DEF 14A 1 d326415ddef14a.htm DEF 14A DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.     )

 

 

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 Material Pursuant to §240.14a-12

GATX CORPORATION

(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.

 

Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

 

  (1) Title of each class of securities to which transaction applies:

 

      

 

  (2) Aggregate number of securities to which transaction applies:

 

      

 

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  (5) Total fee paid:

 

      

 

 

Fee paid previously with preliminary materials.

 

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

 

  (1) Amount Previously Paid:

 

      

 

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LOGO

 

2 0 1 7  P R O X Y  S T A T E M E N T

Notice of Annual Meeting of Shareholders

to be held on May 5, 2017


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LOGO

March 24, 2017

Dear Shareholders:

On behalf of the Board of Directors, I invite you to attend GATX Corporation’s 2017 Annual Meeting of Shareholders on Friday, May 5, 2017, at 9:00 a.m. Central Time, at The Northern Trust Company, 50 South LaSalle Street, Sixth Floor Assembly Room, Chicago, Illinois. Enclosed you will find a notice setting forth the items we expect to address at the meeting, our proxy statement, a form of proxy, and a copy of our 2016 annual report to our shareholders.

GATX had another record year in 2016, producing earnings per diluted share of $6.29, earning a return on equity of 19.6%, paying more than $67 million in dividends, repurchasing more than $120 million of common stock, and investing nearly $621 million in our businesses around the globe. This performance was especially impressive given that we were operating in an industry experiencing reduced railcar loadings, improved railroad efficiency, and declining industry lease rates for the second consecutive year. Looking forward, our strategy for shareholder value creation is discussed in detail in my 2016 letter to shareholders, which is included in our annual report.

Your vote is very important. Whether or not you plan to attend in person, please ensure that your shares are represented at the meeting by promptly voting and submitting your proxy by Internet or telephone, or by signing and returning your proxy card in the enclosed envelope.

On behalf of the Board of Directors and management, I would like to thank you for your continued support of GATX. We hope you will be able to attend the meeting and look forward to seeing you there.

 

  

Sincerely,

 

  

 

LOGO

Chairman of the Board,

President and Chief Executive Officer

Important Notice Regarding the Availability of Proxy Materials

For the Shareholders Meeting to be held on May 5, 2017.

The Company’s Proxy Statement for the 2017 Annual Meeting of Shareholders, the Annual Report to Shareholders for the year ended December 31, 2016, and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, are available at: www.envisionreports.com/GATX.


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LOGO

 

Notice of Annual

Meeting of Shareholders

GATX 2017 Annual Meeting of Shareholders

 

     
Date:    Friday, May 5, 2017      

Items of Business:

 

       Election of 10 Directors

 

      Adoption of Advisory Resolution to Approve Executive Compensation

 

      Adoption of Advisory Resolution Regarding Frequency of Future Advisory Votes on Executive Compensation

 

      Approval of Amended and Restated 2012 Stock Incentive Plan

 

       Ratification of Independent Registered Public Accounting Firm

 

Time:    9:00 a.m. Central Time      
Place:   

The Northern Trust Company

50 South LaSalle Street

Sixth Floor Assembly Room

Chicago, Illinois

     
Record Date:   

Close of business on March 10, 2017

 

     

Advance Voting Methods and Deadlines

 

Internet and telephone voting are available 24 hours a day, seven days a week up to these deadlines:

 

   

Registered Shareholders or Beneficial Owners – 11:59 p.m. Eastern Time on May 4, 2017

 

   

Participants in GATX 401(k) Plans – 8:00 a.m. Eastern Time on May 1, 2017.

 

LOGO

 

     

LOGO

 

     

LOGO

 

     

LOGO

 

Go to the website identified on the proxy card

 

    Enter the Control Number printed on the proxy card

 

    Follow instructions on the screen.

   

Call the toll-free number identified on the proxy card

 

    Enter the Control Number printed on the proxy card

 

    Follow the recorded instructions.

   

Mark your selections on the enclosed proxy card

 

    Date and sign your name exactly as it appears on the proxy card

 

    Promptly mail the proxy card in the enclosed postage-paid envelope.

 

Return promptly to ensure that it is received before the deadlines stated above.

    You can vote in
person at the
annual meeting.

By Order of the Board of Directors,

 

LOGO

Executive Vice President, General Counsel and

Corporate Secretary


Table of Contents

Table of Contents

 

PROXY SUMMARY      1  
PROXY STATEMENT      5  
CORPORATE GOVERNANCE      5  
Board of Directors      5  
Board Independence      5  
Board Leadership Structure      5  
Board Committees      6  
Annual Board and Committee Evaluations      8  
Board Refreshment      8  
Succession Planning      9  
Risk Oversight      10  
Anti-Hedging, Anti-Pledging Policies      11  
Related Party Transactions      11  
Director and Officer Indemnification and Insurance Arrangements      11  
Shareholder Engagement      12  

Environmental, Health, and Safety

     12  
Communication with the Board      13  
PROPOSAL 1:    ELECTION OF DIRECTORS      14  
Director Criteria and Nomination Process      14  
Nominees for Election to the Board of Directors      16  
DIRECTOR COMPENSATION      22  
PROPOSAL 2:    ADVISORY RESOLUTION ON EXECUTIVE COMPENSATION      24  
PROPOSAL 3:    ADVISORY RESOLUTION ON THE FREQUENCY OF FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION      25  
COMPENSATION DISCUSSION AND ANALYSIS      26  
Executive Summary      27  
Detailed Compensation Discussion and Analysis      36  
— Base Salary      36  
— Annual Incentive Awards      36  
— Long-Term Equity Based Incentive Awards      37  
— 2016-2018 Performance Share Measures and Goal Setting      38  
— 2016 Long-Term Incentive Payouts      39  
— Employee Benefits-Severance-Double Trigger Vesting      40  
— Process for Determining Executive Compensation (Including NEOs)      40  
— Compensation Governance      41  
— Compensation Committee Report      42  

 

GATX CORPORATION  -  2017 Proxy Statement   i


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TABLE OF CONTENTS

 

EXECUTIVE COMPENSATION TABLES      43  
Summary Compensation Table      43  
Grants of Plan-Based Awards Table      44  
Outstanding Equity Awards at Fiscal Year-End Table      46  
Option Exercises and Stock Vested Table      47  
Pension Benefits Table      47  
Potential Payments upon Termination or Change of Control      48  
PROPOSAL 4:    APPROVAL OF THE AMENDED AND RESTATED 2012 INCENTIVE AWARD PLAN      51  
Why Shareholders Should Vote to Approve the Restated Plan      51  
Description of the Restated Plan      54  
United States Federal Income Tax Consequences      59  
Equity Compensation Plan Information      62  
PROPOSAL 5:    RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM      63  
Audit Committee Report      63  
Pre-Approval Policy      64  
Audit and Other Related Fees      64  
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS      66  
PRINCIPAL SHAREHOLDERS      67  
FORWARD-LOOKING STATEMENTS      69  
OTHER INFORMATION      70  
Section 16(a) Beneficial Ownership Reporting Compliance      70  
Shareholder Proposals      70  

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING

     72  
EXHIBIT A       GATX Corporation Director Independence Standard      A-1  
EXHIBIT B       Reconciliation of Non-GAAP Financial Measures      B-1  
EXHIBIT C       Amended and Restated 2012 Incentive Award Plan      C-1  

EXHIBIT D    

  Location of the 2017 Annual Meeting of the Shareholders of GATX Corporation      D-1  

 

ii   GATX CORPORATION  -  2017 Proxy Statement


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Proxy Summary

The Board of Directors (the “Board”) of GATX Corporation (“GATX”, the “Company”, “we”, “us”, or “our”) is soliciting proxies for use at the Company’s Annual Meeting of Shareholders to be held on Friday, May 5, 2017 (the “Annual Meeting”). This Proxy Statement and accompanying proxy card are being mailed to shareholders on or about March 24, 2017.

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

Annual Meeting of Shareholders

 

 

 

  When  g May 5, 2017, 9:00 a.m. Central Time

  Where g The Northern Trust Company,

                    50 South  LaSalle Street, Sixth Floor Assembly Room, Chicago, Illinois  

You may vote if you were a shareholder of record at the close of business on March 10, 2017. We hope that you will be able to attend the Annual Meeting, but if you cannot do so, it is important that your shares be represented.

We urge you to read the Proxy Statement carefully and to vote your shares in accordance with the Board’s recommendations by Internet or telephone, or by signing and returning the enclosed proxy card in the postage-paid envelope provided, whether or not you plan to attend the Annual Meeting.

Voting Recommendations of the Board

 

Item   Description   For   Against   Page
1   Election of directors   LOGO     14

2

 

Adoption of advisory resolution approving our executive compensation

  LOGO     24

3

  Adoption of advisory resolution selecting EVERY YEAR as the frequency of future votes on executive compensation   LOGO     25

4

 

Approval of our Amended and Restated 2012 Stock Incentive Plan

  LOGO     51

5

 

Ratification of independent registered public accounting firm

  LOGO     63

You may revoke your proxy and change your vote at any time before the final vote at the Annual Meeting.

Voting at the Annual Meeting (page 72)

 

 

If your shares are registered in your name with our transfer agent, you may vote in person at the Annual Meeting. If you hold your shares through a broker, bank, or other nominee, you will not be able to vote in person at the Annual Meeting unless you first obtain a legal proxy from your nominee. For further information, please see How do I vote? on page 72.

Questions and Answers (page 72)

 

 

We encourage you to review the Questions and Answers about the Annual Meeting beginning on page 72 for answers to common questions about the rules and procedures surrounding the proxy and annual meeting process.

 

GATX CORPORATION  -  2017 Proxy Statement   1


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PROXY SUMMARY

 

CORPORATE GOVERNANCE (PAGE 5)

GATX has a long-standing commitment to strong corporate governance, which promotes the long-term interests of shareholders and strengthens Board and management accountability. Highlights of our corporate governance practices include:

 

  Annual Election of Directors       Annual CEO Succession Planning by Full Board
  Majority Voting for Directors       Risk Oversight by Full Board and Committees
  Resignation Policy for Directors who Fail to Receive a Majority Vote       Annual Board and Committee Self-Evaluations
  9 of 10 Director Nominees are Independent       No Poison Pill
  Diversity of Experience and Skills Among Directors       Anti-Hedging/Anti-Pledging Policies for Directors, Officers, and Employees
  Annual Director Skills Assessment and Board Succession Planning       Share Ownership Requirements for Directors and Executive Officers
  Independent Lead Director       Clawback Policy for Equity Awards and Incentive Compensation
  Independent Audit, Compensation, and Governance Committees       Annual “Say on Pay” Advisory Vote
  Regular Executive Sessions of Independent Directors       Active Shareholder Engagement Program

DIRECTOR NOMINEES (PAGE 16)

The following table provides summary information about each director nominee.

 

Name   Age    

Director

Since

  Principal Occupation   Committee
Memberships1
  Other Public
Company
Boards

Diane M. Aigotti*

    52     2016  

Executive Vice President,

Managing Director and Chief Financial Officer,
Ryan Specialty Group, LLC

  A   1

Anne L. Arvia*

    53     2009   Acting President,
Managing Director, USAA Bank
  A (Chair), G   0

Ernst A. Häberli*

    68     2007   Retired; Former President,
Commercial Operations
International, The Gillette Company
  C, G   0

Brian A. Kenney

    57     2004   Chairman, President and Chief Executive Officer, GATX Corporation   None   1

James B. Ream*

    61     2008   Former Senior Vice President –
Operations, American Airlines
  A, C (Chair)   0

Robert J. Ritchie*

    72     2011   Retired; Former Chief Executive
Officer, Canadian Pacific Railway Company
  A, G   0

David S. Sutherland*

    67     2007   Retired; Former President and
Chief Executive Officer, IPSCO, Inc.
  LD   2

Casey J. Sylla*

    73     2005   Retired; Former Chairman and
Chief Executive Officer,
Allstate Life Insurance Company
  A, C   2

Stephen R. Wilson*

    68     2014   Retired; Former Chairman,
President and Chief Executive
Officer, CF Industries Holdings, Inc.
  A, C   1

Paul G. Yovovich*

    63     2012   President, Lake Capital   C, G (Chair)   0

 

* Independent Director
1 A = Audit Committee; C = Compensation Committee; G = Governance Committee; LD = Lead Director

 

2   GATX CORPORATION  -  2017 Proxy Statement


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PROXY SUMMARY

 

APPROVAL OF 2016 EXECUTIVE COMPENSATION (PAGE 24)

 

Railcar leasing is our core business, accounting for approximately 85% of our 2016 revenue. Our rail customers operate in cyclical markets, such as the petroleum, chemical, fertilizer, food/agricultural, transportation, and construction industries. Combined with changing macroeconomic conditions and swings in railcar supply, this results in significant volatility in utilization and lease rates for railcars over time. At the same time, railcars have very long useful lives of 20-45 years. Thus, we have to proactively manage our business with a long-term view, which includes buying, leasing, maintaining, and selling railcars into these constantly changing business conditions over decades.

Our compensation programs reflect this cyclicality by appropriately rewarding management to emphasize current financial returns over growth in capital employed during stronger markets and, conversely, to emphasize growth in capital employed over current financial returns in weaker markets. In this way, our Compensation Committee believes that our plans have been designed to reward executives for achieving those goals that will have the most beneficial impact on our financial performance

and long-term shareholder value in light of where we are in the business cycle.

In 2016, the rail industry experienced reduced railcar loadings, improved railroad efficiency, and declining lease rates for the second consecutive year. Despite these difficult market conditions, GATX performed extremely well in 2016 as we had been successful in prior years in extending lease terms to lock in attractive lease rates. Our focus on maintaining fleet utilization enabled us to keep close to 99% of our railcars out on lease to customers, although the rates on renewed leases were lower than expiring rates. We further optimized our fleet by selling railcars in the secondary market at attractive prices, and we successfully placed future years’ railcar deliveries from our committed purchase agreement well in advance of their delivery dates. In addition, our strong balance sheet also offered us flexibility to pursue secondary market acquisition opportunities that may arise. We believe that these actions have prepared GATX to capitalize on the inherent cyclicality in our markets and positioned us well to achieve our twin objectives of growth and return over the long term.

 

 

Key 2016 Accomplishments

 

Record Earnings

 

    Net income of $257.1 million

 

    Record earnings per diluted share of $6.29

 

    Return on equity of 19.6%

Strong Operating Performance

 

    Maintained extremely high fleet utilization of 98.9%

 

    Placed 92% of our 2017 new railcar deliveries with customers well in advance of their delivery dates

 

    Optimized our fleet by selling railcars into a robust secondary market, generating $46 million in remarketing income in North America

 

    Invested nearly $621 million, primarily in our rail business in North America and Europe

 

    Disciplined selling, general, and administrative (“SG&A”) spending resulted in a 5% reduction from 2015

Returned Cash to Shareholders

 

    Increased dividend for 6th consecutive year to $1.60 per share

 

    Completed our 98th consecutive year of uninterrupted dividends

 

    Returned over $185 million to shareholders through share repurchases and dividends.

 

Our compensation plans are directly linked to our financial and operating performance and creation of long-term shareholder value. Approximately 80% of our Chief Executive Officer’s compensation and approximately 63% of our other named executive officers’ compensation is performance-based and not guaranteed. We encourage

you to read the Compensation Discussion and Analysis starting on page 26 for more details regarding our performance and the alignment of our executive compensation with our performance and long-term shareholder value.

 

 

GATX CORPORATION  -  2017 Proxy Statement   3


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PROXY SUMMARY

 

FREQUENCY OF FUTURE SAY-ON-PAY VOTES (PAGE 25)

 

Each year, we offer shareholders the opportunity to cast an advisory vote on our executive compensation (“say-on-pay”). This year, we are asking shareholders to cast an advisory vote on the future frequency of say-on-pay votes. Under applicable law and SEC regulations, say-on-

pay votes may be held every one, two, or three years. We have been conducting annual say-on-pay votes since 2011, and our Board is recommending that shareholders vote to approve a frequency of EVERY YEAR for future say-on-pay votes.

 

 

APPROVAL OF OUR AMENDED AND RESTATED 2012 INCENTIVE AWARD PLAN (PAGE 51)

 

Our Board is seeking shareholder approval of an amendment, restatement, and continuation of our 2012 Incentive Award Plan, which among other things increases the shares available for grant by 3,500,000 shares. Equity compensation is a key element of our compensation programs. Under our current forecasts, the Plan will run out of shares available for grant within the next 12 months, and we will be unable to continue to issue equity to our employees and directors unless

shareholders approve the amended and restated Plan. While we could increase cash compensation if we are unable to grant equity incentives, we anticipate that we will have difficulty attracting, retaining, and motivating our employees and directors if we are unable to make equity grants to them. Accordingly, our Board is recommending that shareholders vote to approve the amendment, restatement, and continuation of the Plan.

 

 

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PAGE 63)

 

We ask that our shareholders ratify the selection of Ernst & Young LLP as our independent registered public accounting firm for 2017. Below is summary information

about Ernst & Young LLP’s fees for services provided in 2016 and 2015.

 

 

Type of Fees    2016      2015  

Audit Fees

   $ 2,747,000      $ 2,427,000  

Audit-Related Fees

   $ 134,000      $ 125,000  

Tax Fees

   $ 44,500      $ 33,500  

All Other Fees

   $ 2,000      $ 2,000  

TOTAL Fees

   $ 2,927,500      $ 2,587,500  

 

4   GATX CORPORATION  -  2017 Proxy Statement


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Proxy Statement

CORPORATE GOVERNANCE

Board of Directors

 

 

The Board of Directors provides oversight, strategic direction, and counsel to management regarding the business, affairs, and long-term interests of GATX and our shareholders. Its responsibilities include the following:

 

 

reviewing and approving our major financial objectives, strategic and operating plans, strategic transactions with third parties, and other significant actions

 

 

overseeing the conduct of our business

 

 

assessing business risks to evaluate whether any changes to our business, strategy, or risk management practices may be warranted

 

 

overseeing our processes for maintaining the integrity of our financial statements and other public disclosures

 

 

ensuring compliance with law and ethical standards.

GATX has a long-standing commitment to strong corporate governance and ethical standards. Demonstrating this commitment, the Board has adopted the GATX Corporate Governance Guidelines, Code of

Business Conduct and Ethics, and Code of Ethics for Senior Company Officers, as well as charters for each of the Board’s committees. These documents constitute the foundation of our corporate governance structure and are available on our website (www.gatx.com) in the Investor Relations section under “Corporate Governance”.

The Board and its committees meet throughout the year on an established schedule and hold special meetings from time to time as appropriate. Following each meeting, the Board’s independent directors meet in executive sessions without the Chairman and Chief Executive Officer or other members of management present. The Lead Director serves as Chair of the executive sessions of the Board.

The Board met six times during 2016. During 2016, each director attended at least 75% of the meetings of the Board and the committees on which he or she served. We encourage all directors to attend the 2017 Annual Meeting of Shareholders, and in 2016, all directors then serving on the Board attended the annual meeting.

 

 

Board Independence

 

 

The Board has adopted the GATX Director Independence Standard set forth in Exhibit A to this Proxy Statement to evaluate the independence of directors and director nominees and to ensure compliance with the independence standards required by the New York Stock Exchange (“NYSE”) for listed companies. In accordance with this standard, and considering all relevant facts and circumstances, the Board has made an affirmative

determination that none of the following directors has a material relationship with GATX other than in his or her capacity as a member of the Board and that all of the following directors are independent: Diane M. Aigotti, Anne L. Arvia, Ernst A. Häberli, James B. Ream, Robert J. Ritchie, David S. Sutherland, Casey J. Sylla, Stephen R. Wilson, and Paul G. Yovovich.

 

 

Board Leadership Structure

 

 

   

Brian A. Kenney serves as our Chairman and Chief Executive Officer

 

   

David S. Sutherland serves as our Lead Director

 

   

9 of our 10 directors are independent under the NYSE listing standards and the GATX Director Independence Standard

 

 

   

All of the members of the Board’s Audit, Compensation, and Governance Committees are independent.

The Board believes that having our Chief Executive Officer serve as Chairman of the Board is in the best interests of our shareholders because the Chief Executive Officer’s extensive knowledge of our business and strategy provides the Board with a clear understanding of the issues facing the Company and promotes effective Board decision-making, alignment on corporate strategy, and effective execution of that strategy by management.

 

GATX CORPORATION  -  2017 Proxy Statement   5


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CORPORATE GOVERNANCE

 

 

In selecting the Chairman of the Board, the Board believes it is important to select the most qualified and appropriate director to serve as Chairman, whether that individual is an outside director or a member of executive management. Currently, Brian A. Kenney, our Chief Executive Officer, serves as Chairman. The Board believes that Mr. Kenney is the most appropriate individual to serve as Chairman because of his extensive knowledge of our business and strategy, as well as his demonstrated skill and commitment to performing effectively as Chairman of the Board. Having the Chief Executive Officer serve as Chairman provides the Board with a clear understanding of issues facing GATX, which, in turn, promotes effective Board decision-making, alignment on corporate strategy, and accountability of management.

Our Board is structured to promote independence whether or not its Chairman is a member of executive management. The entire Board, with the exception of Mr. Kenney, consists of independent directors, and the Audit, Compensation, and Governance Committees also are composed entirely of independent directors. The independent directors on the Board meet after each Board meeting in executive sessions that are not attended by Mr. Kenney or other members of management.

