DEF 14A 1 c67787_def14a.htm 3B2 EDGAR HTML -- c67787_preflight.htm

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

SCHEDULE 14A
(Rule 14a-101)

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.       )

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Honeywell International Inc.
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March 8, 2012

To Our Shareowners:

You are cordially invited to attend the Annual Meeting of Shareowners of Honeywell, which will be held at 10:30 a.m. on Monday, April 23, 2012 at our headquarters, 101 Columbia Road, Morris Township, New Jersey.

The accompanying notice of meeting and proxy statement describe the matters to be voted on at the meeting. At this year’s meeting, you will be asked to elect directors, approve the appointment of the independent accountants, cast an advisory vote to approve executive compensation, and consider two shareowner proposals. The Board of Directors recommends that you vote FOR Proposals 1, 2, and 3 and AGAINST Proposals 4 and 5.

YOUR VOTE IS IMPORTANT. We encourage you to read the proxy statement and vote your shares as soon as possible. Shareowners may vote via the Internet, by telephone or by completing and returning a proxy card. Specific voting instructions are set forth in the proxy statement and on both the Notice of Internet Availability of Proxy Materials and proxy card.

On behalf of the Board of Directors, I want to thank you for your continued support of Honeywell.

A map and directions to Honeywell’s headquarters appear at the end of the proxy statement.

 

 

 

 

 

Sincerely,

 

 

 

 

DAVID M. COTE
Chairman and Chief Executive Officer


NOTICE OF ANNUAL MEETING OF SHAREOWNERS

The Annual Meeting of Shareowners of Honeywell International Inc. will be held on Monday, April 23, 2012 at 10:30 a.m. local time, at Honeywell’s headquarters, 101 Columbia Road, Morris Township, New Jersey to consider, if properly raised, and vote on the following matters described in the accompanying proxy statement:

 

 

 

 

Election of the ten nominees listed in the accompanying proxy statement to the Board of Directors;

 

 

 

 

Approval of the appointment of PricewaterhouseCoopers LLP as independent accountants for 2012;

 

 

 

 

An advisory vote to approve executive compensation; and

 

 

 

 

Two shareowner proposals described on pages 73-76 in the accompanying proxy statement;

and to transact any other business that may properly come before the meeting.

The Board of Directors has determined that shareowners of record at the close of business on February 24, 2012 are entitled to notice of and to vote at the meeting.

The Securities and Exchange Commission (“SEC”) has adopted a “Notice and Access” rule that allows companies to deliver a Notice of Internet Availability of Proxy Materials (“Notice of Internet Availability”) to shareowners in lieu of a paper copy of the proxy statement and related materials and the Company’s Annual Report to Shareowners (the “Proxy Materials”). The Notice of Internet Availability provides instructions as to how shareowners can access the Proxy Materials online, contains a listing of matters to be considered at the meeting, and sets forth instructions as to how shares can be voted. Shares must be voted either by telephone, online or by completing and returning a proxy card. Shares cannot be voted by marking, writing on and/or returning the Notice of Internet Availability. Any Notices of Internet Availability that are returned will not be counted as votes. Instructions for requesting a paper copy of the Proxy Materials are set forth on the Notice of Internet Availability.

This Notice of Annual Meeting of Shareowners and related Proxy Materials are being distributed or made available to shareowners beginning on or about March 8, 2012.

 

 

 

 

 

By Order of the Board of Directors,

 

 

 

 

Thomas F. Larkins
Vice President and Corporate Secretary

Honeywell
101 Columbia Road
Morris Township, NJ 07962

March 8, 2012


 

 

 

Table of Contents

 

Page

 

2012 PROXY STATEMENT AT A GLANCE

 

 

 

i-iv

 

PROPOSAL NO. 1: ELECTION OF DIRECTORS

 

 

 

1

 

CORPORATE GOVERNANCE

 

 

 

7

 

BOARD OF DIRECTORS

 

 

 

7

 

BOARD MEETINGS

 

 

 

7

 

BOARD LEADERSHIP STRUCTURE

 

 

 

7

 

BOARD COMMITTEES

 

 

 

8

 

BOARD’S ROLE IN RISK OVERSIGHT

 

 

 

10

 

DIRECTOR INDEPENDENCE

 

 

 

11

 

IDENTIFICATION AND EVALUATION OF DIRECTOR CANDIDATES

 

 

 

12

 

PROCESS FOR COMMUNICATING WITH BOARD MEMBERS

 

 

 

13

 

DIRECTOR ATTENDANCE AT ANNUAL MEETINGS

 

 

 

13

 

DIRECTOR COMPENSATION

 

 

 

14

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

 

 

16

 

STOCK OWNERSHIP INFORMATION

 

 

 

17

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

 

 

19

 

SEC FILINGS AND REPORTS; KEY CORPORATE GOVERNANCE DOCUMENTS

 

 

 

19

 

SUSTAINABILITY; CORPORATE RESPONSIBILITY

 

 

 

19

 

EXECUTIVE COMPENSATION

 

 

 

21

 

COMPENSATION DISCUSSION AND ANALYSIS

 

 

 

21

 

MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE REPORT

 

 

 

47

 

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

 

 

 

47

 

SUMMARY COMPENSATION TABLE

 

 

 

48

 

GRANTS OF PLAN-BASED AWARDS—FISCAL YEAR 2011

 

 

 

50

 

OUTSTANDING EQUITY AWARDS AT 2011 FISCAL YEAR-END

 

 

 

51

 

OPTION EXERCISES AND STOCK VESTED—FISCAL YEAR 2011

 

 

 

54

 

PENSION BENEFITS

 

 

 

54

 

NONQUALIFIED DEFERRED COMPENSATION—FISCAL YEAR 2011

 

 

 

59

 

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

 

 

 

62

 

AUDIT COMMITTEE REPORT

 

 

 

69

 

PROPOSAL NO. 2: APPROVAL OF INDEPENDENT ACCOUNTANTS

 

 

 

70

 

PROPOSAL NO. 3: ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

 

 

 

71

 

SHAREOWNER PROPOSALS

 

 

 

73

 

PROPOSAL NO. 4: INDEPENDENT BOARD CHAIRMAN

 

 

 

73

 

PROPOSAL NO. 5: POLITICAL CONTRIBUTIONS

 

 

 

75

 

VOTING PROCEDURES

 

 

 

77

 

ATTENDANCE AT THE ANNUAL MEETING

 

 

 

79

 

OTHER INFORMATION

 

 

 

80

 

APPENDIX: RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

 

 

 

A-1

 

DIRECTIONS TO HONEYWELL’S HEADQUARTERS

 

 

 

Back Cover

 

Reconciliation of non-GAAP financial measures used in the Compensation Discussion and Analysis section and elsewhere in this proxy statement, other than as part of disclosure of target levels, can be found in the Appendix. The Long-Term Targets referenced in the Compensation Discussion and Analysis section of this proxy statement represent forward-looking statements that are based on management’s assumptions and assessments and are not guarantees of future performance.


 

2012 PROXY STATEMENT AT A GLANCE

The following executive summary is intended to provide a broad overview of the items that you will find elsewhere in this proxy statement. As this is only a summary, we encourage you to read the entire proxy statement for more information about these topics prior to voting.

 

Annual Meeting of Shareowners

 

 

 

 

 

 

Time and Date:

 

10:30 a.m., April 23, 2012

 

Place:

 

Honeywell
101 Columbia Road
Morris Township, New Jersey

 

Record Date:

 

Shareowners as of February 24, 2012 are entitled to vote.

 

Admission:

 

Please follow the advance registration instructions on page 79.

 

Meeting Agenda and Voting Matters

 

 

 

 

 

 

 

Proposal

 

Board’s Voting
Recommendation

 

Page References
(for more detail)

 

1.

 

Election of Directors

 

FOR EACH NOMINEE

 

1-6

2.

 

Approval of Independent Accountants

 

FOR

 

70

3.

 

Advisory Vote To Approve Executive Compensation

 

FOR

 

71-72

4.

 

Shareowner Proposal: Independent Board Chairman

 

AGAINST

 

73-74

5.

 

Shareowner Proposal: Political Contributions

 

AGAINST

 

75-76

 

Director Nominees (Proposal No. 1)

Each director nominee is elected annually by a majority of votes cast (see page 78 of this proxy statement for further detail).

 

 

 

 

 

 

 

 

 

Name

 

Age

 

Director Since

 

Independent

 

Committees

 

Gordon M. Bethune

 

70

 

1999

 

X

 

CGRC, MDCC

Kevin Burke

 

61

 

2010

 

X

 

AC, RPC

Jaime Chico Pardo

 

62

 

1999

 

X

 

CGRC, RPC (C)

David M. Cote

 

59

 

2002

 

 

 

NONE

D. Scott Davis

 

60

 

2005

 

X

 

AC, MDCC (C)

Linnet F. Deily

 

66

 

2006

 

X

 

AC, CGRC (C)

Judd Gregg

 

65

 

2011

 

X

 

AC, CGRC

Clive R. Hollick

 

66

 

2003

 

X

 

MDCC, RPC

George Paz

 

56

 

2008

 

X

 

CGRC, AC (C)

Bradley T. Sheares

 

55

 

2004

 

X

 

MDCC, RPC


 

 

 

AC

 

Audit Committee

CGRC

 

Corporate Governance and Responsibility Committee

MDCC

 

Management Development and Compensation Committee

RPC

 

Retirement Plans Committee

C

 

Chair

 

 

 

Attendance

 

Each director nominee attended at least 75% of the aggregate number of Board and applicable Committee meetings.

     

Key Qualifications

 

Senior Leadership Experience, Industry/Global Experience, Financial Expertise, Regulated Industries/Government Experience, Public Company Board Experience (See pages 1-6 of this proxy statement for additional detail.)

i


 

Auditors (Proposal No. 2)

The Board of Directors recommends a vote FOR the approval of the appointment of PricewaterhouseCoopers LLP (“PwC”) as the Company’s independent accountants for 2012.

 

 

 

 

 

Type of Fees

 

2011

 

2010

 

 

 

(in millions)

Audit Fees

 

 

$

 

20.4

 

 

 

$

 

19.7

 

Audit-Related Fees

 

 

$

 

2.7

 

 

 

$

 

2.3

 

Tax Fees

 

 

$

 

6.4

 

 

 

$

 

6.3

 

All Other Fees

 

 

$

 

 

 

 

 

 

Total

 

 

$

 

29.5

 

 

 

$

 

28.3

 

 

Advisory Vote To Approve Executive Compensation (Proposal No. 3)

We are requesting that the shareowners approve, on an advisory basis, the compensation of the Named Executive Officers as disclosed in this proxy statement. The Board recommends a vote FOR Proposal No. 3 as it believes that the 2011 compensation decisions are consistent with key objectives of Honeywell’s executive compensation program: to promote a performance-based culture through strong emphasis on variable, at-risk compensation tied to an appropriate balance of near-term and long-term objectives that aligns the interests of shareowners and executives. This proposal was supported by over 90% of the votes cast in 2011 and 2010. Please see the Compensation Discussion and Analysis, Summary Compensation Table and other tables and disclosures beginning on page 21 of this proxy statement for a full discussion of our executive compensation.

Performance Highlights

Record Year of Profitable Growth

 

 

 

 

Sales up 13% to $36.5 billion, record 8% organic growth (excludes the impact of foreign currency translation and acquisitions and divestitures)

 

 

 

 

Segment profit up 19%, with 80 basis points of margin expansion

 

 

 

 

Proforma Earnings Per Share (“EPS”) (excluding mark-to-market pension adjustment) up 35% to $4.05

 

 

 

 

Free cash flow (“FCF”) of $3.7 billion (prior to cash contributions to U.S. pension plans), reflecting 115% FCF conversion (excluding the impact of the pension mark-to-market adjustment on net income)

Building for the Future—Highlights of Seed Planting Investments

 

 

 

 

Strategic Acquisitions: EMS Technologies (connectivity solutions for mobile networking, rugged mobile computers and satellite communications), King’s Safetywear (branded safety footwear; expands personal protection equipment portfolio), Sunoco phenol plant (helps secure long-term supply of phenol)

 

 

 

 

Repositioning Cost Savings: Used approximately $350 million from non-operating gains to fund repositioning actions that are expected to generate cost savings in 2012 and future periods

 

 

 

 

International Expansion: Continued to expand penetration of global markets, with emerging region sales now representing approximately 20% of total sales

 

 

 

 

Leadership Actions: Positioned Honeywell to rapidly capitalize on improving business conditions and continued to build on Honeywell’s consistent performance track record

Sustainable Improvement

 

 

 

 

2010-2011: For the two-year period (January 1, 2010-December 31, 2011), record organic revenue growth at twice the rate of global gross domestic product (“GDP”) growth; 390 basis points improvement in average return on investment (“ROI”) driven by 58% increase in proforma net income; $1.4 billion increase in segment profit, with 140 basis points of margin expansion

 

 

 

 

Vs. Prior Peak: 2011 sales, segment profit, segment margin, proforma EPS, FCF (prior to cash contributions to U.S. pension plans) and working capital turns exceed pre-recession (2008) levels

 

 

 

 

2003-2011: Since 2003 (the first full year of Mr. Cote’s tenure), on a compound annual growth rate basis, sales are up 7%, proforma net income is up 12% and FCF (prior to cash contributions to U.S. pension plans) is up 7%

ii


Creating Shareowner Value; Outperforming Market and Peers

 

 

 

 

Dividends: Dividend rate was increased by 12%, effective in the fourth quarter of 2011, the seventh increase of at least 10% in the last eight years

 

 

 

 

Share Repurchases: Repurchased approximately $1.1 billion of shares in 2011

 

 

 

 

Market Capitalization: Approximately $12 billion increase (39% stock price appreciation) over 2010-2011

 

 

 

 

Total Shareowner Return (“TSR”): Outperforming market and peers

Total Shareowner Return

Peer Median refers to Compensation Peer Group (see pages 29-30 of this proxy statement).
Percentages reflect cumulative growth over the period.

2011 Compensation Decisions

The table below highlights the 2011 total annual direct compensation actions for each Named Executive Officer. These actions are aligned with the strong Company performance described above (see pages 39-43 of this proxy statement for additional detail):

 

 

 

 

 

 

 

 

 

 

 

Named Executive Officer

 

Base
Salary

 

Annual
Bonus

 

Stock
Options

 

Annualized
Growth
Plan Award

 

2011 Total
Annual Direct
Compensation

 

David Cote

 

 

$

 

1,800,000

 

 

 

$

 

4,300,000

 

 

 

$

 

9,726,250

 

 

 

$

 

9,500,000

 

 

 

$

 

25,326,250

 

David Anderson

 

 

$

 

900,000

 

 

 

$

 

1,225,000

 

 

 

$

 

3,451,250

 

 

 

$

 

2,750,000

 

 

 

$

 

8,326,250

 

Roger Fradin

 

 

$

 

1,050,000

 

 

 

$

 

1,300,000

 

 

 

$

 

3,451,250

 

 

 

$

 

2,736,250

 

 

 

$

 

8,537,500

 

Timothy Mahoney

 

 

$

 

763,385

 

 

 

$

 

800,000

 

 

 

$

 

2,635,500

 

 

 

$

 

1,596,000

 

 

 

$

 

5,794,885

 

Andreas Kramvis

 

 

$

 

623,846

 

 

 

$

 

875,000

 

 

 

$

 

2,196,250

 

 

 

$

 

1,750,000

 

 

 

$

 

5,445,096

 

Total Annual Direct Compensation consists of:

 

 

 

 

Base Salary: Two Named Executive Officers (Messrs. Mahoney and Kramvis) received salary increases in 2011. The base salaries of the other three Named Executive Officers (including the CEO) remained unchanged for the third consecutive year.

 

 

 

 

Annual Bonus: The Named Executive Officers received annual bonuses ranging from 104% to 140% of their target opportunities based on results against pre-established goals, as well as other performance measures which assess both the strength and degree of difficulty of operating results, improvement over prior periods and the achievement of non-financial management objectives.

 

 

 

 

Stock Options: Each of the Named Executive Officers received a stock option grant for a number of shares up to an amount consistent with prior year levels.

iii


 

 

 

 

Growth Plan: The Named Executive Officers earned Growth Plan awards ranging from 152% to 200% of their target award values as the Company significantly exceeded total revenue (excluding the impact of acquisitions and divestitures) and ROI performance goals for the two-year performance cycle (January 1, 2010 - December 31, 2011). These awards are payable 50% in the first quarter of 2012 and 50% in the first quarter of 2013.

SEC reporting rules require that the full amount of the Growth Plan payout earned over the performance cycle be reflected in the Summary Compensation Table as Non-Equity Incentive Compensation in the second year of the performance cycle (in this case, for 2011). This is inconsistent with both the Management Development and Compensation Committee’s view when setting the Growth Plan targets and unit awards and with the actual payout schedule. To reflect the Committee’s perspective, the table above presents the annualized value of Growth Plan awards, including the earned increment above target. It differs from, and is not a substitute for the Summary Compensation Table (presented on page 48 of this proxy statement), which presents similar information in the format required by the SEC.

Alignment of Pay with Performance

The graph below demonstrates the strong alignment over the past five years of CEO total annual direct compensation (“Total ADC” consists of base salary, annual incentive compensation award, annual stock option grant, and annualized Growth Plan award) with shareowner value creation (as more fully described in the section titled “Compensation Discussion and Analysis”—“Executive Summary” beginning on page 21 of this proxy statement).

Vertical axis on the left side reflects the year-to-year performance indexed to 2006 base year TSR at 100. Prior year TSR used to correspond with timing of compensation decisions.

 

Shareowner Proposals (Proposal Nos. 4 and 5)

Two shareowner proposals, if properly raised, will also be considered at the Annual Meeting: Proposal No. 4 regarding an independent board chairman and Proposal No. 5 regarding political contributions. The Board of Directors recommends that shareowners vote AGAINST each of these proposals for the reasons set forth on pages 73-74 and 75-76, respectively.

iv


PROXY STATEMENT

This proxy statement is being provided to shareowners in connection with the solicitation of proxies by the Board of Directors for use at the Annual Meeting of Shareowners of Honeywell International Inc. (“Honeywell” or the “Company”) to be held on Monday, April 23, 2012.

Proposal No. 1: ELECTION OF DIRECTORS

Honeywell’s directors are elected at each Annual Meeting of Shareowners and hold office for one-year terms or until their successors are duly elected and qualified. Honeywell’s By-laws provide that in any uncontested election of directors (an election in which the number of nominees does not exceed the number of directors to be elected), any nominee who receives a greater number of votes cast “FOR” his or her election than votes cast “AGAINST” his or her election will be elected to the Board of Directors (see page 78 of this proxy statement for further detail). The Board has nominated ten candidates for election as directors for a term ending at the 2013 Annual Meeting of Shareowners or when their successors are duly elected and qualified. All nominees are currently serving as directors. If prior to the Annual Meeting any nominee should become unavailable to serve, the shares represented by a properly signed and returned proxy card or voted by telephone or via the Internet will be voted for the election of such other person as may be designated by the Board, or the Board may determine to leave the vacancy temporarily unfilled or reduce the authorized number of directors in accordance with the By-laws.

The Board of Directors, acting through its Corporate Governance and Responsibility Committee (“CGRC”), is responsible for nominating a slate of director nominees who collectively have the complementary experience, qualifications, skills and attributes to guide the Company and function effectively as a Board. See “Identification and Evaluation of Director Candidates” on pages 12-13 of this proxy statement for further discussion. The CGRC believes that each of the nominees has key personal attributes that are important to an effective board: integrity, candor, analytical skills, the willingness to engage management and each other in a constructive and collaborative fashion, and the ability and commitment to devote significant time and energy to service on the Board and its Committees.

Listed below are other key experiences, qualifications and skills of our director nominees that are relevant and important in light of Honeywell’s businesses and structure.

 

 

 

 

Senior Leadership Experience: Experience serving as CEO or a senior executive provides a practical understanding of how complex organizations like Honeywell function and hands-on leadership experience in core management areas, such as strategic and operational planning, financial reporting, compliance, risk management and leadership development.

 

 

 

 

Industry/Global Experience: Experience in industries, end-markets and growth segments that Honeywell serves, such as aerospace, construction, transportation, infrastructure, and energy efficiency, as well as key geographic markets where it operates, such as the United States, Latin America and Europe, enables a better understanding of the issues facing the Company’s businesses.

 

 

 

 

Financial Expertise: We believe that an understanding of finance and financial reporting processes is important for our directors to monitor and assess the Company’s operating and strategic performance and to ensure accurate financial reporting and robust controls. Our director nominees have relevant background and experience in capital markets, corporate finance, accounting and financial reporting and several satisfy the “accounting or related financial management expertise” criteria set forth in the New York Stock Exchange (“NYSE”) Corporate Governance Rules.

 

 

 

 

Regulated Industries/Government Experience: Honeywell is subject to a broad array of government regulations and demand for its products and services can be impacted by changes in law or regulation in areas such as safety, security and energy efficiency. Several of our directors have experience in regulated industries, providing them with insight and perspective in working constructively and proactively with governments and agencies, both foreign and domestic. Mr. Gregg has significant public service experience in both the executive (Governor of New Hampshire) and legislative (U.S. Congressman and Senator) branches.

 

 

 

 

Public Company Board Experience: Service on the boards and board committees of other public companies provides an understanding of corporate governance practices and trends and insights into board management, relations between the board, the CEO and senior management, agenda-setting and succession planning.


Each of the nominees, other than Mr. Cote, is also independent of the Company and management. See “Director Independence” on pages 11-12 of this proxy statement.

In addition to the above, the CGRC also considered the specific experience described in the biographical details that follow in determining to nominate the individuals set forth below for election as directors.

NOMINEES FOR ELECTION

 

 

 

 

 

 

GORDON M. BETHUNE, Retired Chairman and Chief Executive Officer of Continental Airlines, Inc.     

Mr. Bethune is the retired Chairman of the Board and Chief Executive Officer of Continental Airlines, Inc., an international commercial airline company. Mr. Bethune joined Continental Airlines, Inc. in February 1994 as President and Chief Operating Officer. He was elected President and Chief Executive Officer in November 1994 and Chairman of the Board and Chief Executive Officer in 1996, in which positions he served until his retirement in December of 2004. Prior to joining Continental, Mr. Bethune held senior management positions with the Boeing Company (where, among other things, he was responsible for the manufacture and design of the B757 and B737 aircraft programs), Piedmont Airlines, Inc., Western Airlines, Inc. and Braniff Airlines. He is licensed as a commercial pilot, type rated on the B757 and B767 airplanes and the DC-3 and is a licensed airframe and power plant mechanic. Mr. Bethune is also a director of Prudential Financial Inc. and Sprint Nextel Corporation. He previously served as a director of Willis Group Holdings Ltd. (2004-2008). Mr. Bethune was a director of Honeywell Inc. from April 1999 to December 1999.

 

 

 

*   *   *

 

 

 

Areas of Relevant Experience: Commercial airlines, including marketing, branding, cost control and restructuring, international operations and government regulation; aircraft manufacturing, design, maintenance and repair; financial services; insurance; talent management.

 

 

 

Director since 1999

 

Age 70

 

 

 

 

 

KEVIN BURKE, Chairman, President and Chief Executive Officer of Consolidated Edison, Inc. (Con Edison)     

Mr. Burke joined Con Edison, a utility provider of electric, gas and steam services, in 1973 and has held positions of increasing responsibility in system planning, engineering, law, nuclear power, construction, and corporate planning. He served as Senior Vice President from July 1998 to July 1999, with responsibility for customer service and for Con Edison’s electric transmission and distribution systems. In 1999, Mr. Burke was elected President of Orange & Rockland Utilities, Inc., a subsidiary of Con Edison. He was elected President and Chief Operating Officer of Consolidated Edison Company of New York, Inc. in 2000 and elected Chief Executive Officer in 2005. Mr. Burke was appointed President and Chief Executive Officer of Con Edison in 2005, and elected Chairman in 2006. In addition, Mr. Burke is Chairman of the Board of Trustees of Consolidated Edison of New York, Inc. and Chairman of the Board of Directors of Orange & Rockland Utilities, Inc., both of which are affiliates of Con Edison.

 

 

 

*   *   *

 

 

 

Areas of Relevant Experience: Energy production and distribution; energy efficiency; alternative sources of energy; engineering and construction; development of new service offerings; government regulation.

 

 

 

Director since 2010

 

Age 61

 

 

 

2


 

 

 

 

 

 

JAIME CHICO PARDO, President and Chief Executive Officer, ENESA, S.A. de C.V.     

