviews of potential candidates. Mr. Craighead, who is standing for election for the first time, was recommended by an independent Director.

In evaluating potential nominees, the Committee considers the knowledge, reputation, experience, integrity and judgment of the candidates, their contribution to the diversity of backgrounds, experience and skills on the Board and their ability to devote sufficient time and effort to their duties as Directors. The Board considers the following experience particularly relevant: manufacturing, global business, in particular in emerging markets and China, business development, technology and innovation, legal, investment banking, acquisitions and finance, government, corporate governance and information technology, as well as experience on the boards of other major organizations. The Company’s Corporate Governance Principles set forth the minimum qualifications for nominees. Candidates are interviewed multiple times by the Chairman and CEO, Lead Independent Director, and other members of the Board to ensure that candidates not only possess the requisites skills and characteristics, but also the personality, leadership traits, work ethic, and independence of thought to effectively contribute as a member of the Board. The best candidates are then recommended by the Committee to the Board.

To ensure that the Board continues to evolve and be refreshed in a manner that serves the Company’s changing business and strategic needs, before recommending for re-nomination a slate of incumbent directors for an additional term, the Committee also evaluates whether incumbent directors possess the requisite skills and perspective, both individually and collectively. This evaluation is based primarily on the results of the periodic review the Committee performs of the requisite skills and characteristics of Board members, as well as the composition of the Board as a whole, and the results of the Board’s annual evaluation.

The Board’s policy is to seek the most qualified candidates without regard to race, gender, national origin, religion, disability, age or sexual orientation. However, in evaluating candidates the Committee will consider these diversity criteria. The Board seeks to maintain a balance of perspectives, qualities and skills on the Board to obtain a diversity of viewpoints to better understand the technical, economic, political and social environments in which the Company operates. Existing Board members and outside agencies recommend candidates to further these policy objectives. The Board’s success on these objectives is measured by the range of viewpoints represented on the Board.

The Committee will consider candidates recommended by shareholders if required biographical information is properly submitted as described in “Other Matters – Future Shareholder Proposals and Nominations” at page 62 below. Properly submitted shareholder recommendations are sent to the Committee and will receive the same consideration as others identified to the Committee.

The Company’s Bylaws permit shareholders to nominate Directors at an annual meeting of shareholders or at a special meeting at which Directors are to be elected. The procedures for making such nominations are discussed in “Other Matters – Future Shareholder Proposals and Nominations” beginning on page 62.

Proposal to Declassify Board of Directors

The Committee and the Board have approved and submitted to shareholders for approval an amendment to our Restated Articles of Incorporation to declassify our Board. Please see Proxy Item No. 4. Amendment to the Company’s Restated Articles of Incorporation to Declassify the Company’s Board of Directors.

 

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Proxy Access

In 2017, the Board amended the Company’s Bylaws to permit up to 20 shareholders owning in the aggregate at least 3% of the Company’s outstanding common stock continuously for at least three years to nominate and include in the Company’s proxy materials director nominees constituting up to the greater of two individuals or 20% of the Board, provided that the nominating holders and the nominees satisfy the requirements specified in the Bylaws, including providing the Company with advance notice of the nomination. For more information on how to submit a nominee for inclusion in Company proxy materials pursuant to these provisions, see “Other Matters – Future Shareholder Proposals and Nominations” on page 63 below.

Director Compensation

Processes and Procedures for Determination of Director Compensation

The Corporate Governance and Nominating Committee annually reviews compensation practices for the Company’s Directors and makes recommendations to the Board regarding the form and amount of compensation for determination by the Board. To assist the Committee in performing these duties, management engages an outside consultant to prepare a director compensation analysis and to make recommendations. Based on this analysis, management makes recommendations regarding Director compensation for the Committee’s consideration. Frederic W. Cook & Co. prepared this analysis for fiscal 2019. For fiscal 2020, no changes were recommended by management and the Committee and no changes were made by the Board.

Director Compensation Program

Each non-management Director is paid an annual retainer in cash and/or restricted stock or restricted stock units (“RSUs”), as well as meeting fees and reimbursement of expenses. The Lead Independent Director and each Committee Chair receive an additional cash retainer. Mr. Farr does not receive any additional compensation for service on the Board. In fiscal 2019, the Director compensation program provided for the following payments:

 

 

Type

 

 

 

Amount

 

 

Annual Cash Retainer

 

 

 

$115,000

 

 

 

Restricted Stock or RSU Retainer

 

 

 

 

$150,000

 

 

Lead Independent Director Retainer

 

 

 

$30,000

 

 

 

Committee Chair Retainers

 

 

 

 

Audit and Compensation – $25,000 each

Finance and Corporate Governance & Nominating – $20,000 each

 

 

Meeting Fees

 

 

 

$1,500 for each Board or Committee meeting

 

Effective December 1, 2018, the cash portion of the annual retainer was increased from $100,000 to $115,000 and the restricted stock/RSUs portion of the annual retainer was increased from $140,000 to $150,000, payable February 5, 2019. Other retainers were increased to the following levels: Lead Independent Director – from $25,000 to $30,000, Chairs of Audit and Compensation Committees – from $20,000 to $25,000 and Chairs of Finance and Corporate Governance and Nominating Committees – from $15,000 to $20,000. Board and Committee meeting fees were not increased.

Emerson’s Director Stock Ownership Policy generally requires non-management Directors to hold stock equal to five times annual cash compensation, subject to a phase-in policy for new Directors. Our non-management Directors are required to hold all restricted stock and RSUs until retirement from our Board. The awards generally do not vest until the last day of a Director’s term after the age of 72, or earlier death, disability or a change of control of the Company. If a Director’s tenure on the Board ends for any other reason, the vesting of the award is at the discretion of the Committee. If the restrictions on the awards do not lapse, the awards are forfeited to the Company. Restricted stock includes both dividend and voting rights. Dividend equivalents are paid on RSUs, which do not have voting rights.

Directors may defer all or a part of their cash compensation under the Company’s Deferred Compensation Plan for Non-Employee Directors. Directors may also defer payment of the dividend equivalents on RSUs. Deferred amounts are credited with interest quarterly at the Bank of America prime rate. Under SEC rules, interest on deferred amounts is considered above-market if the rate of interest exceeds 120% of the applicable federal long-term rate. During fiscal 2019, the applicable prime rate ranged from 5.00% to 5.50%, while 120% of the applicable federal long-term rate ranged from 2.96% to 3.57%. A. F. Golden participated in this deferral program during fiscal 2018 and above-market earnings on his deferred amounts are set forth in the Director Compensation Table. All deferred amounts are payable in cash.

As part of the Company’s charitable contributions practice, the Company may, in the Board’s discretion, make a charitable contribution in the names of Emerson and a Director (including management Directors) upon retirement from the Board (as determined by the Board), taking into account the Director’s Board tenure, accomplishments, and other relevant factors.

 

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The table below sets forth non-management Director compensation for fiscal 2019.

Director Compensation

 

 

Name(1)

 

  

 

Fees Earned

or Paid in

Cash ($)

 

  

 

Stock

Awards

($)(2)(3)

 

  

 

Change in Pension Value

and Nonqualified Deferred
Compensation Earnings ($)(4)

 

  

 

All Other

Compensation

($)(5)

 

  

 

Total   

($)   

 

 

Clemens A. H. Boersig

 

    

 

 

 

 

197,336

 

 

 

    

 

 

 

 

149,968

 

 

 

    

 

 

 

 

 

 

 

    

 

 

 

 

10,000

 

 

 

    

 

 

 

 

357,304   

 

 

 

 

Joshua B. Bolten

 

    

 

 

 

 

158,666

 

 

 

    

 

 

 

 

149,968

 

 

 

    

 

 

 

 

 

 

 

    

 

 

 

 

22,178

 

 

 

    

 

 

 

 

330,812   

 

 

 

 

Martin S. Craighead

 

    

 

 

 

 

45,832

 

 

 

    

 

 

 

 

99,977

 

 

 

    

 

 

 

 

 

 

 

    

 

 

 

 

0

 

 

 

    

 

 

 

 

145,809   

 

 

 

 

Gloria A. Flach

 

    

 

 

 

 

144,000

 

 

 

    

 

 

 

 

149,968

 

 

 

    

 

 

 

 

 

 

 

    

 

 

 

 

5,000

 

 

 

    

 

 

 

 

298,968   

 

 

 

 

 

Arthur F. Golden

 

    

 

 

 

 

152,666

 

 

 

    

 

 

 

 

149,968

 

 

 

    

 

 

 

 

89,853

 

 

 

    

 

 

 

 

10,000

 

 

 

    

 

 

 

 

402,487   

 

 

 

 

Candace Kendle

 

    

 

 

 

 

139,500

 

 

 

    

 

 

 

 

149,968

 

 

 

    

 

 

 

 

 

 

 

    

 

 

 

 

0

 

 

 

    

 

 

 

 

289,468   

 

 

 

 

Lori M. Lee

 

    

 

 

 

 

138,000

 

 

 

    

 

 

 

 

149,968

 

 

 

    

 

 

 

 

 

 

 

    

 

 

 

 

22,021

 

 

 

    

 

 

 

 

309,989   

 

 

 

 

Matthew S. Levatich

 

    

 

 

 

 

142,500

 

 

 

    

 

 

 

 

149,968

 

 

 

    

 

 

 

 

 

 

 

    

 

 

 

 

26,184

 

 

 

    

 

 

 

 

318,652   

 

 

 

 

James S. Turley

 

    

 

 

 

 

163,668

 

 

 

    

 

 

 

 

149,968

 

 

 

    

 

 

 

 

 

 

 

    

 

 

 

 

10,000

 

 

 

    

 

 

 

 

323,636   

 

 

 

 

(1)

Mr. Farr is the only management Director, and his compensation is set forth in the Summary Compensation Table and related tables. He did not receive any additional compensation for his service as a Director. Mr. Blinn was not a director in fiscal 2019.

 

(2)

On February 5, 2019, the Directors then in office were awarded 2,264 shares of restricted stock, or RSUs in the case of Dr. Boersig, with a total value of $149,968 ($150,000 divided by the grant date value of Emerson stock, rounded down to the nearest whole share) representing their fiscal 2019 restricted stock award. On June 4, 2019, Mr. Craighead was awarded 1,618 shares of restricted stock as his pro rata amount of the fiscal 2019 award. Each amount constitutes the aggregate grant date fair value of restricted stock and RSUs for fiscal 2019 calculated in accordance with FASB ASC Topic 718.

 

(3)

The total number of shares of restricted stock held by each of the non-management Directors at September 30, 2019 is: Dr. Boersig-3,450; Mr. Bolten-18,545; Mr. Craighead-1,618; Ms. Flach-6,112; Mr. Golden-42,051; Dr. Kendle-13,937; Ms. Lee-2,864; Mr. Levatich-17,376; and Mr. Turley-15,209; and Dr. Boersig-23,063 RSUs.

 

(4)

Includes above-market earnings for fiscal 2019 on cash fees or dividend equivalents that a Director elected to defer as follows: Mr. Golden-$52,853. Also includes the aggregate increase of $37,000 for Mr. Golden in the actuarial present value of his accumulated pension benefit for fiscal 2018 pursuant to the Company’s Continuing Compensation Plan for Non-Management Directors. The Continuing Compensation Plan for Non-Management Directors was terminated on June 4, 2002. Mr. Golden remains eligible for such plan because he was a Director prior to termination of the plan. Mr. Golden will, after termination of service, receive $30,000 annually for life, which was the annual cash retainer in effect on that date. If service terminates because of death, the benefit will be paid to his surviving spouse for five years.

 

(5)

Includes Company matching contributions under the Company’s charitable matching gifts program which matches charitable gifts of up to $10,000 for all employees and Directors of the Company. Also includes for Messrs. Bolten and Levatich and Ms. Lee amounts for spousal travel and cost to attend and participate in business-related events.

Audit Committee

Report of the Audit Committee

The Audit Committee assists the Board in providing oversight of the systems and procedures relating to the integrity of the Company’s financial statements, the Company’s financial reporting process, its systems of internal accounting, financial and reporting controls, the internal audit process, risk management, the independent audit process of the Company’s annual financial statements and the Company’s compliance with legal and regulatory requirements. Management is responsible for these processes.

The Audit Committee reviews with management the Company’s major financial risk exposures and the steps management has taken to monitor, mitigate and control such exposures. Management has the responsibility for the implementation of these activities. In fulfilling its oversight responsibilities, the Committee reviewed and discussed with management the audited financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2019, including a discussion of the quality and the acceptability of the Company’s financial reporting and controls. The Committee also reviews the Company’s quarterly earnings press releases and reports on Form 10-Q prior to distribution and filing.

The Company’s independent registered public accounting firm is responsible for expressing an opinion on the conformity of those audited financial statements with U.S. generally accepted accounting principles and on the effectiveness of the Company’s internal control over financial reporting. The Committee reviewed with the independent registered public accounting firm the firm’s judgments as

 

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to the quality and the acceptability of the Company’s financial reporting and such other matters as are required to be discussed with the Committee by the applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) and the Securities and Exchange Commission. In addition, the Committee has discussed with the independent registered public accounting firm the firm’s independence from management and the Company, including the impact of non-audit related services provided to the Company and the matters in the independent registered public accounting firm’s written disclosures required by Rule 3526 of the PCAOB, as may be modified or supplemented.

The Committee also discussed with the Company’s internal auditors and the independent registered public accounting firm in advance the overall scope and plans for their respective audits, including timing, risk assessments, locations and coverage, and any reliance by the external auditors on work performed by the internal auditors. The Committee meets at least quarterly with the internal auditor and the independent registered public accounting firm, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal controls, and the overall quality of the Company’s accounting and financial reporting.

