DEF 14A 1 c82838_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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2016 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.
 
We believe that HOS Gold is a competitive differentiator that will enable us to deliver sustainable, exceptional financial and operating performance.
 
 
 
HOS Gold integrates all of our major internal process initiatives into a total business operating system.
 

 

 

March 10, 2016

 

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 25, 2016 at our new headquarters, 115 Tabor Road, Morris Plains, New Jersey 07950.

 

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, approve two stock plans, one for employees and one for non-employee directors, and consider three shareowner proposals.

 

The Board of Directors recommends that you vote FOR each of the following proposals:

 

Proposal 1: Election of Directors

 

Proposal 2: Approval of Independent Accountants

 

Proposal 3: Advisory Vote To Approve Executive Compensation

 

Proposal 4: 2016 Stock Incentive Plan of Honeywell International Inc. and its Affiliates

 

Proposal 5: 2016 Stock Plan for Non-Employee Directors of Honeywell International Inc.

 

The Board of Directors recommends that you vote AGAINST each of the following shareowner proposals:

 

Proposal 6: Independent Board Chairman

 

Proposal 7: Right To Act By Written Consent

 

Proposal 8: Political Lobbying and Contributions

 

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 25, 2016

TIME 10:30 a.m. local time

LOCATION Honeywell’s New Headquarters, 115 Tabor Road, Morris Plains, New Jersey

RECORD DATE Close of business on February 26, 2016

 

 

March 10, 2016

 

Meeting Agenda:

 

· Election of the 12 nominees listed in the accompanying proxy statement to the Board of Directors.
· Approval of the appointment of Deloitte & Touche LLP as independent accountants for 2016.
· An advisory vote to approve executive compensation.
· Approval of the 2016 Stock Incentive Plan of Honeywell International Inc. and its Affiliates.
· Approval of the 2016 Stock Plan for Non-Employee Directors of Honeywell International Inc.
· If properly raised, three shareowner proposals described on pages 97-103 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 2015 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 10, 2016.

 

By Order of the Board of Directors,

Jeffrey N. Neuman

Vice President and Corporate Secretary

 

 

TABLE OF CONTENTS  
Proxy Summary i
Proposal No. 1: Election of Directors 1
Corporate Governance 7
· Board Of Directors 7
· Board Committees 8
· Board’s Role In Risk Oversight 11
· Director Independence 12
· Identification And Evaluation Of Director Candidates 13
· Director Orientation And Continuing Education 14
· Director Attendance At Annual Meetings 14
· Director Compensation 14
· Certain Relationships And Related Transactions 17
Stock Ownership Information 19
Section 16(a) Beneficial Ownership Reporting Compliance 20
SEC Filings And Reports 20
Sustainability And Corporate Responsibility 20
Political Contributions And Activities 22
Shareowner Outreach And Engagement 22
Executive Compensation 25
· Compensation Discussion And Analysis 25
· Management Development And Compensation Committee Report 55
· Compensation Committee Interlocks And Insider Participation 55
· Summary Compensation Table 56
· Grants Of Plan-Based Awards—Fiscal Year 2015 58
· Outstanding Equity Awards At 2015 Fiscal Year-End 59
· Option Exercises And Stock Vested—Fiscal Year 2015 61
· Pension Benefits 62
· Nonqualified Deferred Compensation—Fiscal Year 2015 65
· Potential Payments Upon Termination Or Change In Control 68
· Equity Compensation Plans 75
Audit Committee Report 76
Other Proposals 77
· Proposal No. 2: Approval Of Independent Accountants 77
· Proposal No. 3: Advisory Vote To Approve Executive Compensation 79
· Proposal No. 4: 2016 Stock Incentive Plan of Honeywell International Inc. and its Affiliates 81
· Proposal No. 5: 2016 Stock Plan for Non-Employee Directors of Honeywell International Inc 90
Shareowner Proposals 97
· Proposal No. 6: Independent Board Chairman 97
· Proposal No. 7: Right To Act By Written Consent 99
· Proposal No. 8: Political Lobbying And Contributions 101
Voting Procedures 104
Attendance at the Annual Meeting 106
Other Information 107
Exhibit A: 2016 Stock Incentive Plan of Honeywell International Inc. and its Affiliates A-1
Exhibit B: 2016 Stock Plan for Non-Employee Directors of Honeywell International Inc B-1
Appendix: Reconciliation of Non-GAAP Financial Measures App-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 25, 2016, 10:30 a.m.

 

PLACE Honeywell’s new Headquarters, 115 Tabor Road, Morris Plains, New Jersey

 

RECORD DATE Shareowners as of February 26, 2016 are entitled to vote.

 

ADMISSION Please follow the advance registration instructions on page 106.

 

MEETING AGENDA AND VOTING MATTERS

 

Proposal     Board’s Voting
Recommendation
  Page References
(for more detail)
No. 1 Election of Directors   FOR (each nominee)   pp. 1-6
No. 2 Approval of Independent Accountants   FOR   pp. 77-78
No. 3 Advisory Vote To Approve Executive Compensation   FOR   pp. 79-80
No. 4 2016 Stock Incentive Plan of Honeywell International Inc. and its Affiliates   FOR   pp. 81-89
No. 5 2016 Stock Plan for Non-Employee Directors of Honeywell International Inc.   FOR   pp. 90-96
No. 6 Shareowner Proposal: Independent Board Chairman   AGAINST   pp. 97-99
No. 7 Shareowner Proposal: Right To Act By Written Consent   AGAINST   pp. 99-101
No. 8 Shareowner Proposal: Political Lobbying and Contributions   AGAINST   pp. 101-103

 

2015 PERFORMANCE HIGHLIGHTS

 

Continued to Deliver on Commitments

 

· Earnings Per Share (“EPS”)* up 10% to $6.10. This marks our 6th consecutive year of double digit earnings growth.
   
· Sales of $38.6 billion, up 1% on a core organic basis; down 4% reported. The difference between core organic and reported is due to the impact of foreign currency translation, acquisitions, divestitures and Aerospace OEM incentive payments (-4%) and lower raw materials pass-through pricing in the Resins & Chemicals business of Performance Materials and Technologies (“PMT”) (-1%).
   
· Segment profit up 8% to new peak of $7.3 billion, with 220 basis points of segment margin expansion(1).
   
· Free cash flow (“FCF”)** of $4.4 billion; up 11%. Includes $1.1 billion in capital expenditures.

 

2015 PERFORMANCE VS. 2014 PERFORMANCE

 

 

* EPS, V% exclude pension mark-to-market adjustment
** FCF = Cash Flow From Operations Less Capital Expenditures

 

(1) As reported. If 2014 Sales and Segment Margin were adjusted to exclude the impact of $184 million of incentives to commercial aerospace original equipment manufacturers (“OEM Incentives”) in 4Q 2014, 2015 reported Sales would be down 5% and 2015 Segment Margins would be up 180 bps.

 

2016     |     Proxy and Notice of Annual Meeting of Shareowners      |     i
 

Proxy Summary > 2015 Performance Highlights

 

Shareowner Value Creation

 

· Dividends: We increased our dividend rate by 15%, effective in the fourth quarter of 2015. This is the 11th increase of at least 10% in the last ten years.
   
· Share Repurchases: We repurchased 18.8 million shares in 2015, more than offsetting any dilution to shareowners from employee share plans.
   
· Total Shareowner Return (“TSR”): We continued our track record of delivering consistently strong returns to our investors.

 

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, 2015.

 

2015 Operational Performance vs. Peers:

 

We had another year of strong operational performance against both our Compensation Peer Group and Multi-Industry Peers.

 

 

Note: In ensuring alignment between pay and performance, our compensation committee compares Honeywell's financial performance to the median performance of both our compensation peer group and a multi-industry peer group comprised of GE, EMR, MMM and UTX. This comparison is done using certain non-GAAP financial information that both Honeywell and each peer company utilizes in its financial disclosure and investor presentations. For Honeywell, we exclude the pension mark-to-market adjustment from Net Income and EPS. With regard to the peer group medians, each peer company adjusts its GAAP financial results for net income and EPS in a different manner and their presentation of this non-GAAP information is subject to change from time to time.

 

*ROIC = Adjusted Net Income Before Interest divided by Net Investment (2-Point Average)

 

Adjusted Net Income Before Interest = Net Income (HON excludes pension mark-to-market adjustment) + After-Tax Interest

Net Investment = Book Value of Equity + Total Debt

 

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Proxy Summary > Executive Compensation Snapshot

 

EXECUTIVE COMPENSATION SNAPSHOT

 

2015 Total Annual Direct Compensation for Each Named Executive Officer (NEO)

 

2015 total annual direct compensation for the Named Executive Officers (NEOs) is shown below from the Committee’s perspective, which annualizes earned Growth Plan awards due to non-overlapping performance cycles.

 

            Annual  Annualized  Total Annual
      Base  Annual  Stock  Growth  Direct
NEO  Position  Salary  Bonus  Options  Plan (A)  Compensation(B)
David M. Cote  CEO   $1,890,000    $5,700,000    $10,338,000    $7,125,000    $25,053,000 
Thomas A. Szlosek  CFO   $829,077    $850,000    $2,153,750    $1,500,000    $5,332,827 
Roger Fradin  Vice-Chairman   $1,050,000    $1,300,000    $3,101,400    $2,068,000    $7,519,400 
Timothy O. Mahoney  Aero President & CEO   $907,462    $900,000    $3,015,250    $1,862,500    $6,685,212 
Andreas C. Kramvis  Vice-Chairman   $850,000    $1,050,000    $2,842,950    $1,488,000    $6,230,950 
(A) No Growth Plan award was made in 2015; last grant was made in 2014. 50% of the earned award for the completed 2014-2015 (2-year) performance cycle is attributed to 2015 and shown on the table above to reflect the fact that Growth Plan performance cycles do not overlap, consistent with how the Committee plans executive compensation.
   
(B) Reflects Committee’s view of how annual compensation should be determined, which differs from the methodology required by the SEC for purposes of the Summary Compensation Table.

 

Alignment of CEO Pay with Company Performance (5-years)

 

The graph below 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, annual Incentive Compensation Plan (“ICP”) award, annual stock option grant, and annualized Growth Plan award.

 

CEO COMPENSATION ALIGNMENT WITH COMPANY PERFORMANCE AND TSR
 

 

(1) Reflects the year-to-year performance indexed to a 2010 base year for total shareowner return (“TSR”), and a 2011 base year for other performance metrics, at 100. Prior year TSR is shown to correspond with the timing of annual compensation decisions.
(2) The 2015 and 2014 CEO Total ADC bars include 50% of the actual earned award for the 2014-2015 Growth Plan cycle consistent with how the Management Development and Compensation Committee views compensation (2014 bar recast to reflect actual Growth Plan performance attributable to 2014). The 2013 and 2012 CEO Total ADC bars each include 50% of the actual award earned for the 2012-2013 Growth Plan cycle. The 2011 CEO Total ADC bar includes 50% of the actual award earned for the 2010-2011 Growth Plan performance cycle.
(3) EPS, V% exclude pension mark-to-market adjustment.
(4) TSR consists of stock price appreciation plus reinvested dividends. 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) The box at the top of the 2014 bar represents the value of a special award of performance stock options granted in December 2014 for retention purposes; target value of $5 million; vests 100% on December 31, 2017, if earned.

 

See Compensation Discussion and Analysis beginning on page 25 for more details on 2015 Executive Compensation.

 

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Proxy Summary > Executive Compensation Payments Vs. Long-Term Performance

 

EXECUTIVE COMPENSATION PAYMENTS VS. LONG-TERM PERFORMANCE

 

Indicative of our ability to grow revenues while increasing profitability is how effectively we’ve managed executive compensation expense since Mr. Cote became our CEO. Since 2003, our total ICP payments have increased only 16% and we have actually reduced the number of ICP-eligible executives by 6%. Yet, over that same period, EPS has increased 304%(1), total sales have increased 75%, segment profit has increased 209%, and free cash flow has increased 184%. If we had allowed the number of ICP-eligible executives and ICP spend to increase at the same rate as EPS (up 304%), today we would have 2,989 ICP-eligible executives (versus 699) and our ICP expense in 2015 would be $283 million (versus $81 million). We believe keeping the number of ICP-eligible executives low is particularly important because each additional incentive-eligible executive is a potential source of bureaucracy: while acting with the best intentions, highly paid executives risk distracting the organization from the day-to-day, critical task of delivering high-quality products and services to customers. Honeywell has delivered best-in-class operational and financial performance with fewer incentive-eligible executives, thereby further distinguishing ourselves versus our peers.

 

In addition, also since 2003, our long-term TSR has significantly outperformed the S&P 500, our 14-company Compensation Peer Group, and our multi-industry peers as reflected in the chart below. This demonstrates that our focus on operational efficiency has translated into real relative value for our shareowners.

 

CEO TRACK RECORD — STRONG BUSINESS PERFORMANCE — EFFECTIVELY MANAGING ICP SPEND
  Business Performance   ICP Plan (Total Company)  
     

 

(1) EPS, V% exclude pension mark-to-market adjustment.

 

(2) Free Cash Flow = Cash Flow From Operations Less Capital Expenditures.

 

 

   
LONG-TERM CUMULATIVE TSR 
   
 100th Percentile vs. Peers 
   
  
   
 Peer Median Reflects Compensation Peer Group Median; Honeywell Percentile rank versus our Compensation Peer Group; Multi-Industry Peer Median Includes GE, EMR, MMM and UTX; Cumulative TSR for period of 1/1/2003–12/31/2015 

 

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Proxy Summary > Corporate Governance Practices

 

CORPORATE GOVERNANCE PRACTICES

 

Our Board of Directors oversees management performance on behalf of the shareowners, to ensure that the long-term interests of the shareowners are being served, to monitor adherence to Honeywell standards and policies, and to promote the exercise of responsible corporate citizenship.

 

     GOVERNANCE HIGHLIGHTS  
         
  · All directors are independent other than the CEO. Proxy Access  
 

·

·

·

·

All Board committees are independent.

Independent Lead Director.

Annual election of directors.

Majority voting in uncontested elections.