In addition, under our Corporate Governance Guidelines, the independent directors serving on the Board annually designate an independent Lead Director to provide

leadership to the non-management members of the Board and to work with the Chairman and Chief Executive Officer and the other Board members to provide effective and independent oversight of our management and affairs. Currently, David S. Sutherland serves as Lead Director. The Board’s independent directors have adopted the Lead Director Guidelines, which establish the powers and duties of the Lead Director, including the following:

 

 

presiding at meetings of the Board if the Chairman and Chief Executive Officer is not present

 

 

regularly convening and serving as chair of executive sessions of the independent directors

 

 

serving as principal liaison between the Chairman and Chief Executive Officer and the independent directors

 

 

advising the Chairman and Chief Executive Officer as to the quality, quantity, and timeliness of the flow of information from the Company’s management that is necessary for the independent directors to effectively and responsibly perform their duties

 

 

in consultation with the Chairman and Chief Executive Officer, establishing the meeting schedules and agendas for each Board meeting to ensure that the Board has adequate time for discussion and consideration of matters

 

 

interviewing, along with the Chair of the Governance Committee, all director candidates and making recommendations to the Governance Committee.

 

 

Board Committees

 

 

Director*    Board of
Directors
   Audit
Committee
   Compensation
Committee
   Governance
Committee

Diane M. Aigotti

               

Anne L. Arvia

      C        

Ernst A. Häberli

             

Brian A. Kenney

   C               

James B. Ream

         C     

Robert J. Ritchie

             

David S. Sutherland*

   L               

Casey J. Sylla

             

Stephen R. Wilson

             

Paul G. Yovovich

              C

Number of 2016 meetings

   6    6    5    5

 

* In the table above, “C” means Chair and “L” means Lead Director.

 

6   GATX CORPORATION  -  2017 Proxy Statement


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CORPORATE GOVERNANCE

 

 

The Board has three standing committees: the Audit Committee, the Compensation Committee, and the Governance Committee. Each committee is composed of directors determined by the Board to be independent in accordance with the listing standards of the NYSE. Mr. Sutherland serves as Lead Director and, while he does not serve as a member of any particular Board

committee, he has a standing invitation as Lead Director to attend the meetings of all Board committees.

The principal responsibilities of each of these committees are described generally below and in detail in their respective committee charters, which are available on our website (www.gatx.com) in the Investor Relations section under “Corporate Governance”.

 

 

Audit Committee

 

The Board has determined that each member of the Audit Committee has accounting or related financial management expertise and is “financially literate”, as that term is used in the listing standards of the NYSE. In addition, the Board has determined that each member of the Audit Committee is an “audit committee financial expert”, as such term is defined by the rules of the US Securities and Exchange Commission (“SEC”). All members of the Audit Committee satisfy the NYSE’s independence standards applicable to audit committee members.

The Audit Committee’s functions include retaining and overseeing our independent registered public accounting firm and reviewing any related party transactions. The Audit Committee also assists the Board in oversight of:

 

 

the integrity of our financial statements

 

our compliance with legal and regulatory requirements

 

 

our guidelines, policies, and procedures with respect to risk assessment and risk management

 

 

the independent registered public accounting firm’s qualifications and independence

 

 

the performance of our internal audit function and the independent registered public accounting firm.

The Audit Committee maintains free and open communication, and meets separately at each regularly scheduled committee meeting, with our independent registered public accounting firm, our internal auditor, and management.

 

 

Compensation Committee

 

The Compensation Committee’s functions include:

 

 

conducting an annual evaluation of the Chief Executive Officer’s performance

 

 

annually setting the Chief Executive Officer’s compensation level and reviewing and approving compensation levels of our other senior officers

 

 

establishing and administering our incentive compensation plans, equity-based plans, and other bonus plans, including granting awards and approving payouts under our plans

 

 

annually reviewing the corporate goals and objectives relating to compensation of our Chief Executive Officer and other senior officers

 

 

periodically reviewing and making recommendations to the Board regarding the compensation of our non-management directors

 

 

evaluating the qualifications and independence of the Compensation Committee’s independent compensation consultant.

During 2016, the Compensation Committee engaged Pay Governance LLC (“Pay Governance”) to serve as its independent compensation consultant. In addition to providing advice on various aspects of GATX’s compensation plans, programs, and policies, Pay Governance also advises the Compensation Committee periodically on current trends and best practices and reviews the agendas and supporting materials with management and the Compensation Committee Chair in advance of each committee meeting. A representative of Pay Governance attends all Compensation Committee meetings, including executive sessions at which management is not present, and meets independently with the Compensation Committee as appropriate. In addition, Pay Governance provides specific recommendations for the Chief Executive Officer’s compensation and advice on the recommendations made by the Chief Executive Officer with respect to the compensation of other executives.

 

 

GATX CORPORATION  -  2017 Proxy Statement   7


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CORPORATE GOVERNANCE

 

Governance Committee

 

The Governance Committee’s functions include:

 

 

identifying individuals qualified to become Board members and recommending to the Board a slate of director nominees for election at each annual meeting of shareholders

 

 

ensuring that all of the Board committees have the benefit of qualified and experienced independent directors

 

 

annually reviewing a matrix of director skills to ensure a diversity of relevant experience and skills on the Board

 

 

developing and overseeing an effective set of corporate governance policies and procedures designed to ensure that GATX adheres to strong corporate governance and ethical standards and complies with all applicable legal and regulatory requirements

 

 

overseeing the evaluation of the Board’s performance and effectiveness, including the directors’ attendance and contributions to Board deliberations, and making such recommendations to the Board as may be appropriate.

 

 

Annual Board and Committee Evaluations

 

 

The Board conducts an evaluation of its performance and effectiveness on an annual basis. The purpose of the evaluation is to obtain the directors’ feedback on the Board’s performance and identify ways to enhance its effectiveness. As part of the evaluation, each director receives a written questionnaire developed by the Governance Committee to solicit input on the Board’s performance, effectiveness, composition, priorities, and culture. Using the questionnaire as a guide, the Governance Committee Chair conducts personal interviews with all directors to obtain their feedback and

discuss any other issues or concerns they may have. The Governance Committee Chair compiles the collective views and comments of the directors and then reports the results of the evaluation to the full Board.

Each of the Board’s committees conducts its own evaluation using the same process as the Board evaluation. The Chair of each committee conducts personal interviews with the other committee members and, after compiling the results, presents a report to the committee and the full Board.

 

 

Each year, the Governance Committee Chair conducts a personal interview with each Board member to gather in-depth perspectives and candid insight about Board performance and effectiveness. The Chair of each committee follows the same process to obtain feedback from committee members on the committee’s performance and effectiveness.

Board Refreshment

 

 

The Board, led by the Governance Committee, regularly evaluates its own composition and succession plans in light of the Company’s evolving business and strategic needs. The focus of this process is to ensure that the Board is composed of directors who possess a wide variety of relevant skills, professional experience, and backgrounds, bring diverse viewpoints and perspectives, and effectively represent the long-term interests of shareholders. While the Board does not have a formal policy on diversity, the Board values diversity in viewpoints, professional experiences, education, skills, and other individual qualities and attributes that contribute to an active, effective Board. The Board believes that new ideas and perspectives are critical to a forward-looking

and strategic Board, as are the extensive experience and deep understanding of our business and industry that long-serving directors possess. Accordingly, in its board refreshment and succession planning process, the Board considers both the benefits of continuity and fresh perspectives that new directors can bring.

In considering potential director candidates, the Governance Committee and Board take into account, among other things, the needs of the Board and the Company in light of the overall composition of the Board with a view to achieving a balance of the skills, experience, and attributes that would be beneficial to the Board’s oversight role. For more information, see Director Criteria and Nomination Process on page 14.

 

 

8   GATX CORPORATION  -  2017 Proxy Statement


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CORPORATE GOVERNANCE

 

 

In October 2016, the Board appointed Diane M. Aigotti upon the recommendation of the Governance Committee.

For more information on Ms. Aigotti’s skills and experience, see Nominees for Election to the Board of Directors on page 16.

 

 

Succession Planning

 

 

The Board regularly reviews long-term and emergency succession plans for the Chief Executive Officer and for other senior management positions. In assessing possible Chief Executive Officer candidates, the Board identifies the key skills, experience, and capabilities it believes are required to be an effective Chief Executive Officer

in light of the Company’s business strategies, opportunities, and challenges. In addition, the Board ensures that directors have substantial opportunities over the course of the year to engage with possible succession candidates.

 

 

GATX CORPORATION  -  2017 Proxy Statement   9


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CORPORATE GOVERNANCE

 

Risk Oversight

 

 

 

 

FULL BOARD

 

While management is responsible for managing risk, the Board and its committees play a role in overseeing our risk management practices. We have robust internal processes and an effective internal control environment that facilitates identification and management of risk and regular communication with the Board. These include an enterprise risk management program, regular internal management disclosure committee meetings, codes of business conduct and ethics, a strong ethics and compliance program, and a comprehensive internal and external audit process. The Board implements its risk oversight function both as a whole and through delegation to Board committees, which meet regularly and report back to the Board.

 
     

 
 

 

Audit Committee

       

 

Compensation Committee

       

 

Governance Committee

 
 

Plays a key role in the Board’s risk oversight process, particularly in relation to risks that could have a financial impact, such as financial reporting, taxes, accounting, disclosure, internal controls, legal matters, and our ethics and compliance programs.

 

Discusses our risk assessment and risk management guidelines and policies with management, the internal auditors, and the independent registered public accounting firm.

 

Receives regular reports from management and discusses steps taken by management to monitor and control risk exposures.

 

Reviews all of our quarterly financial reports, including any disclosure therein of risk factors affecting us and our business.

 

Provides regular reports to the Board on its risk oversight activities and any issues identified thereby.

 

       

Manages risks associated with personnel and compensation issues, including executive compensation.

 

Receives regular reports from the independent compensation consultant and management concerning our compensation plans, policies, and practices.

 

Sets performance goals under our annual and long-term incentive plans and oversees our compensation plans, policies, and practices.

 

Provides regular reports to the Board on its oversight of compensation-related risks.

 

Together with Compensation Committee’s independent consultant, provides input to our human resources staff in conjunction with their annual assessment of potential risks that may be created by our compensation plans, policies, and practices. The assessment conducted for 2016 found that our compensation plans, policies, and practices did not create risks that would be reasonably likely to have a material adverse effect on GATX. In reaching this conclusion, we considered the mix of compensation paid to employees, as well as the risk control and mitigation features of our plans, including appropriate performance measures and targets, incentive plan payout maximums, our compensation clawback policy, and mandatory stock retention requirements for our executive officers.

 

       

Manages risks associated with governance issues, such as the independence of the Board, Board effectiveness and organization, corporate governance, and director succession planning.

 

Reviews the skills and experience of the directors on a regular basis to ensure the diversity of relevant experience necessary for an effective Board.

 

Maintains corporate governance guidelines and procedures designed to assure compliance with all applicable legal and regulatory requirements and governance standards.

 

Provides regular reports to the Board on its activities.

 

 

 

10   GATX CORPORATION  -  2017 Proxy Statement


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CORPORATE GOVERNANCE

 

Anti-Hedging, Anti-Pledging Policies

 

 

In addition to prohibiting our directors, officers, and employees from trading in GATX stock while in possession of material non-public information, our Insider Trading Policy also prohibits certain transactions in GATX stock that may create the potential for the interests of a director, officer, or employee to diverge from the interests of GATX and its shareholders. In particular, our policy

prohibits directors, officers, and employees from engaging in hedging transactions, short sales, and transactions in publicly traded options involving GATX stock. The policy also prohibits directors, officers, and employees from holding GATX stock in a margin account or pledging GATX stock as collateral for a loan.

 

 

Related Party Transactions

 

Related Party Transactions Approval Policy

 

We recognize that transactions with related parties present a heightened risk of real or perceived conflicts of interest and, therefore, may raise questions as to whether those transactions are consistent with the best interests of GATX and its shareholders. Accordingly, we have a formal, written policy, which requires that all related party transactions are subject to review and approval by the Audit Committee. A “related party transaction” means any transaction (or series of transactions) valued at over $120,000 in which GATX is a participant and in which any “related party” has or will have a direct or indirect material interest. Our policy defines a “related party” to include all of our directors and executive officers, holders of more than 5% of our voting stock, and the immediate family members of those persons.

Under our policy, the Audit Committee will approve a related party transaction only if it determines that the transaction is in, or not inconsistent with, the best

interests of GATX and its shareholders, including, for example, situations where:

 

 

the transaction may enable us to obtain products or services of a nature, quantity, or quality, or on other terms, that are not readily available from alternative sources

 

 

the transaction is on “arm’s length” terms comparable to the terms on which we provide products or services to unrelated third parties or to our employees generally.

Upon completion of its review, the Audit Committee will approve or disapprove the related party transaction. In approving any related party transaction, the Audit Committee also will make a determination that the transaction does not constitute a conflict of interest under our Code of Business Conduct and Ethics.

 

 

Shareholder Transaction

 

As of December 31, 2016, BlackRock, Inc. (including its affiliated entities, “BlackRock”) was the beneficial owner of approximately 10.1% of our outstanding common stock. BlackRock also provides investment management services to our pension plans in the United States and in the United Kingdom. During the year ended December 31, 2016, the total amount of the fees paid by

GATX to BlackRock for investment management services was approximately $126,000. The aggregate amount of our pension assets under management by BlackRock as of December 31, 2016 was approximately $21.4 million. This relationship was originally approved by the Audit Committee in 2010.

 

 

Director and Officer Indemnification and Insurance Arrangements

 

 

As required by our By-Laws, we indemnify our directors and officers to the fullest extent permitted by the New York Business Corporation Law. In addition, we have entered into indemnification agreements with each member of the Board that contractually obligate us to provide this indemnification to our directors.

Pursuant to the New York Business Corporation Law and our By-Laws, we maintain insurance policies that provide liability protection to our directors and officers for claims for which they may not be indemnified by the Company. These insurance policies also provide reimbursement to GATX for indemnification payments we make on behalf of our directors and officers, subject to the conditions and exclusions specified in the policies.

 

 

GATX CORPORATION  -  2017 Proxy Statement   11


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CORPORATE GOVERNANCE

 

Shareholder Engagement

 

 

We believe that understanding issues of importance to our shareholders is critical for us to address their interests in a meaningful and effective way. It is also a tenet of good corporate governance. In that light, we engage with our shareholders on a regular basis to discuss a range of topics, including our performance, strategy, executive compensation, and corporate governance. Dialogue and engagement with our shareholders helps us understand how they view us, set goals and expectations for our performance, and identify emerging issues that may affect our strategies, corporate governance, compensation practices, or other aspects of our operations.

Our shareholder and investor outreach includes investor road shows, analyst meetings, and investor conferences.

We also communicate with shareholders through various media, including our annual report and SEC filings, proxy statement, news releases, and our website. We hold conference calls for our quarterly earnings releases and other major corporate events which are open to all. These calls are available in real time and as archived webcasts on our website.

In addition, over the last eighteen months, members of our Board and our executive officers have met with four of our largest shareholders, who collectively own over 50% of our outstanding shares, to solicit their views on corporate governance, executive compensation, business strategy, and other topics of interest to them.

 

 

Environmental, Health, and Safety

 

 

GATX’s vision is to be recognized as the finest railcar leasing company in the world by our customers, shareholders, employees, and the communities in which we operate. Consistent with that vision, we are committed to operating at the highest levels of safety and ethics, and in compliance with environmental, health, and safety (“EHS”) rules, regulations, and standards applicable to our business.

GATX was the first U.S. railcar leasing company to achieve certification as a Responsible Care® Partner, as certified by the American Chemistry Council and the Chemical Industry Association of Canada. The Responsible Care® Partnership program is voluntary and, as a partner, we are required to meet technical and management standards for operations, environmental protection, employee health and safety, product and transportation safety, emergency response, and stakeholder dialogue. GATX facilities are audited on a periodic basis by nationally-accredited, independent auditors.

Using the Responsible Care® framework, we have established an EHS management system that strives for continuous improvement. Our EHS department continually measures our performance and sets goals for improvement in many key metrics such as incident rate, community involvement and support, environmental emissions, worker’s compensation, waste generation, and energy consumption. Our management team also takes an active role in developing and communicating our annual EHS goals across the organization and monitoring the Company’s efforts to achieve those goals.

GATX’s repair and maintenance facilities maintain an ongoing relationship with first responders in the communities where we operate to coordinate response plans in the event of an EHS incident involving our railcars or our facilities. In addition, we offer a TankTrainer® Program that provides hands-on training in the proper use and handling of railcars for customers, railroads, and first responders. Since 1993, our TankTrainer® has conducted more than 250 mobile training events for nearly 22,000 emergency responders and customers.

 

 

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CORPORATE GOVERNANCE

 

Communication with the Board

 

 

GATX shareholders and other interested parties may, at any time, communicate directly with the Board, any of our directors individually (including the Lead Director), or our non-management directors as a group through the office of our Corporate Secretary as follows:

 

 

by mail addressed to the Board, any director, or the non-management directors as a group, c/o the Corporate Secretary, GATX Corporation, 222 West Adams Street, Chicago, Illinois 60606

 

 

electronically by sending an e-mail to contactboard@gatx.com

 

anonymously by telephone by calling (888) 749-1947.

Our Corporate Secretary will review communications received by any of these methods and forward the communication promptly to the Board, individual directors, the Lead Director, or the non-management directors as a group, as appropriate, depending on the subject matter and facts and circumstances described in the communication.

Communications that are not related to the duties and responsibilities of the Board, are patently frivolous, or are otherwise considered to be improper for submission to the intended recipient(s), will not be forwarded.

 

 

GATX CORPORATION  -  2017 Proxy Statement   13


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PROPOSAL 1:    ELECTION OF DIRECTORS

Director Criteria and Nomination Process

 

 

Each year, the Board nominates a slate of director candidates for election at the Annual Meeting of Shareholders. The Board has delegated the process for screening potential director candidates to the Governance Committee with input from the Chairman and Chief Executive Officer and the Lead Director. When the Governance Committee determines that it is desirable to add a director or fill a vacancy on the Board, it will identify one or more individuals qualified to become directors and recommend them to the Board. In identifying qualified individuals, the Governance Committee generally retains a search firm for this purpose. To be considered for membership on the Board, a candidate must meet the following minimum criteria:

 

 

the highest level of personal and professional ethics, integrity, and values

 

 

an inquisitive and objective perspective

 

 

broad experience at the policy-making level in business, finance, accounting, government, or education

 

 

expertise and experience relevant to GATX and complementary to the background and experience of other Board members, so that an optimal balance and diversity of Board members may be achieved and maintained

 

 

broad business and social perspective and mature judgment

 

 

commitment to serve on the Board for an extended period of time to ensure continuity and to develop knowledge about the Company’s business

 

 

demonstrated ability to communicate freely with management and the other directors, as well as the ability and disposition to meaningfully participate in a collegial decision-making process

 

 

willingness to devote the required time and effort to carry out the duties and responsibilities of a Board member

 

 

independence from any particular constituency, and the ability to represent the best interests of all shareholders and to appraise objectively the performance of management.

Diversity is a factor considered when identifying prospective nominees for our Board, although the Governance Committee does not have a formal diversity policy. Nominees are selected so that the Board represents a diversity of viewpoints, professional experiences, education, skills, and other individual qualities and attributes that contribute to an active, effective Board.

 

 

14   GATX CORPORATION  -  2017 Proxy Statement


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ELECTION OF DIRECTORS

 

Director Experience, Qualifications, and Skills

 

The Governance Committee is responsible for recommending to the full Board a slate of director nominees who collectively have the complementary experience, qualifications, skills, and attributes to guide the Company and function effectively as a Board. We believe that each of the nominees satisfies the criteria for membership set forth above and has key skills and attributes that are important to an effective board. Each of

the nominees, other than Mr. Kenney, is also independent of the Company and management. See Board Independence on page 5.

Listed below are certain key experiences, qualifications, and skills of our director nominees that the Governance Committee believes are relevant and important in light of GATX’s business and structure.

 

 

LOGO

 

GATX CORPORATION  -  2017 Proxy Statement   15


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ELECTION OF DIRECTORS

 

Shareholder Recommendation and Nomination of Directors

 

The Board also will consider any candidates who may be recommended by shareholders. The Board conducts such inquiry into each candidate’s background, qualifications, and independence as it believes is necessary or appropriate under the circumstances and regardless of whether the candidate was recommended by shareholders or by others. Any recommendations of director candidates by shareholders should be submitted to the Governance Committee, c/o the Corporate Secretary, GATX Corporation, 222 West Adams Street,

Chicago, Illinois 60606. The recommendation must be received not more than 120 and not less than 90 days prior to the first anniversary of the preceding year’s annual meeting and must include all information required by the proxy rules, applicable law, and our By-Laws. If a shareholder submits a director candidate in accordance with the requirements specified in our By-Laws, the Governance Committee will consider such director candidate using the same standards it applies to evaluate other director candidates.

 

 

Nominees for Election to the Board of Directors

 

 

Our Board is currently composed of ten directors, all of whom are standing for election for a term of one year, to serve until the 2018 Annual Meeting of Shareholders or until their successors are elected and qualified. Other than Ms. Aigotti, all directors are standing for re-election. Ms. Aigotti was appointed to the Board in October of 2016 and is standing for election by the shareholders for the first time at this Annual Meeting. She was first identified as a candidate for the Board by a third party search firm, and was appointed to the Board upon the recommendation of the Governance Committee. All director nominees have consented to serve on the Board,

if elected. At the time of the Annual Meeting, if any director nominee is unable or declines to serve, the proxies may be voted for any other person who may be nominated by the Board to fill the vacancy, or the size of the Board may be reduced accordingly.