The Committee is directly responsible for the appointment, oversight, qualification, independence, performance, compensation and retention of the Company’s independent registered public accounting firm, including audit fee negotiations and approval. The Committee has evaluated whether retaining KPMG as the Company’s independent auditor for the year is in the best interest of Emerson and its shareholders. The Committee considers whether KPMG’s known legal risks include involvement in proceedings that could impair their ability to perform the annual audit, and reviews historical and proposed KPMG fees charged to the Company.

In performing its review, the Committee also considers the quality, candor and effectiveness of KPMG’s communications with the Committee and management; how effectively KPMG maintained its independence as demonstrated by exercising judgment, objectivity and professional skepticism; reports of the PCAOB and other available data regarding the quality of work performed by KPMG; KPMG’s long tenure and experience as the Company’s auditor, and the geographic reach and expertise of KPMG to address the demands placed on an auditor by the global breadth and complexity of Emerson’s business in terms of quantity, quality and location of staff.

The Committee also considers whether, to assure continuing auditor independence, there should be rotation of the independent registered public accounting firm.

The Committee is responsible for the selection of the lead engagement partner, and as required by law, assures rotation of the lead partner every five years. When appropriate, KPMG provides a list of candidates for the role of lead engagement partner, who are then interviewed by members of senior management. The Committee considers their recommendations and those of KPMG leadership, evaluates the candidate’s qualifications, strengths and weaknesses and selects the lead engagement partner.

In reliance on the reviews and discussions referred to above, the Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2019 for filing with the Securities and Exchange Commission. In accordance with its Charter, the Committee has reappointed KPMG LLP as the Company’s independent registered public accounting firm to audit the Company’s consolidated financial statements for fiscal 2020, based on their overall qualifications, objectivity, significant experience and understanding of the Company’s operations, and their ability to deploy resources to match Emerson’s global operations.

 

Audit Committee

 

       
James S. Turley, Chair           Joshua B. Bolten           Candace Kendle           Lori M. Lee   Matthew S. Levatich

Fees Paid to KPMG LLP

Fees paid to KPMG LLP, the Company’s independent registered public accounting firm:

 

 

$ in millions

 

  

 

2018

 

      

 

2019

 

 

 

 

Audit Fees

 

  

 

$

 

 

22.0

 

 

 

 

    

 

$

 

 

20.4

 

 

 

 

 

Audit-Related Fees

 

  

 

 

 

 

2.4

 

 

 

 

    

 

 

 

 

1.6

 

 

 

 

 

Tax Fees

 

  

 

 

 

 

0.6

 

 

 

 

    

 

 

 

 

0.5

 

 

 

 

 

All Other Fees

 

  

 

 

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

Total KPMG LLP Fees

 

  

 

$

 

 

25.0

 

 

 

 

    

 

$

 

 

22.5

 

 

 

 

Audit Fees primarily represent the cost for the audit of the Company’s annual financial statements, reviews of quarterly SEC filings and statutory audits at non-U.S. locations.

 

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Audit-Related Fees are primarily attributable to other acquisition and divestiture due diligence, audits of employee benefit plans and statutory filings.

Tax Fees are related to tax compliance services.

The Audit Committee approved in advance all services provided by KPMG LLP. The Audit Committee’s pre-approval policies and procedures are included within the Audit Committee Charter, which can be found on the Company’s website at www.Emerson.com, Investors, Corporate Governance.

Compensation Committee

The Compensation Committee operates under a written charter that details the Committee’s authority, composition and procedures. The Committee may delegate authority with respect to specific matters to one or more members, provided that all decisions of any such members are presented to the full Committee at its next meeting. For a discussion of delegations of authority to the CEO, see “Equity Compensation Grant Practices” at page 33 below.

For fiscal 2019, the Compensation Committee reviewed management’s process for assessing risk in the Company’s compensation programs, policies and practices for its employees, including the Company’s executive compensation program and practices. The Committee accepted the result of these reviews that our compensation programs, policies and practices do not create risks that are reasonably likely to have a material adverse effect on our business. Please see “Our Compensation Best Practices” on page 21 and “Policies Supporting our Fundamental Principles” on page 31 for additional information.

Role of Executive Officers and the Compensation Consultant

Executive Officers

As described in “Compensation Discussion and Analysis – Setting Annual Total Compensation” on page 23, our CEO makes recommendations to the Compensation Committee based on management input regarding total compensation of the other executive officers. Management also develops and presents to the Committee design recommendations for compensation programs.

The Compensation Committee has unrestricted access to management and may request the participation of management or the Committee’s independent consultant at any meeting or executive session. Committee meetings are regularly attended by the CEO, except for executive sessions and discussions of his own compensation, by the Vice President-Executive Compensation, who leads some of the discussions regarding the Company’s compensation programs, and the Committee’s independent consultant. The Committee regularly reports to the Board on compensation matters and annually reviews the CEO’s compensation with the Board in executive sessions of non-management Directors only.

Compensation Consultant

The Compensation Committee has sole discretion, at Company expense, to retain and terminate compensation consultants, independent legal counsel or other advisors, including sole authority to approve their fees and retention terms. Any Committee member may request the participation of independent advisors at any meeting. The Committee has engaged Exequity LLP as its independent consultant. Exequity reports directly to the Committee and performs services as directed by the Committee. In 2019, Exequity reviewed our comparator group companies, the compensation of our CEO and the other NEOs and a pay for performance analysis. Management engages Frederic W. Cook & Co. from time to time to assist with executive compensation program design and competitive pay analysis. The Committee reviews this information in determining compensation for the NEOs. Neither Exequity nor Frederic W. Cook & Co. provides any other services to the Company. See also “Competitive Market Information” on page 22.

Compensation Committee Report

The Compensation Committee of the Board of Directors acts on behalf of the Board to establish and oversee the Company’s executive compensation program in the interests of the Company and its shareholders. For a discussion of the Compensation Committee’s policies and procedures, see “Compensation” on page 11, “Compensation Committee” on page 16 and “Role of Our Compensation Committee” on page 20.

 

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Management of the Company has prepared the Compensation Discussion and Analysis describing the Company’s compensation program for senior executives, including the NEOs. See “Compensation Discussion and Analysis” beginning on page 18. The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis for fiscal 2019 with the Company’s management. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s proxy statement for its 2020 Annual Meeting of Shareholders.

 

Compensation Committee

 

     
Clemens A. H. Boersig, Chair               Martin S. Craighead             Gloria A. Flach   Matthew S. Levatich

Compensation Committee Interlocks and Insider Participation

The functions and members of the Compensation Committee are set forth above under “Compensation” on page 11. All Committee members are independent and none of the Committee members has served as an officer or employee of the Company or a subsidiary of the Company. During fiscal 2019, no member of the Committee and no other Director was an executive officer of another company on whose compensation committee or board any of our executive officers served.

 

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Executive Compensation

 

 

 

Compensation Discussion and Analysis

This Compensation Discussion and Analysis describes the compensation programs and practices regarding our Named Executive Officers (“NEOs”) for the 2019 fiscal year. Our NEOs for fiscal 2019 included our Chief Executive Officer, Chief Financial Officer and the next four most highly compensated officers, listed below:

 

 

NEO NAME

 

  

 

NEO TITLE

 

 

David N. Farr

 

 

  

 

Chairman and Chief Executive Officer

 

 

Frank J. Dellaquila

 

  

 

Senior Executive Vice President and Chief Financial Officer

 

 

Michael H. Train

 

  

 

President

 

 

Steven J. Pelch

  

 

Chief Operating Officer and Executive Vice President – Organizational Development

 

 

Robert T. Sharp

 

  

 

Executive President Commercial & Residential Solutions

 

 

Surendralal L. Karsanbhai

 

  

 

Executive President Automation Solutions

 

Executive Summary

At Emerson, our goal is to attract and retain talented executives who deliver value to our shareholders through the achievement of the Company’s specific business objectives, such as consistent, sustained growth in earnings per share, cash flow and premium return on investments. Our executive compensation program and overall pay for performance philosophy align with that goal and our results.

Fiscal 2019 Performance Highlights

 

 

Three-Year Total
Shareholder Return

 

      

 

Earnings Per Share

 

      

 

Free Cash Flow

 

      

 

Cash Returned to
Shareholders

 

      

 

Return on Total

Capital

 

 

+34%

 

Achieved 23% price

return and 11%

dividend return

      

 

$3.71

 

7% year-over-year
increase

      

 

$2.4B

 

13.1% of net sales;

up 6% year-over-

year

      

 

$2.5B

 

Through dividends

and share

repurchases

 

      

 

19.5%

 

Long-term target

>20%

 

 

Solid financial performance despite challenging global markets

 

 

Net sales of $18.4 billion, a 6% increase year-over-year

 

 

Operating cash flow of $3 billion, a 4% increase year-over-year (16.4% of net sales), and free cash flow of $2.4 billion, after deducting capital expenditures of $0.6 billion

 

 

63 years of increased dividends to shareholders

 

 

Formed Digital Transformation business to help our customers navigate the latest automation capabilities to realize measurable results and reach high levels of safety, productivity, reliability and efficiency

 

 

Launched a comprehensive review of operational, capital allocation and portfolio initiatives to address challenging global markets and expected continued slowing of growth

 

 

Expanded our software and analytics capabilities through strategic bolt-on acquisitions to create high-value solutions and profitable growth

 

 

Continued success in integration of recent strategic acquisitions, including Tools & Test and Valves & Controls, the largest acquisition in Emerson history

 

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EXECUTIVE COMPENSATION

 

Focus on Values

At Emerson, we have built a foundation of unified core values that inform the decisions we make as an organization. These values guide how we interact with our employees, shareholders, customers and suppliers. We believe that this is an expectation not only of Emerson, but of our customers and the communities and geographies where we do business.

 

 

LOGO

Demonstrating our core values begins at the top. Our CEO communicates the importance of supporting our values to all of our employees globally on a quarterly basis, and our NEOs reinforce our values with our businesses and functions in their actions and decisions. In 2019, we also facilitated a global survey of nearly 20,000 employees to gauge our progress on continuing to improve our purpose-driven, values-based culture. Our employees shared valuable feedback and insights about the power of these values and how much they resonate across our organization. We rely on this feedback to ensure that we are not only Supporting our People through our pay for performance practices, but also providing the programs needed to boost their skillsets and cultivate management capabilities and the resources they need to develop and share ideas and maintain a high quality of life.

Pay for Performance Fundamental Principles

Our executive compensation program is based on a consistent set of key principles that directs compensation decisions and communicates to participants the Company’s core values, critical business strategies and performance objectives. These principles guide the performance objectives that drive strong results to maximize shareholder value, make Emerson a good global citizen, enhance critical capabilities for us and our customers and encourage career-long commitments to the Company.

These fundamental compensation principles include:

 

 

maximizing shareholder value by allocating a significant percentage of compensation to performance-based pay that is dependent on achievement of the Company’s performance goals, without encouraging excessive or unnecessary risk taking;

 

 

rewarding for superior performance rather than creating a sense of entitlement;

 

 

aligning executive and shareholder interests by providing long-term stock-based incentives as a significant portion of total compensation and expecting executives to hold the stock they earn;

 

 

attracting and retaining talented executives by providing competitive compensation and career-growth opportunities; and

 

 

rewarding overall corporate results while recognizing individual contributions.

Our executive compensation program mirrors our rigorous and disciplined management process – a hallmark of Emerson since our founding in 1890 – by ensuring that these principles are reflected in our compensation decisions. We also engage with and value the feedback of our shareholders on the components of our executive compensation program.

Emerson’s shareholders again expressed strong support for our executive compensation program at our 2019 Annual Meeting, with a vote of over 95% in support. For each of the last nine Annual Meetings of Shareholders, over 90% of shares voted were in support of our executive compensation program.

 

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EXECUTIVE COMPENSATION

 

Role of Our Compensation Committee

Our Compensation Committee acts on behalf of our Board to establish our compensation philosophy and oversee our executive compensation program. The current members of our Compensation Committee are Clemens A. H. Boersig (Chairman), Gloria A. Flach, Matthew S. Levatich and Martin S. Craighead. Pursuant to its Charter, which can be found on our website at www.Emerson.com, our Committee is responsible for:

 

 

Compensation Responsibilities

 

  

 

Organizational/Talent Responsibilities

 

 

  Reviewing and approving compensation of our CEO, NEOs and other executive officers

 

  Reviewing and approving all compensation plans and aggregated payouts

 

  Reviewing CEO compensation with Board

 

  Designating comparator group companies to determine competitive market pay ranges

 

  Establishing performance objectives and benchmarks for performance-based incentive programs

 

  Monitoring NEO stock ownership

 

  Approving all executive benefit plans

 

  

 

  Evaluating CEO’s performance

 

  Reviewing and discussing performance and leadership potential of NEOs and other executive officers with the CEO

 

  Working with the CEO on succession planning for executive management and our next generation of leaders

 

Compensation Mix

In determining the total compensation of each of our NEOs, the Compensation Committee balances the compensation mix considering the executive’s level of responsibilities, leadership and career potential, individual performance and service with the Company, with the objective of achieving a high and sustainable level of Company and individual performance. At-risk compensation (annual bonus and performance shares) increases as responsibilities increase, and generally makes up 75% or more of the total compensation mix for our NEOs. Total compensation is targeted to the median market range of our comparator group.