In 2015, we proactively adopted a proxy access by-law amendment that is substantially similar to the 2010 SEC proxy access rule. Our Board took this action based on the feedback we received from our large shareowners during discussions held in the course of 2015. See page 23.  
  · Chair of the Corporate Governance and Responsibility Committee or Lead Director can call special meetings of the Board at any time for any reason.  
  · Lead Director designated as a point of contact for shareowner communications.  
  · Three Audit Committee members are designated “audit committee financial experts”.  
  · A diverse Board—of our independent directors, 27% are women, 27% are Hispanic, 18% are African American and 18% are non-U.S. citizens.  
  · Shareowner right to call a special meeting.  
  · Simple majority vote requirements to amend charter and approve mergers and acquisitions.  
  · No poison pill in place; Board will seek shareowner approval if a shareowner rights plan is adopted.  
  · Robust year-round shareowner engagement, including discussions between larger shareowners and a director.  
  · Regular executive sessions of independent directors.  
  · Risk oversight by full Board and Committees, including strengthened cyber security oversight by the Audit Committee and full Board.  
  · Strong commitment toward corporate social responsibility and sustainability.  
  · No use of corporate funds for political contributions and careful oversight of political lobbying activities.  

 

2016     |     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 25, 2016.

 

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 12 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.

 

Directors may serve until the Annual Meeting of Shareowners immediately following their 72nd birthday. The Board of Directors waived the mandatory retirement age policy in favor of Mr. Gordon Bethune and re-nominated him for both the 2014 and 2015 Annual Meetings of Shareowners. In accordance with the waiver, Mr. Bethune will retire at the 2016 Annual Meeting.

 

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.

 

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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 12 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.  

 

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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: 14
Age: 63
  Mr. Cote has been Chairman and Chief Executive Officer since July 2002. He joined Honeywell as President and Chief Executive Officer in February 2002. Prior to joining Honeywell, he served as Chairman, President and Chief Executive Officer of TRW Inc., a provider of products and services for the aerospace, information systems and automotive markets, from August 2001 to February 2002. From February 2001 to July 2001, he served as TRW’s President and Chief Executive Officer and from November 1999 to January 2001 he served as its President and Chief Operating Officer. Mr. Cote was Senior Vice President of General Electric Company and President and Chief Executive Officer of GE Appliances from June 1996 to November 1999. 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)

 
     

 

  WILLIAM S. AYER, Retired Chairman and Chief Executive Officer of Alaska Air Group, Inc. (Alaska Air Group)
           
 

Years of Service: 1
Age: 61

 


Board Committees:

·  Corporate Governance & Responsibility

·  Management Development & Compensation

 

  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 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. from January 2005 until January 2015 and served as Chairman from January 2009 until 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

 
     

 

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

Years of Service: 6
Age: 65

 

Board Committees:

·  Audit

·  Retirement Plans

 

  Mr. Burke joined Con Edison, a utility provider of electric, gas and steam services, in 1973 and has held positions of increasing responsibility in system planning, engineering, law, nuclear power, construction, and corporate planning. He served as Senior Vice President from July 1998 to July 1999, with responsibility for customer service and for Con Edison’s electric transmission and distribution systems. In 1999, Mr. Burke was elected President of Orange & Rockland Utilities, Inc., a subsidiary of Con Edison. He was elected President and Chief Operating Officer of Consolidated Edison Company of New York, Inc. in 2000 and elected Chief Executive Officer in 2005. Mr. Burke 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 was 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, until May 2015.  
           
 

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

 
     

 

2016     |     Proxy and Notice of Annual Meeting of Shareowners      |     3
 

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

 

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

Years of Service: 16
Age: 66

 

Lead Director

 

Board Committees:

·  Retirement Plans Committee Chairperson

·  Corporate Governance & Responsibility

 

  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 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 Grupo Bimbo, S.A.B. de C.V. He previously served as a director of AT&T (2008-2015), 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

 
     

 

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

Years of Service: 10
Age: 64

 

Board Committees:

·  Management Development & Compensation Committee Chairperson

·  Audit

 

  Mr. Davis joined UPS, a leading global provider of package delivery, specialized transportation and logistics services in 1986. He has served as the non-Executive Chairman of UPS since September 2014 and will retire from this position in May 2016. 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 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 and EndoChoice Holdings. 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

 
     

 

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

Years of Service: 10
Age: 70

 

Board Committees:

·  Corporate Governance & Responsibility Committee Chairperson

·  Audit

 

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

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

 
     

 

4     |      Proxy and Notice of Annual Meeting of Shareowners     |     2016
 

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

 

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

Years of Service: 5
Age: 69

 

Board Committees:

·  Corporate Governance & Responsibility

·  Audit

 

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

 
     

 

  CLIVE HOLLICK, former Chief Executive Officer of United Business Media  
           
 

Years of Service: 12
Age: 70

 

Board Committees:

·  Management Development & Compensation

·  Retirement Plans

 

  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. 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

 
     

 

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

Years of Service: 3
Age: 55

 

Board Committees:

·  Corporate Governance & Responsibility

·  Management Development & Compensation

 

  Ms. Lieblein served as Vice President, Global Quality of GM, a company that designs, manufactures and markets cars, crossovers, trucks, and automobile parts worldwide from November 2014 to March 2016. 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 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. Ms. Lieblein is also a director of Southwest Airlines Co.  
           
 

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

 
     

 

2016     |     Proxy and Notice of Annual Meeting of Shareowners      |     5
 

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

 

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

Years of Service: 7
Age: 60

 

Board Committees:

·  Corporate Governance & Responsibility

·  Audit Committee Chairperson

  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 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. He is also a director of Prudential Financial, Inc.  
           
 

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

 
     

 

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

Years of Service: 11
Age: 59

 

Board Committees:

·  Management Development & Compensation

·  Retirement Plans

 

  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 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

 
     

 

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

Years of Service: 3
Age: 53

 

Board Committees:

·  Audit

·  Retirement Plans

 

  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 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

 
     

 

6     |      Proxy and Notice of Annual Meeting of Shareowners     |     2016
 

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, 115 Tabor Road, Morris Plains, New Jersey 07950, 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 2015. The average attendance at meetings of the Board and Board Committees during 2015 was 99%. 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 129,000 employees.

 

Lead Director

 

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 year, the next most senior director becomes the Lead Director if he or she determines to do so. Our current Lead Director is Mr. Jaime Chico Pardo.

 

2016     |     Proxy and Notice of Annual Meeting of Shareowners      |     7
 

Corporate Governance > Board Committees

 

 

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 2015.

 

Name   Audit   Corporate Governance
and Responsibility
  Management Development
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
2015 Meetings   9   3   6   3
* Committee Chairperson
** Mr. Bethune will retire from the Board at the Annual Meeting of Shareowners on April 25, 2016.

 

8     |      Proxy and Notice of Annual Meeting of Shareowners     |     2016
 

Corporate Governance > Board Committees

 

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.    

 

 

2016     |     Proxy and Notice of Annual Meeting of Shareowners      |     9
 

Corporate Governance > Board Committees

 

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 each of Mr. Paz, Mr. Davis and Ms. Washington as the Securities and Exchange Commission (“SEC”) defined “audit committee financial expert.” See page 76 for the Audit Committee Report.

 

In 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.

 

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, and 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 (“PM”) 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 in 2015, and determined that PM is independent in providing Honeywell with executive compensation consulting services and that PM’s work for the Committee did not raise any conflicts of interest, consistent with SEC rules and NYSE listing standards.

 

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

 

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

 

In particular, the Committee noted that PM 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 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 also provides information regarding emerging trends and best practices in executive compensation. In addition to information compiled by PM, 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.

 

10     |      Proxy and Notice of Annual Meeting of Shareowners     |     2016
 

Corporate Governance > Board’s Role in Risk Oversight

 

While the Committee reviews information provided by PM 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 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 both on ordinary course, business and commercial operating risks as well as prospective 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.

 

In 2015, each Board member was interviewed by management to solicit feedback on Honeywell’s ERM process to ensure that the universe of risks and how management ranked those risks in terms of likelihood of occurrence and financial impact were appropriate and realistic. Feedback from the one-on-one interviews with each Board member was presented to the full Board and incorporated in our ERM program and risk mitigation efforts.

 

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, foreign currency, diminished customer demand, technology obsolescence, reductions to government spending, and a slowdown in economic growth. Each of the Presidents and CEOs of our SBGs reviews these risks as part of his or her annual strategic review with the Board of Directors.

 

·  M&A integration and the M&A competitive landscape

 

·  Legal risks arising from litigation, intellectual property (IP) infringement, health, safety, and environment, regulatory issues such as Foreign Corrupt Practices Act (FCPA), antitrust or Conflict Minerals, and product liability

 

·  Cyber security including protection of customer and employee data, trade secrets and other proprietary “crown jewel” information, ensuring the security of data on the cloud, persistent threats, and cyber risks associated with our own software products

 

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Corporate Governance > Director Independence

 

Board/Committee   Primary Areas of Risk Oversight

Audit Committee   · Cyber security including protection of customer and employee data, trade secrets and other proprietary “crown jewel” information, ensuring the security of data on the cloud, persistent threats, and cyber risks associated with our own software products
    ·  Accounting, controls, and financial disclosure
    ·  Tax and liquidity management
    ·  Compliance matters associated with import/export, International Traffic in Arms Regulations (ITAR) and FCPA
    ·  Certain kinds of employee misconduct
    ·  Catastrophic risks such as pandemics, natural disasters, and plant accidents
Corporate Governance and
Responsibility Committee  
  ·  Labor compliance and progress in implementing our diversity goals and objectives
  ·  Political contributions and lobbying
  ·  Health, safety, environmental, product stewardship and sustainability
Management Development and   ·  Senior management succession planning
Compensation Committee   ·  Executive compensation plans, programs and arrangements
Retirement Plans Committee   ·  Employee pension and saving plans

 

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, 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). Mr. Bethune, who is retiring from the Board, is also independent under these standards. 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 14-17 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. Burke—Consolidated Edison, 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;

 

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Corporate Governance > Identification and Evaluation of Director Candidates

 

  (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.

 

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, from time to time, 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(1)
27% 27% 18% 18%

 

(1) Calculation does not take into account Mr. Bethune who will retire from the Board at the Annual Meeting of Shareowners on April 25, 2016.

 

2016     |     Proxy and Notice of Annual Meeting of Shareowners      |     13
 

Corporate Governance > Director Orientation and Continuing Education

 

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 8.2 years, less
than the S&P 500 average
tenure of 8.5 years.(1)

 

(1) Source: Spencer Stuart Board Index 2015, Spencer Stuart (November 2015)

 

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, 115 Tabor Road, Morris Plains, New Jersey 07950. 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 107 of this proxy statement.

 

Honeywell did not receive any recommendation of a director candidate from a shareowner, or group of shareowners, that beneficially owned more than 3% of Honeywell’s common stock (“Common Stock”) for at least three years 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.

 

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Corporate Governance > Director Compensation

 

 

Board of Directors’ Annual Compensation  
Board Retainer $100,000
Board Meeting and Attendance Eliminated beginning in 2015
Lead Director $35,000 per annum
Board Committee Membership    

$10,000 for each committee board membership ($15,000 for members of the Audit Committee).

 

Board Committee Chairs receive an additional cash retainer of $20,000.

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 $100,000 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.            
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 (3.66% for 2015 and set at 3.64% for 2016) 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.

 

Mr. Chico Pardo participates 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 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.

 

2016     |     Proxy and Notice of Annual Meeting of Shareowners      |     15
 

Corporate Governance > Director Compensation

 

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 $500,000). 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 2015

 

            Change in Pension      
            Value and      
            Nonqualified      
   Fees        Deferred      
   Earned or  Stock  Option  Compensation  All Other   
Director Name  Paid in Cash($)(1)  Awards($)(2)(3)  Awards($)(2)(4)  Earnings($)(5)  Compensation($)(6)  Total($)
William Ayer  $180,000  $50,083  $50,016  $0  $4  $280,103
Gordon Bethune  $215,000  $50,083  $50,016  $58,458  $4  $373,561
Kevin Burke  $185,000  $50,083  $50,016  $0  $25,004  $310,103
Jaime Chico Pardo  $200,000  $50,083  $50,016  $0  $26,806  $326,905
D. Scott Davis  $205,000  $50,083  $50,016  $4,911  $1,555  $311,565
Linnet Deily  $205,000  $50,083  $50,016  $0  $28,620  $333,719
Judd Gregg  $185,000  $50,083  $50,016  $0  $5,004  $290,103
Clive Hollick  $180,000  $50,083  $50,016  $5,425  $39,699  $325,223
Grace Lieblein  $180,000  $50,083  $50,016  $0  $4  $280,103
George Paz  $205,000  $50,083  $50,016  $0  $25,004  $330,103
Bradley Sheares  $180,000  $50,083  $50,016  $10,326  $26,024  $316,449
Robin Washington  $185,000  $50,083  $50,016  $0  $25,004  $310,103

 

(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).

 

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Corporate Governance > Certain Relationships and Related Transactions

 

(2)The table below reflects all outstanding stock awards and option awards held at December 31, 2015 by each of the listed individuals.

 

  Outstanding
Stock Awards at
Outstanding Option
Director Name 12/31/15 Awards at 12/31/15
Mr. Ayer 3,495 3,013
Mr. Bethune 1,448 41,387
Mr. Burke 1,448 21,387
Mr. Chico Pardo 1,448 41,387
Mr. Davis 1,448 36,387
Ms. Deily 1,448 36,387
Mr. Gregg 4,788 16,387
Mr. Hollick 1,448 41,387
Ms. Lieblein 4,638 8,461
Mr. Paz 1,448 26,387
Dr. Sheares 1,448 26,387
Ms. Washington 4,620 8,461

 

(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 487 shares were made to non-employee directors in April 2015 with a value of $102.84 per share. A more detailed discussion of the assumptions used in the valuation of stock awards made in fiscal year 2015 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, 2015.
(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 3,013 shares were made to non-employee directors in April 2015 with a Black-Scholes value of $16.60 per share. A more detailed discussion of the assumptions used in the valuation of option awards made in fiscal year 2015 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, 2015.
(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 2015, this rate was 3.66%, and is set at 3.64% for 2016. 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 2015. Honeywell matched charitable contributions in the amounts of:

 

  Matched Charitable
Director Name Contributions
Mr. Burke $25,000
Mr. Chico Pardo $25,000
Ms. Deily $20,000
Mr. Gregg $5,000
Mr. Hollick $24,919
Mr. Paz $25,000
Dr. Sheares $25,000
Ms. Washington $25,000

 

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

 

2016     |     Proxy and Notice of Annual Meeting of Shareowners      |     17
 

Corporate Governance > Certain Relationships and Related Transactions

 

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

 

If a conflict of interest or related party transaction is of a type or a nature that falls within the scope of oversight of a particular Board Committee, it is referred to that Committee for review. The Board or the responsible Committee 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 Transactions

 

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.