Mr. Chico Pardo has been President and Chief Executive Officer of ENESA, S.A. de C.V., a private fund investing in the energy and health care sectors in Mexico since March 2010. He previously served as Co-Chairman of the Board of Telefonos de Mexico, S.A.B. de C.V. (TELMEX), a telecommunications company based in Mexico City, from April 2009 until April 2010 and as its Chairman from October 2006 to April 2009 and its Vice Chairman and Chief Executive Officer from 1995 until 2006. Mr. Chico Pardo was Co-Chairman of the Board of IDEAL (Impulsora del Desarrollo y el Empleo en América Latina, S.A. de C.V.), a publicly listed company in Mexico engaged in investment in and management of infrastructure assets in Latin America, from 2006 until 2010. He was also Chairman of Carso Global Telecom, S.A. de C.V. from 1996 until 2010. Prior to joining TELMEX, Mr. Chico Pardo served as President and Chief Executive Officer of Grupo Condumex, S.A. de C.V., a manufacturer of products for the construction, automobile and telecommunications industries, and Euzkadi/General Tire de Mexico, a manufacturer of automotive and truck tires. Mr. Chico Pardo has also spent a number of years in the international and investment banking business. Mr. Chico Pardo is a director of IDEAL and AT&T, Inc. He also serves as a Board member of three mutual funds in the American Funds family of mutual funds. He previously served as a director of Grupo Carso, S.A. de C.V. (1991-2010) and the following of its affiliates: CICSA (Carso Infraestructura y Construcción S.A.B. de C.V.) (2008-2011), América Móvil, S.A.B. de C.V. (2001-2009); America Telecom, S.A.B. de C.V. (2001-2006); Carso Global Telecom, S.A. de C.V. (1996-2010); Telmex Internacional, S.A.B. de C.V. (2008-2010); and TELMEX (1991-2010). Mr. Chico Pardo was a director of Honeywell Inc. from September 1998 to December 1999.

 

 

 

*   *   *

 

 

 

Areas of Relevant Experience: Telecommunications; automotive; manufacturing; engineering; construction; management of infrastructure assets; international business, operations and finance.     

 

 

 

Director since 1999

 

Age 62

 

 

 

 

 

DAVID M. COTE, Chairman and Chief Executive Officer of Honeywell International Inc.     

Mr. Cote has been Chairman and Chief Executive Officer since July 2002. He joined Honeywell as President and Chief Executive Officer in February 2002. Prior to joining Honeywell, he served as Chairman, President and Chief Executive Officer of TRW Inc., a provider of products and services for the aerospace, information systems and automotive markets, from August 2001 to February 2002. From February 2001 to July 2001, he served as TRW’s President and Chief Executive Officer and from November 1999 to January 2001 he served as its President and Chief Operating Officer. Mr. Cote was Senior Vice President of General Electric Company and President and Chief Executive Officer of GE Appliances from June 1996 to November 1999. He is also a director of JPMorgan Chase & Co.     

 

 

 

*   *   *

 

 

 

Areas of Relevant Experience: Senior leadership roles in global, multi-industry organizations; ability to drive a consistent One Honeywell approach across a large multi-national organization; detailed knowledge and unique perspective and insights regarding the strategic and operational opportunities and challenges, economic and industry trends, and competitive and financial positioning of the Company and its businesses; significant public policy experience, including service on the bipartisan National Commission on Fiscal Responsibility and Reform and the Bipartisan Policy Center—Energy Project, and as Co-Chair of the U.S.-India CEO Forum.     

 

 

 

Director since 2002

 

Age 59

 

 

 

3


 

 

 

 

 

 

D. SCOTT DAVIS, Chairman and Chief Executive Officer of United Parcel Service, Inc. (UPS)     

Mr. Davis joined UPS, a leading global provider of package delivery, specialized transportation and logistics services in 1986, and has served as Chairman and Chief Executive Officer since January 1, 2008. Prior to this, he served as Vice Chairman since December 2006 and as Senior Vice President, Chief Financial Officer and Treasurer since January 2001. Previously, Mr. Davis held various leadership positions with UPS, primarily in the finance and accounting areas. Prior to joining UPS, he was Chief Executive Officer of II Morrow Inc., a developer of general aviation and marine navigation instruments. Mr. Davis is a Certified Public Accountant. He previously served on the Board of the Federal Reserve Bank of Atlanta (2003-2009), serving as Chairman in 2009.

 

 

 

*   *   *

 

 

 

Areas of Relevant Experience: Transportation and logistics services; international operations, global economic indicators and issues; public policy; financial reporting, accounting and controls.     

 

 

 

Director since 2005

 

Age 60

 

 

 

 

 

LINNET F. DEILY, Former Deputy U.S. Trade Representative and Ambassador     

Ms. Deily was Deputy U.S. Trade Representative and U.S. Ambassador to the World Trade Organization from 2001 to 2005. From 2000 until 2001, she was Vice Chairman of The Charles Schwab Corp. Ms. Deily served as President of the Schwab Retail Group from 1998 until 2000 and President of Schwab Institutional—Services for Investment Managers from 1996 to 1998. Prior to joining Schwab, she was the Chairman of the Board, Chief Executive Officer and President of First Interstate Bank of Texas from 1990 until 1996. She is also a director of Chevron Corporation. Ms. Deily previously served as a director of Alcatel-Lucent (2006-2008) and Lucent Technologies, Inc. (2005-2006).     

 

 

 

*   *   *

 

 

 

Areas of Relevant Experience: International trade; capital markets; banking; corporate finance; government and public policy; telecommunications and information services; refinery and petrochemical industries; financial reporting; accounting and controls.     

 

 

 

Director since 2006

 

Age 66

 

 

 

4


 

 

 

 

 

 

JUDD GREGG, former U.S. Senator from New Hampshire     

Senator Gregg has spent over three decades in public office, most recently serving as the United States Senator from the State of New Hampshire from January 1993 until January 2011. During his tenure in the Senate, Senator Gregg served on a number of key Senate Committees including Budget; Appropriations; Government Affairs; Banking, Housing and Urban Affairs; Commerce, Science and Transportation; Foreign Relations; and Health, Education, Labor and Pensions. He has served as the Chairman and Ranking Member of the Health, Education, Labor and Pensions Committee and the Chairman and Ranking Member of the Senate Budget Committee as well as chairman of various sub-committees. Senator Gregg served as a chief negotiator of the Emergency Economic Stabilization Act of 2008 and was the lead sponsor of the Deficit Reduction Act of 2005, and, along with the late Senator Ted Kennedy, co-authored the No Child Left Behind Act of 2001. In March 2010, Senator Gregg was appointed to President Obama’s bipartisan National Commission on Fiscal Responsibility and Reform. From 1989 to 1993, Senator Gregg was the Governor of New Hampshire and prior to that was a U.S. Representative from 1981 to 1989. He is also a director of IntercontinentalExchange, Inc.     

 

 

 

*   *   *

 

 

 

Areas of Relevant Experience: Government and public policy; financial regulatory reform; banking; tax; capital markets; science, renewable technology and research; environmental protection and conservation; healthcare; foreign policy.     

 

 

 

Director since 2011

 

Age 65

 

 

 

 

 

CLIVE R. HOLLICK, former Partner, Kohlberg Kravis Roberts & Co.     

Lord Hollick joined Kohlberg Kravis Roberts & Co., a private equity firm, in April 2005 as a Managing Director, focusing on investments in the media and financial services sectors, and was appointed Partner in April 2006 and served as Senior Adviser from February 2009 to April 2010. Prior to that time, and beginning in 1996, Lord Hollick was the Chief Executive of United Business Media plc, a London-based, international information, broadcasting, financial services and publishing group. From 1974 to 1996, he held various leadership positions with MAI plc (which merged into United Business Media in 1996) and its predecessor companies. Lord Hollick is also a director of ProSiebenSat.1 Media AG. He previously served as a director of The Nielsen Company B.V. (2008-2009) and Diageo plc (2001-2011).     

 

 

 

*   *   *

 

 

 

Areas of Relevant Experience: International media (information, broadcasting, publishing and online); financial services; marketing and branding; technology and innovation; operating environment and trends in European markets; mergers and acquisitions, including in a private equity context; public policy in the UK and Europe.     

 

 

 

Director since 2003

 

Age 66

 

 

 

5


 

 

 

 

 

 

GEORGE PAZ, Chairman, President and Chief Executive Officer of Express Scripts, Inc.     

Mr. Paz has served as Chairman of the Board of Express Scripts, Inc., a pharmacy benefit management company, since May 2006, as Chief Executive Officer since April 2005 and as President since October 2003. He has served as a director of Express Scripts since January 2004. Mr. Paz joined Express Scripts as Senior Vice President and Chief Financial Officer in January 1998 and continued to serve as its Chief Financial Officer following his election as President until April 2004.     

 

 

 

*   *   *

 

 

 

Areas of Relevant Experience: Tax; financial reporting; accounting and controls; corporate finance; insurance and risk management; mergers and acquisitions; capital markets; government regulation; employee health benefits.     

 

 

 

Director since 2008

 

Age 56

 

 

 

 

 

BRADLEY T. SHEARES, Former Chief Executive Officer of Reliant Pharmaceuticals, Inc., Former President, U.S. Human Health, Merck & Co., Inc.     

Dr. Sheares served as Chief Executive Officer of Reliant Pharmaceuticals, Inc., a pharmaceutical company with integrated sales, marketing and development expertise that marketed a portfolio of branded cardiovascular pharmaceutical products, from January 2007 through its acquisition by GlaxoSmithKline plc in December 2007. Prior to joining Reliant, Dr. Sheares served as President of U.S. Human Health, Merck & Co., Inc. from March of 2001 until July 2006. Prior to that time, he served as Vice President, Hospital Marketing and Sales for Merck’s U.S. Human Health business. Dr. Sheares joined Merck in 1987 as a research fellow in the Merck Research Laboratories and held a wide range of positions within Merck, in business development, sales, and marketing, before becoming Vice President in 1996. He is also a director of The Progressive Corporation, Covance Inc., and Henry Schein, Inc. Dr. Sheares previously served as a director of IMS Health Incorporated (2009-2010).     

 

 

 

*   *   *

 

 

 

Areas of Relevant Experience: Sales and marketing; advertising and promotion; brand management; research and development; healthcare; complex regulatory and legal issues; risk management; mergers and acquisitions.     

 

 

 

Director since 2004

 

Age 55

 

 

 

6


CORPORATE GOVERNANCE

BOARD OF DIRECTORS

The primary functions of Honeywell’s Board of Directors are:

 

 

 

 

To oversee management performance on behalf of shareowners;

 

 

 

 

To ensure that the long-term interests of the shareowners are being served;

 

 

 

 

To monitor adherence to Honeywell standards and policies;

 

 

 

 

To promote the exercise of responsible corporate citizenship; and

 

 

 

 

To perform the duties and responsibilities assigned to the Board by the laws of Delaware, Honeywell’s state of incorporation.

BOARD MEETINGS

The Board of Directors held seven meetings during 2011. The average attendance at meetings of the Board and Board Committees during 2011 was 95%. During this period, all of the directors attended or participated in at least 75% of the aggregate of the total number of meetings of the Board of Directors and the total number of meetings held by all Committees of the Board of Directors on which each such director served.

BOARD LEADERSHIP STRUCTURE

The Board of Directors believes that Mr. Cote’s service as both Chairman of the Board and CEO is in the best interest of the Company and its shareowners. Mr. Cote possesses detailed and in-depth knowledge of the issues, opportunities and challenges facing the Company and its businesses. Considering the size and complexity of the Company, Mr. Cote is best positioned to develop agendas that ensure that the Board’s time and attention are focused on the most critical matters for the Company and its shareowners.

His combined role enables decisive leadership, ensures clear accountability, and enhances the Company’s ability to communicate its message and strategy clearly and consistently to the Company’s shareowners, employees, customers and suppliers, particularly during periods of volatile economic and industry conditions. This has been beneficial in driving a unified “One Honeywell” approach to core operating processes across a global, multi-industry organization of approximately 132,000 employees.

Each of the directors other than Mr. Cote is independent and the Board believes that the independent directors provide effective oversight of management, including the CEO, through:

 

 

 

 

The extensive work of the Board’s Committees—Audit, Corporate Governance and Responsibility, Management Development and Compensation, and Retirement Plans—in key areas such as financial reporting, internal controls, compliance, corporate governance, succession planning and executive compensation;

 

 

 

 

Annual review of the schedule of agenda subjects to be considered by the Board and its Committees in the coming year; each Board and Committee member is free to raise subjects that are not on the agenda at any meeting and to suggest items for inclusion on future agendas;

 

 

 

 

Feedback provided and questions raised by the directors during Board and Committee meetings; and

 

 

 

 

Executive sessions of the independent, non-employee directors; the presiding director for these executive sessions rotates on a meeting-by-meeting basis in accordance with years of service on the Board; following each executive session, the presiding director meets with the Chairman to provide feedback on matters discussed in the executive session and input regarding agenda items, information requests or other suggestions for future Board and Committee meetings.

The Board believes that its approach regarding the presiding director, rather than selection of a single individual to fill that role, more effectively encourages full engagement of all of the independent directors in the executive sessions, avoids unnecessary hierarchy, and appropriately and effectively balances the combined Chairman/CEO role.

Although the Company believes that the combination of the Chairman and CEO roles is appropriate in the current circumstances, Honeywell’s Corporate Governance Guidelines do not establish this approach as a fixed rule but as a matter that is best considered as part of the CEO succession planning process.

7


BOARD COMMITTEES

The Board currently has the following Committees: Audit; Corporate Governance and Responsibility; Management Development and Compensation; and Retirement Plans. Each Committee consists entirely of independent, non-employee directors. See “Director Independence” on pages 11-12. The charter of each Committee of the Board of Directors is available free of charge on our website, www.honeywell.com, under the heading “Investor Relations” (see “Corporate Governance”—“Board Committees”) or by writing to Honeywell, 101 Columbia Road, Morris Township, NJ 07962, c/o Vice President and Corporate Secretary.

The table below lists the current membership of each Committee and the number of Committee meetings held in 2011.

 

 

 

 

 

 

 

 

 

Name

 

Audit

 

Corporate
Governance
and Responsibility

 

Management Development
and Compensation

 

Retirement Plans

 

                                                       

Mr. Bethune

 

 

 

 

 

 

 

 

X

 

 

 

 

X

 

 

 

 

                                                       

Mr. Burke

 

 

 

X

 

 

 

 

 

 

 

 

X

 

 

                                                       

Mr. Chico Pardo

 

 

 

 

 

X

 

 

 

 

 

 

 X*

 

 

 

                                                       

Mr. Davis

 

 

 

X

 

 

 

 

 

 

X*

 

 

 

 

 

                                                       

Ms. Deily

 

 

 

X

 

 

 

 

 X*

 

 

 

 

 

 

 

                                                       

Mr. Gregg

 

 

 

X

 

 

 

 

X

 

 

 

 

 

 

                                                       

Mr. Hollick

 

 

 

 

 

 

 

X

 

 

 

 

X

 

 

                                                       

Mr. Paz

 

 

 

X

*

 

 

 

 

X

 

 

 

 

 

 

                                                       

Dr. Sheares

 

 

 

 

 

 

 

X

 

 

 

 

X

 

 

                                                       

2011 Meetings

 

 

 

9

 

 

 

 

4

 

 

 

 

6

 

 

 

 

3

 

 

*

 

 

 

Committee Chairperson

The primary functions of each of the Board Committees are described below.

Audit Committee

The primary functions of this Committee are to: appoint (subject to shareowner approval), and be directly responsible for, the compensation, retention and oversight of, the firm that will serve as independent accountants to audit our financial statements and to perform services related to the audit (including the resolution of disagreements between management and the independent accountants regarding financial reporting); review the scope and results of the audit with the independent accountants; review with management and the independent accountants, prior to the filing thereof, the annual and interim financial results (including Management’s Discussion and Analysis) to be included in Forms 10-K and 10-Q, respectively; consider the adequacy and effectiveness of our internal accounting controls and auditing procedures; review, approve and thereby establish procedures for the receipt, retention and treatment of complaints received by Honeywell regarding accounting, internal accounting controls or auditing matters and for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters; review material legal and compliance matters and the effectiveness of the Company’s integrity and compliance program; and consider the accountants’ independence. The Committee seeks to ensure the exercise of appropriate professional skepticism by the independent accountants by reviewing and discussing, among other things, management and auditor reports regarding significant estimates and judgments and the results of peer quality review and PCAOB inspections of the independent accountants, as well as review and pre-approval of all audit and non-audit services to be provided to Honeywell by the independent accountants in order to determine that such services would not adversely impact auditor independence and objectivity. The Committee also holds separate executive sessions at each in-person meeting with representatives of PricewaterhouseCoopers LLP, our independent accountants, and with Honeywell’s Chief Financial Officer and Vice President—Corporate Audit. The Board has determined that Mr. Paz, Mr. Burke, Mr. Davis and Ms. Deily satisfy the “accounting or related financial management expertise” requirements set forth in the NYSE Corporate Governance Rules, and has designated Mr. Paz as the “audit committee financial expert”, as such term is defined by the SEC. See page 69 for the Audit Committee Report.

8


Corporate Governance and Responsibility Committee

The primary functions of this Committee are to: identify and evaluate potential Director candidates and recommend to the Board the nominees to be proposed by the Company for election to the Board; review and make a recommendation to the Board regarding whether to accept a resignation tendered by a Board nominee who does not receive a majority of votes cast for his or her election in an uncontested election of directors; review annually and recommend changes to the Corporate Governance Guidelines; lead the Board in its annual review of the performance of the Board and its Committees; review policies and make recommendations to the Board concerning the size and composition of the Board, the qualifications and criteria for election to the Board, retirement from the Board, compensation and benefits of non-employee directors, the conduct of business between Honeywell and any person or entity affiliated with a director, and the structure and composition of Board Committees; and review Honeywell’s policies and programs relating to health, safety and environmental matters, equal employment opportunity and such other matters, including the Company’s Code of Business Conduct, as may be brought to the attention of the Committee regarding Honeywell’s role as a responsible corporate citizen. See “Identification and Evaluation of Director Candidates” on pages 12-13 and “Director Compensation” on pages 14-16.

Management Development and Compensation Committee

The Company’s executive compensation program is administered by the Management Development and Compensation Committee. Each member of the Committee qualifies as an outside director within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (“Internal Revenue Code”). The primary functions of this Committee are to: evaluate and approve executive compensation plans, policies and programs, including review and approval of executive compensation-related corporate goals and objectives; review and approve the individual goals and objectives of the Company’s executive officers; evaluate the CEO’s performance relative to established goals and objectives and, together with the other independent directors, determine and approve the CEO’s compensation level; review and determine the annual salary and other remuneration (including under incentive compensation and equity-based plans) of all other officers; review and discuss with management, the Compensation Discussion and Analysis and other executive compensation disclosure included in this proxy statement; produce the annual Committee Report included in this proxy statement; review the management development program, including executive succession plans; and review or take such other action as may be required in connection with the bonus, stock and other benefit plans of Honeywell and its subsidiaries. See page 47 for the Management Development and Compensation Committee Report.

Role of Consultant

The Committee has sole authority to retain and terminate a compensation consultant to assist in the evaluation of CEO or senior executive compensation. Under the Committee’s established policy, its consultant cannot provide any other services to the Company. Since October 2009, the Committee has retained Pearl Meyer & Partners as its independent compensation consultant.

The consultant compiles information and provides advice regarding the components and mix (short-term/long-term; fixed/variable; cash/equity) of the executive compensation programs of the Company and its “Compensation Peer Group” (see pages 29-30 of this proxy statement for further detail regarding the Compensation Peer Group) and analyzes the relative performance of the Company and the Compensation Peer Group with respect to the financial metrics generally used in the programs. The consultant also provides information regarding emerging trends and best practices in executive compensation. In addition to information compiled by the consultant, the Committee also reviews general survey data compiled and published by third parties; neither the Committee nor the Company has any input into the scope of or the companies included in these third party surveys.

While the Committee reviews information provided by its consultant regarding compensation paid by the Compensation Peer Group, as well as third party survey data, as a general indicator of relevant market conditions, the Committee does not target a specific competitive position relative to the market in making its compensation determination. See “Peer Group Compensation Data” on pages 29-30 of this proxy statement for further discussion.

9


The consultant retained by the Committee reports to the Committee Chair and has direct access to Committee members. The consultant attends Committee meetings either in person or by telephone, and meets with the Committee in executive session without management present.

Input From Senior Management

The Committee considers input from senior management in making determinations regarding the overall executive compensation program and the individual compensation of the executive officers. As part of the Company’s annual planning process, the CEO, CFO and Senior Vice President—Human Resources and Communications develop targets for the Company’s incentive compensation programs and present them to the Committee. These targets are reviewed by the Committee to ensure alignment with the Company’s strategic and annual operating plans, taking into account the targeted year-over-year and multi-year improvements as well as identified opportunities and risks. Based on performance appraisals, including an assessment of the achievement of pre-established financial and non-financial management objectives, together with a review of supplemental performance measures and prior compensation levels relative to performance, the CEO recommends base salary adjustments and cash and equity incentive award levels for the Company’s other executive officers. See “Compensation Discussion and Analysis” beginning on page 21 of this proxy statement for additional discussion. Each year, the CEO presents to the Committee and the full Board his evaluation of each executive officer’s contribution and performance over the past year, strengths and development needs and actions, and reviews succession plans for each of the executive officers.

Retirement Plans Committee

The primary functions of this Committee are to: appoint the trustees for funds of the employee pension benefit plans of Honeywell and certain subsidiaries; review funding strategies; review investment policy for fund assets; and oversee members of the committees that direct the investment of pension fund assets.

BOARD’S ROLE IN RISK OVERSIGHT

While senior management has primary responsibility for managing risk, the Board as a whole has responsibility for risk oversight, with review of certain areas being conducted by the relevant Board Committees that in turn report on their deliberations to the Board. The Board works with senior management to develop a broad portfolio view that considers and balances risk-taking for sustainable growth and competitive advantage in a manner consistent with the Company’s long-term strategic plan with actions necessary to preserve assets and protect against losses. The oversight responsibility of the Board and its Committees is enabled by management reporting processes that are designed to provide visibility to the Board about the identification, assessment and management of critical risks and management’s risk mitigation strategies and enable informed decision-making and intelligent risk-taking. These areas of focus include strategic, competitive, economic, operational, financial (accounting, credit, liquidity, and tax), legal, regulatory compliance, health, safety and environment, political, and reputational risks.

The Board and the Audit Committee review the Company’s enterprise risk management program at least annually. Throughout the year, management regularly communicates with the Board and its Committees regarding the identification, assessment and mitigation of specific risks. The Board and its Committees oversee risks associated with their respective principal areas of focus, as summarized below. Each Committee meets in executive session with key management personnel and representatives of outside advisors (for example, the Vice President—Corporate Audit meets in executive session with the Audit Committee).

 

 

 

Board/Committee

 

Primary Areas of Risk Oversight

Full Board

 

Strategic, financial and execution risks and exposures associated with the annual operating plan, and five-year strategic plan (including matters affecting capital allocation); major litigation and regulatory exposures and other current matters that may present material risk to the Company’s operations, plans, prospects or reputation; acquisitions and divestitures (including through post-closing reviews); senior management succession planning.

 

 

10


 

 

 

Board/Committee

 

Primary Areas of Risk Oversight

Audit Committee

 

Risks and exposures associated with financial reporting, tax, accounting, disclosure, internal control over financial reporting, financial policies, investment guidelines, credit and liquidity and legal and compliance matters.

Corporate Governance and Responsibility
Committee

 


Risks and exposures relating to Honeywell’s programs and policies relating to corporate governance; director succession planning; diversity; health, safety, and environment.

Management Development and Compensation
Committee

 


Risks and exposures associated with leadership assessment, management succession planning, and executive compensation programs and arrangements, including incentive plans.

 

Retirement Plans Committee.

 

Risks and exposures associated with Honeywell’s employee pension and savings plans, including their relative investment performance, asset allocation strategies and funded status.

DIRECTOR INDEPENDENCE

The Company’s Corporate Governance Guidelines state that the “Board intends that, at all times, a substantial majority of its directors will be considered independent under relevant NYSE and SEC guidelines.” The Corporate Governance and Responsibility Committee conducts an annual review of the independence of the members of the Board and its Committees and reports its findings to the full Board. Based on the report and recommendation of the Corporate Governance and Responsibility Committee, the Board has determined that each of the non-employee nominees standing for election to the Board at the Annual Meeting—Messrs. Bethune, Burke, Chico Pardo, Davis, Gregg, Hollick, Paz, and Sheares and Ms. Deily—satisfies the independence criteria (including the enhanced criteria with respect to members of the Audit Committee) set forth in the applicable NYSE listing standards and SEC rules. Each Board Committee member qualifies as a non-employee director within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

For a director to be considered independent, the Board must determine that the director does not have any direct or indirect material relationships (including vendor, supplier, consulting, legal, banking, accounting, charitable and family relationships) with Honeywell, other than as a director and shareowner. NYSE listing standards also impose certain per se bars to independence, which are based upon a director’s relationships with Honeywell currently and during the three years preceding the Board’s determination of independence.

