DEF 14A 1 c79027_def14a.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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Honeywell

 

2015 PROXY STATEMENT
AND NOTICE OF ANNUAL MEETING OF SHAREOWNERS

 

 
EXTENDING COMPETITIVE ADVANTAGE WITH
HOS GOLD

 

What is HOS Gold? In 2014, we publicly announced the creation of HOS Gold, an end-to-end business management process focused on customers and markets, strategy development and execution, robust management, standardized work and cross functional engagement. HOS Gold focuses on growing sales and becoming more productive, integrating all of our major internal process initiatives into a total business operating system.   HOS Gold integrates all of
our major internal process
initiatives into a total
business operating system.
     
We believe that HOS Gold is a competitive differentiator that will enable us to deliver sustainable, exceptional financial and operating performance. HOS Gold is one of the reasons we are confident in our ability to achieve 4-6% annual organic sales growth and 45–75 basis points of annual segment margin expansion as set forth in our 2018 Goals.
 
 

 

March 12, 2015

 

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 27, 2015 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 three shareowner proposals. The Board of Directors recommends that you vote FOR Proposals 1, 2, and 3 and AGAINST Proposals 4, 5 and 6.

 

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, by completing and returning a proxy card or by scanning the QR code provided on the next page in the Notice of Annual Meeting of Shareowners or on the 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.

 

Sincerely,

 

 

 

David M. Cote

Chairman and Chief Executive Officer

 

 

 

NOTICE OF ANNUAL MEETING OF SHAREOWNERS

 

 

DATE Monday, April 27, 2015
TIME 10:30 a.m. local time
LOCATION Honeywell’s Headquarters, 101 Columbia Road, Morris Township, New Jersey
RECORD DATE Close of business on February 27, 2015

 

 

March 12, 2015

 

Meeting Agenda:

 

Election of the 13 nominees listed in the accompanying proxy statement to the Board of Directors.
Approval of the appointment of Deloitte & Touche LLP as independent accountants for 2015.
An advisory vote to approve executive compensation.
If properly raised, three shareowner proposals described on pages 86-92 of the proxy statement.
Transact any other business that may properly come before the meeting.

 

Important Notice of Internet Availability of Proxy Materials

 

The Securities and Exchange Commission’s “Notice and Access” rule enables Honeywell to deliver a Notice of Internet Availability of Proxy Materials to shareowners in lieu of a paper copy of the proxy statement, related materials and the Company’s Annual Report to Shareowners. It contains instructions on how to access our proxy statement and 2014 annual report and how to vote online.

 

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.

 

We encourage shareowners to vote promptly as this will save the expense of additional proxy solicitation. Shareowners of record on the Record Date are entitled to vote at the meeting or in the following ways:

 

 

   By Telephone      By Internet      By Mail      By Scanning
                     
In the U.S. or Canada,
you can vote your shares by
calling +1 (800) 690-6903.
 

You can vote your shares online at www.proxyvote.com. You will need the 12-digit control number on the Notice of Internet Availability or proxy card.

 

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

 

You can vote your shares online by scanning the QR code above. You will need the 12-digit control number on the Notice of Internet Availability or proxy card. Additional software may need to be downloaded.

 

This Notice of Annual Meeting of Shareowners and related Proxy Materials are being distributed or made available to shareowners beginning on or about March 12, 2015.

 

By Order of the Board of Directors,

 

Jeffrey N. Neuman

Vice President and Corporate Secretary

 

 

TABLE OF CONTENTS  
Proxy Summary i-v
Proposal No. 1: Election of Directors 1
Corporate Governance 8
•  Board Of Directors 8
•  Board Committees 9
•  Board’s Role In Risk Oversight 12
•  Director Independence 13
•  Identification And Evaluation Of Director Candidates 14
•  Director Orientation And Continuing Education 15
•  Director Attendance At Annual Meetings 15
•  Director Compensation 15
•  Certain Relationships And Related Transactions 18
Stock Ownership Information 20
Section 16(a) Beneficial Ownership Reporting Compliance 21
SEC Filings and Reports 21
Sustainability and Corporate Responsibility 21
Political Contributions and Activities 23
Shareowner Outreach and Engagement 23
Executive Compensation 26
•  Compensation Discussion And Analysis 27
•  Management Development And Compensation Committee Report 61
•  Compensation Committee Interlocks And Insider Participation 61
•  Summary Compensation Table 62
•  Grants Of Plan-Based Awards—Fiscal Year 2014 64
•  Outstanding Equity Awards At 2014 Fiscal Year-End 65
•  Option Exercises And Stock Vested—Fiscal Year 2014 68
•  Pension Benefits 69
•  Nonqualified Deferred Compensation—Fiscal Year 2014 72
•  Potential Payments Upon Termination Or Change In Control 75
Audit Committee Report 82
Other Proposals 83
•  Proposal No. 2: Approval Of Independent Accountants 83
•  Proposal No. 3: Advisory Vote To Approve Executive Compensation 85
Shareowner Proposals 86
•  Proposal No. 4: Independent Board Chairman 86
•  Proposal No. 5: Right To Act By Written Consent 89
•  Proposal No. 6: Political Lobbying And Contributions 91
Voting Procedures 93
Attendance at the Annual Meeting 95
Other Information 96
Appendix: Reconciliation of Non-GAAP Financial Measures A-1
Recent Awards Inside 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.

 

 

PROXY SUMMARY

 

This proxy 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 April 27, 2015, 10:30 a.m.

 

PLACE Honeywell’s Headquarters, 101 Columbia Road, Morris Township, New Jersey.

 

RECORD DATE Shareowners as of February 27, 2015 are entitled to vote.

 

ADMISSION Please follow the advance registration instructions on page 95.

 

MEETING AGENDA AND VOTING MATTERS

 

Proposal     Board’s Voting
Recommendation
  Page References
(for more detail)
No. 1 Election of Directors    FOR (each nominee)   pp. 1-7
No. 2 Approval of Independent Accountants    FOR   pp. 83-84
No. 3 Advisory Vote To Approve Executive Compensation    FOR   pp. 85-86
No. 4 Shareowner Proposal: Independent Board Chairman    AGAINST   pp. 86-89
No. 5 Shareowner Proposal: Right To Act By Written Consent    AGAINST   pp. 89-90
No. 6 Shareowner Proposal: Political Lobbying and Contributions    AGAINST   pp. 91-92

 

2014 PERFORMANCE HIGHLIGHTS

 

Record Year of Profitable Growth

 

Earnings Per Share (“EPS”)* up 12% to $5.56.
   
Sales up 4% (3% organic) to new record of $40.5 billion.(1)
   
Segment profit up 8% to new peak of $6.9 billion, with 70 basis points of segment margin expansion.(1)
   
Free cash flow (“FCF”)** of $3.9 billion; FCF conversion(2) of 89% reflects a 16% increase in capital expenditures to support future growth.

 

NEW LEVELS OF PEAK PERFORMANCE 2014 VS. 2013

 

  * EPS, V% exclude pension mark-to-market adjustment

** FCF = Cash Flow From Operations Less Capital Expenditures

 

(1) Excludes impact of 4Q 2014 OEM Incentive Payments of $184M (see page 30).
   
(2) FCF Conversion is FCF divided by Net Income excluding pension mark-to-market adjustment.

 

2015     |     Proxy and Notice of Annual Meeting of Shareowners      |     i
 

Proxy Summary > Alignment of Pay With Performance and Leadership Succession

 

Creating Shareowner Value

 

Total Shareowner Return (“TSR”): We continued our track record of delivering solid returns to our investors:

 

5-YEAR CUMULATIVE TSR

 

(Total Shareowner Return %)

 

 

 

Peer Median Reflects Compensation Peer Group Median

Percentile Rank Represents Honeywell TSR Relative to 14-Company Compensation Peer Group over 5-years As of market close on December 31, 2014

 

Dividends: Dividend rate was increased by 15%, effective in the fourth quarter of 2014, the tenth increase of at least 10% in the last eleven years.
   
Share Repurchases: Repurchased 10 million shares in 2014, more than offsetting any dilution to shareowners from employee share plans.

 

ALIGNMENT OF PAY WITH PERFORMANCE AND LEADERSHIP SUCCESSION

 

2014 was a year of evolution and growth in our executive leadership structure. Compensation decisions made for 2014 reflect both our long-standing commitment to aligning pay and performance, as well as the fruition of our thorough and rigorous succession planning process.

 

Our overall pay philosophy continues to emphasize variable, at-risk compensation paid out over the long-term. Within that framework, 2014 compensation actions were also aligned with succession-related leadership changes. In 2014, our former CFO, David J. Anderson, retired and was replaced by Thomas A. Szlosek, who had been groomed for the role through successive positions within Honeywell. We also promoted two of our SBG presidents, Roger Fradin and Andreas Kramvis, to the newly-created positions of Vice Chairman. Their SBG president roles were filled by two executives, Alexandre Ismail and Darius Adamczyk, who have led business units in diverse industries and have demonstrated their abilities to drive superior financial results. Finally, we took steps in 2014 to ensure that our Chairman and CEO will continue to lead the Company to deliver on the aggressive five-year plan that we announced at our Investor Day in March 2014.

 

ii     |      Proxy and Notice of Annual Meeting of Shareowners     |     2015
 

Proxy Summary > Corporate Governance and Executive Compensation Practices

 

The graph below demonstrates the alignment over the past five years of shareowner value creation with CEO total annual direct compensation (“Total ADC”).

 

Indexed Total Shareowner Return (“TSR”) vs. CEO Total Annual Direct Compensation

 

 

 

(1) TSR reflects the year-to-year performance indexed to 2009 base year TSR at 100. Prior year TSR is shown in order to correspond with the timing of annual compensation decisions made in the first quarter of each year.
   
(2) CEO Total Annual Direct Compensation (ADC) consists of base salary, annual incentive compensation award, annual stock option grant and annualized Growth Plan award.
   
(3) Represents non-annual award of performance stock options issued in 2014 for retention purposes; target value of $5 million; earned options, if any, cliff vest on December 31, 2017.

 

Summary of 2014 Compensation Actions for NEOs:

 

2014 Total Annual Direct Compensation For Each Named Executive Officer (NEO)

 

NEO  Position  Base
Salary
 Annual
Bonus
  Annual
Stock
Options
  Annualized
Growth
Plan
  Total Annual
Direct
Compensation
  Non-Annual
Awards(A)
 
David M. Cote  CEO   $1,865,769   $5,500,000   $9,816,000   $4,750,000    $21,931,769   $5,000,000   
Thomas A. Szlosek  CFO   $754,750   $700,000  $1,636,000   $1,000,000    $4,090,750    $2,494,750   
Roger Fradin  Vice Chairman   $1,050,000   $1,200,000   $2,944,800   $1,375,000    $6,569,800    $2,594,540   
Timothy O. Mahoney  Aero President & CEO   $878,365   $800,000   $2,863,000   $1,250,000    $5,791,365    $2,993,700   
Andreas C. Kramvis  Vice Chairman   $806,731   $950,000   $2,126,800   $1,000,000   $4,883,531    $2,594,540   
David J. Anderson  Retired CFO (2014)   $398,077   $510,000   $0   $0    $908,077    $0   
(A) Value of awards issued in connection with specific retention and succession-related actions.

 

2015     |     Proxy and Notice of Annual Meeting of Shareowners      |     iii
 

Proxy Summary > Corporate Governance and Executive Compensation Practices

 

2014 Total Annual Direct Compensation Actions for NEOs(1):

 

Base
Salary
  Merit increases ranged from 0% to 9%. Mr. Kramvis received an increase of 21% in connection with his promotion to Vice Chairman.
     
Annual
Bonus
  Annual ICP awards ranged from 91% to 168% of target based on three pre-established financial goals (EPS,(2) Free Cash Flow,(3) and Working Capital Turns) and Supplemental Criteria.
     
Annual
Stock
Options
Awards
   Number of annual options granted to each NEO was down 13% to 20% vs. 2013. Grant-date values were up 11% to 21% from 2013 due to an increase in the per share option value.
Growth
Plan
  Grants were made for the new 2014-2015 Growth Plan performance cycle. NEO grant sizes were similar to the 2012-2013 cycle.
   
  Performance cycles do not overlap, so there will be no grant in 2015. The Committee annualizes awards over the 2-years when considering compensation.
   
  Plan is 100% formulaic with a 3.2 year payout cycle. Payouts based on three pre-established financial targets measured over a two-year period for each SBG and Honeywell as a whole: revenue growth (ex-acquisitions & divestitures), return on investment expansion and segment margin expansion.
   
  Targets are aligned with the Company’s 2018 externally communicated targets for revenue and segment margin.


 

(1) Descriptions do not apply to Mr. Anderson, who retired in 2014.
   
(2) Excludes pension mark-to-market adjustment.
   
(3) Free cash flow (cash flow from operations less capital expenditures) for ICP purposes is measured prior to any cash pension contributions, NARCO Trust establishment payments and cash taxes relating to the sale of available for sale investments. Beginning in April 2014 (after ICP goals were established), the Company no longer excludes these items from free cash flow and they will no longer be excluded from the ICP metric beginning in 2015. For 2014, the impact of these exclusions was not material ($71M).

 

2014 Non-Annual Retention Award Actions

 

Performance
Stock Options
(“PSOs”)
 
  Grant was made to Mr. Cote as part of a 3-year retention package entered into in December 2014. Payout to be based on Honeywell’s TSR relative to the Compensation Peer Group for the period of January 1, 2015 - December 31, 2017. Actual payout can range from 0% to 150% of target. Award cliff vests on December 31, 2017 only to the extent earned.
     
Performance-
Adjusted
Restricted
Stock Units
(“RSUs”)
 
  Grants were made to Messrs. Szlosek, Fradin, Kramvis and Mahoney in connection with succession-related actions. Payout is subject to +/- 30% adjustment based on Honeywell’s relative TSR ranking against the Compensation Peer Group. Vesting schedules vary from 3 to 7 years based on succession goals.

 

See 2014 Succession-Related Actions (page 39) and CEO Retention Actions (page 40) for more details.

 

iv     |      Proxy and Notice of Annual Meeting of Shareowners     |     2015
 

Proxy Summary > Corporate Governance and Executive Compensation Practices

 

2014 CORPORATE GOVERNANCE HIGHLIGHTS

 

We strive to bring a spirit of continuous improvement to everything we do, including corporate governance. In 2014, our Board of Directors implemented two significant changes that we believe are in the best long-term interests of shareowners and demonstrate our commitment to continued improvement in corporate governance.

 

IMPLEMENTATION OF A LEAD DIRECTOR STRUCTURE

 

 

At its December 2014 meeting, the Board of Directors approved the creation of an independent Lead Director position with the following attributes, which will replace the existing rotating presiding director structure:

 

Serves a minimum one-year term based on seniority;
Reviews, and has opportunity to comment on, all Board meeting schedules, agendas and board materials; and
Has authority to call meetings of the independent directors, presides at meetings of the independent directors, provides feedback to the Chairman and CEO and is available to consult with shareowners.

 

The Board created the Lead Director position based, in part, on feedback solicited from its 30 largest shareowners during meetings conducted by members of the Company’s management during the third quarter of 2014. See “Shareowner Outreach and Engagement” (pages 23-25). Our first Lead Director is Mr. Gordon Bethune.

 

APPOINTMENT OF NEW INDEPENDENT ACCOUNTANTS

 

 

In July 2014, we announced that our Audit Committee had appointed Deloitte & Touche LLP (“Deloitte”) as our independent registered public accounting firm, replacing PricewaterhouseCoopers LLP (“PwC”), our prior accounting firm. We believe the change of auditors is consistent with our commitment to the highest standards of corporate governance and believe that our independent auditor, like other service providers, should be evaluated to ensure the delivery of best-in-class value, quality and technology.

 

After a thorough, competitive vetting process, our management and the Audit Committee determined that Deloitte was the audit firm best capable to serve as our independent accountants. See “Proposal No. 2: Approval of Independent Accountants” (pages 83-84).

 

EXECUTIVE COMPENSATION PRACTICES

 

Executive compensation decisions are made by the Management Development and Compensation Committee, which is comprised of only independent directors and advised by an independent compensation consultant.

 

EXECUTIVE COMPENSATION HIGHLIGHTS

 

 

Eliminated automatic single-trigger vesting upon a change-in-control for equity awards granted after April 2014.
Stock ownership requirements for executive officers (6x base for CEO; 4x base for other NEOs).
Stock retention requirements for officers (minimum one year hold) on net gain shares from stock option exercises or the vesting of RSUs.
Corporate, Strategic Business Group and individual executive officer objectives are reviewed and approved by the Committee to ensure that these goals are aligned with Honeywell’s annual operating and strategic plans, achieve the proper risk/reward balance, and do not encourage unnecessary or excessive risk-taking.
Equity plans prohibit repricing and backdating and contain clawback and non-competition restrictions.
Recoupment of incentive compensation in the event of a significant restatement.
Eliminated tax gross-ups on perquisites.
Eliminated excise tax gross-ups for any new officers after 2009.
Fundamental philosophy of growing the Company while effectively managing the executive population eligible for annual and long-term incentives. Since Mr. Cote’s first full year as CEO (2003): our EPS (excluding pension mark-to-market adjustment) is up 268%; our sales are up 83%(1); our segment profit is up 193%(1); and our free cash flow is up 155%; yet the number of incentive eligible employees is down 5% (see page 52).

 

(1) Excludes impact of 4Q 2014 OEM Incentive Payments.

 

2015     |     Proxy and Notice of Annual Meeting of Shareowners      |     v
 

Proposal No. 1: Election of Directors > Director Nominations Skills and Criteria

 

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 27, 2015.

 

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.

 

The Board has nominated 13 candidates for election as directors. If any nominee should become unavailable to serve prior to the Annual Meeting, the shares represented by a properly signed and returned proxy card or voted by telephone, via the Internet or by scanning the QR code will be voted for the election of such other person as may be designated by the Board. The Board may also determine to leave the vacancy temporarily unfilled or reduce the authorized number of directors in accordance with the By-Laws.

 

DIRECTOR NOMINATIONS SKILLS AND CRITERIA

 

The 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. 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.

 

2015     |     Proxy and Notice of Annual Meeting of Shareowners      |     1
 

Proposal No. 1: Election of Directors > Director Nominations Skills and Criteria

 

DIRECTOR SKILLS AND QUALIFICATIONS CRITERIA

 

 

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, automotive, 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”) listing standards.

 

 

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.

 

 

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 page 13 of this proxy statement.

 

The CGRC also considered the specific experience described in the biographical details that follow in determining to nominate the individuals below for election as directors.

 

The Board of Directors unanimously recommends a vote FOR the election of each of the director nominees.

 

2     |      Proxy and Notice of Annual Meeting of Shareowners     |     2015
 

Proposal No. 1: Election of Directors > Nominees for Election

 

NOMINEES FOR ELECTION

 

DAVID M. COTE, Chairman and Chief Executive Officer of Honeywell International Inc.
 
Years of Service: 13
Age: 62
 

President of General Electric Company and President and Chief Executive Officer of GE Appliances from June 1996 to November 1999. Mr. Cote is a director of the Federal Reserve Bank of New York. He previously served as a director of JPMorgan Chase & Co. (2007-2013).

 

 

Specific Qualifications, Attributes, Skills and Experience

 

 

·  Senior leadership roles in global, multi industry organizations

 

·  Ability to drive a consistent One Honeywell approach across a large multinational 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 of Fiscal Responsibility and Reform, the Bipartisan Policy Center—Energy Project, and the U.S.—India CEO Forum (co-Chair)

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

 

 

WILLIAM S. AYER, Retired Chairman and Chief Executive Officer of Alaska Air Group, Inc. (Alaska Air Group)
 
Years of Service: 0 (New Director Nominee)
Age: 60

Board Committees:

·  Corporate Governance & Responsibility
·
  Management Development & Compensation

 

 

2003, he was appointed Chairman. Mr. Ayer is a member of the FAA’s Management Advisory Council. Mr. Ayer was a director of Puget Sound Energy, Inc. and Puget Energy, Inc. since January 2005, including serving as Chairman since 2009. Mr. Ayer retired from both boards in January 2015.

 

 

Specific Qualifications, Attributes, Skills and Experience

 

 

·  Deep aerospace industry knowledge as well as sales, marketing and operations experience through his three decades of leadership roles at Alaska Air Group, recognized for its best-in-class operating metrics among U.S. air carriers

 

·  Proven leadership skills in developing a business enterprise that can deliver long-term, sustained excellence based on a management style that includes a relentless focus on the customer, continuous improvement, and building a culture of safety, innovation, sustainability and diversity

 

·  Understanding of the U.S. public utility industry through his service as a director on the Board of Puget Energy during its transition from a publicly owned company to a private company

 

Mr. Ayer is the retired Chairman of the Board and Chief Executive Officer of Alaska Air Group, the parent company of Alaska Airlines and its sister carrier, Horizon Air. Mr. Ayer served as Chief Executive Officer of Alaska Air Group and its subsidiaries through 2012, and as Chairman through 2013. A veteran of more than three decades in aviation, Mr. Ayer began his career with Horizon Air in 1982 where he held a variety of marketing and operations positions. He joined Alaska Airlines in 1995 as Vice President of Marketing and Planning, and subsequently held the posts of Senior Vice President, Chief Operating Officer, and President. In 2002, he became Alaska Air Group’s Chief Executive Officer, and, in May

 

 

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

Years of Service: 15

Age: 73

 

Lead Director

 

Board Committees:

·  Corporate Governance & Responsibility

·  Management Development & Compensation

 

 

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 Inc. 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.