Please see below for information on the background of each of the ten director nominees, as well as each individual’s specific experience, qualifications, and skills that led the Board to conclude that such individual should serve on the Board in light of the Company’s business and leadership structure.

 

 

The Board of Directors recommends that you vote FOR each director nominee named below.

 

16   GATX CORPORATION  -  2017 Proxy Statement


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ELECTION OF DIRECTORS

 

 

Diane M. Aigotti

 

LOGO

  

Director Since:    2016

 

Career Highlights:

 

Ryan Specialty Group, LLC

-    Executive Vice President, Managing Director and Chief Financial Officer (2010 to present)

 

Aon plc (f/k/a Aon Corp.)

-    Senior Vice President, Chief Risk Officer and Treasurer (2000 to 2008)

 

University of Chicago Hospitals and Health System

-    Vice President of Finance (1998 to 2000)

 

City of Chicago

-    Budget Director (1995 to 1997)

Experience and Qualifications of Particular Relevance to GATX

Ms. Aigotti serves as a member of the Audit Committee. In deciding to nominate Ms. Aigotti, the Board considered her extensive financial expertise and her experience as the Chief Financial Officer of a large global insurance organization, as well as her prior experience as Chief Risk Officer and Treasurer at a NYSE-listed global insurance, risk management, and human resources firm. She has significant expertise in key areas such as financial planning and reporting, operations, risk management, treasury management, mergers and acquisitions, information technology, and tax and regulatory compliance. As a result, she is able to provide the Board with valuable insights on issues that are critical to the Board’s oversight of our business, strategy, and operations. Ms. Aigotti also has significant board and corporate governance experience as she serves on the board of directors of PrivateBancorp, Inc., and as a member of PrivateBancorp’s Corporate Governance and Business Risk Committees.

 

Anne L. Arvia

 

LOGO

  

Director Since:    2009

 

Career Highlights:

 

USAA Bank

-    Acting President, Managing Director (November 2016 to present)

 

USAA Bank

-    Senior Vice President, Managing Director (August 2015 to November 2016)

 

Nationwide Direct Distribution

-    President (August 2012 to August 2015)

 

Nationwide Retirement Plans

-    President (2009 to August 2012)

 

Nationwide Bank

-    Chief Executive Officer (2006 to 2009)

 

ShoreBank

-    President and Chief Executive Officer (2001 to 2006)

-    Chief Financial Officer (1998 to 2001)

-    Assistant Controller (1991 to 1998)

Experience and Qualifications of Particular Relevance to GATX

Ms. Arvia serves as the Chair of the Audit Committee and as a member of the Governance Committee. In deciding to nominate Ms. Arvia, the Board considered her qualifications as a Certified Public Accountant and an Audit Committee Financial Expert as well as her experience and knowledge of accounting standards and financial reporting rules and regulations. In addition, Ms. Arvia’s experience in various senior management positions in the financial services sector provides the Board with valuable expertise on investment, operations, risk management, and financial matters.

 

GATX CORPORATION  -  2017 Proxy Statement   17


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ELECTION OF DIRECTORS

 

 

Ernst A. Häberli

 

 

LOGO

  

Director Since:    2007

 

Career Highlights:

 

The Gillette Company

-    President, Commercial Operations International (2001 to 2004)

 

Fort James Corporation

-    President, North American Tissue Operations and Technology (2000)

-    Executive Vice President and Chief Financial Officer (1997 to 1999)

-    Senior Vice President, Strategy (1996 to 1997)

-    Director (1998 to 2000)

 

Pet International

-    President (1990 to 1995)

 

Phillip Morris Companies, Inc.

-    Various executive roles (1985 to 1990)

 

Boston Consulting Group

-    Various consulting roles (1978 to 1985)

Experience and Qualifications of Particular Relevance to GATX:

Mr. Häberli is a member of the GATX Compensation and Governance Committees. In deciding to nominate Mr. Häberli, the Board considered his many years in senior executive positions at leading multinational companies, which enables him to bring to the Board extensive operating, marketing, financial, and management experience. In addition, Mr. Häberli has considerable experience with mergers and acquisitions, private equity, and capital markets matters. He also provides the Board with valuable insights into international business development in light of his significant experience in global business markets.

 

Brian A. Kenney

 

LOGO   

Director Since:    2004

 

Career Highlights:

 

GATX Corporation

-    Chairman, President and Chief Executive Officer (2005 to present)

-    President (2004 to 2005)

-    Senior Vice President, Finance and Chief Financial Officer (2002 to 2004)

-    Vice President, Finance and Chief Financial Officer (1999 to 2002)

Experience and Qualifications of Particular Relevance to GATX:

Mr. Kenney serves as our Chairman of the Board and Chief Executive Officer. In deciding to nominate Mr. Kenney, the Board considered his unique perspective that comes from managing the Company’s business on a day-to-day basis, as well as his significant operating, risk management, and transportation industry experience. His extensive financial background and expertise make him particularly well qualified to serve as Chairman of the Board as he is able to provide critical insight into the Company’s leasing business and corporate strategies. Mr. Kenney also has significant board and corporate governance experience as he serves on the board of directors of USG Corporation, a publicly held manufacturer and supplier of building supply products. He is the Chair of USG’s Finance Committee and also serves on the USG Governance Committee.

 

18   GATX CORPORATION  -  2017 Proxy Statement


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ELECTION OF DIRECTORS

 

 

James B. Ream

 

LOGO   

Director Since:    2008

 

Career Highlights:

 

American Airlines

-    Senior Vice President—Operations (January 2012 to January 2014)

-    Senior Vice President, Maintenance and Engineering (January 2010 to January 2012)

-    Managing Director, Financial Planning and Analysis (1992 to 1994)

 

ExpressJet Holdings, Inc.

-    Chief Executive Officer (2002 to January 2010)

-    President (1999 to January 2010)

-    Director (2002 to January 2010)

 

Continental Airlines, Inc.

-    Various executive roles (1995-1999)

Experience and Qualifications of Particular Relevance to GATX:

Mr. Ream serves as the Chair of the Compensation Committee and as a member of the Audit Committee. In deciding to nominate Mr. Ream, the Board considered his financial and accounting expertise and his qualifications as an Audit Committee Financial Expert. With his years of experience as a senior executive in the transportation industry, Mr. Ream brings to the Board considerable expertise in strategic planning and management issues, including extensive experience relating to financing, management, maintenance, customer relations, regulatory issues, and operations of large fleets of transportation assets.

Robert J. Ritchie

 

 

LOGO   

Director Since:    2011

 

Career Highlights:

 

Canadian Pacific Railway Company

-    Chief Executive Officer (1995 to 2006)

-    President (1990 to 2005)

-    Executive Vice President, Operations and Marketing (1987 to 1990)

-    Vice President, Marketing and Sales (1984 to 1987)

 

Experience and Qualifications of Particular Relevance to GATX:

 

Mr. Ritchie serves as a member of the Audit and Governance Committees. In deciding to nominate Mr. Ritchie, the Board considered his financial and accounting expertise, his qualifications as an Audit Committee Financial Expert, and his prior experience as a Chief Executive Officer and board member of a large, publicly held railroad company. With his long career in the railway industry, Mr. Ritchie brings to the Board critical operating, industry, commercial, railcar portfolio, and management expertise. In addition, he has a wealth of knowledge about the railroads and their business, which comprise a significant part of the Company’s railcar leasing customer base. Having served on numerous North American rail associations, including the board of the Association of American Railroads, Mr. Ritchie also provides valuable insights on rail regulatory matters and industry affairs, including in international markets.

 

GATX CORPORATION  -  2017 Proxy Statement   19


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ELECTION OF DIRECTORS

 

David S. Sutherland

 

 

LOGO  

Director Since:    2007

 

Career Highlights:

 

IPSCO, Inc.

-    President and Chief Executive Officer (2002 to 2007)

-    Executive Vice President and Chief Operating Officer (2001 to 2002)

-    Vice President (1997 to 2001)

 

Experience and Qualifications of Particular Relevance to GATX:

 

Mr. Sutherland serves as our Lead Director. In deciding to nominate Mr. Sutherland, the Board considered his strong leadership and record of achievement as the former Chief Executive of a publicly held steel producer. He brings to the Board valuable insights on business operations and strategy, global markets, financial matters, and risk management. In addition, the Board appreciates Mr. Sutherland’s perspectives on market conditions and trends in the steel and manufacturing industries, which are critical sectors for the Company’s business. Mr. Sutherland also has significant board and corporate governance experience as he serves as non-executive chairman and a director of United States Steel Corporation and as a director of Imperial Oil Ltd.

Casey J. Sylla

 

 

LOGO  

Director Since:    2005

 

Career Highlights:

 

Allstate Insurance Company

-    Chairman and Chief Executive Officer of Allstate Life Insurance Company (2006 to 2007)

-    President of Allstate Financial Group (2002 to 2006)

-    Chief Investment Officer of Allstate Corporation (1995 to 2002)

 

Experience and Qualifications of Particular Relevance to GATX:

 

Mr. Sylla serves as a member of the Audit and Compensation Committees. In deciding to nominate Mr. Sylla, the Board considered his financial and accounting expertise and his qualifications as an Audit Committee Financial Expert. The Board also considered Mr. Sylla’s substantial management, business, and leadership experience based upon his various roles as a senior executive, as well as his valuable risk management and customer relations skills and abilities. In addition, the Board benefits from his perspectives on financial, transactional, and investment matters due to his management experience in an investment and financial business. Mr. Sylla also serves as a director or trustee of various mutual funds in the Northern Funds and Northern Institutional Funds family.

 

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ELECTION OF DIRECTORS

 

Stephen R. Wilson

 

 

LOGO  

Director Since:    2014

 

Career Highlights:

 

CF Industries Holdings, Inc.

-    President and Chief Executive Officer (2003 to January 2014)

-    Chairman (2005 to May 2014)

-    Senior Vice President and Chief Financial Officer (1991 to 2003)

 

Inland Steel Industries, Inc.

-    Various finance and strategic planning positions of increasing responsibility (1974 to 1991)

 

Experience and Qualifications of Particular Relevance to GATX:

 

Mr. Wilson serves as a member of the Audit and Compensation Committees. In deciding to nominate Mr. Wilson, the Board considered his qualifications as an Audit Committee Financial Expert and his experience in his former role as the Chief Executive Officer of a leading manufacturer and distributor of fertilizer products, which provides the Board with valuable financial, operating, and business management expertise. He also has significant experience in strategic planning, regulatory environment, transformational corporate transactions, and business integration, including in numerous international markets. In addition, the Board values Mr. Wilson’s financial and accounting expertise from his experience serving as a Chief Executive Officer and Chief Financial Officer at a major publicly held corporation. Mr. Wilson also serves on the board of directors of Ameren Corporation where he is chair of the Finance Committee and a member of the Human Resources Committee.

Paul G. Yovovich

 

 

LOGO  

Director Since:    2012

 

Career Highlights:

 

Lake Capital, a private equity firm

-    President and co-founder (1998 to present)

 

Advance Ross Corporation

-    President (1993 to 1996)

 

Centel Corporation

-    Various executive positions (1982 to 1992)

 

Experience and Qualifications of Particular Relevance to GATX:

 

Mr. Yovovich serves as Chair of the Governance Committee and as a member of the Compensation Committee. In deciding to nominate Mr. Yovovich, the Board considered that, with his over thirty years of experience as a senior executive, principal, and corporate director, he brings to the Board extensive strategic, operating, financial, accounting, regulatory, and business management experience. Mr. Yovovich also provides the Board with technology and data security experience. As a private equity executive, Mr. Yovovich has substantial experience investing in, and actively overseeing the management of, Lake Capital’s portfolio companies to foster growth and value creation. As a result, he also provides the Board with considerable expertise in transactional, investment, corporate governance, and capital markets matters.

 

GATX CORPORATION  -  2017 Proxy Statement   21


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DIRECTOR COMPENSATION

2016 Director Compensation

 

 

Name   

Fees Earned

or Paid in Cash

($)(1)

    

Stock

Awards

($)(2)(3)

    

NQSO
Awards

($)

    

Non-equity
incentive plan
compensation

($)

    

Change in
pension value
and
nonqualified
deferred
compensation
earnings

($)

    

All other
compensation

($)

    

Total

($)

 
(a)    (b)      (c)      (d)      (e)      (f)      (g)      (h)  

Diane M. Aigotti(4)

     20,870        15,978        0        0        0        0        36,848  

Anne L. Arvia

     95,000        90,000        0        0        0        0        185,000  

Ernst A. Häberli

     80,000        90,000        0        0        0        0        170,000  

James B. Ream

     90,000        90,000        0        0        0        0        180,000  

Robert J. Ritchie

     80,000        90,000        0        0        0        0        170,000  

David S. Sutherland

     100,000        90,000        0        0        0        0        190,000  

Casey J. Sylla

     80,000        90,000        0        0        0        0        170,000  

Stephen R. Wilson

     80,000        90,000        0        0        0        0        170,000  

Paul G. Yovovich

     87,500        90,000        0        0        0        0        177,500  

 

(1) Under the Directors’ Deferred Fee Plan, the following directors deferred a portion of their cash retainer into phantom stock units during 2016: Ms. Aigotti ($10,870), Mr. Ream ($18,000), Mr. Ritchie ($80,000), Mr. Sutherland ($100,000), and Mr. Yovovich ($87,500).
(2) Messrs. Häberli, Ream, Ritchie, Sutherland, Sylla, Wilson, Yovovich, and Ms. Arvia received stock grants with a grant date fair value of $22,500 on January 31, April 30, July 31, and October 31, 2016. Ms. Aigotti received a stock grant with a grant date fair value of $978 on October 31, 2016. These awards were fully vested upon grant, and the amounts shown represent the dollar amounts recognized for financial statement reporting purposes for the fiscal year ended December 31, 2016, in accordance with Accounting Standards Codification (“ASC”) Topic No. 718, Compensation — Stock Compensation. Assumptions used to calculate these amounts are included in the Notes to the Company’s audited financial statements contained in the Company’s Annual Report on Form 10-K for fiscal year ended December 31, 2016.
(3) The aggregate number of GATX phantom stock units held on December 31, 2016 was: Ms. Aigotti (22), Ms. Arvia (17,466), Mr. Häberli (22,062), Mr. Ream (22,231), Mr. Ritchie (19,152), Mr. Sutherland (44,258), Mr. Sylla (32,290), Mr. Wilson (3,916), and Mr. Yovovich (14,724).
(4) Ms. Aigotti was appointed to the Board effective October 28, 2016.

The Company’s director compensation program for 2016 consisted of the following amounts shown in the table below:

Our 2016 Director Compensation Program

 

 

Retainer (Annualized Amounts)    January 1 -
December 31 ($)

- Cash

   80,000

- Phantom Stock

   90,000

- Lead Director

   20,000

- Audit Committee Chair

   15,000

- Compensation Committee Chair

   10,000

- Governance Committee Chair

     7,500

 

Each director’s phantom stock account is credited with additional units representing dividends declared on GATX common stock based on the date such dividend is paid.

At the expiration of each director’s service on the Board, settlement of phantom stock units is made in shares of common stock equal to the number of units of phantom

 

 

22   GATX CORPORATION  -  2017 Proxy Statement


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DIRECTOR COMPENSATION

 

stock then credited to his or her account. Any fractional units are paid in cash. Directors may elect to receive their payouts in a lump sum or up to ten annual installments in accordance with the terms, and subject to the limitations, set forth in the Directors’ Phantom Stock Plan.

We offer a Directors’ Voluntary Deferred Fee Plan in which non-employee directors may defer receipt of the cash portion of their retainer in the form of either cash or phantom stock units. If the deferral is in cash, the deferred amount accrues interest at a rate equal to the

20-year US government bond rate. If the deferral is in units of phantom stock, the units are credited to an account for each participating director along with dividends and are settled, following expiration of the director’s service on the Board, in accordance with his or her election/distribution form on file. Five directors participated in the Deferred Fee Plan in 2016.

The stock ownership goal for non-employee directors is 5.0 times the annual cash retainer. New directors have five years following election to the Board to achieve this ownership goal.

 

 

GATX CORPORATION  -  2017 Proxy Statement   23


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PROPOSAL 2:   ADVISORY RESOLUTION ON EXECUTIVE COMPENSATION

 

We are seeking your approval, on a non-binding advisory basis, of the compensation of our named executive officers as described in the Compensation Discussion and Analysis beginning on page 26. We believe that we have designed compensation programs that pay for performance and align compensation with the long-term interests of our shareholders. In deciding how you vote on this proposal, we encourage you to read the Compensation Discussion and Analysis for a full description of our executive compensation philosophy and programs, the decisions our Compensation Committee has made under those programs, and the factors it considers in making those decisions.

In 2016, the rail industry experienced reduced railcar loadings, improved railroad efficiency, and declining lease rates for the second consecutive year. Despite these difficult market conditions, GATX performed extremely well as we had been successful in prior years in extending lease terms to lock in attractive lease rates. Key accomplishments in 2016 included:

 

 

record net income of $257.1 million or $6.29 per diluted share

 

 

return on equity of 19.6%

 

 

maintained extremely high fleet utilization of 98.9%

 

 

placed 92% of our 2017 new railcar deliveries with customers well in advance of their delivery dates

 

 

optimized our fleet by selling railcars into a robust secondary market, generating $46 million in remarketing income in North America

 

invested nearly $621 million in new assets, primarily in our rail business in North America and Europe

 

 

completed our 98th consecutive year of uninterrupted dividends

 

 

returned over $185 million to shareholders through share repurchases and dividends.

We value the feedback provided by our shareholders, who approved our executive compensation program at the 2016 Annual Meeting of Shareholders by a vote of 98.4% in favor. We have discussions with many of our shareholders on an ongoing basis regarding various topics, including executive compensation, and we take into account the views of shareholders regarding the design and effectiveness of our executive compensation program.

Shareholders are being asked to approve the following resolution at the Annual Meeting:

“RESOLVED, that the shareholders of GATX Corporation (the “Company”) approve, on an advisory basis, the compensation of the Company’s named executive officers as disclosed in this Proxy Statement pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, and the Executive Compensation Tables, together with the narrative discussion related thereto.”

 

 

The Board of Directors recommends that you vote FOR adoption of the advisory resolution to approve the compensation of our named executive officers as disclosed in this Proxy Statement.

 

24   GATX CORPORATION  -  2017 Proxy Statement


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PROPOSAL 3:   ADVISORY RESOLUTION ON THE FREQUENCY OF FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION

 

As described in Proposal 2 above, each year we offer our shareholders the opportunity to cast an advisory vote to approve the compensation of our named executive officers (“say-on-pay”). This Proposal 3 affords shareholders the opportunity to cast an advisory vote on how often say-on-pay advisory votes should be held in the future (“say-on-frequency”). Under applicable law and SEC regulations, the say-on-pay vote may be held every one, two, or three years. Our shareholders voted on a similar proposal in 2011 with the majority voting to hold the say-on-pay vote every year, and we have been holding annual say-on-pay advisory votes since 2011. We continue to believe that holding say-on-pay votes annually provides the highest level of accountability and communication by giving shareholders the opportunity to provide their direct input on our executive compensation program more frequently.

Our Board of Directors recommends that shareholders vote for EVERY YEAR as the frequency for future say-on-pay votes. This say-on-frequency advisory resolution is non-binding. However, the Board and the Compensation Committee value the opinions of the shareholders and will

consider the outcome of the vote when determining the frequency of future say on pay votes.

We are asking shareholders to vote on the following advisory resolution at the 2017 Annual Meeting:

“RESOLVED, that the shareholders of GATX Corporation (the “Company”) determine, on an advisory basis, that the frequency with which the shareholders of the Company shall have an advisory vote on the compensation of the Company’s named executive officers as disclosed in the Company’s Proxy Statement is:

EVERY YEAR;

EVERY 2 YEARS; or

EVERY 3 YEARS.”

In voting on the foregoing advisory resolution, shareholders may choose any one of the following four options:

 

 

every year

 

 

every 2 years

 

 

every 3 years

 

 

abstain.

 

 

The Board of Directors recommends that you vote for EVERY YEAR as the frequency with which shareholders will be provided with an advisory vote on the executive compensation of our named executive officers as disclosed in our Proxy Statement.

 

GATX CORPORATION  -  2017 Proxy Statement   25


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COMPENSATION DISCUSSION AND ANALYSIS

This section discusses material information relating to our executive compensation program and plans for our named executive officers (“NEOs”):

 

Brian A. Kenney

Chairman, President and Chief Executive Officer

Robert C. Lyons

Executive Vice President and Chief Financial Officer

James F. Earl

Executive Vice President and President, Rail International

 

Thomas A. Ellman

Executive Vice President and President, Rail North America

Deborah A. Golden

Executive Vice President, General Counsel and Corporate Secretary

 

 

TABLE OF CONTENTS:

 

 

 

This Compensation Discussion and Analysis makes reference to financial data derived from our financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) and certain other financial data prepared using non-GAAP

components. For a reconciliation of these non-GAAP components to the most comparable GAAP components, see Reconciliation of Non-GAAP Financial Measures set forth in Exhibit B to this Proxy Statement.

 

 

26   GATX CORPORATION  -  2017 Proxy Statement


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COMPENSATION DISCUSSION AND ANALYSIS

 

Executive Summary

 

Our Business and Strategy

 

GATX is the leading global railcar lessor, owning and leasing railcars in North America, Europe, and Asia. Most of our railcar leases are full-service leases under which we provide maintenance, engineering, administrative, and a variety of other value-added services. We operate an extensive network of railcar maintenance facilities in the United States, Canada, and Europe dedicated to performing timely, efficient, and high quality maintenance for our railcar leasing customers. In addition, we operate the largest fleet of US-flagged vessels on the Great Lakes and invest in a group of joint ventures with Rolls-Royce plc, a leading manufacturer of commercial aircraft jet engines, that lease aircraft spare engines.

