DEF 14A 1 c89618_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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2018 PROXY STATEMENT

AND NOTICE OF ANNUAL MEETING OF SHAREOWNERS

 


 

 

At Honeywell, we are bringing together the physical and digital worlds to tackle some of the toughest business and societal challenges. We specialize in the things that are critically connected. Beyond smart phones and laptops, we make the kind of connections that keep cities working, planes flying, factories running, and workers safe.

 

 

 

 

 

THIS IS THE POWER OF CONNECTED

THIS IS THE POWER OF HONEYWELL

 

 

 

 

 

Connected Aircraft • Connected Vehicle

 

Connected Buildings • Connected Homes

 

Connected Plant • Connected Utilities

 

Connected Supply Chain • Connected Worker

 

 

 

 

March 8, 2018

 

To Our Shareowners:

 

You are cordially invited to attend the Annual Meeting of Shareowners of Honeywell, which will be held at 10:30 a.m. on Monday, April 23, 2018 at our 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, cast an advisory vote on executive compensation, approve the appointment of the independent accountants, approve an amendment to Honeywell’s Amended and Restated Certificate of Incorporation to reduce the ownership threshold required for shareowners to call a special meeting of shareowners, and consider two shareowner proposals.

 

The Board of Directors recommends that you vote FOR Proposals 1 through 4:

 

Proposal 1: Election of Directors

 

Proposal 2: Advisory Vote To Approve Executive Compensation

 

Proposal 3: Approval of Independent Accountants

 

Proposal 4: Reduce Ownership Threshold Required To Call A Special Meeting Of Shareowners

 

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

 

Proposal 5: Independent Board Chairman

 

Proposal 6: Report on Lobbying Payments and Policy

 

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, we want to thank you for your continued support of Honeywell.

 

Sincerely,

 

David M. Cote

Chairman

 

Darius Adamczyk

President and Chief Executive Officer

 

 

NOTICE OF ANNUAL MEETING OF SHAREOWNERS

 

DATE Monday, April 23, 2018

TIME 10:30 a.m. EDT

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

RECORD DATE Close of business on February 23, 2018

 

 

March 8, 2018

 

Meeting Agenda:

 

Election of the 12 nominees listed in the accompanying proxy statement to the Board of Directors.
   
An advisory vote to approve executive compensation.
   
Approval of the appointment of Deloitte & Touche LLP as independent accountants for 2018.
   
A management proposal to amend Honeywell’s Amended and Restated Certificate of Incorporation to reduce the ownership threshold required for shareowners to call special meetings of shareowners.
   
If properly raised, two shareowner proposals described on pages 84-88 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 2017 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 16-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 16-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 8, 2018.

 

By Order of the Board of Directors,

 

 

Anne T. Madden

Senior Vice President, General Counsel
and Corporate Secretary

 
TABLE OF CONTENTS  
   
Proxy Summary i
Sustainability And Corporate Responsibility 1
Political Contributions And Activities 3
Shareowner Outreach And Engagement 4
Proposal No. 1: Election of Directors 6
Corporate Governance 12
Summary of Improvements To Our Governance Guidelines In 2017 12
Board Leadership Structure 13
Governance Best Practices 14
Where Shareowners Can Find More Information 16
Board Meetings 16
Board Committees 16
Board’s Role In Risk Oversight 20
Director Independence 21
Identification And Evaluation Of Director Candidates 22
Director Orientation And Continuing Education 23
Director Attendance At Annual Meetings 23
Director Compensation 24
Certain Relationships And Related Transactions 26
Stock Ownership Information 27
Section 16(a) Beneficial Ownership Reporting Compliance 28
SEC Filings And Reports 28
Executive Compensation 29
Proposal No. 2: Advisory Vote To Approve Executive Compensation 30
Notes And Definitions To Compensation Discussion And Analysis 30
Compensation Discussion And Analysis 31
Management Development And Compensation Committee Report 60
Summary Compensation Table 61
Grants Of Plan-Based Awards-Fiscal Year 2017 63
Outstanding Equity Awards At 2017 Fiscal Year-End 64
Option Exercises And Stock Vested-Fiscal Year 2017 66
Pension Benefits 67
Nonqualified Deferred Compensation-Fiscal Year 2017 70
Potential Payments Upon Termination Or Change In Control 73
CEO Pay Ratio 78
Audit Committee Report 81
Proposal No. 3: Approval Of Independent Accountants 82
Management Proposal 83
Proposal No. 4: Reduce Ownership Threshold Required To Call A Special Meeting Of Shareowners 83
Shareowner Proposals 84
Proposal No. 5: Independent Board Chairman 84
Proposal No. 6: Report on Lobbying Payments and Policy 86
Voting Procedures 89
Attendance at the Annual Meeting 91
Other Information 92
Appendix A: Proposed Amendment To Honeywell’s Amended and Restated Certificate of Incorporation A-1
Appendix B: Reconciliation of Non-GAAP Financial Measures B-1
Recent Awards Inside Back Cover

Reconciliation, notes and definitions 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 on page 30 or in Appendix B.