The Board considered all relevant facts and circumstances in making its determinations, including the following:

 

 

 

 

No non-employee director or nominee receives any direct compensation from Honeywell other than under the director compensation program described on pages 14-16 of this proxy statement.

 

 

 

 

No immediate family member (within the meaning of the NYSE listing standards) of any non-employee director or nominee is an employee of Honeywell or otherwise receives direct compensation from Honeywell.

 

 

 

 

No non-employee director or nominee is an employee of Honeywell’s independent accountants and no non-employee director or nominee (or any of their respective immediate family members) is a current partner of Honeywell’s independent accountants, or was within the last three years, a partner or employee of Honeywell’s independent accountants and personally worked on Honeywell’s audit.

 

 

 

 

No non-employee director or nominee is a member, partner, or principal of any law firm, accounting firm or investment banking firm that receives any consulting, advisory or other fees from Honeywell.

11


 

 

 

 

No Honeywell executive officer is on the compensation committee of the board of directors of a company that employs any of our non-employee directors or nominees (or any of their respective immediate family members) as an executive officer.

 

 

 

 

No non-employee director or nominee (or any of their respective immediate family members) is indebted to Honeywell, nor is Honeywell indebted to any non-employee director or nominee (or any of their respective immediate family members).

 

 

 

 

No non-employee director or nominee serves as an executive officer of a charitable or other tax-exempt organization that received contributions from Honeywell.

 

 

 

 

Honeywell has commercial relationships (purchase and/or sale of products and services) with companies at which our directors serve, or during the last completed fiscal year served, as officers (UPS and Con Edison). In each case, (i) the relevant products and services were provided on terms and conditions determined on an arm’s-length basis and consistent with those provided by or to similarly situated customers and suppliers; (ii) the relevant director did not initiate or negotiate the relevant transaction, each of which was in the ordinary course of business of both companies, and (iii) the combined amount of such purchases and sales was less than 0.5% of the consolidated gross revenues of each of Honeywell and the other company in each of the last three completed fiscal years. This level is significantly below the relevant per se bar to independence set forth in the NYSE listing standards, which uses a 2% of total revenue threshold and applies it to each of purchases and sales rather than the combination of the two.

 

 

 

 

While a non-employee director’s or nominee’s service as an outside director of another company with which Honeywell does business is not within the NYSE per se independence bars and would generally not be expected to raise independence issues, the Board also considered those relationships and confirmed the absence of any material commercial relationships with any such company. Specifically, those commercial relationships were in the ordinary course of business for Honeywell and the other companies involved and were on terms and conditions available to similarly situated customers and suppliers.

The above information was derived from the Company’s books and records and responses to questionnaires completed by the director nominees in connection with the preparation of this proxy statement.

IDENTIFICATION AND EVALUATION OF DIRECTOR CANDIDATES

The Board has determined that its Corporate Governance and Responsibility Committee shall, among other responsibilities, serve as the nominating committee. The Committee consists entirely of independent directors under applicable SEC rules and NYSE listing standards. The Committee operates under a written charter adopted by the Board of Directors. A copy of the charter is available free of charge on our website www.honeywell.com, under the heading “Investor Relations” (see “Corporate Governance”—“Board Committees”), or by writing to Honeywell, 101 Columbia Road, Morris Township, New Jersey 07962, c/o Vice President and Corporate Secretary. The Committee is charged with seeking individuals qualified to become directors, evaluating the qualifications of individuals suggested or nominated by third parties, and recommending to the Board the nominees to be proposed by the Company for election to the Board and actions with respect to individuals nominated by third parties. The Committee considers director candidates in anticipation of upcoming director elections and other potential or expected Board vacancies.

The Committee considers director candidates suggested by members of the Committee, other directors, senior management and shareowners. The Committee has retained, at the expense of the Company, a search firm to identify potential director candidates, and is also authorized to retain other external advisors for specific purposes, including performing background reviews of potential candidates. The search firm retained by the Committee has been provided guidance as to the particular experience, skills and other characteristics that the Board is seeking. The Committee has delegated responsibility for day-to- day management and oversight of the search firm engagement to the Company’s Senior Vice President—Human Resources and Communications.

Preliminary interviews of director candidates may be conducted by the Chairman of the Committee or, at his request, any other member of the Committee, the Chairman of the Board and/or a representative of the search firm retained by the Committee. Background material pertaining to director candidates is distributed to the members of the Committee for their review. Director candidates whom the Committee determines merit further consideration are interviewed by the Chairman of the Committee and such other Committee members, directors and key senior management personnel as determined by the Chairman of the Committee. The results of these interviews are considered by the Committee in its deliberations.

12


The Committee annually reviews with the Board the requisite skills and characteristics of Board members, as well as the composition of the Board as a whole. This assessment includes a consideration of independence, diversity, age, skills, experience and industry backgrounds in the context of the needs of the Board and the Company, as well as the ability of current and prospective directors to devote sufficient time to performing their duties in an effective manner. Directors are expected to exemplify the highest standards of personal and professional integrity; and to constructively challenge management through their active participation and questioning. In particular, the Committee seeks directors with established strong professional reputations and expertise in areas relevant to the strategy and operations of the Company’s businesses. While the Company’s Corporate Governance Guidelines do not prescribe a diversity policy or standards, as a matter of practice, the Committee takes into account diversity considerations in the context of the Board as a whole and takes into account the personal characteristics (gender, ethnicity, age) and experience (industry, professional, public service) of current and prospective directors to facilitate Board deliberations that reflect a broad range of perspectives. The Committee conducts regular reviews of current directors in light of the considerations described above and their past contributions to the Board.

Shareowners wishing to recommend a director candidate to the Committee for its consideration should write to the Committee, in care of Vice President and Corporate Secretary, Honeywell, 101 Columbia Road, Morris Township, New Jersey 07962. To receive meaningful consideration, a recommendation should include the candidate’s name, biographical data, and a description of his or her qualifications in light of the above criteria. Shareowners wishing to nominate a director should follow the procedures set forth in the Company’s By-laws and described under “Director Nominations” on page 80 of this proxy statement.

The Company did not receive any recommendation of a director candidate from a shareowner, or group of shareowners, that beneficially owned more than 5% of Honeywell’s common stock (“Common Stock”) for at least one year as of the date of recommendation.

PROCESS FOR COMMUNICATING WITH BOARD MEMBERS

Interested parties may communicate directly with the presiding director for an upcoming meeting or the non-employee directors as a group by writing to Honeywell, 101 Columbia Road, Morris Township, New Jersey 07962, c/o Vice President and Corporate Secretary. Communications may also be sent to individual directors at the above address. The Corporate Secretary of the Company reviews and promptly forwards communications to the directors as appropriate. Communication involving substantive accounting or auditing matters are forwarded to the Chair of the Audit Committee. Certain items that are unrelated to the duties and responsibilities of the Board will not be forwarded such as: business solicitation or advertisements; product or service related inquires; junk mail or mass mailings; resumes or other job related inquires; spam and overly hostile, threatening, potentially illegal or similarly unsuitable communications.

DIRECTOR ATTENDANCE AT ANNUAL MEETINGS

The Company has no specific policy regarding director attendance at its Annual Meeting of Shareowners. Generally, however, Board and Committee meetings are held immediately preceding and following the Annual Meeting of Shareowners, with directors attending the Annual Meeting. All of the directors attended last year’s Annual Meeting of Shareowners.

13


DIRECTOR COMPENSATION

The Corporate Governance and Responsibility Committee reviews and makes recommendations to the Board regarding the form and amount of compensation for non-employee directors. Directors who are employees of Honeywell receive no compensation for service on the Board. Honeywell’s director compensation program is designed to enable continued attraction and retention of highly qualified directors by ensuring that director compensation is in line with peer companies competing for director talent, and is designed to address the time, effort, expertise and accountability required of active Board membership. In general, the Corporate Governance and Responsibility Committee and the Board believe that annual compensation for non-employee directors should consist of both a cash component, designed to compensate members for their service on the Board and its Committees, and an equity component, designed to align the interests of directors and shareowners and, by vesting over time, to create an incentive for continued service on the Board.

Annual Compensation

Each non-employee director receives an annual Board cash retainer of $80,000. Each also receives a cash fee of $2,500 for each Board meeting attended, an annual cash retainer of $10,000 for each Board Committee on which he or she serves ($15,000 for Audit Committee), and an additional Committee Chair cash retainer of $15,000 for the Audit Committee and $10,000 for all other Board Committees. While no fees are generally paid for attending Committee meetings, a $1,000 cash fee is paid for attendance at a Committee meeting, or other extraordinary meeting related to Board business, which occurs apart from a regularly scheduled Board meeting.

At the commencement of each year, $60,000 in Common Stock equivalents is automatically credited to each director’s account in the Deferred Compensation Plan for Non-Employee Directors, which amounts are only payable after termination of Board service, and are paid, in cash, as either a lump sum or in equal annual installments.

In 2011, each non-employee director received an annual grant of options to purchase 5,000 shares of Common Stock at a price per share equal to the fair market value of a share of Common Stock on the date of grant, which is the date of the Annual Meeting of Shareowners. These options vest in equal annual installments over the four years following the grant date. These options also become fully vested at the earliest of the director’s retirement from the Board on or after the mandatory retirement age set by the Board and in effect on the date of grant (age 72), death, disability or change in control, as set forth in the 2006 Stock Plan for Non-Employee Directors of Honeywell (the “Non-Employee Director Plan”) and the relevant award agreements. In 2012, the annual equity grant will change from a fixed number of shares (5,000) to a target value of $75,000 and will consist of 50% options (which will vest as described above) and 50% restricted stock units (“RSUs”) (which will vest on the earliest of the third anniversary of the date of grant, the director’s death or disability, or change in control).

Deferred Compensation

A non-employee director may also elect to defer, until a specified calendar year or termination of Board service, all or any portion of his or her annual cash retainers and fees that are not automatically deferred, and to have such compensation credited to his or her account in the Deferred Compensation Plan for Non-Employee Directors. Amounts credited either accrue interest (3.84% for 2011 and set at 3.65% for 2012) or are valued as if invested in a Honeywell Common Stock fund or one of the other funds available to participants in our employee savings plan. The unit price of the Honeywell Common Stock fund is increased to take dividends into account. Upon a change of control, as defined in the Non-Employee Director Plan, a director may receive, pursuant to a prior election, a lump-sum payment for amounts deferred before 2006.

The non-employee directors of the Company who were previously non-employee directors of Honeywell Inc. (Messrs. Bethune and Chico Pardo) participate in the legacy Honeywell Inc. Non-Employee Directors Fee and Stock Unit Plan. The last fee deferral under this plan occurred on December 1, 1999. Since that date, deferred amounts are increased only by cash dividends that are converted into shares of Common Stock by dividing the cash amount by the closing price of the Common Stock on the dividend payment date. Payment will be made to a participating director in whole shares of Common Stock following the earlier of a change in control or the director’s termination of Board service for any reason. Fractional shares will be paid in cash. Share payments will be made to a participating director in one payment or annual installments, as elected by the director. A director may elect to change the payment form if such election is made at least one year prior to the payment date.

14


Other Benefits

Non-employee directors are also provided with $350,000 in business travel accident insurance. They are also eligible to elect to receive $100,000 in term life insurance and medical and dental coverage for themselves and their eligible dependents that is consistent with similar coverage offered to the Company’s active salaried employees. In September 2008, the Board determined that new directors would be responsible for paying premiums for term life insurance and medical and dental coverage which they elected to receive. Honeywell also matches, dollar for dollar, any charitable contribution made by a director to any qualifying educational institution or charity, up to a maximum of $25,000 in the aggregate per director, per calendar year. In addition, directors may use the Company aircraft for travel to and from Board and Committee meetings.

Restricted Stock Unit Grant Upon Election to Board

New non-employee directors receive a one-time grant of 3,000 RSUs upon their election to the Board that vest on the earliest of the fifth anniversary of continuous Board service, death, disability or change in control. During this period, the director will receive dividend equivalents that will be automatically reinvested into additional RSUs which vest according to the same schedule as the underlying RSUs to which they relate. The director may defer the receipt of the RSUs on substantially the same terms and conditions as officers of the Company with respect to new grants of RSUs.

Stock Ownership Guidelines

Director stock ownership guidelines have been adopted under which each non-employee director, while serving as a director of the Company, must (i) hold Common Stock (including restricted shares and RSUs and/or Common Stock equivalents) with a market value of at least five times the annual cash retainer (or $400,000; up from the previous threshold of $300,000 through December 31, 2011) and (ii) hold net gain shares from option exercises for one year. “Net gain shares” means the number of shares obtained by exercising the option, less the number of shares the director sells to cover the exercise price of the options and pay applicable taxes. Directors have five years from election to the Board to attain the prescribed ownership threshold. All current directors have attained the prescribed ownership threshold.

Director Compensation—Fiscal Year 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

Director Name

 

Fees
Earned or
Paid Cash  
(1)
($)

 

Stock
Awards  
(2)(3)
($)

 

Option
Awards  
(3)(4)
($)

 

Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings  
(5)
($)

 

All Other
Compensation  
(6)
($)

 

Total
($)

Gordon Bethune

 

 

$

 

179,500

   

 

 

$

 

68,100

 

 

 

$

 

38,651

 

 

 

$

 

4

 

 

 

$

 

286,255

 

Kevin Burke

 

 

$

 

184,500

   

 

 

$

 

68,100

 

 

 

 

 

 

 

$

 

25,004

 

 

 

$

 

277,604

 

Jaime Chico Pardo

 

 

$

 

186,000

   

 

 

$

 

68,100

 

 

 

 

 

 

 

$

 

26,301

 

 

 

$

 

280,401

 

D. Scott Davis

 

 

$

 

197,500

   

 

 

$

 

68,100

 

 

 

$

 

2,342

 

 

 

$

 

1,125

 

 

 

$

 

269,067

 

Linnet Deily

 

 

$

 

199,167

   

 

 

$

 

68,100

 

 

 

 

 

 

 

$

 

31,884

 

 

 

$

 

299,151

 

Judd Gregg

 

 

$

 

127,000

   

$181,410

 

 

$

 

68,100

 

 

 

 

 

 

 

$

 

25,004

 

 

 

$

 

401,514

 

Clive Hollick

 

 

$

 

177,500

   

 

 

$

 

68,100

 

 

 

$

 

2,587

 

 

 

$

 

37,449

 

 

 

$

 

285,636

 

George Paz

 

 

$

 

197,500

   

 

 

$

 

68,100

 

 

 

 

 

 

 

$

 

25,004

 

 

 

$

 

290,604

 

Bradley Sheares

 

 

$

 

176,000

   

 

 

$

 

68,100

 

 

 

$

 

4,923

 

 

 

$

 

25,723

 

 

 

$

 

274,746

 

Michael Wright*

 

 

$

 

102,833

   

 

 

$

 

68,100

 

 

 

 

 

 

 

$

 

28,436

 

 

 

$

 

199,369

 


 

 

*

 

 

 

Mr. Wright retired from the Board at the 2011 Annual Meeting

 

(1)

 

 

 

Includes all fees earned, whether paid in cash or deferred under the Deferred Compensation Plan for Non-Employee Directors (including amounts treated as deferred in the Honeywell Common Stock fund).

 

(2)

 

 

 

Reflects RSUs granted to Mr. Gregg upon his election to the Board in 2011 with a value of $60.47 per share.

15


 

(3)

 

 

 

The table below reflects all outstanding stock awards and option awards held at December 31, 2011 by each of the listed individuals.

 

 

 

 

 

Director Name

 

Outstanding
Stock Awards at 12/31/11

 

Outstanding Option
Awards at 12/31/11

Mr. Bethune

 

 

 

 

 

 

 

44,000

 

Mr. Burke

 

 

 

3,000

 

 

 

 

10,000

 

Mr. Chico Pardo

 

 

 

 

 

 

 

44,000

 

Mr. Davis

 

 

 

 

 

 

 

30,000

 

Ms. Deily

 

 

 

 

 

 

 

30,000

 

Mr. Gregg

 

 

 

3,000

 

 

 

 

5,000

 

Mr. Hollick

 

 

 

 

 

 

 

40,000

 

Mr. Paz

 

 

 

3,000

 

 

 

 

15,000

 

Dr. Sheares

 

 

 

 

 

 

 

35,000

 

Mr. Wright

 

 

 

 

 

 

 

41,000

 


 

 

(4)

 

 

 

The amounts set forth in this column represent the aggregate grant date fair value of option awards computed in accordance with FASB ASC Topic 718. The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. Option awards for non-employee directors were made in April 2011 with a Black-Scholes value of $13.62 per share. A more detailed discussion of the assumptions used in the valuation of option awards made in fiscal year 2011 may be found in Note 20 of the Notes to the Financial Statements in the Company’s Form 10-K for the year ended December 31, 2011.

 

(5)

 

 

 

Amounts included in this column reflect above-market earnings on deferred compensation. Amounts invested in cash under the Deferred Compensation Plan for Non-Employee Directors are credited with the same rate of interest that applies to executives under the Honeywell Salary and Incentive Award Deferral Plan for Selected Employees. Deferrals for the 2006 plan year and later earn a rate of interest, compounded daily, based on the Company’s 15-year cost of borrowing. The rate is subject to change annually. For 2011, this rate was 3.84%, and is set at 3.65% for 2012. Deferrals for the 2005 plan year earn a rate of interest, compounded daily, which was set at an above-market rate before the beginning of the plan year and is subject to change annually. Deferrals for the 2004 plan year and prior plan years earn a rate of interest, compounded daily, that was set at an above-market rate before the beginning of each plan year. This rate is fixed until the deferral is distributed.

 

(6)

 

 

 

See “Director Compensation”—“Other Benefits” above for a description of the items included in the All Other Compensation column for 2011. Honeywell matched charitable contributions in the amounts of:

 

 

 

Director Name

 

Matched Charitable Contributions

Mr. Burke

 

 

$

25,000

 

Mr. Chico Pardo

 

 

$

25,000

 

Ms. Deily

 

 

$

25,000

 

Mr. Gregg

 

 

$

25,000

 

Mr. Hollick

 

 

$

25,000

 

Mr. Paz

 

 

$

25,000

 

Dr. Sheares

 

 

$

25,000

 

Mr. Wright

 

 

$

25,000

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Applicable Policies and Procedures

The Company has written policies and procedures for approval or ratification of related person transactions. Article EIGHTH of Honeywell’s Amended and Restated Certificate of Incorporation provides that a related or interested party transaction shall not be void or voidable if such transaction is duly authorized or ratified by a majority of the disinterested members of the Board of Directors. Consistent with SEC rules, a related or interested party transaction includes a transaction between the Company and a director, director nominee or executive officer of the Company or a beneficial owner of more than 5% of the Company’s Common Stock or any of their respective immediate family members. Furthermore, the Honeywell Code of Business Conduct requires that each director and executive officer report to the Board of Directors on an ongoing basis any relationship or transaction that may create or appear to create a conflict between the personal interests of those individuals (or their

16


immediate family members) and the interests of the Company. A conflict, or appearance of a conflict, might arise, for example, by accepting gifts or loans from a current or potential customer, supplier or competitor, owning a financial interest in, or serving in a business capacity with, an outside enterprise that competes with or does or wishes to do business with, the Company, serving as an intermediary for the benefit of a third party in transactions involving the Company or using confidential Company information or other corporate assets for personal profit.

If a conflict of interest or related party transaction is of a type or a nature that falls within the scope of oversight of a particular Board Committee, it is referred to that Committee for review. The Board or the responsible Committee thereof must review any potential conflict and determine whether any action is required, including whether to authorize, ratify or direct the unwinding of the relationship or transaction under consideration, as well as ensure that appropriate controls are in place to protect the Company and its shareowners. In making that determination, the Board or responsible Committee considers all relevant facts and circumstances, such as the benefits of the transaction to the Company; the terms of the transaction and whether they are arm’s-length and in the ordinary course of the Company’s business; the direct or indirect nature of the related person’s interest in the transaction; the size and expected term of the transaction; and other facts and circumstances that bear on the materiality of the related person transaction under applicable law and listing standards.

In order to ensure that all material relationships and related person transactions have been identified, reviewed and disclosed in accordance with applicable policies, procedures and regulations, each director and officer also completes and signs a questionnaire at the end of each fiscal year that requests confirmation that there are no material relationships or related person transactions between such individuals and the Company other than those previously disclosed to the Company.

Related Person Transaction

The Honeywell ADI business leases its administrative office building in Melville, New York at a current rent of $1,002,085 per year. Subsequent to the time that ADI entered into this lease, the property was acquired by a partnership known as “New Island Holdings.” There have been no material amendments to the lease since the property was acquired by New Island Holdings. Each of Mr. Fradin, President and Chief Executive Officer, Honeywell Automation and Control Solutions and Mr. Kramvis, President and Chief Executive Officer, Honeywell Performance Materials and Technologies, is a limited partner in New Island Holdings, holding 12% and 9% ownership interests, respectively. The limited partners of New Island Holdings receive distributions based on total lease payments generated from the portfolio of buildings that the partnership owns, less applicable mortgage and other expenses.

STOCK OWNERSHIP INFORMATION

Five Percent Owners of Company Stock

The following table sets forth information as to those holders known to Honeywell to be the beneficial owners of more than 5% of the outstanding shares of Common Stock as of December 31, 2011. State Street Corporation is listed in the table below because one of its subsidiaries (State Street Bank and Trust Company) holds 6.5% of our outstanding Common Stock as trustee for certain Honeywell savings plans. See notes below for additional details.

 

 

 

 

 

Name and Complete Mailing Address

 

Number of
Shares

 

Percent of
Common Stock
Outstanding

State Street Corporation.

 

 

 

77,193,567  

(1)

 

 

 

 

10.0%  

(2)

 

State Street Financial Center,

 

 

 

 

One Lincoln Street, Boston, MA 02111

 

 

 

 

BlackRock Inc.

 

 

 

41,427,908  

(3)

 

 

 

 

5.36%

 

40 East 52nd Street, New York, NY 10022

 

 

 

 


 

 

(1)

 

 

 

State Street Corporation has shared voting power and shared dispositive power in each case in respect of the 77,193,567 shares listed above.

 

 

 

 

 

State Street Bank and Trust Company, a subsidiary of State Street Corporation, has shared voting power and shared dispositive power in each case in respect of 63,095,262 shares included above.

17


 

(2)

 

 

 

State Street Bank and Trust Company holds 6.5% of our outstanding Common Stock as trustee for certain Honeywell savings plans. Under the terms of the plans, State Street is required to vote shares attributable to any participant in accordance with instructions received from the participant and to vote all shares for which it does not receive instructions in the same ratio as the shares for which instructions were received.

 

(3)

 

 

 

BlackRock Inc. has sole voting power and sole dispositive power in respect of all 41,427,908 shares.

Stock Ownership of Directors and Executive Officers

The following table sets forth information as of February 23, 2012 with respect to the beneficial ownership of Common Stock by each director or director nominee, each executive officer named in the Summary Compensation Table herein, and by all directors (including nominees) and executive officers of Honeywell as a group. Except as otherwise noted, the individuals listed in the table below have the sole power to vote or transfer the shares reflected in the table.

 

 

 

 

 

 

 

 

 

Name  (1)

 

Total Number
of Shares  
(2)

 

Components of Beneficial Ownership
(Number of Shares)

 

Common Stock
Beneficially
Owned

 

Right
to
Acquire  
(3)

 

Other
Stock-Based
Holdings  
(4)

Gordon M. Bethune

 

 

 

59,560

 

 

 

 

3,000

 

 

 

 

36,500

 

 

 

 

20,060

 

Kevin Burke.

 

 

 

15,577

 

 

 

 

8,000

 

 

 

 

3,750

 

 

 

 

3,827

 

Jaime Chico Pardo

 

 

 

76,258

 

 

 

 

15,401

 

 

 

 

36,500

 

 

 

 

24,357

 

David M. Cote

 

 

 

6,101,086

 

 

 

 

354,550

 

 

 

 

5,392,141

 

 

 

 

354,395

 

D. Scott Davis

 

 

 

44,608

 

 

 

 

11,000

 

 

 

 

22,500

 

 

 

 

11,108

 

Linnet F. Deily

 

 

 

35,052

 

 

 

 

3,000

 

 

 

 

22,500

 

 

 

 

9,552

 

Judd Gregg

 

 

 

6,901

 

 

 

 

2,000

 

 

 

 

1,250

 

 

 

 

3,651

 

Clive R. Hollick

 

 

 

51,520

 

 

 

 

3,000

 

 

 

 

32,500

 

 

 

 

16,020

 

George Paz

 

 

 

14,497

 

 

 

 

1,000

 

 

 

 

7,500

 

 

 

 

5,997

 

Bradley T. Sheares

 

 

 

42,635

 

 

 

 

2,212

 

 

 

 

27,500

 

 

 

 

12,923

 

David J. Anderson

 

 

 

1,721,405

 

 

 

 

16,571

 

 

 

 

1,474,500

 

 

 

 

230,334

 

Roger Fradin

 

 

 

1,584,180

 

 

 

 

128,875

 

 

 

 

1,337,500

 

 

 

 

117,805

 

Timothy Mahoney

 

 

 

328,011

 

 

 

 

32,350

 

 

 

 

291,980

 

 

 

 

3,681

 

Andreas Kramvis

 

 

 

509,885

 

 

 

 

37,067

 

 

 

 

468,500

 

 

 

 

4,318

 

All directors, nominees and executive officers as a group, including the above-named persons (19 people)

 

 

 

12,007,561

 

 

 

 

729,137

 

 

 

 

10,454,386

 

 

 

 

824,038

 


 

 

(1)

 

 

 

c/o Honeywell International Inc., 101 Columbia Road, Morris Township, New Jersey 07962.