 

 

   Annual Cash Compensation

 

 

 

  Base Salary

 

  

 

Rewards individual performance and may vary with Company performance

 

 

 

  Annual Bonus

  

 

Rewards achievement of the Company’s annual financial targets and considers individual performance, contributions and leadership

 

 

   Long-Term Stock-Based Incentive Compensation

 

 

  Performance Shares

  

 

Supports achievement of long-term strategic operating goals, such as consistent and sustained earnings per share and cash flow, in order to deliver shareholder value; benchmarked against global gross domestic product growth to reflect the Company’s global reach and focus

 

  The primary long-term compensation element

 

  Three-year performance period

 

  Aligns executive pay with shareholder interests

 

 

 

  Restricted Stock

  

 

Supports succession planning, critical retention and key leadership development efforts

 

  Used only in special situations without any set frequency or value level

 

  Awards are highly selective

 

  Cliff vests no sooner than 3 years and generally 5 to 10 years

 

Key Compensation Decisions in Fiscal 2019

 

 

Awarded annual cash bonuses to all NEOs, with Mr. Farr’s bonus decreasing 11.1% from $2.7 million in 2018 to $2.4 million in 2019

 

 

Awarded performance shares to all NEOs, subject to the achievement of financial targets for the three-year performance period ending September 30, 2021

 

 

Awarded restricted stock to Mr. Karsanbhai in connection with his promotion to Executive President Automation Solutions to ensure his retention in this critical position

 

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Expanded clawback rights for all incentive compensation awards and payments to provide for potential forfeiture or clawback in connection with violations of the Company’s ethics and compliance programs and policies, including its Code of Conduct and Code of Ethics to the extent allowed by law

Our Compensation Best Practices

 

    

 

What We Do

 

     

What We Don’t Do

 

 

LOGO

  

 

At-Risk Pay: At-risk compensation increases as responsibilities increase

 

 

 

 

LOGO

 

 

No Golden Parachutes: No executive employment or individual change of control agreements or “golden parachutes”

 

LOGO

  

 

Talent Management: Robust compensation and performance review and planning process

 

 

 

 

LOGO

 

 

No Stock Hedging or Pledging: No hedging or pledging of Company securities

 

LOGO

  

 

Risk Analysis: Committee annual assessment of compensation risks

 

 

 

 

LOGO

 

 

No Executive Loans: No loans to executives or purchases of Company securities on margin

 

LOGO

  

 

Focus On Retention: Utilize highly-selective restricted stock awards for critical retention and succession planning purposes

 

 

 

 

LOGO

 

 

No Repricing of Options: No repricing or buyout of underwater stock options

 

LOGO

  

 

Executive Officer Severance Policy: No severance in excess of 2.99 times current NEO cash compensation without shareholder approval

 

 

 

 

LOGO

 

 

 

No Guaranteed Bonuses: Cash bonuses are not guaranteed for NEOs

 

LOGO

  

 

Non-competes and Non-solicits: All awards subject to non-competition and non-solicitation obligations

 

 

 

 

LOGO

 

 

No Tax Gross-Ups: No tax gross-ups for NEOs (except for relocation policy applicable to all employees)

 

LOGO

 

  

 

Clawbacks: Maintain clawback rights on cash bonus and equity awards

 

 

 

 

LOGO

 

 

No Single-Trigger COC: Incentive plans require “double trigger” change of control

 

LOGO

  

 

Stock Ownership: NEOs’ actual ownership greatly exceeds stock ownership guidelines

 

 

 

 

LOGO

 

 

No Excessive Perks: All executive perquisites have a specific business purpose

 

LOGO

  

 

Stock Trading Policy: Executives must obtain written permission from CEO and CFO or General Counsel before trading in Emerson stock

 

 

       

 

LOGO

  

 

Committee Consultant: Committee retains independent compensation consultant

 

 

 

       

 

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EXECUTIVE COMPENSATION

 

Competitive Market Information

How We Determine Our Comparator Group

The Compensation Committee annually reviews the comparator group that it uses to conduct market analysis and determine competitive pay ranges for our NEOs. As in prior years, the Committee reviewed a special study and screening prepared by Frederic W. Cook & Co. and selected comparator companies based upon one or more of the following criteria:

 

 

LOGO

 

LOGO

 

LOGO

 

LOGO

 

Net Revenue: Approximately 12 to 2x Emerson revenues?

 

Market Capitalization: Approximately 12 to 2x Emerson market capitalization?

 

Common Industries: An Emerson main competitor?

Do we compete for customers? Do we compete for talent?

 

Advanced Technology: Employs high technology to fuel growth?

  

 

LOGO

 

LOGO

 

LOGO

 

LOGO

 

Innovation: Brings innovation to market? Grows through repositioning existing product or service offerings? Expands to new market segments?

 

Global Presence: Less than 40% of revenue from one country/region?

 

Business Complexity: Significant business presence in multiple different industries?

 

Emerson Customer: A current Emerson customer in a familiar industry?

2019 Comparator Group Companies

For fiscal 2019, DowDuPont was removed from our existing comparator group, resulting in the 22-company comparator group listed below:

 

 

Fiscal 2019 Comparator Group

 

 

  Caterpillar

 

 

 

Fluor

 

  

 

Ingersoll Rand

 

    

 

PPG

 

    

 

United Technologies

 

 

  Cummins

 

 

 

General Dynamics

 

  

 

International Paper

 

    

 

Raytheon

 

    

 

3M

 

 

  Danaher

 

 

 

Goodyear Tire

 

  

 

Lockheed Martin

 

    

 

Schlumberger

 

    

 

  Deere

 

 

 

Honeywell

 

  

 

Northrop Grumman

 

    

 

TE Connectivity

 

    

 

  Eaton

 

 

 

Illinois Tool Works

 

  

 

Parker Hannifin

 

    

 

Textron

 

      

Emerson vs. Comparator Group

 

 

LOGO

 

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EXECUTIVE COMPENSATION

 

Elements of Compensation

Setting Annual Total Compensation

The Compensation Committee targets annual total compensation (cash and annual long-term stock compensation) for our NEOs in the median market range of our comparator group. To determine the median range, the Committee uses a competitive pay analysis of total compensation for the proxy reported officer positions at the comparator group companies prepared by Frederic W. Cook & Co. The Committee also reviews and confirms the competitive market pay analysis with Exequity, its independent compensation consultant. The competitive pay analysis is not used to establish performance goals in the Company’s compensation programs.

The Committee does not set specific financial targets related to annual cash compensation and pay determinations are not based on any formula. Actual pay is dependent on Company and individual performance and based on the Committee’s informed judgment. The Committee does monitor the relative internal compensation relationships between the CEO and the other NEOs, however, no specific pay ratio is targeted.

The Committee meets in executive session to review and set the CEO’s compensation. The Committee considers a number of factors in making its decision, including: market data; compensation elements; Company performance; tenure and experience; retention; and the CEO’s individual performance, leadership, contributions to the Company and impact on results. The Committee also discusses the CEO’s compensation annually with the non-management Directors in executive session.

For the NEOs and other key executives, our CEO reviews with the Committee the individual performance and leadership potential of these key executives, along with the Company’s financial results, and makes individual pay recommendations to the Committee. The CEO’s recommendations are informed by our robust annual organizational review, compensation planning and performance review processes.

 

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EXECUTIVE COMPENSATION

 

Fiscal 2019 CEO and NEO Performance

CEO Performance. In determining the appropriate level of total compensation for the CEO, the Committee evaluated the Company’s solid financial performance in fiscal 2019 (summarized on page 18); his success in navigating a challenging geopolitical climate and macro business environment; the Company’s strong and consistent performance driven by our disciplined management process and high-margin growth; our strategic acquisition activity; his critical succession planning leadership; his tenure as CEO; his individual leadership, performance and contributions; and the retention of Mr. Farr. Considering these factors, the Committee determined that Mr. Farr’s 2019 total compensation, up only slightly over 2018, positioned him appropriately in the median market range. The Committee noted that Mr. Farr successfully led the Company through the 2019 fiscal year and highlighted the following significant accomplishments.

 

   

 

Fiscal 2019 CEO Accomplishments

 

 

   LOGO

 

Continued positioning Emerson for sustained success despite shifting macro trends and softening global markets

 

 

   LOGO

 

 

 

Enhanced Emerson’s technology, software and services capabilities to leverage the company’s industry expertise to offer the broadest automation technology and analytics portfolio to our customers and customized digital transformation solutions for the industry, including through strategic bolt-on acquisitions of:

 

 

The automation and software businesses from Zedi, Inc., a Cloud SCADA Platform that solidifies Emerson’s position as premier solutions provider to the upstream oil and gas industry to lead the next wave of innovation in the SCADA market

 

KnowledgeNet (KNet), analytics application software that accelerates digital transformation initiatives across process and hybrid industries; integrated with Emerson’s leading Plantweb digital ecosystem, KNet will enhance the comprehensive analytics solutions Emerson offers to customers

 

Bioproduction Group (Bio-G), a leader in simulation, modeling, and scheduling software for biomanufacturing; combined with Emerson’s extensive life sciences technology and expertise portfolio will help companies accelerate biomanufacturing production

 

iSolutions Inc., a data management consulting group that provides organizations with tools to make data-driven production and operational decisions based on the analysis of real-time insights from integrated field and plant systems; will strengthen Emerson’s Operational Certainty Consulting organization with the addition of a data management practice for process, hybrid and discrete businesses

 

Intelligent Platforms, a division of General Electric, a provider of programmable logic controller (PLC) technologies and devices to enable smarter plants; a strong complement to Emerson’s focus on digital transformation and the Industrial Internet of Things through its Plantweb digital ecosystem, enabling Emerson to provide its customers with broader control and management of their operations

   LOGO

 

 

 

Navigated a fast-evolving global business environment with geopolitical and economic challenges

 

 

   LOGO

 

 

 

Continued to drive Emerson’s succession planning process to ensure the early identification and development of future leaders across the organization

 

 

   LOGO

 

 

 

Continued to build on the expertise of the Board, including the appointment of Martin S. Craighead, former chairman, president and CEO of Baker Hughes, to the Board of Directors

 

 

   LOGO

 

 

 

Enhanced Emerson’s longstanding commitment to creating shareholder value through the Company’s long-standing dividend payment and a three-year total shareholder return

 

 

 

   LOGO

 

 

 

Guided the organization to a goal of reducing greenhouse gas (GHG) emissions by 20%, normalized to sales, across over 200 of Emerson’s global manufacturing facilities by the year 2028

 

 

 

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EXECUTIVE COMPENSATION

 

Other Named Executive Officer Performance. In setting compensation for the other NEOs, the Committee considered the Company’s solid fiscal 2019 financial performance, the continued repositioning of Emerson for growth in softening global markets, continued integration efforts and the actions taken to maintain profitability during a changing business environment, as well as Mr. Farr’s evaluation of each NEO’s individual performance, leadership and accomplishments. The Committee also evaluated the NEOs based on their interactions with and presentations to the Board.

 

 

 

NEO Fiscal 2019 Accomplishments

 

 

F. J. Dellaquila

 

 

 

LOGO

  

 

Led the issuance of $1.7 billion of Euro denominated debt to diversify the Company’s funding sources and reduce costs

 

 

 

 

LOGO

  

Implemented selected operational and legal entity reorganizations to reduce costs and improve cash mobility profile

 

 

 

 

LOGO

  

Improved the internal control environment through enhanced use of digital tools and organized the effort to leverage the use of those tools to increase efficiency across functional areas within Emerson, further demonstrating our commitment to the Emerson core values of Continuous Improvement and Collaboration

 

 

 

LOGO

  

Continued to execute on capital allocation strategy and investment prioritization to drive return on investment

 

          

 

M. H. Train

 

 

 

LOGO

  

 

Drove underlying growth in our international business activities while continuing to prepare and plan for softening global macro business environment

 

 

 

LOGO

  

Championed our core values of Integrity and Ethics worldwide with our employees and customers, with active focus on Corporate Governance excellence for our global businesses

 

 

 

LOGO

  

Provided advocacy and thought leadership with investors, customer executives, industry groups, and government officials around the world on critical topics of Workforce of the Future, STEM, Digital Transformation, Sustainability & Decarbonization, Cybersecurity and Trade Relations

 

 

 

LOGO

  

As Chairman Automation Solutions, successfully transitioned duties to Mr. Karsanbhai, including focused activities in connection with the integration of the Intelligent Platforms business into our new Machine Automation Solutions unit

 

          

 

S. J. Pelch

 

 

 

LOGO

  

 

Improved customer on-time delivery performance during a challenging global supply chain environment with escalating tariff costs and uncertainty

 

 

 

 

LOGO

  

Maintained a strong focus on core values of Safety and Quality for our employees and customers

 

 

 

 

LOGO

  

Effectively managed the succession planning, transition and leadership development for several key positions

 

 

 

 

LOGO

  

Significant advancement in migrating our global operations to a single cloud-based human resource system, along with benefit and payroll harmonization

 

          

 

R. T. Sharp

 

 

 

LOGO

  

 

Delivered a strong year of sales growth, profitability and cash flow for the Commercial & Residential Solutions platform, including reaching record levels for both sales and operating cash flow while maintaining strong levels of safety performance

 

 

 

LOGO

  

Achieved strong integration performance for the first full year of the Tools & Test acquisition

 

 

 

 

LOGO

  

Increased focus on Supporting our People by serving as a member of the Emerson Diversity Council and acting as executive sponsor to the Blacks Reinforcing Diversity Employee Resource Group

 

 

 

 

LOGO

  

Advanced and launched several new product programs to both strengthen existing market positions and enter into strategic new market areas demonstrating our core values of Innovation and Continuous Improvement

 

          

 

S. L. Karsanbhai

 

 

 

LOGO

  

 

Delivered a year of strong underlying sales, reported sales and earnings growth for the Automation Solutions platform

 

 

 

 

LOGO

  

Completed eight strategic acquisitions and a successful second year integration of the Valves and Controls business

 

 

 

 

LOGO

  

Continued a strong focus on technology development with a number of key new product releases in core and expanded market opportunities demonstrating our core values of Innovation and Continuous Improvement

 

 

 

LOGO

  

Established a dedicated Digital Transformation business to ensure continued Customer Focus and Collaboration by helping our customers navigate the latest automation capabilities to realize measurable results and reach high levels of safety, productivity, reliability and efficiency

 

          

 

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EXECUTIVE COMPENSATION

 

Fiscal 2019 Annual Total Compensation Mix

We believe that our practice of setting a majority of our NEOs pay as “at-risk” pay underscores our commitment to our fundamental pay-for-performance principles. By tying a significant percentage of NEO annual total compensation (cash and long-term stock) to performance-based pay that is dependent on achievement of the Company’s performance goals as well as the consistent attainment of strong individual performance, we maximize the value we can deliver to shareholders. In fiscal 2019, 91% of our CEO’s pay and an average of 84.4% of the other NEOs’ annual pay was comprised of “at-risk” compensation (amounts do not include other forms of compensation shown in the Summary Compensation Table or special restricted stock grant to Mr. Karsanbhai).