 

 

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 23, 2018, 10:30 a.m. EDT

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

RECORD DATE Shareowners as of February 23, 2018 are entitled to vote.

ADMISSION Please follow the advance registration instructions on page 91.

 

MEETING AGENDA AND VOTING MATTERS

 

Proposal     Board’s Voting
Recommendation
  Page References
(for more detail)
No. 1 Election of Directors   FOR (each nominee)   pp. 6-11
No. 2 Advisory Vote To Approve Executive Compensation   FOR   p. 30
No. 3 Approval of Independent Accountants   FOR   p. 82
No. 4 Management Proposal: Reduce Ownership Threshold Required To Call A Special Meeting Of Shareowners   FOR   p. 83
No. 5 Shareowner Proposal: Independent Board Chairman    AGAINST   pp. 84-86
No. 6 Shareowner Proposal: Report on Lobbying Payments and Policy    AGAINST   pp. 86-88

 

2017 HIGHLIGHTS

 

 

2018     |     Proxy and Notice of Annual Meeting of Shareowners      |     i
 

Proxy Summary > 2017 Highlights

 

LEADERSHIP

 

Transformative and Pivotal Year in 2017 Under Darius Adamczyk

  Successful CEO transition marked by renewed focus on organic growth, continued superior financial performance, and refocused strategic direction
  Execution of comprehensive portfolio review, resulting in two announced tax-free spin-off transactions that will enable better focus on six key end markets and core technologies
  Excellent performance resulting in 35% total shareowner return in 2017
  Reinvigorating employee culture to become a software-industrial company

 

PORTFOLIO TRANSFORMATION

 

Announced Homes / Global Distribution and Transportation Systems Spin-Offs

  Spinning off ~$7.5B in sales in two tax-free spin-off transactions to be completed by end of 2018
  Remaining Honeywell portfolio consists of high-growth businesses with strong operational and technology synergies
  Spun businesses will be better positioned to maximize shareowner value through focused strategic decision-making and tailored capital allocation

 

CAPITAL DEPLOYMENT

 

Executed Balanced Capital Deployment Plan, Achieving $5B Target

  Repurchased ~$2.9B in Honeywell shares
  Announced a 12% increase in our dividend — since 2010, we have increased the dividend rate by 10% or more eight times
  Deployed ~$1B to capital expenditures

 

CREATING VALUE FOR OUR SHAREOWNERS — CUMULATIVE TOTAL SHAREOWNER RETURN (“TSR”)

 

 

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Proxy Summary > Significant Corporate Governance Actions In 2017

 

SIGNIFICANT CORPORATE GOVERNANCE ACTIONS IN 2017

 

Management Proposal to Decrease Threshold Needed to Call a Special Meeting to 15%

 

  Honeywell’s Board and Management are proposing that our Amended and Restated Certificate of Incorporation be amended to reduce the threshold needed for shareowners to call a special meeting from the current 20% to 15%.
     
  The Board believes that its proposal is a thoughtful response to shareowner feedback indicating that many shareowners would appreciate the ability to call a special meeting if holders owning 15% of Honeywell shares were entitled to request a special meeting.

 

Recombined Roles of Chairman and CEO under Darius Adamczyk Following David Cote’s Retirement

 

  After thorough consideration, the Board determined that shareowners are best served if the roles of Chairman and CEO are combined in current CEO Adamczyk (see page 13).
     
  The Board believes that Mr. Adamczyk has the character and quality of leadership to serve in both roles and that his service as both Chairman and CEO will enhance company performance.

 

Changes to Our Corporate Governance Guidelines to Improve Board Refreshment

 

  Before recommending re-nomination of incumbent directors, our Corporate Governance and Responsibility Committee (“CGRC”) will now evaluate whether the skills and perspectives of incumbent directors meet Honeywell’s needs, both individually and collectively.
     
  The Board is applying greater rigor around the recruitment and selection of new Board members including a formal process for identification and prioritization of skill sets by the Chair of the CGRC, Chairman/CEO, and Lead Director.
     