 

(2)

 

 

 

The total beneficial ownership for any individual is less than 1% and the total for the group is approximately 1.55% of the shares of Common Stock outstanding.

 

(3)

 

 

 

Includes shares which the named individual or group has the right to acquire through the exercise of vested stock options, and shares which the named individual or group has the right to acquire through the vesting of performance shares, RSUs and stock options within 60 days of February 23, 2012.

 

(4)

 

 

 

Includes shares and/or share-equivalents in deferred accounts, as to which no voting or investment power exists.

Executive officers and directors generally hold stock options until close to the expiration of the ten-year term and generally exercise their options within approximately twelve months of the expiration date. The net gain shares are then held for at least one year in accordance with the Company’s stock ownership guidelines. The only option exercises with respect to executive officers and directors in 2011 were those approaching expiration. Moreover, two directors purchased shares in the market in 2011.

18


SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires our directors, executive officers, and persons who own more than 10% of our Common Stock to file reports of ownership and changes in ownership of our Common Stock with the SEC. Based on the information available to us during fiscal year 2011, we believe that all applicable Section 16(a) filing requirements were met on a timely basis.

SEC FILINGS AND REPORTS; KEY CORPORATE GOVERNANCE DOCUMENTS

We maintain an internet website at http://www.honeywell.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, current Reports on Form 8-K, and any amendments to those reports, are available free of charge on our website under the heading “Investor Relations” (see “SEC Filings & Reports”) immediately after they are filed with or furnished to the SEC. Honeywell’s Code of Business Conduct, Corporate Governance Guidelines and Charters of the Committees of the Board of Directors are also available free of charge on our website under the heading “Investor Relations” (see “Corporate Governance”), or by writing to Honeywell, 101 Columbia Road, Morris Township, New Jersey 07962, c/o Vice President and Corporate Secretary. Honeywell’s Code of Business Conduct applies to all directors, officers (including the Chief Executive Officer, Chief Financial Officer and Controller) and employees. Amendments to or waivers of the Code of Business Conduct granted to any of the Company’s directors or executive officers will be published on our website.

SUSTAINABILITY; CORPORATE RESPONSIBILITY

Honeywell takes seriously its commitment to corporate social responsibility, protection of our environment and creation of Sustainable Opportunity everywhere it operates. The Company’s Heath, Safety and Environmental matters are managed by a global team of trained professionals with extensive knowledge and hundreds of years of collective experience in occupational health, hydrology, geology, engineering, safety engineering, industrial hygiene, materials management and energy efficiency.

Honeywell’s Vice President of Health, Safety, Environment and Remediation (HSER) reports to the Company’s Senior Vice President & General Counsel and has overall responsibility for the Sustainability program. A Corporate Energy & Sustainability Team, led by the Vice President of HSER and the Vice President of Global Real Estate, helps drive the Company’s greenhouse gas and energy efficiency goals. Progress on these goals is reported to Honeywell’s CEO on a monthly basis and is reviewed with the Company’s Board of Directors and its Corporate Governance and Responsibility Committee at least annually.

Honeywell’s Sustainable Opportunity policy is based on the principle that by integrating health, safety and environmental considerations into all aspects of its business, Honeywell protects its people and the environment, achieves sustainable growth and accelerated productivity, drives compliance with all applicable regulations and develops the technologies that expand the sustainable capacity of our world. Nearly 50 percent of Honeywell’s product portfolio is linked to energy efficiency, and the United States could reduce its energy consumption 20-25 percent by immediately and comprehensively adopting existing Honeywell technologies. (For additional detail, see our website, www.honeywell.com, under the heading “Corporate Citizenship”.)

Below are a few of Honeywell’s environmental and safety goals and achievements:

 

 

 

 

Greenhouse Gas Reduction and Energy Efficiency: In 2007, the Company established five-year greenhouse gas and energy efficiency objectives for its internal operations for the period 2007-2011. By the end of 2011, Honeywell reduced its greenhouse gas emissions by more than 30%, and increased its energy efficiency by more than 20%, in each case, from a 2004 baseline year. The Company is pursuing additional greenhouse gas and energy efficiency improvements through annual goals. The majority of Honeywell’s greenhouse gas emissions are reflected in public reports submitted to the United States Environmental Protection Agency and the United Kingdom Environmental Agency.

 

 

 

 

Hazardous Waste: To reduce the impact of our future operations, by the end of 2011, the Company reduced hazardous waste generated per dollar of revenue by more than 15% from a 2007 baseline year.

 

 

 

 

Water: The Company has developed a global inventory of water usage in its manufacturing operations. Based on that, the Company is developing conservation targets at our sites in areas that are experiencing “water stress” as defined by the World Resources Institute. Implementation of the conservation targets will begin in 2013.

19


 

 

 

 

Safety: The Company utilizes a comprehensive HSER Management System based on recognized third party certified standards, including ISO 14001 and OHSAS 18001, and industry best practices. The management system is fully integrated into the Honeywell Operating System, which drives continuous sustainable operational improvement. Compliance with standards and regulatory requirements is monitored through a Company-wide, HSER-led audit process. The timely development and implementation of process improvements and corrective action plans are closely monitored. This system has resulted in the Company receiving worker safety awards from governments around the world. The Company maintains a Company-wide global Total Case Incident Rate (the number of occupational injuries and illnesses per 100 employees) at less than half of the combined U.S. averages of the industries in which it operates.

In addition, Honeywell’s Integrity and Compliance program reflects our vision and values and helps our employees, representatives, contractors, consultants, and suppliers comply with a high standard of business conduct globally. At the core of the Integrity and Compliance program is the Company’s Code of Business Conduct (the “Code”) which applies across the Company in all businesses and in all countries. The Code is a baseline set of requirements that enables employees to recognize and be aware of how to report integrity, compliance, and legal issues. In addition, the Code outlines the Company’s pledge to recognize the dignity of each individual, respect each employee, provide compensation and benefits that are competitive, promote self-development through training that broadens work-related skills, and value diversity of perspectives and ideas. In our continuing effort to have a world class Integrity and Compliance program, in 2011, the Company revised the Code to improve readability and to address emerging areas. The updated 2011 Code has included additional guidance on a number of topics, including data privacy, respect for human rights, and the appropriate use of information technology and social media.

Honeywell demonstrates its commitment to corporate social responsibility and community involvement through Honeywell Hometown Solutions, which focuses on five important societal needs that align with Honeywell’s culture, products and people: Science and Math Education, Family Safety and Security, Housing and Shelter, Habitat and Conservation and Humanitarian Relief. These programs have delivered results in communities around the world, including teaching children potentially life-saving lessons to help prevent abduction and common childhood accidents, repairing homes and community centers for low-income, the elderly and disabled, academic programs that inspire students to pursue careers in Science, Engineering and Technology, partnering with environmental organizations to provide students with unique learning opportunities and teaching tools for educators to promote science in the classroom, and helping Honeywell employees and communities recover from natural disasters such as the Haitian and Sichuan Earthquakes, the Asian Tsunami and Gulf Coast hurricanes.

20


EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

In this section, we review the objectives and elements of Honeywell’s executive compensation program and discuss and analyze the 2011 compensation decisions regarding our Named Executive Officers (the CEO, CFO and three other most highly compensated executive officers):

 

 

 

 

David Cote—Chairman and Chief Executive Officer

 

 

 

 

David Anderson—Senior Vice President and Chief Financial Officer

 

 

 

 

Roger Fradin—President and Chief Executive Officer—Automation and Control Solutions

 

 

 

 

Timothy Mahoney—President and Chief Executive Officer—Aerospace

 

 

 

 

Andreas Kramvis—President and Chief Executive Officer—Performance Materials and Technologies

Executive Summary

Honeywell is a diversified technology and manufacturing leader, with global businesses organized into four strategic business groups or SBGs: Aerospace, Automation and Control Solutions (“ACS”), Performance Materials and Technologies (“PMT”; formerly known as Specialty Materials) and Transportation Systems (“TS”). We seek sustainable profitable growth through great positions in good industries. Our product and service offerings are aligned with several important macro trends—safety, security, energy efficiency and infrastructure. Our focus is on continuous execution of a clear consistent business strategy to deliver high quality earnings, make “seed planting” investments to build for the future and create long-term value for shareowners.

Our executive compensation program supports this focus through four key objectives:

 

 

 

 

Attract and Retain World-Class Leadership Talent with the leadership abilities and experience necessary to develop and execute business strategies, drive superior results, meet diverse challenges and build long-term shareowner value in an enterprise with the Company’s scale, breadth, complexity and global footprint;

 

 

 

 

Pay for Superior Results and Sustainable Growth by rewarding and differentiating among executives based on the achievement of Company, SBG and functional objectives;

 

 

 

 

Drive Performance that Creates Shareowner Value by emphasizing variable, at-risk compensation with an appropriate balance of near-term and long-term objectives that align executive and shareowner interests; and

 

 

 

 

Manage Risk through Oversight and Compensation Design features and practices that balance short-term and long-term incentives.

The annual direct compensation program has three basic elements:

 

 

 

 

Base salary;

 

 

 

 

Annual incentives—cash awards under the Incentive Compensation Plan or “ICP”; and

 

 

 

 

Long-term incentives (“LTI”)—cash incentive awards under the Growth Plan (two-year, non-overlapping performance cycles) and equity awards in the form of stock options.

Alignment between Company Performance and CEO Compensation

For our Named Executive Officers, variable incentives make up 85%-91% of total compensation opportunity. The graph below demonstrates the strong alignment over the past five years (January 1, 2007-December 31, 2011) of CEO total annual direct compensation (“Total ADC” consists of base salary, ICP award, annual stock option grant, and annualized Growth Plan award) with key operational metrics and shareowner value creation. The total shareowner return (stock price appreciation plus reinvested dividends; “TSR”) point above each column is the TSR for the preceding year as long-term incentive compensation decisions (Growth Plan units and stock options) are made in February with reference to prior year TSR as a measure of the alignment between pay and performance. Sales, proforma EPS (excluding any mark-to-market pension adjustments) and segment profit represent actual business performance for the year noted indexed to 2007.

21


Note: Total 2010-2011 Growth Plan earned award is allocated 50% to 2010 and 50% to 2011, but paid in 2012 and 2013. Similarly, the 2007-2008 Growth Plan earned award is allocated 50% to 2007 and 50% to 2008, but paid in 2009 and 2010. There was no Growth Plan award relating to 2009.

Vertical axis on the left side reflects the year-to-year performance indexed to a 2006 base year for TSR, and a 2007 base year for other performance metrics, at 100. Prior year TSR used to correspond with timing of compensation decisions.

For 2011, our incentive pay elements are aligned with:

 

 

 

 

Annual business results: 2011 ICP awards are determined based on the Management Development and Compensation Committee’s (“Committee”) evaluation of the Company’s performance with respect to pre-established ICP goals (Earnings Per Share, Free Cash Flow, and Working Capital Turns) consistent with the Company’s annual operating plan and external guidance. To ensure that results against the pre-established ICP goals are viewed in context and to recognize individual performance, the Committee also evaluates other performance measures which assess both the strength and degree of difficulty of operating results, improvement over prior periods and the achievement of non-financial management objectives. (See the discussion of Supplemental Criteria on pages 32-34).

 

 

 

 

Sustained growth: 2010-2011 Growth Plan awards were determined based on performance vs. pre-established total revenue (excluding the impact of acquisitions and divestitures) and average return on investment targets over the two-year performance cycle. The Growth Plan is designed to create shareowner value through driving key business fundamentals. Over the two-year performance cycle, the Company’s market capitalization increased by $12 billion (cumulative TSR growth of 46.2%).

 

 

 

 

Shareowner value creation: Stock option awards are determined after the Committee’s evaluation of operational performance and TSR. Executives realize value only if the stock price appreciates.

The Committee does not believe that the factoring of the various items it considers in making its compensation-related decisions for each Named Executive Officer should be, or can be, reduced to a linear formula. However, the Committee does believe in ensuring a clear alignment between pay and performance as evidenced by the strong correlation between TSR, financial performance and executive compensation.

Say on Pay

In 2011, shareowners were presented with an advisory vote to approve executive compensation which, for the second straight year, was approved by over 90% of the votes cast on the proposal. These results continue to demonstrate strong shareowner support for Honeywell’s overall executive compensation objectives and decisions. The Committee takes into account the outcome of Say on Pay votes and discussions with investors when considering future executive compensation arrangements and potential changes to the executive compensation program. Since our 2011 Annual Meeting, we have engaged in discussions with our institutional investors regarding the Company’s performance track record (short-term and long-term), creation of shareowner value, alignment of pay with performance, alignment of incentive compensation program features with key performance objectives, and our overall perspectives on corporate governance and executive compensation.

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2011 Performance Highlights—Profitable Growth, Building for the Future, Creating Shareowner Value

Significant Profitable Growth in a Volatile Environment

2011 was a year of extreme market volatility and economic uncertainty driven by the debate over the United States deficit and debt ceiling, concern over European sovereign debt, and political unrest in the Middle East. Honeywell was able to achieve superior top-line and bottom-line growth despite this challenging environment. While expanding global industrial production provided a tailwind in the first half of 2011, Honeywell was able to weather slower growth rates and increasing uncertainty in the second half of the year and continue to outperform comparable multi-industry peers through its balanced mix of short- and long-cycle businesses, pipeline of new products and services, great positions in good industries, increasing presence in high growth regions, and the benefits of prior productivity actions and investments for growth.

Organic Sales Growth ~8%, Margin Expansion in All SBGs

Organic sales growth excludes the impact of foreign currency translation and acquisitions and divestitures.

Strong Operational Performance; High Quality Earnings

 

*

 

 

 

Proforma, excludes fourth quarter mark-to-market (MTM) pension adjustment in each year.

 

**

 

 

 

2011 FCF and FCF Conversion shown prior to cash contributions to U.S. pension plans in each year; FCF Conversion = FCF divided by net income (excluding the impact of the pension mark-to-market adjustment on net income).

23


Honeywell Outperforming Peers

 

*

 

 

 

Reflects calendar year 2011 results. Peer Median above refers to the median performance of the Company’s Compensation Peer Group (see pages 29-30). The four multi-industry companies in the Compensation Peer Group are presented individually in the chart above as they are the most relevant comparisons with respect to operating performance and investor base (e.g., similar breadth of portfolio, multi-industrials, global footprint).

 

**

 

 

 

Honeywell EPS growth reflects proforma EPS excluding the mark-to-market pension adjustment.

Building for the Future

Honeywell continued to make “seed planting” investments in 2011 that will enable future profitable growth.

Strategic Acquisitions.

 

 

 

 

EMS Technologies: a leading provider of connectivity solutions for mobile networking, rugged mobile computers and satellite communications; being integrated into the Scanning and Mobility business in ACS and the commercial and defense and space businesses in Aerospace.

 

 

 

 

King’s Safetywear: a leading global provider of branded safety footwear; expands the personal protection equipment product portfolio in ACS’ Life Safety business.

 

 

 

 

Sunoco phenol plant: helps to secure the long-term supply of phenol, a critical raw material for the production of caprolactam (a key raw material for nylon) in the Resins and Chemicals business in PMT.

Repositioning Actions. In 2011, Honeywell used approximately $350 million from non-operating gains (arising from, among other things, the sale of the Consumer Products Group automotive aftermarket business (“CPG”) and retiree medical benefits curtailment gains) to fund repositioning actions that are expected to generate cost savings in 2012 and future periods. These actions include consolidation of small manufacturing and assembly sites, centralization of sales support, the elimination of unprofitable product lines, and further expansion of Honeywell’s emerging region capabilities.     

24


On Track to Achieve Long-Term Targets

Honeywell’s strong operational performance in 2011, together with the seed planting actions described above (as well as those in prior years), make the Company well positioned to achieve the five-year revenue and segment margin targets initially established in February 2010 (“Long-Term Targets”).

     

CAGR: compound annual growth rate

 

bps: basis points

Creating Value for Shareowners

 

 

 

 

Dividends. Honeywell’s dividend rate was increased by 12%, effective in the fourth quarter of 2011, the seventh increase of at least 10% in the last eight years.

 

 

 

 

Share Repurchases. Honeywell repurchased 20.3 million shares (approximately $1.1 billion) in 2011 primarily to offset dilution from employee stock plans and divestitures.

 

 

 

 

Total Shareowner Return. Honeywell continues to outperform its peers and the broader market. The following graph displays Honeywell’s cumulative TSR growth relative to the S&P 500 Index and the Company’s Compensation Peer Group for the one, three and five-year periods ending December 31, 2011.

Total Shareowner Return

2011 Compensation Decisions—Summary

Compensation decisions made for 2011 were aligned with the Company’s strong operational performance and reflected continued emphasis on variable, at-risk compensation and long-term compensation that reinforces our focus on sustainable profitable growth and stock price appreciation.

The following charts display the target mix of total annual direct compensation for the CEO and other Named Executive Officers for 2011.

25


Fixed vs. Variable

Fixed: Base Salary
Variable: Annual target ICP, stock options at grant date value, Growth Plan at annualized target value.

Short-Term vs. Long-Term

Short-Term: Base Salary and annual target ICP
Long-Term: Stock options at grant date value, Growth Plan at annualized target value.

Data from proxy statements filed by the companies in our Compensation Peer Group in 2011. See the “Peer Group Compensation Data” section below for a complete list of the companies in our Compensation Peer Group.

The Committee believes that placing greater emphasis on long-term incentives helps focus Company executives on creating sustainable long-term value for shareowners.

Based on the factors discussed in this Compensation Discussion and Analysis, the Committee took the following key compensation actions in 2011:

 

 

 

 

Base salaries: The base salaries of Messrs. Cote, Anderson and Fradin remained unchanged. The base salaries of Messrs. Mahoney and Kramvis were increased for 2011 based on the performance of their respective SBGs and the Committee’s view of their compensation positioning relative to the Compensation Peer Group. Due to economic uncertainty and conservative planning, no Named Executive Officer received an annual merit increase in either 2010 or 2009.

26


 

 

 

 

ICP awards: The Committee determined to pay 2011 ICP bonuses to the Named Executive Officers in amounts ranging from 104% to 140% of their target opportunities based on the Company’s performance against pre-established ICP goals, as well as other performance measures which assess both the strength and degree of difficulty of operating results, improvement over prior periods and the achievement of non-financial management objectives.

 

 

 

 

LTI—equity awards: In light of Company performance and in an effort to reinforce our goals of motivation and retention, each of the Named Executive Officers received a stock option grant in 2011 for a number of shares up to an amount consistent with prior year levels. In determining the stock option awards, the Committee considered the aggregate amount of vested and unvested equity held by the Named Executive Officers as well as the annualized value of the 2011 portion of the two-year Growth Plan award made in 2010. All stock options vest ratably over four years, and represent the most significant component of an officer’s total annual target LTI opportunity (approximately two-thirds).

 

 

 

 

LTI—2010-2011 Growth Plan performance and payouts. The 2010-2011 Growth Plan performance cycle measured total revenue (excluding the impact of acquisitions and divestitures) and average return on investment (“ROI”) over the two-year performance cycle (January 1, 2010-December 31, 2011) based on performance targets set in February 2010. The two-year performance cycles of the Growth Plan do not overlap; grants are not made annually and only one award cycle is in effect at any time. The annualized value of the cash-based Growth Plan represents approximately one-third of an officer’s total annual target LTI opportunity.

 

 

 

 

 

The Company significantly outperformed its total revenue (excluding the impact of acquisitions and divestitures) and ROI performance goals for the 2010-2011 Growth Plan cycle, with earned awards for the Named Executive Officers ranging from 152% to 200% of their target award value. The Committee considers these payments as earned ratably in each of the two years in the performance cycle (i.e., 50% in 2010 and 50% in 2011). Because Growth Plan units are awarded every other year, the annual opportunity at the time of the award of Growth Plan units at the beginning of a performance cycle is viewed to be 50% of the total target opportunity.

 

 

 

 

 

In order to promote retention, awards earned under the 2010-2011 Growth Plan are paid in two installments, 50% in the first quarter of 2012 and 50% in the first quarter of 2013, with each payment contingent on the executive being employed with the Company on the date payment is made.


SEC reporting rules require that the full amount of the Growth Plan payout earned over the performance cycle be reflected in the Summary Compensation Table as Non-Equity Incentive Compensation in the second year of the performance cycle (in this case, for 2011). This is inconsistent with both the Committee’s view when setting the Growth Plan targets and unit awards and with the actual payout schedule. The supplemental tables in the “Named Executive Officers—Performance & Direct Compensation” section (see pages 39-43 below) reflect the Committee’s view of the annualized value of the 2010-2011 Growth Plan payout as well as each of the other elements of Total Annual Direct Compensation (base salary, annual ICP award, and annual stock option grant).

Our Philosophy for Compensation Decisions

General Considerations

The Committee considers many company and individual performance measures (discussed in detail herein) in making compensation decisions. The factors that generally shape the Committee’s overall assessment of compensation include:

 

 

 

 

Overall operational and financial performance—Corporate and SBG (as discussed above and below);

 

 

 

 

Stock price performance and TSR;

 

 

 

 

Named Executive Officer compensation history, including experience in the position (as discussed below);

 

 

 

 

Executive’s individual record of performance consistent with the Honeywell Initiatives of Growth, Productivity, Cash, People and Key Processes (Honeywell Operating System, Velocity Product Development and Functional Transformation);

27


 

 

 

 

Executive’s relative level of responsibility within Honeywell and the impact of his or her position on Honeywell’s performance with recognition that both the amount and “at-risk” nature of the compensation should increase with the level of responsibility;

 

 

 

 

Executive’s long-term leadership potential with Honeywell and associated retention risk (as discussed in “Succession Planning” below);

 

 

 

 

The senior executive succession plan (see “Succession Planning” below);

 

 

 

 

Stock ownership levels (as discussed in “Stock Ownership Guidelines” below);

 

 

 

 

Annual share utilization and shareowner dilution levels resulting from the compensation plans;

 

 

 

 

Trends and best practices in executive compensation;

 

 

 

 

Peer group comparisons, including pay levels and practices for the competitive marketplace and company performance relative to the competitive marketplace (as discussed below);

 

 

 

 

Current industry and macroeconomic conditions and future outlook; and

 

 

 

 

Results of the most recent annual Say on Pay vote and discussions with shareowners through the Company’s outreach program.

Final compensation determinations are ultimately made by the Committee (together with the other independent directors in the case of the CEO) after review and evaluation of these considerations and the other items discussed in this Compensation Discussion and Analysis. The Committee does not believe that the factoring of the various items it considers in making its compensation-related decisions for each Named Executive Officer should be, or can be, reduced to a linear formula.

Compensation Mix

In setting total compensation, the Committee seeks to achieve the optimal balance between:

 

 

 

 

Fixed and variable (or “at-risk”) pay elements;

 

 

 

 

Short- and long-term pay elements; and

 

 

 

 

Cash and equity-based elements.

The Company’s executive compensation program is designed to emphasize variable elements that align compensation with performance and shareowner value. The mix of compensation elements for Named Executive Officers, and especially the CEO, is more heavily leveraged toward variable, performance-based compensation than for the balance of the executive population. The Committee also believes that the CEO should have greater emphasis on variable compensation than all other executives because his actions can have a greater influence on the performance of the Company. The Committee views stock options as the performance-based long-term incentive vehicle that is most closely aligned with the interests of its shareowners as the executives realize value only if the stock price appreciates. Furthermore, when considering the requirement under the Company’s Stock Ownership Guidelines that officers must hold net gain shares from option exercises for at least a year after exercise, it is clear that the stock price appreciation must be sustainable in order for the executive to realize value.

The 2011 compensation elements that comprise “target total annual direct compensation opportunity” for the Named Executive Officers are shown below.

28


 

 

 

 

 

Compensation Element

 


Type of
Compensation

 

Key Objectives

 

       

Base Salary

 

Fixed Annual Cash

 

Attract and compensate high-performing and experienced leaders at a competitive level of cash compensation.