 

Specific Qualifications, Attributes, Skills and Experience

 

·  Extensive management expertise gained through various executive positions, including senior leadership roles, at Continental Airlines and the Boeing Company

 

·  Wealth of experience in airline industry, including aircraft manufacturing, financial services, marketing, branding, cost control and restructuring, international operations and government regulations

 

·  Deep knowledge of corporate governance as a Fortune 500 company director

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  

 

2015     |     Proxy and Notice of Annual Meeting of Shareowners      |     3
 

Proposal No. 1: Election of Directors > Nominees for Election

 

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

 

Years of Service: 5

Age: 64

 

Board Committees:

·  Audit

·  Retirement Plans

 

Executive Officer in 2005. Mr. Burke served as President and Chief Executive Officer of Con Edison from 2005 through 2013, and was elected Chairman in 2006. Mr. Burke became non-executive Chairman of Con Edison in December 2013 and served in that capacity until April 2014. Mr. Burke is a member of the Board of Directors of Con Edison and a member of the Board of Trustees of Consolidated Edison Company of New York, Inc. which is a subsidiary of Con Edison.

 

Specific Qualifications, Attributes, Skills and Experience

 

·  Extensive management expertise gained through various executive positions, including senior leadership roles, at Con Edison

 

·  Wealth of experience in energy production and distribution, energy efficiency, alternative energy sources, engineering and construction, government regulation and development of new service offerings

 

·  Deep knowledge of corporate governance and regulatory issues facing the energy, utility and service industries

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  

 

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

Years of Service: 15

Age: 65

 

Board Committees:

·  Retirement Plans Committee Chairperson

·  Corporate Governance & Responsibility

 

President and Chief Executive Officer of Grupo Condumex, S.A. de C.V. and Euzkadi/General Tire de Mexico, manufacturers of products for the construction, automotive and telecommunications industries. Mr. Chico Pardo has also spent a number of years in the international and investment banking business. Mr. Chico Pardo is a director of AT&T, Inc. and Grupo Bimbo, S.A.B. de C.V. He previously served as a director of Grupo Carso, S.A. de C.V. and several of its affiliates (1991-2013), three mutual funds in the American Funds family of mutual funds (2011-2013) and Honeywell Inc. from September 1998 to December 1999.

 

Specific Qualifications, Attributes, Skills and Expertise

 

·  Broad international exposure through senior leadership roles in Latin American companies in the telecommunications, automotive, manufacturing, engineering and construction industries

 

·  Expertise in the management of infrastructure assets and international business, operations and finance focused on Latin America

 

·  Enhanced perspectives on corporate governance, risk management and other issues applicable to public companies

 

Mr. Chico Pardo has been President and Chief Executive Officer of ENESA, a private fund investing in the Mexican energy and health care sectors 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 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  

 

D. SCOTT DAVIS, Non-Executive Chairman of United Parcel Service, Inc. (UPS)

Years of Service: 9

Age: 63

 

Board Committees:

·  Management Development & Compensation Committee Chairperson

·  Audit

 

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 is also a director of Johnson & Johnson. Mr. Davis previously served on the Board of the Federal Reserve Bank of Atlanta (2003-2009), serving as Chairman in 2009.

 

Specific Qualifications, Attributes, Skills and Experience

 

·  Significant expertise in management, strategy, finance and operations gained over 25 years at UPS including through senior leadership roles

 

·  Financial management expertise, including financial reporting, accounting and controls

 

·  Strong banking experience and a deep understanding of public policy and global economic indicators

 

·  Extensive experience in the transportation and logistics services industry

Mr. Davis joined UPS, a leading global provider of package delivery, specialized transportation and logistics services in 1986, and has served as the non-Executive Chairman of UPS since September 2014. Prior to his retirement as Chief Executive Officer of UPS, Mr. Davis served as Chairman and Chief Executive Officer from January 1, 2008 to September 2014. 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  

 

4     |      Proxy and Notice of Annual Meeting of Shareowners     |     2015
 

Proposal No. 1: Election of Directors > Nominees for Election

 

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

Years of Service: 9

Age: 69

 

Board Committees:

·  Corporate Governance & Responsibility Committee Chairperson

·  Audit

 

of First Interstate Bank of Texas from 1990 until 1996. She is also a director of Chevron Corporation.

 

Specific Qualifications, Attributes, Skills and Experience

 

·  Unique global and governmental perspectives regarding international trade, capital markets, public policy, telecommunications, information services, corporate finance, refinery and petrochemical industries

 

·  Extensive experience leading international trade negotiations and detailed knowledge and insight into challenges and opportunities related to government relations

 

·  Significant financial experience through senior leadership roles in banking, brokerage and financial services companies

 

·  Substantial experience as a Fortune 500 company director

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  

 

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

Years of Service: 4

Age: 68

 

Board Committees:

·  Corporate Governance & Responsibility

·  Audit

 

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 previously served as a director of Intercontinental Exchange, Inc. from March 2011 to October 2013.

 

Specific Qualifications, Attributes, Skills and Experience

 

·  Deep understanding and experience in local, state, national and international issues

 

·  Extensive experience in government, public policy, financial regulatory reform, banking, tax, capital markets, science, renewable technology and research, environmental protection and conservation, healthcare and foreign policy

 

·  Significant insight into fiscal affairs, governmental relations, legislative and regulatory issues

 

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  

 

CLIVE HOLLICK, former Chief Executive Officer of United Business Media

Years of Service: 11

Age: 69

 

Board Committees:

·  Management Development & Compensation

·  Retirement Plans

 

He previously served as a director of ProSiebenSat. 1 Media AG (2007-2014), Gogo Inc. (2013-2014), The Nielsen Company B.V. (2006-2009), Diageo plc (2001-2011), TRW Inc. (2000-2002) and BAE Systems (1992-1997).

 

Specific Qualifications, Attributes, Skills and Experience

 

·  Management expertise and diverse perspective on international and media experience gained through over 30 years as the leader of United Business Media

 

·  Deep knowledge of public policy and trends in the UK and European markets

 

·  In-depth understanding of the operating environment in the UK and Europe particularly with respect to information and financial services, broadcasting, publishing and online media, marketing and branding, technology and innovation

 

·  Substantial experience in mergers and acquisitions in the media and financial services sectors, including in a private equity context

Lord Hollick was Chief Executive Officer of United Business Media and its predecessor companies from 1974 to 2005. United was a London-based, international information, broadcasting, financial services and publishing group. From 2005 to 2010, he was a partner, managing director and adviser to Kohlberg Kravis Roberts & Co., a private equity firm focusing on businesses in the media and financial services sectors. Lord Hollick is a partner of GP Bullhound LLP and a member of the Advisory Board of Jefferies Inc. In addition, Lord Hollick is Chairman of the Economic Affairs Committee of the House of Lords.  

 

2015     |     Proxy and Notice of Annual Meeting of Shareowners      |     5
 

Proposal No. 1: Election of Directors > Nominees for Election

 

GRACE D. LIEBLEIN, Vice President—Global Quality of General Motors Corporation (GM)

Years of Service: 2

Age: 54

 

Board Committees:

·  Corporate Governance & Responsibility

·  Management Development & Compensation

 

2012, the GM Mexico President and Managing Director from January 2009 until June 2011 and Vehicle Chief Engineer from October 2004 to January 2009. Ms. Lieblein joined GM in 1978 as a co-op student at the General Motors Assembly Division in Los Angeles and has held a variety of leadership positions at GM in engineering, product development and manufacturing.

 

Specific Qualifications, Attributes, Skills and Experience

 

·  Wide-ranging management and operating experience gained through various executive positions in an extensive career at GM

 

·  Significant expertise in supply chain management, global manufacturing, engineering, product design and development

 

·  International business, operations and finance experience gained through senior leadership positions in Brazil and Mexico

Ms. Lieblein has served as Vice President, Global Quality of GM, a company that designs, manufactures and markets cars, crossovers, trucks, and automobile parts worldwide since November 2014. Ms. Lieblein served as Vice President, Global Purchasing and Supply Chain from December 2012 to November 2014, the GM Brazil President and Managing Director from June 2011 until December  

 

GEORGE PAZ, Chairman and Chief Executive Officer of Express Scripts Holding Company (Express Scripts)

Years of Service: 6

Age: 59

 

Board Committees:

·  Corporate Governance & Responsibility

·  Audit Committee Chairperson

 

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. Mr. Paz is a Certified Public Accountant.

 

Specific Qualifications, Attributes, Skills and Experience

 

·  Significant management and finance experience gained through senior leadership positions at Express Scripts

 

·  Financial expertise, including in tax, financial reporting, accounting and controls

 

·  Extensive experience in corporate finance, insurance and risk management, mergers and acquisitions, capital markets, government regulation and employee health benefits

Mr. Paz has served as Chairman of the Board of Express Scripts, a pharmacy benefit management company, since May 2006, as Chief Executive Officer since April 2005 and as President from October 2003 to February 2014. He has served as a director of Express Scripts since January 2004. Mr. Paz joined Express Scripts as Senior Vice  

 

BRADLEY T. SHEARES, former Chief Executive Officer of Reliant Pharmaceuticals, Inc. (Reliant)
 

Years of Service: 10

Age: 58

 

Board Committees:

·  Management Development & Compensation

·  Retirement Plans

 

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 and Henry Schein, Inc. Dr. Sheares previously served as a director of IMS Health Incorporated (2009-2010) and Covance Inc. (2009-2015).

 

Specific Qualifications, Attributes, Skills and Experience

 

·  Significant management, sales and marketing expertise gained over nearly 20 years in senior leadership roles

 

·  Extensive experience in healthcare, sales and marketing, advertising and promotion, brand management, research and development, and mergers and acquisitions

 

·  Deep knowledge of corporate governance issues, complex regulatory and legal issues, and risk management facing public companies in the healthcare, automobile insurance and contract research industries

Dr. Sheares served as Chief Executive Officer of Reliant, 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  

 

6     |      Proxy and Notice of Annual Meeting of Shareowners     |     2015
 

Proposal No. 1: Election of Directors > Nominees for Election

 

ROBIN L. WASHINGTON, Executive Vice President and Chief Financial Officer of Gilead Sciences, Inc. (Gilead)

Years of Service: 2

Age: 52

 

Board Committees:

·  Audit

·  Retirement Plans

 

application software, where she served in a number of executive positions, most recently in the role of Senior Vice President and Corporate Controller. Ms. Washington is a Certified Public Accountant. She is a director of Salesforce.com Inc. and previously served as a director of Tektronix, Inc. (acquired by Danaher Corporation) (2005-2007) and MIPS Technologies, Inc. (acquired by Imagination Technologies Group PLC) (2008-2013).

 

Specific Qualifications, Attributes, Skills and Experience

 

·  Extensive management, operational and accounting experience in the healthcare and information technology industries

 

·  Financial expertise, including in tax, financial reporting, accounting and controls, corporate finance, mergers and acquisitions and capital markets

 

·  Broad experience on corporate governance issues gained through public company directorships

Ms. Washington joined Gilead, a research-based biopharmaceutical company, as Senior Vice President and Chief Financial Officer in May 2008. In her current role as Executive Vice President and Chief Financial Officer, she oversees Gilead’s Global Finance, Investor Relations and Information Technology organizations. From 2006-2007, Ms. Washington served as Chief Financial Officer of Hyperion Solutions, an enterprise software company that was acquired by Oracle Corporation in March 2007. Prior to that, Ms. Washington spent nearly 10 years at PeopleSoft, a provider of enterprise  

 

2015     |     Proxy and Notice of Annual Meeting of Shareowners      |     7
 

Corporate Governance > Board of Directors

 

CORPORATE GOVERNANCE

 

Honeywell is committed to strong corporate governance policies, practices and procedures designed to make the Board more effective in exercising its oversight role. The following sections provide an overview of our corporate governance structure, including the independence and other criteria we use in selecting Director nominees, our Board leadership structure, and the responsibilities of the Board and each of its Committees. Our Corporate Governance Guidelines, among other key governance materials, help guide our Board and management in the performance of their duties and are regularly reviewed by the Board. Our outreach to shareowners on a variety of corporate governance-related topics is also discussed below.

 

KEY CORPORATE GOVERNANCE DOCUMENTS

 

Please visit our website at www.honeywell.com (see “Investors/Corporate Governance”) to view the following documents:

 

Corporate Governance Guidelines
   
Code of Business Conduct
   
Board Committees and Charters
   
Charter and By-Laws of Honeywell

 

These documents are available free of charge on our website or by writing to Honeywell, 101 Columbia Road, Morris Township, NJ 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 Honeywell’s directors or executive officers will be published on our website.

 

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 2014. The average attendance at meetings of the Board and Board Committees during 2014 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.

 

Mr. Cote’s 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. Mr. Cote has been instrumental in developing the “Honeywell Enablers,” important internal business processes which drive efficiency and service quality, bringing world-class products and services to markets faster and more cost-effectively for our customers. This has been beneficial in driving a unified “One Honeywell” approach to core operating processes across a global, multi-industry organization of approximately 127,000 employees.

 

New Lead Director 2014

 

In 2014, the Board created the role of independent Lead Director. The decision to create the Lead Director position reflects both our one-on-one discussions with our largest shareowners as well as the outcome of the vote on a shareowner proposal in 2014 to separate the roles of Chairman and CEO. The Lead Director serves a minimum one-year term and is selected based on seniority. Each April, the next most senior director becomes the Lead Director if he or she determines to do so. Our first Lead Director is Mr. Gordon Bethune.

 

8     |      Proxy and Notice of Annual Meeting of Shareowners     |     2015
 

Corporate Governance > Board Committees

 

New Lead Director Duties and Responsibilities

 

 

The Lead Director has the following duties and responsibilities:

Board Agendas: Review, and have the opportunity to make changes to, Board meeting agendas;
Board Materials: Review, and have the opportunity to make changes to, presentation material and other written information provided to directors for Board meetings;
Executive Sessions: Preside at all executive sessions of the Board where the Chairman is not present (executive sessions at which the Chairman and management is not present occur at least quarterly);
Liaison: Serve as liaison between the Chairman and the independent directors to provide feedback from executive sessions;
Shareowner Contact: Be available for consultation and direct communications with our shareowners;
Call Meetings: Call meetings of the non-employee directors when necessary and appropriate; and
Board Schedules: Review, and have the opportunity to make changes to, Board meeting schedules.

 

Board Practices and Procedures

 

The Board’s Committees—Audit, Corporate Governance and Responsibility, Management Development and Compensation, and Retirement Plans—undertake extensive analysis and review of the Company’s activities in key areas such as financial reporting, risk management, internal controls, compliance, corporate governance, succession planning and executive compensation.
   
The Board and its Committees perform an annual review of the agenda and topics to be considered for each meeting. During that review, each Board and Committee member is free to raise topics that are not on the agenda at any meeting and to suggest items for inclusion on future agendas.
   
Each Director is provided in advance written material to be considered at every meeting of the Board and has the opportunity to provide comments and suggestions.
   
The Board and its Committees provide feedback to management and management is required to answer questions raised by the directors during Board and Committee meetings.
   
Each of the Lead Director and the Chair of the Corporate Governance and Responsibility Committee is permanently empowered and authorized to call special meetings of the Board at any time and for any reason.

 

Although the Company believes that the combination of the Chairman and CEO roles is appropriate under 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.

 

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. Each Committee operates under a written charter which is available on our website at www.honeywell.com (see “Investors/Corporate Governance/Board Committees”).

 

Committee Membership

 

The table below lists the current membership of each Committee and the number of Committee meetings held in 2014.

 

        Corporate Governance   Management Development    
Name   Audit   and Responsibility   and Compensation   Retirement Plans
Mr. Ayer       X   X    
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
Ms. Lieblein       X   X    
Mr. Paz    X*   X        
Dr. Sheares           X   X
Ms. Washington   X           X
2014 Meetings   11   3   7   3
* Committee Chairperson            

 

2015     |     Proxy and Notice of Annual Meeting of Shareowners      |     9
 

Corporate Governance > Board Committees and Responsibilities

 

Board Committees and Responsibilities

 

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

 

Board Committees   Responsibilities
     

AUDIT COMMITTEE  

 

All Members Independent

 

The Audit Committee has oversight responsibility for our independent accountants.

 

See further detailed information following this chart.

 

 

•  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; this includes resolving 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 filing, the annual and interim financial results (including Management’s Discussion and Analysis) to be included in Forms 10-K and 10-Q;

 

•  Consider the adequacy and effectiveness of our internal control over financial reporting and auditing procedures;

 

•  Review, approve and establish procedures for the receipt, retention and treatment of complaints received by Honeywell regarding accounting, internal control over financial reporting 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.

 

     

CORPORATE  GOVERNANCE AND RESPONSIBILITY  

COMMITTEE  

 

All Members Independent  

 

This committee also serves as the Nominating Committee.

 

 

  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, political contributions and lobbying, 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.  

 

     

MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE

 

 

All Members Independent

 

The Management Development and Compensation Committee administers Honeywell’s executive compensation program.

 

See further detailed information following this chart.    

 

 

  Evaluate and approve executive compensation plans, policies and programs, including review and approval of executive compensation-related corporate goals and objectives;

 

  Sole authority to retain and terminate a compensation consultant to assist in the evaluation of CEO or senior executive compensation;

 

  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.

 

 

10     |      Proxy and Notice of Annual Meeting of Shareowners     |     2015
 

Corporate Governance > Board Committees and Responsibilities

 

Board Committees Responsibilities
   
RETIREMENT PLANS COMMITTEE   Appoint the trustees for funds of the employee pension benefit plans of Honeywell and certain subsidiaries;
   
    Review funding strategies;
   
All Members Independent   Review investment policy for fund assets; and
   
    Oversee members of management that direct the investment of pension fund assets.
   

 

Board Committee Oversight of Independent Accountants

 

The Audit 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. They also review and pre-approve all audit and non-audit services 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 our independent accountants, and with Honeywell’s Chief Financial Officer and Vice President—Corporate Audit. The Board has determined that Messrs. Paz, Burke, and Davis, and Mses. Deily and Washington satisfy the “accounting or related financial management expertise” requirements set forth in the NYSE listing standards, and has designated Mr. Paz as the NYSE defined “audit committee financial expert.”

 

On July 29, 2014, the Audit Committee approved the engagement of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the Company’s fiscal year ended December 31, 2015, replacing PricewaterhouseCoopers LLP, our prior accounting firm. See “Proposal No. 2: Approval of Independent Accountants” on pages 83-84 for further discussion on the change of independent accountants.

 

Board Committee Oversight of Executive Compensation and Outside Compensation Consultant

 

The Management Development and Compensation Committee has sole authority to retain a compensation consultant to assist the Committee in the evaluation of director, CEO or senior executive compensation, but only after considering all factors relevant to the consultant’s independence from management. In addition, the Committee is directly responsible for approving the consultant’s compensation, evaluating its performance, terminating its engagement. Under the Committee’s established policy, its consultant cannot provide any other services to Honeywell. Since October 2009, the Committee has retained Pearl Meyer & Partners (“PM&P”) as its independent compensation consultant.

 

The Committee regularly reviews the services provided by its outside consultants and performs an annual assessment on the independence of its compensation consultant to determine whether the compensation consultant is independent. The Committee conducted a specific review of its relationship with PM&P in 2014, and determined that PM&P is independent in providing Honeywell with executive compensation consulting services and that PM&P’s work for the Committee did not raise any conflicts of interest, consistent with Securities and Exchange Commission (“SEC”) rules and NYSE listing standards.

 

In making this determination, the Committee reviewed information provided by PM&P on the following factors:

 

Any other services provided to Honeywell by PM&P;
   
Fees received by PM&P from Honeywell as a percentage of PM&P’s total revenue;
   
Policies or procedures maintained by PM&P to prevent a conflict of interest;
   
Any business or personal relationship between the individual PM&P consultants assigned to the Honeywell relationship and any Committee member;
   
Any business or personal relationship between the individual PM&P consultants assigned to the Honeywell relationship, or PM&P itself, and Honeywell’s executive officers; and
   
Any Honeywell stock owned by PM&P or the individual PM&P consultants assigned to the Honeywell relationship.

 

In particular, the Committee noted that PM&P did not provide any services to the Company or its management other than service to the Committee, and its services were limited to executive compensation consulting. Specifically, it does not provide, directly or indirectly through affiliates, any non-executive compensation services, including, but not limited to, pension consulting or human resources outsourcing. The Committee will continue to monitor the independence of its compensation consultant on a periodic basis.

 

PM&P compiles information and provides advice regarding the components and mix (short-term/long-term; fixed/variable; cash/equity) of the executive compensation programs of Honeywell and its “Compensation Peer Group” (see pages 37-38 of this proxy statement for further detail regarding the Compensation Peer Group) and analyzes the relative performance of Honeywell and the Compensation Peer Group with respect to stock performance and the financial metrics generally used in the programs. PM&P also provides information regarding emerging trends and best practices in executive compensation. In addition to information compiled by PM&P, the Committee also reviews general survey data compiled and published by third parties. Neither the Committee nor Honeywell has any input into the scope of or the companies included in these third-party surveys.

 

2015     |     Proxy and Notice of Annual Meeting of Shareowners      |     11
 

Corporate Governance > Board’s Role in Risk Oversight

 

While the Committee reviews information provided by PM&P 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.

 

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

 

Compensation Input From Senior Management

 

The Management Development and Compensation 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 Honeywell’s annual planning process, the CEO, CFO and Senior Vice President-Human Resources, Procurement and Communications develop targets for Honeywell’s incentive compensation programs and present them to the Committee. These targets are reviewed by the Committee to ensure alignment with our strategic and annual operating plans, taking into account the targeted year-over-year and multi-year improvements as well as identified opportunities and risks. The CEO recommends base salary adjustments and cash and equity incentive award levels for Honeywell’s other executive officers. These recommendations are 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.