 

 

LOGO

Annual Cash Compensation

The Committee targets total annual cash compensation in the median market range of total cash compensation, while placing more emphasis on performance-based annual cash bonus than on base salary. Base salary generally represents 10-20% of total NEO compensation and bonus generally represents 15-25%.

Base Salary. Fiscal 2019 base salary increases were based on the Committee’s review of the Company’s solid fiscal 2018 performance, individual performance and potential and competitive market compensation. The Committee also considered market survey data that indicated that the predicted merit increase, without promotions, for comparable executive positions averaged approximately 3%.

 

NEO Name

FY 2018

FY 2019

% Change

D. N. Farr

$

1,350,000

$

1,400,000

 

3.7

%

F. J. Dellaquila

$

715,000

$

740,000

 

3.5

%

M. H. Train(1)

$

570,000

$

650,000

 

14.0

%

S. J. Pelch(2)

$

550,000

$

600,000

 

9.1

%

R. T. Sharp

$

560,000

$

600,000

 

7.1

%

S. L. Karsanbhai(3)

 

    

(4)

$

525,000

 

    

    (4)

 

     (1)

 Mr. Train became President on October 1, 2018. He previously served as Executive President Emerson Automation     Solutions.

 

     (2)

 Mr. Pelch became Chief Operating Officer on December 31, 2017.

 

     (3)

 Mr. Karsanbhai became Executive President Emerson Automation Solutions on October 1, 2018.

 

     (4)

 Mr. Karsanbhai was not a NEO for fiscal 2018.

As shown above, for fiscal 2019 base salary (the only guaranteed portion of NEO compensation) comprised only 9% of our CEO’s and an average of 15.6% of our other NEOs’ annual total compensation.

 

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Bonus. In determining fiscal 2019 bonuses, the Compensation Committee reviewed the Company’s solid financial performance, the continued repositioning of Emerson for growth in softening global markets, continued integration efforts for recent strategic acquisitions and the actions taken to maintain profitability during a changing business environment, as well as the individual performance and leadership of each NEO. The Committee used discretion and based its decisions on its informed judgment considering these factors collectively. No individual weightings were assigned to any of these factors.

 

NEO Name

FY 2018

FY 2019

% Change

D. N. Farr

$

2,700,000

$

2,400,000

 

(11.1

)%

F. J. Dellaquila

$

1,300,000

$

1,175,000

 

(9.6

)%

M. H. Train(1)

$

750,000

$

785,000

 

4.7

%

S. J. Pelch(2)

$

700,000

$

785,000

 

12.1

%

R. T. Sharp

$

750,000

$

725,000

 

(3.3

)%

S. L. Karsanbhai(3)

 

    

(4)

$

675,000

 

    

    (4)

 

      (1)

 Mr. Train became President on October 1, 2018. He previously served as Executive President Emerson Automation      Solutions.

 

      (2)

 Mr. Pelch became Chief Operating Officer on December 31, 2017.

 

      (3)

 Mr. Karsanbhai became Executive President Emerson Automation Solutions on October 1, 2018.

 

      (4)

 Mr. Karsanbhai was not a NEO for fiscal 2018.

As shown above, for fiscal 2019 cash bonus comprised only 16% of our CEO’s and an average of 20.8% for our other NEOs’ annual total compensation.

Annual Long-Term Stock Compensation

The Committee targets total annual compensation for our NEOs in the median market range of our comparator group, with performance-based stock compensation being the largest component of our NEOs annual total compensation. We value our long-term stock compensation awards based on the fair value at grant; however, an executive may realize more or less than his or her targeted long-term compensation depending on Company and stock performance over the performance period.

Performance Shares. Performance shares awards are the primary long-term compensation element and the cornerstone of our pay-for-performance philosophy. The Committee may increase or decrease the amount of an award based on individual performance and targets the median market range for total annual compensation. We believe that performance shares align the interests of our executives and shareholders and support the achievement of long-term strategic operating goals such as premium, sustained growth in earnings and cash flow. Given our global reach, our performance benchmark also reflects the importance of measuring our growth against the growth of the global economy.

Each annual performance shares program has a three-year performance period with defined performance targets set by the Committee at the beginning of the period from the various measures set forth in the Company’s Incentive Shares Plans. An award of performance shares under the program represents the right to receive shares of our common stock to the extent the identified performance objectives are met. Dividend equivalents may be paid, but only on earned awards at the end of the performance period.

At the end of a performance period, the Committee reviews the Company’s financial results against the performance targets and certifies the level of achievement for payout of the awards. The Committee may include or exclude from both targets and actual results specified items of an unusual, non-recurring or extraordinary nature as allowed by the plans. Payouts are made primarily in common stock, with a portion paid in cash to cover tax obligations. Awards include confidentiality, non-competition and non-solicitation obligations and expanded clawback rights and are subject to a double-trigger change of control provision.

 

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EXECUTIVE COMPENSATION

 

 

 

Fiscal 2019 – 2021 Performance Metrics

(Period from October 1, 2018 – September 30, 2021)

 

 

LOGO

What do we consider when we make performance shares awards?

 

In making an individual annual award, the Committee considers the NEO’s: (1) ability to make a significant contribution to the Company’s financial results, (2) level of responsibility, (3) individual performance and (4) leadership potential. The annual performance shares award generally represents more than half of the NEO’s total compensation, depending on the NEO’s role and responsibilities.

100% of our NEOs annual long-term incentive awards are performance-based awards.

 

Why these performance metrics?

 

Each year, the Compensation Committee works with executive management and its independent executive compensation consultant to review and establish financial and operational performance metrics that are consistent with our long-term strategic objectives and in line with market practices. The Committee sets targets for the three-year performance period that will challenge our business leaders to drive operating results that generate shareholder returns. At the end of the performance period, our NEOs earned awards are based on the level of achievement against these targets.

For the Fiscal 2019 – 2021 Performance Shares Program, the Committee determined that earnings per share and free cash flow (operating cash flow less capital expenditures) were again the metrics most appropriate to drive premium growth.

 

Earnings per share (EPS)

EPS provides a holistic measure of the Company’s ability to create value for our shareholders. It emphasizes our operational performance measured through earnings growth, demonstrates the effectiveness of our capital allocation strategy through share repurchases and reflects tax efficient strategies.

Free cash flow

Cash generation is a true indicator of our earnings, asset management and investment performance. Operating earnings are the largest contributor to free cash flow and are the result of leverage on incremental sales, specific cost reduction and productivity initiatives and price increases to offset inflation. Improvements in inventory management, days sales outstanding and days payable contribute to working capital reductions which also contribute to free cash flow. Investments in organic growth and acquisitions add to free cash flow. The return on these investments generate returns for our shareholders.

 

The Committee will continue to examine our performance metrics through the changing business environment in future award years to ensure continued focus on delivering shareholder value.

 

 

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EXECUTIVE COMPENSATION

 

How do we benchmark our performance?

 

The Committee also sets an appropriate benchmark each year that reflects the global reach and focus of our Company. We believe that measuring our financial and operating results against a global benchmark is appropriate in our position as a global leader in the industries we serve.

 

G7 gross domestic product (G7 GDP)

For the Fiscal 2019 – 2021 Performance Shares Program, the Committee again determined that nominal G7 GDP was the appropriate benchmark and set the target growth rate as 3 percentage points above G7 GDP.

The Committee will continue to examine this benchmark and growth target to make sure it remains appropriate and competitive in future award years.

 

How do we calculate results against our performance metrics?

 

At the end of the fiscal 2019 – 2021 performance period, the Committee will review our financial results against the performance targets set at the beginning of the performance period. The Committee will consider whether there are any adjustments that should be made to account for unusual, non-recurring or extraordinary items. The Committee will then certify the level of achievement against the targets for payout of the awards.

 

Determination of EPS Performance

Fiscal 2021 EPS will be calculated as a percentage of the EPS Target. The EPS target is 2018 EPS multiplied by the compound average annual growth rate in G7 GDP from 2019 – 2021, plus three percentage points, to drive premium earnings growth.

 

Free cash flow

Cumulative free cash flow from fiscal 2019 – 2021 is calculated as a percentage of the free cash flow target. The free cash flow target is the sum of the yearly free cash flow targets from 2019 – 2021. Each yearly free cash flow target is the prior year target amount, beginning with adjusted fiscal 2018 free cash flow, multiplied by that year’s annual growth rate in G7 GDP, plus three percentage points, to drive premium cash flow growth.

 

 

Maximum Payout

Each performance metric is capped at 125% achievement, for a maximum aggregate payout for these awards of 125%.

Pursuant to our Incentive Shares Plans, the Committee also has the discretion to adjust a payout percentage where results and/or business climate warrant. See “Fiscal 2017 – 2019 Performance Shares Program” on page 30 below.

 

 

Fiscal 2019 – 2021 Performance Shares Program Awards. In fiscal 2019, 100% of our NEOs’ annual long-term stock compensation was comprised of performance shares awards. The following individual performance shares awards were made to the NEOs:

 

NEO Name

  

 

FY 2019 – 2021
Performance Shares
Awarded ($ Value)(1)

 

  

 

FY 2019 – 2021
    Performance Shares    
Awarded (# Shares)

 

D. N. Farr

    

$

11,357,291

    

 

164,384  

F. J. Dellaquila

    

$

2,677,238

    

 

38,750  

M. H. Train

    

$

2,677,238

    

 

38,750  

S. J. Pelch

    

$

2,677,238

    

 

38,750  

R. T. Sharp

    

$

2,314,515

    

 

33,500  

S. L. Karsanbhai

    

$

2,314,515

    

 

33,500  

 

      (1)

 Value at $69.09 per share, the average high and low stock price of on date of grant, November 6, 2018

For fiscal 2019, performance shares represented 75% of our CEO’s annual total compensation and an average of 63.6% for our other NEOs.

 

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EXECUTIVE COMPENSATION

 

Fiscal 2017 – 2019 Performance Shares Program. The performance period for the Fiscal 2017 – 2019 Performance Shares Program ended on September 30, 2019. The targets and weightings were calculated in the same manner as described above. The Committee determined that the target earnings per share was $2.90 and the target cumulative free cash flow was $6.9 billion. In determining the results for the performance period, the Committee determined that it was appropriate to adjust for certain discrete items, including adjustments primarily related to acquisition and divestiture activity and restructuring and tax items. In addition, although financial performance was strong, the Committee exercised its discretion to remove the impact of non-operational EPS favorability for 2019.

The Committee determined that the fiscal 2019 EPS, after a downward adjustment of $0.47 (from $3.71), was $3.24, and cumulative free cash flow over the performance period, after upward adjustment of $61 million (from $6.9 billion), was $6.961 billion, as discussed above. The impact from the adjustments resulted in a reduced payment under the formula.

 

 

LOGO

This performance resulted in a 107% payout of the awarded performance shares. The Company has not had a performance shares program payout at 100% for more than the last decade, which correlates to the difficulty of achieving the targets set. The payouts are reflected in the Option Exercises and Stock Vested table on page 39.

 

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EXECUTIVE COMPENSATION

 

Other Stock Awards

Restricted stock and stock options are also available for award under our long-term stock-based compensation program. Awards of restricted stock are highly selective and reserved for critical retention, recognition or succession planning purposes. Stock options have not been granted to NEOs since 2015.

Restricted Stock. In limited circumstances, such as special retention, recognition and succession planning needs, the Committee may make a separate award of restricted stock. Awards of restricted stock are highly selective. Restricted stock awards are not considered as a portion of a NEOs annual total compensation and may, therefore, result in compensation above the median range in the year of award. The Committee views this program as an important management succession planning and retention tool. The objective is to lock in top executives and their potential replacements identified through the succession planning process. Restricted stock provides participants with dividends and voting rights beginning on the award date. There is no set frequency of restricted stock awards, and they are granted with long-term cliff vesting periods of up to 10 years and no less than 3 years.

In fiscal 2019, the Committee granted 10,000 shares of restricted stock with a 10-year vesting period to S. L. Karsanbhai in connection with his promotion to ensure the retention of this key executive.

Stock Options. Stock option awards are still available for granting under our long-term incentive plans; however, no stock option awards have been made to any of the NEOs since 2015. When utilized, stock option awards are issued at no less than fair market value on the date of the award and generally vest over a period of three years with a ten-year term. We do not pay dividend equivalents on stock options and do not “reprice” awards.

Policies Supporting Our Fundamental Principles

To support our pay-for-performance philosophy and underlying fundamental principles of our compensation programs, we have implemented certain policies regarding NEO ownership of and actions in connection with stock and other incentive compensation. In addition to our compensation programs, we believe that appropriate stock ownership guidelines and our stock trading, clawback and pledging and anti-hedging policies further align the interests of our executives with shareholders by encouraging long-term superior performance without encouraging excessive or unnecessary risk taking.