 

John Cote, the son of David Cote, is the founder and chief executive officer of Industrial Inspection & Analysis, Inc. (“IIA”) which acquired QC Group, LLC in November 2015. Mr. J. Cote is the manager of QC Group which provides metrology/dimensional inspection services to one of Honeywell’s businesses as part of Honeywell’s quality control processes. The services are provided on terms and conditions determined on an arm’s-length basis. QC Group received approximately $735,000 from Honeywell in 2015 for payment of services. QC Group and Honeywell entered into the services arrangement prior to Mr. J. Cote’s involvement with QC Group. IIA, as the ultimate parent of QC Group, receives distributions based on the total revenues generated from QC Group’s inspection services, and Mr. J. Cote, the majority owner of IIA, receives distributions from IIA based on the total revenues generated from IIA’s portfolio of companies.

 

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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, 2015.

 

Name and Complete Mailing Address  Number of
Shares
  Percent of
Common Stock
Outstanding
BlackRock, Inc. 
55 East 52nd Street, New York, NY 10055  45,037,592(1) 5.8%
The Vanguard Group       
100 Vanguard Blvd., Malvern, PA 19355  41,688,512(2) 5.4%

 

(1) BlackRock, Inc. has sole voting power in respect of 38,134,550 shares and sole dispositive power in respect of 45,031,272 shares.
(2) The Vanguard Group and certain related entities have sole voting power in respect of 1,428,719 shares and sole dispositive power in respect of 40,175,758 shares.

 

STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

 

The following table lists information as of February 26, 2016 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  1,978  0  753  1,225
Gordon M. Bethune  72,453  14,891  32,655  24,907
Kevin Burke  36,894  12,141  17,655  7,098
Jaime Chico Pardo  94,380  32,115  32,655  29,610
David M. Cote  6,966,594  348,399(5) 5,737,500  880,695
D. Scott Davis  60,570  12,824  32,655  15,091
Linnet F. Deily  48,407  2,369  32,655  13,383
Judd Gregg  27,189  3,679  15,655  7,855
Clive Hollick  51,817  3,679  27,655  20,483
Grace D. Lieblein  8,949  0  4,729  4,220
George Paz  37,129  4,994  22,655  9,480
Bradley T. Sheares  41,489  1,751  22,655  17,083
Robin L. Washington  8,797  0  4,729  4,068
Thomas A. Szlosek  430,254  32,368  350,000  47,886
Roger Fradin  1,223,050  48,169  1,053,750  121,131
Timothy O. Mahoney  1,011,471  49,669  911,250  50,552
Andreas C. Kramvis  925,256  30,342  693,750  201,164
All directors, nominees and executive officers as a group,including the above-named persons (23 people)  13,902,342  840,508  11,594,306  1,467,528

 

(1) c/o Honeywell International Inc., 115 Tabor Road, Morris Plains, New Jersey 07950.
(2) The total beneficial ownership for any individual is less than 1% and the total for the group is approximately 1.83% of the shares of Common Stock outstanding.
(3) Includes shares which the named individual or group has the right to acquire through the exercise of vested stock options, and shares which the named individual or group has the right to acquire through the vesting of performance shares, RSUs and stock options within 60 days of February 26, 2016.
(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.

 

2016     |     Proxy and Notice of Annual Meeting of Shareowners      |     19
 

Section 16(a) Beneficial Ownership Reporting Compliance

 

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 2015, we believe that all applicable Section 16(a) filing requirements were met on a timely basis, with the exception of a late Form 4 filing for each of Mr. Cote and Mr. Gregg due to administrative error.

 

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

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, 2013 and 2014 greenhouse gas emission inventories.
  · In 2007, the Company established five-year greenhouse gas and energy efficiency objectives for its internal operations for the period 2007-2011.
  · By the end of 2011, Honeywell 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 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.
  · We met this goal three years early and, in 2015, set an additional goal at an event at the U.S. Department of Energy: by 2019 Honeywell will reduce its greenhouse gas emissions per dollar of revenue from our 2013 level by an additional 10% by 2019.
Water

Honeywell has developed a global inventory of water usage in its manufacturing operations.
  · 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.
  · The Company implemented additional water conservation projects in these areas in 2014 and 2015.

 

20     |      Proxy and Notice of Annual Meeting of Shareowners     |     2016
 

Sustainablility and Corporate Responsibility > 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, 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 sustainability 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 parents and children potentially life-saving lessons to help avoid abduction and preventable childhood injuries;
   
· 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 provide teachers with new and innovative techniques to teach 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

 

2016     |     Proxy and Notice of Annual Meeting of Shareowners      |     21
 

Political Contributions and Activities > Management and Board Oversight

 

· Helping Honeywell employees and communities recover from natural disasters such as Hurricane Sandy and the Colorado Springs wildfires in the U.S., the Super Typhoon Haiyan in the Philippines, the Great Japan Earthquake and Tsunami and the Mexico, Haiti and China 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 2015, 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 S&P 500. Our enhanced disclosure on political lobbying and contributions ranked us in the “First Tier” of the 2015 CPA-Zicklin Index for the second year in a row. 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 8 on pages 102-103.

 

SHAREOWNER OUTREACH AND ENGAGEMENT

 

Understanding the issues that are important to our shareowners is critical in ensuring that we address their interests in a meaningful and effective way. It is also a tenet of good governance. In that light, we 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.

 

22     |      Proxy and Notice of Annual Meeting of Shareowners     |     2016
 

Shareowner Outreach and Engagement > Governance and Compensation Outreach

 

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, 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. The Chair of the Management Development and Compensation Committee met with one of our largest shareowners in 2015 to discuss a range of issues including executive compensation and corporate governance. In addition, one of our Vice Chairmen, Mr. Kramvis, has been working toward developing 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:

 

In the Summer/Fall of 2015, outreach invitations were sent to our 30 largest shareowners (representing approximately 44% of the shares outstanding) and direct meetings were held with investors holding approximately one-third of the shares outstanding. Among the specific matters we discussed were the following:

 

· Shareowners’ views on the advisability of amending our By-laws to allow for proxy access. Investor feedback weighed significantly in the Board’s decision to proactively amend our By-laws to provide investors with the right of proxy access in December 2015. According to our amended By-laws, a single shareowner or a group of up to 20 shareowners who have held 3% of Honeywell stock for three years may nominate the greater of 20% of the Board or two directors. The 2015 amendment to our By-laws is substantially similar to the 2010 SEC proxy access rule.

 

2016     |     Proxy and Notice of Annual Meeting of Shareowners      |     23
 

Shareowner Outreach and Engagement > Governance and Compensation Outreach

 

* Overall satisfaction with our Lead Director structure and shareowner views on separation of the roles of Chairman of the Board and Chief Executive Officer. See “Proposal No. 6: 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.
   
· The decline in support for our executive compensation program as reflected in our annual Say on Pay vote in 2015 (70% support in 2014 vs. 91% support in 2014). 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. 7: Right to Act By Written Consent.”
   
· The adequacy of our disclosure on political contributions and lobbying. See “Proposal No. 8: Political Lobbying and Contributions.”
   
· Our enhanced shareowner outreach in the Spring, prior to the 2015 Annual Meeting—invitations extended to our 75 top shareowners and engagement occurred with 40 of those shareowners.

 

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

115 Tabor Road, Morris Plains, NJ 07950

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

115 Tabor Road

Morris Plains, NJ 07950

 

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.

 

24     |      Proxy and Notice of Annual Meeting of Shareowners     |     2016
 

 

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 2015 compensation decisions regarding our Named Executive Officers.

 

TABLE OF CONTENTS

 

Executive Summary 26
· Overview 26
· How Compensation Decisions Are Made 27
· Engagement With Shareowners On Compensation 27
· Summary Description Of 2015 Compensation Decisions For NEOs 28
· Summary Of 2015 NEO Compensation Amounts 29
· CEO Pay-For-Performance Alignment (5-Years) 29
CEO Performance & Compensation Table 30
2015 Honeywell Performance 32
· Performance Highlights (2015 vs. 2014) 32
· Performance Versus Our Peers 33
· We Are Creating Value For Our Shareowners 34
· We Are Deploying Capital Wisely 35
Our Compensation Philosophy & Approach 36
· Our Competitive Market—Compensation Peer Group 37
· Succession Planning 38
Compensation Program Description 39
· Elements of 2015 Total Annual Direct Compensation 39
· Details On Program Elements And Related 2015 Compensation Decisions 40
· Base Salary 40
· Annual Incentive Compensation Plan (“ICP”) 40
· Long-Term Incentive Compensation (“LTI”) 45
– Stock Options 45
– Growth Plan 46
Other Compensation & Benefit Programs 51
Compensation Practices And Policies 52
· Best Practices 52
· Risk Oversight Considerations 53
· Stock Ownership Guidelines 53
· Recoupment 54
· Tax Deductibility of Executive Compensation 54
· Pledging and Hedging Transactions in Company Securities 55

 

2016     |     Proxy and Notice of Annual Meeting of Shareowners      |     25
 

Executive Compensation > Executive Summary

 

 

NAMED EXECUTIVE OFFICERS
(“NEOs”)

 

 

 

David M. Cote

Chairman &
Chief Executive Officer

 

 

 

Thomas A. Szlosek

Senior Vice President &
Chief Financial Officer

 

 

 

Roger Fradin

Vice Chairman

 

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”).

 

We are a Fortune 100 company that invents and manufactures technologies to address some of the world’s toughest challenges. 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 129,000 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.

 

What We Do

 

Aerospace

 

Honeywell Aerospace is a leading global supplier of aircraft engines, integrated avionics and systems and service solutions for aircraft manufacturers, airlines, aircraft operators, military services, and defense and space contractors around the world. Our innovative technologies are used on virtually every commercial and defense aircraft platform. We make worldwide air travel safe, efficient, productive and comfortable. Aerospace sells its products to original equipment (OE) manufacturers in the air transport, regional, business and general aviation aircraft segments, and provides spare parts and repair and maintenance services to aircraft operators for the aftermarket. In addition, our Transportation Systems business within Aerospace, provides 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 with more energy efficiency.

 

Automation and Control Solutions

 

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. The breadth of the ACS product and service offering is extremely broad and includes: control and display equipment that keep buildings safe, comfortable and productive; sensors, switches, control systems and instruments for measuring pressure, air flow, temperature and electrical current; products, services and solutions for measurement, regulation, control and metering of gases and electricity; metering and communications systems for water utilities and industries; security, fire and gas detection; and personal protection equipment. Honeywell’s innovations in smart technology are changing the way that businesses are managed and improving the comfort, security, and energy efficiency of homes.

 

Performance Materials and Technologies

 

Honeywell PMT is a global leader in developing and manufacturing advanced materials, process technologies and automation solutions that operates through three business units: UOP, Process Solutions and Advanced Materials. Our UOP business unit provides process technology, products, including catalysts and adsorbents, equipment and consulting services to the oil, gas and petrochemical industries to help them efficiently produce gasoline, diesel, jet fuel, petrochemicals and renewable fuels. Process Solutions is a pioneer in automation control, instrumentation, services and advanced software for the oil and gas, refining, pulp and paper, industrial power generation, chemicals and petrochemicals, biofuels, life sciences, and mining industries. Advanced Materials manufactures a wide variety of high-performance products, including low global warming refrigerants, aerosols and blowing agents, caprolactam, resins, ammonium sulfate fertilizer, specialty films, additives, advanced fibers, customized research chemicals and intermediates, and electronic materials and chemicals.


 

26     |      Proxy and Notice of Annual Meeting of Shareowners     |     2016
 

Executive Compensation > Executive Summary

 

HOS Gold: Our Global Business Process

 

HOS Gold is a comprehensive toolkit where our growth and productivity strategies and process improvement tools come together in a single system to support breakthrough growth. These tools – which include the Honeywell User Experience, Velocity Product Development, Functional Transformation, and Organizational Effectiveness — can help us bring better products to market faster for our customers while managing costs. Through effective execution, Honeywell is using HOS Gold to build sustainable competitive advantage across its diversified portfolio.

 

HOW COMPENSATION DECISIONS ARE MADE

 

Decisions about executive compensation are made by the Management Development and Compensation Committee of the Honeywell Board of Directors (the “Committee”). When carrying out its responsibilities, the Committee considers a number of important factors, including:

 

· Their long-standing commitment to aligning pay with Company and individual performance;
   
· The need to retain or attract executives with a proven track record of delivering consistent financial results and driving “seed-planting” initiatives that will create long-term shareowner value;
   
· The competition for top-tier executive talent across our diverse range of businesses spanning aerospace and turbo technologies, a variety of automation and control businesses, and the chemical and refining industries;
   
· The complex and global nature of our businesses and the importance of growth outside of the United States for future success; and
   
· The importance of maintaining and executing on a thorough and rigorous succession planning process.

 

The Committee believes that to create long-term shareholder value Honeywell’s compensation programs must not only be financially competitive, but also must be specifically tailored for, and aligned with, our strategic and financial goals and objectives. How the compensation program aligns with our goals and objectives must also be well communicated to, and understood by, our executives. Honeywell’s executive compensation program meets these requirements by emphasizing variable, at-risk compensation with an appropriate balance of near-term and long-term objectives that align the interest of our executives with that of our shareowners. Every quarter, we communicate with our executives on how the Company is performing relative to certain key metrics and improvement actions they can take that directly impacts their compensation.