 

       

Annual ICP (Bonus) Awards

 

Variable Annual Cash

 

Motivate and reward executives for achieving annual corporate, SBG and functional goals in key areas of financial and operational performance.

 

       

Long-Term Incentive Awards
Ø
Growth Plan Units
Ø
Stock Options

 

Variable
Ø
Cash
Ø
Equity

 

The Growth Plan drives the achievement of specific two-year financial performance goals aligned with Honeywell’s operating and strategic plans (i.e., performance- based long-term incentive compensation). Stock options only have realizable value for executives if the operating performance driven by the annual ICP and Growth Plan results in stock price appreciation.

For 2011, the target weighting of each of the elements of total compensation for the CEO and other Named Executive Officers was as follows:

Restricted stock units (“RSUs”) are not considered a component of a Named Executive Officer’s target total annual direct compensation, as they are not granted on an annual basis and there is no target award level. None of the Named Executive Officers received RSUs in 2011.

The percentages above are based on “target total annual direct compensation” with only the 2011 portion (50%) of the 2010-2011 Growth Plan target award attributed to 2011 consistent with the view of the Committee, and would not necessarily correspond to, and are not a substitute for, percentages derived from the amounts required to be disclosed in the Summary Compensation Table and supplemental tables.

Peer Group Compensation Data

The Committee does not target a specific competitive position relative to the market for executive compensation. However, the Committee believes it is important to understand the relevant market for executive talent to ensure that the Company’s executive compensation program supports the attraction and retention of highly qualified leaders.

The Committee annually assesses market conditions through a review of compensation data compiled by the Committee’s independent compensation consultant regarding a peer group of companies (listed below) with whom the Company competes for talent and which have one or more of the following attributes: business operations in the industries and markets in which Honeywell participates, similar revenue and market capitalization, similar breadth of portfolio and complexity, global scope of operations and/or diversified product lines (the “Compensation Peer Group”).

29


 

 

 

Compensation Peer Group

 

   

 Alcoa

 

Johnson Controls

 

   

 Boeing

 

Lockheed Martin

 

   

 Dow Chemical

 

Northrop Grumman

 

   

 DuPont

 

Raytheon

 

   

 Emerson Electric

 

Textron

 

   

 General Dynamics

 

3M

 

   

 General Electric

 

United Technologies

 

 

 

 

 

 

 

 

 

Comparison with Compensation Peer Group (as of December 31, 2011)

 

               

 

 

Revenues

 

Market
Capitalization

 

Employees

 

Five-Year
TSR

 

 

 

 

 

 

 

 

 

 

               

 Honeywell

 

$36.5 billion

 

$42.0 billion

 

132,000

 

37.1%

 

               

 Peer Median

 

$35.3 billion

 

$30.1 billion

 

89,649

 

3.0%

 

               

 Honeywell Percentile Rank

 

52nd

 

69th

 

62nd

 

100th

Note: Reflects calendar year 2011 results. Percentages reflect cumulative growth over the period.

The Committee believes that Honeywell executives are potentially attractive candidates for such companies because of the depth of experience and management skill set required to manage a global company of Honeywell’s scope and complexity. The Committee regularly reviews the appropriateness of the Compensation Peer Group and the purposes for which it is used. The Committee did not make any changes to the Compensation Peer Group in 2011.

For each Company in the Compensation Peer Group, the Committee reviews data including base salary, actual annual cash incentive compensation, total annual cash compensation, long-term incentive compensation and total annual direct compensation of the Named Executive Officers. The Committee also reviews general industry survey data published by third parties as a general indicator of relevant market conditions and pay practices and as a broader reference point for specific business units where the breadth and relevance of Compensation Peer Group data may not be as comprehensive as desired. Neither the Committee nor the Company has any input into the scope of or the companies included in these general industry surveys.

Compensation History

Each year, the Committee reviews each Named Executive Officer’s three-year compensation history in total and with respect to each element of compensation, as well as projected payouts under the Company’s retirement and deferred compensation plans, and prior non-recurring types of awards or grants (e.g., “sign on” or “make whole” awards upon joining Honeywell and RSU awards for retention and/or succession planning purposes). This enables the Committee to understand how each element of compensation interacts with the other elements and to see how current compensation decisions may affect future wealth accumulation and executive retention. The Committee considers historical award and/or grant levels when determining individual annual ICP awards and option grants, as well as the value and vesting dates of unvested equity holdings. In considering target compensation levels for the Named Executive Officers, the Committee considers an award under the Growth Plan as being earned in each of the two years in the performance cycle and awards Growth Plan units at the start of a two-year performance cycle based on target opportunity allocated 50/50 to each year in the performance cycle (see the supplemental tables in “Named Executive Officers—Performance & Direct Compensation” for the Committee’s view).

30


Succession Planning

The Committee recognizes that retention of highly qualified leadership talent is critical to the Company’s continued performance and to successful succession planning. The Committee annually considers, and reviews with the full Board, succession candidates for the CEO and other senior leadership positions under both near-term and long-term planning scenarios, taking into account demonstrated performance, leadership qualities and potential to take on more complex responsibilities. As part of this process, the Committee considers the potential retention risk regarding incumbent senior executives and the identified succession candidates, the competitive landscape for executive talent, the specific succession planning time horizon for each senior executive position, and the extent of disruption likely to be caused by unplanned attrition. Since January 2004, all of the Company’s open executive officer positions have been filled with executives promoted from within Honeywell.

Due to sustained improvement in all key performance metrics and in TSR over the past five years, Honeywell’s CEO and other senior executives are recognized as industry leaders with backgrounds and experience that are highly attractive to competitors. The Committee believes that these leaders may be presented with other career opportunities given the scope and complexity of the Company and each of its business segments.

Where the Committee believes it to be necessary, it will take appropriate compensation actions to reinforce the succession plan and to guard against competitive activity. These retention actions are designed to:

 

 

 

 

Motivate the executive to forego outside career opportunities;

 

 

 

 

Generate value for the recipient only if he or she remains employed by the Company for the period of time deemed optimal for succession planning purposes; and

 

 

 

 

Strengthen restrictive covenants (e.g., non-competition, non-solicitation) and/or provide for transition periods that will guard against competitive harm to the Company at the time of the executive’s departure from the Company.

In 2011, the Company entered into a retention agreement with Mr. Cote for retention and succession planning purposes (“Retention Agreement”). The terms of this agreement were reviewed, determined and recommended by the Committee and approved by the independent members of the full Board of Directors.

The Retention Agreement provides that:

 

 

 

 

Contingent on Mr. Cote remaining employed with Honeywell through at least April 1, 2015 (except in cases of death, disability or involuntary termination without cause) and other agreements noted below, he will be entitled, upon his retirement, to (a) accelerated vesting of his stock options granted prior to April 1, 2015 that remain unvested as of his retirement date, except for stock options granted in the 12 months preceding his retirement date and the portion of any stock option award still subject to performance conditions at the time of his retirement and (b) the ability to exercise his vested stock options for the full duration of their remaining terms.

 

 

 

 

Such benefits are conditioned upon Mr. Cote (a) providing a transition period of 12 months prior to his retirement and (b) not seeking or accepting a position outside of Honeywell prior to April 1, 2015. These benefits are also conditioned on Mr. Cote’s adherence to the terms of any non-competition, non- solicitation, confidentiality and intellectual property covenants with the Company, with the Company having certain “clawback” rights in the event of a breach by Mr. Cote of these restrictive covenants.

The Committee and the Board believe that this action is the best means for achieving the Company’s retention and succession planning objectives over a timeframe when the CEO could be most attractive to competitors. The Committee and the Board specifically considered the CEO’s demonstrated leadership qualities, his ongoing contributions to the Company’s success, the potential retention risk, the extent of disruption likely to be caused by unplanned attrition and the Company’s identified succession candidates. In addition, this action was consistent with the design of the Company’s executive compensation program and the Committee’s and the Board’s prior succession planning-related actions as it was designed to motivate continued sustainable growth and stock price appreciation through Mr. Cote’s recognition of value from regular annual awards rather than the granting of new awards.

Compensation Elements and Decisions for 2011

Each element of Honeywell’s executive compensation program is described below.

31


Base Salary. Base salaries are primarily based on scope of responsibility and years of experience. Decisions regarding salary adjustments are based on the Committee’s evaluation of current performance, the assumption of material additional responsibilities and positioning relative to the Compensation Peer Group. In 2011, base salary was 9% of the CEO’s total annual direct compensation and approximately 15% of total annual direct compensation for the other Named Executive Officers.

In 2011, the base salaries of Messrs. Cote, Anderson and Fradin remained unchanged. Base salary increases of 21.2% and 18.2% were approved in February 2011 for Messrs. Mahoney and Kramvis respectively, based on the Committee’s view of the performance of their respective SBGs in the prior year and their compensation positioning relative to the Compensation Peer Group. Due to economic uncertainty and conservative business planning, the Committee had not approved annual merit increases for any Named Executive Officer in either 2010 or 2009.

Annual Incentive Bonus (“ICP”). The aggregate annual ICP payout for all senior executive employees, including the Named Executive Officers, is limited to 2% of the Company’s Consolidated Earnings for the year (which, per the terms of the ICP approved by shareowners in 2011, excludes, among other things, the effects of any annual mark-to-market adjustment that recognizes pension-related net actuarial gains and losses outside the corridor (calculated as 10% of the greater of plan assets or projected benefit obligation) and extraordinary and unusual items).

Each Named Executive Officer has an annual target ICP opportunity expressed as a percentage of base salary. The CEO’s target opportunity is 175% of base salary, while the other Named Executive Officers’ have target opportunities equal to 100% of base salary. ICP payouts can vary significantly from year-to-year, but are capped at 200% of each Named Executive Officer’s annual ICP target opportunity.

At the beginning of each year, the Committee sets specific annual corporate financial objectives (“Pre-Established ICP Goals”) consistent with the Company’s annual operating plan and external guidance which reflects then-current assumptions regarding macro-economic and key end-market conditions. At the end of the year, the Committee determines ICP plan pool funding and individual ICP awards for the Named Executive Officers based on achievement of the Pre-Established ICP Goals, as well as an evaluation of other key performance measures and relevant factors necessary to both ensure that the results against the Pre-Established ICP Goals are viewed in context and to recognize individual performance (“Supplemental Criteria”).

The Pre-Established ICP Goals are based on the following metrics:

 

 

 

 

Metric

 

Rationale for Metric

 

 

     

 Earnings Per Share (“EPS”)

 

Measures delivery of shareowner value at the Corporate level

 

 

     

 Free Cash Flow (“FCF”)

 

Measures the Company’s ability to generate cash from operations that may be reinvested in its businesses, to make acquisitions, and to return capital to shareowners

 

 

     

 Working Capital Turns (“WCT”)(1)

 

Measures efficiency and effectiveness of the Company’s business operations

 

 

(1)

 

 

 

Defined as sales divided by working capital, which is trade accounts receivable plus inventory less accounts payable and customer advances.

Supplemental Criteria considered in determining ICP awards include:

Ø Other key performance measures which assess both the strength and degree of difficulty of actual corporate and SBG performance, such as:

 

 

 

 

Year-over-year variance in revenue, segment profit and margin expansion;

 

 

 

 

Performance vs. pre-recession/prior peak levels;

 

 

 

 

Quality of earnings;

 

 

 

 

Relative performance of SBGs or business units within each SBG;

 

 

 

 

Relevant industry and economic conditions;

 

 

 

 

Performance compared to Compensation Peer Group and other key competitors;

 

 

 

 

Degree of stretch in targets;

32


Ø Level of ICP awards relative to award levels and performance in prior years;

Ø Achievement of individual management objectives aligned with the Honeywell Initiatives; and

Ø Demonstrated leadership behaviors.

The Committee does not assign specific weights to the Pre-Established ICP Goals or Supplemental Criteria but looks at annual performance (absolute and relative) across all relevant metrics within the context of the overall strength or weakness of the economic environment and the Company’s end markets.

2011 Pre-Established ICP Goals: Robust Targets and Results

Annual ICP targets are set to drive meaningful, sustainable improvement in key metrics on a year-over-year basis. To fully assess results vs. target, the Committee believes it has to look at both the absolute results and the strength of the comparable prior year results.

Consistent with the Company’s planning and external guidance, the EPS target and results vs. target set forth below exclude the impact of any mark-to-market pension adjustment, and the FCF target and results vs. target set forth below exclude the impact of cash contributions to U.S. pension plans.

Performance vs. ICP Targets (T = Target; A = Actual)

 

2011T

 

2011A

EPS (proforma)

 

$3.60 - $3.80

 

$4.05

FCF

 

$3.6 billion

 

$3.7 billion

WCT

 

7.1 turns

 

6.9 turns

Metrics shown above are at the Honeywell Corporate level. Each SBG also has corresponding objectives, with net income being used in lieu of earnings per share; unusual, infrequently occurring items, extraordinary items and any mark-to-market pension adjustments are excluded in determining achievement of Corporate and SBG objectives.

EPS: 2011T represented a 20-27% increase over 2010 proforma EPS of $3.00; 2011A reflects a 35% increase over 2010 and a 6.6-12.5% overdrive of target.

FCF: 2011A exceeded target by approximately $100 million with 115% free cash flow conversion (excluding the impact of the pension mark-to-market adjustment on net income), reflecting continued strong quality of earnings.

WCT: WCT remained flat vs. peak performance in the prior year; although 2011A was less than 2011T, the Company was able to maintain WCT at the same record level as in the prior year (which represented more than a full turn increase over 2009) even though sales increased by 13% (vs. planning estimates of 5-8% sales growth at the time the 2011 WCT target was set). The Company will continue to drive further WCT improvement through its functional processes, including sales/inventory/operations planning, procurement and collections.

2011 Supplemental Criteria:

For 2011, other key performance measures and factors considered by the Committee in determining ICP awards were:

 

 

 

 

13% sales growth in 2011, 19% segment profit improvement and segment margin expansion of 80 basis points to a record 14.7% for the Company;

 

 

 

 

8% organic sales growth driven by new product introductions, geographic expansion and commercial excellence;

 

 

 

 

Sales, segment profit, segment margin, proforma EPS, FCF (prior to cash contributions to U.S. pension plans) and WCT all exceeded pre-recession (2008) levels;

 

 

 

 

Completion of significant transactions that (1) generated capital that could be used to fund repositioning actions that will enable cost savings in future periods (CPG divestiture), (2) will expand the Company’s portfolio of businesses into adjacent spaces in line with our focus on building Good Positions in Great Industries, and (3) help to secure the long-term supply of a critical raw material used in our PMT segment;

33


 

 

 

 

Investment in research and development to drive continued profitable growth and competitive advantage;

 

 

 

 

Outperforming peers on key operational metrics and outperforming the market and peers with respect to total shareowner return (see charts on pages 24, 25 and 30 of this proxy statement); and

 

 

 

 

Continued progress against Long-Term Targets for sales and segment margin.

Individual ICP Awards.

Based on business results against the Pre-Established ICP Goals and the Supplemental Criteria discussed above, the Committee (and the independent members of the Board in the case of the CEO), in the first quarter of 2012, awarded annual ICP bonuses to the CEO and other Named Executive Officers in the following amounts:

 

 

 

Mr. Cote

 

 

$

 

4,300,000

 

Mr. Anderson

 

 

$

 

1,225,000

 

Mr. Fradin

 

 

$

 

1,300,000

 

Mr. Mahoney

 

 

$

 

800,000

 

Mr. Kramvis

 

 

$

 

875,000

 

In determining Mr. Cote’s ICP award, the Committee considered strong 2011 operating results, continued investment that positions the Company for continued growth, and favorable TSR on both an absolute and relative basis. In determining 2011 ICP awards for the other Named Executive Officers, the Committee considered overall Honeywell and individual performance, as well as the relevant SBG performance for Messrs. Fradin, Mahoney and Kramvis. See “Named Executive Officer—Performance & Direct Compensation” for further discussion of individual performance highlights for each Named Executive Officer.

Long-Term Incentive Compensation (Equity and Cash). All long-term incentive awards to officers are approved by the Committee (and by all of the independent directors in the case of the CEO). Since 2003, the Company has generally provided long-term incentive awards in a mix of annual stock option grants and cash-based Growth Plan Units (“GPUs”), with GPUs issued only in the first year of each two-year performance cycle. In 2011, annual stock option grants were the only long-term incentive awards made to the Named Executive Officers since GPUs are not issued in the second year of a performance cycle.

In addition to annual awards of long-term incentive compensation, the Committee periodically considers discretionary RSU awards as may be deemed necessary for retention, recruitment, and succession planning. No RSU awards were granted to Named Executive Officers in 2011.

Long-Term Incentive Compensation (Equity). Annual equity grants are made in February of each year during an open trading window period following the release of Honeywell’s financial results for the preceding fiscal year. Equity grants are subject to vesting restrictions that require executives to remain employed with the Company to receive value.

Stock Options: Options are granted with an exercise price which is set equal to the fair market value of the Company’s Common Stock on the grant date and only have value to recipients if the stock price increases over the exercise price. Options granted to Named Executive Officers vest in equal 25% increments over a four-year period and represent approximately two-thirds of their target total annual LTI opportunity. The Committee considers both the estimated grant date fair value of stock options and the number of stock options in determining award size, as well as vested and unvested equity held by the Named Executive Officers.

The following stock option awards were made with respect to 2011:

 

 

 

 

CEO: In reviewing the long-term incentive component of the CEO’s total annual direct compensation in February of each year, the Committee considers the Company’s operational performance and relative total shareowner return for the prior fiscal year, the value of similar incentive awards to chief executive officers at Compensation Peer Group companies, and awards previously made to Mr. Cote. In 2011, the Committee also considered the Company’s sustained growth and consistent improvement over the course of Mr. Cote’s tenure, the amount of vested and unvested equity he holds and the grant date fair value of any proposed award compared to the prior year. Based on these considerations, in February 2011, the Committee granted Mr. Cote stock options, subject to vesting requirements, to acquire 775,000 shares in recognition of his anticipated leadership in driving sustained financial and operational performance.

 

 

 

 

Other Named Executive Officers: For each of the other Named Executive Officers, the Committee considers historical grant levels, as well as the executive officer’s performance in the prior fiscal year, his

34


 

 

 

 

impact on overall Company performance, and his potential to contribute to the future performance of the Company and to assume increased leadership responsibilities. Based on these considerations, in February 2011, the Committee granted each of the other Named Executive Officers a number of stock options equal to the number of stock options issued to them in 2010, as follows:

 

 

 

Mr. Anderson

 

 

 

275,000

 

Mr. Fradin

 

 

 

275,000

 

Mr. Mahoney

 

 

 

210,000

 

Mr. Kramvis

 

 

 

175,000

 

Restricted Stock Units: RSUs represent a right to receive Company stock only if certain conditions are met (e.g. continued employment through a specific date or the attainment of certain performance conditions). RSUs are linked with shareowner value since their value rises or falls along with the stock price. The Committee periodically grants RSUs on a discretionary basis for retention purposes, however RSU grants are not considered annually. The Committee did not grant RSUs to any of the Named Executive Officers in 2011.     

Long-Term Incentive Compensation (Cash). In 2003, the Company introduced the Growth Plan which provides cash based long-term incentive awards to focus executives on achievement of specific two-year financial performance goals that are aligned with business fundamentals as a complement to stock options which are tied to stock price appreciation. The Growth Plan is designed to reward sustainable, profitable growth, consistent with the Honeywell Initiative on Growth and the Company’s strategic plan. GPUs are awarded in February of the first year of a two-year performance cycle. The two-year performance cycles do not overlap.     

The Committee believes that a two-year performance cycle provides the necessary line of sight to set realistic targets aligned with Company objectives. Non-overlapping cycles avoid the potential confusion associated with different targets on the same metric in the same year. In order to promote retention, 50% of an earned award is paid in the first quarter of the year following the completion of a performance cycle and the remaining 50% is paid a year later (3.2 years after the commencement of the performance cycle), with each payment contingent on the executive being employed with the Company on the date the payment is made.

In accordance with SEC reporting requirements, the full amount of the Growth Plan award earned for the full two-year cycle is reported in the second year of the performance cycle as Non-Equity Incentive Plan Compensation on the Summary Compensation Table. As such, total payment results for both years of the 2010-2011 Growth Plan are reported as 2011 Non-Equity Incentive Plan Compensation on the Summary Compensation Table included in this proxy statement. This is inconsistent with both the Committee’s view when setting the Growth Plan targets and unit awards (the Committee considers these payments as earned ratably in each of the two years in the performance cycle (i.e., 50% in 2010 and 50% in 2011)) and with the actual payout schedule. The supplemental tables in the “Named Executive Officers—Performance & Direct Compensation” section below present the Committee’s view on the period over which the Growth Plan award is earned. For the Named Executive Officers, the Growth Plan represents approximately one-third of their target total annual LTI opportunity.     

The 2010-2011 Growth Plan performance cycle has two equally weighted performance goals: (i) total revenue, excluding the impact of acquisitions and divestitures and (ii) average return on investment (“ROI”). These objectives were selected to complement, but not duplicate, the primary annual corporate financial objectives utilized for ICP purposes and are consistent with the Growth Plan’s focus on sustainable improvement. Growth Plan performance targets for each goal were set at the beginning of the performance cycle. The revenue goal was set in February 2010 based on the Company’s annual operating plan for 2010 and projected targets for 2011 that reflected more aggressive growth rates for the SBGs in anticipation of end market recovery and stabilization consistent with the Company’s five-year strategic plan. ROI goals were based on the two-year revenue targets and the projected income using 2010 annual operating plan and historical rates of incremental sales conversion of income for 2011. Net investment values were projected taking into account anticipated working capital improvements over the two-year period.     

Growth Plan awards are determined on a purely formulaic basis. For each performance goal, a minimum level of achievement (i.e., threshold) must be met before the plan will fund. Plan payouts are capped at 200% of target to the extent plan maximums are met or exceeded. For SBG executives (including Messrs. Kramvis, Fradin, and Mahoney), 50% of their potential payout for the 2010-2011 performance cycle is based on achievement of total Company metrics, and the remaining 50% is based on achievement of corresponding SBG

35


objectives for their respective SBG. For Corporate executives (including Messrs. Cote and Anderson), payouts will be based solely on the achievement of total Company-level metrics.     

The following table presents the 2010-2011 Growth Plan performance goals at the total Company level and actual performance against these goals.     

 

 

 

 

 

 

 

2010-2011 Growth Plan Performance Goals and Actual Performance
(Total Company Level)

Performance

 

Funding
Level

 

Total
Revenue
(1)

 

ROI
(Average)
(2)

Below Threshold

 

 

 

0

%

 

 

<$60.2 Billion

 

 

<18.8

%

 

Threshold

 

 

 

50

%

 

 

$60.2 Billion

 

 

 

18.8

%

 

Target

 

 

 

100

%

 

 

$63.3 Billion

 

 

 

20.9

%

 

Maximum

 

 

 

200

%

 

 

$66.5 Billion

 

 

 

23.0

%

 

Actual

 

 

 

$67.2 Billion

 

 

 

23.9

%

 

Actual Performance - Resulted in calculated funding of 200% at total Company level

SBG funding levels attained: PMT, TS: 200%; ACS: 199%; Aerospace: 152%

 

(1)

 

 

 

Total Revenue is cumulative revenue for 2010 and 2011, excluding the impact of acquisitions and divestitures.

 

(2)

 

 

 

ROI is defined as the ratio of net income before interest expense to cash employed in the Company’s businesses. ROI is a measure of the Company’s ability to convert investments such as inventory, property, plant and equipment into profits. The ROI calculation excludes the impact of acquisitions and divestitures during the performance cycle (unless there is deemed to be sufficient certainty as to their completion at the time of the setting of the targets for the performance cycle) and pension income/expense. The Growth Plan goal uses an arithmetic average of ROI for 2010 and 2011.

The 2010-2011 performance cycle (January 1, 2010-December 31, 2011) reflected record performance including:

 

 

 

 

Record organic revenue growth at twice the rate of global GDP growth;

 

 

 

 

390 basis points improvement in ROI driven by 58% increase in proforma net income; and

 

 

 

 

Record segment profit growth of $1.4 billion, with 140 basis points of margin expansion.

As a result of the strong performance of the Company over the two-year performance cycle, the earned awards for the Named Executive Officers for the 2010-2011 performance cycle ranged from 152% to 200% of their target award value. In order to promote retention, awards earned under the 2010-2011 Growth Plan are paid in two installments, 50% in the first quarter of 2012 and 50% in the first quarter of 2013, with each payment contingent on the executive being employed with the Company on the date payment is made.