Railcar leasing is our core business, accounting for approximately 85% of our 2016 revenue. Our rail customers operate in cyclical markets, such as the petroleum, chemical, fertilizer, food/agricultural, transportation, and construction industries. Combined with changing macroeconomic conditions and swings in railcar supply, this results in significant volatility in utilization and lease rates for railcars over time. At the

same time, railcars have very long useful lives of 20-45 years. Thus, we have to proactively manage our business with a long-term view, which includes buying, leasing, maintaining, and selling railcars into constantly changing business conditions over decades.

We believe that the key to generating long-term shareholder value involves optimizing asset growth and asset return by emphasizing each at the appropriate point in the railcar business cycle. For example, in stronger railcar markets, we focus on increasing lease rates and lengthening lease term to lock-in attractive lease revenue as long as possible. At the same time, we de-emphasize new railcar investment due to the high railcar prices usually present in such a market. Conversely, in weaker markets, when railcar prices tend to be lower, we seek to invest in additional railcars on favorable terms. We also aggressively reduce lease rates to maintain asset utilization and shorten lease terms to position the Company to capture value when lease rates improve. The following chart illustrates our approach to managing leases through these cycles over the past decade.

 

 

LOGO

 

The cyclicality of our industry is also illustrated by the backlog of orders at the railcar manufacturers. Rising backlogs tend to represent a strengthening market while falling backlogs tend to represent a weakening market. While we invest in railcars at all points in the business cycle, we strive to achieve lower railcar cost by trying to

place large new railcar orders and acquire existing fleets in weaker markets when asset prices tend to be lower. The following chart illustrates this cyclicality and our efforts to focus on the lower points in the business cycle for large railcar investments.

 

 

 

* The Lease Price Index is an internally generated business indicator measuring the percentage change between the average renewal lease rate and the average expiring lease rate weighted by fleet composition.

 

GATX CORPORATION  -  2017 Proxy Statement   27


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COMPENSATION DISCUSSION AND ANALYSIS

 

 

LOGO

Compensation Principles

 

Our Compensation Committee is responsible for the oversight of our executive compensation program, including approval of our Chief Executive Officer’s compensation and establishing the performance goals used to determine the compensation of our executive officers. Our executive compensation program is based on the following principles:

 

 

a substantial majority of management’s compensation should be performance-based and closely linked to our financial performance to align the interests of management with those of our shareholders

 

 

performance goals should be robust and reward executives for the achievement of our annual and long-term business goals through changes in business cycles

 

 

compensation opportunities should be competitive to enable us to attract, motivate, and retain key executives who are critical to delivering long-term shareholder value.

The Compensation Committee expects our executive team to create long-term shareholder value by growing

capital employed while also earning an attractive return on that capital. The inherent cyclicality of the railcar leasing business is an important consideration in how we structure our executive compensation programs to appropriately incentivize management to achieve the financial goals that will positively impact the Company’s performance over the long-term.

Due to the cyclicality of our business, management must strategically shift the emphasis we place on each of these dual objectives (i.e., growth in capital employed and financial returns) to adapt to changes in market conditions. Our compensation programs reflect this cyclicality by appropriately rewarding management to emphasize current financial returns over growth in capital employed during stronger markets, and conversely, to emphasize growth in capital employed over current financial returns in weaker markets. In this way, the Compensation Committee believes that our plans have been designed to reward executives for achieving those goals that will have the most beneficial impact on our financial performance and long-term shareholder value in light of where we are in the railcar business cycle.

 

 

28   GATX CORPORATION  -  2017 Proxy Statement


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COMPENSATION DISCUSSION AND ANALYSIS

 

Compensation Plan Design

 

The overarching goal of our compensation philosophy and incentive plan design is to incentivize management by aligning their interests with those of our shareholders. In 2016, approximately 80% of total direct compensation for our Chief Executive Officer and approximately 63% for our other NEOs, was performance-based and not

guaranteed. The light and dark blue colors in the charts below denote performance-based compensation. The following graphs provide a snapshot of the elements of pay for our named executive officers and explain why each element is provided

 

 

LOGO

Note: The percentages in the chart above are based on the base salary and incentive targets in effect for the named executive officers for 2016, and thus are not intended to match amounts shown in the Summary Compensation Table or the Grant of Plan-Based Awards Table.

 

Incentive Type   Compensation
Element
  What the Element
Rewards
  Key Features &
Purpose
  Form of Payment
FIXED   Base Salary   Typically consider market pay levels, specific responsibilities and experience of each NEO, and his or her individual performance  

    Attract and retain key talent

     Provide a degree of financial certainty

  Cash

PERFORMANCE-BASED

INCENTIVES

  Annual Incentive Awards   Achievement of Company net income goal. In 2016, net income was $235.9 million1, which was 108% of target. This level of performance resulted in incentive payouts to NEOs of 112% of the target award level  

    Drive achievement of key business results on an annual basis

  Cash
 

Long-Term

Equity Based Incentive Awards

  Achievement of Company return on equity and investment volume goals. We set target long-term incentive opportunities to be competitive with market. The value of regular, annual long-term incentive awards to each NEO is divided equally between stock options and performance shares  

    Directly tie interests of our NEOs to those of our shareholders

 

     Reward achievement of long-term objectives, typically over a three-year performance period

 

     Reward creation of long-term shareholder value

 

Non-qualified stock options or stock appreciation rights and performance shares (can elect to receive cash payout if certain conditions have been met)

 

1 

We report net income, calculated in accordance with GAAP, in our financial statements. We also use net income as the performance metric for our annual incentive awards. The net income measure used for this purpose excludes a net benefit of $21.2 million from Tax Adjustments and Other Items. As a result, the net income calculation for our annual incentive awards may differ from net income as reported in our financial statements for the same period. For a reconciliation of net income used for annual incentive purposes to net income as reported in our financial statements, please see Exhibit B to this Proxy Statement.

 

GATX CORPORATION  -  2017 Proxy Statement   29


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COMPENSATION DISCUSSION AND ANALYSIS

 

2016 Key Management Objectives

 

In 2016, the rail industry experienced reduced railcar loadings, improved railroad efficiency, and declining lease rates for the second consecutive year. In the prior strong market, our management team had extended the length of lease terms to lock in record average lease rates, sold railcars at premium valuations into a robust secondary market, and improved the efficiency of our maintenance network – all with the objective of preparing for anticipated weaker market conditions ahead. In the face

of a weakening market entering 2016, we established the following objectives, among others:

 

 

Focus on maintaining high utilization by being the price leader to keep railcars with existing customers

 

 

Successfully place future years’ new railcar deliveries from our committed Supply Agreement on lease well before their delivery dates

 

 

Further optimize our railcar fleet by selling railcars into an unusually strong secondary market

 

 

Control SG&A expenses.

 

 

2016 Key Accomplishments

Despite difficult current market conditions, the Company performed extremely well in 2016.

 

Record Earnings

 

    Net income of $257.1 million

 

     Record earnings per diluted share of $6.29

 

    Return on Equity of 19.6%

Strong Operating Performance

 

    Maintained extremely high fleet utilization of 98.9%

 

     Placed 92% of our 2017 new railcar deliveries with customers well in advance of their delivery dates

 

     Optimized our fleet by selling railcars into robust secondary market, generating more than $46 million in remarketing income in North America

 

     Invested nearly $621 million, primarily in our rail businesses in North America and Europe

 

     Disciplined SG&A spending resulted in a 5% reduction from 2015

Returned Cash to Shareholders

 

    Increased our dividend for the 6th consecutive year, to $1.60 per share

 

     Completed our 98th consecutive year of uninterrupted dividends

 

    Returned over $185 million to shareholders through share repurchases and dividends.

Performance Measures, Goal Setting, and Pay-for-Performance Alignment

 

Our unique position as an independent, publicly traded railcar lessor means that there are no directly comparable peers against which we can assess pay and performance. Over the last few years, our Compensation Committee has considered multiple approaches to identifying a relevant peer group but has found all of them to lack appropriate comparability. For example, the companies in our General Industry Classification Standard (GICS) code have significantly different business models, customer bases, and asset composition, and they lack GATX’s focus on very long-lived assets. Our competitors in the railcar leasing industry are typically very small parts of much larger diversified companies, which may or may not be publicly

traded, making comparisons extremely difficult. However, we compete for executive talent against these much larger organizations. Lacking a clear group of peers for comparison, our Compensation Committee has chosen to use multiple data points to assess our executive compensation, including:

 

 

market data for companies with annual revenues between $1-3 billion

 

 

results from our annual internal talent assessment, which includes survey data on pay for particular executive positions

 

 

individual performance.

 

 

30   GATX CORPORATION  -  2017 Proxy Statement


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COMPENSATION DISCUSSION AND ANALYSIS

 

 

In addition to the lack of relevant peer pay data, lack of a peer group makes it difficult to compare GATX’s relative total shareholder return (“TSR”) to the TSR of other companies in our industry because there are no other independent, publicly traded railcar leasing companies that we believe would provide a useful basis for comparison. This is the primary reason why our Compensation Committee does not use relative TSR as a performance measure in our annual and long-term incentive plans. Instead, the Compensation Committee has chosen to use performance measures that reflect the Company’s financial performance and the cyclical nature of our business.

In setting the performance measures for our annual and long-term plans, our Compensation Committee sets

goals intended to align executive compensation with the appropriate achievement of our dual goals of growth and return at various points in the business cycle. Reflecting this focus, our Compensation Committee uses net income, return on equity, and investment volume as the performance measures in all of our annual and long-term incentive plans. The Compensation Committee sets the performance goals for each of these measures with the intent of focusing management on achieving results that will have the biggest impact on our financial performance and long-term shareholder value in light of where we are in the business cycle. The following graphs show our compensation plan goals for 2016, and our actual achievement against such goals, for each of net income, return on equity, and investment volume.

 

 

Annual Incentive Plan Measure

Net Income1

 

LOGO

 

Despite a rapid decline in lease rates during the year, our 2016 net income target was set only modestly lower as we had been successful in prior years in extending lease terms to lock in attractive lease rates. Under the terms of our annual incentive plan, our net income achievement of 108% of target resulted in a payout to our executives at

112% of their target awards. 2016 and 2015 actual net income performance shown in the chart above reflects certain adjustments during the year.1 See Annual Incentive Awards on page 36 for more details about our annual incentive plan and how this payout was determined.

 
 

 

1  For annual incentive award purposes, net income excludes an aggregate favorable adjustment of $21.2 million in 2016 and an aggregate unfavorable adjustment of $29.6 million in 2015 related to Tax Adjustments and Other Items. For a reconciliation of net income used for annual incentive award purposes to net income calculated in accordance with GAAP and used in our Financial Statements, please see Exhibit B to this Proxy Statement.

 

GATX CORPORATION  -  2017 Proxy Statement   31


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COMPENSATION DISCUSSION AND ANALYSIS

 

Performance Share Plan Measures

 

Return on Equity1    Investment Volume

 

LOGO

  

 

LOGO

 

Under the terms of our 2014-2016 performance share program, our actual results exceeded target performance for both return on equity and investment volume, which resulted in a payout to our executives at 150.2% of their target performance shares. However, the actual value of the payouts depends upon the market price of our common stock on the vesting date, which may be higher or lower than the grant price. See 2016-2018 Performance Share Measures and Goal Setting on

page 38 for a description of our performance share program. The return on equity and investment volume measures are weighted equally in calculating our Performance Share Plan results. Our Compensation Committee believes that these two measures strike an appropriate balance between achieving a meaningful return for our shareholders while holding to a disciplined investment strategy through business cycles.

 

 

1  We report return on equity, calculated in accordance with GAAP, in our financial statements. We also use return on equity as a performance metric we use for our long-term equity incentive awards, including our performance shares. However, the return on equity measure used for this purpose excludes “accumulated other comprehensive loss” from the equity component, which is included in the equity component of return on equity as reported in our financial statements. As a result, the return on equity calculations with respect to the performance shares during the relevant performance period may differ from return on equity as reported in our financial statements for the same period. For a reconciliation of return on equity used for the performance shares to return on equity calculated in accordance with GAAP, please see Exhibit B to this Proxy Statement. We believe that excluding “accumulated other comprehensive loss” from the performance share return on equity calculation provides a more accurate measurement of management’s performance. In addition, return on equity for each of 2014, 2015 and 2016 excludes a favorable adjustment related to a change in the accounting estimate of depreciable lives for railcars.

 

32   GATX CORPORATION  -  2017 Proxy Statement


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COMPENSATION DISCUSSION AND ANALYSIS

 

CEO Pay-For-Performance Alignment

 

We continue to maintain a strong pay and performance linkage through all points in the business cycle, as illustrated in the following charts, which show our Chief Executive Officer’s compensation measured against our financial performance for the years 2008-2016. As we

manage through the current weak market conditions in the railcar leasing industry, our Compensation Committee expects management to shift focus in favor of disciplined growth and investment over short-term financial returns.

 

 

LOGO    LOGO

 

LOGO

 

  

 

LOGO

 

 

1 

Amounts in chart are based on Net Income, excluding Tax Adjustments and Other Items. For details of 2014, 2015, and 2016 and a reconciliation to net income calculated in accordance with GAAP, please see Exhibit B to this Proxy Statement.

 

GATX CORPORATION  -  2017 Proxy Statement   33


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COMPENSATION DISCUSSION AND ANALYSIS

 

Shareholder Return and CEO Compensation

 

The chart below compares the changes in shareholder return and our Chief Executive Officer’s compensation over the course of the previous business cycle (2008 to 2014) and the current cycle (2015-2016). During this time frame, our Chief Executive Officer’s compensation remained relatively flat, with year-to-year volatility in line with our annual financial performance as highlighted

above. Since 2008, a year with similar lease renewal pressure to today’s market environment, total direct compensation for our Chief Executive Officer has increased by 24%, a compound annual growth rate of approximately 2.7%, while TSR increased 157%, a compound annual growth rate of approximately 12.5%.

 

 

 

LOGO

 

 

  * Amounts are as reported in the Summary Compensation Table, less changes in pension value.

2016 Say-on-Pay Vote

 

At our 2016 Annual Meeting of Shareholders, approximately 98.4% of shareholder votes were cast in favor of an advisory resolution approving the compensation of our NEOs as disclosed in our 2016 proxy statement (the “say-on-pay” resolution). The Compensation Committee believes that the overwhelming

shareholder vote in favor of the say-on-pay resolution was an affirmation of shareholders’ support of our approach to executive compensation and, therefore, did not make any specific changes to its executive compensation plans or programs as a result of the vote.

 

 

34   GATX CORPORATION  -  2017 Proxy Statement


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COMPENSATION DISCUSSION AND ANALYSIS

 

GATX’s Executive Compensation Practices

 

We regularly review and refine our executive compensation program to ensure that it continues to reflect practices and policies that are aligned with our pay-for-performance philosophy. We believe that our

practices and policies set forth below are in line with current best practices for aligning executive and shareholder interests and sound corporate governance practices.

 

 

LOGO   LOGO
What We Do   What We Don’t Do

   Pay for Performance—Approximately 71% of our executives’ total direct compensation is performance-based

 

   Robust Stock Ownership Guidelines—We have stock ownership guidelines for executive officers of 5.0x base salary for CEO and 2.5x base salary for other executive officers

 

   Stock Retention Requirements—We require our executive officers to retain 50% of the after-tax profits realized from their GATX equity awards until stock ownership guidelines are met

 

   Annual “Say-on-Pay” Vote—We seek an annual non-binding advisory vote from our shareholders to approve compensation paid to our NEOs as disclosed in our proxy statement

 

   Clawback Policy—Our policy provides for the recovery of equity awards and incentive compensation paid to executive officers in the event of a material restatement of our financial results

 

   Independent Compensation Consultant—The Compensation Committee retains an independent compensation consultant and reassesses independence annually

 

   Annual Review of Compensation—The Compensation Committee, with input from its independent compensation consultant, conducts an annual review of all of our compensation programs in light of current best practices

 

   Annual Compensation Risk Assessment—Each year we perform an assessment of any risks that could result from our compensation plans and programs

 

 

×    Employment Agreements—We do not provide our executive officers with employment agreements, other than severance in connection with a change in control

 

×    Hedging/Pledging of Company Stock—We prohibit our officers, directors, and employees from hedging, margining, pledging, short-selling, or publicly trading options in our stock

 

×    Tax Gross-Ups—We do not provide tax gross-ups, other than in agreements entered into prior to 2009 which have not been amended

 

×    Dividends on Unvested Equity Awards—We do not pay dividends on unvested equity awards, including options, restricted stock, and performance shares

 

×    Perquisites—We do not provide perquisites to our NEOs

 

×    Repricing or Exchange of Underwater Options—We prohibit share repricing without shareholder approval

 

×    Single-Trigger Change of Control Vesting/Benefits—We do not allow for single-trigger vesting or payment of benefits upon a change of control. Rather, we require double-trigger, or both a change of control and termination of executive’s employment, before vesting is accelerated

 

 

GATX CORPORATION  -  2017 Proxy Statement   35


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COMPENSATION DISCUSSION AND ANALYSIS

 

Detailed Compensation Discussion and Analysis

 

 

In 2016, our executive compensation program consisted of three elements: Base salary, annual incentive, and long-term equity compensation. We also provide various

retirement and benefit programs, which are generally available to all employees. Further details on each element of compensation are discussed below.

 

Base Salary

 

Base salary constitutes approximately 20% of total targeted compensation for our Chief Executive Officer (approximately 37% for our other NEOs), which is consistent with our philosophy that a majority of executive compensation should be performance-based.

In establishing salary levels, we typically consider market pay levels, the specific responsibilities and experience of each NEO, and his or her individual performance. Base salaries may be adjusted during the Compensation Committee’s annual review for:

 

 

annual salary increases

 

 

changes in role, such as promotions or added responsibilities

 

 

market adjustments.

At his request, Mr. Kenney did not receive an increase to his base salary in 2016. Mr. Lyons, Mr. Earl, and Ms. Golden each earned a 2% base salary merit increase for 2016, which was consistent with the annual merit increases granted to other salaried employees. Mr. Ellman received a 7% base salary increase for 2016, reflecting a 2% annual merit increase and an additional 5% increase reflecting a market pay adjustment to bring his compensation closer to business unit head pay levels.

While the Company’s 2017 annual salary increases will reflect an average increase of 2%, Mr. Kenney’s base salary for 2017 will remain unchanged for the third consecutive year in line with his request and 2017 salaries for Messrs. Lyons, Earl, and Ellman and Ms. Golden will also remain unchanged.

 

 

Annual Incentive Awards

Process for Setting Annual Incentive Targets

 

Target incentive opportunities for NEOs are expressed as a percentage of base salary and are intended to be competitive with the market. Please see The Determination of Market Competitive Pay on page 41 for a description of how we determine competitive pay levels. For 2016, our NEOs’ target incentive opportunities

remained unchanged from 2015 levels. Mr. Kenney’s target incentive opportunity was 100% of his base salary. The target annual incentive opportunities for our other NEOs were 70% of base salary for Messrs. Lyons and Earl, and 60% of base salary for Ms. Golden and Mr. Ellman.

 

Annual Incentive Plan Design

 

Our NEOs earn their annual incentive awards under our Cash Incentive Compensation Plan (the “CICP”) based on achievement of pre-established financial performance goals. The CICP is designed to arrive at a maximum possible incentive award, which then may be reduced by the Compensation Committee based on such other metrics as it may determine appropriate. This design is intended to meet the requirements for tax deductibility of our annual incentive, while providing the Compensation Committee the flexibility to adjust performance metrics as necessary to meet our strategic business needs.

Under the CICP, a maximum bonus of 0.75% of “Total Gross Income Less Total Ownership Costs” (as such term is defined in the CICP) is earned. However, as

previously mentioned, the Compensation Committee does not expect to pay the full amount. Rather, it has historically measured performance against targeted net income and determined bonuses based on achievement against a net income goal established from a financial plan which is reviewed by the full Board. The Compensation Committee has chosen net income as the goal because it provides executives with a strong incentive to increase our profitability.

The performance metrics and payout levels are established at the beginning of each year by the Compensation Committee with input from the independent consultant and management. The level of financial performance required for the maximum payout is

 

 

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established based on the Compensation Committee’s assessment of the level of performance that shareholders would likely consider superior in view of general economic conditions and the economic outlook for GATX and its industry in particular. This process is essentially reversed to establish the threshold or minimum performance level, defined as the level of financial performance below which no incentive is payable.

 

2016 Annual Incentive Plan Design. For 2016, the Compensation Committee decreased the net income goal for our annual incentive plan by approximately 3% compared to the prior year’s net income to reflect a slightly lower targeted level of performance for GATX in light of our business plan and a weak railcar leasing market. The goals and payout levels under the 2016 annual incentive plan design are indicated in the following table:

 

 

2016 Annual Incentive Plan Design  
      

Net Income

(Millions)

       Achievement        Payout  

Threshold

     $ 174.6          80        70%    

Target (Goal)

     $ 218.3          100        100%    

Maximum

     $ 306.6          140        170%    

 

2016 Annual Incentive Plan Payouts. Net income for 2016, was $235.9 million1, which was 108.0% of the target level of performance. Based on the targets

illustrated above, this level of performance resulted in incentive payouts of 112.1% of the target award level to the NEOs.