 

ENGAGEMENT WITH SHAREOWNERS ON COMPENSATION

 

Our Board does all it can to engage with, and solicit feedback from, shareowners regarding our executive compensation programs and annual decision making (see page 22 for more information on our shareowner outreach process). Prior to last year’s Annual Meeting of Shareowners and advisory vote to approve executive compensation (known as ‘Say on Pay’), we made a determined effort to contact, and meet with, the 75 largest shareowners who held 56% of our outstanding shares. Forty of our 75 largest shareowners agreed to engage with us prior to the 2015 Annual Meeting. The feedback from those meetings regarding our executive compensation programs was overwhelmingly positive.

 

· Our shareowners believe that our compensation programs are well designed and have contributed to the financial success of Honeywell.
   
· The financial metrics used by the Committee to determine compensation, particularly the three financial metrics we use in the Growth Plan Units, are aligned with the long-term financial goals that we have communicated to investors and are appropriately rigorous.
   
· However, shareowners were not in favor of the 2014 “one off” compensation arrangements made with certain of our executives in connection with the execution of our leadership succession plan.

 

Despite the positive feedback we received during our 1:1 engagement with shareowners prior to the 2015 shareowners meeting, approximately 70% of the ‘Say on Pay’ votes cast were in support of the Company (down from over 90% in each of the preceding four years).

 

Following the 2015 Annual Meeting of Shareowners, we extended meeting invitations to our top thirty shareowners to specifically discuss governance and compensation matters and better understand what led to the decline in the 2015 Say on Pay vote. Direct meetings were held with shareowners holding approximately one-third of the shares outstanding, with the chairman of the Committee directly participating in the meeting with one of our largest shareowners in August. Specific and detailed feedback from these meetings was reported to the Committee and utilized in their deliberations on subsequent compensation decisions.

 

NAMED EXECUTIVE OFFICERS
(continued)

 

 

 

Timothy O. Mahoney

President & Chief Executive
Officer – Aerospace

 

 

 

Andreas C. Kramvis

Vice Chairman

 


 

2016     |     Proxy and Notice of Annual Meeting of Shareowners      |     27
 

Executive Compensation > Executive Summary

 

During these meetings, our shareowners expressed strong support for Honeywell’s executive leadership team and our executive compensation program. Shareowners generally attributed the decline in the 2015 Say on Pay vote to one-off discretionary awards made in 2014 in connection with key organizational and leadership succession actions that were exceptions to our regular compensation program. While shareowners recognized the need for occasional deviations from the regular compensation program due to unique circumstances, they encouraged the Committee to address retention and succession planning requirements within the scope of the regular compensation program.

 

Similar to the feedback we received prior to the 2015 Annual Meeting of Shareowners, investors were generally complimentary of our plan designs and expressed the view that the financial metrics used for our annual incentive compensation plan (ICP) and long-term performance plan were both appropriately aggressive and well aligned with our long-term business plan. Some shareowners asked for expanded disclosure on how the Committee determines ICP awards, particularly related to the Committee’s exercise of discretion. While a few investors expressed preferences for modest changes to specific elements of our compensation program, none of our investors expressed the view that the Committee should consider significant changes to the design of any of our compensation plans. All of the investors with whom we spoke expressed the view that, in general, our compensation program has supported the creation of shareholder value over the long-term and each of the relevant TSR measurement periods.

 

Decisions regarding 2015 compensation actions reported in this proxy statement, with the exception of annual ICP awards, were made by the Committee in February 2015, prior to the April 2015 Annual Meeting. After a thorough discussion and consideration of the investor feedback described above, the Committee addressed what we heard in several ways. First, the Committee determined that, beginning in 2016, it would include performance-adjusted equity awards as a component of the regular compensation program mix, rather than as a one-off discretionary element granted from time to time to strengthen retention. In addition, the Committee directed that proxy disclosures be expanded in 2016 to better explain how the Committee assessed annual and individual performance in determining ICP Awards for the NEOs. While no other immediate changes were made to our compensation program, the Committee continues to weigh current and emerging trends, shareowner feedback and its own judgment about what’s best for Honeywell when considering changes to the design of our executive compensation program.

 

SUMMARY DESCRIPTION OF 2015 COMPENSATION DECISIONS FOR NEOS

 

The table below summarizes the Committee’s 2015 compensation actions, which were consistent with our long-standing commitment of aligning pay with company performance and the interests of our shareowners. Details about the compensation program design and decisions made in 2015 are more fully discussed later in this Compensation Discussion and Analysis or “CD&A”.

 

Pay Element   CEO (Mr. Cote)   NEOs (excluding the CEO)   Comments
Base Salary   Did not receive a base salary increase in 2015.   Two of four NEOs did not receive a base salary increase in 2015. Messrs. Mahoney and Szlosek received merit increases of 3.5% and 5%, respectively.   Adjustments for Messrs. Mahoney and Szlosek were based on the Committee’s assessment of performance and competitive market positioning. 2015 was Mr. Szlosek’s first full year as Chief Financial Officer of Honeywell.
Annual Incentive
Compensation
Program (“ICP”)
  Annual ICP award for 2015 performance was up 4% compared to 2014.   Aggregate annual ICP awards for the 2015 performance year were up 12% compared to 2014.   Payouts are linked to year-over-year performance against three pre-established, objective metrics: EPS(1), free cash flow(2) and working capital turns(3) — as well as an assessment of Supplemental Criteria and individual performance (see page 41).
Annual Stock
Options
  Received same number of regular annual stock options as was granted in Feb 2014. Grant date value was up 5%.   Messrs. Fradin and Mahoney received the same number of stock options as was granted to them in 2014. Messrs. Szlosek and Kramvis received a larger number of stock options in 2015 in connection with their respective promotions.   Annual Stock Options vest over 4 years and have value directly linked to stock price performance.
Long-Term
Performance
Plan (Growth Plan)
  No Growth Plan grant was made in 2015. Earned award reported for the full 2014-2015 performance cycle reflects performance at 150% of target.   No Growth Plan grants were made in 2015. The average earned award reported for the full 2014-2015 performance cycle was determined at 150% of target.   Grants are made every other year due to non-overlapping performance cycles. Earned awards for 2014-2015 are based on performance against three pre-established financial targets measured over the two-year performance cycle: revenue growth (excluding acquisitions and divestitures), return on investment (“ROI”) expansion and segment margin expansion. Earned awards will be paid 50% in 2016 and 50% in 2017. (See page 46 for Growth Plan discussion).
   
(1) Excludes pension mark-to-market adjustment.
   
(2) Defined as operating cash flow less capital expenditures.
   
(3) Defined as sales divided by working capital, which is trade accounts receivable plus inventory less accounts payable and customer advances.

 

28     |      Proxy and Notice of Annual Meeting of Shareowners     |     2016
 

Executive Compensation > Executive Summary

 

SUMMARY OF 2015 NEO COMPENSATION AMOUNTS

 

This table summarizes the values of 2015 total annual direct compensation for the Named Executive Officers (NEOs) from the Committee’s perspective (i.e., with the earned Growth Plan awards shown on an annualized basis due to non-overlapping, two-year performance cycles).

 

NEO   Position   Base
Salary
  Annual
Bonus
  Annual
Stock Options
  Annualized
Growth Plan(A)
  Total
Annual Direct
Compensation(B)
David M. Cote   CEO   $1,890,000     $5,700,000     $10,338,000     $7,125,000   $25,053,000  
Thomas A. Szlosek   CFO   $829,077     $850,000     $2,153,750     $1,500,000   $5,332,827  
Roger Fradin   Vice-Chairman   $1,050,000     $1,300,000     $3,101,400     $2,068,000   $7,519,400  
Timothy O. Mahoney   Aero President & CEO   $907,462     $900,000     $3,015,250     $1,862,500   $6,685,212  
Andreas C. Kramvis   Vice-Chairman   $850,000     $1,050,000     $2,842,950     $1,488,000   $6,230,950  
   
(A) No growth plan award was made in 2015; last grant was made in 2014. 50% of the earned award for the completed 2014-2015 (2-year) performance cycle is attributed to 2015 and shown on the table above to reflect the fact that Growth Plan performance cycles do not overlap, consistent with how the Committee plans executive compensation.
   
(B) Reflects the Committee’s view of how annual compensation should be determined, which differs from the methodology required by the SEC for purposes of the Summary Compensation Table.

 

CEO PAY-FOR-PERFORMANCE ALIGNMENT (FIVE YEARS)

 

The graph below 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.

 

CEO COMPENSATION ALIGNMENT WITH COMPANY PERFORMANCE AND TSR

 

 

(1) Reflects the year-to-year performance indexed to a 2010 base year for total shareowner return (“TSR”), and a 2011 base year for other performance metrics, at 100. Prior year TSR is shown to correspond with the timing of annual compensation decisions.
   
(2) The 2015 and 2014 CEO Total ADC bars include 50% of the actual earned award for the 2014-2015 Growth Plan cycle consistent with how the Committee views compensation (2014 bar recast from the 2015 proxy statement to reflect actual Growth Plan performance attributable to 2014). The 2013 and 2012 CEO Total ADC bars each include 50% of the actual award earned for the 2012-2013 Growth Plan cycle. The 2011 CEO Total ADC bar includes 50% of the actual award earned for the 2010-2011 Growth Plan performance cycle.
   
(3) EPS excludes pension mark-to-market adjustment.
   
(4) TSR consists of stock price appreciation plus reinvested dividends. 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) The box at the top of the 2014 bar represents the value of a special award of performance stock options granted in December 2014 for retention purposes that was an exception to our regular compensation program; target value of $5 million; vests 100% on December 31, 2017, if earned.

 

2016     |     Proxy and Notice of Annual Meeting of Shareowners      |     29
 

Executive Compensation > CEO Performance & Compensation Table

 

CEO PERFORMANCE & COMPENSATION TABLE

 

In this section, we provide a summary of Mr. Cote’s key accomplishments for 2015, which were considered by the Committee in assessing his individual performance for purposes of this 2015 ICP Award. Also shown is a table which summarizes Mr. Cote’s 2015 Total Annual Direct Compensation compared to 2014. This table reflects the Committee’s view and is 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 for Mr. Cote, the Committee gave consideration to Honeywell’s strong operational performance in 2015 (for ICP decisions made in February 2016) as well as 2014 (for compensation decisions made in February 2015), as more fully described in this CD&A.

 

David M. Cote Chairman and Chief Executive Officer

 

2015 Performance Summary

 

Positioned Honeywell to meet or exceed the earnings per share (EPS) growth, free cash flow and segment margin expansion expectations established at the start of the year despite a continued slow-growth global economy.
   
Delivered core organic sales growth of 1%, segment margin expansion of 220 basis points to a new record of 18.8%, and EPS* growth of 10% to $6.10, representing Honeywell’s sixth consecutive year of double-digit earnings growth.
   
Increased the annual dividend rate by 15% in October 2015, representing the eleventh time in the past ten years Honeywell has increased its dividend by at least 10%.
   
Continued portfolio evolution through five announced acquisitions for total consideration of approximately $6 billion. This includes the completed acquisition of Elster for $5 billion; the largest acquisition to date since Dave Cote became Chairman and CEO. Elster is a leading provider of thermal gas solutions for commercial, industrial, and residential heating systems and gas, water, and electricity meters, including smart meters and software and data analytics solutions.
   
Drove “seed planting” investment across the portfolio to accelerate future growth and new product development, including:
   
  Capital expenditures of $1.1 billion, funded capacity additions in PMT, increased presence in high growth regions, and in support of new product development, namely the Honeywell Solstice® suite of low global warming potential products in PMT’s Fluorine Products line of business.
     
  Supported R&D spending at 5% of sales and expanded investments in “growth capital” to drive new product development.
     
  Continued focus on High Growth Region penetration and capabilities, particularly in Automation and Control Solutions, adding additional sales and marketing resources in our key regions.
     
* EPS, V% exclude pension mark-to-market adjustment

 

Advanced Honeywell’s key process initiatives and the Honeywell Enablers through the implementation of Honeywell Operating System (HOS) Gold to drive growth and productivity, continued our focus on cycle time reduction and improvements in quality and delivery metrics, and evolution of the Honeywell User Experience (HUE) to drive organic growth, margin expansion and improved customer loyalty. Significant new product highlights stemming from our HUE initiative include the Smartline Transmitter in Honeywell Process Solutions (part of PMT) and the Air Touch in-home air purifier in ACS. We now have dedicated HUE professionals in each business and nine design studios worldwide.

 

David M. Cote — Summary of Total Annual Direct Compensation
       
Annual Compensation  2014  2015
Base Salary    $1,865,769     $1,890,000 
Annual ICP Award    $5,500,000     $5,700,000 
Total Annual Cash Compensation    $7,365,769     $7,590,000 
Growth Plan(a)    $7,125,000     $7,125,000 
Annual Stock Options(b)    $9,816,000     $10,338,000 
Total Annual LTI Compensation    $16,941,000     $17,463,000 
Total Annual Direct Compensation    $24,306,769     $25,053,000 
Non-Annual Retention Grant:              
Performance Stock Options(c)    $5,000,000     $0 

 

(a) Represents the actual earned award for the 2014-2015 Growth Plan performance cycle; annualized over each year in the two-year performance cycle. Earned award paid 50% in 2016 and 50% in 2017.
   
(b) 2015 — 600,000 stock options with a grant date Black-Scholes value $17.23 (vests over four years — exercise price of $103.90/share). 2014 — 600,000 stock options with a grant date Black-Scholes value $16.36 (vests over four years — exercise price of $93.97/share).
   
(c) Represents a special grant of performanced stock options made in 2014 for retention purposes. Not part of regular compensation program.


 

In 2015, Dave Cote was named
“Best CEO” for the 3rd Straight
Year By Institutional Investor, As
Nominated by Both Buy-Side And
Sell-Side Analysts


 

30     |      Proxy and Notice of Annual Meeting of Shareowners     |     2016
 

Executive Compensation > CEO Performance & Compensation Table

 

CEO Leadership: Honeywell’s Performance 2003-Present

 

The Committee also recognizes 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, the Compensation Peer Group and multi-industry peers since 2003, the first full-year of Mr. Cote’s tenure.