 

 

Fundamental Policies

 

 

  Stock

  ownership

 

 

Requires NEOs to hold Emerson stock equal to at least a specified multiple of base salary. NEOs generally have 5 years to comply. Emerson NEOs substantially exceed the guidelines.

 

   

 

  Position

 

 

 

Req. Multiple(1)

 

  

 

Actual(2)

 

     
      CEO   5X    156X      
      CFO   3X    51X      
     

  Other NEOs

 

 

1X

 

  

10X-23X

 

         

 

  Stock trading

 

 

Requires written permission from CEO and from CFO or General Counsel before trading in Emerson stock.

 

 

  Clawback

 

 

Provides that our Board may reduce, cancel or require recovery of all or a portion of any executive officer’s annual bonus or long-term incentive compensation if the Board determines that the executive officer has engaged in intentional misconduct leading to a material restatement of the Company’s financial statements. Our 2015 Incentive Shares Plan includes additional clawback provisions. Beginning in fiscal 2019, the Company expanded clawback rights for all incentive compensation awards and payments to provide for potential forfeiture or clawback in connection with violations of the Company’s ethics and compliance programs and policies, including its Code of Conduct and Code of Ethics to the extent allowed by law.

 

 

 

  Hedging

 

 

Our hedging policy prohibits officers (including executive officers) and Directors from engaging in transactions to hedge or offset value declines in the value of our stock such as short selling, put or call options, forward sale or purchase contracts, equity swaps and exchange funds.

 

 

 

  Pledging

 

 

 

Prohibits pledging of Company shares as collateral for a loan by Directors or elected officers.

 

 

(1)

Includes share equivalents and shares in retirement accounts and restricted stock.

 

(2)

Actual multiple based on beneficial ownership, excluding options (see page 57), and share price of $66.86 as of September 30, 2019.

 

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EXECUTIVE COMPENSATION

 

Severance, Executive Termination and Retirement

Emerson does not have employment agreements, severance agreements or golden parachute agreements with the NEOs. The terms of all executive terminations and retirements are determined by the Committee individually based on specific facts and circumstances and not on formulaic rules. We follow these general principles:

 

 

We do not pay lump sum, non-forfeitable cash severance payments.

 

 

As permitted under shareholder-approved plans, departing plan participants, including NEOs, may have additional time to exercise stock options, up to the time permitted in the original grants.

 

 

The Committee may allow continuation (without accelerated vesting) of previously granted performance shares or restricted stock awards, which would be paid if and when the Company achieves specified performance targets or time vesting requirements are met.

 

 

Departing executives sign extended non-competition, non-solicitation and confidentiality agreements, and/or reaffirm existing agreements on these matters. Executives forfeit awards if they breach their non-competition, non-solicitation or confidentiality agreements.

The Committee has adopted an Executive Officer Severance Policy which provides that the Company shall not implement individual severance or change of control agreements providing certain benefits (as described in the Policy) to any NEO in excess of 2.99 times the sum of the NEO’s then current base salary and most recent cash bonus without shareholder ratification. The policy is located at www.Emerson.com, Investors, Corporate Governance, Executive Officer Severance Policy.

Change of Control

If a change of control occurs, we protect all employees who participate in long-term stock plans, the Savings Investment Restoration Plans and the Pension Restoration Plan as described under “Potential Payments Upon Termination or Change of Control” at page 43 below. Our 2011 Stock Option Plan and 2015 Incentive Shares Plan include a “double trigger” for vesting following a change of control, although stock awards under our prior stock option and incentive shares plans vest upon a change of control. When triggered, we would expect to accelerate vesting of stock awards and pay accrued benefits under the Savings Investment Restoration Plans and the Pension Restoration Plan. We do not credit additional years of service under any plans or continue medical or other benefits. We do not make additional cash payments related to stock compensation plans. We do not increase payouts to cover payment of taxes and do not provide tax gross-ups.

Security and Perquisites

Due to increased security risks inherent in senior executive positions, we provide NEOs with residential security monitoring and personal security as needed. The Company’s security policy and the Board of Directors require that the Chairman and CEO use Company aircraft for all travel to promote business efficiency and safety given our global footprint. The Company provides limited personal use of Company aircraft to the other NEOs. All NEOs reimburse the Company at first class rates for personal use, calculated at the maximum rate prescribed under U.S. Treasury regulations. The Company also provides NEOs with cars, club memberships, financial planning and an annual physical. We believe these perquisites assist in retaining and attracting executives and are similar to those often provided at other similarly-sized companies. NEOs and other employees may receive Company tickets for sporting or other events. The Committee reviews these perquisites annually. Total perquisite costs and related information appear in the Summary Compensation Table on page 35. The Company does not provide any reimbursement for taxes on perquisites, except as may be prescribed in our relocation policies applicable to all employees.

Other Benefits

The NEOs are eligible for Company-provided benefits that are generally available to all other employees, including qualified 401(k) savings plans, a qualified defined-benefit pension plan, medical, life and disability insurance and a charitable matching gifts program, among others. The defined-benefit pension is being phased out, but a majority of U.S. employees, including the NEOs, continue to participate. The following additional benefits are also available to the NEOs:

 

 

Nonqualified savings plans which allow the NEOs to defer up to 20 percent of cash compensation and continue to receive the Company match after reaching the Internal Revenue Service (IRS) qualified plan limits.

 

 

A nonqualified defined-benefit pension plan, which provides benefits based on the qualified plan without regard to IRS limits but does not provide additional credited years of service. Participation is by award and based on the executive’s individual contributions and long-term service to the Company.

 

 

Term life insurance coverage.

 

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EXECUTIVE COMPENSATION

 

Regulatory Considerations

IRC Section 162(m) imposes a $1 million limit on the Company’s deductions for compensation paid to specified executive officers (“Covered Employees”). For taxable years beginning before January 1, 2018, the Covered Employees consisted of a corporation’s chief executive officer and up to three other highly compensated executive officers (other than the chief financial officer), and qualifying “performance-based compensation” was not subject to this limitation if specified requirements were met (i.e., compensation paid only if performance meets pre-established objective goals based on performance criteria approved by shareholders).

Pursuant to the Tax Cuts and Jobs Act of 2017, for taxable years beginning after December 31, 2017, (i) the remuneration of a public corporation’s chief financial officer is now also subject to the deduction limit, (ii) once an individual is considered a Covered Employee with respect to a taxable year, he or she will be considered a Covered Employee for all future years, including after termination of employment or death, and (iii) the exemption from the deduction limit for “performance-based compensation” is no longer available. These changes do not apply to remuneration provided under a binding written contract in effect on November 2, 2017, which is not materially modified after that date. Consequently, for fiscal years beginning after December 31, 2017, no remuneration in excess of $1 million paid to a Covered Employee will be deductible unless such compensation is granted pursuant to a written binding contract that was in effect prior to November 2, 2017.

While the Committee considers the impact of the tax treatment of executive compensation, the primary factor influencing program design is the support of business objectives, and the Committee retains the flexibility to design and administer compensation programs that are in the best interests of Emerson and its shareholders. The Committee does not communicate annual bonus targets to the NEOs. Our compensation plans also comply with IRC Section 409A for nonqualified deferred compensation arrangements.

In accordance with FASB ASC Topic 718, for financial statement purposes we expense all equity-based awards over the period earned, or subsequently, based upon their estimated grant date fair value, depending on the terms of the award. FASB ASC Topic 718 has not resulted in any significant changes in our compensation program design.

Equity Compensation Grant Practices

The Committee approves all grants of equity compensation to executive officers, as defined in Section 16 of the Exchange Act. All elements of executive officer compensation are reviewed by the Committee annually at its October or November meetings. Generally, equity awards are made at those meetings, but may be made at other meetings. The Committee meeting date, or the next business day if the meeting is on a non-business day, is the grant date for equity awards. The Committee has delegated to the CEO authority to grant stock options (1) to employees other than corporate officers and business unit Presidents, subject to the Committee’s prior approval of the aggregate number awarded, and (2) in connection with retention, promotion and acquisitions, which he uses on an infrequent basis. This delegation of authority does not extend to executive officers or other officers who are subject to the Company’s trading blackout policy.

Summary Compensation Table Analysis

Mr. Farr’s total annual compensation targeted for 2019 increased only slightly compared to 2018, resulting from a decreased bonus amount offset by a slight increase in performance shares award and other factors discussed above. Mr. Farr’s total compensation as shown in the Summary Compensation Table also includes an amount for the actuarial change in his pension value. This amount was significantly higher in 2019 compared to 2018 as a result of a lower applicable discount rate in 2019, over which the Committee has no control. No changes were made in the method of calculating NEO benefits.

Other than the effect of the increased actuarial pension calculations and the value of a special restricted stock award made to Mr. Karsanbhai in connection with his promotion, total compensation in the table for the other NEOs for 2019 was also comparable to 2018.

 

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Table of Contents

 

Compensation Tables

 

 

 

Summary Compensation Table

The following information relates to compensation received or earned by our Chief Executive Officer, our Chief Financial Officer, and each of our next four most highly compensated executive officers for the last fiscal year, (the “named executive officers” or “NEOs”).

 

Name and Principal Position

 

 

Fiscal
Year

 

 

Salary
($)

 

 

Bonus
($)(1)

 

 

Stock
Awards

($)(2)

 

 

Option

Awards

($)

 

 

 

Change in
Pension  Value
and
Nonqualified
Deferred
Compensation
Earnings($)(3)

 

 

All Other
Compensation
($)(4)

 

 

Total
($)

 

 

  D. N. Farr

 

  Chairman of the Board and

 

  Chief Executive Officer(5)

   

 

2019

   

 

1,400,000

      2,400,000       11,357,291             4,597,000       547,285       20,301,576
   

 

2018

   

 

1,350,000

      2,700,000       10,990,690                   568,837       15,609,527
   

 

2017

   

 

1,300,000

      2,500,000       7,736,250             526,000       486,278       12,548,528

 

  F. J. Dellaquila

 

  Senior Executive Vice President and

 

  Chief Financial Officer

   

 

2019

   

 

740,000

      1,175,000       2,677,238             2,423,000       124,208       7,139,446
   

 

2018

   

 

715,000

      1,300,000       3,340,560             490,000       127,463       5,973,023
   

 

2017

   

 

690,000

      1,150,000       3,610,250             538,000       108,370       6,096,620

 

  M. H. Train

 

  President(6)

 

   

 

2019

   

 

650,000

   

 

785,000

   

 

2,677,238

   

 

   

 

146,000

   

 

143,028

   

 

4,401,266

   

 

2018

   

 

570,000

   

 

750,000

   

 

3,568,150

   

 

   

 

   

 

81,448

   

 

4,969,598

                                                                               

 

  S. J. Pelch

 

  Chief Operating Officer and Executive Vice

 

  President – Organizational Development(7)

   

 

2019

   

 

600,000

   

 

785,000

   

 

2,677,238

   

 

   

 

295,000

   

 

96,117

   

 

4,453,355

   

 

2018

   

 

550,000

   

 

700,000

   

 

3,340,560

   

 

   

 

   

 

80,130

   

 

4,670,690

   

 

2017

   

 

460,000

   

 

500,000

   

 

3,094,500

   

 

   

 

35,000

   

 

65,369

   

 

4,154,869

 

  R. T. Sharp

 

  Executive President

 

  Commercial and Residential Solutions

   

 

2019

   

 

600,000

   

 

725,000

   

 

2,314,515

   

 

   

 

173,000

   

 

145,720

   

 

3,958,235

   

 

2018

   

 

560,000

   

 

750,000

   

 

3,568,150

   

 

   

 

   

 

95,135

   

 

4,973,285

                                                                               

 

  S. L. Karsanbhai

 

  Executive President

 

  Automation Solutions(8)

   

 

2019

   

 

525,000

   

 

675,000

   

 

3,005,415

   

 

   

 

163,000

   

 

217,038

   

 

4,585,453

 

(1)

Represent cash bonus amounts paid after the end of the fiscal year with respect to that fiscal year’s performance.

 

(2)

The amounts relate to performance shares awards to all NEOs for each year, restricted stock in 2019 for Mr. Karsanbhai, restricted stock in 2018 for Messrs. Dellaquila, Train, Pelch and Sharp, and restricted stock in 2017 for Messrs. Dellaquila and Pelch. See the Grants of Plan-Based Awards table at page 37 below for information on awards granted in fiscal 2019. The amounts reflect the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 and do not correspond to the actual value that will be realized by the NEOs. For performance shares awards granted in 2019, the grant date fair values were: Mr. Farr-$11,357,291, Messrs. Dellaquila, Train and Pelch-$2,677,238, and Messrs. Sharp and Karsanbhai-$2,314,515. For performance shares awards granted in 2018, the grant date fair values were: Mr. Farr-$10,990,690, Messrs. Dellaquila and Pelch-$2,668,260, and Messrs. Train and Sharp-$2,223,550. For performance shares awards granted in and shown for 2017, the grant date fair values were: Mr. Farr-$7,736,250 and Messrs. Dellaquila and Pelch-$2,578,750. If the maximum payout is earned, the number of performance shares paid out would be 125% for the 2019 performance shares awards, 145% for Mr. Farr and 155% for each of the other NEOs for the 2018 performance shares awards, and 125% for the 2017 awards, which would have amounted to the following grant date fair values for the awards shown: for 2019, Mr. Farr-$14,196,614, Messrs. Dellaquila, Train and Pelch-3,346,548, and for Messrs. Sharp and Karsanbhai-$2,893,144; for 2018, Mr. Farr-$15,936,501, Messrs. Dellaquila, and Pelch-4,135,803, and for Messrs. Train and Sharp-$3,446,503; for 2017, Mr. Farr-$9,670,313, and Messrs. Dellaquila and Pelch-$3,223,438. See Note 15 to the Company’s fiscal 2019 financial statements in the Company’s Annual Report on Form 10-K for a discussion of the determination of these amounts under FASB ASC Topic 718.