 

Long-Term Equity Based Incentive Awards

Process for Granting Awards

 

We set target long-term incentive opportunities for our NEOs to be competitive with the market. The value of the regular, annual long-term incentive awards to each NEO is divided equally between non-qualified stock options (“NQSOs”) and performance shares. We chose this combination of grant types because it focuses executive attention on total shareholder return and on specific financial goals, both of which are essential to our long-term success. The grant date for regular long-term incentive awards is the date of the Compensation Committee’s first

meeting of each calendar year. We grant NQSOs to NEOs at the same time we grant them to other employees. NQSOs vest ratably over a three-year period and expire seven years after the grant date. We have no program, plan, or practice to time NQSO grants to NEOs or any other employees in coordination with the release of material non-public information. We generally make off-cycle grants (if any) to newly hired employees on the last trading date of the month following the hire date and Compensation Committee approval of the award.

 

 

Award Types and How Each Fits Into Our Program

 

Non-Qualified Stock Options. NQSOs are granted to align the interests of our NEOs and other employees with our shareholders. NQSOs are granted at a price equal to fair market value (the average of the high and low trading prices of our common stock on the date of grant) as approved by the Compensation Committee. Because TSR is comprised of stock price appreciation and dividends, dividend equivalents are attached to NQSOs. We believe that rewarding both components of shareholder return better aligns management and shareholder interests. Dividend equivalents accrue until vesting and are paid in cash thereafter until the NQSO is exercised or expires. Because the value of dividend equivalents is fully factored into the determination of grant size, recipients receive no additional

compensation; the number of NQSOs granted are correspondingly smaller than they would be if dividend equivalents were not attached because the value of each NQSO is higher.

Performance Shares. Performance shares are designed to focus attention on, and to reward the achievement of, our long-term financial and strategic objectives. The Compensation Committee establishes the goals for which the performance shares may be earned at the beginning of a three-year performance period rather than annually. At the end of the performance period, a percentage ranging from 0% to 200% of the number of performance shares initially awarded will be earned based on the extent to which the

 

 

 

1 

For annual incentive award purposes, net income excludes a net benefit of $21.2 million from Tax Adjustments and Other Items. For a reconciliation of net income for annual incentive award purposes to net income calculated in accordance with GAAP and used in our financial statements, please see Exhibit B to this Proxy Statement.

 

GATX CORPORATION  -  2017 Proxy Statement   37


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three-year goals are achieved. The value of each earned performance share equals the price of one share of our common stock at the end of the performance period, with payment of earned performance shares made in the form of GATX common stock.

 

 

Performance Metrics Design. Performance shares are earned based on achievement of a specified level of “Total Gross Income Less Total Ownership Costs” (as defined in the GATX 2012 Incentive Award Plan) at the end of the performance period. If the goal is not met, the entire performance share award is cancelled. If the goal is met, the Compensation Committee may reduce, but not increase, the number of performance shares otherwise payable based on the achievement of other long-term performance objectives established at the beginning of the performance period. This design is similar to our annual incentive plan as it is intended to meet tax deductibility requirements while also providing the Compensation Committee the flexibility to adjust performance metrics as necessary to meet our strategic business needs.

 

 

Dividends Paid only on Performance Shares Earned. Accumulated dividend equivalents are paid on performance shares, only if earned, at the end of the performance period.

 

Cash Election Feature. Beginning with the 2014-2016 performance share awards, participants have the opportunity to elect to receive their performance share payout in the form of cash, if the participant meets one of two conditions: (1) the participant has exceeded 150% of his or her stock ownership goal or (2) the participant is within five years of retirement under the Company’s pension plan. This election must be made no later than November 30 of the last year of the performance period and may be made only during an open trading window when participants are not subject to insider trading restrictions. The cash value will be determined based on the number of performance shares earned multiplied by the fair market value of GATX stock on the day the award is earned. This optional cash election feature was implemented to address the accumulation of high concentrations of GATX stock beyond the required stock ownership requirements and limited opportunities to diversify due to restrictions related to the trading of GATX stock, such as insider trading blackouts. As such, the Compensation Committee believes that there should be an appropriate balance between our compensation programs and philosophy and the participants’ needs for moderate and transparent diversification as they approach retirement.

 

 

2016-2018 Performance Share Measures and Goal Setting

Background

 

Our target setting process, conducted at the beginning of each three-year performance period, combines goals related to growth and return to reflect the cyclical nature

of our business. Our targets are designed to incentivize behavior which enhances long-term shareholder value at all points in the business cycle.

 

 

Design

 

In addition to the Total Gross Income Less Total Ownership Costs threshold goal specified in the GATX 2012 Incentive Award Plan, the number of performance shares that will be earned in 2018 will also be subject to two equally weighted measures:

 

 

Three-year average return on equity (return measure)

 

 

Three-year cumulative investment volume (growth measure)

For the 2016-2018 performance period, the NEOs can earn 100% of the shares awarded provided the Company achieves a 12.0% average return on equity and $2.15 billion in cumulative investment volume over the three-year performance period.

 

 

Rationale

 

As stated above, we establish our growth and return objectives depending on where we are in the business cycle. When the market is stronger and asset prices are high, we emphasize earning a higher return over making investments to grow capital employed. When the market is weaker and asset prices are reduced, we emphasize making prudent investments at attractive prices over

attempting to earn an unrealistically high short-term return. We believe that a single-minded focus on achieving growth over return, or vice versa, at the wrong points in the cycle is likely to impair shareholder value over the longer term.

The return on equity and cumulative investment targets for the 2016-2018 performance period were set in the

 

 

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fourth quarter of 2015 amidst a weakening North American railcar leasing market. Consistent with our objective of striking an appropriate balance between our growth and return objectives in light of market conditions, the Compensation Committee set a lower target for average return on equity for the 2016-2018 performance period (12.0%) than for the prior three-year performance period (15.2% for 2015-2017). Due to the lower asset prices prevailing in a weakening market, the Compensation Committee offset the lower return on

equity target by setting a significantly higher cumulative investment volume target for the 2016-2018 performance period ($2.15 billion) compared to budget for the current performance period and the prior three-year performance period ($1.93 billion for 2015-2017). This increase was consistent with our strategy to pursue a disciplined investment strategy by investing more in weaker markets at attractive prices and less in stronger markets when asset prices are at or near their peak.

 

 

Formula for Determining Award Numbers

 

In granting performance shares for the 2016-2018 performance period, we determined the number of shares awarded by dividing the value of the performance share award by the average of the closing prices of our common stock on the four Fridays immediately preceding the Compensation Committee meeting at which the grant

was awarded. To determine the number of NQSOs awarded, we used the same average closing price multiplied by 35%, which represents the value of the NQSO award based on the Black-Scholes valuation methodology.

 

2016 Long-Term Incentive Payouts

 

The performance shares granted in 2014 vested at the end of 2016. Each target award was based 50% on a three-year average return on equity goal and 50% on a

three-year cumulative investment volume goal.1 The goals and payout levels under the 2014-2016 Performance Share Plan are indicated in the following table:

 

 

Performance Share Plan Design

 

             Return on Equity1  
      

Average

Three-Year
Return  on
Equity

       Payout  

Threshold

       11.0        25

Target (Goal)

       13.0        100

Maximum

       15.0        200

 

         Investment Volume  
      

Three-Year

Cumulative

Investment

Volume (000s)

       Payout  

Threshold

     $ 1,250          25

Target (Goal)

     $ 2,050          100

Maximum

     $ 2,750          200

 

 

 

1

We report return on equity, calculated in accordance with GAAP, in our financial statements. We also use return on equity as a performance metric for our long-term equity incentive awards, including our performance shares. However, the return on equity measure used for this purpose excludes “accumulated other comprehensive loss” from the equity component, which is included in the equity component of return on equity as reported in our financial statements, and is a non-GAAP financial measure. As a result, the return on equity calculations with respect to the performance shares during the relevant performance period may differ from return on equity as reported in our financial statements for the same period. We refer you to Exhibit B of this Proxy Statement for a reconciliation of return on equity used with respect to the performance shares to return on equity calculated in accordance with GAAP. We believe that excluding “accumulated other comprehensive loss” from the performance share return on equity calculation provides a more accurate measurement of management’s performance. In addition, return on equity for each of 2014, 2015, and 2016 excludes a favorable adjustment related to a change in the accounting estimate of depreciable lives for railcars.

 

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As shown in the charts on page 32, the three-year average return on equity for the period was 14.2% versus a goal of 13.0%, and the cumulative investment volume for the period was $2.33 billion, which exceeded the goal of $2.1 billion. Based on these results, performance share payouts were 150.2% of target. Performance share award values at vesting were 171% of target award values based on average fair market value of GATX stock

price on January 26, 2017. Messrs. Kenney, Lyons, and Earl and Ms. Golden elected to receive their performance share payouts in the form of cash. Mr. Ellman received his performance share payout in the form of shares. For details regarding the 2014-2016 performance share payments to the NEOs, please see the Option Exercises and Stock Vested Table on page 47.

 

 

Employee Benefits – Severance – Double Trigger Vesting

Employee Benefit Plans

 

We sponsor a standard array of retirement, health, and welfare benefits. Our retirement programs include 401(k) and defined benefit pension programs, as well as a supplemental plan intended solely to restore pension benefits limited by law to the level specified by formula in the qualified pension plan applicable to all salaried employees. The pension and 401(k) programs are intended to supplement employees’ personal retirement savings and social security benefits. Health and welfare

benefits include medical, dental, vision, life, and disability insurance. These programs provide protection against catastrophic loss and encourage health maintenance. NEOs participate in the same programs, and on the same basis, as other salaried employees. No retirement, savings, medical, disability, or other insurance program or arrangement exists which provides benefits to our NEOs in excess of those provided to other salaried employees generally. No perquisites are paid to our NEOs.

 

Change of Control Agreements

 

We have entered into agreements with our NEOs that provide certain benefits if employment is terminated following a change of control (“COC”). This protection is provided for competitive reasons and to ensure the stability, continuity, and impartiality of our executives in a COC situation. The level of protection provided is intended to be similar to that provided by similarly sized organizations.

The COC agreements are “double-trigger” agreements, meaning that benefits are payable only if a COC occurs and an executive’s employment is terminated or

constructively terminated. For a description of the key terms of these agreements, please see Potential Payments upon Termination or Change of Control on page 48. Since 2009, we have not entered into any new COC agreements that provide excise tax gross-up benefits, and we do not intend to offer this feature in the future. We do, however, have older agreements entered into in 2009 or earlier that have excise tax gross-up benefits. In the event that we amend such agreements for any reason in the future, we will eliminate such excise tax gross-ups.

 

 

Double-Trigger Equity Vesting

 

The vesting of equity awards upon a COC is determined under the GATX 2012 Incentive Award Plan, as applicable, and related grant agreements. These terms apply to all employees who receive long-term incentive

awards. In addition, all grant agreements require both a COC event and an executive’s actual or constructive termination before vesting is accelerated.

 

 

Process for Determining Executive Compensation (Including NEOs)

Compensation Committee and Management

 

The Compensation Committee, with input from the independent compensation consultant, regularly reviews:

 

 

the competitiveness of our compensation program

 

 

the competitiveness of each NEO’s compensation

 

 

recent developments and current trends in executive compensation practices.

Our human resources staff and the Chief Executive Officer also provide input to the Compensation Committee regarding base salary increases, target level

annual incentives, long-term incentive awards, and the goals applicable to earning such compensation. After reviewing these recommendations, the Compensation Committee determines and approves the compensation of each NEO as well as the performance goals. Our Chief Executive Officer, however, does not participate in, nor is he present during, any discussions of his own compensation. Such discussions occur during the Compensation Committee’s executive sessions. The Compensation Committee also reviews its pay decisions regarding our Chief Executive Officer with the other independent directors on the Board.

 

 

40   GATX CORPORATION  -  2017 Proxy Statement


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The Determination of Market Competitive Pay

 

We have structured our compensation programs to provide total direct compensation opportunities comparable to the median range of opportunities provided by companies of similar revenue size to GATX (which we refer to as “competitive” or “market” pay levels throughout this Compensation Discussion and Analysis).

Because we have no direct peers in the railcar leasing business for which relevant compensation data is available, gathering information on competitive pay levels with precision for our particular industry is not possible. Instead, the Compensation Committee, with assistance from our human resources staff and the independent compensation consultant, regularly reviews information on pay for executives as reported in national compensation surveys published by Aon Hewitt and Towers Watson for organizations of similar revenue as ours.

These surveys include general, non-company specific compensation information, on an aggregate basis, for approximately 190 public companies with annual revenues between $1-3 billion. We use these surveys to better understand current compensation practices at other companies of similar revenue size and as a data point to assist us in meeting our goal of having the various elements of compensation be market-competitive.

While these surveys are a starting point for our compensation review process, actual compensation decisions with respect to specific individuals are influenced by a variety of factors in addition to the surveys, including experience, tenure, skills, unique responsibilities, individual performance, and our specific talent requirements.

 

Compensation Governance

Stock Ownership and Stock Retention Requirements

 

To underscore the importance of stock ownership, we have established mandatory stock ownership and stock retention policies for our NEOs and other members of senior management. These policies require that each executive must retain shares of GATX stock having a value equal to 50% of the after-tax profits realized from GATX equity awards until the executive owns GATX shares equal in value to a multiple of salary based on his or her position. The multiple is 5.0 times salary for the

Chief Executive Officer and 2.5 times salary for other NEOs.

As of January 31, 2017, all of our NEOs had exceeded their respective stock ownership requirements, having achieved the following approximate percentages of their respective requirements: Mr. Kenney (266%), Mr. Lyons (265%), Mr. Earl (382%), Mr. Ellman (201%), and Ms. Golden (231%).

 

 

Clawback Policy

 

We have a policy which provides for the recovery of all or part of any bonus or other compensation paid to an executive officer that was based upon the achievement of financial results that were subsequently restated. In the event of a material restatement of our financial results, the Board, or a committee designated by the Board, will review the facts and circumstances that led to the restatement and will take such action as it deems necessary or appropriate. The Board will consider whether any executive officer received excess compensation because the original financial statements

were incorrectly presented. In addition, the Board will consider the accountability of any executive officer whose acts or omissions were responsible in whole or in part for the events that led to the restatement and whether such acts or omissions constituted misconduct.

Under such policy, the Board may also, depending upon the facts and circumstances, take disciplinary action, up to and including termination of employment, or decide to pursue other available remedies, including, but not limited to, canceling stock-based awards.

 

 

Regulatory Considerations

 

Our incentive compensation programs have been designed and administered in a manner generally intended to preserve federal income tax deductions. However, the Compensation Committee considers the

tax and accounting consequences of utilizing various forms of compensation and retains the discretion to pay compensation that is not tax deductible or could have adverse accounting consequences for GATX.

 

 

GATX CORPORATION  -  2017 Proxy Statement   41


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Compensation Committee’s Independent Consultant

 

The independent compensation consultant, Pay Governance, has been retained by, and reports directly to, the Compensation Committee and does not have any other consulting engagements with management or GATX. The Compensation Committee has assessed the independence of Pay Governance and its employees working on GATX matters pursuant to applicable SEC rules and NYSE listing standards and determined that no conflict of interest or independence concerns exist.

With respect to Chief Executive Officer compensation, Pay Governance provides an independent recommendation to the Compensation Committee in the

form of a range of possible outcomes, for the committee’s consideration. In developing its recommendation, Pay Governance relies on its understanding of GATX’s business and compensation programs and its own independent research and analysis. Pay Governance does not meet with our Chief Executive Officer with respect to his compensation. In addition to advising on Chief Executive Officer compensation, Pay Governance reviews the Chief Executive Officer’s recommendations on compensation of his direct reports.

 

COMPENSATION COMMITTEE REPORT

 

 

The Compensation Committee of the Board of Directors has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee

recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference in our Annual Report on Form 10-K.

 

 

James B. Ream (Chair)

Ernst A. Häberli

Casey J. Sylla

Stephen R. Wilson

Paul G. Yovovich

 

 

42   GATX CORPORATION  -  2017 Proxy Statement


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EXECUTIVE COMPENSATION TABLES

Summary Compensation Table

 

 

Name and

Principal Position

   Year      Salary
($)
     Stock
Awards
($)(1)(2)
     Option
Awards
($)(1)
     Non-Equity
Incentive
Plan
Compensation
($)(3)
     Change in
Pension Value
and Non-
Qualified
Deferred
Compensation
Earnings
($)(4)
     All Other
Compensation
($)(5)
     Total ($)  
(a)    (b)      (c)      (e)      (f)      (g)      (h)      (i)      (j)  

Brian A. Kenney

     2016        956,500        1,496,083        1,512,126        1,071,854        1,270,477        7,950        6,314,990  

Chairman of the Board,

     2015        956,500        1,436,408        1,432,824        1,016,951        884,069        7,950        5,734,702  

President and Chief

     2014        951,850        1,343,102        1,041,900        1,080,634        806,202        7,800        5,231,488  

Executive Officer

                       

Robert C. Lyons

     2016        523,583        378,527        382,536        410,709        511,602        7,950        2,214,907  

Executive Vice President

     2015        512,500        373,899        372,280        381,423        323,742        7,950        1,971,794  

and Chief Financial Officer

     2014        489,533        407,832        317,100        389,036        370,177        7,800        1,981,478  

James F. Earl

     2016        619,267        363,245        367,290        485,766        993,618        7,950        2,837,136  

Executive Vice President

     2015        606,150        379,021        377,728        451,120        657,853        7,950        2,479,822  

and President, Rail

     2014        588,533        394,412        306,228        467,713        706,105        7,800        2,470,791  

International

                       

Thomas A. Ellman

     2016        455,000        306,819        310,464        305,924        349,212        7,950        1,735,369  

Executive Vice President,

     2015        425,833        256,095        256,056        271,647        195,293        7,950        1,412,874  

and President, Rail

     2014        400,833        291,142        226,500        273,040        257,010        7,650        1,456,175  

North America

                       

Deborah A. Golden

     2016        429,300        234,718        237,006        288,643        325,872        7,950        1,523,489  

Executive Vice President,

     2015        420,250        225,364        225,184        268,086        226,684        7,950        1,373,518  

General Counsel and

     2014        405,383        271,888        212,004        276,139        216,478        7,800        1,389,692  

Corporate Secretary

                       

 

(1) For awards granted under the GATX 2012 Incentive Award Plan, amounts shown reflect the dollar amount of the grant date fair value of the awards for the years shown, in accordance with Accounting Standards Codification (“ASC”) Topic No. 718, Compensation — Stock Compensation. Assumptions used to calculate these amounts are included in the notes to our audited financial statements contained in our Annual Reports on Form 10-K for fiscal years ended December 31, 2016, 2015, and 2014.
(2) For performance share awards, amounts shown reflect the grant date fair value of the awards at target payout for the years shown. The grant date fair value of the performance share awards for 2016, 2015, and 2014, respectively, assuming the highest level of performance (i.e., 200% of target) are as follows: Mr. Kenney ($2,992,167, $2,872,817, and $2,686,204); Mr. Lyons ($757,054, $747,797, and $815,663); Mr. Earl ($726,490, $758,041, and $788,824); Mr. Ellman ($613,637, $512,190, and $582,283); and Ms. Golden ($469,436, $450,727, and $543,775).
(3) The amounts shown reflect the annual incentive awards earned under the GATX Cash Incentive Compensation Plan by each NEO for the years shown.
(4) Change in pension value reflects the increase in the present value of the accumulated pension benefit during the years shown. The Pension Benefits Table shows the present value of the accumulated pension benefit as of December 31, 2016 and the assumptions used in the calculation of that value. We determined the December 31, 2015 and December 31, 2014 present values using the same assumptions except that the interest rates used for discounting under ASC Topic No. 715, Compensation — Retirement Benefits, were 4.46% in 2015 and 4.05% in 2014.
(5) For 2016, amounts shown reflect matching contributions we made to the GATX Salaried Employees Retirement Savings Plan for Messrs. Kenney, Lyons, Earl, Ellman and Ms. Golden ($7,950). For all periods presented, this column excludes dividends on SARs and performance shares because those dividends are included in the grant date fair value amounts for stock awards as reported in columns (e) and (f) of the table above and in column (m) of the Grants of Plan-Based Awards Table.

 

GATX CORPORATION  -  2017 Proxy Statement   43


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EXECUTIVE COMPENSATION TABLES

 

Grants of Plan-Based Awards Table

 

 

          Estimated Possible Payouts
Under Non-Equity Incentive
Plan Awards(1)
    Estimated Future Payouts
Under Equity Incentive Plan
Awards(2)
    All Other
Option Awards:
Number of
Securities
Underlying
    Exercise
or Base
Price of
Option
    Closing
Price
on
Date of
    Grant
Date Fair
Value of
Stock
& Option
 
Name   Grant Date     Threshold
($)
    Target
($)
    Maximum
($)
    Threshold
(#)
    Target
(#)
    Maximum
(#)
    Options
(#)(3)
    Awards
($)
   

Grant

($)

    Awards
($)
 
(a)   (b)     (c)     (d)     (e)     (f)     (g)     (h)     (j)     (k)     (l)     (m)  

Brian A. Kenney

    1/1/2016       669,550       956,500       1,626,050                
    1/28/2016                   109,100       39.185         1,512,126  
    1/28/2016             9,545       38,180       76,360             1,496,083  

Robert C. Lyons

    1/1/2016       256,556       366,508       623,064                
    1/28/2016                   27,600       39.185         382,536  
    1/28/2016             2,415       9,660       19,320             378,527  

James F. Earl

    1/1/2016       303,433       433,475       736,908                
    1/28/2016                   26,500       39.185         367,290  
    1/28/2016             2,318       9,270       18,540             363,245  

Thomas A. Ellman

    1/1/2016       191,100       273,000       464,100                
    1/28/2016                   22,400       39.185         310,464  
    1/28/2016             1,958       7,830       15,660             306,819  

Deborah A. Golden

    1/1/2016       180,306       257,580       437,886                
    1/28/2016                   17,100       39.185         237,006  
    1/28/2016             1,498       5,990       11,980             234,718  

 

(1) Amounts shown reflect target, threshold, and maximum annual incentive payouts for 2016 under the GATX Cash Incentive Compensation Plan based on the achievement of income goals. Threshold amounts represent 70% of target based on the financial goal threshold.
(2) Amounts shown reflect the number of performance shares granted in 2016 under the GATX 2012 Incentive Award Plan. The percentage of each performance share award that will be earned is based upon the achievement of two equally weighted performance goals: three-year average return on equity and three-year cumulative investment volume.
(3) Amounts shown reflect the number of NQSOs granted in 2016 under the GATX 2012 Incentive Award Plan.