 

LONG-TERM STOCK PRICE PERFORMANCE
Dave Cote Tenure

 

LONG-TERM CUMULATIVE TSR
100th Percentile vs. Peers

 

Since Mr. Cote’s first full year with Honeywell, he has demonstrated his ability to grow revenues and increase profitability while, at the same time, effectively managed executive compensation expense. Since 2003, total ICP payments have increased only 16% and the number of ICP-eligible executives has actually gone down by 6%. Yet, over that same period, EPS has increased 304%(1), total sales have increased 75%, segment profit has increased 209%, and free cash flow has increased 184%. If Mr. Cote had allowed the number of ICP-eligible executives and ICP spend to increase at the same rate as EPS (up 304%), today we would have 2,989 ICP-eligible executives (versus 699 actual) and our ICP expense in 2015 would be $283 million (versus $81 million actual). Mr. Cote believes that keeping the number of ICP-eligible executives low reduces bureaucracy and results in decisions being made much faster. This philosophy, and the resulting operational efficiency it creates, has contributed to the strong track record of superior operational and financial performance over the course of Mr. Cote’s tenure with Honeywell.

 

CEO TRACK RECORD — STRONG BUSINESS PERFORMANCE — EFFECTIVELY MANAGING ICP SPEND
Business Performance   ICP Plan (Total Company)
 

 

(1) EPS, V% exclude pension mark-to-market adjustment.
   
(2) Free Cash Flow = Cash Flow From Operations Less Capital Expenditures.
   

 

 

 

 

2016     |     Proxy and Notice of Annual Meeting of Shareowners      |     31
 

Executive Compensation > 2015 Honeywell Performance

 

 

 

 

 

 

 

 

 

Earnings Per
Share* up 10%
to $6.10.

 

Total Sales of $38.6
billion down 4%
reported(1);
up 1% core organic.

 

Segment margins
increased 220 basis
points to a record
18.8%.(1)

 

Segment profit up
8% to a new peak
of $7.3 billion.

 

Free cash flow**
up 11% to $4.4
billion.

 

2015 HONEYWELL PERFORMANCE

 

Honeywell’s outperformance continued in 2015 despite the significant headwinds we encountered in what continues to be a slow-growth environment. Our sales grew 1% on a core organic basis, while segment margin expanded 220 basis points, reflecting the consistent, focused deployment of HOS Gold and our core business processes. Each of our three segments delivered margin expansion above the guidance we communicated in December 2014 and we also exceeded the high end of our Free Cash Flow** guidance for the year. Earnings Per Share* (EPS) growth was 10%, which represented Honeywell’s sixth consecutive year of double-digit earnings growth. Our 2015 performance did not come at the expense of future growth. We continued to ‘seed plant’ in high growth regions, high return capital expenditure projects, process improvements, and new product development. We also committed over $160 million to restructuring actions which will help us to continue improving our operations in years to come. We have demonstrated that we can execute well, particularly in a tough macro environment — a big reminder of the value of our diversified and balanced portfolio and the strength of Honeywell.

 

PERFORMANCE HIGHLIGHTS (2015 VS. 2014)

 

· Earnings Per Share* were up 10% to $6.10.
   
· Sales of $38.6 billion, up 1% on a core organic basis; down 4% reported. The difference between core organic and reported was due to the impact of foreign currency translation, acquisitions, divestitures and Aerospace OEM incentive payments (-4%) and lower raw materials pass-through pricing in the Resins & Chemicals business of PMT (-1%).
   
· Segment Margins increased 220 basis points to a record 18.8%, with segment profit up 8% to a new peak of $7.3 billion.
   
· Free Cash Flow (“FCF”)** remained strong at $4.4 billion, reflecting FCF conversion of 91%. This includes 2015 capital expenditures of $1.1 billion.

 

ANOTHER YEAR OF STRONG PERFORMANCE

 

 *  EPS, V% exclude pension mark-to-market adjustment.
** FCF = Cash Flow From Operations Less Capital Expenditures
   
(1) As reported. If 2014 Sales and Segment Margin were adjusted to exclude the impact of $184 million of incentives to commercial aerospace original equipment manufacturers (“OEM Incentives”) in 4Q 2014, 2015 reported Sales would be down 5% and 2015 Segment Margins would be up 180 bps.


 

32     |      Proxy and Notice of Annual Meeting of Shareowners     |     2016
 

Executive Compensation > 2015 Honeywell Performance

 

PERFORMANCE VERSUS OUR PEERS

 

In ensuring alignment between pay and performance, the Committee assesses Honeywell’s financial performance against two sets of peer data: our 14 company Compensation Peer Group (see page 37) and a smaller subset of the Compensation Peer Group comprised of Emerson Electric (EMR), United Technologies (UTX), General Electric (GE) and 3M Corporation (MMM). We refer to these four companies as our “Multi-Industry Peer Group”. Each of these four companies is a multi-industrial company that has broadly overlapping institutional ownership, is covered by the same set of Wall Street research analysts that covers Honeywell and operates in a similarly diverse set of end markets on a global basis.

 

For both the Compensation Peer Group and Multi-Industry Peer Group, the Committee considers four primary indicators of financial performance: EPS, Reported Sales, Net Income and Return on Invested Capital (or “ROIC”). This comparison is done using certain non-GAAP financial information that both Honeywell and each peer company utilizes in its financial disclosure and investor presentations. For Honeywell, we exclude the pension mark-to-market adjustment from Net Income and EPS. With regard to the peer group medians, each peer company adjusts its GAAP financial results for net income and EPS in a different manner and their presentation of this non-GAAP information is subject to change from time to time. Even though each peer company’s non-GAAP adjustments are slightly different, the Committee believes it is important to review the same type of financial information that our investors use in making investment decisions and that Wall Street research analysts use when comparing and contrasting us to our peers and making investment recommendations.

 

As the table below makes clear, we delivered consistently strong operational performance in 2015 with EPS* and Net Income* growth significantly ahead of both our Compensation Peer Group and Multi-Industry Peer Group. In addition to EPS* and Net Income* growth, our 2015 ROIC was also superior to both sets of peers.

 

 

2015 PERFORMANCE RELATIVE TO PEERS

 

 

Note: See narrative section above for description of our exclusion of the pension mark-to-market adjustment to Honeywell’s Net Income and EPS and the use of certain non-GAAP financial information in determining the median performance of both our Compensation Peer Group and Multi-Industry Peer Group for EPS, Net Income and ROIC.

 

(1)ROIC = Adjusted Net Income Before Interest divided by Net Investment (2-Point Average)

Adjusted Net Income Before Interest = Net Income (HON excludes pension mark-to-market adjustment) + After-Tax Interest Net Investment = Book Value of Equity + Total Debt

 


 

5-Year Net Income and EPS Growth vs. Peers

 

We not only outperformed our Compensation Peer Group and Multi-Industry Peer Group in 2015, but over the last 5-year period as well. The Committee believes our 5-year EPS performance is particularly impressive because it was accomplished during a period when many companies in both peer groups used share repurchase programs to boost their EPS. Hence, as the table below demonstrates, net income growth lagged EPS growth for our Multi-Industry and Compensation Group Peers, indicating that EPS growth was to some extent achieved by simply decreasing the number of shares outstanding through share buybacks. The strong correlation between net

 

*V% excludes pension mark-to-market adjustment.

Strong Operational
Outperformance vs. Both
Compensation Peer Group
and Multi-Industry Peers


 

2016     |     Proxy and Notice of Annual Meeting of Shareowners      |     33
 

Executive Compensation > 2015 Honeywell Performance

 

 

 

 

 

 

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

 

Honeywell EPS(1) more reflective of operating performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Honeywell’s Total Cumulative Shareowner Return (TSR)

 

 

1-year

 

 

 

3-year

 

 

 

 

5-year

 

 

 

 

10-year

 

 

 

 

10-Years: 81st Percentile
vs. Compensation Peer Group

 

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

 

income and EPS growth at Honeywell is important because it means that our EPS growth is a true reflection of our operational performance.

 

Net Income and EPS Growth (5 Years)

Relative to Multi-Industry Peers and Comp Peer Median

 

Note: The foregoing table reflects 2010-2015 fiscal year data. Also, see narrative section above for description of the pension mark-to-market adjustment to Honeywell's Net Income and EPS and the use of certain non-GAAP financial information in determining the median performance of both our Compensation Peer Group and Multi-Industry Peer Group for EPS and Net Income CAGR.

* Comp Peer Median represents median of the full Compensation Peer Group.

 

 

WE ARE CREATING VALUE FOR OUR SHAREOWNERS

 

Total Shareowner Return:

 

We continue to demonstrate long-term outperformance against our Compensation Peer Group, Multi-Industry Peer Group and the S&P 500. The following graph displays our annual and 5-year cumulative TSR performance relative to each of these three groups.

 

5-YEAR CUMULATIVE TSR

 

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, 2015.

 

5-Years: 69th Percentile TSR Vs. Compensation Peer Group


 

34     |      Proxy and Notice of Annual Meeting of Shareowners     |     2016
 

Executive Compensation > 2015 Honeywell Performance

 

WE ARE DEPLOYING CAPITAL WISELY

 

Growing our Dividend

 

We returned capital to shareowners through a 15% increase in the dividend rate. This was the eleventh dividend rate increase of at least 10% in the last ten years and demonstrates our commitment to grow the dividend rate at a higher rate than EPS.

 

Share Repurchases

 

In 2015, we repurchased approximately 18.8 million shares returning $1.9 billion of cash to our shareowners. It is our intent to continue to opportunistically repurchase our shares from time to time to more than offset the dilutive impact of employee stock based compensation plans.

 

Mergers and Acquisitions

 

We have taken significant steps to advance the commitment we have made to deploy at least $10 billion in capital for M&A transactions by 2018. In 2015 alone we entered into definitive M&A transaction agreements in each of our three SBGs to deploy approximately $6 billion for acquisitions.

 

Acquired the Elster Division of Melrose Industries plc, a leading provider of thermal gas solutions for commercial, industrial, and residential heating systems and gas, water, and electricity meters, including smart meters and software and data analytics solutions, for approximately $5.0 billion. We expect that Elster will serve as the base for new M&A opportunities to further expand our gas portfolio and increase our presence in the water and electricity segments.
   
Acquired Aviaso, an international aviation software company that offers fuel efficiency and emissions savings software to the airline industry. The acquisition furthers our position as the preeminent supplier of software to the aerospace industry.
   
Acquired Sigma-Aldrich’s laboratory research chemicals business, a global maker of high-purity inorganics and solvents used in pharmaceutical, diagnostic and industrial laboratory testing applications for approximately €105 million ($115 million USD).
   
Acquired Satcom1, the leading provider of on board communications routing software and a satellite communications provider of airtime and consulting services. The acquisition positions us to offer business jet operators a seamless experience with an all-in-one connectivity solution spanning routing software, airtime, hardware equipment, avionics, flight support services and applications.
   
Acquired COM DEV International’s electrical and optical components and subsystems businesses for approximately C$455 million ($330 million USD). This transaction expands our space and connectivity portfolio including entry into growing radio frequency technology for data networking satellites and communications.
   
Acquired the remaining 30 percent stake in UOP Russell LLC for approximately $240 million. UOP Russell LLC, part of UOP, develops technology and manufactures modular equipment to process natural gas. We acquired the initial 70% stake for $525 million in 2012.
   
Announced the acquisition of Xtralis in early 2016, a leading global provider of aspiration smoke detection, along with advanced perimeter security technologies and video analytics software, for approximately $480 million. This acquisition complements our growing Security and Fire business within ACS, demonstrating our commitment to making the world safer and more secure.

 

Capital Investment

 

Capital spending in 2015 was $1.1 billion, consistent with the level of spending in 2014. We continue to focus our CapEx on projects in high ROI businesses intended to help grow revenues in-line with our Long-Term Targets. Significant areas where we are building new manufacturing facilities or materially expanding existing facilities include the Honeywell Solstice® family of low global-warming potential refrigerants, blowing agents, aerosols and solvents, as well as the UOP catalyst and adsorbent business where new production facilities will enable us to produce, among other things, adsorbents for the removal of radioactive material from water such as was required for the Fukushima disaster clean-up.

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

We have taken significant steps to further our commitment to deploy at least $10 billion in capital for M&A transactions by 2018.

 

 

 

 

 


 

2016     |     Proxy and Notice of Annual Meeting of Shareowners      |     35
 

Executive Compensation > Our Compensation Philosophy & Approach

 

OUR COMPENSATION PHILOSOPHY & APPROACH

 

    Our executive compensation program is designed to support the creation of shareowner value through four key objectives:
       
    1. 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;
       
    2. 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;
       
    3. Pay for Superior Results and Sustainable Growth by rewarding and differentiating among executives based on the achievement of Company, business unit and individual objectives as well as efforts to advance Honeywell’s growth initiatives; and
       
    4. 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.
       
    Decisions about executive compensation are made by the Committee. Each year, the Committee reviews each NEO’s four-year compensation history in total and for each element of total annual direct compensation. The Committee also reviews projected benefit payments under Honeywell’s retirement and deferred compensation plans, and any previously granted, non-recurring types of awards or grants such as performance-adjusted RSUs or performance stock option 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.

 

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

 

· Overall operational and financial performance — Corporate and SBG;
   
· 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;
   
· Each NEO’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
   
· Results of the annual Say on Pay vote and feedback from shareowners obtained 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.

 

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.

 


 

36     |      Proxy and Notice of Annual Meeting of Shareowners     |     2016
 

Executive Compensation > Our Compensation Philosophy & Approach

 

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 that 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 2015.

 

  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  

 

* Also included in our Multi-Industry Peer Group for comparison of business performance. See page 33 for a discussion of why the Committee considers the Multi-Industry Peer Group a particularly relevant set of companies when reviewing Honeywell’s performance.

 

 

COMPARISON OF HONEYWELL WITH COMPENSATION PEER GROUP AND MULTI-INDUSTRY PEER GROUP

 

 

Revenue: reflects fiscal year 2015 results as reported.

TSR percentages reflect cumulative growth over the period. All periods end December 31, 2015.