  Duncan B. Angove was recruited to the Honeywell Board in early 2018 and demonstrates the Board’s commitment to refreshment with independent nominees possessing the perspective and experience to help propel the Company’s long-term strategy of becoming a world-leading software-industrial company. Mr. Angove has over 19 years of experience developing and commercializing software products and services for numerous industry verticals. Since 2010, Mr. Angove has served as a President of Infor, Inc., a provider of software solutions and platforms, as well as individual apps, that develops end-to-end operational systems and specific business processes for numerous industry verticals from chemicals to retail.

 

Improvements to the Board’s Self-Evaluation Process

 

  We are using the self-evaluation process in a more structured way to elicit specific feedback on whether and how the Board needs to refresh its membership to better serve the long-term needs of shareowners, particularly in light of Honeywell’s evolving strategy.
     
  We are reinforcing best practices to ensure that the self-evaluation process is meaningful, including sharing results of director surveys and questionnaires verbatim on an anonymous basis with the entire Board and discussing the results of the annual self-evaluation with the full Board in executive session.

 

Strengthening of the Role of Lead Director

 

  Honeywell’s Corporate Governance Guidelines were amended to add two new duties to the Lead Director’s role, specifically, making the Lead Director formally responsible for new director recruitment and selection and jointly responsible for leading the self-evaluation process (together with the Chair of the CGRC).

 

Ongoing Robust Dialogue Between Our Directors and Shareowners

 

  In 2017 we continued our strong tradition of meaningful engagement between our directors and largest shareowners. Our Lead Director and the Chair of the CGRC met with 11 of our shareowners in 2017 to discuss a range of pertinent governance matters, including the decision on whether to combine the roles of Chairman and CEO (see page 4). The content of these meetings is shared with the entire Board and provides an extremely valuable perspective to the Board in its decision-making.

 

Other Changes You Will See In This Proxy Statement

 

  The Board has created a formal skills and experience matrix to help ensure that it has the right perspective to appropriately exercise its independent oversight responsibilities (see page iv).
     
  We increased the mandatory retirement age for directors from 72 to 75 to ensure Board continuity during a successful CEO succession process that was architected and “owned” by the current Board and during a period in which we are executing two complex spin-off transactions that resulted from a comprehensive portfolio review process overseen by the current Board.

 

2018     |     Proxy and Notice of Annual Meeting of Shareowners      |     iii
 

Proxy Summary > Executive Compensation Snapshot

 

Broad Set of Backgrounds and Skills*

 

Name 2018
Tenure
2018
Age
Senior
Leader
- ship
Indus-
try
Global Finan-
cial
Gov’t Other
Pub. Co.
Board
Exper.
Risk
Mgmt.
Innovation
&
Technology
Marketing
D. Adamczyk (President & CEO) 1 52        
J. Chico Pardo (Lead Director) 18 68    
D. Angove 0 51        
W. Ayer 3 63    
K. Burke 8 67    
D.S. Davis 12 66  
L. Deily 12 72    
J. Gregg 7 71      
C. Hollick 14 72      
G. Lieblein 5 57      
G. Paz 9 62    
R. Washington 5 55      

 

* Reflects anticipated composition at 2018 Annual Meeting of Shareowners

Independent and Highly Diverse Oversight*

 

Of the Independent Directors:

 

   27% are Women

 

   27% are Hispanic

 

     9% are African American

 

   18% are Non-U.S. Citizens

 

Right Balance of Institutional Knowledge
and Fresh Perspective*


 

 

EXECUTIVE COMPENSATION SNAPSHOT

 

2017 Total Annual Direct Compensation For Each Named Executive Officer (NEO)

The following table reflects 2017 annualized compensation amounts earned by the NEOs from the perspective of the MDCC*.

 

NEO  Position  Base
Salary
   Annual
Bonus
   Stock
Options
   2017-2019
Performance
Plan-PSUs(A)
  2016 Biennial-
Performance
RSUs(B)
  2016-2017
Growth Plan(C)
  Total Annual
Direct
Compensation
Darius Adamczyk  President & CEO  $1,414,615   $3,275,000   $3,596,400   $5,254,000   $1,671,875   $1,224,000   $16,435,890 
Thomas A. Szlosek  SVP - Chief Financial Officer  $865,039   $1,100,000   $1,798,200   $2,101,600   $1,337,500   $687,500   $7,889,839 
Timothy O. Mahoney  Aerospace - President & CEO  $963,615   $1,540,000   $2,064,600   $2,232,950   $2,006,250   $450,000   $9,257,415 
Krishna Mikkilineni  SVP- Engineering, Ops and IT  $785,769   $915,000   $1,798,200   $1,970,250   $1,471,250   $550,000   $7,490,469 
Rajeev Gautam  PMT - President & CEO  $717,885   $1,040,000   $1,165,500   $1,576,200   $668,750   $772,500   $5,940,835 
David M. Cote(D)  Executive Chairman & Former CEO  $900,962   $3,420,000   $9,990,000   $0   $0   $2,612,500   $16,923,462 