Narrative Discussion Related to the Summary Compensation Table and Grants of Plan-Based Awards Table

 

Annual Incentive Awards

 

In 2016, our NEOs were eligible for annual incentive awards based solely on financial performance goals measured in terms of GATX net income. The target incentive awards were payable at 100% of targeted net income. Threshold and maximum incentive awards (70% and 170%, respectively, of the target awards) were payable at 80% and 140% or more of targeted net income.

Based on individual targets and on actual net income as described in the Compensation Discussion and Analysis, 2016 incentive payouts under the GATX Cash Incentive Compensation Plan are shown in column (g) of the Summary Compensation Table. GATX net income achievement for 2016 was $235.9 million1 for incentive payout purposes, or 108.0% of target, resulting in payouts at 112.1% of target.

 

 

 

1

For annual incentive award purposes, net income excluded net benefit of $21.2 million from Tax Adjustments and Other Items.

  For a reconciliation of net income used for annual incentive award purposes to net income calculated in accordance with GAAP and used in our financial statements, please see Exhibit B to this Proxy Statement.

 

44   GATX CORPORATION  -  2017 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION TABLES

 

Equity-Based Long-Term Incentives

 

Equity-based long-term incentive awards in 2016 consisted of NQSOs and performance shares.

NQSOs vest in three equal annual installments and expire seven years after the grant date. The grant price is based on the average of the high and low prices of GATX common stock on the date of grant. Dividend equivalents accrue on NQSO grants and are not paid until vesting and each quarter thereafter until the NQSOs are exercised or expire. The NQSOs granted to the NEOs on January 28, 2016 will vest in three equal installments on January 28 of 2017, 2018, and 2019.

The number of NQSOs awarded in 2016 and their grant date fair value are shown in columns (j) and (m), respectively, in the Grants of Plan-Based Awards Table. The grant date fair value of the 2016, 2015, and 2014 NQSO awards are shown in column (f) of the Summary Compensation Table for each year granted.

The percentage of each performance share award that will be earned is based on the extent to which pre-established goals on two independent performance measures, each of which is weighted at 50%, are achieved over a three-year performance period ending on December 31, 2018. The two performance measures are three-year average return on equity (defined as net income divided by average equity) and three-year cumulative investment volume (defined as the sum of

cumulative GAAP-basis portfolio investments and capital additions as reported on the Company’s audited statement of cash flows for each year in the performance period), subject to adjustment.

The number of performance shares earned at the end of the performance period ranges from 0% to 200% of the initial target grant. For the return on equity component, the 2016 target grant will be earned if return on equity is 100% of targeted performance. The threshold and maximum number of performance shares are 25% and 200% of the target grant, respectively. For the cumulative investment volume component, the 2016 target grant is earned if cumulative investment volume is 100% of targeted performance. The threshold and maximum number of performance shares are 25% and 200% of the target grant, respectively. Dividend equivalents accrue throughout the performance period and are only paid on the number of performance shares earned at the end of the performance period.

The grant date fair value of the 2016, 2015, and 2014 performance shares are shown in column (e) of the Summary Compensation Table. The number of performance shares granted in 2016 that may be earned at target, threshold, and maximum levels is shown in columns (g), (f), and (h), respectively, of the Grants of Plan-Based Awards Table.

 

 

GATX CORPORATION  -  2017 Proxy Statement   45


Table of Contents

EXECUTIVE COMPENSATION TABLES

 

Outstanding Equity Awards at Fiscal Year-End Table

 

The following table summarizes the number of shares of our stock underlying outstanding equity incentive plan awards for each NEO as of December 31, 2016.

 

Name   Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
   

Equity
Incentive
Plan Awards:

Number of
Securities
Underlying
Unexercised
Unearned
Options (#)

    Option
Exercise
Price ($)
    Option
Expiration
Date
    Number
of  Shares
or Units
of Stock
that Have
Not Vested
(#)
    Market
Value
of  Shares
of Units
of Stock
that Have
Not Vested
($)
   

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 ($)

 
(a)   (b)     (c)     (d)     (e)     (f)     (g)     (h)     (i)     (j)(6)  

Brian A. Kenney

    0       109,100 (1)        39.1850       1/28/2023           38,180 (4)      2,351,124  
    26,300       52,600 (2)        56.9100       1/29/2022           25,240 (5)      1,554,279  
    38,333       19,167 (3)        58.3450       1/30/2021          
    62,500           45.8910       1/24/2020          
    76,900           44.0150       1/26/2019          
    75,000           33.9350       1/27/2018          

Robert C. Lyons

    0       27,600 (1)        39.1850       1/28/2023           9,660 (4)      594,863  
    6,833       13,667 (2)        56.9100       1/29/2022           6,570 (5)      404,581  
    11,666       5,834 (3)        58.3450       1/30/2021          
    17,900           45.891       1/24/2020          
    18,200           44.015       1/26/2019          
    18,500           33.935       1/27/2018          

James F. Earl

    0       26,500 (1)        39.1850       1/28/2023           9,270 (4)      570,847  
    6,933       13,867 (2)        56.9100       1/29/2022           6,660 (5)      410,123  
    11,266       5,634 (3)        58.3450       1/30/2021          
    19,200           45.891       1/24/2020          
    21,500           44.015       1/26/2019          

Thomas A. Ellman

    4,700       22,400 (1)        39.1850       1/28/2023           7,830 (4)      482,171  
    8,333       9,400 (2)        56.910       1/29/2022           4,500 (5)      277,110  
    9,300       4,167 (3)        58.345       1/30/2021          
    8,500           45.891       1/24/2020          
    9,300           44.015       1/26/2019          
          33.935       1/27/2018          

Deborah A. Golden

    0       17,100 (1)        39.1850       1/28/2023           5,990 (4)      368,864  
    4,133       8,267 (2)        56.910       1/29/2022           3,960 (5)      243,857  
    7,800       3,900 (3)        58.345       1/30/2021          
    11,600           45.891       1/24/2020          
    12,100           44.015       1/26/2019          
    13,300           33.935       1/27/2018          

 

(1) NQSOs will vest in three, equal, annual installments on 1/28/2017, 1/28/2018, and 1/28/2019.
(2) 50% of the unexercisable SARs will vest on 1/29/2017 and the remainder will vest on 1/29/2018.
(3) 100% of the SARs will vest on 1/30/2017.
(4) Amounts shown reflect the number of target performance shares granted in 2016. A portion (ranging from 0% to 200%) will be earned subject to the achievement of specified performance objectives and will vest on 12/31/2018.
(5) Amounts shown reflect the number of target performance shares granted in 2015. A portion (ranging from 0% to 200%) will be earned subject to the achievement of specified performance objectives and will vest on 12/31/2017.
(6) Market value of performance shares is based on the closing price of GATX common stock on the last trading day of the year, December 31, 2016, which was $61.58 per share.

 

46   GATX CORPORATION  -  2017 Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION TABLES

 

Option Exercises and Stock Vested Table

 

 

       Option Awards            Stock Awards(1)  
Name     

Number of

Shares

Acquired on

Exercise (#)

      

Value

Realized on

Exercise ($)

          

Number of

Shares

Acquired on

Vesting (#)

      

Value

Realized on

Vesting ($)

 
(a)      (b)        (c)            (d)        (e)  

Brian A. Kenney

       69,900          1,192,494          34,576          2,115,187  

Robert C. Lyons

       17,600          341,880          10,499          642,276  

James F. Earl

       79,300          1,632,012          10,154          621,171  

Thomas A. Ellman

       5,900          115,404          7,495          458,507  

Deborah A. Golden

       10,000          207,200          6,999          428,164  

 

(1) Amounts shown include the number and value of performance shares earned during the 2014-2016 performance period as described in the Compensation Discussion and Analysis section of this Proxy Statement. Although actual performance was determined after calendar year-end on January 26, 2017, the amounts are reported in the table above (and not in the Outstanding Equity Awards at Fiscal Year-End table) to reflect the actual value earned in 2016 for the 2014-2016 performance period.

Pension Benefits Table

 

Each of our NEOs participated in a defined benefit pension plan during the year ended December 31, 2016. The following table contains information about these plans that provide for payments or other benefits to our NEOs at, following, or in connection with retirement.

 

Name   Plan Name  

Number of

Years Credited

Service (#)

   

Present Value of

Accumulated

Benefit ($) (1)(2)

   

Payments

During Last

Fiscal Year ($)

(a)   (b)   (c)     (d)     (e)

Brian A. Kenney

  GATX Non-Contributory Pension Plan for Salaried Employees     21.2       550,393     0
  GATX Supplemental Retirement Plan     21.2       5,181,756     0

Robert C. Lyons

  GATX Non-Contributory Pension Plan for Salaried Employees     20.3       582,899     0
  GATX Supplemental Retirement Plan     20.3       1,588,821     0

James F. Earl

  GATX Non-Contributory Pension Plan for Salaried Employees     28.9       1,146,695     0
  GATX Supplemental Retirement Plan     28.9       4,260,817     0

Thomas A. Ellman

  GATX Non-Contributory Pension Plan for Salaried Employees     20.3       477,664     0
  GATX Supplemental Retirement Plan     20.3       837,221     0

Deborah A. Golden

  GATX Non-Contributory Pension Plan for Salaried Employees     11.0       496,022     0
  GATX Supplemental Retirement Plan     11.0       884,282     0

 

(1) Present value of accumulated benefit is calculated as the amount payable at age 65. The GATX Non-Contributory Pension Plan for Salaried Employees Plan assumption is that 50% will elect the lump sum option and 50% will elect the annuity option at retirement. The GATX Supplemental Retirement Plan calculations use each NEO’s actual election for payment of future benefit; all NEOs shown have elected a lump sum form of payment. The value of the annuity option is calculated using December 31, 2016, ASC Topic No. 715, Compensation — Retirement Benefits, disclosure assumptions (4.22% interest rate, RP-2014 Healthy Annuitant Mortality Table generationally projected by Scale MP2016). Lump sums are valued at age 65 using the IRS three-segment lump sum rates and are then discounted back from age 65 to December 31, 2016 at 4.22% and 3.83% for the Salaried Plan and Non-Qualified Supplemental Plan, respectively.
(2) NEOs’ vested stock may also qualify for subsidized early retirement benefits.

 

GATX CORPORATION  -  2017 Proxy Statement   47


Table of Contents

EXECUTIVE COMPENSATION TABLES

 

Narrative Discussion Related to Pension Benefits Table

 

 

NEOs participate in our Non-Contributory Pension Plan for Salaried Employees (the “Qualified Plan”), which covers salaried employees of GATX and its domestic subsidiaries.

All NEOs have met the Qualified Plan’s vesting requirement. Subject to certain limitations imposed by law, pensions are based on years of service and average monthly compensation during (i) the five consecutive calendar years of highest compensation during the last 15 calendar years preceding retirement or the date on which employment terminates or (ii) the 60 consecutive calendar months preceding retirement or the date on which employment terminates, whichever is greater. Benefits under the Qualified Plan are not subject to any deduction for Social Security or other offset amounts.

Annual benefits in excess of certain limits imposed by the Employee Retirement Income Security Act of 1974 or the Internal Revenue Code on payments from the Qualified Plan will be paid by the Company under the GATX Supplemental Retirement Plan (the “Non-Qualified Plan”). The Non-Qualified Plan is designed to restore those benefits that would otherwise be limited by statutory regulations. Payments are made as a single lump sum amount representing the actuarially equivalent present value of the benefit payable at age 65. Payments made pursuant to the Non-Qualified Plan are funded from the general assets of the Company.

Key provisions of the Qualified Plan include the following:

 

 

Participation. Participation begins on January 1 or July 1 coincident with or next following completion of one year of service and attainment of age 21.

 

 

Normal Retirement Benefits. Normal retirement is at age 65 with five years of credited service. The basic formula is a base benefit equal to 1% of average monthly compensation multiplied by years of benefit service plus an excess benefit equal to 0.65% of

   

average monthly compensation in excess of monthly Social Security Covered Compensation multiplied by years of benefit service (to a maximum of 35 years).

 

 

Early Retirement Benefits. Qualified benefits can commence at any age in the form of an annuity with the accrued benefit actuarially reduced for commencement before age 65, or as a single lump sum payment representing the actuarially equivalent present value of the age 65 benefit. Qualified benefits accrued prior to July 1, 2008 and payable in annuity form to employees who (a) are at least age 55 with 15 or more years of service or (b) have at least 30 years of service and whose age plus service total 90 or more, are subject to a partial rather than full actuarial reduction for early commencement.

“Compensation” is defined as regular earnings during the calendar year, including covered bonuses but excluding deferred and contingent compensation. For NEOs, compensation includes salary and annual incentive awards paid under the GATX Cash Incentive Compensation Plan. For the Final Average Pay Formula, “Social Security Covered Compensation” means the 35-year average of Social Security taxable wage bases in effect up to and including the year in which an individual attains Social Security Normal Retirement Age calculated in accordance with Revenue Ruling 89-70.

For unmarried participants, the normal form of payment is a life annuity. For married participants, the normal form of payment is a 50% joint-and-survivor annuity. Optional forms of payment include a single lump sum of the accrued pension’s actuarially equivalent present value, or a joint and survivor co-pensioner annuity. All forms of payment have the same actuarially equivalent value as the life annuity.

The present value of accumulated pension benefits for each NEO is shown in column (d) of the Pension Benefits Table.

 

 

Potential Payments upon Termination or Change of Control

 

 

Except for the COC agreements described in the Compensation Discussion and Analysis, we have not entered into employment agreements with any of the NEOs. They participate in the same plans and are subject to the same treatment as all other salaried employees in the event of termination due to voluntary resignation, discharge for cause, involuntary separation, death,

disability, and retirement. This discussion, and the table that follows, therefore focuses solely on termination in the event of a change of control of GATX. The key provisions of the COC agreements are described below, followed by a table that shows the amounts that we would pay or the benefits we would have provided to each NEO if such a change of control situation had occurred on December 31, 2016.

 

 

48   GATX CORPORATION  -  2017 Proxy Statement


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EXECUTIVE COMPENSATION TABLES

 

Key Provisions of the COC Agreements

Each NEO has entered into a COC agreement that provides certain benefits should employment be terminated or constructively terminated following a change of control. Key terms under the agreements include the following:

 

Executive Benefit    Description

Term

  

    Agreement effective for two-year rolling term and renews automatically each year unless GATX gives 60-days’ advance notice of non-renewal

  

    Employment period is two years

  

    Unless a COC occurs, employment is at will

Payment Triggers

  

    Involuntary termination without “cause” or voluntary termination for “good reason” within two years following a COC

  

    Failure of a successor to assume the Agreement

  

    Termination prior to, but in contemplation of, a COC

  

    Payments are not triggered in the event of death, disability, “cause,” or voluntary termination for other than “good reason”

Severance Benefits

  

    Three times the sum of base salary and target annual bonus (paid in lump sum)

  

    Three years of additional age and service credit for retirement purposes

  

    Three years of additional coverage in health and welfare plans (such coverage becomes secondary if re-employed); thereafter, coverage continues at executive’s cost until eligible for Medicare

  

    Outplacement services at a maximum cost of 10% of salary

  

    Pro rata portion of target bonus for the year in which the COC occurs for the actual period served during the year of the COC prior to termination and payment of previously deferred compensation plus interest

Excise Tax Gross Up

  

    Provided unless value of severance benefits is within 110% of the level that would not trigger excise taxes; if so, the amount of severance benefits otherwise payable is reduced so that excise taxes are not imposed

  

    Tax gross up not included in COC agreements entered into after 2009

Enforcement and Legal Fees

  

    Payable by Company unless a court determines that such payment was unjust

Definition of Key Terms

  

    COC means any of the following:

  

—  the acquisition of 20% or more of the Company’s outstanding shares or voting securities

  

—  a turnover in a majority of the Company’s board members

  

—  consummation of a reorganization, merger, consolidation, sale, or disposition of substantially all assets unless shareholders immediately prior to the merger beneficially own more than 65% of outstanding shares or voting power of the resulting entity

  

—  consummation of a reorganization, merger, consolidation, sale, or disposition of substantially all assets of any subsidiary or 10-K business segment that is the primary employer of the executive

  

—  shareholder approval of liquidation or dissolution of the Company

  

     “Cause” means the willful illegal conduct, gross misconduct, or continued failure of the executive to perform his or her duties after receipt of written notice and explanation of performance shortfalls

  

    “Good Reason” means any of the following:

  

—  a material diminution of the executive’s authority or duties

  

—  a material diminution in base compensation

  

—  a material diminution in the budget over which authority is retained

  

—  a material change in geographic location at which services must be performed

 

GATX CORPORATION  -  2017 Proxy Statement   49


Table of Contents

EXECUTIVE COMPENSATION TABLES

 

Amounts Payable under COC Agreements

 

The table below reflects certain assumptions made in accordance with SEC rules, namely that (a) the COC and termination of employment occurred on December 31, 2016 and (b) the value of a share of the Company’s common stock on December 31, 2016, the last trading day of the year, was $61.58. It includes the lump sum payments associated with the benefits described above, as well as the value of all equity awards for which vesting is accelerated as provided under the GATX 2012 Incentive Award Plan. The table excludes the following payments and benefits that are not enhanced by the termination of employment following a COC:

 

 

accrued vacation pay, health plan continuation, and other similar amounts payable when employment terminates under programs applicable to our salaried employees generally

 

 

stock options or SARs that have vested and are exercisable as shown in Column (b) of the Outstanding Equity Awards at Fiscal Year-End Table

 

 

performance shares that have vested as shown in Column (e) of the Option Exercises and Stock Vested Table

 

 

the present value of pension benefits calculated in accordance with the assumptions applicable to all participants in the GATX Non-Contributory Pension Plan for Salaried Employees.

 

 

Potential Payments upon Change of Control Table

 

                            Accelerated Vesting  of
Equity Awards(3)
             
Name  

Severance

($)

   

Bonus

(Accrued
Obligations)

($)(1)

   

SRP

Payment

($)(2)

   

Gross-up

Payment

($)

   

Options/SARs

($)

   

Performance

Shares

($)

   

Outplacement

($)

   

Total Value

($)

 

Brian A. Kenney(4)

    5,739,000       956,500       2,364,189       0       2,750,942       3,905,403       95,650       15,811,684  

Robert C. Lyons(5)

    2,361,667       367,710       1,013,804       0       700,796       999,444       52,530       5,495,951  

James F. Earl(4)

    3,168,630       434,910       1,520,764       0       676,449       980,970       62,130       6,843,853  

Thomas A. Ellman

    2,208,000       276,000       765,548       0       559,025       759,281       46,000       4,613,854  

Deborah A. Golden(5)

    1,873,326       258,420       594,428       0       434,176       612,721       43,070       3,816,142  

 

(1) Represents the executive’s current target bonus amount.
(2) Represents the present value of the incremental portion of non-qualified pension benefits calculated using the discount rate specified in the COC agreements instead of the GATX Non-Contributory Pension Plan for Salaried Employees, attributable to three additional years of age and service credit.
(3) Under the 2012 Incentive Award Plan, a termination following a change of control results in the accelerated vesting of all unvested NQSO, SAR, and performance share grants. Performance against goals is assumed to be at target with respect to performance shares.
(4) The value of Mr. Kenney’s and Mr. Earl’s COC payments falls below the level that would trigger an excise tax, therefore they would not receive a gross-up payment.
(5) The value of Mr. Lyon’s and Ms. Golden’s COC payments fall within 110% of the level that would not trigger an excise tax; therefore, their severance benefits have been reduced by $317,363 and $194,034, respectively, to avoid imposing an excise tax and corresponding gross-up payment, per their agreements.

 

50   GATX CORPORATION  -  2017 Proxy Statement


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PROPOSAL 4:   APPROVAL OF THE AMENDED AND RESTATED 2012 INCENTIVE AWARD PLAN

 

Our Board is seeking shareholder approval of an amendment, restatement, and continuation of the GATX Corporation 2012 Incentive Award Plan (the “2012 Plan”), which, among other things, will increase the shares available for grant by 3,500,000 shares (the “Restated Plan”). Our Board has approved the Restated Plan, subject to obtaining shareholder approval at the Annual Meeting. If approved by shareholders, the Restated Plan will become effective on the day of the Annual Meeting. If the shareholders do not approve the Restated Plan, the Restated Plan will not become effective and the 2012 Plan will continue in full force and effect in accordance with its original terms.

The Board originally adopted the 2012 Plan on February 20, 2012 as a replacement of the GATX 2004 Equity Incentive Compensation Plan (the “2004 Plan”) and, following such approval, no further awards were granted under the 2004 Plan. The terms and conditions of the 2004 Plan continue to govern any outstanding awards thereunder. Any Awards under the 2004 Plan which are forfeited are added back to the available share pool under the 2012 Plan and, if approved, the Restated Plan.