 

2016     |     Proxy and Notice of Annual Meeting of Shareowners      |     37

 

Executive Compensation > Our Compensation Philosophy & Approach

 

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 references general industry survey data published by third parties as a general indicator of relevant market conditions and pay practices.

 

Consistent with the Committee’s practice of aligning actual ICP payouts with Honeywell’s performance, the Committee reviews a comparison of Honeywell’s actual pay and performance with that of the Compensation Peer Group, as prepared by the independent compensation consultant. The consideration of actual (rather than target) pay levels allows the Committee to develop a more accurate understanding of the competitive marketplace and any potential retention risks.

 

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 performance 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.

 

If the Committee believes it to be necessary, it will take appropriate compensation actions to reinforce the succession plan and to guard against competitive activity. Such actions are designed to (i) motivate the executive to forego outside career opportunities, (ii) 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, (iii) ensure a smooth transition of senior executives in key leadership positions; (iv) strengthen restrictive covenants (e.g., non-competition, non-solicitation) and/or (v) provide for transition periods that will guard against competitive harm to the Company at the time of a key executive’s departure from Honeywell. The Committee considers succession-related actions within the context of the Company’s long-standing commitment to align pay and performance.

 

In 2015, the Committee determined it was not necessary to take any special actions to strengthen the leadership succession plan.

 

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Executive Compensation > Compensation Program Description

 

COMPENSATION PROGRAM DESCRIPTION

 

ELEMENTS OF 2015 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 in 2015. 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
  To attract and compensate high-performing and experienced leaders at a competitive level of cash compensation. Base salaries are determined based on scope of responsibility and years of experience, with reference to market data.
         
Short-Term        
Incentive Awards        
· Annual Incentive
Compensation Plan (ICP)
  Variable
Annual Cash
  To 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   To drive the achievement of specific financial performance goals directly aligned with our operating and strategic plans.
· Stock Options   Equity   To directly align the interest of our executives with shareowners. Stock options only have realizable value for executives if the operating performance results in stock price appreciation.
         

 

In the past, the Committee has also approved and issued performance stock options (one time in 2014 to the CEO) and performance-adjusted RSUs on a discretionary basis as a tool to strengthen retention and/or enable the execution of the senior executive succession plan on a timeline deemed optimal by the Committee. No such awards were granted in 2015.

 

Target Weighting of Total Annual Direct Compensation Elements

 

The tables below presents the target mix of Annual Direct Compensation for the CEO and other NEOs. In setting total compensation, the Committee seeks to achieve the optimal balance between:

 

· Fixed and variable (or “at-risk”) pay elements;
   
· Short- and long-term pay elements; and
   
· Cash and equity-based elements.

 

The 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 Company performance.

 

For 2015, 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 2015 TOTAL ANNUAL DIRECT COMPENSATION ELEMENTS

 

 

 

 

 

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Executive Compensation > Compensation Program Description

 

The percentages above are based on target Total ADC. ICP is included at the 2015 Baseline ICP Amount (defined on page 41). Stock options are included at the grant date value. The 2015 portion of the 2014-2015 Growth Plan award is included at target.

 

 

TARGET MIX OF TOTAL ANNUAL DIRECT COMPENSATION FOR THE CEO AND OTHER NEOS FOR 2015

 

 

Short-Term: Base Salary and Baseline ICP Amount

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

 

 

DETAILS ON PROGRAM ELEMENTS AND RELATED 2015 COMPENSATION DECISIONS

 

Base Salary

 

Base salaries are determined based on scope of responsibility and years of experience, with reference to market data. In 2015, base salary was 8% of the CEO’s Total ADC and approximately 16% of Total ADC for the other NEOs. The CEO and two other NEOs did not receive an increase in base salary in 2015. Messrs. Mahoney and Szlosek received merit increases of 3.5% and 5%, respectively, based on the Committee’s assessment of performance and competitive market positioning.

 

Annual Incentive Compensation Plan (“ICP”)

 

Decisions by the Committee on each executive’s ICP payment are based on two fundamental factors: how well the Company performed and how well the individual executive performed. The table below describes the Committee’s step-by-step process in determining annual ICP payments.

 

Process for Determining Annual ICP Award:

 

STEP 1

 

Set ICP Goals

 

  At the beginning of each year, the Committee sets specific annual 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. Goals are established at the Total Honeywell level and for each SBG. For 2015, the three Pre-Established ICP Goals at the total Honeywell level, and how we performed against those goals, are described below.
     
     

STEP 2

 

Determine
Funding Cap

 

  At the end of the year, the Committee reviews our consolidated earnings performance for the year and determines, in accordance with the ICP rules, the maximum aggregate amount of ICP awards that can be paid to all senior executive employees, including the NEOs. This amount must be less than 2% of the Company’s consolidated earnings (“Funding Cap”). 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 Program Description

 

STEP 3

 

Evaluate Performance and Approve Overall ICP Pool Funding

 

  The Committee then conducts their review of annual performance, looking first at current year results against the Pre-Established ICP Goals, and then reviewing how well the Company and the SBGs performed against their primary goals and other key performance measures, in each case relative to the prior performance year. To ensure that executives are not unduly rewarded or punished for factors outside of their control, the Committee will also consider certain additional factors (“Supplemental Criteria”), such as macroeconomic conditions and performance relative to peers, which are described in more detail below. Based on this assessment, the Committee will determine the performance variance (“V”) for each business unit, which represented the Committee’s overall assessment of performance relative to the prior year. The “V” is applied to the prior year actual ICP awards paid to continuing executives or initial target award for first year executives (the “Baseline ICP Amounts”). Aggregate funding pools are determined on a bottoms-up basis by applying the “V” for each business unit to the Baseline ICP Amounts for each executive eligible for an ICP award.
     

STEP 4

 

Determine and Approve
Individual ICP Awards

 

  Their Baseline ICP Amount is the starting point for determining an individual executive’s annual ICP award. Within the approved ICP pools, individual ICP awards are further differentiated based on an assessment of individual performance and demonstrated characteristics of leadership that influence long-term shareholder value creation. Each executive also has a notional ICP target which is expressed as a percentage of base salary. The maximum annual ICP award that an executive can receive as a percentage of base salary is capped at 200% of their notional ICP target. The Committee is responsible for determining award amounts for all Officers of the Company and proposing an award for the CEO to the full Board. The independent members of the full Board determines and approves the ICP award for the CEO.


 

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

 

Metric Why Chosen?
   
Earnings Per Share (“EPS”)(1) Viewed as the most important measure of near-term profitability that has a direct impact on stock price and shareowner value creation. Given the most weight when assessing annual performance and determining year-over-year improvement.
   
Free Cash Flow (“FCF”)(2) Reflects quality of earnings and incremental cash generated 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) Used to challenge the businesses to improve efficiency of processes they control within their business operations – whether it be inventory control or more effective management of cash and credit.
(1) Excludes pension mark-to-market adjustment.
(2) Operating cash flow less capital expenditures.
(3) Defined as sales divided by working capital, which is trade accounts receivable plus inventory less accounts payable and customer advances.

 

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 total Honeywell and SBG objectives.

 

While performance versus the Pre-Established goals is the principal consideration, the Committee believes that over-reliance on a narrow set of fixed financial metrics and strict formulaic weighting among the Pre-Established ICP Goals in the determination of annual ICP awards is not in the best interest of shareowners, because it may result in short-term decisions intended to maximize ICP payments to the detriment of long-term shareholder value creation. Therefore, in addition to the Pre-Established ICP Goals, the Committee also reviews performance against the Supplemental Criteria.

 

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

 

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Executive Compensation > Compensation Program Description

 

 

FACTORS CONSIDERED IN DETERMINING ACTUAL ICP AWARDS

 

 

2015 Pre-Established ICP Goals: Performance Targets and Results

 

This table sets forth the 2015 Pre-Established ICP Goals and shows performance against these goals as well as relative to prior year actual results.

 

Metric 2014 Actual 2015 ICP
Goal
 Basis for 2015 Goal 2015 Actual
Performance
2015 Performance Comments
EPS(1) $5.56 $6.05 The 2015 Target represented the midpoint of the initial guidance range provided to investors in December 2014. $6.10 Actual 2015 performance exceeded the ICP goal. Represented a 10% increase over 2014 Actual EPS and a new record-level of performance for the Company.
Free Cash
Flow(2)
$3.93
billion
$4.25
billion
The 2015 Target represented the midpoint of the initial guidance range provided to investors in December 2014. $4.38
billion
Actual 2015 performance exceeded the ICP goal. Represented an 11% increase over 2014 Actual FCF, reflecting continued strong quality of earnings and effective cash management.
Working Capital Turns (“WCT”)(3) 7.0
turns
7.2
turns
Target was set to challenge business unit executives to improve the efficiency of operations to an extent believed necessary to achieve our Free Cash Flow goal. 6.6
turns
2015 performance was lower than the ICP goal. Represented -.4 turns change versus 2014, as the continued slow macro environment impacted the inventory component of WCT in ways that were outside the Company’s control. The Committee decided to underweight this goal after considering Honeywell’s outstanding free cash flow performance, which is closely linked to WCT. The Committee also considered data demonstrating that Honeywell is already performing at high levels relative peers on WCT. To emphasize FCF and EPS as the primary focus for ICP at the total Honeywell level, the Committee has removed WCT as a Pre-Established ICP Goal beginning in 2016, but will continue to drive improved WCT performance at the SBG level.

 

 
  (1) EPS, V% exclude pension mark-to-market adjustment.
     
  (2) Cash flow from operations less capital expenditures.
     
  (3) Sales divided by working capital, which is trade accounts receivable plus inventory less accounts payable and customer advances.

 

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Executive Compensation > Compensation Program Description

 

Assessment of Supplemental Criteria

 

In addition to the Company’s performance versus the Pre-Established ICP Goals described above, the Committee also considered the following Supplemental Criteria in determining 2015 ICP award pools:

 

Strong and Sustained Operational Performance:

 

· Sixth consecutive year of double-digit earnings growth;
   
· 1% core organic sales growth in difficult environment, driven by new product introductions, geographic expansion and commercial excellence;
   
· Strong free cash flow including $1.1 billion of high-return capital expenditures;
   
· 8% segment profit improvement and 9% net income* improvement versus 2014;
   
· Deployed approximately $6 billion for acquisitions; and
   
· Continued high growth region penetration.
   
Relative Performance:
 
· Operational outperformance against both our Compensation Peer Group and Multi-industry Peer Group on key financial metrics (see page 33); and
   
· The performance of the SBGs relative to each other and prior year (impacts internal differentiation).
   
Impact of Macroeconomic Factors:
 
· Slow growth environment;
   
· Top-line impact of lower oil prices; and
   
· Strong U.S. dollar.

 

2015 Individual NEO Performance Assessments

 

In determining the ICP awards for each NEO, the Committee also considered 2015 individual performance and accomplishments. For Mr. Cote’s individual performance and accomplishments, see the narrative below the CEO Performance & Compensation Table previously shown on page 30 of this Compensation Discussion and Analysis. Individual performance and accomplishments for the other NEOs are listed below.

 

Mr. Szlosek

 

· Drove cost reduction initiatives across all three SBGs which significantly contributed to Honeywell’s earnings per share* (EPS) growth and achievement of free cash flow target.
   
· Managed the execution of our balanced, disciplined capital deployment strategy through which we repurchased $1.9 billion of our shares, increased our quarterly dividend by 15%, and deployed approximately $6 billion of capital for acquisitions.
   
· Drove sustainable productivity improvements through the funding of over $160 million of new restructuring projects that are expected to generate incremental pre-tax savings of $175 to $200 million year over year.
   
· Led the functional transformation of the finance organization and successfully oversaw the transition to our new independent accountants, Deloitte & Touche LLP.
   
· Strengthened our relationship with shareowners and the investor community by leading our investor relations activities and effectively communicating with investors the actions being taken by Honeywell to create long-term shareowner value.

 

Mr. Fradin

 

· Led the development and implementation of our M&A strategy and execution that resulted in five announced transactions in 2015 in which we will deploy approximately $6 billion of capital, including the $5 billion acquisition of Elster, our largest acquisition since 1999. Also coached and oversaw activities of all the acquisition integration teams.
   
· Drove the development of the Company’s global Critical Infrastructure Protection business resulting in numerous project wins.
   
· Worked closely with business leadership in several key business units to develop new products, capabilities or services to drive revenue growth. Highlights include growth projects in our Business and General Aviation, Transportation Systems and Defense and Space business units within the Aerospace SBG, as well as the development of our successful Indoor Air Quality business in China.
   
· Contributed to several initiatives to broaden and expand our shareowner base by developing relationships with potential shareowners who have not traditionally invested in Honeywell.
   
· Helped grow revenues in High Growth Regions by using his broad network of business relationships and deep knowledge of Honeywell capabilities to win key sales pursuits.

 

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

 

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Executive Compensation > Compensation Program Description

 

  Mr. Mahoney
     
  · Successfully contracted to produce the new HTF7000-series business aviation turbofan engine with Textron Aviation for their forthcoming Cessna Longitude business jet. Honeywell’s HTF7000 family now powers four of five aircraft in the Super-Midsize business jet segment.
     
  · Expanded Aviation Services product offerings and applications, including goDirect flight planning, goFuel fuel planning, Weather Information Service global aviation weather, and connectivity data services and airtime. The new Weather Information Service has been adopted by Airbus as the “Weather on Board for FlySmart” suite made available to its airline customers and projected to save up to $30,000 per aircraft, per year.
     
  · Played a key role in the entry into service of the all new Airbus A350XWB airplanes, in what is the largest contract ever awarded to a single supplier on any Airbus aircraft, spanning avionics and mechanical systems.
     
  · Reached agreements with Lufthansa and Singapore Airlines to install Honeywell’s GX Aviation system for their global wi-fi hardware solution.
     
  · Successfully positioned Honeywell’s Ground Based Augmentation System and SmartPath product with the Civil Aviation Administration of China as a key foundational element in their modernization of China’s Air Traffic Management system.
     
  · Achieved numerous cockpit upgrade wins at major airlines, including India-based Indigo Airlines, Virgin Atlantic, Sun Express and Southwest Airlines.
     