 

* Table reflects the view of the MDCC by annualizing 2016 biennial awards over a 2-year period (half of the award was attributed to 2016 and half to 2017), which differs from how amounts are reported on the SEC Summary Compensation Table. This is the last year reporting on this basis with normalizaton in 2018 as part of the changes to the executive compensation program.
(A) Grant date value of the first annual award of 3-year Performance Stock Units (PSUs).
(B) Reflects 2017 portion of the 2016 biennial Performance-based RSU grant with 100% of payout tied to Honeywell’s relative TSR performance against Compensation Peer Group over 3-years, followed by longer-term vesting period. Last such biennial RSU grant prior to compensation program changes.
(C) Annualized amount earned from the 2016 biennial Growth Plan grant for the 2016-2017 performance cycle. Portion attributable to 2017. Plan discontinued after this payout.
(D) Mr. Cote not included in broader compensation program changes for last full year of employment as Executive Chairman. The 2017 stock option grant to Mr. Cote, was made while in the CEO role and represented his last LTl grant from Honeywell. No other LTl was granted to Mr. Cote in 2017. Mr. Cote will receive no other compensation for the five-year consulting services arrangement included in his June 2016 CEO Continuity Agreement, which will begin when he leaves the Board in April of 2018. Earned Growth Plan award to be settled in stock, pursuant to 2016 MDCC decision to reduce value of his compensation paid in cash in response to shareowner feedback.

 

See Compensation Discussion and Analysis beginning on page 31 for more details on 2017 Executive Compensation.

 

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Sustainability and Corporate Responsibility > Highlights Of Our Environmental And Safety Achievements

 

PROXY STATEMENT

 

This proxy statement is being provided to shareowners in connection with the solicitation of proxies by the Board of Directors for use at the Annual Meeting of Shareowners of Honeywell International Inc. (“Honeywell” or the “Company”) to be held on Monday, April 23, 2018.

 

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 technologies that expand the sustainable capacity of our world.


 

Honeywell invents and manufactures technologies that address some of the world’s most critical challenges around energy, safety, security, productivity and global urbanization.

 

HIGHLIGHTS OF OUR ENVIRONMENTAL AND SAFETY ACHIEVEMENTS

 

GREENHOUSE GAS REDUCTION AND ENERGY EFFICIENCY

 

 

Honeywell reports on its global greenhouse gas emissions publicly through CDP (formally Carbon Disclosure Project) and reports submitted to the U.S. Environmental Protection Agency and the United Kingdom Environment Agency. A qualified third party has provided limited assurance per ISO 14064-3 of Honeywell’s 2011-2016 Scope 1 and Scope 2 greenhouse gas emissions inventories.

 

Honeywell exceeded its first public goal to reduce global greenhouse gases by more than 30% and improve energy efficiency by more than 20% between 2004 and 2011.  
     
A second five-year goal, set to reduce greenhouse gas emissions by an additional 15% per dollar of revenue from 2011 levels, was met three years early.  
     
By 2019, Honeywell will reduce its greenhouse gas emissions per dollar of revenue from 2013 levels by an additional 10%.  

 

WATER

 

Honeywell has developed a global inventory of water usage in its manufacturing operations and implements water conservation projects in areas experiencing “water stress.”

 

Since 2013, the Company has implemented more than 130 water conservation projects in “water stressed” areas, saving over 120 million gallons.

 

2018     |     Proxy and Notice of Annual Meeting of Shareowners        |       1
 

Sustainability and Corporate Responsibility > Highlights Of Our Environmental And Safety Achievements

 

SAFETY

 

Honeywell utilizes a comprehensive Health, Safety, Environment, Product Stewardship and Sustainability 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.

 

Our global Total Case Incident Rate or “TCIR” (the number of occupational injuries and illnesses per 100 employees) was 0.45 at the end of 2017. According to the U.S. Bureau of Labor Statistics, the weighted TCIR of the industries in which Honeywell participates is over 2.0.

 

Honeywell has received worker safety awards from governments and organizations around the world.