 

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.

 

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. Relevant Board Committees review specific risk areas, as enumerated below, and report on their deliberations to the Board. The full Board oversees risk in several ways. Through periodic management updates on the financial and operating results of Honeywell, as well as the annual operating and five-year strategic plans of each SBG, the Board provides input to management on ordinary course, business and commercial operating risks. In addition, management reports to the Board and each committee periodically on specific, material risks as they arise or as requested by individual Board members. Annually, management reports to the Audit Committee and full Board on its Enterprise Risk Management or ERM program. These presentations are designed to provide the Audit Committee and full Board with adequate visibility into the risks facing Honeywell and enable the Board to effectively exercise its oversight function. Through its ERM program, management identifies the most significant risks facing the Company and ensures that, where possible, it deploys adequate risk mitigation strategies. Through dialogue with the Board as a whole and individual Board members, the Board provides oversight and guidance to management to ensure that the ERM process identifies the complete universe of risks facing Honeywell and that adequate mitigation steps, where appropriate, are in place. This enables informed decision-making and intelligent risk-taking.

 

The specific risk areas of focus for the Board and each of its Committees are summarized below. In addition, 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   •  General commercial risks such as new product launch, capital spend, raw material price increases, F/X, diminished customer demand, technology obsolescence, reductions to government spending, and a slowdown in economic growth
    •  M&A integration and the M&A competitive landscape
    •  Legal risks arising from litigation, IP infringement, health, safety, and environment, regulatory issues such as FCPA or Conflict Minerals, and product liability
Audit Committee   •  Cyber security whether arising from compromises to product software, cloud breaches or persistent threats
    •  Accounting, controls, and financial disclosure
    •  Tax and liquidity management
    •  Compliance matters associated with import/export, ITAR and FCPA
    •  Certain kinds of employee misconduct
    •  Catastrophic risks such pandemics, natural disasters, and plant accidents
Corporate Governance and
Responsibility Committee  
  •  Labor compliance
  •  Political contributions
  •  Health, safety and environmental
Management Development and   •  Senior management succession planning
Compensation Committee   •  Executive compensation plans, programs and arrangements
Retirement Plans Committee   •  Employee pension and saving plans

 

12     |      Proxy and Notice of Annual Meeting of Shareowners     |     2015
 

Corporate Governance > Director Independence

 

DIRECTOR INDEPENDENCE

 

Our 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 directors 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. Ayer, Bethune, Burke, Chico Pardo, Davis, Gregg, Hollick, Paz, and Sheares and Mses. Deily, Lieblein and Washington—satisfies the independence criteria in the applicable NYSE listing standards and SEC rules (including the enhanced criteria with respect to members of the Audit Committee and Management Development and Compensation Committee). 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 material relationships with Honeywell, either directly as a partner, shareowner or officer of an organization that has a relationship with Honeywell, other than as a director and shareowner. Material relationships can include vendor, supplier, consulting, legal, banking, accounting, charitable and family relationships, among others.

 

Criteria for Director 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 15-17 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 affiliated with Honeywell or any of its subsidiaries or affiliates.
   
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.
   
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 have served as officers (Mr. Ayer – Alaska Air Group, Mr. Davis – UPS, Ms. Lieblein – General Motors, Mr. Paz – Express Scripts, and Ms. Washington – Gilead Sciences). 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 0.9% 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 requirements of the NYSE listing standards for director independence, 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 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 Honeywell’s books and records and responses to questionnaires completed by the director nominees in connection with the preparation of this proxy statement.

 

2015     |     Proxy and Notice of Annual Meeting of Shareowners      |     13
 

Corporate Governance > Identification and Evaluation of Director Candidates

 

IDENTIFICATION AND EVALUATION OF DIRECTOR CANDIDATES

 

The Corporate Governance and Responsibility Committee also serves as the Board’s Nominating Committee. The Committee consists entirely of independent directors under applicable SEC rules and NYSE listing standards. In this role, they seek individuals qualified to become directors, evaluate the qualifications of individuals suggested or nominated by third parties, including shareowners (and recommend actions if needed), and recommend to the Board the nominees to be proposed by Honeywell for election to the Board. 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 its members, other directors, senior management and shareowners. The Committee has retained, at Honeywell’s expense, a search firm to identify potential director candidates. The Committee 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 Honeywell’s Senior Vice President—Human Resources, Procurement and Communications.

 

Preliminary interviews of director candidates are conducted by either the Chairman of the Committee or, at his or her request, any other member of the Committee, the Chairman of the Board and/or a representative of the retained search firm. Background material about the director candidates is distributed to the Committee members for their review. Director candidates that are determined to merit further consideration are interviewed by other Committee members, directors and key senior management personnel as determined by the Committee Chairman. The Committee then considers these interview results in its deliberations.

 

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 Honeywell’s businesses. The Committee conducts regular reviews of current directors in light of the considerations described above and past contributions to the Board.

 

OUR COMMITMENT TO BOARD DIVERSITY

 

While Honeywell’s Corporate Governance Guidelines do not prescribe a diversity policy or standards, as a matter of practice, the Committee is committed to enhancing both the diversity of the Board itself and the perspectives and values that are discussed in Board and Committee meetings. Our current Board composition reflects this approach and the Board’s commitment to diversity:

 

  Women Hispanic African-American Non-U.S. Citizen
No. of HON
Directors
3 3 2 2
% of HON
Non-Employee Directors
25% 25% 17% 17%

 

BOARD TENURE

 

We believe that Board tenure diversity is important and careful consideration is made to achieve the appropriate balance. Directors with many years of service to Honeywell provide the Board with a deep knowledge of our company, while newer directors lend fresh perspectives.

 

Our current Board of
Directors has an average
tenure of 7.8 years, less
than the S&P 500 average
tenure of 8.4 years.(1)

 

(1) Source: Spencer Stuart Board Index 2014, Spencer Stuart (November 2014)

 

14     |      Proxy and Notice of Annual Meeting of Shareowners     |     2015
 

Corporate Governance > Director Orientation and Continuing Education

 

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 96 of this proxy statement.

 

This year, one director nominee, William S. Ayer, is nominated for election to the Board of Directors who has not previously been nominated for election to the Board by the shareowners. Mr. Ayer was identified by a third-party search firm. Mr. Ayer was elected to the Board on December 12, 2014.

 

Honeywell 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.

 

DIRECTOR ORIENTATION AND CONTINUING EDUCATION

 

As part of Honeywell’s director orientation program, new directors participate in one-on-one introductory meetings with Honeywell business and functional leaders and are given presentations by members of senior management on Honeywell’s strategic plans, financial statements and key issues, policies and practices. Directors may enroll in director continuing education programs at Honeywell’s expense on corporate governance and critical issues associated with a director’s service on a public company board. Our senior management meets regularly with the Board and meets annually to review with the Board the operating plan of the Company and each of our strategic business groups. The Board also periodically participates in site visits to Honeywell’s facilities.

 

DIRECTOR ATTENDANCE AT ANNUAL MEETINGS

 

Honeywell 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.

 

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 and is designed to address the time, effort, expertise and accountability required of active Board membership.

 

Annual Compensation

 

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.

 

2015     |     Proxy and Notice of Annual Meeting of Shareowners      |     15
 

Corporate Governance > Deferred Compensation

 

Board of Directors’ Annual Compensation
Board Retainer $80,000 ($100,000 beginning in 2015)
Board Meeting and Attendance $2,500 for each board meeting attended. (Eliminated beginning in 2015)
Board Committee Membership  
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. (Eliminated beginning in 2015) $10,000 for each committee board membership ($15,000 for members of the Audit Committee).

Board Committee Chairs receive an additional cash retainer of $10,000 ($15,000 for the Audit Committee chair). ($20,000 for each Chair beginning in 2015).
Common Stock Equivalents  
These amounts are credited annually but payment is deferred until termination of Board service. Payments are made in cash, as either a lump sum or in equal annual installments. 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. Dividend equivalents are credited with respect to these amounts.
Annual Equity Grants  
Stock options vest in equal annual installments over the four years following the grant date. The 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 (currently 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. Each non-employee director receives an annual equity grant with a target value of $75,000 consisting of 50% restricted stock units (“RSUs”) and 50% options to purchase 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. (Target value to change to $100,000 beginning in 2015.)
   
The RSUs 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 elect to defer all or any portion of his or her annual cash retainers and fees, until a specified calendar year or termination of Board service. Compensation is credited to their account in the Deferred Compensation Plan for Non-Employee Directors. Amounts credited either accrue interest (4.09% for 2014 and set at 3.66% for 2015) 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. In addition to payments at the termination of Board service, 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.

 

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 dividend equivalents. 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, in one payment or annual installments, as elected by the director.

 

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, which is consistent with similar coverage offered to Honeywell’s active salaried employees. Directors elected to the Board after September 2008 are responsible for paying premiums for term life insurance and medical and dental coverage which they elect 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 utilize available Company aircraft for travel to and from Board and Committee meetings.

 

16     |      Proxy and Notice of Annual Meeting of Shareowners     |     2015
 

Corporate Governance > Restricted Stock Unit Grant Upon Election to Board

 

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 Honeywell officers 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 Honeywell, must 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; $500,000 starting in 2015). They must 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, other than Mr. Ayer who joined the Board in December 2014, have attained the prescribed ownership threshold.

 

 

DIRECTOR COMPENSATION—FISCAL YEAR 2014

 

Director Name   Fees
Earned or
Paid in Cash($)(1)
  Stock
Awards($)(2)(3)
  Option
Awards($)(2)(4)
  Change in Pension
Value and
Nonqualified
Deferred
Compensation
Earnings($)(5)
  All Other
Compensation($)(6)
  Total($)
William Ayer   $5,834   $290,010 (7) $0   $0   $0   $295,844
Gordon Bethune   $179,500   $37,506   $37,497   $52,708   $4   $307,215
Kevin Burke   $188,500   $37,506   $37,497   $0   $25,004   $288,507
Jaime Chico Pardo   $185,000   $37,506   $37,497   $0   $26,663   $286,666
D. Scott Davis   $198,500   $37,506   $37,497   $3,649   $1,435   $278,587
Linnet Deily   $198,500   $37,506   $37,497   $0   $32,947   $306,450
Judd Gregg   $187,500   $37,506   $37,497   $0   $4   $262,507
Clive Hollick   $177,000   $37,506   $37,497   $4,030   $26,326   $282,359
Grace Lieblein   $179,500   $37,506   $37,497   $0   $4   $254,507
George Paz   $203,500   $37,506   $37,497   $0   $25,004   $303,507
Bradley Sheares   $179,500   $37,506   $37,497   $7,671   $25,943   $288,117
Robin Washington   $186,500   $37,506   $37,497   $0   $25,004   $286,507
(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).

 

2015     |     Proxy and Notice of Annual Meeting of Shareowners      |     17
 

Corporate Governance > Certain Relationships and Related Transactions

 

(2) The table below reflects all outstanding stock awards and option awards held at December 31, 2014 by each of the listed individuals.

 

Director Name Outstanding
Stock Awards at
12/31/14
Outstanding Option
Awards at 12/31/14
Mr. Ayer 3,000 0
Mr. Bethune 1,609 43,374
Mr. Burke 4,989 18,374
Mr. Chico Pardo 1,609 43,374
Mr. Davis 1,609 38,374
Ms. Deily 1,609 38,374
Mr. Gregg 4,879 13,374
Mr. Hollick 1,609 38,374
Ms. Lieblein 4,056 5,448
Mr. Paz 1,609 23,374
Dr. Sheares 1,609 28,374
Ms. Washington 4,039 5,448

 

(3) The amounts set forth in this column represent the aggregate grant date fair value of stock awards computed in accordance with FASB ASC Topic 718. The fair value of each stock award is estimated on the date of grant by averaging the high and low of the Company’s stock price on the day of grant. Stock awards of 406 shares were made to non-employee directors in April 2014 with a value of $92.38 per share. A more detailed discussion of the assumptions used in the valuation of stock awards made in fiscal year 2014 may be found in Note 18 of the Notes to the Financial Statements in the Company’s Form 10-K for the year ended December 31, 2014.
(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 of 2,446 shares were made to non-employee directors in April 2014 with a Black-Scholes value of $15.33 per share. A more detailed discussion of the assumptions used in the valuation of option awards made in fiscal year 2014 may be found in Note 18 of the Notes to the Financial Statements in the Company’s Form 10-K for the year ended December 31, 2014.
(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 2014, this rate was 4.09%, and is set at 3.66% for 2015. 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 2014. 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. Hollick $11,990
Mr. Paz $25,000
Dr. Sheares $25,000
Ms. Washington $25,000

 

(7) Reflects 3,000 RSUs granted to Mr. Ayer upon his election to the Board in December 2014 with a value of $96.67 per share.

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Applicable Policies and Procedures

 

Honeywell 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 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

 

18     |      Proxy and Notice of Annual Meeting of Shareowners     |     2015
 

Corporate Governance > Related Person Transaction

 

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 must review any potential conflict and determine whether any action is required. This includes 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 Honeywell 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 Honeywell;
   
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.

 

Each director and officer also completes and signs a questionnaire at the end of each fiscal year to confirm that there are no material relationships or related person transactions between such individuals and the Company other than those previously disclosed to Honeywell. This ensures that all material relationships and related person transactions are identified, reviewed and disclosed in accordance with applicable policies, procedures and regulations.

 

Related Person Transaction

 

The Honeywell ADI business leases its administrative office building in Melville, New York at a current rent of approximately $1,066,240 per year. After 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. Both Mr. Fradin and Mr. Kramvis, each a Vice Chairman, are limited partners 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.

 

2015     |     Proxy and Notice of Annual Meeting of Shareowners      |     19
 

Stock Ownership Information > Five Percent Owners of Company Stock

 

STOCK OWNERSHIP INFORMATION

 

FIVE PERCENT OWNERS OF COMPANY STOCK

 

The following table lists information about those holders known to Honeywell to be the beneficial owners of 5% or more of the outstanding shares of Common Stock as of December 31, 2014. State Street Corporation is listed in the table below because one of its subsidiaries (State Street Bank and Trust Company) holds approximately 4.9% 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          
State Street Financial Center, One Lincoln Street, Boston, MA 02111   70,382,140 (1) 9.0% (2)
BlackRock, Inc.          
55 East 52nd Street, New York, NY 10022   47,523,994 (3) 6.1%  
Massachusetts Financial Services Company          
111 Huntington Avenue, Boston, MA 02199   42,782,416 (4) 5.5%  

 

(1) State Street Corporation has shared voting power and shared dispositive power in each case in respect of the 70,382,140 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 51,314,344 shares included above.
(2) State Street Bank and Trust Company holds approximately 4.9% 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. They must also vote all shares for which they do not receive instructions in the same ratio as the shares for which instructions were received.
(3) BlackRock, Inc. has sole voting power in respect of 39,462,731 shares and sole dispositive power in respect of 47,511,302 shares.
(4) Massachusetts Financial Services Company and certain related entities have sole voting power in respect of 36,165,172 shares and sole dispositive power in respect of all 42,782,416 shares.

 

STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

 

The following table lists information as of February 27, 2015 about the beneficial ownership of Common Stock by each director or director nominee, each executive officer named in the Summary Compensation Table, and by all directors (including nominees) and executive officers of Honeywell as a group. Except as otherwise noted, the individuals listed in the following table have the sole power to vote or transfer the shares reflected in the table.

 

    Components of Beneficial Ownership (Number of Shares)
Name(1)   Total Number
of Shares(2)
  Common Stock
Beneficially
Owned
  Right
To Acquire(3)
  Other
Stock-Based
Holdings(4)
William S. Ayer   626   0   0   626
Gordon M. Bethune   69,962   11,317   34,941   23,704
Kevin Burke   32,668   11,380   14,941   6,347
Jaime Chico Pardo   92,662   24,425   39,941   28,296
David M. Cote   6,827,440   876,300 (5) 5,075,000   876,140
D. Scott Davis   60,074   11,000   34,941   14,133
Linnet F. Deily   47,410   0   34,941   12,469
Judd Gregg   24,282   3,000   9,941   11,341
Clive Hollick   57,326   3,000   34,941   19,385
Grace D. Lieblein   5,209   0   2,111   3,098
George Paz   32,923   4,315   19,941   8,667
Bradley T. Sheares   44,540   3,525   24,941   16,074
Robin L. Washington   4,284   0   2,111   2,173
David J. Anderson (Retired CFO)   1,279,104   113,753   860,000   305,351
Thomas A. Szlosek   318,753   4,794   262,500   51,459
Roger Fradin   1,151,253   173,401   857,500   120,352
Timothy O. Mahoney   807,426   41,861   736,250   29,315
Andreas C. Kramvis   825,103   23,718   631,250   170,135
All directors, nominees and executive officers as a group, including the above-named persons (24 people)   13,989,842   1,536,178   10,744,826   1,708,838

 

(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 1.79% of the shares of Common Stock outstanding.

 

20     |      Proxy and Notice of Annual Meeting of Shareowners     |     2015
 

Stock Ownership Information > Section 16(a) Beneficial Ownership Reporting Compliance

 

(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 27, 2015.
   
(4) Includes shares and/or share-equivalents in deferred accounts, as to which no voting or investment power exists.
   
(5) Includes shares indirectly held in a grantor retained annuity trust and a limited liability company, as to which Mr. Cote has shared voting and investment power.

 

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 2014, we believe that all applicable Section 16(a) filing requirements were met on a timely basis.

 

SEC FILINGS AND REPORTS

 

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 at www.honeywell.com under the heading “Investor Relations” (see “SEC Filings & Reports”) immediately after they are filed with or furnished to the SEC.

 

SUSTAINABILITY AND CORPORATE RESPONSIBILITY

 

Honeywell takes seriously its commitment to corporate social responsibility, protection of our environment, and creation of Sustainable Opportunity everywhere it operates.

 

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% of Honeywell’s product portfolio is linked to energy efficiency, and the United States could reduce its energy consumption 20-25% by immediately and comprehensively adopting existing Honeywell technologies.

 

HIGHLIGHTS OF OUR ENVIRONMENTAL AND SAFETY GOALS AND ACHIEVEMENTS

 

Program   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.
Honeywell reports on its global greenhouse gas emissions publicly through the Carbon Disclosure Project and through reports submitted to the U.S. Environmental Protection Agency and the United Kingdom Environmental Agency. A qualified third party has verified Honeywell’s 2011, 2012 and 2013 greenhouse gas emission inventories.  
     
  By the end of 2011, Honeywell had 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.
     
  To sustain this progress, Honeywell has set an additional public commitment to reduce its greenhouse gas emissions per dollar of revenue from our 2011 level by an additional 15% by 2017.
Water   In 2013, the Company implemented water conservation projects at sites that are significant water consumers in areas that are experiencing “water stress” as defined by the World Resources Institute.
Honeywell has developed a global inventory of water usage in its manufacturing operations.  
     
  The Company implemented additional water conservation projects in these areas in 2014.

 

2015     |     Proxy and Notice of Annual Meeting of Shareowners      |     21
 

Stock Ownership Information > Highlights of Our Environmental and Safety Goals and Achievements

 

Program   Achievements
Safety   We maintain a Company-wide global Total Case Incident Rate (the number of occupational injuries and illnesses per 100 employees) of less than half of the combined U.S. averages of the industries in which we operate, based on data from the Bureau of Labor Statistics.
Honeywell utilizes a comprehensive Health, Safety, Environment, Product Stewardship and Sustainability (“HSEPS”) Management System based on recognized third-party 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, HSEPS-led audit process. The timely development and implementation of process improvements and corrective action plans are closely monitored.    
     
  Honeywell has received worker safety awards from governments around the world.        

 

Health, Safety, Environment Management, Product Stewardship and Sustainability Management System

 

Honeywell’s Heath, Safety, Environment, Product Stewardship and Sustainability matters are managed by a global team of trained professionals with extensive knowledge and hundreds of years of collective experience in occupational health, chemistry, hydrology, geology, engineering, safety, industrial hygiene, materials management and energy efficiency.

 

Honeywell’s Vice President of HSEPS reports to the Company’s Senior Vice President and General Counsel and has overall responsibility for HSEPS programs. A Corporate Energy & Sustainability Team, led by the Vice President of HSEPS, the Vice President of Global Real Estate and the Director of Sustainability, 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 Board’s Corporate Governance and Responsibility Committee at least annually.

 

Honeywell’s Integrity and Compliance program

 

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”) that applies across the Company in all businesses and in all countries. All employees are required to complete Code of Business Conduct training and certify that they will comply with the Code. In addition, managers and executives certify on an annual basis that they will act in accordance with the Code.

 

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 our 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. The Code provides guidance and outlines expectations in a number of key integrity and compliance areas, including how employees should treat each other, conflicts of interest, HSEPS, books and records, anti-corruption and proper business practices, trade compliance, insider trading, data privacy, respect for human rights, and the appropriate use of information technology and social media.

 

In addition to the Code, Honeywell’s Integrity and Compliance program provides comprehensive training on key compliance topics, develops training scenarios, provides mechanisms for employees and third parties to report concerns, and ensures timely and fair reviews of integrity and compliance concerns.

 

Honeywell Hometown Solutions

 

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: safety and security, housing and shelter, math and science education, 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 families, the elderly and the disabled;
   
Offering academic opportunities that inspire students to pursue careers in science, technology, engineering and math (STEM), and that give teachers new techniques in STEM education;
   
Partnering with environmental organizations to provide students with unique learning opportunities and teaching tools for educators to promote science in the classroom; and

 

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Stock Ownership Information > Political Contributions and Activities

 

Helping Honeywell employees and communities recover from natural disasters such as Hurricane Sandy, the Colorado Springs wildfires, the Great Japan Earthquake and Tsunami and the Mexicali, Haitian and Sichuan earthquakes.