  Mr. Kramvis
     
  · Led the development and deployment of HOS Gold across our 64 HOS Gold Business Enterprises (GBEs). Mr. Kramvis was instrumental in creating the HOS Gold methodology and operating metrics as well as coaching and training each of the General Managers who lead the 64 GBEs.
     
  · Reviewed, established and guided revenue growth initiatives and programs across all 64 GBEs. These initiatives are at the core of Honeywell’s intentions to deliver on its commitments of revenue and EPS growth.
     
  · Streamlined and implemented our software development and technology strategy by defining the underlying architecture to effect device-to-cloud connectivity to enable new digital commercial offerings, including new analytics and software products and new business models such as Software as a Service.
     
  · Overhauled the Company’s sales and marketing structure to enhance product, channel, customer and end-market coverage and introduced Honeywell-wide new methods, programs and training for effective sales force deployment.
     
  · Helped grow revenues in High Growth Regions by using his broad network of business relationships and deep knowledge of Honeywell capabilities to win key sales pursuits. For example, Mr. Kramvis was instrumental in helping our UOP business unit to win a contract to upgrade PetroVietnam’s Camau Gas Processing Plant for over $75 million.
     
  · Expanded our shareowner base, particularly in Europe and Asia, by developing relationships with non-U.S. fund managers, investors and sovereign wealth funds who have not traditionally invested in Honeywell or other U.S. multi-industrial equities.

 

Approved ICP Awards to the CEO and Other NEOs

 

Based on their assessment of 2015 performance against the Pre-Established ICP Goals and Supplemental Criteria, as well as their assessment of individual performance, the Committee and the independent members of the Board in the case of the CEO, approved 2015 ICP payments to the NEOs as follows:

 

   Baseline
ICP Amount
  Business
Financial
Results “V”(1)
  Preliminary
2015 ICP
Award
 Adjustment
Based on
Individual
Assessment(2)
  Actual 2015
ICP Award
(rounded)
 
Mr. Cote  $5,500,000   +4%  $5,720,000   0%  $5,700,000   
Mr. Szlosek  $700,000   +4%  $728,000   17%  $850,000   
Mr. Fradin  $1,200,000   +4%  $1,248,000   4%  $1,300,000   
Mr. Mahoney  $800,000   +4%  $832,000   8%  $900,000   
Mr. Kramvis  $950,000   +4%  $988,000   6%  $1,050,000   

 

  (1) Based on assessment of business unit performance against Pre-Established ICP Goals and Supplemental Criteria.
     
  (2) Based on assessment of individual performance and impact.

 

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Executive Compensation > Compensation Program Description

 

Long-Term Incentive Compensation (“LTI”)

 

The NEOs participated in the following LTI awards in 2015: Stock Options awarded in 2015 and Growth Plan Units (GPUs) awarded in 2014 but with earned awards determined at the end of 2015. 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).

 

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.

 

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 that 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.

 

Why Our Committee
Believes Stock Options
are A Highly Effective
Long-Term Vehicle For
Aligning Pay and
Performance
  · Stock options directly align the interests of our executives with the financial interests of our shareowners.
  · Stock options have proven to be an effective vehicle at Honeywell for focusing management on taking actions that create sustainable long-term value.
  · As shown on page 54, our executives own a large amount of Honeywell shares. The Committee believes that this employee-ownership, fostered by a focus on stock options in the pay mix, has contributed to Honeywell’s track record of solid stock price performance.
  · NEOs are strongly encouraged to hold options for at least seven years of the ten-year term. Mr. Cote himself has been holding his options even longer (usually exercises within one year of expiration and has never exercised before two years prior to the ten-year expiration).

 

2015 Stock Options — Discussion and Awards

 

Annual Stock Option grants to the NEOs in 2015 represented the most significant component of each officer’s target total annual LTI opportunity (approximately two-thirds). In determining annual Stock Option awards to the NEOs, the Committee considered the factors noted below, viewed in the context of market compensation data. All annual Stock Options vest ratably over four years.

 

2015 annual Stock Option awards to the NEOs have an exercise price of $103.90 and had a Black-Scholes value of $17.23 as of the grant date. What this means is that the stock needs to appreciate to $121.13 in order for an NEO can fully realize the grant date value.

 

CEO: In reviewing the LTI component of the CEO’s Total ADC in February 2015, the Committee considered the Company’s operational performance and relative total shareowner returns as of the end of 2014, the value and mix of long-term incentive awards made to chief executive officers at Compensation Peer Group companies, and the size of awards previously made to Mr. Cote. The Committee also considered the Company’s sustained growth and consistent improvement over the course of Mr. Cote’s tenure (see page 31), 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 value of the 2015 portion of the 2014-2015 Growth Plan award. Based on these considerations, in February 2015, the Committee granted Mr. Cote 600,000 annual stock options (grant date value of $10,338,000*), subject to vesting requirements, in recognition of his anticipated leadership in driving sustained financial and operational performance.

 

* Value determined based on Black-Scholes value of $17.23 per option.

 

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Executive Compensation > Compensation Program Description

 

Other NEOs: For each of the other NEOs, the Committee considered the executive officer’s performance in 2014, his impact on overall Company performance and his potential to contribute to the future performance of the Company. In addition, the Committee considered the amount of vested and unvested equity each executive holds, the grant date fair value of the proposed award compared to prior years, the annualized value of the 2015 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 2015, the Committee granted annual stock options to each of the other NEOs as follows:

 

    # Options     Grant Date
Value*
Mr. Szlosek   125,000     $2,153,750  
Mr. Fradin   180,000     $3,101,400  
Mr. Mahoney   175,000     $3,015,250  
Mr. Kramvis   165,000     $2,842,950  

 

* Stock Options vest over four years. Value determined based on a Black-Scholes value of $17.23 per option.

 

Messrs. Fradin and Mahoney received the same number of stock options as was granted to them in 2014. Messrs. Szlosek and Kramvis received a larger number of stock options (25% and 20%, respectively) in 2015 in connection with promotions effective after their 2014 grants.

 

Growth Plan

 

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 operational focus of 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 (detailed below) are set by the Committee at the beginning of the two-year performance cycle. Metrics are established at the total company level (“Total HON”) and for each SBG. Performance cycles do not overlap, so performance targets are established every other year.
   
· Growth Plan Units (GPUs) are awarded to each NEO, at the same time GPU awards are made to other executives, in February of the first year of each two-year performance cycle (e.g., 2014 for the 2014-2015 cycle). The number of GPUs is based on the target value of the Growth Plan component of compensation for each executive for the full two-year performance cycle, as determined by the Committee. For defining annual compensation, the Committed attributes 50% of the value of the GPUs to each year in the 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 required minimum level of achievement (i.e., threshold) must be attained before the plan will fund for that particular goal.
   
· Plan payouts are capped at 200% of target (i.e., $200 for each GPU) to the extent plan maximums are met or exceeded.
   
· For SBG executives, 50% of their 2014-2015 performance cycle payout will be based on achievement of Total HON metrics, and the remaining 50% will be based on achievement of corresponding objectives for their respective SBG. For Corporate executives, including the CEO, payouts are based solely on the achievement of total Total HON level metrics.

 

The Committee believes that a two-year performance cycle is appropriate as it provides the necessary line of sight to set realistic stretch targets aligned with our longer-term objectives. Non-overlapping cycles avoid the potential confusion associated with different targets on the same metric in the same year. We communicate quarterly with our executives on progress towards achieving the GPU targets, and the two-year time frame provides sufficient time for business units to develop and execute business plans to accelerate performance and put us in a better position to achieve the targets.

 

Because GPU payments are paid out 50% in each of the two years following the completion of a two-year performance cycle, the Growth Plan structure helps with retention since executives must remain with the Company for 14 months following the performance cycle to receive their full payout. Hence, the full cycle of each Growth Plan Unit, including the 2014-2015 grant, is 38 months (i.e., from the beginning of the performance cycle to the time the final payment is made). The chart below displays the duration of the full 2014-2015 Growth Plan cycle, and the timing of when payments are made.

 

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Executive Compensation > Compensation Program Description

 

GROWTH PLAN PERFORMANCE & PAYOUT CYCLE

 

 

 

The 2014-2015 Growth Plan: Performance Goals and Full Cycle Results

The 2014-2015 Growth Plan metrics and weighting are described below.

 

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 the 2018 Long-Term Targets announced in March 2014.
  · Reflects aggressive growth rates for the SBGs based on projections of growth in our end markets and assumed macroeconomic conditions consistent with strategic plans.
  · Excludes the impact of acquisitions and divestitures.
  · Results not adjusted for foreign currency changes over the cycle.
       
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.
  · Results not adjusted for foreign currency changes over the cycle.
       
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 needed to attain our 2018 segment margin expansion target.

 

Threshold funding requirement: No awards are funded unless the compound annual growth rate in EPS (excluding any pension mark-to-market adjustment) for the 2014-2015 period is at least 1.25%.

 

2014-2015 Growth Plan — Discussion on Rigor of Goals, Analysis and Results

 

The Committee sets Growth Plan goals at challenging levels that are consistent with the Company’s Long-Term Targets and growth strategies and considers macroeconomic business conditions.

 

The Total Sales target for the 2014-2015 Growth Plan performance cycle — set at a 3.9% CAGR over two years — was a stretch goal given the continued slow growth environment and represented a target that was 1.6 times the actual sales growth performance delivered in the prior cycle. In the prior 2012-2013 cycle, we had set a high Total Sales target goal (CAGR of 5.6%) and, due to contracting economic growth, were not paid on that metric despite achieving a two-year sales growth CAGR of 2.4% over the period. Given the anticipated continuation of the slow growth environment, it would not have been appropriate to use the 2012-2013 cycle goal as the baseline for the 2014-2015 cycle.

 

Actual Total Sales performance for the 2014-2015 cycle came in at threshold — a 50% payout on that metric — which was still above the median of our Compensation Peer Group and Multi-Industry Peer Group. Performance was also impacted by the strengthening of the dollar over the performance period, as no adjustment is made under the Growth Plan for changes in foreign currency rates over the cycle.

 

With respect to the Growth Plan Segment Margin and ROI goals, it is important to note that both of these are EXPANSION goals, not simple targets, so the 2014-2015 targets were building on the improved margins and investment returns delivered in the prior cycle, which are already quite attractive relative to our peers.

 

The Committee set the 2014-2015 Segment Margin Expansion goal to be aligned with the Company’s 2018 Long-Term Targets communicated to investors in 2014 and at a level expected to generate a level of segment profit dollar improvement similar to the last cycle. Actual performance reflected the impact of management’s strong operational execution — increasing margins by 220 bps over the cycle — a level of improvement, it should be noted, that would have exceeded plan maximum under the prior cycle payout scale as well.

 

Finally, the 2014-2015 ROI target of 22.8% represented two-year expansion of 120 bps, which was more aggressive than the goal set in the prior cycle due to anticipated differences in strategic plan spending requirements over the cycles. Actual ROI expansion exceeded the goal by 2x and earned a maximum payout on this metric.

 

As a discussion point during our outreach in 2015, we specifically reviewed the 2014-2015 Growth Plan performance metrics and goals with our top shareowners and received positive feedback regarding the rigor of the goals and the alignment with Honeywell’s Long-Term Targets.

 

2016     |     Proxy and Notice of Annual Meeting of Shareowners      |     47
 

Executive Compensation > Compensation Program Description

 

Growth Plan — Performance Payout Ranges and Results

 

The following table presents the performance goals that were set for the 2014-2015 Growth Plan cycle, and how the Company performed against those goals at the Total HON level:

 

2014—2015 GROWTH PLAN GOALS AND ACTUAL PERFORMANCE (TOTAL HON)

 

PERFORMANCE CYCLE RECAP: +1.5% Revenue Growth CAGR (Above Threshold)
  +220 bps of Margin Expansion (Above Goal Maximum)
  +240 bps of ROI Expansion (Above Goal Maximum)

 

Executives (including the CEO) who work in Corporate, have their Growth Plan award paid based on the Total HON payout percentage (i.e., 150%). For Executives working in a particular SBG, 50% of their earned Growth Plan amount is based on Total HON performance and 50% is based on the performance of their SBG. Calculated payouts for each SBG based on this methodology were: Aerospace 149%, ACS 153%, PMT 141%, and TS 142%. The aggregate payout percentage for all participating employees was 149%.

 

Executives who work for more than one business unit during the cycle have their award prorated based on time spent in each business unit.

 

(1) Total Revenue is cumulative 2-year total revenue for 2014 and 2015, excluding the impact of acquisitions and divestitures.
   
(2) 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.
   
(3) 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.

 

48     |      Proxy and Notice of Annual Meeting of Shareowners     |     2016
 

Executive Compensation > Compensation Program Description

 

Performance Relative to Peers over Growth Plan Performance Cycle

 

To provide additional context, the following table reflects our relative outperformance vs. peers over the two-year 2014-2015 fiscal period, which corresponds with the measurement period for the 2014-2015 Growth Plan. As noted on page 33, the Committee assesses Honeywell's relative financial performance against our 14 company Compensation Peer Group and the Multi-Industry Peer Group. This assessment is done using certain non-GAAP financial information that both Honeywell and each peer company utilizes in its financial disclosure and investor presentations. For Honeywell, we exclude the pension mark-to-market adjustment from Net Income and EPS. With regard to the peer group medians, each peer company adjusts its GAAP financial results for net income and EPS in a different manner and their presentation of this non-GAAP information is subject to change from time to time. Even though each peer company's non-GAAP adjustments are slightly different, the Committee believes it is important to review the same type of financial information that our investors use in making investment decisions and that Wall Street research analysts use when comparing and contrasting us to our peers and making investment recommendations.

 

Growth Relative To Peers Over 2014-2015 Growth Plan Cycle

 

 

 

 

 

Relative
Outperformance
on Other Key Metrics
over the 2014-2015
Growth Plan Cycle

 
       
Note: The foregoing table reflects fiscal year 2014 and 2015 performance. Also, see narrative section above for description of the pension mark-to-market adjustment to Honeywell's Net Income and EPS and the use of certain non-GAAP financial information in determining the median performance of both our Compensation Peer Group and Multi-Industry Peer Group for EPS and Net Income.      
       