The strong performance over the two-year performance cycle created shareowner value that was reflected in a $12 billion increase in market capitalization, 39% share price appreciation and cumulative TSR growth of 46.2% over the corresponding two-year period:

2010-2011 Total Shareowner Return

Peer Median Reflects Compensation Peer Group Median; two-year period ending December 31, 2011

36


Growth Plan: 2012 Changes

In February 2012, the Committee approved adding margin expansion as a third performance metric for the 2012-2013 Growth Plan performance cycle in order to more directly align long-term incentives with the Company’s Long-Term Targets. (See page 25 of this proxy statement). The three metrics—margin expansion, total revenue and return on investment—will be equally weighted.

Retirement Plans. The Company offers certain retirement benefits to our Named Executive Officers. Specifically, Named Executive Officers may participate in broad-based plans including a defined benefit pension plan and a 401(k) savings plan that provides matching Company contributions. The Company also maintains an unfunded supplemental retirement plan to replace the portion of an executive’s pension benefit that cannot be paid under the broad-based plans because of Internal Revenue Service (“IRS”) limitations. In addition, certain Named Executive Officers are entitled to supplemental retirement benefits deemed appropriate in light of circumstances surrounding the recruitment or retention of these individuals. These plans are explained in detail beginning on page 54.

Nonqualified Deferred Compensation Plans. The Company offers executive officers (including the Named Executive Officers) the ability to participate in certain nonqualified deferred compensation plans to permit retirement savings in a tax-efficient manner. Executive officers can elect to defer up to 100% of their annual ICP awards. In addition, executive officers may also participate in the Honeywell Supplemental Savings Plan maintained in order to permit deferral of base salary that cannot be contributed to the Company’s 401(k) savings plan due to IRS limitations. These amounts are matched by the Company only to the extent required to make up for a shortfall in the available match under the 401(k) savings plan due to such limitations. Deferred compensation balances earn interest at a fixed rate based on the Company’s 15-year cost of borrowing, which is subject to change on an annual basis (3.84% in 2011, set at 3.65% for 2012). Consistent with the long-term focus of the executive compensation program, matching contributions are treated as if invested in Company Common Stock. These plans are explained in detail beginning on page 59.

Benefits and Perquisites. Our Named Executive Officers are entitled to participate in Company-wide benefits such as life, medical, dental, accidental death and disability insurance that are competitive with other similarly-sized companies. The Named Executive Officers participate in these programs on the same basis as the rest of the Company’s salaried employees. The Company maintains excess liability coverage for management personnel, including the Named Executive Officers. The CEO also receives additional life insurance benefits agreed at his time of hire in 2002 to replace lost benefits from his prior employer. The Company’s security policy requires the CEO to use Company aircraft for all air travel (business or personal) to ensure the personal security of the CEO and protect the confidentiality of the Company’s business, and to have home security and back-up power systems. The Company may also permit limited personal usage of Corporate aircraft by other executive officers.

Named Executive Officers—Performance & Direct Compensation

Set forth below is a discussion of the compensation actions for each Named Executive Officer, which reflects how the Committee viewed their compensation in 2011.

The tables below their 2011 Performance Summary highlight the Committee’s 2011 annual direct compensation actions (base salary, ICP award, annual stock option grant and annualized target Growth Plan award as well as the incremental Growth Plan award earned above target) for each Named Executive Officer. Any 2011 retention or succession planning action, which is not part of annual direct compensation, is described above in “Succession Planning”. The tables in this section differ from, and are not a substitute for, the Summary Compensation Table, which presents similar information in the format required by the SEC.

Generally, the Committee’s compensation decisions for 2011 reflect consistently strong business results vs. prior year performance. These results were driven by leadership actions that positioned the Company to capitalize on improving business conditions and deliver sustainable, long-term business performance. These decisions demonstrate a strong alignment between pay and performance, with an emphasis on driving long-term growth and productivity.

37


In considering long-term performance, the Committee noted that over the course of Mr. Cote’s tenure, the Company has demonstrated sustainable improvement in key operating metrics which have translated into significant shareowner value creation.

2003 – 2011 Track Record

 

 

 

 

 

CAGR: compound annual growth rate

bps: basis points

 

*

 

 

 

Proforma, excludes mark-to-market pension adjustment

 

**

 

 

 

FCF prior to U.S. cash pension contributions

10 Year Share Price Performance

Indexed (February 19, 2002 (Mr. Cote’s start date) to December 31, 2011); Compensation Peers performance reflects Compensation Peer Group Median

The Company does not define specific pay equity ratios for its senior executives or Named Executive Officers. The compensation disparity between the CEO and the other Named Executive Officers is primarily due to the CEO having significantly greater responsibilities for management and oversight of a diversified, global enterprise and the corresponding market factors reflecting this difference.

38


David Cote—Chairman and Chief Executive Officer

2011 Performance Summary:

 

 

 

 

Positioned Honeywell to capitalize on improved market conditions and to grow faster than global GDP and key end-markets and outperform multi-industry peers.

 

 

 

 

Resulted in sales growth of 13% on a reported basis or 8% on an organic basis, segment profit growth of 19% with segment margin increasing 80 basis points to 14.7% and proforma EPS growth (excluding mark-to-market pension adjustment) of 35%.

 

 

 

 

Sustained the focus of the businesses on the linkage between net income and strong cash generation, resulting in free cash flow of $3.7 billion (prior to U.S. cash pension contributions) with free cash flow conversion of 115% (excluding the impact of the pension mark-to-market adjustment on net income), reflecting continued strong quality of earnings.

 

 

 

 

All key financial metrics exceeded pre-recession (2008) levels.

 

 

 

 

Continued portfolio transformation–expanded into adjacent spaces and divested non-core businesses.

 

 

 

 

Drove “seed planting” investments in growth, including strategic acquisitions, investments in new capacity, new products, platforms and next generation technologies in each of the Company’s business segments.

 

 

 

 

Divested Consumer Products Group automotive aftermarket business, generating approximately $955 million in cash proceeds that were effectively deployed (see below).

 

 

 

 

Continued to expand penetration in emerging regions.

 

 

 

 

Emerging Region sales grew by approximately $1.2 billion and now represent approximately 20% of total sales, with China up 21%, India up 20%, and Middle East up 24%.

 

 

 

 

Effectively invested for future growth, innovation, competitive advantage and productivity.

 

 

 

 

Reduction in cycle time and costs and improvement in quality driven through the Company’s Key Processes - Honeywell Operating System, Velocity Product Development, Functional Transformation.

 

 

 

 

Increased capital expenditures by 23% to $798 million (from $651 million).

 

 

 

 

R&D (research and development) spend up 24% to $1.8 billion.

 

 

 

 

Repositioning savings of approximately $180 million in 2011.

 

 

 

 

Continued strong performance track record reflecting sustained improvement in operating results and increase in shareowner value over Mr. Cote’s tenure as CEO (see page 38 of this proxy statement); Company on track to achieve Long-Term Targets (see page 25 of this proxy statement).

 

 

 

 

 

 

Annual Compensation

 

2011

 

2010

Base Salary

 

 

$

 

1,800,000

 

 

 

$

 

1,800,000

 

Annual ICP Award

 

 

$

 

4,300,000

 

 

 

$

 

4,300,000

 

 

 

 

 

 

Total Annual Cash Compensation (Short-Term)

 

 

$

 

6,100,000

 

 

 

$

 

6,100,000

 

 

 

 

 

 

Growth Plan (portion earned at Target)(a)

 

 

$

 

4,750,000

 

 

 

$

 

4,750,000

 

Stock Options(b)

 

 

$

 

9,726,250

 

 

 

$

 

8,483,500

 

 

 

 

 

 

Target Total Annual Long-Term Compensation

 

 

$

 

14,476,250

 

 

 

$

 

13,233,500

 

 

 

 

 

 

Growth Plan (earned increment above Target)(c)

 

 

$

 

4,750,000

 

 

 

$

 

4,750,000

 

 

 

 

 

 

Total Annual Direct Compensation

 

 

$

 

25,326,250

 

 

 

$

 

24,083,500

 

 

 

 

 

 

 

(a)

 

 

 

2010-2011 Growth Plan annualized over the two-year performance cycle at the target payout level.

 

(b)

 

 

 

2011—775,000 stock options with a grant date Black-Scholes value of $12.55 (vests over four years - exercise price of $57.05 per share).

 

 

 

 

 

2010—950,000 stock options with a grant date Black-Scholes value of $8.93 (vests over four years - exercise price of $40.17 per share).

 

(c)

 

 

 

2010-2011 Growth Plan earned incremental award for performance above target levels; annualized over the two-year performance cycle (represents adjustment to 2010 CD&A disclosure to reflect earned award in appropriate year).
The total 2010-2011 Growth Plan earned award is paid 50% in the first quarter of 2012 and 50% in the first quarter of 2013, subject to continued employment.

39


David Anderson—Senior Vice President and Chief Financial Officer

2011 Performance Summary:

 

 

 

 

Drove working capital and cost reduction initiatives which contributed to the Company exceeding its plan and external guidance for segment margin, proforma EPS and free cash flow generation.

 

 

 

 

Ensured balanced, disciplined deployment of capital which funded growth through strategic acquisitions, re-invested in the Company’s businesses, and returned value to shareowners.

 

 

 

 

Continued to drive disciplined acquisition valuation and integration processes and review and assessment of potential non-core businesses; the Company completed five acquisitions and four divestitures in 2011.

 

 

 

 

Deployed gains and proceeds from the CPG divestiture to fund cross-SBG repositioning actions, make contributions to the Company’s U.S. pension plans, and repurchase shares.

 

 

 

 

Funded investment in technology centers and new manufacturing capacity.

 

 

 

 

Returned value to shareowners—$1.1 billion of share repurchases primarily to offset dilution from employee stock plans and divestitures; $1.1 billion cash dividends paid, reflecting two dividend increases effective in 2011.

 

 

 

 

Continued to drive productivity through funding of repositioning projects that are expected to benefit 2012 and future periods. The Company expects to generate approximately $150 million of incremental savings in 2012 from repositioning projects commenced in prior periods.

 

 

 

 

Advanced organizational efficiency initiatives which contributed to driving overall segment margin improvement to a record level.

 

 

 

 

Reduced labor-related costs as a percentage of revenue by 80 basis points (inclusive of incentive compensation), reduced indirect spend as a percentage of revenue by approximately 30 basis points.

 

 

 

 

Generated $36 million in annual savings through reduction in the Company’s real estate footprint.

 

 

 

 

 

 

Annual Compensation

 

2011

 

2010

Base Salary

 

 

$

 

900,000

 

 

 

$

 

900,000

 

Annual ICP Award

 

 

$

 

1,225,000

 

 

 

$

 

1,150,000

 

 

 

 

 

 

Total Annual Cash Compensation (Short-Term)

 

 

$

 

2,125,000

 

 

 

$

 

2,050,000

 

 

 

 

 

 

Growth Plan (portion earned at Target)(a)

 

 

$

 

1,375,000

 

 

 

$

 

1,375,000

 

Stock Options(b)

 

 

$

 

3,451,250

 

 

 

$

 

2,455,750

 

 

 

 

 

 

Target Total Annual Long-Term Compensation

 

 

$

 

4,826,250

 

 

 

$

 

3,830,750

 

 

 

 

 

 

Growth Plan (earned increment above Target)(c)

 

 

$

 

1,375,000

 

 

 

$

 

1,375,000

 

 

 

 

 

 

Total Annual Direct Compensation(d)

 

 

$

 

8,326,250

 

 

 

$

 

7,255,750

 

 

 

 

 

 

 

(a)

 

 

 

2010-2011 Growth Plan annualized over the two-year performance cycle at the target payout level.

 

(b)

 

 

 

2011—275,000 stock options with a grant date Black-Scholes value of $12.55 (vests over four years - exercise price of $57.05 per share).

 

 

 

 

 

2010—275,000 stock options with a grant date Black-Scholes value of $8.93 (vests over four years - exercise price of $40.17 per share).

 

(c)

 

 

 

2010-2011 Growth Plan earned incremental award for performance above target levels; annualized over the two-year performance cycle (represents adjustment to 2010 CD&A disclosure to reflect earned award in appropriate year).
The total 2010-2011 Growth Plan earned award is paid 50% in the first quarter of 2012 and 50% in the first quarter of 2013, subject to continued employment.

 

(d)

 

 

 

Does not reflect non-annual grant of 65,000 performance-adjusted RSUs in 2010 issued for retention purposes; grant vests over four years.

40


Roger Fradin—President and Chief Executive Officer—Automation and Control Solutions (ACS)

2011 Performance Summary:

 

 

 

 

Grew ACS sales 13% (5% organic), building on its leading positions in key end-markets.

 

 

 

 

Increased year-over-year ACS segment profit by more than $300 million to $2.1 billion. Expanded ACS segment margin 50 basis points by driving price and productivity, net of inflation and investments for growth, and higher sales volumes.

 

 

 

 

Successfully completed key strategic acquisitions that expand ACS’ position and capabilities in connectivity solutions for mobile networking and rugged handheld mobile computers, personal protection equipment and industrial flame detection.

 

 

 

 

Launched over 500 new products across the ACS portfolio, aligned to the mega-trends of energy efficiency, safety and security, and globalization. These new product launches are expected to drive $650 million to $750 million of future sales. Removed more than $80 million in cost from existing product designs. Entered into over $500 million of energy savings performance contracts.

 

 

 

 

Continued ACS global sales expansion, with the Middle East up 37%, China up 19%, and India up 18%.

 

 

 

 

Significant wins in wireless mobile devices, smart grid technologies, security application and integrated systems including perimeter security for off-site venues for the London Olympics and integrated life safety, public address and alarm system for London Heathrow’s new Terminal 2, and wastewater treatment, including a contract to completely overhaul the technology controlling the Los Angeles wastewater treatment system.

 

 

 

 

 

 

Annual Compensation

 

2011

 

2010

Base Salary

 

 

$

 

1,050,000

 

 

 

$

 

1,050,000

 

Annual ICP Award

 

 

$

 

1,300,000

 

 

 

$

 

1,300,000

 

 

 

 

 

 

Total Annual Cash Compensation (Short-Term)

 

 

$

 

2,350,000

 

 

 

$

 

2,350,000

 

 

 

 

 

 

Growth Plan (portion earned at Target)(a)

 

 

$

 

1,375,000

 

 

 

$

 

1,375,000

 

Stock Options(b)

 

 

$

 

3,451,250

 

 

 

$

 

2,455,750

 

 

 

 

 

 

Target Total Annual Long-Term Compensation

 

 

$

 

4,826,250

 

 

 

$

 

3,830,750

 

 

 

 

 

 

Growth Plan (earned increment above Target)(c)

 

 

$

 

1,361,250

 

 

 

$

 

1,361,250

 

 

 

 

 

 

Total Annual Direct Compensation(d)

 

 

$

 

8,537,500

 

 

 

$

 

7,542,000

 

 

 

 

 

 

 

(a)

 

 

 

2010-2011 Growth Plan annualized over the two-year performance cycle at the target payout level.

 

(b)

 

 

 

2011—275,000 stock options with a grant date Black-Scholes value of $12.55 (vests over four years - exercise price of $57.05 per share).

 

 

 

 

 

2010—275,000 stock options with a grant date Black-Scholes value of $8.93 (vests over four years - exercise price of $40.17 per share).

 

(c)

 

 

 

2010-2011 Growth Plan earned incremental award for performance above target levels; annualized over the two-year performance cycle (represents adjustment to 2010 CD&A disclosure to reflect earned award in appropriate year).
The total 2010-2011 Growth Plan earned award is paid 50% in the first quarter of 2012 and 50% in the first quarter of 2013, subject to continued employment.

 

(d)

 

 

 

Does not reflect non-annual grant of 65,000 performance-adjusted RSUs in 2010 issued for retention purposes; grant vests over four years.

41


Timothy Mahoney—President and Chief Executive Officer—Aerospace

2011 Performance Summary:

 

 

 

 

Grew Aerospace sales by 7%, driven by strong growth in both commercial original equipment and commercial aftermarket sales.

 

 

 

 

Secured Air Transport & Regional aftermarket wins with a total estimated value of approximately $2.5 billion, including $975 million in Asia Pacific.

 

 

 

 

Increased year-over-year Aerospace segment profit by 10% to $2.0 billion, with segment margin expanding 40 basis points to 17.6%.

 

 

 

 

Increased investment in research, development and engineering to support new platform wins.

 

 

 

 

Successfully integrated the Aerospace portion of the EMS Technologies acquisition, adding satellite network and airborne communications capabilities.

 

 

 

 

Received FAA certification for new innovative avionics systems and upgrades in 2011, including a SmartTraffic system that will allow aircraft to change their altitudes during transoceanic routes and other areas not controlled by radar, enabling airlines to save millions of dollars in annual fuel costs.

 

 

 

 

Continued to expand the long-cycle backlog in Defense & Space, winning several multi-year contracts with a total estimated value of approximately $2.6 billion, an 87% win rate.

 


 

 

 

 

 

Annual Compensation

 

2011

 

2010

Base Salary

 

 

$

 

763,385

 

 

 

$

 

660,000

 

Annual ICP Award

 

 

$

 

800,000

 

 

 

$

 

700,000

 

 

 

 

 

 

Total Annual Cash Compensation (Short-Term)

 

 

$

 

1,563,385

 

 

 

$

 

1,360,000

 

 

 

 

 

 

Growth Plan (portion earned at Target)(a)

 

 

$

 

1,050,000

 

 

 

$

 

1,050,000

 

Stock Options(b)

 

 

$

 

2,635,500

 

 

 

$

 

1,875,300

 

 

 

 

 

 

Target Total Annual Long-Term Compensation

 

 

$

 

3,685,500

 

 

 

$

 

2,925,300

 

 

 

 

 

 

Growth Plan (earned increment above Target)(c)

 

 

$

 

546,000

 

 

 

$

 

546,000

 

 

 

 

 

 

Total Annual Direct Compensation(d)

 

 

$

 

5,794,885

 

 

 

$

 

4,831,300

 

 

 

 

 

 

 

(a)

 

 

 

2010-2011 Growth Plan annualized over the two-year performance cycle at the target payout level.

 

(b)

 

 

 

2011—210,000 stock options with a grant date Black-Scholes value of $12.55 (vests over four years - exercise price of $57.05 per share).

 

 

 

 

 

2010—210,000 stock options with a grant date Black-Scholes value of $8.93 (vests over four years - exercise price of $40.17 per share).

 

(c)

 

 

 

2010-2011 Growth Plan earned incremental award for performance above target levels; annualized over the two-year performance cycle (represents adjustment to 2010 CD&A disclosure to reflect earned award in appropriate year).
The total 2010-2011 Growth Plan earned award is paid 50% in the first quarter of 2012 and 50% in the first quarter of 2013, subject to continued employment.

 

(d)

 

 

 

Does not reflect non-annual grant of 50,000 performance-adjusted RSUs in 2010 issued for retention purposes; grant vests over seven years.

42


Andreas Kramvis—President and Chief Executive Officer—Performance Materials and Technologies (PMT)

2011 Performance Summary:

 

 

 

 

Grew PMT sales by 20% to $5.7 billion (16% organic growth), driven by strong growth in both the short-cycle businesses serving the HVAC, textile and agricultural markets, as well as long-cycle growth in the refining, gas and petrochemical industries.

 

 

 

 

Increased year-over-year PMT segment profit by $293 million to a record $1.04 billion. Expanded PMT segment margin by 260 basis points to a record 18.4%.

 

 

 

 

Continued rigorous focus on new product introductions and global commercial excellence—launched over 65 new products generating approximately $200 million in 2011 sales.

 

 

 

 

Directed the execution of pricing initiatives and effective supply chain management in a period of commodity inflation contributing to record profit and margin performance in 2011. Secured key raw material supply through the acquisition of the Sunoco phenol plant and long-term supply contracts.

 

 

 

 

Expanded globalization initiatives, with over 50% of sales generated outside North America. Announced the formation of a 50/50 joint venture with China’s Sinochem Group to produce and sell blowing agents for energy efficient foam insulation in China. Continued to win significant refinery projects in high growth regions.

 

 

 

 

Invested to upgrade engineering capabilities and operating effectiveness of PMT manufacturing facilities. Fifteen production units performed at new record levels in 2011.

 

 

 

 

Delivered significant year-over-year improvement in working capital turns.

 

 

 

 

 

 

Annual Compensation

 

2011

 

2010

Base Salary

 

 

$

 

623,846

 

 

 

$

 

550,000

 

Annual ICP Award

 

 

$

 

875,000

 

 

 

$

 

750,000

 

 

 

 

 

 

Total Annual Cash Compensation (Short-Term)

 

 

$

 

1,498,846

 

 

 

$

 

1,300,000

 

 

 

 

 

 

Growth Plan (portion earned at Target)(a)

 

 

$

 

875,000

 

 

 

$

 

875,000

 

Stock Options(b)

 

 

$

 

2,196,250

 

 

 

$

 

1,562,750

 

 

 

 

 

 

Target Total Annual Long-Term Compensation

 

 

$

 

3,071,250

 

 

 

$

 

2,437,750

 

 

 

 

 

 

Growth Plan (earned increment above Target)(c)

 

 

$

 

875,000

 

 

 

$

 

875,000

 

 

 

 

 

 

Total Annual Direct Compensation(d)

 

 

$

 

5,445,096

 

 

 

$

 

4,612,750

 

 

 

 

 

 

 

(a)

 

 

 

2010-2011 Growth Plan annualized over the two-year performance cycle at the target payout level.

 

(b)

 

 

 

2011—175,000 stock options with a grant date Black-Scholes value of $12.55 (vests over four years - exercise price of $57.05 per share).

 

 

 

 

 

2010—175,000 stock options with a grant date Black-Scholes value of $8.93 (vests over four years - exercise price of $40.17 per share).

 

(c)

 

 

 

2010-2011 Growth Plan earned incremental award for performance above target levels; annualized over the two-year performance cycle (represents adjustment to 2010 CD&A disclosure to reflect earned award in appropriate year).
The total 2010-2011 Growth Plan earned award is paid 50% in the first quarter of 2012 and 50% in the first quarter of 2013, subject to continued employment.

 

(d)

 

 

 

Does not reflect non-annual grants of 100,000 performance-adjusted RSUs in 2010 which required Mr. Kramvis’ agreement to comprehensive restrictive covenants (grant vests in four years) and 40,000 performance-adjusted RSUs in 2010 issued for retention and succession planning purposes (grant vests over five years).

43


Other Compensation Practices and Policies

Best Practices

The Committee regularly reviews best practices in governance and executive compensation and has revised Honeywell’s policies and practices to:

 

 

 

 

Upon a change in control, pay ICP awards at the time they would typically be paid (no acceleration) and based on business performance rather than target (adopted in 2011);

 

 

 

 

Guard the Company against competitive harm by obtaining enhanced restrictive covenants in connection with annual equity grants (adopted in 2011) and certain succession planning actions;

 

 

 

 

Require executive officers to maintain specific stock ownership levels, holding Common Stock equal in value to at least four times their base salary (six times for the CEO);

 

 

 

 

Require Officers to hold the net shares from RSU vesting and the net gain shares from option exercises for at least one year (see “Stock Ownership Guidelines” below);

 

 

 

 

Add a relative TSR performance-based adjustment mechanism to RSU grants to officers;

 

 

 

 

Require automatic reinvestment of dividend equivalents on RSUs into additional RSUs, which vest according to the same schedule as the underlying RSUs to which they relate;

 

 

 

 

Permit the recapture of incentive compensation from senior executives in the event of a significant financial restatement;

 

 

 

 

Permit the cancellation and recovery of gains attributable to equity awards from employees who leave the Company to join a competitor;

 

 

 

 

Eliminate tax reimbursement payments (known as “tax gross-ups”) on both perquisites received by officers and excise taxes that may become due upon a change in control for new participants in the Company’s severance plan (in each case, effective January 1, 2010);

 

 

 

 

Prohibit the Committee’s independent compensation consultant from performing any services for the Company;

 

 

 

 

Eliminate the annual cash flexible perquisite allowance for executive officers;

 

 

 

 

Reduce the interest rate on deferred compensation by tying it to the Company’s cost of capital;

 

 

 

 

Prohibit the granting of stock options with an exercise price less than the fair market value of the Company’s Common Stock on the date of grant; and

 

 

 

 

Prohibit the repricing (reduction in exercise price) or reloading of stock options.

Risk Considerations

The Committee believes that the balanced utilization of the various elements of the Company’s executive compensation program:

 

 

 

 

Supports the achievement of competitive revenue, earnings and cash performance in variable economic and industry conditions without undue risk; and

 

 

 

 

Mitigates the potential to reward risk-taking that may produce short-term results that appear in isolation to be favorable, but that may undermine the successful execution of the Company’s long-term business strategy and destroy shareowner value.