 

Health, Safety, Environment, Product Stewardship and Sustainability (“HSEPS”) Management System

 

Honeywell’s HSEPS 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 through a best-in-class process to report and investigate Code of Business Conduct concerns.

 

Moreover, the Integrity and Compliance program includes, among other elements, a supplier Code of Conduct that flows down to Honeywell’s global supply chain to reinforce Honeywell’s expectation that its suppliers will also abide by our high standards of integrity and compliance, including our Conflict Minerals, Anti-Human Trafficking, Business Integrity, and Health, Safety, and Environmental policies.

 

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.

 

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Political Contributions and Activities

 

These programs have delivered significant and meaningful results in communities around the world, including:

 

Offering academic opportunities that inspire students to pursue careers in science, technology, engineering and math (STEM), and providing 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 environmental science in the classroom;

 

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; and

 

Helping Honeywell employees and communities recover from natural disasters such as Hurricanes Harvey, Irma, Maria, Matthew and Sandy in the U.S.; wildfires in Alberta, Canada, and Colorado Springs; flooding in Louisiana and Romania; Super Typhoon Haiyan in the Philippines; the Great Japan Earthquake and Tsunami; and earthquakes in Mexico, Haiti and China.

 

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. who drive our lobbying programs and initiatives. Our government relations organization is led by the 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 CGRC on trade association political spending and 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 present intention of making such political contributions in the 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 2017, 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 2017 CPA-Zicklin Index for the fourth 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 6 on pages 86-88.

 

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Shareowner Outreach and Engagement

 

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 foundational to good corporate 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.

 

Our shareowner and investor outreach and engagement takes many forms and is a year-round activity. We participate in numerous investor conferences and analyst meetings, hold our own investor events, some of which focus on individual businesses held at our facilities, and meet one-on-one with shareowners in a variety of contexts and forums. 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, CEO, Chief Financial Officer, Vice President of Investor Relations and other senior management meet frequently with investors to discuss Honeywell’s strategy, financial and business performance and to update investors on key developments. In addition, members of our Board, including our Lead Director, the Chair of our Corporate Governance and Responsibility Committee (“CGRC”), and the Chair of our Management Development and Compensation Committee (“MDCC”) meet with our large shareowners to discuss a range of issues including executive compensation and corporate governance.

 

GOVERNANCE AND COMPENSATION OUTREACH

 

Given the significant changes that occurred at Honeywell in the past year, our shareowner engagement during 2017 was particularly robust. We held 36 meetings with shareowners during the course of 2017 (representing approximately 36% of the shares outstanding) to discuss a wide range of governance and compensation issues, including:

 

•   The ’Say on Pay’ vote which occurred at our 2017 annual meeting;

 

•   Progress on the implementation of our CEO succession plan (see page 13 for a description of the Board’s decision on whether to separate the roles of Chairman and CEO);

 

   The announcement in early 2017 of our intent to conduct a comprehensive portfolio review and the process we intend to employ;

 

   The subsequent conclusion of that portfolio review in October 2017 when we announced our intent to spin-off two significant business units and how we reached that conclusion;

 

   Significant improvements to our Corporate Governance Guidelines intended to facilitate ongoing Board refreshment which we describe on page 12; and

 

   Whether to separate the roles of Chairman and CEO when our current Chairman, David M. Cote, retires in April 2018.

 

What we heard from our investors:

 

During our many shareowner interactions on the topics described above, we heard a diverse range of views. In general, our investors appreciated our transparency and the willingness by our senior executives and members of the Board to engage with, and listen to, shareowners. We summarize the feedback we heard below:

 

   Near universal satisfaction with the changes we made to our executive compensation programs prior to the 2017 annual meeting of shareowners, which resulted in approximately 93% of our shareowners voting in favor of ’Say on Pay’;

 

   Support for the portfolio review process undertaken by Honeywell management and overseen by the Board, which resulted in our announcement on October 10, 2017 to spin off our Homes product portfolio and ADI global distribution business, as well as our Transportation Systems business, into two stand-alone, publicly-traded companies;


 

4       |         Proxy and Notice of Annual Meeting of Shareowners     |     2018

 

Shareowner Outreach and Engagement > Governance and Compensation Outreach

 

A range of views on whether the roles of Chairman and CEO should be recombined when our current Chairman, David M. Cote, retires as Executive Chairman at the April 2018 Annual Meeting of Shareowners. The majority of shareowners expressed the view that in light of Honeywell’s past and current financial and governance performance, the Honeywell Board should decide whether to separate the roles based on its assessment of what governance structure best serves the long-term interests of shareowners. A minority expressed the view that the roles of Chairman and CEO should be separate as a matter of best practice. See page 13 for a description of the Board’s decision on whether to separate the roles of Chairman and CEO; and

 

Widespread approval of the improvements we made to our Corporate Governance Guidelines intended to facilitate ongoing Board refreshment which we describe on page 12.