 

2014-2015 Growth Plan: NEO Earned Awards for 2015

 

The following table presents the number of GPUs granted to each NEO in February 2014 for 2014-2015 along with their annualized (a) target award value and (b) actual earned award value at the conclusion of the two-year performance cycle.

 

            Annualized                          
    # of GPUs       Growth                       Earned  
    Awarded for       Plan Unit                       Award  
    2014-2015       Value at       Annualized       Earned       Value  
    Performance       Target       Target Award       Pay Out       Attributable  
    Cycle   x   ($100/2)*   =   Value   x   Percentage   = to 2015**  
Mr. Cote   95,000       $50       $4,750,000       150%       $7,125,000  
Mr. Szlosek   20,000       $50       $1,000,000       150%       $1,500,000  
Mr. Fradin   27,500       $50       $1,375,000       150.4%(a)       $2,068,000  
Mr. Mahoney   25,000       $50       $1,250,000       149%       $1,862,500  
Mr. Kramvis   20,000       $50       $1,000,000       148.8%(a)       $1,488,000  

 

* Represents value of one GPU for the two-year cycle shown on an annualized basis (i.e., $100 unit value divided by 2) to recognize non-overlapping performance cycles.
   
** Consistent with how the Committee assigns value when planning NEO compensation, which considers the Growth Plan as being earned 50% in the first year of the performance cycle (2014) and 50% in the second year of the performance cycle (2015).
   
(a) Awards to Messrs. Fradin and Kramvis were determined on a prorated based on the amount of time they worked in ACS or PMT, respectively, and the amount of time they worked in Corporate, over the course of the two-year performance cycle.

 

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Executive Compensation > Compensation Program Description

 

Note on annualized award values vs. amounts reflected on the Summary Compensation Table for 2015:

 

SEC reporting rules require that the full amount of the Growth Plan award for the two-year cycle be reflected in the Summary Compensation Table as Non-Equity Incentive Compensation in the second year of the performance cycle, regardless of the length of the related performance period or the timing of when the related payments are made (in this case, in 2016 and 2017).

 

As a result, the Summary Compensation Table included in this proxy statement shows the full value of the earned award for the 2014-2015 performance cycle as being earned in 2015. This is inconsistent with the Committee’s 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 (2014) and 50% in the second year of the cycle (2015). Performance cycles do not overlap.

 

50     |      Proxy and Notice of Annual Meeting of Shareowners     |     2016
 

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 62.

 

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 65.

 

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.

 

2016     |     Proxy and Notice of Annual Meeting of Shareowners      |     51

 

 

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 exchange for cash) 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.  
  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.  

 

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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 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 with maximum payouts capped and design features that are 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 11 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.

 

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Executive Compensation > Compensation Practices and Policies

 

NAMED EXECUTIVE OFFICER STOCK OWNERSHIP

 

  CEO     Other NEOs (average)
    REQUIRED 6x base pay     REQUIRED 4x base pay
             
  ACTUAL 86× base pay*   ACTUAL 25× base pay*  

 

High Levels of Ownership reflect long-term focus and commitment of leadership team.

* As of December 31, 2015

 

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 2015). 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, 2015.

 

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 2015, 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 17 of this proxy statement. During fiscal year 2015, 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.

 

2016     |     Proxy and Notice of Annual Meeting of Shareowners      |     55
 

Executive Compensation > Summary Compensation Table

 

SUMMARY COMPENSATION TABLE

 

Named Executive Officer
and Principal Position
  Year  Salary($)   Bonus($)(2)   Stock
Awards($)(3)
   Option
Awards
($)(4)
   Non-
Equity
Incentive
Plan
Compen-
sation($)(5)
   Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings($)(6)
   All
Other
Compen-
sation($)(7)
   SEC
Total
Compensation
 
David M. Cote
Chairman of the
Board and Chief
Executive Officer
 2015  $1,890,000   $5,700,000   $0   $10,338,000   $14,250,000    $1,421,493   $927,851   $34,527,344*
 2014  $1,865,769   $5,500,000   $0   $14,816,000   $0   $6,183,531   $776,821   $29,142,121 
 2013  $1,800,000   $5,200,000   $0   $8,880,000   $9,025,000   $532,288   $535,958   $25,973,246 
Thomas A. Szlosek(1)
Senior Vice President, 
Chief Financial Officer
 2015  $829,077   $850,000   $0   $2,153,750   $3,000,000   $200,277   $56,812   $7,089,916 
 2014  $754,750   $700,000   $2,494,750   $1,636,000   $0   $126,519   $46,285   $5,758,304 
                                          
Roger Fradin
Vice Chairman
 2015  $1,050,000   $1,300,000   $0   $3,101,400   $4,136,000   $279,227   $112,538   $9,979,165 
  2014  $1,050,000   $1,200,000   $2,594,540   $3,373,959   $0   $3,178,506   $192,724   $11,589,729 
  2013  $1,050,000   $1,200,000   $0   $2,664,000   $2,117,500   $14,965,962   $64,000    $22,061,462 
Timothy O. Mahoney
President & Chief
Executive Officer,
Aerospace
 2015  $907,462   $900,000   $0   $3,015,250   $3,725,000   $924,036   $55,448   $9,527,196 
  2014  $878,365   $800,000   $2,993,700   $2,863,000   $0   $1,979,018   $53,702   $9,567,785 
  2013  $825,000   $800,000   $0   $2,368,000   $2,373,000   $720,953   $50,500    $7,137,453 
Andreas C. Kramvis
Vice Chairman
 2015  $850,000   $1,050,000   $0   $2,842,950   $2,976,000   $280,412   $112,299   $8,111,661 
  2014  $806,731   $950,000   $2,594,540   $3,039,150   $0   $313,873   $180,147   $7,884,441 
  2013  $700,000   $950,000   $878,100   $1,776,000   $1,872,500   $171,448   $59,506    $6,407,554 

 

NOTE: SEC TOTAL COMPENSATION REPORTED FOR 2015 INCLUDES THE FULL AMOUNT EARNED FOR TWO YEARS UNDER THE 2014-2015 GROWTH PLAN, REPORTED IN A SINGLE YEAR IN THE “NON-EQUITY INCENTIVE PLAN COMPENSATION” COLUMN AS REQUIRED BY SEC RULES. THIS DIFFERS WITH HOW THE COMMITTEE VIEWS THIS ELEMENT OF COMPENSATION SINCE THE TWO-YEAR PERFORMANCE CYCLES DO NOT OVERLAP.

 

*The following table restates Mr. Cote’s 2015 reportable compensation to reflect the Committee’s view, which annualizes the Growth Plan over the performance period:

 

Named Executive Officer
and Principal Position
  Year  Salary($)   Bonus($)   Stock
Awards($)
   Option
Awards
($)
   Non-
Equity
Incentive
Plan
Compen-
sation($)
   Pension
Value and
Nonqualified
Deferred
Compensation
Earnings($)
   All
Other
Compen-
sation($)
   Restated
Total
 
David M. Cote  2015   $1,890,000    $5,700,000    $0    $10,338,000    $7,125,000    $1,421,493    $927,851    $27,402,344 

 

This table is being provided as supplementation information only and is not presented in accordance with SEC requirements.

 

Footnotes to Summary Compensation Table:

  (1) First reported as NEO in 2014 as a result of his promotion to CFO in 2014.
     
  (2) Amounts reflect annual ICP awards in year earned.
     
  (3) 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. 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) 2015 amounts reflect the aggregate grant date fair value of annual stock option awards 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. 2015 annual stock options were awarded on February 26, 2015 with a Black-Scholes value of $17.23 per share. A discussion of the assumptions used in the valuation of option awards made in fiscal year 2015 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, 2015.
     
  (5) 2015 amounts reflect the full earned award under the Growth Plan with respect to the 2014-2015 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 2014-2015 Growth Plan performance cycle award was made in March 2016 and the second payment will be made in March 2017.

 

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Executive Compensation > Summary Compensation Table

 

           (6) 2015 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, 2014 to December 31, 2015 (as disclosed in the Pension Benefits table on page 62 of this proxy statement) and (ii) interest earned in 2015 on deferred compensation that is considered “above-market interest” under SEC rules (as discussed beginning on page 67 of this proxy statement).
     
  (7) For 2015, all other compensation consists of the following:
Named Executive Officer Change in Aggregate
Pension Value(a)
Above Market
Interest
David M. Cote $766,898 $654,595
Thomas A. Szlosek $152,540 $ 47,737
Roger Fradin $ 90,046 $189,181
Timothy O. Mahoney $831,330 $ 92,706
Andreas C. Kramvis $176,952 $103,460
(a) Change in aggregate pension value amounts include a change in discount rate from 4.08% as of December 31, 2014 to 4.46% as of December 31, 2015.


 

Item  Mr. Cote   Mr. Szlosek   Mr. Fradin   Mr. Mahoney   Mr. Kramvis 
Excess liability insurance(a)  $1,000   $1,000   $1,000   $1,000   $1,000 
Executive life insurance(b)  $62,000                 
Matching Contributions(c)  $113,400   $49,745   $63,000   $54,448   $51,000 
Personal use of Company aircraft(d)  $581,753   $6,067   $48,538       $60,299 
Security Systems(e)  $118,681                 
Tax, Legal and Financial Planning  $39,907                 
Honeywell Products/Services(f)  $11,110                 
Totals  $927,851   $56,812   $112,538   $55,448   $112,299 
(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 2015.
   
(c) Represents total Company matching 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 (e.g., expenses for aviation employees, variable 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 2015, 94% 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 2015 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).

 

2016     |     Proxy and Notice of Annual Meeting of Shareowners      |     57
 

Executive Compensation > Grants of Plan-Based Awards–Fiscal Year 2015

 

GRANTS OF PLAN-BASED AWARDS—FISCAL YEAR 2015

 

                                     All Other             
                                     Option       Closing     
                                     Awards:   Exercise   Price on     
         Estimated Future   Estimated Future   Number of   or Base   Date of   Grant Date 
         Payouts Under Non-Equity   Payouts Under Equity   Securities   Price   Grant of   Fair Value 
         Incentive Plan Awards(2)   Incentive Plan Awards(3)   Underlying   of Option   Option   of Stock 
Named  Award  Grant  Units   Threshold   Target   Maximum   Threshold   Target   Maximum   Options   Awards   Awards   and Option 
Executive Officer  Type(1)  Date  (#)   ($)   ($)   ($)   (#)   (#)   (#)   (#)(2)   ($/Sh)   ($/Sh)   Awards(3) 
David M. Cote  NQSO  2/26/2015                               600,000    $103.90   $103.64   $10,338,000 
Thomas A. Szlosek  NQSO  2/26/2015                               125,000    $103.90    $103.64    $2,153,750 
Roger Fradin  NQSO  2/26/2015                               180,000    $103.90    $103.64    $3,101,400 
Timothy O. Mahoney  NQSO  2/26/2015                               175,000    $103.90    $103.64    $3,015,250 
Andreas C. Kramvis  NQSO  2/26/2015                               165,000    $103.90    $103.64    $2,842,950 
(1) Award Type:
  NQSO = Nonqualified Stock Option
   
(2) The annual NQSO awards in this column represent the number of annual stock options granted to the Named Executive Officers on the grant date. These stock options vest in equal annual installments over a period of four years.
   
(3) The grant date fair value of each NQSO in this column was $17.23 calculated in accordance with FASB ASC Topic 718, using the Black-Scholes option valuation model at the time of grant.

 

DESCRIPTION OF PLAN BASED AWARDS

 

All NQSO awards granted to the Named Executive Officers in fiscal year 2015 were granted under the Company’s 2011 Stock Incentive Plan and are governed by and subject to the terms and conditions of the 2011 Stock Incentive Plan and the relevant award agreements. A detailed discussion of these long-term incentive awards can be found beginning on page 45 of this proxy statement.

 

58     |      Proxy and Notice of Annual Meeting of Shareowners     |     2016
 

Executive Compensation > Outstanding Equity Awards at 2015 Fiscal Year-End

 

OUTSTANDING EQUITY AWARDS AT 2015 FISCAL YEAR-END

 

      Option Awards  Stock Awards 
Name  Grant Year  Number of
Securities
Underlying
Unexercised
Options(#)
Exercisable
   Number of
Securities
Underlying
Unexercised
Options(#)
Unexercisable
   Option
Exercise
Price($)
   Option
Expiration
Date
  Number of
Shares or
Units of
Stock That
Have Not
Vested(#)
   Market Value
of Shares
or Units
of Stock
That Have
Not Vested($)(1)
 
David M. Cote  2015       600,000(2)   $103.90   2/25/2025        
   2014       268,673(3)   $98.04   12/10/2024        
   2014   150,000    450,000(4)   $93.97   2/26/2024        
   2013   375,000    375,000(5)   $69.77   2/26/2023        
   2012   525,000    175,000(6)   $59.87   2/28/2022        
   2011   775,000        $57.05   2/24/2021        
   2010   950,000        $40.17   2/25/2020        
   2009   950,000        $28.35   2/23/2019        
   2008   650,000        $58.48   2/25/2018        
   2007   700,000        $47.38   2/25/2017        
   Total   5,075,000    1,868,673            0    $0 
Thomas A. Szlosek  2015       125,000(2)   $103.90   2/25/2025          
   2014   25,000    75,000(4)   $93.97   2/26/2024   25,788(8)   2,670,863 
   2013   20,000    20,000(5)   $69.77   2/26/2023   10,572(9)   1,094,942 
   2013   12,500    12,500(7)   $73.45   4/8/2023        
   2012   75,000    25,000(6)   $59.87   2/28/2022   54,206(10)   5,614,115 
   2011   40,000        $57.05   2/24/2021        
   2010   20,000        $40.17   2/25/2020   4,273(11)   442,555 
   Total   192,500    257,500            94,839    $9,822,475 
Roger Fradin  2015       180,000(2)   $103.90   2/25/2025        
   2014   45,000    135,000(4)   $93.97   2/26/2024   26,820(12)   2,777,747 
   2013   112,500    112,500(5)   $69.77   2/26/2023   &mdash