The following risk oversight and compensation design features guard against excessive risk-taking:

 

 

 

 

Company’s processes for developing strategic and annual operating plans, approval of capital investments, internal control over financial reporting and other financial, operational and compliance policies and practices (see pages 10-11 of this proxy statement for a full discussion of the role of the Board of Directors in the risk oversight process);

 

 

 

 

Diversified nature of the Company’s overall portfolio of businesses with respect to industries and markets served (types, long cycle/short cycle), products and services sold, and geographic footprint;

44


 

 

 

 

Review and approval of corporate, SBG and individual executive officer objectives by the Committee to ensure that these goals are aligned with the Company’s annual operating and strategic plans, achieve the proper risk/reward balance, and do not encourage unnecessary or excessive risk-taking;

 

 

 

 

Base salaries consistent with executives’ responsibilities so that they are not motivated to take excessive risks to achieve a reasonable level of financial security;

 

 

 

 

Determination of incentive awards based on a review of a variety of indicators of performance, thus diversifying the risk associated with any single indicator of performance;

 

 

 

 

Design of long-term compensation to reward executives for driving sustainable, profitable, growth for shareowners;

 

 

 

 

Vesting periods for equity compensation awards that encourage executives to focus on sustained stock price appreciation;

 

 

 

 

The mix between fixed and variable, annual and long-term, and cash and equity compensation are designed to encourage strategies and actions that are in the Company’s long-term best interests;

 

 

 

 

Incentive plans are not overly leveraged and cap the maximum payment; design features are intended to balance pay for performance with an appropriate level of risk taking. The Committee has discretionary authority to adjust annual ICP payments, which further reduces any business risk associated with such plan;

 

 

 

 

Adoption of “clawback” policies, which provide for the recoupment of incentive compensation paid to senior executives in event of a significant restatement of Company financial results;

 

 

 

 

“Clawback” provisions in the Company’s current stock plan that allow the Company to cancel shares or recover gains realized by an executive if non-competition provisions are violated; and

 

 

 

 

Ownership thresholds in the Company’s stock ownership guidelines that require Named Executive Officers to hold shares of Common Stock equal to four times their current annual base salary (six times for the CEO), as detailed below.

Accordingly, based upon the foregoing, the Company believes that the risks arising from its compensation policies and practices are not reasonably likely to have a material adverse effect on the Company.

Stock Ownership Guidelines

The Committee believes that executives will more effectively pursue the long-term interests of the Company’s shareowners if they are also shareowners. Accordingly, the Committee adopted minimum stock ownership guidelines in May 2003 for all executive officers.

Under these guidelines, the CEO must hold shares of Common Stock equal in value to six times his current annual base salary. Other executive officers are required to own shares equal in value to four times their current base salary. Shares used in determining whether these guidelines are met include shares held personally, share equivalents held in qualified and nonqualified retirement accounts, and RSUs. Executive officers have five years to meet these guidelines. Each of the Named Executive Officers has attained the prescribed ownership threshold.

In addition, the stock ownership guidelines require officers to hold for at least one year the “net shares” from RSU vesting (with respect to RSUs granted after the adoption of the stock ownership guidelines) or the “net gain shares” of Common Stock that they receive by exercising stock options. “Net shares” means the number of shares obtained from RSU vesting, less the number of shares withheld or sold to pay applicable taxes. “Net gain shares” means the number of shares obtained by exercising the option, less the number of shares the officer sells to cover the exercise price of the options and pay applicable taxes. After the one year holding period, officers may sell net shares or net gain shares, provided that, following any sale, they continue to hold shares of Common Stock in excess of the prescribed minimum stock ownership level.

The stock ownership guidelines do not apply to officers at or over age 60 who have at least ten years of service. This allows prudent investment planning for officers nearing retirement. As of the date of this proxy statement, all of the Named Executive Officers are subject to the stock ownership guidelines.

45


Recoupment

The Company’s Corporate Governance Guidelines provide for the recoupment (or “clawback”) of incentive compensation paid to senior executives in the event of a significant restatement of financial results (a “Restatement”). Under the guidelines, the Board can seek recoupment if and to the extent that (i) the amount of incentive compensation was calculated based upon the achievement of financial results that were subsequently reduced due to a Restatement, (ii) the senior executive engaged in misconduct, and (iii) the amount of incentive compensation that would have been awarded to the senior executive had the financial results been properly reported would have been lower than the amount actually awarded. The complete text of the Corporate Governance Guidelines is posted on our website at www.honeywell.com (see “Investor Relations”—“Corporate Governance”).

In the event that during the two-year period following an executive officer’s termination of employment with Honeywell, he or she commences employment with or otherwise provides services to a Honeywell competitor without the Committee’s prior approval, the Company reserves the right, for awards issued under the 2003, 2006 and 2011 Stock Incentive Plans, to (i) cancel all unexercised options and (ii) recover any gains attributable to options that were exercised, and any value attributable to GPUs and RSUs that were paid, during the period beginning six months before and ending two years after the executive officer’s termination of employment.

In addition, the Company has entered into non-competition agreements with its executive officers that preclude them from going to work for a competitor for up to two years after termination of employment with Honeywell for any reason. The list of competitors and the duration of the non-competition covenant has been tailored, in each case, to the executive officer’s position and the competitive threat presented thereby. Because money damages cannot adequately compensate Honeywell for violations of these non-competition covenants, the Company has a full range of equitable remedies at its disposal to enforce these agreements, including the application of injunctive relief.

Tax Deductibility of Executive Compensation

Section 162(m) of the Internal Revenue Code restricts deductibility for federal income tax purposes of annual individual compensation in excess of $1 million to the Named Executive Officers (excluding the Chief Financial Officer) if certain conditions are not satisfied. Honeywell intends, to the extent practicable, to preserve deductibility of compensation paid to its Named Executive Officers while maintaining compensation programs that effectively attract, motivate and retain exceptional executives in a highly competitive environment.

The Company has designed its annual and long-term cash incentive and stock option awards to permit full deductibility. The plans under which these awards are made have been approved by the shareowners and provide for awards that are eligible for deductibility as performance-based compensation. The Committee may use its discretion to set actual compensation below the maximum amount calculated by application of the relevant performance criteria. The Committee intended that all annual ICP and Growth Plan payments earned by the Named Executive Officers for 2011 would be deductible for federal income tax purposes.

The Committee does not believe, however, that it would be in the best interests of the Company or its shareowners to restrict the Committee’s discretion and flexibility (an integral part of our compensation philosophy) to design compensation plans and arrangements that may result in non-deductible compensation expenses. Accordingly, the Committee from time to time has approved elements of compensation for certain Named Executive Officers that were consistent with the objectives of the Company’s executive compensation program, but that were not fully deductible (which includes, among other things, a portion of the CEO’s base salary for 2011).

Transactions in Company Securities

No employee, including Named Executive Officers, may engage in short sales of Honeywell securities. Also, selling or purchasing puts or calls or otherwise trading in or writing options on Honeywell’s securities by employees, officers and directors is prohibited. These same restrictions also apply to our non- employee directors.

46


MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE REPORT

The Management Development and Compensation Committee reviewed and discussed Honeywell’s Compensation Discussion and Analysis with management. Based on this review and discussion, the Committee recommended that the Board of Directors include the Compensation Discussion and Analysis in this proxy statement and the Form 10-K for the year ended December 31, 2011.

THE MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE

D. Scott Davis, Chair
Gordon M. Bethune
Clive R. Hollick
Bradley T. Sheares

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During fiscal year 2011, all of the members of the Management Development and Compensation Committee were independent directors, and no member was an employee or former employee of Honeywell. No Committee member had any relationship requiring disclosure under “Certain Relationships and Related Transactions” on pages 16-17 of this proxy statement. During fiscal year 2011, none of our executive officers served on the compensation committee (or its equivalent) or board of directors of another entity whose executive officer served on our Management Development and Compensation Committee.

47


SUMMARY COMPENSATION TABLE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Named Executive Officer
and Principal Position

 

Year

 

Salary($)(1)

 

Bonus($)(2)

 

Stock
Awards($)
(3)

 

Option
Awards($)
(4)

 

Non-Equity
Incentive
Plan
Compensation($)
(5)

 

Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings($)
(6)

 

All Other
Compensation($)
(7)

 

Total

David M. Cote

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chairman of the

 

 

 

2011

 

 

 

$

 

1,800,000

 

 

 

$

 

4,300,000

 

 

 

$

 

0

 

 

 

$

 

9,849,750

 

 

 

$

 

19,000,000

 

 

 

$

 

2,464,474

 

 

 

$

 

428,499

 

 

 

$

 

37,842,723

 

Board and Chief

 

 

 

2010

 

 

 

$

 

1,800,000

 

 

 

$

 

4,300,000

 

 

 

$

 

0

 

 

 

$

 

8,483,500

 

 

 

$

 

0

 

 

 

$

 

5,341,583

 

 

 

$

 

228,929

 

 

 

$

 

20,154,012

 

Executive Officer

 

 

 

2009

 

 

 

$

 

1,800,000

 

 

 

$

 

0

 

 

 

$

 

4,252,500

 

 

 

$

 

6,374,500

 

 

 

$

 

0

 

 

 

$

 

384,123

 

 

 

$

 

412,038

 

 

 

$

 

13,223,161

 

David J. Anderson

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior Vice

 

 

 

2011

 

 

 

$

 

900,000

 

 

 

$

 

1,225,000

 

 

 

$

 

0

 

 

 

$

 

3,451,250

 

 

 

$

 

5,500,000

 

 

 

$

 

1,907,615

 

 

 

$

 

96,360

 

 

 

$

 

13,080,225

 

President, Chief

 

 

 

2010

 

 

 

$

 

900,000

 

 

 

$

 

1,150,000

 

 

 

$

 

3,090,750

 

 

 

$

 

2,455,750

 

 

 

$

 

0

 

 

 

$

 

1,526,121

 

 

 

$

 

37,000

 

 

 

$

 

9,159,621

 

Financial Officer

 

 

 

2009

 

 

 

$

 

900,000

 

 

 

$

 

0

 

 

 

$

 

1,134,000

 

 

 

$

 

1,845,250

 

 

 

$

 

0

 

 

 

$

 

2,604,267

 

 

 

$

 

39,649

 

 

 

$

 

6,523,166

 

Roger Fradin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

President & Chief

 

 

 

2011

 

 

 

$

 

1,050,000

 

 

 

$

 

1,300,000

 

 

 

$

 

0

 

 

 

$

 

3,451,250

 

 

 

$

 

5,472,500

 

 

 

$

 

484,143

 

 

 

$

 

66,200

 

 

 

$

 

11,824,093

 

Executive Officer

 

 

 

2010

 

 

 

$

 

1,050,000

 

 

 

$

 

1,300,000

 

 

 

$

 

3,068,000

 

 

 

$

 

2,455,750

 

 

 

$

 

0

 

 

 

$

 

525,344

 

 

 

$

 

66,290

 

 

 

$

 

8,465,384

 

Automation and

 

 

 

2009

 

 

 

$

 

1,050,000

 

 

 

$

 

0

 

 

 

$

 

1,134,000

 

 

 

$

 

1,845,250

 

 

 

$

 

0

 

 

 

$

 

669,300

 

 

 

$

 

119,694

 

 

 

$

 

4,818,244

 

Control Solutions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Timothy O. Mahoney(8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

President & Chief

 

 

 

2011

 

 

 

$

 

763,385

 

 

 

$

 

800,000

 

 

 

$

 

0

 

 

 

$

 

2,635,500

 

 

 

$

 

3,192,000

 

 

 

$

 

955,005

 

 

 

$

 

35,153

 

 

 

$

 

8,381,043

 

Executive Officer,

 

 

 

2010

 

 

 

$

 

660,000

 

 

 

$

 

700,000

 

 

 

$

 

2,377,500

 

 

 

$

 

1,875,300

 

 

 

$

 

0

 

 

 

$

 

749,734

 

 

 

$

 

45,829

 

 

 

$

 

6,408,363

 

Aerospace

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Andreas Kramvis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

President & Chief

 

 

 

2011

 

 

 

$

 

623,846

 

 

 

$

 

875,000

 

 

 

$

 

0

 

 

 

$

 

2,196,250

 

 

 

$

 

3,500,000

 

 

 

$

 

205,825

 

 

 

$

 

58,540

 

 

 

$

 

7,459,461

 

Executive Officer,

 

 

 

2010

 

 

 

$

 

550,000

 

 

 

$

 

750,000

 

 

 

$

 

6,996,000

 

 

 

$

 

1,562,750

 

 

 

$

 

0

 

 

 

$

 

197,831

 

 

 

$

 

35,605

 

 

 

$

 

10,092,186

 

Performance
Materials and
Technologies

 

 

 

2009

 

 

 

$

 

550,000

 

 

 

$

 

0

 

 

 

$

 

708,750

 

 

 

$

 

1,174,250

 

 

 

$

 

0

 

 

 

$

 

219,238

 

 

 

$

 

79,745

 

 

 

$

 

2,731,983

 


 

 

(1)

 

 

 

Messrs. Cote, Anderson and Fradin did not receive a base salary adjustment in 2011. No Named Executive Officer received a merit increase in 2010 or 2009.

 

(2)

 

 

 

Named Executive Officers did not receive annual incentive bonus awards for 2009.

 

(3)

 

 

 

Named Executive Officers did not receive RSU awards in 2011. For 2010 and 2009, amounts reflect the aggregate grant date fair value of RSU awards computed in accordance with FASB ASC Topic 718. The grant date fair value per share for RSU awards made in 2010 include an assumption with respect to the achievement of the performance adjustment attached to the award (refer to footnotes to the Outstanding Equity Awards table for a description of the performance adjustment). Specifically, the grant date fair value of the performance-adjusted RSUs granted on October 6, 2010 (Messrs. Anderson and Mahoney) and October 7, 2010 (Messrs. Kramvis and Fradin) were valued at $47.55 and $47.20 per share, respectively, calculated in accordance with FASB ASC Topic 718 based on a multifactor Monte Carlo model which simulates Honeywell’s stock price and TSR relative to each of the other companies in the Compensation Peer Group. The grant date fair value of the performance-adjusted RSUs granted on October 26, 2010 (Mr. Kramvis) was valued at $51.08, using the same model as described in the preceding sentence. The grant date fair value per share for RSU awards made in 2009 represents the average of the high and low trading prices of a share of Common Stock on the grant date.

 

(4)

 

 

 

Amounts reflect the aggregate grant date fair value of option awards computed in accordance with FASB ASC Topic 718. The fair value of each option award is calculated on the date of grant using the Black-Scholes option-pricing model. Option awards were made on February 25, 2011 with a Black-Scholes value of $12.55 per share. A more detailed discussion of the assumptions used in the valuation of option awards made in fiscal year 2011 may be found in Note 20 of the Notes to the Financial Statements in the Company’s Form 10-K for the year ended December 31, 2011. The value of Mr. Cote’s option award for 2011 includes $123,500 representing the incremental increase in the fair value of Mr. Cote’s outstanding stock option awards as a result of the modification that permits Mr. Cote to exercise his vested stock options for their full remaining terms following his retirement after April 1, 2015 pursuant to the terms of the Retention Agreement (refer to page 31 of this proxy statement).

 

(5)

 

 

 

2011 values reflect the full earned amount under the Growth Plan with respect to the 2010-2011 performance cycle, reported in a single year as required by applicable SEC rules. This reporting is inconsistent with both the Management Development and Compensation Committee’s view when setting the Growth Plan targets

48


 

 

 

 

and unit awards and with the actual payout schedule (see pages 35-36 of this proxy statement for further detail). Actual payment of this award will be made in two equal installments, the first of which will be made in March 2012 and the second in March 2013, subject to the Named Executive Officer’s continued active employment on each payment date.

 

(6)

 

 

 

Represents (a) the aggregate change in the present value of each Named Executive Officer’s accumulated benefit under the Company’s pension plans from December 2010 to December 2011 (as disclosed in the Pension Benefits table on page 55 of this proxy statement) and (b) interest earned in 2011 on deferred compensation that is considered “above-market interest” under SEC rules (as discussed beginning on page 60 of this proxy statement), as shown in the following table:

 

 

 

 

 

Named Executive Officer

 

Change in Aggregate
Pension Value

 

Above Market
Interest

David M. Cote

 

 

$

 

2,029,413

 

 

 

$

 

435,061

 

David J. Anderson

 

 

$

 

1,742,046

 

 

 

$

 

165,569

 

Roger Fradin

 

 

$

 

374,849

 

 

 

$

 

109,294

 

Timothy O. Mahoney

 

 

$

 

914,566

 

 

 

$

 

40,439

 

Andreas Kramvis.

 

 

$

 

143,279

 

 

 

$

 

62,546

 

 

(7)

 

 

 

For 2011, all other compensation consists of the following:

 

 

 

 

 

 

 

 

 

 

 

Item

 

Mr. Cote

 

Mr. Anderson

 

Mr. Fradin

 

Mr. Mahoney

 

Mr. Kramvis

Excess liability insurance(A)

 

 

$

 

1,000

 

 

 

$

 

1,000

 

 

 

$

 

1,000

 

 

 

$

 

1,000

 

 

 

$

 

1,000

 

Executive life insurance(B)

 

 

$

 

62,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Matching Contributions(C)

 

 

$

 

99,692

 

 

 

$

 

49,846

 

 

 

$

 

58,154

 

 

 

$

 

34,153

 

 

 

$

 

41,723

 

Personal use of Company aircraft(D)

 

 

$

 

237,848

 

 

 

$

 

45,514

 

 

 

$

 

7,046

 

 

 

 

 

 

 

$

 

15,817

 

Security Systems(E)

 

 

$

 

27,959

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Totals

 

 

$

 

428,499

 

 

 

$

 

96,360

 

 

 

$

 

66,200

 

 

 

$

 

35,153

 

 

 

$

 

58,540

 

 

 

 

 

 

 

 

 

 

 

 


 

 

(A)

 

 

 

Represents the annual premiums paid by the Company to purchase excess liability insurance coverage for each Named Executive Officer.

 

(B)

 

 

 

Under the terms of Mr. Cote’s employment agreement, the Company is obligated to provide Mr. Cote with $10 million in life insurance coverage at the Company’s cost. The Company reimbursed Mr. Cote a total of $62,000 for life insurance premiums paid by him in 2011.

 

(C)

 

 

 

Represents total Company contributions to each Named Executive Officer’s accounts in the tax-qualified Honeywell Savings and Ownership Plan and the non-tax-qualified Supplemental Savings Plan.

 

(D)

 

 

 

For security reasons, Mr. Cote is required by Company policy to use Company aircraft for all business and personal travel. The amount shown for each Named Executive Officer represents the aggregate incremental cost of personal travel by the Named Executive Officer. This amount is calculated by multiplying the total number of personal flight hours times the average direct variable operating costs (expenses for aviation employees, business meals, aircraft maintenance, telecommunications, transportation charges, including but not limited to hangar and landing fees, aviation fuel, and commissaries) per flight hour for Company aircraft. The incremental cost of locating aircraft to the origin of a personal trip or returning aircraft from the completion of a personal trip is also included in this calculation. Use of Company aircraft saves substantial time and allows the CEO better access to employees and customers around the world. Over 98% of the use of Company aircraft is for business purposes.

 

(E)

 

 

 

Represents the total cost paid by the Company in 2011 for equipment and monthly fees relating to personal home security systems provided to Mr. Cote by the Company.

 

(8)

 

 

 
Data not reported for 2009 as Mr. Mahoney became a Named Executive Officer in 2010.

49


GRANTS OF PLAN-BASED AWARDS—FISCAL YEAR 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

Named Executive Officer

 

Award
Type
(1)

 

Grant
Date

 

All Other
Option
Awards:
Number of
Securities
Underlying
Options(#)
(2)

 

Exercise
or Base
Price of
Option
Awards
($/Sh)

 

Closing
Price on
Date of
Grant of
Option
Awards
($/Sh)

 

Grant
Date
Fair Value
of Stock
and
Option
Awards
(3)

David M. Cote

 

NQSO

 

 

 

2/25/11

 

 

 

 

775,000

 

 

 

$

 

57.05

 

 

 

$

 

57.28

 

 

 

$

 

9,849,750

 

David J. Anderson

 

NQSO

 

 

 

2/25/11

 

 

 

 

275,000

 

 

 

$

 

57.05

 

 

 

$

 

57.28

 

 

 

$

 

3,451,250

 

Roger Fradin

 

NQSO

 

 

 

2/25/11

 

 

 

 

275,000

 

 

 

$

 

57.05

 

 

 

$

 

57.28

 

 

 

$

 

3,451,250

 

Timothy O. Mahoney

 

NQSO

 

 

 

2/25/11

 

 

 

 

210,000

 

 

 

$

 

57.05

 

 

 

$

 

57.28

 

 

 

$

 

2,635,500

 

Andreas C. Kramvis

 

NQSO

 

 

 

2/25/11

 

 

 

 

175,000

 

 

 

$

 

57.05

 

 

 

$

 

57.28

 

 

 

$

 

2,196,250

 


 

 

(1)

 

 

 

Award Type:

 

 

 

 

 

NQSO = Nonqualified Stock Option

 

(2)

 

 

 

Represents stock options granted to the Named Executive Officers on the grant date. The stock options vest in equal annual installments over a period of four years.

 

(3)

 

 

 

The grant date fair value of each stock option was $12.55 calculated in accordance with FASB ASC Topic 718, using the Black-Scholes option valuation model at the time of grant. The value of Mr. Cote’s option award includes $123,500 representing the incremental increase in the fair value of Mr. Cote’s outstanding stock option awards as a result of the modification that permits Mr. Cote to exercise his vested stock options for their full remaining terms following his retirement after April 1, 2015 pursuant to the terms of the Retention Agreement (refer to page 31 of this proxy statement).

Description of Plan Based Awards

All NQSO awards granted to the Named Executive Officers in fiscal year 2011 were granted under the Company’s 2006 Stock Incentive Plan and are governed by and subject to the terms and conditions of the 2006 Stock Incentive Plan and the relevant award agreements. A detailed discussion of stock options can be found beginning on page 34 of this proxy statement.