 

COMMUNICATING WITH MANAGEMENT AND INVESTOR RELATIONS

 

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.investor.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 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.

 

2018     |     Proxy and Notice of Annual Meeting of Shareowners        |       5

 

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

 

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.

 

In 2017, the mandatory retirement age for directors was increased from 72 to 75. The retirement age increase was implemented to ensure Board continuity during a successful CEO succession process that the Board implemented in 2017 and during a period where we are undertaking a major portfolio realignment, including the spin-offs of two significant business units. As a result, directors may serve until the Annual Meeting of Shareowners immediately following their 75th birthday. For further detail on the increase in the mandatory retirement age, see “Summary of Improvements To Our Governance Guidelines in 2017” on page 12.

 

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. In 2017, the Board reviewed its processes and procedures for nominating directors to ensure that the skills, experience and perspective of the Board, and the Board’s ability to periodically refresh those attributes, keeps pace with an evolving commercial strategy focused on Honeywell becoming a world-leading software industrial company. As a result of that review, the Board updated its Corporate Governance Guidelines so that director nominations are now subject to the following:

 

Before recommending for re-nomination a slate of incumbent directors for an additional term, the Corporate Governance and Responsibility Committee will evaluate whether incumbent directors possess the requisite skills and perspective, both individually and collectively.

 

With respect to the recruitment of new members, the Corporate Governance and Responsibility Committee has the responsibility for periodically identifying and recruiting new members to the Board.

 

As and when the Board considers adding new members, the Lead Director, CEO, Chairman and the Chair of the Corporate Governance and Responsibility Committee work together to identify and prioritize the specific skill sets, experience, and knowledge that candidates for election to the Board must possess.

 

Candidates are interviewed multiple times by the Chairman, CEO, Lead Director and other members of the Board to ensure that candidates not only possess the requisites skills and characteristics but also the personality, leadership traits, work ethic, and independence to effectively contribute as a member of the Board.

 

After this process, the Board nominates the successful candidate for election to the Board at the Annual Meeting of Shareowners. From time to time, the Board fills vacancies in its membership, using the same process described above, which arise between annual meetings of shareowners.

 

The CGRC believes that each of the nominees presented in this proxy 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.

 

The following list highlights other key experiences, qualifications and skills of our director nominees that are relevant and important in light of Honeywell’s businesses and structure.

 

6       |         Proxy and Notice of Annual Meeting of Shareowners     |     2018
 

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 as well as hands-on leadership experience in core management areas, such as strategic and operational planning, financial reporting, compliance, risk management and leadership development provides a practical understanding of how complex organizations like Honeywell function.

 

 

Industry

 

Experience in industries, end-markets and growth segments that Honeywell serves, such as aerospace, automotive, construction, transportation, infrastructure, oil and gas, security and fire, energy efficiency and worker productivity and safety enables a better understanding of the issues facing our businesses.

 

 

Global Experience

 

Growing revenues outside of the United States, particularly in what we call “high growth regions” or “HGRs” such as China, India, Southeast Asia, Africa and Latin America is a central part of our long-term strategy for growth. Hence, exposure to markets and economies outside of the United States, particularly in HGRs, is an important qualification for our Board. This exposure can take many forms including government affairs, regulatory, managerial, commercial, linguistic or simply cultural.

 

 

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 globally.

 

 

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.

 

 

Risk Management

 

In light of the Board’s role in risk oversight and our robust enterprise risk management program, we seek directors who can help manage and mitigate key risks, including cybersecurity, regulatory compliance, competition, financial, brand integrity and intellectual property risks.

 

 

Innovation and Technology

 

With Honeywell’s transformation to a software-industrial company in the digital age, expertise in combining software programming capabilities with leading-edge physical products and domain knowledge is critical to opening and securing new growth paths for all of Honeywell’s businesses.

 

 

Marketing

 

Developing new markets for our products and services is critical for driving growth. Our directors who have that expertise provide a much desired perspective on how to better market and brand our products and services.

 

Each of the nominees, other than Mr. Adamczyk, is independent of the Company and management. See “Director Independence” on page 21 of this proxy statement.