 

For more information about our sustainability and corporate citizenship programs, please visit our website at www.honeywell.com, and Corporate Citizenship at http://citizenship.honeywell.com/.

 

POLITICAL CONTRIBUTIONS AND ACTIVITIES

 

Engagement in the political process is critical to our success. Our future growth depends on forward-thinking legislation and regulation that makes society safer and more energy efficient and improves public infrastructure. We strive to always engage responsibly in the political process and to ensure that our participation is fully consistent with all applicable laws and regulations, our principles of good governance, and our high standards of ethical conduct.

 

We have developed a strong team of government relations professionals based in Washington, D.C. that drive our lobbying programs and initiatives. Our government relations organization is led by a Senior Vice President, Global Government Relations. Members of the government relations organization work from a global network of offices.

 

Management and Board Oversight

 

The law department oversees our lobbying activities. The Senior Vice President, Global Government Relations reports to the Company’s Senior Vice President and General Counsel (“General Counsel”) and also works closely with the Vice President, Global Compliance whose organization ensures compliance with our political spending policy. The General Counsel, Senior Vice President, Global Government Relations and Vice President, Global Compliance meet regularly with the Chairman and Chief Executive Officer and his leadership team about legislative, regulatory and political developments.

 

With respect to Board of Directors oversight, our public policy efforts, including all lobbying activities, political contributions and payments to trade associations and other tax-exempt organizations, is the responsibility of the Corporate Governance and Responsibility Committee (“CGRC”), which consists entirely of independent, non-employee directors. Each year the CGRC receives an annual report on the Company’s policies and practices regarding political contributions. The CGRC’s oversight of our political activities ensures compliance with applicable law and alignment with our policies and our Code of Business Conduct. In addition, each year the Senior Vice President, Global Government Relations reports to the full Board of Directors on our global lobbying and government relations program.

 

Political Contributions

 

We have not made any political contributions using corporate funds since at least 2009 and have no intention of making such political contributions in the near future. Even before 2009, any such contributions were extremely rare and for minimal amounts of less than $5,000.

 

In 2013, we revised and expanded our disclosure on our policy and procedures for political activity and contributions. This disclosure is available on Honeywell’s website at www.honeywell.com (see “Investors/Corporate Governance/Political Contributions”).

 

In 2014, the Center for Political Accountability (“CPA”), a non-profit, non-partisan organization, assessed our disclosure for its annual CPA-Zicklin Index of Corporate Political Disclosure and Accountability (“CPA-Zicklin Index”). The CPA-Zicklin Index measures the transparency, policies, and practices of the top 300 companies in the S&P 500. Our enhanced disclosure on political lobbying and contributions ranked us in the “First Tier” of the 2014 CPA-Zicklin Index as compared to a “Third Tier” ranking in 2013. Our enhanced disclosure was also influenced by feedback received from our largest shareowners during our shareowner outreach initiative where we met with shareowners to discuss their views on several topics, including Honeywell’s disclosure on lobbying and political contributions.

 

For additional detail on Honeywell’s policies and processes on political contributions and lobbying, please see our response to Shareowner Proposal Number 6 on pages 91-92.

 

SHAREOWNER OUTREACH AND ENGAGEMENT

 

We seek to engage with our shareowners on a regular basis to discuss a range of topics including our performance, strategy, risk management, executive compensation, and corporate governance. We recognize the value of taking our shareowners views into account. Dialogue and engagement with our shareowners helps us understand how they view us, set goals and expectations for our performance, and identify emerging issues that may affect our strategies, corporate governance, compensation practices or other aspects of our operations.

 

Our shareowner and investor outreach includes investor road shows, analyst meetings, and investor conferences. We also communicate with shareowners and other stakeholders through various media, including our annual report and SEC filings,

 

2015     |     Proxy and Notice of Annual Meeting of Shareowners      |     23
 

Stock Ownership Information > Shareowner Outreach and Engagement

 

proxy statement, news releases, and our website. We hold conference calls for our quarterly earnings releases and other major corporate events which are open to all. These calls are available in real time and as archived webcasts on our website.

 

Our Chairman and CEO, Chief Financial Officer, Vice President of Investor Relations and other senior management meet periodically with investors to discuss Honeywell’s strategy, financial and business performance and to update investors on key developments. In addition, one of our Vice Chairmen, Mr. Kramvis, has been designated to develop stronger relations with our shareowners outside of the United States.

 

GOVERNANCE AND COMPENSATION OUTREACH

 

Throughout the year, we also seek our shareowners’ views on governance and compensation matters:

 

CYCLE BEGINS

 

SUMMER/FALL

 

Our annual corporate governance cycle begins with reviewing new governance trends, regulatory developments, and our own policies and practices. Management determines topics for upcoming shareowner discussions and prepares outreach materials which are posted on our website at www.honeywell.com. Management then begins shareowner outreach to the Company’s 30 largest shareowners (representing approximately 50% of our share ownership) to solicit their views on governance and compensation matters.

Management reports to the Board of Directors on its shareowner engagement activities and feedback received from the shareowners.

 

WINTER

 

The Board implements governance changes, if appropriate, based on its independent judgment and the Summer/Fall shareowner feedback. For example, the Lead Director role was implemented in December 2014 based on feedback received from our shareowners.

     

CYCLE CONCLUDES

 

SUMMER

 

The cycle concludes with a report to the Board of Directors on the just ended proxy season, including a discussion on the voting results and feedback we received from shareowners during proxy season. This discussion sets the agenda for our meetings with shareowners during late Summer and Fall.

 

SPRING

 

As part of the annual meeting process, we publish our annual communications to shareowners and other stakeholders:

•  Annual report;
•  Proxy statement; and
•  Supplemental materials.

 

We again extend an invitation to our 30 largest shareowners to discuss matters to be voted on at our annual meeting. We then hold our annual shareowners meeting.

 

In the Summer/Fall 2014, outreach invitations were sent to our 30 largest shareowners and direct meetings were held with investors holding approximately 40% of the shares outstanding. Among the specific matters we discussed were the following:

 

Shareowner views on the creation of a Lead Director role and separation of the roles of Chairman of the Board and Chief Executive Officer. See “Proposal No. 4: Independent Board Chairman.” Opinions expressed by shareowners profoundly affected our decision to change our corporate governance structure in 2014 and create a Lead Director role.
   
Our executive compensation program and disclosures. See “Proposal No. 3: Advisory Vote to Approve Executive Compensation” and “Compensation Discussion and Analysis.”
   
The advisability of providing shareowners with the ability to act by written consent. See “Proposal No. 5: Right to Act By Written Consent.”
   
The adequacy of our disclosure on political contributions and lobbying. See “Proposal No. 6: Political Lobbying and Contributions.”

 

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Stock Ownership Information > Shareowner Outreach and Engagement

 

The adequacy of our disclosure on environmental, sustainability and governance (ESG) matters. See “Sustainability and Corporate Responsibility” on pages 21-22 of this proxy statement or visit our website at www.honeywell.com for updated information on all these programs.
   
Shareowner views on so-called “fee shifting” bylaw amendments whereby plaintiffs who bring certain types of legal claims against a company that lack merit may be required to pay the company’s legal fees if their claim is dismissed.

 

COMMUNICATING WITH MANAGEMENT AND IR

 

Our Investor Relations department is the primary point of contact for shareowner interaction with Honeywell. Shareowners should write to or call:

 

Mark Macaluso

Vice President, Investor Relations

Honeywell

101 Columbia Road, Morris Township, NJ 07962

Phone: +1 (973) 455-2222

 

Visit our website at www.honeywell.com

 

We encourage our shareowners to visit the Investors section of our website for more information on our investor relations and corporate governance programs.

 

PROCESS FOR COMMUNICATING WITH BOARD MEMBERS

 

Shareowners, as well as other interested parties, may communicate directly with the Lead Director for an upcoming meeting, the non-employee directors as a group, or individual directors by writing to:

 

Honeywell

c/o Vice President and Corporate Secretary

101 Columbia Road

Morris Township, NJ 07962

 

Honeywell’s Corporate Secretary 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.

 

2015     |     Proxy and Notice of Annual Meeting of Shareowners      |     25
 

EXECUTIVE COMPENSATION

 

COMPENSATION DISCUSSION AND ANALYSIS

 

In this section, we review the objectives and elements of Honeywell’s executive compensation program, its alignment with performance and the 2014 compensation decisions regarding our Named Executive Officers.

 

TABLE OF CONTENTS

 

Executive Summary   27
     
Overview   27
     
Named Executive Officers   27
     
Summary of Compensation Decisions—2014   27
     
CEO Pay-for-Performance Alignment   29
     
Say On Pay   29
     
2014 Honeywell Performance   30
     
Performance Highlights (2014 vs. 2013)   30
     
We Are Creating Value for Our Shareowners   33
     
We Are Building for the Future   33
     
Our Compensation Philosophy   36
     
How Compensation is Determined   36
     
Mix of Compensation Elements   37
     
Our Competitive Market—Compensation Peer Group   37
     
Succession Planning   38
     
2014 Succession—Related Actions   39
     
CEO Retention Actions   40
     
Compensation Program Description   41
     
Elements of Total Annual Direct Compensation   41
     
Base Salary   41
     
Annual Incentive Compensation Plan (“ICP”)   41
     
Long-Term Incentive Compensation (“LTI”)   43
     
Description of Non-Annual Equity Awards   45
     
2014 Compensation Decisions   46
     
Annual Direct Compensation   46
     
Base Salary   46
     
2014 ICP—Discussion, Analysis And Awards   46
     
2014 LTI Awards—Discussion, Analysis And Awards   47
     
Non-Annual Equity Awards   49
     
Named Executive Officers   51
     
2014 Performance & Total Annual Direct Compensation Tables   51
     
Other Compensation & Benefit Programs   57
     
Compensation Practices And Policies   58
     
Best Practices   58
     
Risk Oversight Considerations   59
     
Stock Ownership Guidelines   59
     
Recoupment   60
     
Tax Deductibility of Executive Compensation   60
     
Pledging and Hedging Transactions in Company Securities   61
     

 

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Executive Compensation > Executive Summary

 

EXECUTIVE SUMMARY

 

OVERVIEW

 

Honeywell is a diversified, global technology and manufacturing leader, organized into three strategic business groups or SBGs: Aerospace (“Aero”), Automation and Control Solutions (“ACS”), and Performance Materials and Technologies (“PMT”). During 2014, the previous fourth stand-alone SBG, Transportation Systems, was merged into the Aero SBG to take advantage of engineering and technology similarities and shared operating practices.

 

We invent and manufacture technologies to address some of the world’s toughest challenges initiated by revolutionary macrotrends in science, technology and society. A Fortune 100 company, we create solutions to improve the quality of life of people around the globe: generating clean, healthy energy — and using it more efficiently; increasing our safety and security; enabling people around the world to connect, communicate, and collaborate; and equipping our customers to be even more productive. With approximately 127,000 employees worldwide, including almost 22,000 engineers and scientists, we have an unrelenting commitment to quality and delivering results in everything we make and do.

 

Global Processes

 

Honeywell’s ability to continually improve comes from successfully achieving two seemingly competing tasks at once — productivity and growth. Honeywell’s core internal business processes, including Six Sigma, Functional Transformation, Honeywell Operating System, Velocity Product Development and the Honeywell User Experience, drive global efficiency and service quality. By relentlessly executing on these processes, Honeywell brings world-class products and services to market faster and more cost-effectively for our customers.

 

What We Do

 

Aerospace Advancements

 

Honeywell Aerospace’s mechanical and electrical innovations are used today on virtually every commercial and defense aircraft platform. Our Aerospace team invents and integrates thousands of products and services that make worldwide air travel safe, efficient, productive and comfortable. We also provide world-class technologies and solutions to automakers, their suppliers, and the public. Our turbo technologies make passenger and commercial vehicles throughout the world perform better and more energy efficient.

 

Automation and Control Solutions Smart Technology

 

Families, businesses, and communities around the world use Honeywell’s environmental controls, life safety, security, sensing, scanning, and mobility products, and building solutions for greater safety, security and energy efficiency in their everyday lives. Honeywell’s innovations in smart technology are changing the way that businesses are managed and improving how individuals express their lifestyles at home.

 

Cutting-Edge Performance Materials and Technologies

 

Honeywell is a global leader in designing and creating high-purity, high-quality performance chemicals and materials. Our technologies can do everything from reducing emissions to stopping bullets. They enable the production of cleaner, more efficient fuels, increase capacity in oil refineries, speed drug discovery, and improve the shelf life of medicines and offer process solutions to industrial facilities making them safer, more secure and more efficient.

 

SUMMARY OF COMPENSATION DECISIONS — 2014

 

2014 was a year of evolution and growth in our executive leadership structure. Compensation decisions made for 2014 reflect both our long-standing commitment to aligning pay and performance, as well as the fruition of our thorough and rigorous succession planning process. Our overall pay philosophy continues to emphasize variable, at-risk compensation paid out over the long-term. Within that framework, 2014 compensation actions were also aligned with succession-related leadership changes. In 2014, our former CFO, David J. Anderson, retired and was replaced by Thomas A. Szlosek, an experienced finance executive who had been groomed

 

NAMED EXECUTIVE OFFICERS
(“NEOs”)

 

 

 

David M. Cote
Chairman &
Chief Executive Officer

 

 

 

Thomas A. Szlosek
Senior Vice President &
Chief Financial Officer

 

 

 

Roger Fradin
Vice Chairman

 


 

2015     |     Proxy and Notice of Annual Meeting of Shareowners      |     27
 

Executive Compensation > Executive Summary

 

 

NAMED EXECUTIVE OFFICERS
(continued)

 

 

 

Timothy O. Mahoney
President & Chief Executive
Officer — Aerospace

 

 

 

Andreas C. Kramvis
Vice Chairman

 

for the role through successive positions of increasing responsibility within Honeywell. We also promoted two of our SBG presidents, Roger Fradin and Andreas Kramvis, to the newly-created positions of Vice Chairman. Their SBG president roles were filled by two executives, Alexandre Ismail and Darius Adamczyk, who have led business units in diverse industries and have demonstrated their abilities to drive superior financial results. Finally, we took steps in 2014 to ensure that our Chairman and CEO will continue to lead the Company to deliver the aggressive five-year plan that we announced at our Investor Day in March 2014.

 

The following table summarizes the Committee’s 2014 compensation and succession planning-related actions (discussed in detail later in this Compensation Discussion and Analysis or “CD&A”):

 

Pay Element   2014 Actions   Comments
Base Salary   Merit increases ranged from 0 to 9%. Mr. Kramvis received a promotional increase of 21%.   The base salary for Mr. Cote increased by 5%, the first increase in the last six years. Mr. Kramvis’ increase was in connection with his promotion to Vice Chairman.
Annual Incentive Compensation Program (“ICP”)   Awards ranged from 91% to 168% of target opportunity.   Payout levels were linked to year-over-year performance against three pre-established, objective metrics: growth in EPS(1), free cash flow(2) and working capital turns — as well as Supplemental Criteria (see page 46).
Annual Stock
Options Awards
  Number of annual Stock Options granted to each NEO was down 13% to 20% vs. 2013.   Grant-date values were up 11% to 21% from 2013 due to an increase in the value per option. Annual Stock Options vest over 4 years.
Performance-Based Long-Term Cash (Growth Plan Units or “GPUs”)   Long-term performance grants were made for the new 2014-2015 Growth Plan cycle. Plan is 100% formulaic with a 3.2 year payout cycle. Performance cycles do not overlap, so there will be no grant in 2015.   Payouts based on three pre-established financial targets measured over a two-year period for each SBG and Honeywell as a whole: revenue growth (excluding acquisitions and divestitures), return on investment expansion and segment margin expansion. Targets are aligned with the Company’s 2018 targets for revenue and segment margin that were announced to Shareowners in March 2014 (see page 49).
Performance-Adjusted Restricted Stock Units (“RSUs”)   Discretionary grants were made to Messrs. Szlosek, Fradin, Mahoney and Kramvis (see page 49). No RSUs were granted to the CEO.   Officers are considered for RSUs on a periodic basis (not annual) in connection with retention and succession plan reviews. Award sizes may vary by executive and by grant. The target number of shares awarded is subject to +/- 30% adjustment based on Honeywell’s total shareowner return (TSR) ranking against the Compensation Peer Group. Vesting schedules vary from 3 to 7 years based on succession goals.
Performance Stock Options (“PSOs”)   One-time grant was made to Mr. Cote in December 2014 as part of a CEO retention package (see page 40). First time HON has issued PSOs.   Payout to be based on Honeywell’s TSR relative to the Compensation Peer Group for the 3-year period ending December 31, 2017. Other conditions apply. Actual payout can range from 0% to 150% of target. The PSOs cliff vest on December 31, 2017, if earned.

 

Note: 2014 Actions above do not apply to Mr. Anderson, who retired in 2014.

 

(1) Excludes pension mark-to-market adjustment.
   
(2) For ICP purposes only, we define free cash flow as cash flow from operations less capital expenditures prior to any cash pension contributions, NARCO Trust establishment payments and cash taxes relating to the sale of available for sale investments. Beginning in April 2014 (after ICP goals were established), to provide more clarity to investors, we changed the definition of free cash flow to simply ‘operating cash flow less capital expenditures’. For 2014, the impact of the exclusions was not material ($71m). Beginning in 2015, we will use the standard definition of free cash flow for determining ICP.


 

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Executive Compensation > Executive Summary

 

CEO PAY-FOR-PERFORMANCE ALIGNMENT

 

This graph demonstrates the alignment over the past five years of shareowner value creation and key operational metrics with CEO total annual direct compensation, or “Total ADC.” which consists of base salary, ICP award, annual stock option grant, and annualized Growth Plan award. The off-cycle award of performance stock options granted in December 2014 is shown separately above the 2014 Total ADC bar.

 

CEO COMPENSATION ALIGNMENT WITH COMPANY PERFORMANCE AND TSR

 

 

 

(1) Reflects the year-to-year performance indexed to a 2009 base year for total shareowner return (“TSR”), and a 2010 base year for other performance metrics, at 100. Prior year TSR is shown to correspond with the timing of annual compensation decisions. TSR consists of stock price appreciation plus reinvested dividends.
   
(2) The 2014 CEO Total ADC bar includes 50% of the target award for the 2014-2015 Growth Plan cycle, even though the performance cycle is still in progress. The 2013 and 2012 CEO Total ADC bars each include 50% of the actual award earned for the 2012-2013 Growth Plan cycle consistent with how the Management Development and Compensation Committee views compensation. The 2010 and 2011 CEO Total ADC bars each include 50% of the actual award earned for the 2010-2011 Growth Plan performance cycle.
   
(3) Represents actual business performance for the year noted indexed to 2010. EPS excludes pension mark-to-market adjustment. Sales and Segment Profit exclude the impact of 4Q 2014 OEM Incentive Payments.
   
(4) The TSR point above each column is the TSR for the preceding year as long-term incentive compensation decisions (annual stock options and biennial Growth Plan Unit awards) are generally made in February with reference to prior year TSR performance as one of the key considerations in aligning pay and performance.
   
(5) Represents non-annual award of performance stock options issued in December 2014 for retention purposes; target value of $5 million; vests 100% on December 31, 2017.

 

    SAY ON PAY
     
    Our Board has adopted a policy of providing for an annual vote on Say on Pay. In 2014, our executive compensation was approved by approximately 91% of the votes cast, consistent with the support we have received from shareowners since adopting an annual vote on executive compensation.
     
    Following the 2014 shareowner meeting, we extended meeting invitations to our top institutional shareowners to specifically discuss governance and compensation matters. Direct meetings were held with investors holding approximately 40% of the shares outstanding. These meetings resulted in a constructive dialogue, with our shareowners expressing overall support for Honeywell’s executive leadership team and compensation practices in light of our consistently strong operational results and long-term stock performance. Feedback on the specific design elements of our executive compensation program was varied across the shareowner base, with many indicating strong support for the pay/performance alignment, linkage to the 2018 Long-Term Targets and balanced approach of our program. Some shareowners expressed prescriptive program design preferences that differ from Honeywell’s program. Specific feedback from these meetings was shared directly with the Management Development and Compensation Committee.
     
    After considering the 2014 Say on Pay vote results, feedback from shareowners, and their own assessment of how best to support succession planning goals and incentivize leadership to accomplish Company-specific strategic and operational goals, the Management Development and Compensation Committee determined that the annual elements of the current executive compensation program continue to meet their objectives and, therefore, has not made any significant changes.

 

2015     |     Proxy and Notice of Annual Meeting of Shareowners      |     29
 

Executive Compensation > 2014 Honeywell Performance

 



 


 


 


 

 

 

Earnings Per Share*
up 12% to $5.56.

 

Total Sales up 4%
to new Company
record of $40.5
billion.(1)

 

Segment margins
increased 70 basis
points to a record
17.0%.(1)

 

Segment profit up
8% to a new peak of
$6.9 billion.(1)

 

Free cash flow**
remained strong at
$3.9 billion and FCF
conversion was 89%.

 

Dividend rate was
increased by 15%.
This marks the tenth
increase of at least
10% in the last
eleven years.