 

(3)

For each year, includes the aggregate change in the actuarial present value of the NEOs’ accumulated benefits under the Company’s defined benefit pension plans. For fiscal 2019, the applicable discount rate used to value pension plan liabilities was significantly decreased, which increased actuarial present values resulting in a significant increase in values shown. For fiscal 2018, the discount rate was increased, which negatively affected the actuarial present values resulting in a decrease in value for certain participants. In none of the fiscal years were changes made in the method of calculating plan benefits for the NEOs.

 

34       PROXY STATEMENT FOR EMERSON 2020 ANNUAL MEETING OF SHAREHOLDERS


Table of Contents

COMPENSATION TABLES

 

 

(4)

Includes the following amounts for 2019:

 

Name

 

  

Perquisites(a)

 

 

Savings Plan(b)

 

  

Life Insurance(c)

 

  

Total(d)

 

D. N. Farr

    

 

$420,235

   

 

$102,448

    

 

$24,602

    

 

$547,285

F. J. Dellaquila

    

 

$  49,997

   

 

$  50,974

    

 

$23,237

    

 

$124,208

M. H. Train

    

 

$  35,923

   

 

$105,010

    

 

$  2,095

    

 

$143,028

S. J. Pelch

    

 

$  53,768

   

 

$  32,448

    

 

$  9,901

    

 

$  96,117

R. T. Sharp

    

 

$103,642

(e)

   

 

$  33,708

    

 

$  8,370

    

 

$145,720

S. L. Karsanbhai

    

 

$182,272

(f)

   

 

$  34,766

    

 

$        

    

 

$217,038

 

  (a)

The perquisites provided are: tax and financial planning, leased Company car, club fees, annual physical, tickets for sporting or other events, relocation expenses, and costs related to personal security provided to each of the NEOs under the Company’s security program. The Company’s Board of Directors and its security program require that the Chairman and Chief Executive Officer use Company aircraft for all business and personal air travel. Mr. Farr reimburses the Company for personal air travel at first class rates. The Company also provides limited personal use of Company aircraft outside of the security program to the other NEOs, who also provide such reimbursement. Amounts for personal use of Company aircraft represent the incremental cost to the Company, calculated based on the variable operating costs per hour of operation, which include fuel costs, maintenance, and associated travel costs for the crew, less reimbursements. For Mr. Farr, the incremental amount of personal use of Company aircraft of $370,090 was included in the perquisites amount above.

 

  (b)

Contributions by the Company for the NEOs to the Company’s retirement savings plans.

 

  (c)

Premiums paid by the Company on behalf of the NEOs for term life insurance.

 

  (d)

None of these amounts were grossed up for taxes except as provided in (f) below.

 

  (e)

Includes club fees for fiscal 2018 and fiscal 2019 that were invoiced and reimbursed in fiscal 2019. In neither year did the amount exceed the quantification threshold.

 

  (f)

Includes $86,751 in relocation expenses and $37,847 in related tax reimbursements pursuant to the Company’s relocation policy applicable to all employees.

 

(5)

Mr. Farr does not receive any separate compensation for his service as a Director.

 

(6)

Mr. Train became President on October 1, 2018. He previously served as Executive President Automation Solutions.

 

(7)

Mr. Pelch became Chief Operating Officer on December 31, 2017.

 

(8)

Mr. Karsanbhai became Executive President Automation Solutions on October 1, 2018.

 

PROXY STATEMENT FOR EMERSON 2020 ANNUAL MEETING OF SHAREHOLDERS       35


Table of Contents

COMPENSATION TABLES

 

Grants of Plan-Based Awards

The following table provides information about equity awards granted to the NEOs in fiscal 2019.

 

Name

 

 

Grant
Date

 

 

 

Estimated Future Payouts Under Equity

Incentive Plan Awards

 

All Other

Stock Awards:

Number of

Shares of

Stock or

Units (#)(2)

 

 

 

All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)

 

 

Exercise

or Base

Price of

Option

Awards

($/Sh)

 

 

Grant

Date Fair

Value of

Stock and

Option

Awards

($)(3)

 

 
 

Threshold (#)

 

 

Target (#)(1)

 

 

Maximum (#)(1)

 

 

D. N. Farr

 

 

11/6/2018

 

 

N/A

 

 

164,384

 

 

205,480

             

 

 

 

11,357,291

 

 

 

F. J. Dellaquila

 

 

11/6/2018

 

 

N/A

 

 

  38,750

 

 

  48,438

             

 

 

 

2,677,238

 

 

 

M. H. Train

 

 

11/6/2018

 

 

N/A

 

 

  38,750

 

 

  48,438

             

 

 

 

2,677,238

 

 

 

S. J. Pelch

 

 

11/6/2018

 

 

N/A

 

 

  38,750

 

 

  48,438

             

 

 

 

2,677,238

 

 

 

R. T. Sharp

 

 

11/6/2018

 

 

N/A

 

 

  33,500

 

 

  41,875

             

 

 

 

2,314,515

 

 

 

S. L. Karsanbhai

 

 

11/6/2018

 

 

N/A

 

 

  33,500

 

 

  41,875

       

 

 

 

2,314,515

 

 

   

 

11/6/2018

 

             

 

10,000

 

         

 

 

 

 

690,900

 

 

 

 

 

(1)

Includes performance shares awards granted in November 2018 under the Fiscal 2019–2021 Performance Shares Program (under our 2015 Incentive Shares Plan). See “Annual Long-Term Stock Compensation” at page 27 above for additional detail regarding the program, performance shares and how shares are earned.

 

(2)

Includes restricted stock granted in fiscal 2019 under the 2015 Incentive Shares Plan which cliff vests over 10 years from the date of grant. Please see “Restricted Stock” at page 31 above for additional information regarding restricted stock awards.

 

(3)

Includes the grant date fair value of awards of restricted stock and performance shares computed in accordance with FASB ASC Topic 718, applying the same valuation model and assumptions applied for financial reporting purposes. These amounts do not correspond to the actual value that will be realized by the NEOs. For performance awards, the grant date fair value included assumes the target award is earned. Amounts expensed for performance shares awards in the Company’s financial statements during the performance period reflect the grant date fair value of the award expensed over the performance period, adjusted to current value each year, which varies depending upon stock price and the probability that targets will be reached, and therefore will generally not be equal to the grant date fair value reported above. For restricted stock, the aggregate amount that the Company would expense in its yearly financial statements over the vesting period is equal to the grant date fair value reported above. See Note 15 to the Company’s fiscal 2019 financial statements in the Company’s Annual Report on Form 10-K for a discussion of the determination of these amounts.

 

36       PROXY STATEMENT FOR EMERSON 2020 ANNUAL MEETING OF SHAREHOLDERS


Table of Contents

COMPENSATION TABLES

 

Outstanding Equity Awards at Fiscal Year-End

The following table provides holdings of stock options, performance shares and restricted stock by our NEOs at the end of fiscal 2019, including unexercised stock options, unvested restricted stock and performance shares with performance conditions that had not yet been satisfied.

 

 

 

Option Awards

 

   

Stock Awards

 

 
                           

Name

 

Date of
Award

 

Number of
Securities
Underlying
Unexercised
Options  (#)
Exercisable
(1)

 

Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
(1)

 

Option
Exercise
Price
($)

 

Option

Expiration

Date

 

   

Date of

Award

 

Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)

 

Market
Value of
Shares or
Units of
Stock That
Have Not

Vested
($)(3)

 

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

 

Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested ($)(3)

 

 

D. N. Farr

 

10/4/10

 

 

203,105

 

 

53.31

 

 

10/4/20

 

 

(2)

 

 

100,000(2)

 

 

6,686,000

 

 

10/1/13

 

 

200,000

 

 

65.07

 

 

10/1/23

 

 

11/7/17

 

 

173,000(4)

 

 

11,566,780

 

 

11/6/18

 

 

164,384(5)

 

 

10,990,714

 

F. J. Dellaquila

 

10/4/10

 

 

46,563

 

 

53.31

 

 

10/4/20

 

 

(2)

 

 

60,000(2)

 

 

4,011,600

 

 

10/1/13

 

 

100,000

 

 

65.07

 

 

10/1/23

 

 

11/7/17

 

 

42,000(4)

 

 

2,808,120

 

 

11/6/18

 

 

38,750(5)

 

 

2,590,825

 

M. H. Train

 

10/4/10

 

 

18,000

 

 

53.31

 

 

10/4/20

 

 

(2)

 

 

40,000(2)

 

 

2,674,400

 

 

10/1/13

 

 

22,000

 

 

65.07

 

 

10/1/23

 

 

11/7/17

 

 

35,000(4)

 

 

2,340,100

 

 

11/3/15

 

 

22,000

 

 

49.64

 

 

11/3/25

 

 

11/6/18

 

 

38,750(5)

 

 

2,590,825

 

S. J. Pelch

 

10/4/10

 

 

5,379

 

 

53.31

 

 

10/4/20

 

 

(2)

 

 

45,000(2)

 

 

3,008,700

 

 

10/1/13

 

 

15,000

 

 

65.07

 

 

10/1/23

 

 

11/7/17

 

 

42,000(4)

 

 

2,808,120

 

 

11/6/18

 

 

38,750(5)

 

 

2,590,825

 

R.T. Sharp

 

10/1/13

 

 

15,000

 

 

65.07

 

 

10/1/23

 

 

(2)

 

 

45,000(2)

 

 

3,008,700

 

 

2/2/15

 

 

15,000

 

 

58.97

 

 

2/2/25

 

 

11/7/17

 

 

35,000(4)

 

 

2,340,100

 

 

11/6/18

 

 

33,500(5)

 

 

2,239,810

 

S.L. Karsanbhai

 

10/4/10

 

 

9,000

 

 

53.31

 

 

10/4/20

 

 

(2)

 

 

20,000(2)

 

 

1,337,200

 

 

10/1/13

 

 

10,000

 

 

65.07

 

 

10/1/23

 

 

11/7/17

 

 

14,000(4)

 

 

936,040

 

 

8/5/14

 

 

4,000

 

 

62.84

 

 

8/5/24

 

 

11/6/18

 

 

33,500(5)

 

 

2,239,810

 

 

2/1/16

 

 

15,000

 

 

45.50

 

 

2/1/26

 

 

(1)

The options became exercisable in three equal annual installments beginning one year after the date of grant.

 

PROXY STATEMENT FOR EMERSON 2020 ANNUAL MEETING OF SHAREHOLDERS       37


Table of Contents

COMPENSATION TABLES

 

 

(2)

Consists of restricted stock which vests as follows:

 

  Name

 

 

Number of

Shares

 

 

Vesting Term

(in years)

 

Grant Date

 

 Vesting Date 

 

D. N. Farr

 

100,000

 

5

 

11/4/2014

 

11/4/2019

F. J. Dellaquila

 

20,000

 

10

 

10/5/2009

 

10/5/2019

 

10,000

 

8

 

10/1/2013

 

10/1/2021

 

20,000

 

5

 

11/1/2016

 

11/1/2021

 

10,000

 

5

 

4/30/2018

 

4/30/2023

M. H. Train

 

10,000

 

10

 

10/1/2012

 

10/1/2022

 

10,000

 

10

 

10/7/2014

 

10/7/2024

 

20,000

 

5

 

4/30/2018

 

4/30/2023

S. J. Pelch

 

10,000

 

10

 

10/1/2013

 

10/1/2023

 

15,000

 

10

 

11/3/2015

 

11/3/2025

 

10,000

 

5

 

11/1/2016

 

11/1/2021

 

10,000

 

5

 

4/30/2018

 

4/30/2023

R.T. Sharp

 

10,000

 

10

 

10/1/2012

 

10/1/2022

 

15,000

 

10

 

2/1/2016

 

2/1/2026

 

20,000

 

5

 

4/30/2018

 

4/30/2023

S. L. Karsanbhai

 

10,000

 

10

 

2/1/2016

 

2/1/2026

 

10,000

 

10

 

11/6/2018

 

11/6/2028

 

(3)

Based on the closing share price of $66.86 on September 30, 2019.

 

(4)

Consists of performance shares awards granted in fiscal 2018 under the fiscal 2018 – 2020 Performance Shares Program (under our 2015 Incentive Shares Plan), subject to performance goals for the period ending September 30, 2020. The number of shares that can be earned at 100% achievement of performance targets under these awards are shown in this column. Participants can earn up to between 125% and 155% of the target, other than Mr. Karsanbhai who can earn up to 175%. Mr. Karsanbhai was not in his current position or a NEO at the time the award was made.

 

(5)

Consists of performance shares awards granted in fiscal 2019 under the fiscal 2019 – 2021 Performance Shares Program (under our 2015 Incentive Shares Plan), subject to performance goals for the period ending September 30, 2021. The number of shares that can be earned at 100% achievement of performance targets under these awards are shown in this column. Participants can earn up to 125% of the target.

 

38       PROXY STATEMENT FOR EMERSON 2020 ANNUAL MEETING OF SHAREHOLDERS


Table of Contents

COMPENSATION TABLES

 

Option Exercises and Stock Vested

The following table provides the number of shares acquired and value realized for our NEOs in fiscal 2019 for stock option exercises, performance shares awards earned and vested restricted stock.