 

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

 

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

 

2018     |     Proxy and Notice of Annual Meeting of Shareowners        |       7
 

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

 

NOMINEES FOR ELECTION

 

DARIUS ADAMCZYK, President and Chief Executive Officer of Honeywell International Inc.

 

Years of Service: 1
Age: 52

Mr. Adamczyk is the President and Chief Executive Officer of Honeywell since March 2017. He will become Chairman upon Mr. Cote’s retirement at the 2018 Annual Meeting of Shareowners. Mr. Adamczyk was President and Chief Operating Officer from April 2016 to March 2017. From April 2014 to April 2016, Mr. Adamczyk served as President and CEO of Honeywell Performance Materials and Technologies (“PMT”). Prior to serving as President and CEO of PMT, Mr. Adamczyk served as President of Honeywell Process Solutions from 2012 to 2014. When he joined Honeywell in 2008, he became President of Honeywell Scanning & Mobility from 2008 to 2012. Mr. Adamczyk began at Honeywell when Metrologic, Inc., where he was the Chief Executive Officer, was acquired by Honeywell. Prior to joining Honeywell, Mr. Adamczyk held several general management assignments at Ingersoll Rand, served as a senior associate at Booz Allen Hamilton, and started his career as an electrical engineer at General Electric.


 

Specific Qualifications, Attributes, Skills and Experience

Senior leadership roles in global organizations, both large and small
Deep understanding of software, both technically and commercially, and a proven track record in growing software-related businesses at Honeywell
Demonstrated ability to deliver financial results as a leader in a variety of different industries, with disparate business models, technologies and customers
Strategic leadership skills necessary to grow Honeywell revenues organically and inorganically while meeting the challenges of a constantly changing environment across Honeywell’s diverse business portfolio

 

DUNCAN B. ANGOVE, President of Infor, Inc.

 

Years of Service: 0
Age: 51

 

• Management Development & Compensation

• Retirement Plans

Since 2010, Mr. Angove has been President of Infor, Inc., a privately-held provider of enterprise software and a strategic technology partner for more than 90,000 organizations worldwide. The software is purpose-built for specific industries, from manufacturing to healthcare, providing complete suites that are designed to support end-to-end business processes and digital transformation. Previously, Mr. Angove served as the Senior Vice-President and General Manager of the Retail Global Business Unit for Oracle Corporation, a global technology provider of enterprise software, hardware and services, from 2005 to 2010. He joined Oracle through its acquisition of Retek Inc., then a publicly-traded provider of software solutions and services to the retail industry, where he served in various roles of increasing responsibility from 1997 until 2005.


 

Specific Qualifications, Attributes, Skills and Experience

Senior technology industry leader with global operating experience including in software and digital transformation
Deep understanding of the trends across enterprise cloud, infrastructure software, digital, and the internet of things and skilled at driving value creation
Extensive experience in corporate strategy, M&A, sales, marketing and business and product development

 

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

 

 

Years of Service: 3
Age: 63

 

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 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

 


Leadership

Industry

Global

Financial

Government

Public Company

Risk Management

Technology

Marketing

 

8       |         Proxy and Notice of Annual Meeting of Shareowners     |     2018
 

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

 

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

 

 

Years of Service: 8
Age: 67

 

Board Committees:

• Audit

• Retirement Plans

Mr. Burke joined Con Edison, a utility provider of electric, gas and steam services, in 1973 and 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
Significant expertise in developing clean and renewable energy infrastructure technology used in clean energy, solar generation, and other energy efficient products and services
Oversaw the implementation of financial and management information systems, utility operational systems and process simulators
Deep knowledge of corporate governance and regulatory issues facing the energy, utility and service industries

 

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

 

 

Years of Service: 18
Age: 68

 

Lead Director

 

Ex officio member of each Board Committee

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
Broad experience with investment strategies in innovation and technology to support the energy, healthcare and telecommunications industries in Mexico and Latin America
Enhanced perspectives on corporate governance, risk management and other issues applicable to public companies

 

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

 

 

Years of Service: 12
Age: 66

 

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 served as the non-Executive Chairman of UPS from September 2014 until 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. During his tenure at UPS, Mr. Davis served a critical role in helping UPS to reinvent itself into a technology company as well as transportation. Prior to joining UPS, he was Chief Executive Officer of II Morrow Inc., a technology company and developer of general aviation and marine navigation instruments. Mr. Davis is a Certified Public Accountant. He is also a director of Johnson & Johnson. Mr. Davis previously served on the Board of the Federal Reserve Bank of Atlanta (2003-2009), serving as Chairman in 2009, and EndoChoice Holdings (2015-2016).