50


OUTSTANDING EQUITY AWARDS AT 2011 FISCAL YEAR-END

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Named Executive Officer

 

Grant
Year

 

Option Awards

 

Stock Awards

 

Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable

 

Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable

 

Option
Exercise
Price($)

 

Option
Expiration
Date

 

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

 

Market Value
of Shares
or Units
of Stock
That Have
Not Vested($)
(1)

David M. Cote

 

 

 

2011

 

 

 

 

 

 

 

 

775,000

(2)

 

 

 

$

 

57.05

 

 

 

 

2/24/2021

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

 

 

 

237,500

 

 

 

 

712,500

(3)

 

 

 

$

 

40.17

 

 

 

 

2/25/2020

 

 

 

 

 

 

 

 

 

 

 

 

2009

 

 

 

 

475,000

 

 

 

 

475,000

(4)

 

 

 

$

 

28.35

 

 

 

 

2/23/2019

 

 

 

 

162,022

(7)

 

 

 

$

 

8,805,896

 

 

 

 

 

2008

 

 

 

 

487,500

 

 

 

 

162,500

(5)

 

 

 

$

 

58.48

 

 

 

 

2/25/2018

 

 

 

 

 

 

 

 

 

 

 

 

2007

 

 

 

 

700,000

 

 

 

 

 

 

 

$

 

47.38

 

 

 

 

2/25/2017

 

 

 

 

130,891

(8)

 

 

 

$

 

7,113,926

 

 

 

 

 

2006

 

 

 

 

700,000

 

 

 

 

 

 

 

$

 

42.32

 

 

 

 

2/16/2016

 

 

 

 

 

 

 

 

 

 

 

 

2005

 

 

 

 

600,000

 

 

 

 

 

 

 

$

 

36.51

 

 

 

 

2/1/2015

 

 

 

 

 

 

 

 

 

 

 

 

 

2004

 

 

 

 

600,000

 

 

 

 

 

 

 

$

 

35.65

 

 

 

 

2/5/2014

 

 

 

 

 

 

 

 

 

 

 

 

2003

 

 

 

 

600,000

 

 

 

 

 

 

 

$

 

23.93

 

 

 

 

2/6/2013

 

 

 

 

 

 

 

 

 

 

 

 

 

2002

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

378,200

(9)

 

 

 

$

 

20,555,170

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

4,400,000

 

 

 

 

2,125,000

 

 

 

 

 

 

 

 

671,113

 

 

 

$

 

36,474,992

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

David J. Anderson

 

 

 

2011

 

 

 

 

 

 

 

 

275,000

(2)

 

 

 

$

 

57.05

 

 

 

 

2/24/2021

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

 

 

 

68,750

 

 

 

 

206,250

(3)

 

 

 

$

 

40.17

 

 

 

 

2/25/2020

 

 

 

 

67,105

(10)

 

 

 

$

 

3,647,157

 

 

 

 

 

2009

 

 

 

 

137,500

 

 

 

 

137,500

(4)

 

 

 

$

 

28.35

 

 

 

 

2/23/2019

 

 

 

 

43,205

(7)

 

 

 

$

 

2,348,192

 

 

 

 

2008

 

 

 

 

120,000

 

 

 

 

40,000

(5)

 

 

 

$

 

58.48

 

 

 

 

2/25/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

2007

 

 

 

 

175,000

 

 

 

 

 

 

 

$

 

47.38

 

 

 

 

2/25/2017

 

 

 

 

 

 

 

 

 

 

 

 

2006

 

 

 

 

175,000

 

 

 

 

 

 

 

$

 

42.32

 

 

 

 

2/16/2016

 

 

 

 

 

 

 

 

 

 

 

 

 

2005

 

 

 

 

150,000

 

 

 

 

 

 

 

$

 

36.51

 

 

 

 

2/1/2015

 

 

 

 

 

 

 

 

 

 

 

 

2004

 

 

 

 

150,000

 

 

 

 

 

 

 

$

 

35.65

 

 

 

 

2/5/2014

 

 

 

 

 

 

 

 

 

 

 

 

 

2003

 

 

 

 

262,000

 

 

 

 

 

 

 

$

 

28.13

 

 

 

 

7/24/2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

1,238,250

 

 

 

 

658,750

 

 

 

 

 

 

 

 

110,310

 

 

 

$

 

5,995,349

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Roger Fradin

 

 

 

2011

 

 

 

 

 

 

 

 

275,000

(2)

 

 

 

$

 

57.05

 

 

 

 

2/24/2021

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

 

 

 

68,750

 

 

 

 

206,250

(3)

 

 

 

$

 

40.17

 

 

 

 

2/25/2020

 

 

 

 

67,105

(11)

 

 

 

$

 

3,647,157

 

 

 

 

 

2009

 

 

 

 

137,500

 

 

 

 

137,500

(4)

 

 

 

$

 

28.35

 

 

 

 

2/23/2019

 

 

 

 

43,205

(7)

 

 

 

$

 

2,348,192

 

 

 

 

2008

 

 

 

 

120,000

 

 

 

 

40,000

(5)

 

 

 

$

 

58.48

 

 

 

 

2/25/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

2007

 

 

 

 

175,000

 

 

 

 

 

 

 

$

 

47.38

 

 

 

 

2/25/2017

 

 

 

 

 

 

 

 

 

 

 

 

2006

 

 

 

 

175,000

 

 

 

 

 

 

 

$

 

42.32

 

 

 

 

2/16/2016

 

 

 

 

 

 

 

 

 

 

 

 

 

2005

 

 

 

 

150,000

 

 

 

 

 

 

 

$

 

36.51

 

 

 

 

2/1/2015

 

 

 

 

17,000

(12)

 

 

 

$

 

923,950

 

 

 

 

2004

 

 

 

 

150,000

 

 

 

 

 

 

 

$

 

35.65

 

 

 

 

2/5/2014

 

 

 

 

 

 

 

 

 

 

 

 

 

2003

 

 

 

 

75,000

 

 

 

 

 

 

 

$

 

23.93

 

 

 

 

2/6/2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

1,051,250

 

 

 

 

658,750

 

 

 

 

 

 

 

 

127,310

 

 

 

$

 

6,919,299

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Timothy O. Mahoney

 

 

 

2011

 

 

 

 

 

 

 

 

210,000

(2)

 

 

 

$

 

57.05

 

 

 

 

2/24/2021

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

 

 

 

52,500

 

 

 

 

157,500

(3)

 

 

 

$

 

40.17

 

 

 

 

2/25/2020

 

 

 

 

51,619

(13)

 

 

 

$

 

2,805,493

 

 

 

 

 

2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,781

(14)

 

 

 

$

 

640,297

 

 

 

 

2009

 

 

 

 

20,000

 

 

 

 

20,000

(4)

 

 

 

$

 

28.35

 

 

 

 

2/23/2019

 

 

 

 

16,180

(7)

 

 

 

$

 

879,383

 

 

 

 

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,029

(15)

 

 

 

$

 

816,826

 

 

 

 

2008

 

 

 

 

15,000

 

 

 

 

5,000

(5)

 

 

 

$

 

58.48

 

 

 

 

2/25/2018

 

 

 

 

 

 

 

 

 

 

 

 

 

2007

 

 

 

 

20,000

 

 

 

 

 

 

 

$

 

47.38

 

 

 

 

2/25/2017

 

 

 

 

 

 

 

 

 

 

 

 

2006

 

 

 

 

30,000

 

 

 

 

 

 

 

$

 

42.32

 

 

 

 

2/16/2016

 

 

 

 

5,780

(16)

 

 

 

$

 

314,143

 

 

 

 

 

2005

 

 

 

 

13,500

 

 

 

 

 

 

 

$

 

36.51

 

 

 

 

2/1/2015

 

 

 

 

 

 

 

 

 

 

 

 

2004

 

 

 

 

6,000

 

 

 

 

 

 

 

$

 

35.65

 

 

 

 

2/5/2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

157,000

 

 

 

 

392,500

 

 

 

 

 

 

 

 

100,389

 

 

 

$

 

5,456,142

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Andreas C. Kramvis

 

 

 

2011

 

 

 

 

 

 

 

 

175,000

(2)

 

 

 

$

 

57.05

 

 

 

 

2/24/2021

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

 

 

 

43,750

 

 

 

 

131,250

(3)

 

 

 

$

 

40.17

 

 

 

 

2/25/2020

 

 

 

 

103,238

(17)

 

 

 

$

 

5,610,985

 

 

 

 

2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

41,295

(18)

 

 

 

$

 

2,244,383

 

 

 

 

 

2009

 

 

 

 

87,500

 

 

 

 

87,500

(4)

 

 

 

$

 

28.35

 

 

 

 

2/23/2019

 

 

 

 

27,003

(7)

 

 

 

$

 

1,467,613

 

 

 

 

2008

 

 

 

 

49,500

 

 

 

 

16,500

(6)

 

 

 

$

 

56.35

 

 

 

 

3/31/2018

 

 

 

 

37,196

(19)

 

 

 

$

 

2,021,603

 

 

 

 

 

2008

 

 

 

 

10,500

 

 

 

 

3,500

(5)

 

 

 

$

 

58.48

 

 

 

 

2/25/2018

 

 

 

 

 

 

 

 

 

 

 

 

2007

 

 

 

 

16,000

 

 

 

 

 

 

 

$

 

47.38

 

 

 

 

2/25/2017

 

 

 

 

 

 

 

 

 

 

 

 

 

2006

 

 

 

 

30,000

 

 

 

 

 

 

 

$

 

42.32

 

 

 

 

2/16/2016

 

 

 

 

 

 

 

 

 

 

 

 

2005

 

 

 

 

30,000

 

 

 

 

 

 

 

$

 

36.51

 

 

 

 

2/1/2015

 

 

 

 

 

 

 

 

 

 

 

 

 

2004

 

 

 

 

25,000

 

 

 

 

 

 

 

$

 

35.65

 

 

 

 

2/5/2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

292,250

 

 

 

 

413,750

 

 

 

 

 

 

 

 

208,732

 

 

 

$

 

11,344,584

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

51



 

     

(1)

 

Market value determined using the closing market price of $54.35 per share of Common Stock on December 30, 2011.

 

(2)

 

2011 option grants vest in four annual installments at the rate of 25% per year. The first installment vested on February 25, 2012. The remaining installments will vest on February 25, 2013, February 25, 2014, and February 25, 2015.

 

(3)

 

2010 option grant vests in four annual installments at the rate of 25% per year. The first two installments vested on February 26, 2011 and February 26, 2012. The remaining installments will vest on February 26, 2013, and February 26, 2014.

 

(4)

 

2009 option grant vests in four annual installments at the rate of 25% per year. The first three installments vested on February 24, 2010, February 24, 2011 and February 24, 2012. The remaining installment will vest on February 24, 2013.

 

(5)

 

These stock options vested in four annual installments at the rate of 25% per year. The four installments vested on February 26, 2009, February 26, 2010, February 26, 2011 and February 26, 2012.

 

(6)

 

These stock options vest in four annual installments at the rate of 25% per year. The three installments vested on March 31, 2009, March 31, 2010, and March 31, 2011. The remaining installment will vest on March 31, 2012.

 

(7)

 

These RSUs vested on February 24, 2012.

 

(8)

 

Represents remaining shares from the 2007 performance share grant, earned for the four-year performance cycle ended December 31, 2010. These shares will be paid on March 11, 2012. Includes dividend equivalents in the form of additional shares that will be paid on the same date as the underlying shares to which they relate.

 

(9)

 

These RSUs will vest on July 1, 2012.

 

(10)

 

These RSUs will vest 50% on October 6, 2013, and 50% on October 6, 2014. RSUs reflected here include dividend equivalents granted through December 31, 2011 which were reinvested as additional unvested RSUs that will vest based on the same vesting schedule of the RSUs to which they relate. These RSUs are subject to a performance adjustment with the target grant subject to a 20% upward or downward adjustment based on Honeywell’s relative TSR performance ranking against its Compensation Peer Group over both a 1-year and 30-month period ending December 31, 2012.

 

(11)

 

These RSUs will vest 100% on October 7, 2014. RSUs reflected here include dividend equivalents granted through December 31, 2011 which were reinvested as additional unvested RSUs that will vest based on the same vesting schedule of the RSUs to which they relate. These RSUs are subject to a performance adjustment with the target grant subject to a 20% upward or downward adjustment based on Honeywell’s relative TSR performance ranking against its Compensation Peer Group over both a 1-year and 30-month period ending December 31, 2012.

 

(12)

 

These RSUs will vest on July 29, 2012.

 

(13)

 

These RSUs will vest 33% on each of October 6, 2013 and October 6, 2015, with the remaining RSUs vesting on October 6, 2017. RSUs reflected here include dividend equivalents granted through December 31, 2011 which were reinvested as additional unvested RSUs that will vest based on the same vesting schedule of the RSUs to which they relate. These RSUs are subject to a performance adjustment with the target grant subject to a 20% upward or downward adjustment based on Honeywell’s relative TSR performance ranking against its Compensation Peer Group over both a 1-year and 30-month period ending December 31, 2012.

 

(14)

 

These RSUs will vest 33% on each of July 31, 2012 and July 31, 2014, with the remaining RSUs vesting on July 31, 2016. RSUs reflected here include dividend equivalents granted through December 31, 2011 which were reinvested as additional unvested RSUs that will vest based on the same vesting schedule of the RSUs to which they relate.

52


     

(15)

 

49% of these RSUs will vest on February 26, 2013, with the remaining RSUs vesting on February 26, 2015. RSUs reflected here include dividend equivalents granted through December 31, 2011 which were reinvested as additional unvested RSUs that will vest based on the same vesting schedule of the RSUs to which they relate.

 

(16)

 

These RSUs will vest on June 28, 2013.

 

(17)

 

These RSUs will vest 100% on October 26, 2014. RSUs reflected here include dividend equivalents granted through December 31, 2011 which were reinvested as additional unvested RSUs that will vest based on the same vesting schedule of the RSUs to which they relate. These RSUs are subject to a performance adjustment with the target grant subject to a 25% upward or downward adjustment based on Honeywell’s relative TSR performance ranking against its Compensation Peer Group over a four-year period ending September 30, 2014.

 

(18)

 

These RSUs will vest 50% on October 7, 2013, and 50% on October 7, 2015. RSUs reflected here include dividend equivalents granted through December 31, 2011 which were reinvested as additional unvested RSUs that will vest based on the same vesting schedule of the RSUs to which they relate. These RSUs are subject to a performance adjustment with the target grant subject to a 20% upward or downward adjustment based on Honeywell’s relative TSR performance ranking against its Compensation Peer Group over both a 1-year and 30-month period ending December 31, 2012.

 

(19)

 

49% of these RSUs will vest on July 25, 2013, with the remaining RSUs vesting on July 25, 2015. RSUs reflected here include dividend equivalents granted through December 31, 2011 which were reinvested as additional unvested RSUs that will vest based on the same vesting schedule of the RSUs to which they relate.

53


OPTION EXERCISES AND STOCK VESTED—FISCAL YEAR 2011

 

 

 

 

 

 

 

 

 

Named Executive Officer

 

Option Awards

 

Stock Awards

 

Number of Shares
Acquired on
Exercise
(#)

 

Value Realized on
Exercise
($)
(1)

 

Number of Shares
Acquired on
Vesting
(#)

 

Value Realized on
Vesting
($)
(2)

David M. Cote

 

 

 

1,101,100

(3)

 

 

 

$

 

22,939,136

 

 

 

 

130,891

(5)

 

 

 

$

 

7,327,278

 

David J. Anderson

 

 

 

 

 

 

 

 

 

 

 

37,500

(6)

 

 

 

$

 

2,012,625

 

Roger Fradin

 

 

 

75,000

(4)

 

 

 

$

 

1,694,047

 

 

 

 

 

 

 

 

 

Timothy O. Mahoney

 

 

 

 

 

 

 

 

 

 

 

17,184

(7)

 

 

 

$

 

986,199

 

Andreas Kramvis

 

 

 

 

 

 

 

 

 

 

 

27,916

(8)

 

 

 

$

 

1,577,595

 


 

 

(1)

 

 

 

Represents “in the money” value at exercise calculated as (a) times (b) where (a) equals the difference between the market price at exercise and the exercise price, and (b) equals the total number of options exercised.

 

(2)

 

 

 

Represents the total value at vest calculated as (a) times (b), where (a) equals the average of the high and low share price of one share of Common Stock on the day of vest, and (b) equals the total number of RSUs that vested.

 

(3)

 

 

 

In connection with the stock option exercise, shares were sold to cover the payment of the exercise price and the applicable taxes due upon exercise with Mr. Cote retaining a total of 240,345 net shares.

 

(4)

 

 

 

In connection with the stock option exercise, shares were sold to cover the payment of the exercise price and the applicable taxes due upon exercise with Mr. Fradin retaining a total of 16,500 net shares.

 

(5)

 

 

 

In connection with the RSU vesting, shares were withheld sufficient to cover the applicable taxes due upon vesting with Mr. Cote retaining a total of 74,843 net shares.

 

(6)

 

 

 

Payout of 37,500 shares acquired upon the vesting of these RSUs on July 28, 2011 to Mr. Anderson has been deferred until the year following separation of service from Honeywell. Shares will be paid in five equal annual installments.

 

(7)

 

 

 

In connection with the RSU vesting, shares were withheld sufficient to cover the applicable taxes due upon vesting with Mr. Mahoney retaining a total of 11,915 net shares.

 

(8)

 

 

 

In connection with the RSU vesting, shares were withheld sufficient to cover the applicable taxes due upon vesting with Mr. Kramvis retaining a total of 17,803 net shares.

PENSION BENEFITS

The following table provides summary information about the pension benefits that have been earned by our Named Executive Officers under two pension plans, the Honeywell International Inc. Supplemental Executive Retirement Plan (the “SERP”) and the Honeywell International Inc. Retirement Earnings Plan (the “REP”). The SERP and REP benefits depend on the length of each Named Executive Officer’s employment with us (and companies that have been acquired by us and, with respect to Mr. Anderson, service with certain prior employers). This information is provided in the table below under the column entitled “Number of years of credited service.” The column in the table below entitled “Present value of accumulated benefit” represents a financial calculation that estimates the cash value today of the full pension benefit that has been earned by each Named Executive Officer. It is based on various assumptions, including assumptions about how long each Named Executive Officer will live and future interest rates. Additional details about the pension benefits for each Named Executive Officer follow the table.

54


Pension Benefits—Fiscal Year 2011

 

 

 

 

 

 

 

Named Executive Officer

 

Plan Name

 

Number of Years of
Credited Service
(#)

 

Present Value of
Accumulated Benefits
($)
(2)

David M. Cote.

 

REP

 

 

 

9.9

 

 

 

$

 

136,156

 

 

 

SERP

 

 

 

9.9

 

 

 

$

 

36,031,777

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

$

 

36,167,933

 

 

 

 

 

 

 

 

David J. Anderson

 

REP

 

 

 

8.5

 

 

 

$

 

121,798

 

 

SERP

 

 

 

12.1

(1)

 

 

 

$

 

8,067,498

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

$

 

8,189,296

 

 

 

 

 

 

 

 

Roger Fradin

 

REP

 

 

 

35.6

 

 

 

$

 

851,782

 

 

 

SERP

 

 

 

35.6

 

 

 

$

 

1,267,641

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

$

 

2,119,423

 

 

 

 

 

 

 

 

Timothy O. Mahoney

 

REP

 

 

 

14.1

 

 

 

$

 

430,802

 

 

SERP

 

 

 

14.1

 

 

 

$

 

2,320,397

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

$

 

2,751,199

 

 

 

 

 

 

 

 

Andreas Kramvis

 

REP

 

 

 

24.2

 

 

 

$

 

526,458

 

 

 

SERP

 

 

 

24.2

 

 

 

$

 

401,701

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

$

 

928,159

 

 

 

 

 

 

 

 


 

 

(1)

 

 

 

The service taken into account in calculating Mr. Anderson’s SERP benefit includes 3.6 years of employment with his former employer. The portion of the present value of the accumulated SERP benefit attributable to these additional years of service is $1,791,918.

 

(2)

 

 

 

The present value of the accumulated retirement benefit for each Named Executive Officer is calculated using a 4.89% discount rate, the RP-2000 mortality table and a retirement age of 60 for Mr. Cote, 62 for Messrs. Anderson and Mahoney, and 65 for Messrs. Fradin and Kramvis, the earliest ages at which the Named Executive Officer can retire without an early retirement benefit reduction.

Summary Information

 

 

 

 

The REP is a tax-qualified pension plan in which substantially all of our U.S. employees participate.

 

 

 

 

The REP complies with tax requirements applicable to broad-based pension plans, which impose dollar limits on the amount of benefits that can be provided. As a result, the pensions that can be paid under the REP for higher-paid employees represent a much smaller fraction of current income than the pensions that can be paid to less highly paid employees. We make up for this difference, in part, by providing supplemental pensions through the SERP.

 

 

 

 

In addition, Messrs. Cote, Fradin and Anderson are entitled to additional supplemental pension benefits which are described under the Contractual formula below. These additional supplemental pension benefits are also provided by the SERP.

 

 

 

 

All SERP and Contractual benefits other than Mr. Anderson’s Contractual benefit will be paid on the first day of the first month that begins following the 105th day after the later of the officer’s separation from service (as that term is defined in Internal Revenue Code Section 409A) or his earliest retirement date.

Pension Benefit Calculation Formulas

Within the REP and the SERP a variety of formulas are used to determine pension benefits. Different benefit formulas apply for different groups of employees for historical reasons. Generally, as we have grown through acquisitions, we have in many cases retained the benefit formulas under pension plans that were maintained by the companies that we acquired, in order to provide continuity for employees. The differences in the benefit formulas for our Named Executive Officers reflect this history. The explanation below describes the formulas that are used to determine the amount of pension benefits for each of our Named Executive Officers under the REP and the SERP.

55


 

 

 

Name of Formula

 

Benefit Calculation

REP

 

Lump sum equal to (1) 6% of final average compensation (annual average compensation for the five calendar years out of the previous ten calendar years that produces highest average) times (2) credited service

 

Allied Salaried

 

Single life annuity equal to (1)(A) 2% of final average compensation (average of compensation for the 60 consecutive months out of prior 120 months that produces highest average) times (B) credited service (up to 25 years), minus (2) 64% of estimated Social Security benefits

 

Signal

 

Single life annuity equal to (1)(A) 1.5% of final average compensation (average compensation for the 60 consecutive months out of the last 120 that produces the highest average) times (B) credited service (with no limit on service) minus (2)(A) 1.5% of estimated Social Security times (B) credited service up to 331/3 years

 

Pittway

 

Single life annuity equal to (1) 1.2% of eligible compensation each year, up to the average of the Social Security wage bases, plus (2) 1.85% of eligible compensation in excess of such average

 

Contractual

 

For Mr. Cote, single life annuity at age 60 equal to 60% of the average of final three years of base salary and bonus

 

 

For Mr. Anderson, an annual amount equal to $175,000 payable in the form of a single life annuity if he retires, his termination occurs as a result of an involuntary termination without cause, or a change in control occurs

 

 

For Mr. Fradin, single life annuity at the later of age 60 or termination of employment equal to 50% of the average of final three years of base salary and bonus, subject to a $1,400,000 minimum annual benefit in most cases

For each formula listed in the chart above, compensation taken into account in calculating pension benefits includes base pay, short-term incentive compensation, payroll-based rewards and recognition and lump sum incentives. Calculations for pension formulas other than the REP formula include the annual incentive compensation in the year earned. The REP formula includes annual incentive compensation in the year paid. The amount of compensation taken into account under the REP is limited by tax rules. The amount of compensation taken into account under the SERP and under the Contractual formula is not limited by tax rules, except SERP compensation under the Pittway formula is limited to $300,000. Compensation taken into account in calculating pension benefits under the SERP for 2009 (other than for the CEO) includes the greater of annual incentive compensation earned in 2009 (paid in 2010) or paid in 2009 (earned in 2008).

The benefit formulas set forth above describe the pension benefits in terms of a lump sum cash payment (for the REP formula) or a single life annuity (for the other formulas). Participants are entitled to receive their benefits in other payment forms, including, for example joint and survivor annuities, period certain annuities and level income payments. However, the value of each available payment form is the same. Based on prior elections, Messrs. Cote, Fradin and Kramvis will receive their SERP benefits and any Contractual benefits in the form of a lump sum, and Messrs. Anderson and Mahoney will receive their SERP benefits and Contractual benefits in an annuity.

The Allied Salaried formula also provides for early retirement benefits. A participant is eligible for early retirement if the participant’s age and years of service equal or exceed 60 and the participant has attained age 50 with at least five years of service or if the participant’s age and years of service equal or exceed 80 regardless of the participant’s age. If the participant retires early, the participant’s benefit at normal retirement age is reduced by 1/4 of 1% for each month payments begin before age 62 (3% per year). In addition, the Social Security benefit reduction portion of the formula is reduced by 1/180 for each month benefits are paid between ages 60 and 65, and 1/360 for each month benefits are paid before the participant’s 60th birthday.

The Pittway formula provides for early retirement benefits. A participant is eligible for early retirement if the participant has attained age 55 with at least ten years of service. If the participant retires early, the participant’s benefit at normal retirement age is reduced by 1/180 for each of the first 60 months and 1/360 for each of the next 60 months by which the commencement of the payment of the retirement income precedes the participant’s normal retirement date.

56


As stated above, the pension formula used to determine the amount of pension benefits under each of the plans for our Named Executive Officers differs for historical reasons. In addition, additional contractual pension benefits have been provided to certain Named Executive Officers as deemed necessary and appropriate at the time of their recruitment to the Company or to retain the executive. The table below describes which formulas are applicable to each of our Named Executive Officers.

 

 

 

 

 

Name

 

Description of Total Pension Benefits

Mr. Cote

 

 

Mr. Cote’s total pension benefits are equal to his Contractual formula benefits. The amount payable pursuant to the Contractual formula is reduced by amounts calculated under the REP formula and payable under the REP and the SERP plans. Mr. Cote’s Contractual formula benefits are also reduced by amounts he will receive from the retirement plans of his former employer, General Electric Company.

 

 

 

Mr. Cote’s Contractual formula benefits are reduced by 4% per year for each year payment commences before Mr. Cote’s 60th birthday and are forfeitable if he is terminated by the Company for cause.

 

 

 

Mr. Cote is currently eligible for early retirement benefits payable under his Contractual formula. As a result of a low interest rate, there is no increase in the lump sum present value of Mr. Cote’s benefit on December 31, 2011 due to subsidized early retirement.

 

 

 

Since Mr. Cote is currently unmarried, his Contractual formula benefits included in the table reflect the present value of a single life annuity with no surviving spouse benefit.

 

 

 

At or after age 60, Mr. Cote is entitled to a monthly pension benefit from his former employer, General Electric Company, in an amount of $5,649.

 

 

 

Mr. Cote’s REP benefit is subject to a qualified domestic relations order (QDRO) entered into in 2012 that allocates a portion of this benefit to his ex-spouse. If the terms of the QDRO were taken into account in the table as of December 31, 2011, Mr. Cote’s REP benefit would decrease to $82,037.

Mr. Anderson

 

 

Mr. Anderson’s total pension benefits are equal to the sum of his Allied Salaried formula benefits and his Contractual formula benefits.

 

 

 

Mr. Anderson’s Allied Salaried formula benefits are determined by including his years of employment with a former employer, ITT Industries (3.6 years). Mr. Anderson is currently eligible for early retirement benefits payable under the Allied Salaried formula. As a result of a low interest rate, there is no increase in the lump sum present value of Mr. Anderson’s benefit on December 31, 2011 due to subsidized early retirement.