The following description of the Restated Plan is qualified in its entirety by reference to the full text of the Restated Plan, which is attached hereto as Exhibit C to this Proxy Statement.

 

 

Why Shareholders Should Vote to Approve the Restated Plan

 

Equity Incentive Awards are an Important Part of Our Compensation Philosophy

 

Equity compensation is a key element of our compensation philosophy. We use long-term equity compensation to tie the interests of our employees and directors directly to the interests of our shareholders. We

also emphasize long-term incentive opportunities more heavily than short-term incentives consistent with our business, which involves buying, leasing, maintaining, and selling long-lived assets into constantly changing business conditions over decades.

 

 

Our Existing Equity Plans will no Longer have Shares Available for Grant

 

Under our current forecasts, the 2012 Plan will run out of shares available for grant within the next 12 months, and we will no longer be able to continue to issue equity to our employees or directors unless shareholders approve the Restated Plan. This assumes that we continue to grant awards consistent with our historical usage and current practices, as reflected in our historical burn rate

discussed below, and noting that unanticipated changes in future circumstances could require changes to our current equity grant practices. While we could increase cash compensation if we are unable to grant equity incentives, we anticipate having difficulty attracting, retaining, and motivating our employees and directors if we are unable to make equity grants to them.

 

 

GATX CORPORATION  -  2017 Proxy Statement   51


Table of Contents

PROPOSAL 4: APPROVAL OF THE AMENDED AND RESTATED 2012 INCENTIVE AWARD PLAN

 

Determination of Share Reserve for the Restated Plan

The table below presents information regarding the number of shares subject to outstanding awards under the 2004 Plan and the 2012 Plan, and shares remaining available for issuance under the 2012 Plan, as of March 10, 2017.

2012 Incentive Award Plan Share Usage and Activity

 

Original 2012 Incentive Award Plan Shares

     3,500,000  

less options/SARs granted

     -1,778,500  

less Full Value Awards granted ( x 1.7)

     -1,542,919  

plus options/SARs cancelled

     153,851  

plus Full Value Awards cancelled – 2012 Plan ( x 1.7)

     193,258  

plus Full Value Awards cancelled – 2004 Plan ( x 1.0)

     27,119  
  

 

 

 

Shares Available to be Granted

     552,809  
  

 

 

 

Outstanding SARs Granted under the 2004 Plan

     336,074  
  

 

 

 

 

In determining whether to approve the Restated Plan, including the increase to the share reserve, the Board considered the following:

 

 

The Restated Plan will increase the shares available for grant by 3,500,000 shares, so that the shares available for future grant will include (i) the newly available 3,500,000 shares plus (ii) shares that remain available for future grant under the 2012 Plan plus (iii) any potential forfeitures of the shares subject to outstanding stock appreciation rights (“SARs”) that remain outstanding under the 2004 Plan. The 2012 Plan originally provided for a pool of 3,500,000 shares, and the Restated Plan will add 3,500,000 new shares, for a total aggregate pool of 7,000,000 shares, plus any shares that could be forfeited under the 2004 Plan.

 

 

In calendar years 2014, 2015, and 2016, GATX’s annual equity burn rates (calculated by dividing (1) the number of shares subject to equity awards granted during the year by (2) the weighted-average number of shares outstanding at the end of the applicable year) under the 2012 Plan were 0.97%, 1.15%, and 1.68%, respectively. If each Full Value Award (as defined below) is multiplied by 1.7 (as provided in the 2012 plan and consistent with the methodology employed by certain proxy advisory firms), the “adjusted” annual burn rate under the 2012 Plan would be 1.17%, 1.40%, and 2.04% for calendar years 2014, 2015, and 2016, respectively.

 

 

We expect the share reserve under the Restated Plan to provide us with enough shares for awards for approximately five years, assuming we continue to grant awards consistent with our current practices and historical usage, as reflected in our historical burn rate, and further dependent on the price of GATX shares

   

and hiring activity during the next few years, forfeitures of outstanding awards under the 2012 Plan and the 2004 Plan, and noting that unanticipated changes in future circumstances could require changes to our current equity grant practices. We cannot predict our future equity grant practices, the future price of GATX shares, forfeiture rates, or our future hiring activity with any degree of certainty at this time, and the share reserve under the Restated Plan could last for a shorter or longer time than we expect.

 

 

The potential dilution to our shareholders that may result from the issuance of shares pursuant to outstanding awards and awards to be issued under the Restated Plan is determined by reference to the “overhang” rate. In calendar years 2014, 2015, and 2016, the end-of-year overhang rate (calculated by dividing (1) the sum of the number of shares subject to equity awards outstanding at the end of the calendar year plus shares remaining available for issuance for future awards at the end of the calendar year by (2) the number of shares outstanding at the end of the calendar year) was 10.0%, 9.3%, and 8.0%, respectively. If the Restated Plan is approved, GATX expects the overhang rate to increase to approximately 16.7% following such approval due to the 3,500,000 additional shares added by the Restated Plan.

 

 

Analysis by the Compensation Committee’s independent compensation consultant, which was based on generally accepted evaluation methodologies used by proxy advisory firms, has found that the number of shares to be reserved under the Restated Plan is within generally accepted standards as measured by an analysis of the Restated Plan cost relative to industry practice.

 

 

52   GATX CORPORATION  -  2017 Proxy Statement


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In light of the factors described above, and the fact that the ability to continue to grant equity compensation is vital to our capability to attract, retain, and motivate highly qualified individuals in the competitive markets in which

we compete, our Board has determined that the size of the share reserve under the Restated Plan is reasonable and appropriate at this time.

 

Equity Compensation Best Practices Reflected in the Restated Plan

 

In keeping with our commitment to strong corporate governance, we have included a number of provisions in the Restated Plan that we believe are consistent with best practices in equity compensation and protective of the interests of our shareholders. The Restated Plan contains the following improvements over the terms of the 2012 Plan:

 

 

Requirement that Dividends be Paid Only on Vested Awards. The Restated Plan explicitly provides that no dividends or dividend equivalents may be paid on any unvested equity awards. The 2012 Plan applies this limitation only to unvested performance awards.

 

 

Specific Limitation on Non-Employee Director Compensation. An annual limit of $350,000 per calendar year applies to the sum of all cash or other compensation and the grant date fair value of all equity awards paid or granted to a non-employee director for services as a member of our Board.

In addition, the Restated Plan continues the following best practices of the 2012 Plan:

 

 

Continued Broad-Based Eligibility for Equity Awards. We grant equity awards to a significant number of employees and all non-employee directors. We believe that this ties their interests directly with the interests of our shareholders and motivates these individuals to act as owners of the business. As of March 10, 2017, 222 of GATX’s active and retired employees and nine of its non-employee directors held outstanding equity awards.

 

 

No Discount Options or SARs. All options and SARs will have an exercise price equal to or greater than the fair market value of our common stock on the date the option or SAR is granted; provided, that discount options may be granted in the event options are assumed or substituted in connection with certain corporate transactions. The closing sale price for a share of our common stock on the New York Stock Exchange, or the NYSE, on March 10, 2017 was $58.45.

 

 

No Recycling of Shares Used to Pay Exercise Price or Satisfy Tax Withholding. Shares used to pay option or SAR exercise price, to satisfy tax withholding obligations, or otherwise purchased on the open market with cash proceeds from the exercise of options are not recycled back in the Restated Plan for re-grant.

 

 

No Automatic Single-Trigger Vesting of Awards. The Restated Plan does not provide for automatic “single-trigger” accelerated vesting upon a change of control.

 

 

Fungible Share Pools with Reasonable Limit on Full Value Awards. For purposes of calculating the shares that remain available for issuance under the Restated Plan, grants of options and SARs will be counted as the grant of one share for each one share actually granted, as described above. However, to protect shareholders from potentially greater dilutive effect of restricted stock, restricted stock units, phantom stock, and stock payments (“Full Value Awards”), all grants of Full Value Awards on or after the effective date of the Restated Plan will be deducted from the share reserve as 2.0 shares for every one share actually granted. Prior to the effective date of the Restated Plan, all Full Value Awards were deducted from the 2012 Plan share reserve as 1.7 shares for every one share actually granted.

 

 

Minimum One-Year Vesting Period. All options, SARs, restricted stock, restricted stock units, phantom stock, and stock payment awards that vest based on time shall not vest for any period of less than one year.

 

 

No Repricing of Awards. Awards may not be repriced, replaced, or re-granted through cancellation or modification without shareholder approval if the effect would be to reduce the exercise price for the shares under the award.

 

 

No Tax Gross-Ups. The Restated Plan does not provide for any tax gross-ups.

 

 

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Shareholder approval requirement

 

Shareholder approval of the Restated Plan is needed for GATX to satisfy the shareholder approval requirements of the NYSE and so that certain stock options granted under the Restated Plan will qualify as “incentive stock options,” or “ISOs”, as defined in Section 422 of the Internal Revenue Code of 1986, as amended from time to time (the “Code”).

In addition, shareholder approval of the material terms of the Restated Plan is necessary to preserve our ability to provide “qualified performance-based compensation” (“QPBC”) that will be tax deductible without regard to the limits of Section 162(m) of the Code (as described below under the heading Section 162(m) Limitation). The material terms of the Restated Plan include, without limitation, the classes of individuals eligible to receive awards, the award limits, and the performance criteria

described on page 60 under the heading Performance Awards. GATX has not adopted a policy that all compensation paid to executive officers must be deductible, and there is no guarantee that incentive compensation paid to our covered employees will qualify as QPBC for purposes of Section 162(m). However, shareholder approval of the material terms of the Restated Plan will permit the Compensation Committee to seek to structure incentive compensation to meet the performance-based compensation requirements if it chooses to do so.

Therefore, we are asking shareholders to approve the terms of the Restated Plan for purposes of complying with the requirements of the NYSE and satisfying the shareholder-approval requirements of Sections 422 and 162(m) of the Code.

 

 

Description of the Restated Plan

 

The following sets forth a description of the material terms of the Restated Plan.

Authorized Shares

 

The Restated Plan authorizes the issuance of the sum of:

 

 

3,500,000 originally authorized shares under the 2012 Plan (of which 552,809 shares remain available for future grant as of March 10, 2017), plus

 

 

3,500,000 additional shares (for a maximum of 7,000,000 shares that have been or could be granted under both the 2012 Plan and the Restated Plan), plus

 

 

Any potential forfeitures of the shares that remain subject to outstanding SARs outstanding under the 2004 Plan which could be forfeited or lapse unexercised or are settled in cash or are not issued under the 2004 Plan (as of March 10, 2017, there were 336,074 such awards);

provided that the aggregate number of shares of common stock that remain available for issuance under the Restated Plan shall be reduced by 2.0 shares for each share delivered in settlement of any Full Value Award granted on or after the effective date of the Restated Plan and shall be reduced by 1.7 shares for each share delivered in settlement of any

Full Value Award granted prior to the effective date of the Restated Plan and by one share for each share delivered in settlement of any option or stock appreciation right.

As of March 10, 2017, 1,563,785 shares were subject to outstanding options and SARs under the 2012 Plan (of which 768,575 remained unvested and subject to forfeiture), and 627,679 shares were subject to outstanding Full Value Awards (of which 431,210 remained unvested and subject to forfeiture). Assuming forfeiture of all outstanding unvested options, SARs, and Full Value Awards under the 2012 Plan and the 2004 Plan (a total of 1,732,328 potentially forfeitable awards) and counting the 552,809 shares remaining in the 2012 Plan share pool and the 3,500,000 new shares to be added to the share pool, a maximum of 5,588,668 shares could potentially become available for issuance under the Restated Plan, if it is approved. Shares issued under the Restated Plan may be authorized but unissued shares, shares purchased on the open market, or treasury shares.

 

 

Share Counting Provisions

 

If an award under the Restated Plan or 2004 Plan expires, lapses or is terminated, exchanged for cash, surrendered, repurchased, or canceled without having been fully exercised or forfeited, in any case, in a manner that results in GATX acquiring shares covered by such award

at a price not greater than the price (as adjusted to reflect any equity restructuring) paid by the participant for the shares or not issuing one or more shares covered by such award, the unused shares covered by the award will become or again be available for grant under

 

 

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the Restated Plan. In addition, shares delivered to GATX to satisfy the applicable withholding obligation (including shares retained by GATX from the award being exercised or purchased and/or creating the tax obligation) will, as applicable, become or again be available for grant under the Restated Plan. For any shares granted pursuant to an award under the Restated Plan or 2004 Plan, the shares available under the Restated Plan will be increased by 2.0 shares for each share subject to a Full Value Award

granted on or after the effective date of the Restated Plan, 1.7 shares for each share subject to a Full Value Award granted prior to the effective date of the Restated Plan, and one share for each share subject to an option or SAR, in each case, that becomes or again is available for issuance pursuant to the foregoing share counting provisions of the Restated Plan. Dividend equivalents paid in cash will not be counted against the number of shares reserved under the Restated Plan.

 

 

Administration

 

The Restated Plan will be administered by the Compensation Committee or a subcommittee thereof (or by the Board or another Board committee as may be determined by the Board from time to time). The administrator of the Restated Plan (the “Administrator”) or its delegate will have the authority to determine which employees and non-employee directors receive awards

and set the terms and conditions applicable to the award within the confines of the Restated Plan’s terms. The Administrator will have the authority to make all determinations and interpretations under, prescribe all forms for use with, and adopt rules for the administration of, the Restated Plan.

 

 

Award Limits for Employees

 

The Restated Plan includes annual limits on awards that may be granted to any individual participant. For participants other than non-employee directors, the maximum aggregate number of shares of common stock with respect to all options and SARs that may be granted to any one person during any calendar year is 500,000, and the maximum aggregate number of shares of common stock that may be earned with respect to any Full Value Award during any calendar year is 300,000.

The maximum aggregate amount originally designated to become payable only in cash to any one person during any calendar year is $5,000,000. These numbers may be adjusted to take into account equity restructurings and certain other corporate transactions as described below. For purposes of these individual award limits, each share subject to an award (including a Full Value Award) will be counted as one share against the specified limit.

 

 

Compensation Limit for Non-Employee Directors

 

The sum of all cash or other compensation and the value (determined as of the grant date in accordance with FASB ASC Topic 718 (or any successor thereto)) of all awards granted to a non-employee director under the Restated Plan or otherwise paid as fees during any

calendar year for services as a member of the Board may not exceed $350,000. This limit applies to all compensation provided to a non-employee director, whether or not such compensation is provided under the Restated Plan.

 

 

Eligibility

 

Employees and non-employee directors of GATX or any of its subsidiaries are eligible to receive awards under the Restated Plan. As of March 10, 2017, GATX and its subsidiaries had approximately 200 active employees and

9 non-employee directors who would have been eligible to receive awards under the Restated Plan had it been in effect on such date.

 

 

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Types of Awards

 

The Restated Plan provides for the grant of stock options (including ISOs and nonqualified stock options (“NQSOs”)), SARs, restricted stock, restricted stock units, dividend equivalent awards, phantom stock awards, stock payment awards, and performance awards

that are cash-based, stock-based, or a combination thereof. Awards to eligible individual will be subject to the terms of an individual award agreement between GATX and the individual. A brief description of each award type follows:

 

 

Stock Options

 

Options provide the option holder with the right to purchase shares of common stock at a specified price and usually become exercisable in one or more installments after the grant date. The option exercise price may be paid by:

 

   

cash

 

   

check

 

   

shares of common stock which have been held by the option holder for such period as required by the Administrator

 

   

proceeds from the sale of a portion of the shares covered by such option in a broker assisted cashless exercise or

 

   

such other methods as the Administrator may approve from time to time.

Options may take two forms, NQSOs and ISOs. NQSOs may be granted for any term specified by the Compensation Committee up to a maximum of ten years. The terms of ISOs are subject to certain restrictions contained in the Code in order to qualify as

incentive stock options for tax purposes, including the following:

 

   

The exercise price of an ISO must not be less than the fair market value of our common stock on the date of grant or, if granted to an individual who owns at least 10% of the total combined voting power of all classes of GATX stock (a “10% Holder”), the exercise price may not be less than 110% of the fair market value of the common stock on the date of grant

 

   

ISOs may be granted only to employees

 

   

ISOs expire within a specified time following termination of the holder’s employment with the Company

 

   

ISOs must be exercised within ten years after the date of grant or, with respect to a 10% Holder, no more than five years after the date of grant

 

   

ISOs may not be exercisable for the first time for shares of common stock having an aggregate fair market value in excess of $100,000, determined based on the exercise price.

 

 

Stock Appreciation Rights

 

SARs provide for payment to the SAR holder based on increases in the price of the Company’s common stock over a specified base price. SARs may be granted in connection with options or other awards or separately.

The term of each SAR is set by the Administrator up to a maximum of ten years from the date of grant. Payment for SARs may be made in cash, common stock, or any combination of the two.

 

 

Restricted Stock

 

A restricted stock award is a non-transferable grant of shares of common stock at a price determined by the Administrator (which price may be zero) and, unless otherwise determined by the Administrator at the time of award, may be forfeited upon termination of employment or service during a restricted period. The Administrator shall also determine in the award agreement whether the

holder will be entitled to vote the shares of restricted stock or receive dividends on such shares. Restricted stock granted to employees will vest according to the terms of each individual award agreement, as determined by the Administrator. Any dividends that accrue on restricted stock will be held and not paid until the restricted stock vests.

 

 

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Restricted Stock Units

 

Restricted stock units represent the right to receive shares of common stock at a specified date in the future. On the vesting date specified in the award agreement, the Company will deliver to the holder of the restricted

stock unit, unrestricted shares of GATX common stock which will be freely transferable. The Administrator will specify the vesting requirements in each award agreement.

 

 

Dividend Equivalents

 

Dividend equivalents may be paid in cash or stock and represent the value of the dividends on the common stock, calculated with reference to the number of shares covered by an award. Dividend equivalents paid in cash do not count against the share and award limits under the

Restated Plan. Dividend equivalents will be paid out only if, when, and to the extent that the awards vest. The value of dividends and other distributions payable with respect to awards that do not vest will be forfeited.

 

 

Performance Awards

 

Performance awards are denominated in cash or shares of GATX common stock and are linked to the satisfaction of performance criteria established by the Administrator. If the Administrator determines that the award is intended to meet the requirements of “qualified performance based

compensation” for purposes of Section 162(m) of the Code, then the performance criteria on which the award will be based will be with reference to any one or more of the following:

 

 

   

earnings (either before or after any one or more of interest, taxes, depreciation, and amortization)

 

   

economic value-added

 

   

gross or net sales or revenue

 

   

income (gross or net, before or after taxes)

 

   

adjusted income (gross or net)

 

   

operating earnings or profit

 

   

cash flow (including, but not limited to, operating cash flow and free cash flow)

 

   

return on capital

 

   

return on assets

 

   

return on shareholders’ equity

 

   

total shareholder return

 

   

return on sales

 

   

gross or net profit or operating margin

 

   

costs

 

   

funds from operations

   

expenses

 

   

productivity

 

   

return on net assets

 

   

operating efficiency

 

   

economic value

 

   

working capital

 

   

earnings per share

 

   

adjusted earnings per share

 

   

regulatory body approval for commercialization of a product

 

   

implementation or completion of critical projects

 

   

cash flow return on capital

 

   

price per share of common stock

 

   

market share

 

   

investment volume

 

   

total gross income less total ownership costs

 

   

ownership costs

 

 

Any of the foregoing criteria may be measured either in absolute terms, as an incremental increase or decrease,

or as compared to results of a peer group or market performance indicators.

 

 

Stock Payments

 

Payments to Participants of bonuses or other compensation under the Restated Plan may be made in

the form of common stock.

 

 

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Phantom Stock

 

Phantom stock typically is awarded without payment of consideration and may be subject to vesting conditions, including satisfaction of performance criteria. Shares of common stock are not actually issued until the phantom stock award has vested. Recipients of phantom stock

also have no voting or dividend rights prior to vesting and delivery of the phantom stock. Payment for phantom stock may be made in cash, common stock, or any combination of the two.

 

 

Minimum Vesting Period

 

All options, SARs, restricted stock, restricted stock units, phantom stock, stock payment awards, and performance

awards that vest based on time shall not vest for any period of less than one year.

 

 

Prohibition on Repricing

 

The Restated Plan prohibits the Administrator from repricing options or SARs without shareholder approval (other than as permitted in connection with certain transactions), including any repricing accomplished through the cancellation of an option or SAR in exchange

for cash or another award when the exercise price of the option or the base measurement price of the SAR exceeds the current fair market value of the common stock.

 

 

Change of Control

 

In connection with a change of control, all outstanding awards will continue in effect or be assumed or converted in the transaction. If an award is continued, assumed, or substituted for an equivalent award and a participant’s service is terminated without cause within twenty-four months, or such lesser period as provided in the award agreement, following the change of control, then the

participant will become fully vested in the continued, assumed, or substituted award. In the event that outstanding awards are not assumed or substituted, such awards will become fully exercisable immediately prior to the change of control and all forfeiture restrictions on such awards will lapse.