 

2014 HONEYWELL PERFORMANCE

 

2014 represented another strong performance year for Honeywell despite a continued slow growth environment. Similar to the past few years, our macroeconomic planning assumptions were appropriately conservative, assuming little help from the global economy. As a result, we were able to stick by our initial sales and earnings outlook all year, achieving both our initial sales and EPS* guidance ranges, and once again delivering on the rigorous expectations we set for ourselves operationally. Honeywell sales grew 4%(1), including a 1% impact from M&A net of divestitures, while expanding margins to new record levels with contributions from each segment across the portfolio. Sustained operational excellence contributed to strong sales conversion and as a result earnings* grew at a multiple of three times sales growth, or 12% year-over-year. We continued to execute on our key strategies for growth including penetration of high growth regions and investments in high ROI capital projects and new products and technologies, while maintaining our cost disciplines and leveraging the Honeywell Operating System and other Honeywell Enablers.

 

* Excludes pension mark-to-market adjustment.

 

PERFORMANCE HIGHLIGHTS (2014 VS. 2013)

 

Earnings Per Share* were up 12% to $5.56.
   
Total Sales were up 4% (3% organic) to a new record of $40.5 billion.(1)
   
Segment Margins increased 70 basis points to a record 17.0%, with segment profit up 8% to a new peak of $6.9 billion.(1)
   
Free Cash Flow (“FCF”)** remained strong at $3.9 billion and FCF conversion was 89%. These positive results are after the impact of 2014 funding for capital expenditures of $1.1 billion, an increase of 16% vs. 2013, to support high return growth projects.

 

NEW LEVELS OF PEAK PERFORMANCE 2014 VS. 2013

 

 

* EPS, V% exclude pension mark-to-market adjustment.
** FCF = Cash Flow From Operations Less Capital Expenditures; FCF Conversion is FCF divided by Net Income excluding pension mark-to-market adjustment.

 

Note: Our Q4 2014 sales, segment profit and segment margin were impacted by the advanced funding of $184 million of commercial aerospace OEM incentives (“OEM Incentive Payments”). Unlike other aerospace companies in our Compensation Peer Group, our accounting policies require that we charge OEM Incentive Payments against sales in the period in which the payment occurs. Where noted in this proxy statement, the 4Q 2014 OEM Incentive Payments are excluded from the 2014 sales, segment profit and segment margin numbers presented in this proxy to better reflect 2014 operating performance. In Q4 2014, we also sold 1.9 million shares of B/E Aerospace which was the final tranche of 6 million shares we obtained when we divested our Consumable Solutions business in 2008. The net effect of the after-tax gain from the Q4 2014 sale of B/E Aerospace shares and the OEM Incentive Payments resulted in no impact on net income or EPS. The 6 million shares of B/E Aerospace were originally valued at $150 million. Over the course of the previous 5 quarters we sold all of the shares generating approximately $500 million in cash proceeds. The gains from these sales were deployed for restructuring and other actions, such as the OEM Incentive Payments, to proactively position us for future growth and profitability.

(1)Excludes impact of 4Q 2014 OEM Incentive Payments.


 

30     |      Proxy and Notice of Annual Meeting of Shareowners     |     2015
 

Executive Compensation > 2014 Honeywell Performance

 

A significant amount of the cash generated was redeployed in our businesses or returned to our shareowners.

 

We made capital expenditures of $1.1 billion (on top of $947 million in 2013), expanding investments in our high ROI businesses to meet customer demand for new orders and the existing backlog. Areas of notable investment include new or expanded manufacturing capacity for our family of low-global warming line of refrigerants, blowing agents, aerosols and solvents, as well as catalysts to serve our Chinese petrochemical customers.
   
We continued our investment in facilities and capabilities to better serve customers and grow revenues. One example is Honeywell Industrial Safety’s new 10,000 square foot industrial safety training facility and customer experience center in Houston, Texas which includes nine simulators for training in hazardous work environments such as wind turbines, oil derricks and chemical facilities.
   
We returned capital to shareowners through a 15% increase in the dividend rate. This was the tenth dividend rate increase of at least 10% in the last eleven years and demonstrates our commitment to grow the dividend rate at a higher rate than EPS.
   
We repurchased 10 million shares, more than offsetting any dilution to shareowners from employee share plans.

 

Our Focus on Profitable Growth

 

In December 2013, we provided our investors with guidance for 2014 related to sales, segment margins and EPS.* For each of these financial metrics, we provided a range based on our expectations for both the performance of our businesses and the global economy. We raised the low-end of our guidance range for EPS* and segment margin several times during the year and exceeded the high end of these targets (excluding OEM Incentive Payments), despite modest top-line growth.

 

Performance against initial guidance

 

We exceeded the high end of our initial guidance range for EPS.*
   
We achieved our Sales and Segment Margin guidance ranges, demonstrating continued strong operational performance. Excluding the OEM Incentive Payments, we exceeded the guidance range on both sales and segment margin.

 

PERFORMANCE AGAINST INITIAL GUIDANCE

 

 

Guidance range represents initial external guidance provided in December 2013.

(1) Excludes approximate sales of $300 million related to the Friction Materials business which was divested in 2014.
(2) Excludes impact of 4Q 2014 OEM Incentive Payments.

*EPS, V% exclude pension mark-to-market adjustment.

 

We delivered consistently strong operational performance with 2014 sales and net income growth and return on invested capital ahead of our Compensation Peer Group median, and EPS* growth ahead of our Multi-Industry Peers. Our double digit net income and EPS* growth in 2014 reflects a continuation of the level of performance consistently achieved over the past 5 years (see charts below).

 

Exceeded the high end of our initial EPS* guidance range

 

Exceeded the high end of our initial guidance range for Sales and Segment Margin

(excluding OEM Incentive Payments)

 


 

2015     |     Proxy and Notice of Annual Meeting of Shareowners      |     31
 

Executive Compensation > 2014 Honeywell Performance

 

 

 

 

 

 

 

 

 

 

 

Double Digit Net Income and EPS Growth in 2014(1)

 

Strong Relative Sales Growth and Return on Invested Capital (ROIC)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consistent Double Digit Net Income and EPS(1) Growth over 5-years

 

Honeywell EPS(1) more reflective of operating performance

 

 

 

 

 

 

 

 

 

(1) Excludes pension mark-to-market adjustment.

 

 

2014 Performance Relative to Peers

 

Note: Reflects Fiscal Year 2014 Results; HON Net Income and EPS Exclude Pension MTM; Peer Median Reflects Compensation Peer Group Median (AA Excluded From Net Income And EPS Due To Loss In 2013); Multi-Industry Peer Median Includes GE, EMR, MMM, and UTX

   
* Excludes impact of 4Q 2014 OEM Incentive Payments.
** V% excludes pension mark-to-market adjustment.
*** ROIC = Net Income Before Interest / Net Investment (2-Point Average)

Net Income Before Interest = Net Income + After-Tax Interest

Net Investment = Book Value of Equity + Total Debt

 

The “Multi-Industry Peer Median” comprises results of the four multi-industry companies that are also included in our 14 company Compensation Peer Group. We believe these four companies are the most relevant comparisons for Honeywell with respect to operating performance and investor base (i.e., similar breadth of portfolio, multi-industries, global footprint) and we refer to them as our “Multi-Industry Peers.”

 

5-Year Net Income and EPS Growth vs. Peers

 

Since 2011 our net income and earnings per share have outgrown both the Compensation Peer Group median as well as each of our Multi-Industry Peers. The Committee believes our EPS growth is particularly impressive because it was accomplished during a period where many of our peer companies used share repurchase programs to boost their EPS. Hence, for our Multi-Industry Peers, net income growth lagged EPS growth. The strong correlation between net income and EPS growth at Honeywell is important because it means that our EPS growth was achieved based on the strength of our underlying businesses and operational performance, not the decrease in the number of outstanding shares.

 

Net Income and EPS Growth (5 Years)

Relative to Multi-Industry Peers and Comp Peer Median

Note: Reflects 2009 - 2014 fiscal year data

* HON Net Income and EPS exclude pension mark-to-market adjustment.
** Comp Peer Median represents median of the Compensation Peer Group excluding AA, JCI, and TXT due to negative earnings in 2009.

 


 

32     |      Proxy and Notice of Annual Meeting of Shareowners     |     2015
 

Executive Compensation > 2014 Honeywell Performance

 

WE ARE CREATING VALUE FOR OUR SHAREOWNERS

 

Total Shareowner Return:

 

We continue to demonstrate long-term outperformance of our peer group and the broader market. The following graph displays our annual and 5-year cumulative TSR performance relative to our Compensation Peer Group Median, Multi-Industry Peer Median and the S&P 500 Index.

 

5-YEAR CUMULATIVE TSR

 

(Total Shareowner Return %)

Comp Peer Median or “Comp” Reflects Compensation Peer Group Median; Percentile Rank is HON Relative to All Comp Peer Companies.

Multi-Industry Peer Median or “Multi” includes 4 Companies in Our Compensation Peer Group with the Most Similar Profile to HON.

TSR Measurements as of Market Close on December 31, 2014.

 

5-Years: 88th Percentile TSR Vs. All Comp Peers

 

WE ARE BUILDING FOR THE FUTURE

 

Portfolio Realignment:

 

We took actions to adjust our portfolio to better leverage our strengths, including the following:

 

Combined our Transportation Systems business segment with our Aerospace business segment to better take advantage of the engineering and technology similarities and the shared business models between these two business segments.
   
Moved our process solutions business (HPS) from our ACS SBG into our PMT SBG to better take advantage of joint technology development and collaboration to solve customer needs between our UOP business unit and HPS. Both units serve customers internationally in petroleum refining, gas processing, and petrochemical production industries.
   
Completed the sale of our Friction Materials business in July 2014 which eliminated a business unit that did not fit with our core differentiated technologies focus and long-term growth plans.
   
We announced the $185 million acquisition of Datamax-O’Neil, a global manufacturer of fixed and mobile printers. This transaction further grows our barcode printing business and follows our 2013 acquisition of Intermec, which essentially doubled our revenue in the highly attractive scanning and mobility segment.

 

Capital Investment in Manufacturing, R&D and Sales Facilities:

 

We continue to deploy capital in priority projects that will enable us to increase revenue at a compounded annual growth rate of 4% to 6% through 2018, including:

 

The deployment of approximately $300 million of capital to increase production capacity for HFO-1234yf, a new refrigerant for automobiles with a global-warming potential (GWP) of less than one, including construction of a new high-volume manufacturing plant in Geismar, Louisiana.

 

 

 

 

 

 

 

Honeywell’s Total Cumulative Shareowner Return (TSR)

 

 
1-year


3-year


5-year


10-year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 




 

We reduced the number of SBGs from four to three to better align our technologies and customer offerings

 

 

 

 

 

 

 

 

 

  

 

 

We funded investments in new or expanded manufacturing facilities and in technology centers

  

 


 

2015     |     Proxy and Notice of Annual Meeting of Shareowners      |     33
 

Executive Compensation > 2014 Honeywell Performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 High Growth Region Sales increased 5% vs. 2013
HGR sales approximately 23% of total revenue

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The construction of new manufacturing facilities and expansion of existing facilities in Louisiana, Alabama and China to expand our production capabilities in our high margin catalyst business which is part of UOP.
   
The construction of a new Aerospace R&D facility in Puerto Rico to support app and software development and aeronautics engineering design.
   
The opening of our seventh manufacturing facility in India, a 75,000 sq. ft. facility for Honeywell Automation India Limited (HAIL) that will integrate manufacturing, factory testing, quality control and advanced manufacturing engineering for our ACS SBG.
   
The announcement of a $130 million major expansion of our engineering center in Bangalore, India where we already employ over 5,000 engineers.

 

Rigorous Focus on Seed Planting to Support Future Growth and Improved Productivity:

 

We achieved growth in 2014 segment margin and EPS(1) without compromising future growth. We continued our long-term seed planting initiatives in several key areas:

 

R&D Spending at 4.7% of revenues was targeted at high growth areas such as natural gas processing, low global warming refrigerants and blowing agents, and wireless control devices and technologies.

 

Sales in High Growth Regions (HGR) increased 5% which brings overall sales in high growth regions to approximately 23% of total revenue. Key seed planting actions taken in 2014 include:

 

  Our technology and engineering offering contributed to numerous methanol-to-olefin (MTO) plants in high growth regions. Our MTO technology cost-effectively converts methanol from coal and natural gas into valuable petrochemicals to meet HGRs’ growing demand for olefins.
     
  We opened several new manufacturing facilities including a new turbocharger plant in Wuhan, China, which will triple our turbo production capacity in China. Honeywell now has 23 plants in China, including 19 in Tier 2+ cities.
     
  Twelve metro lines in China installed our fire detection systems.
     
  Using our HUE and VPD enablers, we launched new products designed to address specific needs of HGR local markets including a new full function commercial air purifier for China which combined technologies from all three of our SBGs.
     
  We procured significant wins in oil and gas in the Middle East, including a project to upgrade and expand Kuwait National Petroleum Corporation’s (KNPC’s) existing refineries and build a mega greenfield refinery.
     
  In Brazil, Alumar/Alcoa announced that they will use Honeywell Process Solutions Experion and Advanced Solutions technologies at their São Luís, Maranhão, Brazil facilities to drive improved productivity and control.
     
  Vietnam’s only private airline selected us to supply, manage and maintain the APU in their A320 fleet.
     
  Secured position as the SATCOM terminal provider to the Mexico Government for the MexSat program satellite system.
     
Repositioning Actions were funded through operations to enable sustainable productivity:
   
  We funded repositioning actions in 2014 of $184 million gross ($146 million net) to better align our businesses for growth and higher asset efficiency which will provide us with meaningful margin and earnings growth opportunities in future periods.
     
  Repositioning projects commenced in prior years are expected to generate incremental pre-tax savings in 2015 of $100 million to $125 million compared to 2014.

 

(1) Excludes pension mark-to-market adjustment.


 

34     |      Proxy and Notice of Annual Meeting of Shareowners     |     2015
 

Executive Compensation > 2014 Honeywell Performance

 

We established new 2018 long-term targets for revenue and segment margin growth:

 

In March 2014, we established 2018 long-term target ranges for revenue and segment margin (“2018 Long-Term Targets”) that reflect our commitment to sustained growth and continued value generation for our shareowners. Underpinning our confidence in achieving these ambitious targets are the following:

 

Investments and initiatives in high growth regions (HGRs), particularly China, that we expect will contribute at least 50% of our 4 to 6% CAGR projected organic revenue growth;
   
Our ability to consistently bring to market new products that offer real value and positive experiences to our customers. We apply New Product design principles across our product portfolio based on the Honeywell User Experience (HUE) and the Velocity Product Development (VPD) commercialization process;
   
Through extension and expansion of the Honeywell Operating System (HOS) to “HOS Gold,” we are institutionalizing an end-to-end business operating system that will enable and sustain exceptional growth along with productivity improvements;
   
Opportunities to expand offerings related to the “connected home.” For example, in 2014 we launched the Lyric thermostat, a new smart thermostat and the first in a family of connected home products; and
   
The significant software design capabilities embodied in our almost 22,000 engineers, over 50% of whom are engaged in writing software and 100% are anticipated to receive the highest ratings for process maturity level as determined by standards of the CMMI Institute by year-end 2015.

 

NEW 2018 LONG-TERM TARGETS

(Announced in March 2014)

 

Revenue: $46–$51 billion Segment Margin: 18.5%–20.0%
($51–$59 billion including M&A)  
(Dollars in Billions)  
   
   

(1) CAGR - Compound Annual Growth Rate (3) bps - basis points improvement
       
(2) Excludes impact of 4Q 2014 OEM Incentive Payments.    

 

 

 

 

 

 

 

 

New Long-Term Targets Established

 

Revenue: $46–$51 billion

Segment Margin:

18.5%–20.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

2015     |     Proxy and Notice of Annual Meeting of Shareowners      |     35
 

Executive Compensation > Our Compensation Philosophy

 

OUR COMPENSATION PHILOSOPHY

 

HOW COMPENSATION IS DETERMINED

 

Decisions about executive compensation are made by the Management Development and Compensation Committee of the Honeywell Board of Directors (the “Committee”). The Committee believes that a well designed, consistently applied compensation program for senior executives is fundamental to the long-term creation of shareowner value. In carrying out their responsibilities, the Committee considers a number of factors:

 

The competition for top-tier executive talent across our diverse range of businesses spanning aerospace and turbo technologies, automation and control, and chemical and refining industries;
   
The global nature of our businesses and the importance of growth outside of the United States for future success; and
   
The need to retain or attract executives with a proven track record of delivering consistent short-term financial results and driving “seed-planting” initiatives that will create long-term shareowner value and success.

 

Each year, the Committee reviews each NEO’s four-year compensation history in total and for each element of total annual direct compensation. They also review projected payouts under Honeywell’s retirement and deferred compensation plans, and any prior, non-recurring types of awards or grants such as performance-adjusted RSU awards issued 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 awards 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.

 

 

Our executive compensation programs support creation of shareowner value 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 our 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, are not overly leveraged and cap maximum payments.

 

The factors that generally shape the Committee’s overall assessment of compensation include:

Overall operational and financial performance — Corporate and SBG;
Results of the most recent annual Say on Pay vote;
Stock price performance and total shareowner return;
Executive’s individual record of performance including success in deploying the Honeywell Enablers;
Named Executive Officer compensation history, including experience in the position;
Executive’s relative level of responsibility within Honeywell and the impact of his or her position on Honeywell’s performance;
Executive’s long-term leadership potential with Honeywell and associated retention risk;
The senior executive succession plan;
Stock ownership levels;
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;
Industry and macroeconomic conditions; and
Discussions with shareowners through the Company’s outreach program.

 

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

 

36     |      Proxy and Notice of Annual Meeting of Shareowners     |     2015
 

Executive Compensation > Our Compensation Philosophy

 

The Committee does not define specific internal pay ratios for its senior executives or NEOs. The compensation disparity between the CEO and the other NEOs is primarily due to the CEO having significantly greater responsibilities for management and oversight of a diversified, global enterprise.

 

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.

 

MIX OF COMPENSATION ELEMENTS

 

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.

 

Our executive compensation programs emphasize variable pay that aligns compensation with performance and shareowner value. The mix of compensation elements for NEOs is heavily leveraged toward variable, performance-based compensation. The CEO, in particular, has a greater emphasis on variable compensation than all other executives because his actions can have a greater influence on the performance of the Company.

 

TARGET MIX OF TOTAL ANNUAL DIRECT COMPENSATION FOR THE CEO AND OTHER NEOS FOR 2014

 

Short-Term: Base Salary and annual target ICP

Long-Term: Stock options at grant date value, Growth Plan at annualized target value

 

OUR COMPETITIVE MARKET — COMPENSATION PEER GROUP

 

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

 

They annually assess market conditions through a review of compensation data compiled by the Committee’s independent compensation consultant regarding a peer group of companies (the “Compensation Peer Group”) with whom Honeywell 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; and
   
Demonstrated competitor for executive talent.

 

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 2014.

 

  COMPENSATION PEER GROUP  
     
Alcoa General Dynamics Raytheon
Boeing General Electric* Textron
Dow Chemical Johnson Controls 3M*
E.I. DuPont de Nemours Lockheed Martin United Technologies*
Emerson Electric* Northrop Grumman  

 

* Multi-Industry Peer

 

2015     |     Proxy and Notice of Annual Meeting of Shareowners      |     37
 

Executive Compensation > Our Compensation Philosophy

 

 

COMPARISON WITH COMPENSATION PEER GROUP

 

 

Revenue: reflects fiscal year 2014 results as reported.

TSR percentages reflect cumulative growth over the period. All periods end December 31, 2014.

 

For each Company in the Compensation Peer Group, the Committee reviews data including base salary, actual annual cash incentive awards, total annual cash compensation, long-term incentive compensation and total annual direct compensation of the NEOs. The Committee also reviews general industry survey data published by third parties as a general indicator of relevant market conditions and pay practices. This also serves 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.

 

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 the sustained improvement in key performance metrics, strong long-term relative TSR outperformance and the breadth of our business operations, Honeywell’s senior executives are recognized as industry leaders with backgrounds, depth of experience and management skill sets that are highly attractive to competitors. The Committee believes that these executives have visibility as high-performing leaders and may be presented with other career opportunities given the global scope and complexity of the Company and each of its business segments.

 

38     |      Proxy and Notice of Annual Meeting of Shareowners     |     2015
 

Executive Compensation > Our Compensation Philosophy

 

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;
   
Ensure a smooth transition of senior executives in key leadership positions; 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 Honeywell.

 

The Committee considers succession-related actions within the context of the Company’s long-standing commitment to aligning pay and performance.

 

2014 SUCCESSION-RELATED ACTIONS

 

2014 was a year in which our consistent, thoughtful approach to succession planning paid dividends. In April 2014, we promoted two SBG presidents to the newly created roles of Vice Chairman and seamlessly transitioned into their former roles two successful executives with proven track records at Honeywell. We also completed the transition from our retiring CFO, David J. Anderson, to our new CFO, Thomas A. Szlosek.

 

In connection with these succession-related actions and to strengthen retention through critical succession planning periods, in July 2014, the Committee considered awards of performance-adjusted RSUs, which are adjusted based on TSR performance relative to the Compensation Peer Group, measured through both June 30, 2015 and December 31, 2016. Based on consideration of the promotions for Messrs. Szlosek, Fradin, and Kramvis, as well as the expanded responsibilities of Mr. Mahoney associated with Transportation Systems, the Committee approved performance-adjusted RSUs for these four NEOs with vesting periods tied to specific succession planning goals (see page 49 for details).

 

Also in 2014, the Committee entered into the succession-related letter agreements described below, each of which provides enhanced equity vesting of previously granted awards upon retirement from the Company provided that certain conditions are met, including continued employment and non-compete and restrictive covenants.