 

    

 

Option Awards

 

  

 

Stock Awards

 

Name

 

  

 

Number of Shares

Acquired on Exercise
(#)

 

  

 

Value Realized

on Exercise

($)(1)

 

  

 

Number of Shares

Acquired on Vesting

(#)(3)

 

 

 

 Value Realized 

on Vesting

($)(4)

 

D. N. Farr

    

 

46,895

    

 

440,016

    

 

160,500

(2)

   

 

11,710,883

                            

 

100,000

(3)

   

 

7,751,000

F. J. Dellaquila

              

 

53,500

(2)

   

 

3,903,628

                            

 

10,000

(3)

   

 

775,100

M. H. Train

              

 

42,800

(2)

   

 

3,122,902

                            

 

10,000

(3)

   

 

775,100

S. J. Pelch

                          

 

53,500

(2)

   

 

3,903,628

R. T. Sharp

              

 

42,800

(2)

   

 

3,122,902

                            

 

10,000

(3)

   

 

775,100

S. L. Karsanbhai

                          

 

18,190

(2)

   

 

1,327,233

 

(1)

Represents the difference between the option exercise price and the average of the high and low share prices for the Company’s common stock on the day of exercise.

 

(2)

Reflects the earnings of performance shares granted in 2017 under the Fiscal 2017 – 2019 Performance Shares Program. The performance shares were subject to performance goals for the period ending September 30, 2019, and the percentage earned was 107%. Awards were paid out on November 5, 2019. See “Annual Long-Term Stock Compensation” at page 28 above for additional information regarding the program.

 

(3)

Represents the vesting of 100,000 shares for Mr. Farr and 10,000 shares of restricted stock for the other identified NEOs, respectively, with vesting terms of 10 years.

 

(4)

Values realized for performance shares earned are based on the average of the high and low share prices ($72.965) on November 5, 2019, the date the Compensation Committee determined that the performance targets for the performance period ended September 30, 2019 had been met. Values realized for restricted stock are based on the average of the high and low share price ($77.51) on October 7, 2018, the date of vesting.

Pension Benefits

Below is information on the pension benefits for the NEOs under each of the following pension plans.

Emerson Retirement Plan

The Emerson Electric Co. Retirement Plan is a tax-qualified retirement program that covered approximately 40,000 participants on September 30, 2019, including the NEOs. Plan benefits are based primarily on a formula that considers the highest consecutive five-calendar-year average of the executive’s annual cash earnings, base salary plus bonus (final average earnings), not to exceed the IRS-prescribed limit applicable to tax-qualified plans ($280,000 for calendar year 2019).

The plan provides an annual benefit accrual for each year of service of 1.0% of final average earnings up to “covered compensation” and 1.5% of final average earnings in excess of “covered compensation,” limited to 35 years of service. When the employee has attained 35 years of service, the annual accrual is 1.0% of final average earnings. “Covered compensation” is based on the average of Social Security taxable wage bases, and varies per individual based on Social Security retirement age. A small portion of the accrued benefits payable from the plan for Messrs. Farr, Train and Pelch includes benefits determined under different but lesser pension formulas for periods of prior service at Company business units. In addition, Messrs. Train and Karsanbhai are no longer accruing pension benefit service under the plan.

The accumulated benefit that an employee earns over his or her career with the Company is payable upon retirement as a monthly annuity for life with a guaranteed minimum term of five years. The normal retirement age for this plan is 65. Employees who have attained age 55 and 10 years of service are eligible to retire early under the plan. As of September 30, 2019, Messrs. Farr, Dellaquila, Train and Pelch are eligible for early retirement. If an employee retires before age 65, the accrued benefit is reduced for the number of

 

PROXY STATEMENT FOR EMERSON 2020 ANNUAL MEETING OF SHAREHOLDERS       39


Table of Contents

COMPENSATION TABLES

 

years prior to age 65 that the benefit commences (4% for each of the first five years that retirement precedes age 65, and 5% for each additional year). Employees vest in their accrued benefit after five years of service. The plan provides for spousal joint and survivor annuity options. No employee contributions are required.

Benefits under the plan are subject to the limitations under IRC Section 415, which in fiscal 2019 was $225,000 per year for a single life annuity payable at an IRS-prescribed retirement age. This limitation may be actuarially adjusted in accordance with IRS rules for items such as other forms of distribution and different annuity starting dates.

Emerson Pension Restoration Plan

The Emerson Electric Co. Pension Restoration Plan is a non-qualified plan that is an unfunded obligation of the Company. Benefits are payable from the Company’s general operating funds. Participation in, and benefits payable from, the plan are by award, subject to Compensation Committee approval. A participant who terminates employment with a vested retirement benefit will receive at age 65 or later termination of employment a benefit based on the same final average earnings formula as described above for the Emerson Retirement Plan, for all years of service at Emerson, and not subject to the IRS-prescribed limitations on benefits and compensation applicable to the Emerson Retirement Plan. The benefit payable from the Pension Restoration Plan is reduced by the benefit received from the Emerson Retirement Plan. Benefits payable from the Pension Restoration Plan are generally payable as a monthly annuity for life with a guaranteed minimum term of five years, provided that in certain circumstances a participant or a participant’s beneficiary may be eligible to receive a lump sum payment. If an NEO is terminated for cause or engages in actions that adversely affect the Company, the benefits may be forfeited. No pension benefits were paid to any of the NEOs during fiscal 2019.

The amounts reported in the table below equal the present value of the accumulated benefit at September 30, 2019 for the NEOs under each plan based upon the assumptions described in footnote (2).

 

 

Pension Benefits Table

   

Name

 

 

Plan Name

 

  

Number

Of Years Credited

Service (#)(1)

 

  

Present

Value of
Accumulated

Benefit ($)(2)

 

    

Payments

During Last

Fiscal Year ($)

 

   

 

D. N. Farr

 

 

Emerson Electric Co. Retirement Plan

Emerson Electric Co. Pension Restoration Plan

 

  

 

39

39

 

  

 

$

$

 

 

1,975,000

27,669,000

 

 

 

 

 

  

 

 

   

 

F. J. Dellaquila

 

 

Emerson Electric Co. Retirement Plan

Emerson Electric Co. Pension Restoration Plan

 

  

 

28

28

 

  

 

$

$

 

 

1,395,000

8,624,000

 

 

 

 

 

  

 

 

   

 

M. H. Train(3)

 

 

 

Emerson Electric Co. Retirement Plan

 

  

 

18

 

  

 

$

 

 

720,000

 

 

 

 

  

 

 

   

 

S. J. Pelch

 

 

 

Emerson Electric Co. Retirement Plan

 

  

 

33

 

  

 

$

 

 

1,208,000

 

 

 

 

  

 

 

   

 

R. T. Sharp

 

 

 

Emerson Electric Co. Retirement Plan

 

  

 

17

 

  

 

$

 

 

589,000

 

 

 

 

  

 

 

   

 

S. L. Karsanbhai(3)

 

 

 

Emerson Electric Co. Retirement Plan

 

  

 

20

 

  

 

$

 

 

635,000

 

 

 

 

  

 

 

   

 

(1)

The number of years of service credited under the plans is computed as of the same pension plan measurement date used for financial statement reporting purposes with respect to the Company’s financial statements for the last completed fiscal year.

 

(2)

The accumulated benefit is based on service and earnings under the plans through September 30, 2019. The present value has been calculated assuming the accumulated benefit as of September 30, 2019 commences at age 65, or current age if older, under the stated form of annuity. In addition, the present value of the Emerson Pension Restoration Plan benefit assumes that the NEO will remain in service until age 65. Except for the assumption that the NEOs remain in service through age 65, the present value is based on the assumptions described in Note 11 to the Company’s fiscal year 2019 financial statements in the Company’s Annual Report on Form 10-K. Specifically, the interest rate assumption is 3.23% for the Emerson Retirement Plan and 3.11% for the Emerson Restoration Plan and the post-retirement mortality assumption is a based on PRI-2012 no collar, annuitant, sex distinct tables projected forward with MP-2016 grading linearly to 0.75% over 20 years (by 2032).

 

(3)

Messrs. Train and Karsanbhai no longer actively participate in the Retirement Plan and do not accrue additional service credit.

Nonqualified Deferred Compensation

The Emerson Electric Co. Savings Investment Restoration Plan (the “Savings Investment Restoration Plan I”) and the Emerson Electric Co. Savings Investment Restoration Plan II (the “Savings Investment Restoration Plan II” and together with the Savings Investment Restoration Plan I, collectively, the “Savings Investment Restoration Plans”) are nonqualified, unfunded defined contribution plans. The plans provide benefits that would have been provided under the Emerson Electric Co. Employee Savings Investment Plan, the Company’s qualified 401(k) plan (the “ESIP”), but could not be provided due to IRC qualified plan compensation limits.

 

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Participants in the Savings Investment Restoration Plans are designated by the Compensation Committee. Participants may defer up to 20% of compensation and the Company will make matching contributions for participants who defer at least 5% of compensation in an amount equal to: (a) for the Savings Investment Restoration Plan I, 50% of the first 5% of those deferrals (not to exceed 2.5% of compensation less the maximum matching amount the participant could have received under the ESIP); and (b) for the Savings Investment Restoration Plan II, 7.5% of the participant’s compensation less (x) the maximum matching amount the participant could have received under the ESIP and (y) any other contribution for the applicable year made on behalf of the participant under the ESIP. Compensation generally includes cash pay (base salary and annual bonus) received by a participant, including employee ESIP contributions, and excludes any reimbursements, awards or other payments under equity compensation plans, stock option gains, any severance payments and other incentive payments. Amounts deferred under the plan are 100% vested and will be credited with returns based on the same investment alternatives selected by the participant under the ESIP, which include an Emerson common stock fund and more than 20 other mutual fund investment alternatives. The Company matching contributions vest 20% each year for the first 5 years of service, after which the participant is 100% vested in all contributions. The matching contributions are credited to a book-entry account reflecting units equivalent to Emerson stock. There are no “above-market earnings” as all earnings are market-based consistent with the investment funds elected. All deferred amounts and Company matching contributions are accounted for on the Company’s financial statements and are unfunded obligations of the Company and paid in cash when benefit payments commence.

Generally, distribution of vested account balances occurs in a lump sum no later than one year following termination of employment. Upon retirement, or in other certain instances, participants may receive their account balances in up to 10 equal annual installments, if previously elected. Unvested matching contributions become fully vested upon (i) retirement with Compensation Committee approval on or after the age of 55, (ii) death or disability, (iii) termination of the plan, or (iv) a change of control of the Company. Additionally, under the Savings Investment Restoration Plan II, a participant will be entitled to payment of vested matching contributions only if the Compensation Committee determines that such participant is an executive in good standing at the time the executive terminates employment (whether upon retirement or otherwise); provided, that if such participant is discharged for cause and/or engages in other activity that is harmful to or competitive with the Company, the rights of such participant to such amount will be forfeited and any such amount that has previously been paid to the participant may be recovered by the Company, unless the Committee determines that such activity is not detrimental to the best interests of the Company. All or a portion of any participant’s vested account balance may be distributed earlier in the event of an unforeseeable emergency, if approved by the Compensation Committee. For amounts deferred or vested as of December 31, 2004, a participant may receive a distribution of after-tax deferrals upon 30 days’ notice.

 

 

Nonqualified Deferred Compensation Table

 

Name

 

  

Executive

Contributions

in Last FY

($)(1)

 

  

Emerson

Contributions
in Last FY

($)(1)

 

  

Aggregate

Earnings

in Last FY

($)(2)

 

  

Aggregate

Withdrawals/

Distributions

($)

 

  

Aggregate
Balance at
Last FYE

($)(1)(3)

 

 

D. N. Farr

 

    

 

 

 

 

449,333

 

 

 

    

 

 

 

 

94,198

 

 

 

    

 

 

 

 

221,882

 

 

 

    

 

 

 

 

 

 

 

    

 

 

 

 

13,893,057

 

 

 

 

F. J. Dellaquila

 

    

 

 

 

 

142,727

 

 

 

    

 

 

 

 

42,724

 

 

 

    

 

 

 

 

161,733

 

 

 

    

 

 

 

 

 

 

 

    

 

 

 

 

4,420,341

 

 

 

 

M. H. Train

 

    

 

 

 

 

91,500

 

 

 

    

 

 

 

 

84,552

 

 

 

    

 

 

 

 

23,569

 

 

 

    

 

 

 

 

 

 

 

    

 

 

 

 

558,011

 

 

 

 

S. J. Pelch

 

    

 

 

 

 

173,667

 

 

 

    

 

 

 

 

27,198

 

 

 

    

 

 

 

 

17,038

 

 

 

    

 

 

 

 

 

 

 

    

 

 

 

 

1,487,110

 

 

 

 

R. T. Sharp

 

    

 

 

 

 

134,833

 

 

 

    

 

 

 

 

25,458

 

 

 

    

 

 

 

 

19,055

 

 

 

    

 

 

 

 

 

 

 

    

 

 

 

 

649,192

 

 

 

 

S. L. Karsanbhai

 

    

 

 

 

 

18,594

 

 

 

    

 

 

 

 

19,141

 

 

 

    

 

 

 

 

3,014

 

 

 

    

 

 

 

 

 

 

 

    

 

 

 

 

109,398

 

 

 

 

(1)

Includes amounts contributed by each NEO and by the Company, respectively, to the Savings Investment Restoration Plans. NEO and Company contributions in the last fiscal year have been included in the Salary and All Other Compensation columns, respectively, of the Summary Compensation Table.

 

(2)

Aggregate earnings under the plan are not above-market and are not included in the Summary Compensation Table.