 

 

Adjustments upon Certain Events

 

In the event of a stock dividend, stock split, combination or exchange of shares, merger, consolidation, spin-off, recapitalization, or other distribution (other than normal cash dividends) of GATX assets to shareholders, or other similar changes affecting the shares or share price of GATX common stock, the Administrator shall make equitable adjustments to reflect changes with respect to (i) the terms and conditions of any outstanding awards, (ii) the number and kind of shares subject to an award, (iii) the aggregate number and kind of shares that may be issued under the Restated Plan, and (iv) the grant, exercise, or base price per share for any outstanding

awards. In addition, upon such events the Administrator may provide for the (1) termination of any awards in exchange for cash equal to the amount the holder would otherwise be entitled if they had exercised the award, (2) full vesting, exercisability, or payment of any award, (3) assumption of such award by any successor, (4) replacement of such award with other rights or property, (5) the adjustment of the number and type of shares and/or the terms and conditions of the awards which may be granted in the future, or (6) that awards cannot vest, be exercised or become payable after such event.

 

 

Amendment and Termination

 

The Restated Plan may be wholly or partially amended or otherwise modified, suspended, or terminated at any time by the Board, provided that shareholder approval will be obtained for any amendment that (i) increases the number of shares available under the Restated Plan, (ii) reduces

the exercise price or base price of any outstanding option or SAR, (iii) cancels any option or SAR in exchange for cash or for another award having a lower per share exercise price, or (iv) is necessary or desirable to comply with any applicable law or stock exchange rule.

 

 

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Awards Not Transferable

 

In general, awards may not be pledged, assigned or transferred other than by will or by laws of descent and distribution. The Administrator may allow awards other than ISOs to be transferred for estate or tax

planning purposes to members of the holder’s family, charitable institutions, or trusts for the benefit of family members.

 

Forfeiture and Clawbacks

 

All awards (including the gross amount of any proceeds, gains, or other economic benefit obtained in connection with any award) made under the Restated Plan are subject to clawback by GATX to the extent required to

comply with applicable laws or the GATX Executive Compensation Recoupment Policy, as amended from time to time.

 

 

Data Privacy

 

All holders of awards explicitly consent to the collection, use and transfer, in electronic or other form, of personal data by the Company and its subsidiaries for the exclusive

purpose of implementing, administering, and managing participation in the Restated Plan.

 

 

Miscellaneous

 

As a condition to the issuance or delivery of stock or payment of other compensation pursuant to the exercise or lapse of restrictions on any award, GATX has the authority to require participants to discharge all applicable withholding tax obligations. Shares held by or to be issued to a participant may also be used to

discharge tax withholding obligations, subject to the discretion of the Administrator to disapprove of such use. The Restated Plan will expire and no further awards may be granted after the tenth anniversary of its approval by GATX shareholders.

 

 

United States Federal Income Tax Consequences

 

 

The tax consequences of the Restated Plan under current U.S. federal law are summarized in the following discussion. This discussion is limited to the general tax principles applicable to the Restated Plan, is intended for general information only and is not tax advice. State,

local, and foreign income taxes are not discussed. Tax laws are complex and subject to change and may vary depending on individual circumstances and from locality to locality.

 

 

Nonqualified Stock Options

 

For U.S. federal income tax purposes, an option holder generally will not recognize taxable income at the time a NQSO is granted under the Restated Plan. The holder will recognize ordinary income, and the Company generally will be entitled to a deduction, upon the exercise of a NQSO. The amount of income recognized (and the amount deductible by the Company) generally will be equal to the excess, if any, of the fair market value of the common stock at the time of exercise over the aggregate

exercise price paid for the option, regardless of whether the exercise price is paid in cash, shares or other property. A holder’s tax basis for the shares acquired on exercise, for purposes of determining his or her gain or loss upon a subsequent disposition, generally will be the fair market value of the common stock on the date of exercise of the option, and any subsequent gain or loss will generally be taxable as capital gain or loss.

 

 

Incentive Stock Options

 

A holder of an ISO generally will not recognize taxable income either at the time of grant or at the time of exercise. However, the amount by which the fair market value of the shares at the time of exercise exceeds the exercise price will be an “item of tax preference” to the holder for purposes of the alternative minimum tax. Generally, upon the sale or other taxable disposition of

the shares acquired upon exercise of an ISO, the holder will recognize taxable income. If shares acquired upon the exercise of an ISO are held for the longer of two years from the date of grant or one year from the date of exercise, the gain or loss (in an amount equal to the difference between the fair market value on the date of sale and the exercise price) upon disposition will be

 

 

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treated as a long-term capital gain or loss, and the Company will not be entitled to any deduction. If this holding period is not met and the stock is sold for a gain, then the difference between the option price and the fair market value of the stock on the date of exercise will be taxed as ordinary income and any gain over that will be eligible for long or short term capital gain treatment. If the

holding period is not met and the shares are disposed of for less than the fair market value on the date of exercise, then the amount of ordinary income is limited to the excess, if any, of the amount realized over the exercise price paid. The Company generally will be entitled to a deduction in the amount of any ordinary income recognized by the holder of an ISO.

 

Stock Appreciation Rights

 

No taxable income is generally recognized upon the grant of SARs. Upon exercise, the cash or the fair market value of the shares received generally will be taxable as ordinary income in the year of such exercise. The

Company generally will be entitled to a compensation deduction for the same amount which the holder recognizes as ordinary income.

 

 

Restricted Stock

 

A holder of restricted stock generally will not recognize taxable income upon issuance, and the Company generally will not then be entitled to a deduction, unless an election is made by the holder under Section 83(b) of the Code. However, when the restricted stock vests and the shares are no longer subject to a substantial risk of forfeiture, the holder generally will recognize ordinary income, and the Company generally will be entitled to a deduction for an amount equal to the excess of the fair

market value of the shares on the vesting date over the purchase price thereof. If an election is made under Section 83(b) of the Code, then the holder generally will recognize ordinary income on the date of issuance equal to the excess, if any, of the fair market value of the shares on that date over the purchase price therefor, and the Company will be entitled to a deduction for the same amount.

 

Restricted Stock Unit

 

A holder of a restricted stock unit generally will not recognize taxable income upon the grant thereof. However, when the restricted stock unit vests and shares are delivered to the holder, the value of such shares at

that time will be taxable to the holder as ordinary income. Generally, the Company will be entitled to a deduction for an amount equal to the amount of ordinary income recognized by the holder.

 

 

Phantom Stock

 

A holder of a phantom stock award will generally not recognize taxable income upon grant. However, when the phantom stock vests and shares are delivered to the holder, the value of such shares at that time will be

taxable to the holder as ordinary income. Generally, the Company will be entitled to a deduction for an amount equal to the amount of ordinary income recognized by the holder.

 

 

Stock Payment Awards

 

A holder will recognize taxable ordinary income on the fair market value of any stock delivered as payment for bonuses or other compensation under the Restated Plan,

and the Company generally will be entitled to a corresponding deduction.

 

 

Performance Awards

 

A holder who has been granted a performance award (either performance unit or stock) generally will not recognize taxable income at the time of grant, and the Company will not be entitled to a deduction at that time.

When the award vests and is paid, whether in cash or shares, the holder generally will recognize ordinary income, and the Company generally will be entitled to a corresponding deduction.

 

 

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Code Section 409A

 

Certain awards under the Restated Plan, depending in part on the particular terms and conditions of such awards, may be considered nonqualified deferred compensation subject to the requirements of Code

Section 409A. If the terms of such awards do not meet the requirements of Code Section 409A, the holder of the award may be charged an additional 20% tax obligation, plus penalties and interest.

 

Section 162(m) Limitation

 

In general, under Section 162(m), income tax deductions of publicly held corporations may be limited to the extent that the total compensation (including base salary, annual bonus, stock option exercises and non-qualified benefits paid) of certain executive officers exceeds $1,000,000 (less the amount of any “excess parachute payments” as defined in Section 280G of the Code) in any one year. However, under Section 162(m), the deduction limit does not apply to certain “qualified performance-based compensation” established by an independent compensation committee which is adequately disclosed to, and approved by, shareholders. In particular, options and SARs will satisfy the “qualified performance-based compensation” exception if (i) the awards are made by a qualifying compensation committee, (ii) the plan sets the maximum number of shares that can be granted to any person within a specified period, and (iii) the compensation is based solely on an increase in the stock price after the grant date (i.e., the option exercise price is equal to or greater than the fair market value of the stock subject to the award on the grant date). Restricted stock,

restricted stock units, phantom stock, stock payment awards, and performance unit/share awards granted under the Restated Plan may qualify as “qualified performance-based compensation” for purposes of Section 162(m) if such awards are granted or vest upon pre-established objective performance measures based on the performance goals described on page 57 under the section entitled Performance Awards.

The Company has attempted to structure the Restated Plan in such a manner that the Administrator can determine the terms and conditions of awards granted thereunder such that the remuneration attributable to such Awards will not be subject to the $1,000,000 deduction limitation. The Company has not, however, requested a ruling from the U.S. Internal Revenue Service (the “IRS”) or an opinion of counsel regarding this issue. This discussion will neither bind the IRS nor preclude the IRS from taking a contrary position with respect to the Restated Plan or any awards granted under the Restated Plan.

 

 

New Plan Benefits

 

The number of awards that an individual participant may receive under the Restated Plan is in the discretion of the Administrator, which has not determined the type or amount of awards that will be granted in the future to specific individuals. However, under our current director compensation program, our non-employee directors are

entitled to receive an annual grant of phantom stock units with a value equal to $90,000 on the date of grant. Although our past practices may not be continued in the future, the table below sets forth information with respect to awards previously granted in 2016 to our NEOs and other groups of individuals named below under the 2012 Plan:

 

 

Name and Position   

Dollar Value

($)(1)

    Number of
Phantom /
Restricted
Stock Units
     Number  of
Performance
Shares
(2)
     Number of Stock
Options
 

Brian A. Kenney

     3,008,209              38,180        109,100  

Chairman of the Board, President and Chief Executive Officer

          

Robert C. Lyons

     761,063              9,660        27,600  

Executive Vice President and Chief Financial Officer

          

James F. Earl

     730,535              9,270        26,500  

Executive Vice President and President, Rail International

          

Thomas A. Ellman

     617,283              7,830        22,400  

Executive Vice President and President, Rail North America

          

Deborah A. Golden

     471,724              5,990        17,100  

Executive Vice President, General Counsel and Corporate Secretary

          

Executive Group

     7,344,316       7,330        89,360        255,400  

Non-Executive Director Group

     735,978 (3)      176,111        

Non-Executive Officer Employee Group

     5,886,331       69,670        5,740        211,500  

 

(1) Represents the aggregate grant date fair value of the awards granted in 2016, including the grant date fair value of performance share awards at target payout levels.
(2) Represents the number of performance shares awarded at target payout levels for 2016.
(3) Represents the aggregate grant date fair value and amount of phantom stock units awarded to our nine non-employee directors in 2016, including a grant of phantom stock units pro-rated to reflect Ms. Aigotti’s appointment to the Board effective October 28, 2016.

 

GATX CORPORATION  -  2017 Proxy Statement   61


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PROPOSAL 4: APPROVAL OF THE AMENDED AND RESTATED 2012 INCENTIVE AWARD PLAN

 

Equity Compensation Plan Information

 

The following table provides certain information as of December 31, 2016 and March 10, 2017 about the GATX common stock that may be issued under our existing equity compensation plans:

Equity Compensation Plan Information

 

Plan Category   

Number of Securities to be
Issued Upon Exercise of
Outstanding Options,

Warrants, and Rights

       Weighted-Average
Exercise Price of
Outstanding Options,
Warrants, and Rights
       Number of  Securities Remaining    
Available for Future Issuance
Under Equity Compensation
Plans (Excluding Securities
Reflected in Column (a))
     

As of

12/31/16

  

As of

3/10/17

      

As of

12/31/16

  

As of

3/10/17

      

As of

12/31/16

  

As of

3/10/17

Equity Compensation Plans Approved by Security Holders

   2,273,247(1)    2,527,538(2)      46.73(3)    49.65(3)      1,088,201    552,809

Equity Compensation Plans not Approved by Security Holders

   —      —        —      —        —      —  
  

 

  

 

            

 

  

 

Total

   2,273,247    2,527,538              1,088,201    552,809

 

(1) Consists of 1,648,235 stock options and SARs with a remaining weighted average contractual term of 4.13 years, 232,459 performance shares, 203,130 restricted stock units, and 189,423 phantom stock units.
(2) Consists of 1,899,859 stock options and SARs with a remaining weighted average contractual term of 4.55 years, 219,056 performance shares, 213,490 restricted stock units, and 195,133 phantom stock units.
(3) Weighted-average exercise price does not include performance shares, restricted stock units, or phantom stock units.

 

The Board of Directors recommends that you vote FOR approval of the Amended and Restated 2012 Incentive Award Plan.

 

62   GATX CORPORATION  -  2017 Proxy Statement


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PROPOSAL 5:   RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Audit Committee is directly responsible for the appointment, compensation, retention, and oversight of the independent registered public accounting firm retained to audit our financial statements. The Audit Committee has appointed Ernst & Young LLP to serve as our independent registered public accounting firm for 2017. Ernst & Young LLP has served as our independent registered public accounting firm since 1989.

The Audit Committee regularly evaluates the performance of Ernst & Young LLP, including its independence with respect to services performed. The Audit Committee and the Board believe that the continued retention of Ernst & Young LLP as our independent registered public accounting firm is in the best interests of GATX and our shareholders.

Because the members of the Audit Committee value shareholders’ views on our independent registered public accounting firm, we are seeking shareholder ratification of the appointment even though ratification is not legally required. While this vote cannot be binding, if shareholders do not ratify the appointment of Ernst & Young LLP, the Audit Committee will take the vote into account in making future appointments.

Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting. They will have the opportunity to make a statement if they so desire and will be available to respond to appropriate questions by shareholders.

 

 

The Board of Directors recommends that you vote FOR the proposal to ratify Ernst & Young LLP as our independent registered public accounting firm for 2017.

Audit Committee Report

 

 

The Audit Committee’s responsibilities, as set forth in its charter, include providing oversight of our financial accounting and reporting process through periodic meetings with our management, independent registered public accounting firm, and internal auditors to review accounting, auditing, internal controls, and financial reporting matters. The Audit Committee Charter is available on our website (www.gatx.com) in the Investor Relations section under “Corporate Governance”.

The Audit Committee has the ultimate authority to select and engage our independent registered public accounting firm, evaluate its performance, evaluate the performance of the lead audit partner, oversee the required rotation of the lead audit partner, review and consider the selection of the lead audit partner, approve all audit and non-audit work, and approve all associated fees. GATX management is responsible for the preparation and integrity of our financial reporting information and related systems of internal control. In the discharge of its functions, the Audit Committee relies on our management (including senior financial management), internal audit staff, and independent registered public accounting firm.

It is not the Audit Committee’s responsibility to plan or conduct audits or to determine that our financial statements are complete and accurate and prepared in accordance with generally accepted accounting principles. That work is the responsibility of GATX management and our independent registered public accounting firm. In making its recommendation to the Board noted below, the Audit Committee has relied on management to prepare the financial statements with integrity and objectivity and in conformance with generally accepted accounting principles and the report of our independent registered public accounting firm with respect to the financial statements.

The Audit Committee consists of six directors: Anne L. Arvia (Chair), Diane M. Aigotti, James B. Ream, Robert J. Ritchie, Casey J. Sylla, and Stephen R. Wilson, each of whom is an “independent director” under the NYSE listing standards applicable to Audit Committee members. The Board has determined that each member of the Audit Committee is financially literate and has accounting and related financial management expertise, and that each is an “audit committee financial expert” (as such term is defined by the SEC).

 

 

GATX CORPORATION  -  2017 Proxy Statement   63


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PROPOSAL 5: RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Audit Committee has reviewed and discussed with management the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

The Audit Committee has discussed with Ernst & Young LLP, our independent registered public accounting firm, the matters required to be discussed under Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 1301, Communication with Audit Committees (AS 1301), including the quality of our accounting policies, the reasonableness of significant judgments and the clarity of disclosures in the financial statements.

The Audit Committee also has received from Ernst & Young LLP the written disclosures regarding the auditors’ independence required by PCAOB Ethics and

Independence Rule 3256, Communication with Audit Committees Concerning Independence, and the Audit Committee has discussed with Ernst & Young LLP its independence.

Based on the review and discussions noted above, the Audit Committee has recommended to the Board of Directors that the audited financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2016 for filing with the SEC.

Anne L. Arvia (Chair)

Diane M. Aigotti

James B. Ream

Robert J. Ritchie

Casey J. Sylla

Stephen R. Wilson

 

 

Pre-Approval Policy

 

 

Pursuant to our pre-approval policy, the Audit Committee must pre-approve all audit and non-audit services provided to GATX by our independent registered public accounting firm before the firm is engaged to perform the services. Each year, the Audit Committee reviews the annual audit plan submitted by the independent registered public accounting firm and pre-approves all necessary and appropriate audit services for the year.

Each quarter, the Company and the independent registered public accounting firm jointly provide the Audit Committee a report of all the audit-related, tax, and other non-audit services that were performed by the independent registered public accounting firm during the current fiscal quarter pursuant to the authority previously approved by the Committee. In addition, the Company

and the independent registered public accounting firm provide the Audit Committee with an estimate of the nature and amount of the services expected to be needed in the next fiscal quarter, together with a joint statement confirming that the services are consistent with the SEC’s rules on auditor independence. The Audit Committee then pre-approves those services, as appropriate. Any proposed changes to the estimate of services reviewed as part of the annual audit plan also are discussed with the Audit Committee at that time. The Audit Committee may delegate pre-approval authority to one or more of its members. Any member or members to whom such authority is delegated must report any pre-approval decisions to the Audit Committee at its next scheduled meeting.

 

Audit and Other Related Fees

 

Audit Fees

 

The aggregate fees for professional services rendered by Ernst & Young LLP in connection with (i) the audit of the annual financial statements set forth in our Annual Report on Form 10-K, (ii) the review of the interim financial statements in our Quarterly Reports on Form 10-Q, (iii) comfort letters, consents, and other services related to SEC filings, and (iv) related audit services provided to

other subsidiaries of GATX were approximately $2,747,000 for 2016 and approximately $2,427,000 for 2015. Audit fees also include the audit of the effectiveness of our internal control over financial reporting as required by SEC rules adopted under Section 404 of the Sarbanes-Oxley Act of 2002.

 

 

64   GATX CORPORATION  -  2017 Proxy Statement


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PROPOSAL 5: RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Audit-Related Fees

 

The aggregate fees for assurance and related services that were related to the performance of the audit or review of our financial statements were approximately

$134,000 for 2016 and approximately $125,000 for 2015. In both years, the services performed related to employee benefit plan audits.

 

Tax Fees

 

The aggregate fees for professional services rendered for federal and international tax compliance, advice, and

planning were approximately $44,500 for 2016 and approximately $33,500 for 2015.

 

 

All Other Fees

 

Fees for other professional services rendered by Ernst & Young LLP were approximately $2,000 for each of 2016

and 2015, primarily related to access and use of Ernst & Young LLP’s online accounting research tool.

 

 

GATX CORPORATION  -  2017 Proxy Statement   65


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SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

Each director, each executive officer named in the Summary Compensation Table, and all directors and executive officers as a group, owned the number of shares of GATX common stock set forth in the following table:

 

Name of Beneficial Owner    Shares of Common Stock
Beneficially Owned as of
March 10, 2017(1)(2)
 

Diane M. Aigotti

     583  

Anne L. Arvia

     18,281  

James F. Earl

     171,349  

Thomas A. Ellman

     86,538  

Deborah A. Golden

     95,042  

Ernst A. Häberli

     22,591  

Brian A. Kenney

     528,656  

Robert C. Lyons

     138,953  

James B. Ream

     27,840  

Robert J. Ritchie

     22,008  

David S. Sutherland

     55,361  

Casey J. Sylla

     32,885  

Stephen R. Wilson

     8,330  

Paul G. Yovovich

     17,602  

All Directors and executive officers as a group

     1,361,721  

 

(1) Includes (i) units of phantom common stock credited to the accounts of individuals and payable in shares of common stock following retirement from the Board as follows: Ms. Aigotti (583); Ms. Arvia (17,966); Mr. Häberli (22,591); Mr. Ream (22,840); Mr. Ritchie (20,008); Mr. Sutherland (45,361); Mr. Sylla (32,885); Mr. Wilson (4,330); Mr. Yovovich (15,588); and directors as a group (182,152); and (ii) shares which may be obtained by exercise of previously granted options or SARs within 60 days of March 10, 2017, by Mr. Earl (80,299); Mr. Ellman (56,466); Ms. Golden (62,666); Mr. Kenney (360,866); Mr. Lyons (94,966); and executive officers as a group (727,093).
(2) Each person has sole investment and voting power (or shares such powers with his or her spouse), except with respect to units of phantom common stock, restricted common stock and option grants. None of the directors or named executive officers owned 1% or more of the Company’s outstanding shares of common stock except for Mr. Kenney, who owned approximately 1.3%. Directors and executive officers as a group beneficially owned approximately 3.5% of the Company’s outstanding shares of common stock.

 

66   GATX CORPORATION  -  2017 Proxy Statement


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PRINCIPAL SHAREHOLDERS

The entities listed below are the only persons known to us to beneficially own more than 5% of our common stock. To our knowledge, except as indicated in the footnotes to this table, the entities named below have sole voting and investment power with respect to all shares beneficially owned by them. Percentage of beneficial ownership is based on 39,331,094 shares outstanding as of March 10, 2017.

 

Name and Address of Beneficial Owner    Shares Beneficially
Owned
     Percent of Common
Stock
 

State Farm Mutual Automobile Insurance Company(1)

One State Farm Plaza

Bloomington, Illinois 61710

     6,460,778        16.4  

The Vanguard Group, Inc.(2)

100 Vanguard Boulevard

Malvern, Pennsylvania 19355

     5,102,268        13.0  

GAMCO Investors, Inc.(3)

One Corporate Center