 

New Vice Chairman Roles

 

Effective April 7, 2014, Messrs. Fradin and Kramvis were promoted to newly-created leadership positions as Vice Chairman, Honeywell International Inc. (“Vice Chairman”) to drive advancement of specific Company initiatives. Neither Mr. Fradin nor Mr. Kramvis will serve as members of the Company’s Board.

 

In his new role as Vice Chairman, Mr. Fradin is primarily responsible for advancing the Company’s merger and acquisition strategy. Mr. Fradin is also responsible for driving the advancement of specific business strategies, with a particular focus on high growth regions and improving internal functional operations, including IT strategy.

 

In his new role as Vice Chairman, Mr. Kramvis is primarily responsible for advising on business strategy, growth and improvement of results in underperforming business units. Mr. Kramvis is also responsible for the deployment of the Honeywell Operating System Gold standard, or “HOS Gold,” throughout the Company, advancing the Company’s software initiative, and increasing our outreach to investors outside the United States.

 

In connection with these succession actions, the Committee approved letter agreements with Messrs. Fradin and Kramvis. Subject to each executive’s continued employment until February 15, 2017 (the “Retention Date”) and satisfactory performance in their Vice Chairman roles, upon retirement from the Company:

 

Any previously granted stock options or restricted stock units that are outstanding shall continue to vest as scheduled (other than those that have been granted within twelve (12) months of retirement, except as may otherwise be determined by the Committee);
   
Vested stock options will remain exercisable for their remaining original term; and
   
Any unpaid tranche of GPUs for a Growth Plan performance cycle that has been previously completed shall continue to be paid when due, based on actual performance achieved.

 

Eligibility for the above is further conditioned on, among other things, the executive remaining in compliance with certain non-competition and other restrictive covenants which preclude the executive from competing with the Company for two years after separation from service. Paid amounts are subject to clawback provisions.

 

CFO Succession and Former CFO Transition Actions

 

Effective April 7, 2014, the Board nominated Thomas A. Szlosek to succeed David J. Anderson as Senior Vice President, Chief Financial Officer of the Company. Mr. Szlosek began his career at Honeywell in 2004, where he served as Vice President and Controller of the Company. In 2007, he became the Vice President and Chief Financial Officer of ACS. Since April 2013, Mr. Szlosek

 

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Executive Compensation > Our Compensation Philosophy

 

served as the Vice President, Corporate Finance, reporting to Mr. Anderson with responsibility for Treasury, Tax, Investor Relations, Audit, Business Analysis and Planning, and Finance Operations.

 

In connection with this succession action, Mr. Anderson entered into a letter agreement in which he agreed to continue to serve in transitional capacities as an employee of the Company through May 31, 2014 (the “Separation Date”) and as a consultant to the Company through May 31, 2016 (the “Expiration Date”). Mr. Anderson was not granted any long-term incentive awards in 2014 in anticipation of this transition.

 

As consideration for providing transitional and consulting services, the Committee agreed to the following, subject in all cases to Mr. Anderson’s compliance with the terms of expanded non-competition provisions and other restrictive covenants set forth in a Transition Agreement between Mr. Anderson and the Company:

 

Outstanding stock options that were unvested as of the Separation Date will continue to vest as scheduled and will expire three years after their vesting date in accordance with plan rules, subject to extension at the discretion of the Company’s CEO;
   
The second tranche of Mr. Anderson’s Growth Plan award earned for the completed 2012-2013 performance cycle will be paid as scheduled in March 2015; and
   
Restricted stock units previously granted to Mr. Anderson will continue to vest as originally scheduled.

 

Mr. Anderson also agreed to be treated as if still employed by the Company through the Expiration Date for purposes of his non-competition restrictions (one year post-termination), so that the post-termination restriction period will remain in place until May 31, 2017.

 

The Committee felt the terms of this agreement were appropriate given the ongoing commitment, the value of the associated restrictive covenants, and Mr. Anderson’s contribution to the long-term success of the Company.

 

CEO RETENTION ACTIONS

 

In the context of the senior leadership changes discussed above, the Committee and the independent members of the Board recognized the CEO’s demonstrated leadership qualities in the development of his senior executive team to support the Company’s succession planning goals. The Board also reviewed the CEO’s ongoing contributions to the Company’s success (see pages 51-52), potential retention risk, the extent of disruption likely to be caused by unplanned attrition and the Company’s identified succession candidates. In December 2014, the Committee recommended, and the independent members of the Board approved: (a) a special retention award of performance stock options; and (b) an extension of the CEO’s letter agreement, the material terms of which were designed to support retention.

 

Performance Stock Options (“PSOs”)

 

PSOs granted to Mr. Cote cliff vest as of December 31, 2017, with any earned award based on Honeywell’s TSR performance relative to the Compensation Peer Group through December 31, 2017 (see page 50 for details).

 

Extension of Letter Agreement

 

Contingent on Mr. Cote remaining employed with Honeywell through at least December 31, 2017 (except in cases of death, disability or involuntary termination without cause) and other conditions noted below, upon his future retirement on or after December 31, 2017, he will be entitled to:

 

Full vesting and full term to exercise stock options granted after April 1, 2015 and before January 1, 2018, except that the portion of any stock option award still subject to performance conditions at the time of his retirement shall remain subject to such conditions, and provided that the terms of stock options granted in the six months preceding his retirement date shall remain subject to Committee and Board determination;
   
Retain any unpaid tranche for a Growth Plan performance cycle that was previously completed based on actual performance achieved, to be paid at the same time such awards are paid for other officers of the Company; and
   
Remain eligible to receive a prorated ICP for any performance cycle in progress at the time of his retirement, to be paid at the same time such awards are paid to other officers of the Company.

 

Such benefits are also conditioned upon Mr. Cote (a) providing a defined transition period prior to his retirement; and (b) not accepting a position outside of Honeywell prior to December 31, 2017. These benefits are also conditioned on Mr. Cote’s adherence to the terms of any non-competition, non-solicitation, confidentiality or 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 these actions are the best means for achieving the Company’s retention and succession planning objectives over a timeframe when the CEO remains attractive to competitors. In addition, these actions are consistent with the design of the Company’s executive compensation program and the Committee’s and the Board’s prior succession planning-related actions.

 

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Executive Compensation > Compensation Programs

 

COMPENSATION PROGRAM DESCRIPTION

 

ELEMENTS OF TOTAL ANNUAL DIRECT COMPENSATION

 

In this section, we describe the three elements of our compensation programs that make up “total annual direct compensation” or “Total ADC” for the NEOs. These three elements, as well as their type and purpose, are summarized in this table:

 

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.
           
Short-Term
Incentive Awards
       
Annual Incentive
Compensation
Plan (ICP)
  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
(LTI) Awards
       
Growth Plan Units   Variable, Performance Cash   The Growth Plan drives the achievement of specific, quantified two-year financial performance goals directly aligned with our operating and strategic plans.
Stock Options   Equity   Stock options only have realizable value for executives if the operating performance results in stock price appreciation.
           

 

Other elements of compensation not considered on an annual basis (i.e., performance adjusted RSUs and performance stock options) are not part of Total ADC and are described later in this section.

 

Target Weighting of Total Annual Direct Compensation Elements

 

For 2014, the target weighting of each of the elements of total annual direct compensation for the CEO and other NEOs was as follows:

 

 

TARGET WEIGHTING OF TOTAL ANNUAL DIRECT COMPENSATION ELEMENTS

 

 

 

(1)Reflects target percentage of regular annual stock option grant. Excludes performance stock option award granted in December 2014 for retention purposes.

 

 

The percentages above are based on target Total ADC. The 2014 portion of the 2014-2015 Growth Plan award is included assuming that the Company achieves the target financial metrics over the course of the 2014-2015 measurement period.

 

Base Salary

 

Base salaries are determined based on scope of responsibility and years of experience. In 2014, base salary was 9% of the CEO’s total annual direct compensation and approximately 17% of total annual direct compensation for the other NEOs.

 

Annual Incentive Compensation Plan (“ICP”)

 

Each NEO has an annual ICP target opportunity expressed as a percentage of base salary. The aggregate annual ICP payout for all senior executive employees, including the NEOs, is limited to 2% of the Company’s consolidated earnings (“Funding Cap”). As defined in the plan rules, consolidated earnings excludes unusual or infrequently occurring events or transactions, the effects of extraordinary items, gain or loss on the disposal of a business segment, the effects of changes in accounting principles and the effects of any annual pension mark-to-market adjustment that recognizes net actuarial gains and losses outside the corridor (calculated as 10% of the greater of plan assets or projected benefit obligation).

 

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Executive Compensation > Compensation Programs

 

Process for Determining Annual ICP Award:

 

STEP 1

 

Set ICP Goals

 

  At the beginning of each year, the Committee sets specific annual corporate financial objectives (“Pre-Established ICP Goals”) consistent with our annual operating plan and external guidance that reflects then-current assumptions regarding macro-economic and key end-market conditions.
     

STEP 2

 

Determine
Funding Cap

 

  At the end of the year, the Committee first reviews our consolidated earnings performance for the year, and determines funding caps as defined in the Incentive Compensation Plan approved by shareowners.
     

STEP 3

 

Determine Overall
ICP Pool Funding

 

  Next, the Committee determines and approves ICP pool funding at a level below the aggregate plan Funding Cap, based on achievement of the annual Pre-Established ICP Goals, as well as an evaluation of other key performance measures and relevant factors necessary to ensure that the results against the Pre-Established ICP Goals are viewed in the proper context (“Supplemental Criteria”).
     

STEP 4

 

Determine and Approve
Individual ICP Awards

 

  Finally, the Committee determines individual awards for each NEO based on an assessment of their individual performance and behaviors, their application of the Honeywell Enablers, the performance of their respective business units and other relevant factors. The Committee also reviews and approves ICP awards for other participating executives, as proposed by the CEO. Awards to the NEOs are limited by individual funding caps, as defined by the plan, and the aggregate value of awards for the NEOs and other executives may not exceed the overall approved ICP pool funding amount.

 

Our ICP Financial Performance Measures And Supplemental Criteria

 

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

 

Earnings Per Share (“EPS”)(1) Measures delivery of shareowner value at the Corporate level
Free Cash Flow (“FCF”)(2) Measures our ability to generate cash from operations that may be reinvested in our businesses, used to make acquisitions, or returned to shareowners in the form of dividends or share repurchases
Working Capital Turns (“WCT”)(3) Measures efficiency and effectiveness of our business operations
(1) Excludes pension mark-to-market adjustment.
   
(2) For ICP purposes only, we define free cash flow as cash flow from operations less capital expenditures prior to any cash pension contributions, NARCO Trust establishment payments and cash taxes relating to the sale of available for sale investments. Beginning in April 2014 (after ICP goals were established), to provide more clarity to investors, we changed the definition of free cash flow to simply ‘operating cash flow less capital expenditures.’ For 2014, the impact of the exclusions was not material ($71M). Beginning in 2015, we will use the standard definition of free cash flow for determining ICP.
   
(3) Defined as sales divided by working capital, which is trade accounts receivable plus inventory less accounts payable and customer advances.

 

The Committee believes that over-reliance on a narrow set of fixed financial metrics for determination of annual ICP awards is not in the best interest of shareowners, as it may result in short-term trade-off decisions not focused on driving future growth. Therefore, in addition to the pre-established financial metrics, the Committee also uses Supplemental Criteria to further ensure alignment of actual ICP awards to our short- and long-term success. (See chart below for examples of Supplemental Criteria.)

 

While emphasis is placed on the achievement of the EPS target, 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.

 

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Executive Compensation > Compensation Programs

 

Here we summarize the factors that determine each individual NEO’s ICP award.

 

 

DETERMINING ACTUAL ANNUAL ICP AWARDS

 

 

 

Long-Term Incentive Compensation (“LTI”)

 

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). Target annual LTI awards are comprised of a mix of annual stock option grants and performance-contingent, cash-based Growth Plan Units, with Growth Plan Units issued only in the first year of each two-year performance cycle (i.e., March of 2014 for the 2014-2015 Growth Plan).

 

In addition to the annual consideration of LTI awards, the Committee periodically considers discretionary performance-adjusted RSU awards when deemed necessary for retention and succession planning purposes.

 

Stock Options

 

Annual stock option awards are long-term incentives intended to motivate and reward executives for making strategic decisions and taking actions that drive year-over-year improvements in company performance that translate into future increases in stock price. Stock options are directly aligned with the interests of our shareowners because executives only realize value if the stock price appreciates. This alignment is further strengthened by our Stock Ownership Guidelines that require executives to hold net gain shares from option exercises for at least one year after exercise. The one-year holding period increases the likelihood that any stock price appreciation will be sustainable because the executive must wait one year after exercise to realize value.

 

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Executive Compensation > Compensation Programs

 

 

Stock Options:
Why Our Committee
Believes They Are
A Highly Effective
Long-Term Vehicle
For Aligning Pay
and Performance
Stock options are strongly aligned with shareowners’ interests since they do not have value unless the stock performs.
The Committee believes that the use of stock options has focused management on shareowner value. 
As shown on page 60,  our executives own a large amount of Honeywell shares, and the Committee believes that this employee-ownership, fostered by the extensive use of stock options, has contributed to Honeywell’s track record of solid stock price performance.
Officers are strongly encouraged to hold options for 7 to 8 years of the 10-year term. Mr. Cote himself usually exercises his options within one year of expiration and never before 2 years prior to expiration.
       

 

Annual stock option grants are made in February of each year during an open trading window period following the release of financial results for the preceding fiscal year. For the NEOs, Stock Options represent approximately two-thirds of their target total annual LTI opportunity.

 

Stock options are granted with an exercise price which is set equal to the fair market value of our Common Stock on the grant date. Annual stock options granted to NEOs vest in equal 25% increments over a four-year period. 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 NEOs.

 

Growth Plan Units (“GPUs”)

 

The Growth Plan provides performance-contingent, cash-based, longer-term incentive awards to focus executives on achievement of objective, two-year financial metrics that are aligned with the relevant Long-Term Targets then in effect (i.e., our 2018 Long-Term Targets). The Growth Plan adds balance to our executive compensation program and is intended to complement stock options, which reward stock price appreciation. For the NEOs, the Growth Plan represents approximately one-third of their target total annual LTI opportunity.

 

Here is more detail on how the Growth Plan works:

 

Performance targets for each metric (described below) are set by the Committee at the beginning of the two-year performance cycle. Performance cycles do not overlap, so this happens every other year.
   
GPUs are awarded to each NEO in February of the first year of a two-year performance cycle.
   
At the end of the two-year performance cycle, Growth Plan payouts are determined on a purely formulaic basis. Each GPU has a target value of $100 ($50 when annualized), with performance metrics weighted equally in determining final payout. For each performance metric, a minimum level of achievement (i.e., threshold) must be met before the plan will fund an award for that goal.
   
Plan payouts are capped at 200% of target to the extent plan maximums are met or exceeded.
   
For SBG executives, 50% of their potential payout for the 2014-2015 performance cycle will be based on achievement of total Company metrics, and the remaining 50% will be based on achievement of corresponding SBG objectives for their respective SBG. For Corporate executives, including the CEO, payouts will be based solely on the achievement of total Company-level metrics.

 

The Committee believes that a two-year performance cycle provides the necessary line of sight to set realistic targets aligned with our 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).

 

 

GROWTH PLAN PERFORMANCE & PAYOUT CYCLE

 

 

 

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Executive Compensation > Compensation Programs

 

The 2014-2015 Growth Plan metrics are described below. Each of the three metrics is equally weighted.

 

Total Revenue
(1/3 weight)
  Revenue goal (two-year total) was set above the Company’s annual operating plan for 2014 and strategic plan targets for 2015.
  Directly aligned with our 2018 Long-Term Targets.
  Reflects aggressive growth rates for the SBGs based on projections of growth in our end markets.
     
  Excludes the impact of acquisitions and divestitures.
       
ROI Expansion
(1/3 weight)
  ROI goal was set based on the two-year revenue targets and the projected income using 2014 annual operating plan and historical rates of incremental sales conversion of income for 2015.
  Net investment values were projected taking into account anticipated working capital improvements over the two-year period.
       
Segment Margin
Expansion (1/3 weight)
  Focuses executives on driving continued operational improvements directly aligned with our 2018 Long-Term Targets.
  Segment margin expansion goal was set to achieve the mid-point of the range of our 2018 segment margin expansion target.

 

In addition to the foregoing three financial metrics, no awards will be funded if we do not achieve 1.25% compound annual growth in EPS(1) for the 2014-2015 period.

 

(1) Excludes pension mark-to-market adjustment.

 

DESCRIPTION OF NON-ANNUAL EQUITY AWARDS ISSUED FOR RETENTION AND SUCCESSION PLANNING PURPOSES

 

Performance-Stock Options (“PSOs”)

 

Performance stock options represent a right to receive a certain number of options to purchase Company stock based on the company’s TSR performance relative to its Compensation Peer Group over a defined period of time.

 

For the first time in 2014, the Committee issued PSOs to the CEO for retention purposes (see page 50). These PSOs are not considered a component of the CEO’s target total annual direct compensation, as they are not granted on an annual basis and are being issued, in this case, as a one-off retention award.

 

Performance-Adjusted Restricted Stock Units (“RSUs”)

 

Performance-adjusted RSUs represent a right to receive Company stock only if certain conditions are met (e.g., the attainment of pre-established performance conditions and/or continued employment through a specific date). The Committee awards RSUs from time-to-time on a discretionary basis. They are not considered a component of a NEO’s target total annual direct compensation, as they are not granted on an annual basis and there is no target award level.

 

In 2014, Performance-Adjusted RSUs were granted to NEOs (excluding Messrs. Cote and Anderson) in connection with the succession and retention actions taken in the second quarter (see page 49).

 

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Executive Compensation > 2014 Compensation Decisions

 

2014 COMPENSATION DECISIONS

 

Compensation decisions made for 2014 reflect our longstanding commitment of aligning pay with performance, and also support our thorough and rigorous succession planning process.

 

The Committee also continued to place greater emphasis on long-term incentives, especially stock options, to focus our executives on executing strategies aimed at creating sustained long-term value for shareowners.

 

ANNUAL DIRECT COMPENSATION

 

Base Salary

 

Base salary increases to the NEOs in 2014 ranged from 0% to 9%. The 5% increase for the CEO was his first base salary increase in six years. Mr. Kramvis also received a promotional increase in base salary of 21% in April 2014 in connection with his promotion to Vice Chairman.

 

2014 ICP — Discussion, Analysis and Awards

 

The following section describes the analysis and decisions regarding 2014 ICP awards.

 

2014 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 considers both the absolute results and the strength of the performance compared with prior year results.

 

The EPS Target and EPS Actual results below exclude the impact of any pension mark-to-market adjustment which is consistent with the presentation of EPS to our investors. The free cash flow (FCF) target and FCF actual results are shown prior to any cash pension contributions, NARCO Trust establishment payments, and cash taxes relating to the sale of available for sale investments.

 

In April 2014 (after ICP goals were established), the definition of free cash flow used in presentations to investors was changed to ‘operating cash flow less capital expenditures’, thus removing some previous exclusions. Beginning in 2015, we will use this definition of free cash flow for ICP. For 2014 ICP, the impact of the exclusions was not material to the measurement of performance ($71M).

 

2014 PERFORMANCE VS. ICP TARGETS

    2013 Actual   2014 Target   2014 Actual   Metrics shown are at the total Honeywell level. Each SBG also has corresponding objectives, with net income being used in lieu of EPS. Unusual, infrequently occurring items, extraordinary items, the effect of changes in accounting methods and any pension mark-to-market adjustment are excluded in determining achievement of Corporate and SBG objectives.
EPS(1)   $4.97   $5.35 - $5.55   $5.56  
Free Cash Flow(2)   $3.8 billion   $3.9 billion   $4.0 billion  
Working Capital Turns   7.0 turns   7.2 turns   7.0 turns  

 

EPS(1): The 2014 Target range represented an 8% to 12% increase over 2013 EPS of $4.97. 2014 Actual of $5.56, reflecting a 12% increase over 2013, representing record Company performance and achievement above the top of the Target range.

 

Free Cash Flow(2): 2014 Actual exceeded 2014 Target by approximately $100 million, representing continued strong quality of earnings.

 

Working Capital Turns: 2014 Actual was 0.2 turns short of 2014 Target and flat to 2013 Actual performance.

 

(1) EPS, V% exclude pension mark-to-market adjustment.
   
(2) Free cash flow (cash flow from operations less capital expenditures) and free cash flow conversion prior to any cash pension contributions, NARCO Trust establishment payments and cash taxes relating to the sale of available for sale investments.

 

Supplemental Criteria

 

In addition to the Company’s performance versus the three financial metrics described above, the Committee also considered the following Supplemental Criteria in determining 2014 ICP awards (segment profit, segment margin and margin expansion exclude the impact of the 4Q 2014 OEM Incentive Payments):

 

8% segment profit improvement versus 2013;
   
Segment margin expansion of 70 basis points to a record 17.0%, which exceeded the top end of our target range;
   
3% organic sales growth despite a continued slow growth economic environment, driven by new product introductions, geographic expansion and commercial excellence; and
   
The performance of the SBGs relative to each other and prior year.

 

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Executive Compensation > 2014 Compensation Decisions

 

Individual ICP Awards

 

Based on 2014 business results against the Pre-Established ICP Goals and the Supplemental Criteria discussed above, as well as an assessment of individual performance, the Committee (and the independent members of the Board in the case of the CEO), in the first quarter of 2015, awarded annual ICP payouts to the CEO and other NEOs in the following amounts:

 

Mr. Cote  $5,500,000(A)
Mr. Szlosek  $700,000 
Mr. Fradin  $1,200,000 
Mr. Mahoney  $800,000 
Mr. Kramvis  $950,000 
Mr. Anderson (prorated to retirement date)  $510,000 

 

In determining ICP awards for Mr. Cote and the other NEO’s, individual performance and other factors considered by the Committee (and Board for Mr. Cote) are summarized later in this Compensation Discussion and Analysis (See “Named Executive Officers — 2014 Performance & Total Annual Direct Compensation Tables” beginning on page 51).