 

(3)

Includes amounts reported as compensation for the NEOs in the Summary Compensation Table for prior years. The following aggregate amounts of NEO and Company contributions were included in the Summary Compensation Table for fiscal 2018 and 2017, respectively (with the Company portion of the aggregate amount in parentheses): Mr. Farr-$395,931 ($88,098), $307,050 ($67,050); Mr. Dellaquila-$196,182 ($38,555), $192,007 ($33,019), Mr. Train-$428,219 ($28,031); Mr. Pelch-$175,184 ($20,917); $104,154 ($15,057); and Mr. Sharp-$139,921 ($21,504). For prior years, all amounts contributed by an NEO and by the Company have been reported in the Summary Compensation Table in our previously filed proxy statements in the year earned, to the extent the NEO was named in such proxy statements and the amounts were required to be reported in such tables.

 

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COMPENSATION TABLES

 

Potential Payments Upon Termination or Change of Control

As described above, the NEOs do not have any written or oral employment agreements with the Company and have no other agreements that contain severance or “golden parachute” provisions.

The information below generally describes payments or benefits under the Company’s compensation plans and arrangements that would be available to all participants in the plans, including the NEOs, in the event of the participant’s termination of employment or of a Change of Control of the Company. Any such payments or benefits that an NEO has elected to defer would be provided in accordance with IRC Section 409A. Payments or benefits under other plans and arrangements that are generally available to the Company’s employees on similar terms are not described.

Conditions and Obligations Applicable to Receipt of Termination/Change of Control Payments

In the event of any termination or Change of Control, all executives participating in stock options, performance shares, restricted stock or the Pension Restoration Plan have the following obligations to the Company.

Stock Options. NEOs are obligated to keep Company information confidential, assign to the Company intellectual property rights, and, during and for one year after termination, not compete with, or solicit the employees of, the Company.

Performance Shares and Restricted Stock. NEOs are obligated not to compete with, or solicit the employees of, the Company during and for two years after termination. For awards granted from November 2018, the awards are also conditioned upon the participant’s compliance with all practices and policies under Emerson’s Ethics and Compliance Program, including the Code of Conduct and Code of Ethics, and that a participant’s actions will reflect Emerson’s Core Value of Integrity. Violations of such Ethics and Compliance Program may result in the forfeiture of such awards or the repayment of any amounts paid under such awards.

Pension Restoration Plan. If an NEO is discharged for cause, enters into competition with the Company, interferes with the Company’s relations with a customer, or engages in any activity that would result in a decrease in sales by the Company, the NEO’s rights to benefits under the Plan will be forfeited, unless the Compensation Committee determines that the activity is not detrimental to the Company.

Savings Investment Restoration Plans. The NEO’s rights to benefits under the Savings Investment Restoration Plan II will be forfeited if the NEO is (a) not in good standing at the time the NEO terminates employment (whether upon retirement or otherwise) as determined by the Compensation Committee, or (b) is discharged for cause, enters into competition with the Company, interferes with the Company’s relations with a customer, or engages in any activity that would result in a decrease in sales by the Company, unless the Compensation Committee determines that the activity is not detrimental to the Company.

Additionally, upon retirement or involuntary termination, NEOs generally execute letter agreements reaffirming their applicable confidentiality, non-competition and non-solicitation obligations and may enter into extended non-competition agreements.

Payments Made Upon Retirement

Upon retirement, the Company’s compensation plans and arrangements provide as follows:

 

 

The Compensation Committee has the discretion to determine whether any annual cash bonus award would be paid, subject to satisfaction of pre-established performance conditions;

 

 

Upon retirement, as determined by the Compensation Committee, all unvested stock options held for at least 12 months before retirement would vest, and all unexercised options could be exercised for a period of five years after retirement, up to the original option term;

 

 

Upon retirement after age 65, the NEOs would receive a prorated payout of performance shares, as reasonably determined by the Compensation Committee, subject to satisfaction of pre-established performance conditions, to be paid after the applicable performance period. Before age 65, the Compensation Committee has the discretion to determine whether a NEO would receive a prorated, other or no payout of performance shares, which payout would be made after the performance period, subject to the satisfaction of performance conditions;

 

 

The Compensation Committee has the discretion to determine whether to allow the NEOs to continue to vest in restricted stock following retirement, or to reduce the vesting period to not less than three years;

 

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If not previously vested, the NEOs would be vested in Company contributions to the Savings Investment Restoration Plans if retirement occurs with the approval of the Compensation Committee on or after age 55; and

 

 

Under the Company’s Pension Restoration Plan, an NEO’s benefit commences after age 65 or later retirement and is paid as a monthly annuity, or a lump sum if elected.

Payments Made Upon Death or Disability

Upon death or total disability, the Company’s compensation plans and arrangements provide as follows:

 

 

The Compensation Committee has the discretion to determine whether any annual cash bonus award would be paid, subject to satisfaction of pre-established performance conditions;

 

 

All unvested stock options would vest immediately, and be exercisable for a period of one year, up to the original option term;

 

 

The Compensation Committee has the discretion to determine whether the NEOs would receive full, partial or no payout of performance shares after the performance period and subject to satisfaction of pre-established performance conditions;

 

 

Restricted stock will be prorated for years of service during the vesting period and distributed free of restriction at the end of the vesting period, with Compensation Committee discretion to reduce the vesting period to not less than three years;

 

 

If not previously vested, the NEOs would vest in Company contributions to the Savings Investment Restoration Plans;

 

 

Upon the death of an NEO participating in the Pension Restoration Plan, the surviving spouse would receive, in the form of a monthly annuity payment commencing at the NEO’s earliest retirement date, 50% of the actuarially equivalent accrued benefit. The estate of a single person who dies while employed will receive a lump sum benefit as of the date of death which is actuarially equivalent to the annuity that the surviving spouse of a married person would have received. Upon termination due to disability, benefits would start the later of when the NEO reaches age 65 or termination, and be paid in the form of a monthly annuity or a lump sum distribution; and

 

 

Upon an NEO’s death, the beneficiaries would receive proceeds from Company provided term life insurance.

Payments Made Upon Other Termination

If an NEO’s employment terminates for any other reason (i.e., voluntary termination, termination for cause or involuntary

termination), he or she would only receive:

 

 

Payment of the vested portion of the NEO’s accounts in the Savings Investment Restoration Plans, in a single lump sum after termination, subject, in the case of any Savings Investment Restoration Plan II account, to (i) the Compensation Committee’s determination that the NEO is in good standing at the time of the termination, and (ii) the NEO not being discharged for cause or engaging in other activity that is harmful to or competitive with the Company, as provided under the Savings Investment Restoration Plan II.

Under the Company’s compensation plans and arrangements, the Compensation Committee may also, in its discretion, determine whether to provide any additional payments or benefits to the NEO. This exercise of discretion is unlikely to result in any additional benefits in the case of a voluntary resignation or termination for cause. This includes the discretion to:

 

 

Determine whether any annual cash bonus award would be paid, subject to satisfaction of pre-established performance conditions;

 

 

If termination occurs with Company consent, the Compensation Committee may allow the NEO up to three months after termination, up to the original option term, to exercise vested stock options;

 

 

Determine whether the NEO would receive full, partial or no payout of performance shares after the performance period and subject to satisfaction of pre-established performance conditions;

 

 

Determine whether to allow the NEO to continue to vest in restricted stock, or to reduce the vesting period to not less than three years; and

 

 

Determine whether an NEO terminated for cause or for engaging in actions that adversely affect the Company will forfeit the right to receive vested benefits under the Pension Restoration Plan starting after the later of age 65 or termination, paid in the form of a monthly annuity or a lump sum distribution.

Payments Made Upon Change of Control

Upon a Change of Control, the Company’s compensation plans and arrangements provide as follows:

 

 

Annual cash bonus awards are not paid;

 

 

All unvested stock options become fully exercisable if either the options have not been appropriately assumed by the acquiror, or within two years after the change of control, the optionee is involuntarily terminated other than for cause, the optionee’s title, duties or responsibilities are adversely changed, or the optionee is required to relocate;

 

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Performance objectives of outstanding performance shares awards would be deemed satisfied, with payout made immediately. For performance shares granted under the shareholder approved 2015 Incentive Shares Plan, performance objectives would be deemed satisfied at the highest level provided for in the award, if a “double trigger” event occurs, meaning that in connection with a change of control (a) the award has not been appropriately assumed or an equivalent award substituted by the acquiror, (b) cash is the primary form of consideration paid to shareholders, or (c) following the change of control, the holder is involuntarily terminated other than for cause, or within two years after the change of control, the holder’s title, duties or responsibilities are adversely changed, or the holder is required to relocate by more than 50 miles;

 

 

All restricted stock awarded under the 2006 Incentive Shares Plan would vest immediately. Restricted stock and restricted stock units awarded under the 2015 Incentive Shares Plan would vest immediately if a “double trigger” event (as defined above) occurs;

 

 

The NEO would vest in all unvested Company contributions to the Savings Investment Restoration Plans, and the vested amount would be paid in a single lump sum; and

 

 

An NEO participating in the Pension Restoration Plan would become fully vested and could elect immediate payment in the form of a lump sum or a life annuity. In early fiscal 2016, for benefits accruing after 2004, the Plan was amended to conform the assumptions used in calculating lump sums payable to the assumptions used by the Company to accrue liabilities with respect to U.S. retirement plans for financial reporting purposes, as set forth in the Company’s Annual Report on Form 10-K.

“Change of Control” Definition

“Change of Control” generally means: (i) the acquisition of beneficial ownership of 20% or more of the Company’s common stock, (ii) individuals who currently make up the Company’s Board of Directors (or who subsequently become Directors after being approved for election by at least a majority of current Directors) ceasing to make up at least a majority of the Board, or (iii) approval by the Company’s shareholders of (a) a reorganization, merger or consolidation which results in the ownership of 50% or more of the Company’s common stock by persons or entities that were not previously shareholders; (b) a liquidation or dissolution of the Company; or (c) the sale of substantially all of the Company’s assets. With respect to participants who have deferred payment of earned awards under the 2006 Incentive Shares Plan, and as provided for in the 2015 Incentive Shares Plan, the Change of Control must also meet the requirements of IRC Section 409A and any transaction referenced in (iii) above must have actually occurred, rather than merely have been approved. With respect to the Company’s Pension Restoration Plan and Savings Investment Restoration Plans, a Change of Control refers to a change in the ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company, as such terms are defined under IRC Section 409A and the regulations promulgated thereunder.

Quantification of Payments and Benefits

The following tables quantify the potential payments and benefits upon termination or a Change of Control for each of the NEOs, assuming the event occurred on September 30, 2019, given the NEO’s compensation and service level as of that date and, if applicable, based on the Company’s closing share price of $66.86 on that date. Other benefit assumptions are set forth in footnotes to the tables. Due to the number of factors that affect the nature and amount of benefits provided upon a termination or Change of Control any actual amounts paid or distributed may be different. None of the payments set forth below would be grossed-up for taxes.

 

  D. N. Farr

                         

Executive Benefits and

Payments Upon Termination

 

 

Retirement

($)

 

  

Death

($)

 

  

Disability

($)

 

 

 

Voluntary or For
Cause Term.

($)

 

 

Invol. Term. not
for Cause

($)

 

 

Change of
Control

($)(13)

 

Annual Cash Incentive

   

 

(1)

    

 

(1)

    

 

(1)

   

 

(2)

   

 

(1)

   

 

—(3)  

 

Stock Options

   

 

(4)

    

 

(4)

    

 

(4)

   

 

   

 

   

 

—(4)  

 

Performance Shares

   

 

(5)(6)

    

 

(5)(6)

    

 

(5)(6)

   

 

(2)(5)

   

 

(5)(6)

   

 

30,510,224(7)  

 

Restricted Stock

   

 

(8)

    

 

6,686,000

(9)

    

 

6,686,000

(9)

   

 

(8)

   

 

(8)

   

 

6,686,000(10)

 

Pension Restoration Plan(11)

   

 

    

 

    

 

   

 

   

 

   

 

—      

 

Life Insurance Benefits

   

 

    

 

200,000

(12)

    

 

   

 

   

 

   

 

—      

 

 

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COMPENSATION TABLES

 

 

  F. J. Dellaquila

                         

Executive Benefits and

Payments Upon Termination

 

 

Retirement

($)

 

  

Death

($)

 

  

Disability

($)

 

 

 

Voluntary or For
Cause Term.

($)

 

 

Invol. Term. not
for Cause

($)

 

 

Change of
Control

($)(13)

 

Annual Cash Incentive

   

 

(1)

    

 

(1)

    

 

(1)

   

 

(2)

   

 

(1)

   

 

—(3)  

 

Stock Options

   

 

(4)

    

 

(4)

    

 

(4)

   

 

   

 

   

 

—(4)  

 

Performance Shares

   

 

(5)(6)

    

 

(5)(6)

    

 

(5)(6)

   

 

(2)(5)

   

 

(5)(6)

   

 

7,591,117(7)  

 

Restricted Stock

   

 

(8)

    

 

2,774,690

(9)

    

 

2,774,690

(9)

   

 

(8)

   

 

(8)

   

 

4,011,600(10)

 

Pension Restoration Plan(11)

   

 

    

 

    

 

   

 

   

 

   

 

—      

 

Life Insurance Benefits

   

 

    

 

200,000

(12)

    

 

   

 

   

 

   

 

—      

 

 

  M. H. Train

                         

Executive Benefits and

Payments Upon Termination

 

 

Retirement

($)

 

  

Death

($)

 

  

Disability

($)

 

 

 

Voluntary or For
Cause Term.

($)

 

 

Invol. Term. not
for Cause

($)

 

 

Change of
Control

($)(13)

 

Annual Cash Incentive

   

 

(1)

    

 

(1)

    

 

(1)

   

 

(2)

   

 

(1)

   

 

—(3)  

 

Stock Options

   

 

(4)

    

 

(4)

    

 

(4)

   

 

   

 

   

 

—(4)  

 

Performance Shares

   

 

(5)(6)

    

 

(5)(6)

    

 

(5)(6)

   

 

(2)(5)