 

(A) The Committee determined that only $5.0 million of Mr. Cote’s 2014 ICP Award should be used for calculating Mr. Cote’s pension benefit under his contractual pension formula.

 

2014 LTI Awards — Discussion, Analysis and Awards

 

In light of our performance and in an effort to reinforce our goals of motivation and retention, the NEOs participated in the following LTI awards in 2014: Stock Options, GPUs, Performance-Adjusted RSU, Performance Stock Options (“PSOs”)(CEO only).

 

Stock Options: Annual Stock Option grants to the NEOs in 2014 represented the most significant component of each officer’s target total annual LTI opportunity (approximately two-thirds). Annual Stock Option grant sizes in 2014 (i.e., the number of options granted in February 2014) were 13% to 20% lower than 2013, reflecting an increase in value driven primarily by the increase in stock price. In determining annual Stock Option awards, the Committee considered the aggregate amount of vested and unvested equity held by each NEO, as well as the annualized target value of the 2014 portion of the 2014-2015 Growth Plan award, viewed in the context of market compensation data. All annual Stock Options vest ratably over four years.

 

2014 annual Stock Option awards to the NEOs have an exercise price of $93.97 and had a Black-Scholes value of $16.36 as of the grant date.

 

CEO: In reviewing the LTI component of the CEO’s Total ADC in February of each year, the Committee considers the Company’s operational performance and relative total shareowner returns as of the end of 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 2014, 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, the grant date fair value of any proposed award compared to prior years and the annualized target value of the 2014 portion of the 2014-2015 Growth Plan award. Based on these considerations, in February 2014, the Committee granted Mr. Cote 600,000 annual stock options (grant date value of $9,816,000*), subject to vesting requirements, in recognition of his anticipated leadership in driving sustained financial and operational performance.

 

Other NEOs: For each of the other NEOs, the Committee considers the executive officer’s performance in the prior fiscal year, his impact on overall Company performance and his potential to contribute to the future performance of the Company. In addition, the Committee considers the amount of vested and unvested equity each executive holds, the grant date fair value of any proposed award compared to prior years, the annualized target value of the 2014 portion of the 2014-2015 Growth Plan award, and the value of similar incentive awards to comparable named executive officers at Compensation Peer Group companies.

 

Based on these considerations, in February 2014, the Committee granted annual stock options to each of the other NEOs as follows:

 

   # Options   Grant Date
Value*
 
Mr. Szlosek   100,000   $1,636,000 
Mr. Fradin   180,000   $2,944,800 
Mr. Mahoney   175,000   $2,863,000 
Mr. Kramvis   130,000   $2,126,800 
Mr. Anderson (retired)   0   $0 

 

* Determined based on a Black-Scholes value of $16.36 per option. Options only have realizable value after vesting if the Honeywell stock price increases.

 

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Executive Compensation > 2014 Compensation Decisions

 

Growth Plan Units or “GPU’s”

 

At target, Growth Plan awards represent approximately one-third of an officer’s target total annual LTI opportunity. In order to promote retention, awards earned under the 2014-2015 Growth Plan are paid in two installments, 50% in the first quarter of 2016 and 50% in the first quarter of 2017. Growth Plan Goals for Revenue and Segment Margin Expansion are aligned with the 2018 Long-Term Targets discussed on page 49.

 

The following table presents the performance goals for the 2014-2015 Growth Plan cycle:

 

 

2014 - 2015 GROWTH PLAN PERFORMANCE GOALS (TOTAL COMPANY)

 

 

Total Growth Plan Payout will be determined at the end of the 2-year performance cycle in 2015.

 

  (1) Total Revenue is cumulative 2-year total revenue for 2014 and 2015, excluding the impact of acquisitions and divestitures. 2013 Actual represents single year total.  
  (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 and pension income/expense. The Growth Plan ROI Expansion goal measures the change in 2015 total company ROI from the base year of 2013.  
  (3) Segment Margin Expansion represents the change in 2015 total company segment margins from the base year of 2013. The segment margin calculation excludes the impact of acquisitions and divestitures during the performance cycle.  

 

 

 

The number of GPUs granted to each NEO in February 2014 along with the annualized target value of the Growth Plan award is as follows:

 

    GPUs   Annualized   * Represents target value of Growth Plan award for 2-year cycle annualized (i.e., divided by 2) to recognize non-overlapping cycles consistent with how the Committee plans target compensation.
    Awarded   Target Value*
Mr. Cote   95,000   $4,750,000
Mr. Szlosek   20,000   $1,000,000
Mr. Fradin   27,500   $1,375,000
Mr. Mahoney   25,000   $1,250,000
Mr. Kramvis   20,000   $1,000,000
Mr. Anderson (retired)   -0-          $              0

 

Note on Annualized Award Values vs. amounts reflected on the Summary Compensation Table for 2014: 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 (i.e., 2015 for the 2014-2015 performance cycle), regardless of the length of the related performance or payout cycles. This is inconsistent with the Committee’s

 

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Executive Compensation > 2014 Compensation Decisions

 

view when planning NEO compensation and setting the Growth Plan targets, which considers the Growth Plan as being earned 50% in the first year of the performance cycle and 50% in the second year of the cycle.

 

The amounts above and the supplemental tables in the “NEOs—2014 Performance & Total Annual Direct Compensation Tables” section beginning on page 51 reflect the Committee’s view of the annualized value of the 2014-2015 Growth Plan payout.

 

The following chart shows the alignment of 2014-2015 Growth Plan Targets for sales and segment margin expansion with the Company’s 2018 Long-Term Targets:

 

Total Honeywell 2014-2015 Growth Plan Performance Targets
(3-Metrics, Equally Weighted — M&A Excluded)
 
1. Total Sales (for 2-years): $82.74 billion 3.9% CAGR
2. 2015 Segment Margin: 17.3% 100 bps improvement vs. 2013
3. 2015 ROI: 22.8% 120 bps improvement vs. 2013

 

         
   

NEW 2018 LONG-TERM TARGETS

(Announced in March 2014)

   
         
  Revenue: $46–$51 billion  

Segment Margin: 18.5%–20.0%

 
  ($51–$59 billion including M&A)      
  (Dollars in Billions)      
         
           
  (1) CAGR - Compound Annual Growth Rate      
  (2) Excludes impact of 4Q 2014 OEM Incentive Payments. (3) bps - basis points improvement  
           

 

3.9% compound annual growth rate in Total Sales under the 2014-2015 Growth Plan is aligned with the 4% to 6% organic growth range in the 2018 Long-Term Targets.
   
Segment margin improvement target of 100 basis points over the two-years duration of the 2014-2015 Growth Plan is aligned with the 45-75 bps per year range (i.e., 90-150 bps over 2-years) in the 2018 Long-Term Targets.

 

Non-Annual Equity Awards Issued for Retention and Succession Planning Purposes

 

Performance-Adjusted Restricted Stock Unit Awards

 

In 2014, the Committee awarded performance-adjusted RSU’s to Messrs. Szlosek, Fradin, Mahoney and Kramvis, with vesting periods designed to reinforce each individual’s retention and ensure a smooth transition of senior executives in key leadership positions. The target number of RSUs is subject to a performance adjustment of 30% upward or downward based on Honeywell’s relative TSR performance ranking against its Compensation Peer Group over both a one-year (ending June 30, 2015) and 30-month period (ending December 31, 2016).

 

Performance-adjusted RSUs awarded to NEOs in 2014 were as follows:

 

   # RSUs  Grant Date Value  Vesting Period (Years)  
Mr. Szlosek   25,000   $2,494,750   3-5-7 (1/3, 1/3, 1/3)    
Mr. Fradin   26,000   $2,594,540   3 (cliff vest)    
Mr. Mahoney   30,000   $2,993,700   3-5-7 (1/3, 1/3, 1/3)    
Mr. Kramvis   26,000   $2,594,540   3 (cliff vest)    

 

Valued at $99.79 per share as of the grant date.

 

The issuance of these performance-adjusted RSUs will have no impact on the regular components of ADC.

 

2015     |     Proxy and Notice of Annual Meeting of Shareowners      |     49
 

Executive Compensation > 2014 Compensation Decisions

 

Performance Stock Options Issued To CEO For Retention Purposes

 

In connection with a retention agreement entered into with Mr. Cote in 2014 (see page 40), the Committee awarded PSOs to Mr. Cote as described below:

 

Grant date target value of $5 million;
   
Cliff vesting on December 31, 2017 contingent on performance;
   
Target number of options of 268,673 exercisable into Honeywell common stock was determined by dividing the $5 million total target value by the per option fair market value determined as of the grant date ($18.61 per option);
   
Exercise price for vested options of $98.04, determined as of the grant date;
   
Number of options that actually vest can range from 0% to 150% of Target and is based on Honeywell’s relative TSR percentile ranking measured against the Compensation Peer Group for the 3-year period of January 1, 2015 - December 31, 2017, determined based on the following table:

 

PSO Vesting Table
TSR Rank  # of Options
Earned as
% of Target
   
Below 35    0%       
35      0%     Threshold 
40      20%       
45      40%       
50      60%       
55      80%       
60      100%     Target 
65      110%       
70      120%       
80      140%       
85      150%     Maximum 
Above 85    150%       

 

For TSR Ranks between 35% and 60%, number of PSOs to vest shall be interpolated by 4% for each percentage change in rank. For TSR Ranks between 60% and 85%, number of PSOs to vest shall be interpolated by 2% for each percentage change in rank.

 

Any Vested PSOs must be exercised by December 10, 2024 (i.e.,10 years from the grant date).

 

The issuance of these PSOs will have no impact on the regular components of Mr. Cote’s annual direct compensation.

 

50     |      Proxy and Notice of Annual Meeting of Shareowners     |     2015
 

Executive Compensation > Named Executive Officers

 

NAMED EXECUTIVE OFFICERS

 

2014 PERFORMANCE & TOTAL ANNUAL DIRECT COMPENSATION TABLES

 

Here we review the compensation actions for each NEO (excluding Mr. Anderson due to his retirement), reflecting how the Committee viewed their 2014 performance. Included is a table summarizing the Committee’s 2014 Total Annual Direct Compensation (“Total ADC”) actions for each NEO.

 

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.

 

In deciding upon the direct compensation of the NEOs, the Committee gave consideration to Honeywell’s solid operational performance in 2013 (for compensation decisions made in February 2014) and 2014 (for ICP decisions made in February 2015), on both an absolute and relative basis. Moreover, the Committee has confidence that the leadership team is striking the right balance between delivering quarter-on-quarter financial results, on the one hand, and making thoughtful “seed planting” investments, on the other hand, that will enable Honeywell to achieve the 2018 Long-Term Targets communicated to Shareowners in March 2014.

 

David M. Cote Chairman and Chief Executive Officer

 

2014 Performance Summary

 

Positioned Honeywell to meet or exceed the 2014 expectations set at the start of the year despite a continued slow growth global economy.
Delivered sales growth of 4%, segment margin expansion of 70 basis points to a new record of 17.0%, and EPS* up 12% to $5.56.(1)
Exceeded prior-year peaks on key financial metrics: EPS, segment profit, segment margin, sales, and free cash flow.
Continued portfolio evolution through the divestiture of Friction Materials. Also realigned Transportation Systems into the Aerospace SBG and Honeywell Process Solutions into the Performance Materials and Technologies SBG.
Drove “seed planting” investment which will provide a tailwind for future profitable growth and innovation.
  Increased capital expenditures by 16% to $1.1B, investing in profitable, high ROI growth projects, particularly in PMT.
  Supported R&D spending at 4.7% of sales and expanded the organization’s focus on VPD to improve R&D effectiveness.
  Continued focus on High Growth Region penetration and capabilities, including adding sales and marketing resources in key regions.
Continued to advance and evolve Honeywell’s key process initiatives and the Honeywell Enablers.
  Expanded implementation of Honeywell Operating System (HOS) Gold fostering growth and productivity across 74 HOS Gold enterprises; approximately 85% of operations are now at HOS Bronze level or better.
  Focused on cycle time reduction and improvements in quality and delivery metrics.
  Introduced the Honeywell User Experience (HUE) aimed at creating a differentiated brand experience for users, installers, maintainers, consumers and employees. HUE is expected to drive higher organic growth, margin expansion and improved customer loyalty.

 

*EPS, V% exclude pension mark-to-market adjustment

(1) Sales and Segment Margin numbers exclude impact of 4Q 2014 OEM Incentive Payments

 

(a) 2014 – Represents target award under the Growth Plan for the 2014-2015 performance cycle; annualized over the 2-year performance cycle. 2013 – Represents the actual earned award under the Growth Plan for the 2012-2013 performance cycle; annualized over the 2-year performance cycle.
(b) 2014 – 600,000 stock options with a grant date Black-Scholes value $16.36 (vests over 4 years – exercise price of $93.97/ share). 2013 – 750,000 stock options with a grant date Black-Scholes value $11.84 (vests over 4 years – exercise price of $69.77/ share)
(c) 2014 Total ADC does not include a special award of 268,673 performance stock options issued in December 2014 for retention purposes; which vest 100% on December 31, 2017.


 

2015     |     Proxy and Notice of Annual Meeting of Shareowners      |     51
 

Executive Compensation > Named Executive Officers

 

CEO Leadership: Honeywell’s Performance 2003-Present

 

The Committee recognized the consistently strong performance of the Company over the course of Mr. Cote’s tenure with Honeywell, on both an absolute and relative basis.

 

The following charts set forth a comparison of Honeywell’s Long-Term Stock Price Performance and cumulative TSR versus the S&P 500 and the Compensation Peer Group since 2003, the first full-year of Mr. Cote’s tenure.

 

 

 

The Committee also recognized Mr. Cote’s ability to grow our revenue and deliver strong operational performance, while at the same time reducing the number of ICP-eligible employees and aggregate level of annual ICP payments. Since Mr. Cote’s first full year with Honeywell (2003), EPS has increased 268%*, total sales has increased 83%**, segment profit has increased 193%** and free cash flow has increased 155%. This strong performance was achieved with only a 13% increase in the total amount of ICP payments made in 2014 versus 2003 and 5% fewer ICP-eligible executives in 2014 compared to 2003.

 

CEO TRACK RECORD — STRONG BUSINESS PERFORMANCE — EFFECTIVELY MANAGING ICP SPEND

 

 

(1) EPS excludes pension mark-to-market adjustment.
(2) 2014 Sales and Segment Profit excludes 4Q 2014 OEM Incentive Payments.
(3) Free Cash Flow=Cash Flow from operations less capital expenditures. 


 

 

* EPS, V% exclude pension mark-to-market adjustment.

 

** Excludes impact of 4Q 2014 OEM Incentive Payments.


 

52     |      Proxy and Notice of Annual Meeting of Shareowners     |     2015
 

Executive Compensation > Named Executive Officers

 

Thomas A. Szlosek Senior Vice President and Chief Financial Officer

 

2014 Performance Summary

 

Drove cash and cost reduction initiatives which contributed to the Company exceeding its plan and external guidance for segment margin and EPS(1) and achieving the mid-point of our guidance range for FCF(2) despite a continued slow growth global environment.
Ensured balanced, disciplined deployment of capital which allowed for reinvestment in the Company’s businesses and returned value to shareowners.
  Funded investment in technology centers and new manufacturing capacity, particularly driving accelerated growth in Performance Materials & Technologies.
  Continued to drive disciplined acquisition valuation and integration processes, including maintaining a robust pipeline of new targets and conducting monthly assessments of actionable opportunities.
  Completed the divestiture of the Friction Materials business.
  Returned value to shareowners — $0.9 billion of share repurchases: $1.5 billion cash dividends paid, including an increase of the dividend rate by 15% in the fourth quarter of 2014, consistent with the Company’s long-term outlook to increase the dividend payout ratio over time.
Continued to drive sustainable productivity improvements through funding of restructuring projects that are expected to benefit 2015 and future periods.
  Funded approximately $184 million of gross repositioning projects through operations and smart gain deployment actions.
  Maintained organizational focus on the implementation of previously-funded restructuring projects.
  Repositioning projects commenced in prior years are expected to generate incremental pre-tax savings in 2015 of $100 million to $125 million compared to 2014.
Effectively led Honeywell’s Organizational Efficiency and Functional Transformation initiatives to improve customer satisfaction while reducing the cost to serve.
  Maximizing labor cost efficiency through Organizational Efficiency — productivity initiatives resulting in a reduction in employee costs of 30 basis points as a percentage of 2014 sales, while still growing sales and successfully retaining the workforce.
  Functional Transformation — activities resulted in a reduction of functional costs of 40 basis points to a low of 5.5%.
Led a robust, competitive RFP process to select a new independent registered public accounting firm. As a result of Mr. Szlosek’s efforts, we will transition to Deloitte & Touche LLP (D&T) as our auditors in 2015 thereby ensuring that we receive best-in-class value, quality and technology from our auditing firm.

(1) Excludes pension mark-to-market adjustment.

(2) Cash flow from operations less capital expenditures.

 

 

 

Only one year shown as Mr. Szlosek was not an NEO in 2013.

 

(a) Represents target award under the Growth Plan for the 2014-2015 performance cycle; annualized over the 2-year performance cycle.
(b) 100,000 stock options with a grant date Black-Scholes value $16.36 (vests over 4 years – exercise price of $93.97/share)
(c) Total ADC does not include discretionary award of 25,000 performance-adjusted RSUs issued for retention and succession planning purposes and vesting over 7 years.


 

 

2015     |     Proxy and Notice of Annual Meeting of Shareowners      |     53
 

Executive Compensation > Named Executive Officers

 

Roger Fradin Vice Chairman

 

2014 Performance Summary

 

Grew ACS sales 8% (2% organic) in 1Q14 driven by great execution and continuous improvement in a period of stable end market growth.
Expanded segment margin 40 bps in 1Q14 to 14.2% (70 bps ex-M&A) driven by higher sales volume, commercial excellence and productivity (net of inflation), while continuing investments for future growth.
Continued ACS global organic sales expansion in emerging markets in 1Q14, most notably in China (up 13%) and India (up 8%). Sales outside the U.S. accounted for 58% of ACS’s total sales as of 1Q14.
Improved WCTs by 0.4 turns to 7.6 and increased FCF by 25% year over year.
Launched over 100 new products in 1Q14 across the ACS portfolio aligned to the mega trends of safety, security, productivity and energy efficiency. These new product launches are expected to result in over $800 million in sales over the life of the products.
Outstanding integration performance at both Intermec and RAE Systems, delivering 150% and 108% of cost synergies, respectively (vs. plan) in both acquisitions. Additionally, ACS won the United States Postal Service (USPS) mobile computing contract worth over $300 million through the combination of Honeywell and Intermec’s Scanning & Mobility operations.
Successfully transitioned ACS leadership to Alexandre Ismail, formerly President, Energy, Safety & Security (ESS). Maintained a strong ongoing mentoring relationship to ensure continued excellent performance across the ACS portfolio.
Improved Honeywell’s overall M&A initiatives by driving stronger and more robust deal pipeline activity and origination at PMT and Aerospace.
Acted on a strategic consulting basis to improve Honeywell operations in a number of key areas, including with our General Aviation, Government Services and Electric Power (Aerospace) offerings.
Partnered with Honeywell’s High Growth Region (HGR) teams to accelerate growth in key areas like the Middle East, China and Brazil, to build on the success in HGRs at ACS.

 

 

 

(a) 2014 – Represents target award under the Growth Plan for the 2014-2015 performance cycle; annualized over the 2-year performance cycle. 2013 – Represents the actual earned award under the Growth Plan for the 2012-2013 performance cycle; annualized over the 2-year performance cycle.
(b) 2014 – 180,000 stock options with a grant date Black-Scholes value $16.36 (vests over 4 years – exercise price of $93.97/ share). 2013 – 225,000 stock options with a grant date Black-Scholes value $11.84 (vests over 4 years – exercise price of $69.77/ share)
(c) 2014 Total ADC does not include discretionary award of 26,000 performance-adjusted RSUs issued for retention and succession planning purposes and cliff vesting in 3 years.


 

 

54     |      Proxy and Notice of Annual Meeting of Shareowners     |     2015
 

Executive Compensation > Named Executive Officers

 

Timothy O. Mahoney President and Chief Executive Officer—Aerospace

 

2014 Performance Summary

 

Grew new business pipeline of high impact aircraft wins unveiled, including $9 billion Gulfstream G500/G600, the $6 billion Bombardier Challenger 350 and the $2 billion Dassault F5X/F8X, as well as a $500 million win on the Textron Scorpion multi-mission ISR/Strike aircraft.
Developed record-level backlog of $9 billion providing strong momentum for the future.
Oversaw entry into service and certification for electrical and mechanical technologies on the Embraer Legacy 500, the Bombardier Challenger 350, the Gulfstream G650, the Boeing 787-9 and the Airbus 350 XWB.
Increased year-over-year Aerospace segment profit 8% to $3.1 billion, with segment margin expanding 140 basis points to 19.6%.(1)
Developed new products and services capabilities with innovations such as cockpit touch screen controllers, 2-D and 3-D Airport Moving Maps and Wireless Data Loading that ease pilots’ workloads and improve the overall cockpit user experience.
Successfully completed engine tests of the second HPW3000 Next Generation 3000 horsepower helicopter engine, which is a candidate to replace the existing engine on the AH-64 Apache and UH-60 Blackhawk global helicopter fleets.
Made significant progress in further deployment of the Honeywell Operating System, and improved delivery and quality performance 7% and 32%, respectively.
Expanded commercial and defense sales 15% in high growth regions.
Signed a significant business agreement with a well-known aircraft manufacturer customer, with a lifetime value of $7.58 billion within our Business and General Aviation unit.

 

(1) Excludes Impact of 4Q 2014 OEM Incentive Payments.

 

 

 

(a) 2014 – Represents target award under the Growth Plan for the 2014-2015 performance cycle; annualized over the 2-year performance cycle. 2013 – Represents the actual earned award under the Growth Plan for the 2012-2013 performance cycle; annualized over the 2-year performance cycle.
(b) 2014 – 175,000 stock options with a grant date Black-Scholes value $16.36 (vests over 4 years – exercise price of $93.97/ share). 2013 – 200,000 stock options with a grant date Black-Scholes value $11.84 (vests over 4 years – exercise price of $69.77/ share)
(c) 2014 Total ADC does not include discretionary award of 30,000 performance-adjusted RSUs issued for retention and succession planning purposes and vesting over 7 years.


 

 

2015     |     Proxy and Notice of Annual Meeting of Shareowners      |     55
 

Executive Compensation > Named Executive Officers

 

Andreas C. Kramvis Vice Chairman

 

2014 Performance Summary

 

Led PMT as its CEO during Q1 2014 during which time PMT sales grew 2% to $1.8 billion at a segment margin of 20.8%, which again made PMT the highest segment margin business across the portfolio. In addition, FCF conversion grew over 125% year on year.
As a result of the investments at UOP and throughout the PMT portfolio globally during Mr. Kramvis’s tenure, the UOP business saw record levels for both orders and backlog in 2Q14. As of 1Q14, the total PMT backlog stood at ~$7 billion.
Delivered significant year-over-year improvement in Working Capital Turns to 14.1 as of 1Q14, and continued the execution of pricing, strategic sourcing, and supply chain management initiatives which drove incremental margin performance across the PMT portfolio.
In his role as Vice Chairman, Mr. Kramvis worked with High Growth Region (HGR) management to cement relationships with senior leadership at several major international customers, helping to win and execute on key contracts and to develop new, robust opportunities across Honeywell’s technology and product portfolio.
Guided the implementation of the Honeywell Operating System (HOS) Gold throughout the Company, with a focus on principles to drive above market growth, on the development and execution of breakthrough objectives across the 74 HOS Gold enterprises, and on the establishment of new growth programs across the portfolio in support of the Company’s five-year plan. Additionally continued to provide leadership and support with the Company’s inorganic growth initiatives.
Led the implementation and provided strategic guidance for the Company’s software initiative with emphasis on middleware implementations, rationalization of development tools and development of new business models.
Maintained key relationships with European investors and other potential investors outside the U.S. in support of Honeywell’s efforts to broaden its investment base.

 

 

 

 

(a) 2014 – Represents target award under the Growth Plan for the 2014-2015 performance cycle; annualized over the 2-year performance cycle. 2013 – Represents the actual earned award under the Growth Plan for the 2012-2013 performance cycle; annualized over the 2-year performance cycle.
(b) 2014 – 130,000 stock options with a grant date Black-Scholes value $16.36 (vests over 4 years – exercise price of $93.97/ share). 2013 – 150,000 stock options with a grant date Black-Scholes value $11.84 (vests over 4 years – exercise price of $69.77/ share)
(c) 2014 Total ADC does not include discretionary award of 26,000 performance-adjusted RSUs issued for retention and succession planning purposes and cliff vesting in 3 years. 2013 Total ADC does not include discretionary award of 10,000 performance-adjusted RSUs issued for retention purposes and cliff vesting in 3.5 years.


 

 

56     |      Proxy and Notice of Annual Meeting of Shareowners     |     2015
 

Executive Compensation > Other Compensation & Benefit Programs

 

OTHER COMPENSATION & BENEFIT PROGRAMS

 

RETIREMENT PLANS

 

We offer certain retirement benefits to our NEOs. Specifically, NEOs may participate in broad-based plans including a defined benefit pension plan and a 401(k) savings plan that provides matching Company contributions. We also maintain 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 NEOs, including the CEO, are entitled to supplemental retirement benefits that were provided under separate arrangements deemed necessary to either recruit the executive at the time of their hiring or retain the executive as circumstances demanded. These plans are explained in detail beginning on page 69.

 

A significant portion of the Change in Pension Value reflected on the Summary Compensation Table for certain NEOs is the result of a decline in the discount rate used to determine the related year-end values (4.08% as of December 31, 2014 vs. 4.89% as of December 31, 2013). See page 63, footnote 6(a) for more information.

 

NONQUALIFIED DEFERRED COMPENSATION PLANS

 

Executive officers (including the NEOs) may choose 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 IRS 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. 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 72.

 

BENEFITS AND PERQUISITES

 

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

 

2015     |     Proxy and Notice of Annual Meeting of Shareowners      |     57
 

Executive Compensation > Compensation Practices and Policies

 

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 over time. Here is a summary of our current policies and practices.

 

GOVERNANCE AND EXECUTIVE COMPENSATION POLICIES AND PRACTICES

 

 

Stock Ownership and other requirements for executive officers

 

Require officers to hold and maintain 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.
   
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.
   
Prohibit granting of stock options with an exercise price less than the fair market value of Honeywell’s Common Stock on the date of grant.
   
Prohibit repricing (reduction in exercise price) or reloading of stock options.
   
Prohibit hedging and pledging of shares by our executive officers and directors.

 

 

Balanced use of Performance Metrics to align pay with performance

 

Use different sets of operational metrics for ICP and the Growth Plan to drive top and bottom-line growth over multiple time frames aligned with our goal of sustained long-term performance.
   
Directly link the value of performance stock options to the CEO to relative TSR performance.
   
Apply a Relative TSR performance adjustment mechanism to discretionary RSU grants to officers.

 

 

Independent Compensation Consultant

 

Employ an independent compensation consultant to review and advise the Committee on executive compensation.
   
Prohibit them from performing any other services for Honeywell.
   
Regularly review the independence of any outside advisors as a component of the Committee’s charter.

 

 

Compensation Recovery (Clawbacks)

 

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.

 

 

Guard the Company against competitive harm

 

Obtain enhanced restrictive covenants in connection with annual equity grants and certain succession planning actions.

 

 

Upon a Change in Control

 

For LTI awards granted after the 2014 Annual Meeting of Shareowners, eliminated the right to single trigger accelerated vesting of options, RSUs and GPUs.
   
Pay ICP awards at the time they would typically be paid (no acceleration) and based on business performance rather than target.
   
Eliminated excise tax gross-ups for any new officers.

 

 

Eliminated perquisites

 

Eliminated annual cash flexible perquisite allowance for executive officers.
   
No tax gross-ups on perquisites for officers and directors.

 

58     |      Proxy and Notice of Annual Meeting of Shareowners     |     2015
 

Executive Compensation > Compensation Practices and Policies

 

RISK OVERSIGHT CONSIDERATIONS

 

The Committee believes that balancing the various elements of Honeywell’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.

 

Here is a summary of our risk oversight and compensation design features that guard against unnecessary or excessive risk-taking:

 

RISK OVERSIGHT AND COMPENSATION DESIGN FEATURES

 

 

Robust 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.

 

 

Diversity 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.

 

 

Corporate, SBG and individual executive officer objectives are reviewed and approved 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.

 

 

Executive Compensation features that guard against unnecessary or excessive risk-taking include:

 

Pay mix between fixed and variable, annual and long-term, and cash and equity compensation is designed to encourage strategies and actions that are in the Company’s long-term best interests;
   
Base salaries are positioned to be consistent with executives’ responsibilities so that they are not motivated to take excessive risks to achieve financial security;
   
Incentive awards are determined 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 program rewards executives for driving sustainable, profitable, growth for shareowners;
   
Vesting periods for equity compensation awards encourage executives to focus on sustained stock price appreciation; and
   
Incentive plans are not overly leveraged, cap the maximum payouts and contain design features intended to balance pay for performance with an appropriate level of risk taking. The Committee also has discretionary authority to adjust annual ICP payments, which further reduces the potential for negative business risk associated with such plans.

 

 

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 also allow the Company to cancel shares or recover gains realized by an executive if non-competition provisions are violated.

 

 

Prohibition on hedging and pledging of shares by our executive officers and directors.

 

 

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

 

Officers must also hold the net shares from vesting of RSUs and the net gain shares from option exercises for at least one year.

 

Based upon the Committee’s risk oversight and compensation policies, we believe that the risks arising from our compensation policies and practices are not reasonably likely to have a material adverse effect on Honeywell’s operations or results. For a full discussion of the role of the Board of Directors in the risk oversight process see page 12 of this proxy statement.

 

STOCK OWNERSHIP GUIDELINES

 

The Committee believes that our executives will more effectively pursue our shareowners’ long-term interests if our executives hold substantial amounts of stock. 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. In practice, the NEO’s maintain ownership levels well in excess of the minimum requirements.

 

2015     |     Proxy and Notice of Annual Meeting of Shareowners      |     59
 

Executive Compensation > Compensation Practices and Policies

 

NAMED EXECUTIVE OFFICER STOCK OWNERSHIP

 

 
High Levels of Ownership reflect long-term focus and commitment of leadership team.
  *Excludes retired CFO.

 

In addition, the stock ownership guidelines require officers to hold for at least one year the “net shares” from the vesting of RSUs or the “net gain shares” of Common Stock that they receive by exercising stock options. “Net shares” means the number of shares obtained when an RSU vests, 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.

 

RECOUPMENT

 

Our 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 “Investors/Corporate Governance/Guidelines”).

 

If 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, then the Company reserves the right, for awards issued under the 2003, 2006 and 2011 Stock Incentive Plans, to:

 

Cancel all unexercised options; and
  
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, we have entered into non-competition agreements with our executive officers that preclude them from going to work for a competitor for up to two years after termination of employment. 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 this represents. Because money damages cannot adequately compensate Honeywell for violations of these non-competition covenants, we have a full range of equitable remedies at our disposal to enforce these agreements, including the ability to seek 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 NEOs (excluding the Chief Financial Officer) if certain conditions are not satisfied. The Committee’s general policy is to preserve the deductibility of compensation paid to the NEOs while maintaining compensation programs that effectively attract, motivate and retain exceptional executives in a highly competitive environment. Nevertheless, the Committee authorizes payments that might not be deductible if it believes they are in the best interests of the Company and its shareowners and consistent with the objectives of the Company’s executive compensation program (which includes, among other things, a portion of the CEO’s base salary for 2014). In addition, in certain years, individuals may receive non-deductible payments resulting from awards made prior to becoming an NEO.

 

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Executive Compensation > Compensation Practices and Policies

 

PLEDGING AND HEDGING TRANSACTIONS IN COMPANY SECURITIES

 

It is our policy that pledging Honeywell’s securities or using Honeywell’s securities to support margin debt by executive officers and directors is prohibited. All other employees must exercise extreme caution in pledging Honeywell’s securities or using Honeywell’s securities to support margin debt.

 

Hedging by directors, executive officers and employees on our restricted trading list is prohibited and is strongly discouraged for all other employees. For this purpose, hedging means purchasing financial instruments (including forward sale contracts, swaps, collars and interests in exchange funds) that are designed to offset any decrease in the market value of Company stock held, directly or indirectly by them, whether the stock was acquired pursuant to a compensation arrangement or otherwise.

 

Employees and directors are prohibited from engaging 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 also prohibited.

 

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, 2014.

 

The Management Development and Compensation Committee

 

D. Scott Davis, Chair

William S. Ayer

Gordon M. Bethune

Clive Hollick

Grace D. Lieblein

Bradley T. Sheares

 

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

 

During fiscal year 2014, 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 page 18 of this proxy statement. During fiscal year 2014, 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 the Management Development and Compensation Committee.

 

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Executive Compensation > Summary Compensation Table

 

SUMMARY COMPENSATION TABLE

 

                                            Change in            
                                        Non-   Pension            
                                        Equity   Value and            
                                        Incentive   Nonqualified     All      
                      Annual     Performance     Option     Plan   Deferred     Other      
Named Executive Officer               Stock     Stock     Stock     Awards     Compen-   Compensation     Compen-      
and Principal Position   Year   Salary($)   Bonus($)(2)   Awards($)(3)     Options     Options     Total ($)(4)     sation($)(5)   Earnings($)(6)     sation($)(7)     Total
David M. Cote
Chairman of the Board and Chief
Executive Officer
  2014   $1,865,769   $5,500,000   $0     $9,816,000     $5,000,000     $14,816,000 (A)   $0   $6,183,531 (B)   $776,821     $29,142,121
  2013   $1,800,000   $5,200,000   $0     $8,880,000         $8,880,000     $9,025,000   $532,288     $535,958     $25,973,246
  2012   $1,800,000   $4,800,000   $0     $9,289,000         $9,289,000     $0   $16,968,206     $389,972     $33,247,178
Thomas A. Szlosek(1)
Senior Vice President,
Chief Financial Officer
  2014   $754,750   $700,000   $2,494,750     $1,636,000         $1,636,000     $0   $126,519     $46,285     $5,758,304
Roger Fradin
Vice Chairman
  2014   $1,050,000   $1,200,000   $2,594,540     $3,373,959         $3,373,959     $0   $3,178,506     $192,724     $11,589,729
  2013   $1,050,000   $1,200,000   $0     $2,664,000         $2,664,000     $2,117,500   $14,965,962     $64,000     $22,061,462
  2012   $1,050,000   $1,200,000   $3,359,670     $2,654,000         $2,654,000     $0   $659,129     $153,339     $9,076,138
Timothy O. Mahoney
President & Chief

Executive Officer,
Aerospace
  2014   $878,365   $800,000   $2,993,700     $2,863,000         $2,863,000     $0   $1,979,018     $53,702     $9,567,785
  2013   $825,000   $800,000   $0     $2,368,000         $2,368,000     $2,373,000   $720,953     $50,500     $7,137,453
  2012   $818,750   $900,000   $2,852,550     $1,990,500         $1,990,500     $0   $1,508,898     $46,039     $8,116,737
Andreas C. Kramvis
Vice Chairman
  2014   $806,731   $950,000   $2,594,540     $3,039,150         $3,039,150     $0   $313,873     $180,147     $7,884,441
  2013   $700,000   $950,000   $878,100     $1,776,000         $1,776,000     $1,872,500   $171,448     $59,506     $6,407,554
  2012   $687,500   $950,000   $2,535,600     $1,658,750         $1,658,750     $0   $270,862     $58,882     $6,161,594
David J. Anderson
Retired – Former
Chief Financial Officer
  2014   $398,077   $510,000   $0     $0         $0     $0   $1,822,551     $32,000     $2,762,628
  2013   $900,000   $1,225,000   $0     $2,368,000         $2,368,000     $2,612,500   $203,603     $55,000     $7,364,103
  2012   $900,000   $1,225,000   $2,789,160     $2,654,000         $2,654,000     $0   $1,299,579     $50,500     $8,918,239

 

  DAVID M. COTE – EXPLANATION OF CERTAIN COMPENSATION ITEMS
   
  (A): The Option Awards Total amount for Mr. Cote represents the sum of his regular annual stock option award (valued at $9,816,000) and non-annual performance stock option award issued in December 2014 (valued at $5,000,000). The performance option award was a one-time grant aimed at strengthening the retention of Mr. Cote through at least December 31, 2017 (see page 50). This award will cliff vest in three years, with any payout tied to Honeywell’s TSR performance relative to its Compensation Peer Group.
  (B): The Change in Pension Value and Nonqualified Deferred Compensation Earnings amount for Mr. Cote includes a 2014 increase in his pension plan value of $5,574,289, of which $4,618,286 is due exclusively to a decrease in the required discount rate used to report year-end pension values. Excluding the impact of the required change in discount rate, Mr. Cote’s pension value increased by only $956,003 in 2014. There were no changes made to Mr. Cote’s pension formula over the period. In 2013, Mr. Cote’s pension value decreased by ($3,020,666), a negative amount that is not shown on the Summary Compensation Table in accordance with SEC reporting rules. 
     
(1) Promoted to CFO in 2014. First year reported as NEO.
   
(2) Amounts reflect annual ICP awards in year earned.
   
(3) 2014 amounts reflect the aggregate grant date fair value of performance-adjusted RSU awards, computed in accordance with FASB ASC Topic 718. For performance-adjusted RSU awards made in 2014, the grant date fair value per share includes an assumption with respect to the achievement of the performance adjustment attached to the award which is based on Honeywell’s TSR relative to the Compensation Peer Group (refer to footnotes to the Outstanding Equity Awards table for a description of the performance adjustment). Specifically, the grant date fair values of the performance-adjusted RSUs granted in July 2014 was $99.79 per share, 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.
   
(4) For Mr. Cote, includes both the value of his regular annual stock option award ($9,816,000) and the off-cycle award of performance stock options granted in December 2014 for retention purposes ($5,000,000). For Messrs. Fradin and Kramvis, in addition to the value of their regular annual stock option awards, includes $429,159 and $912,350, respectively, representing the incremental increase in fair value from modifications to previously granted stock option awards pursuant to retention agreements entered into in 2014 (see page 39).
   
  The aggregate grant date fair value of annual stock option awards was computed in accordance with FASB ASC Topic 718, using the Black-Scholes option-pricing model at the time of grant, with the expected-term input derived from a risk-adjusted Monte Carlo simulation model that considers historical exercise behavior and probability-weighted movements in Honeywell’s stock price over time. 2014 annual stock options were awarded on February 27, 2014 with a Black-Scholes value of $16.36 per share. The 2014 award of performance stock options to Mr. Cote was made on December 11, 2014, and valued at $18.61 per share. (See footnote (5) to the Grants of Plan-Based Awards table for a summary of the basis for valuation.) A discussion of the assumptions used in the valuation of option awards made in fiscal year 2014 may be found in Note 18 of the Notes to the Financial Statements in the Company’s Form 10-K for the year ended December 31, 2014.
   
(5) 2013 values reflect the full earned amount under the Growth Plan with respect to the 2012-2013 performance cycle, reported in a single year as required by applicable SEC rules. Actual payments of earned Growth Plan awards are made in two equal installments following the performance period. The first payment for the 2012-2013 Growth Plan performance cycle award was made in March 2014 and the second payment was made in March 2015.

 

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Executive Compensation > Summary Compensation Table

 

(6) 2014 values represent (i) the aggregate change in the present value of each Named Executive Officer’s accumulated benefit under the Company’s pension plans from December 31, 2013 to December 31, 2014 (as disclosed in the Pension Benefits table on page 69 of this proxy statement) and (ii) interest earned in 2014 on deferred compensation that is considered “above-market interest” under SEC rules (as discussed beginning on page 72 of this proxy statement). Each of these components is shown in the following table:
 Change in Aggregate Above Market 
Named Executive OfficerPension Value(a) Interest 
David M. Cote  $5,574,289   $609,242 
Thomas A. Szlosek  $108,790   $17,729 
Roger Fradin  $2,975,341   $203,165 
Timothy O. Mahoney  $1,924,100   $54,918 
Andreas C. Kramvis  $230,818   $83,055 
David J. Anderson  $1,580,121   $242,430 


 

  (a) A significant portion of the Change in Aggregate Pension Value for Messrs. Cote, Fradin, Mahoney and Anderson was due solely to a decrease in the discount rate used to determine reportable pension values as of December 31, 2014 (4.08% as of December 31, 2014 versus 4.89% as of December 31, 2013), and not an enhancement in pension benefits. The following table shows the impact the decline in discount rate had on increasing the aggregate pension values reported on the Summary Compensation Table for these NEOs:
   Change in Aggregate Pension Value
         
     Increase Due Excluding 
   Total Solely to Decline Impact of 
Named Executive Officer  Reported in Discount Rate Discount Rate 
David M. Cote  $5,574,289   $4,618,286   $956,003 
Roger Fradin  $2,975,341   $2,039,145   $936,196 
Timothy O. Mahoney  $1,924,100   $676,920   $1,247,180 
David J. Anderson  $1,580,121   $1,097,066   $483,055(b)
                
     
  (b) The change in aggregate pension value for Mr. Anderson was increased to include the value of pension payments made to him in 2014.
     
(7) For 2014, all other compensation consists of the following:
Item  Mr. Cote   Mr. Szlosek   Mr. Fradin   Mr. Mahoney   Mr. Kramvis   Mr. Anderson
Excess liability insurance(a)  $1,000   $1,000   $1,000   $1,000   $1,000   $1,000
Executive life insurance(b)  $62,000                    
Matching Contributions(c)  $111,946   $45,285   $63,000   $52,702   $48,404   $23,885
Personal use of Company aircraft(d)  $315,651       $128,724       $130,743   $7,115
Security Systems(e)  $264,445                    
Honeywell Products/Services(f)  $21,779                    
Totals  $776,821   $46,285   $192,724   $53,702   $180,147   $32,000
                              
  (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 2002 employment agreement, which was entered into upon his joining the Company, 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 2014.
     
  (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. Other NEOs may have access to available corporate aircraft for personal travel, from time to time, if approved by the CEO. 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. In 2014, 96% of the use of Company aircraft was for business purposes.
     
  (e) In accordance with the Company’s CEO security plan, represents the total cost paid by the Company in 2014 for equipment, installation and expenses relating to personal residential security provided to protect Mr. Cote.
     
  (f) Represents the incremental cost of Honeywell products and services provided for personal use. Mr. Cote was imputed for income related to these costs (no tax gross-up).

 

2015     |     Proxy and Notice of Annual Meetin