 

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
In-depth understanding of technology and software solutions that support automated and web-based shipping, tracking and specialized transportation Logistics

 


Leadership

Industry

Global

Financial

Government

Public Company

Risk Management

Technology

Marketing

 

2018     |     Proxy and Notice of Annual Meeting of Shareowners        |       9
 

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

 

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

 

Years of Service: 12
Age: 72

 

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
Broad experience managing technology platforms for investment managers and retail clients
Significant financial experience through senior leadership roles in banking, brokerage and financial services companies
Substantial experience as a Fortune 500 company director

 

JUDD GREGG, Former Governor and U.S. Senator of New Hampshire

 

 

Years of Service: 7
Age: 71

 

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 also serves as a director of Evoqua Corporation. Senator Gregg previously served as a director of Intercontinental Exchange, Inc. (2011-2013).


 

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: 14
Age: 72

 

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 was 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

 


Leadership

Industry

Global

Financial

Government

Public Company

Risk Management

Technology

Marketing

 

10       |         Proxy and Notice of Annual Meeting of Shareowners     |     2018
 

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

 

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

 

 

Years of Service: 5
Age: 57

 

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. and American Tower Corporation.


 

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, technology and product design and development
International business, operations and finance experience gained through senior leadership positions in Brazil and Mexico

 

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

 

 

Years of Service: 9
Age: 62

 

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 from April 2005 to May 2016 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
Information technology expertise in the healthcare and pharmaceutical industries and a strong track record of developing automated solutions in the healthcare marketplace
Developed technologies for adjudication, compliance, prior authorization and safety standards in healthcare
Extensive experience in corporate finance, insurance and risk management, mergers and acquisitions, capital markets, government regulation and employee health benefits

 

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

 

 

Years of Service: 5
Age: 55

 

Board Committees:

Audit

Retirement Plans Chairperson

 

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

 


Leadership

Industry

Global

Financial

Government

Public Company

Risk Management

Technology

Marketing

 

2018     |     Proxy and Notice of Annual Meeting of Shareowners        |       11
 

Corporate Governance > Summary of Improvements to our Governance Guidelines in 2017

 

CORPORATE GOVERNANCE

 

Honeywell is committed to strong corporate governance policies, practices and procedures designed to make the Board effective in exercising its oversight role. The following sections provide an overview of our corporate governance structure, particularly the developments and activities that occurred in 2017, and the responsibilities of the Board and each of its Committees. We also review our shareowner engagement program and feedback received as a result of that engagement.

 

SUMMARY OF IMPROVEMENTS TO OUR GOVERNANCE GUIDELINES IN 2017

 

Honeywell’s Board is committed to a spirit of “continuous improvement” and is always seeking ways to improve the efficacy of its governance policies, practices and procedures. During 2017, the Board made improvements to several aspects of its Corporate Governance Guidelines (“Guidelines”) to ensure that its practices remained contemporary and aligned with the needs of Honeywell’s shareowners. These improvements were driven, in significant part, by the CEO succession plan that the Board implemented in 2017 as well as the portfolio review and the resulting refocus of the commercial strategy announced by our CEO, Darius Adamczyk, in October 2017.

 

The revisions to the Guidelines described in detail below sought to balance two things:

 

  The need to ensure that the skills, experience and perspective of the Board, and the Board’s ability to periodically refresh those attributes, keep pace with an evolving commercial strategy focused on Honeywell becoming a world-leading software-industrial company. The Board desired to improve how it went about self-evaluation and refreshment, in both cases to ensure that the collective skills and perspective of the Board continued to evolve alongside Honeywell’s commercial strategy.
     
  Continuity and stability in the near term to oversee a successful CEO succession process that the current Board architected and “owns,” being particularly mindful of the importance of stability in the midst of a CEO succession process. The Board views a successful CEO succession as its number one priority. The Board was particularly cognizant that, absent a change in the mandatory retirement age, nearly a third of the Board would have departed in April 2018.

 

Board Composition   Annual Self-Evaluation Process

The revised Guidelines now contain a clear vision statement for the composition of Honeywell’s Board:

“The composition of Honeywell’s Board, as well as the perspective and skills of its individual members, needs to effectively support Honeywell’s growth and commercial strategy. Collectively, the Board must also be capable of overseeing risk management, capital allocation and leadership succession. Board composition and the members’ perspective and skills should evolve at an appropriate pace to meet the challenges of Honeywell’s changing commercial and strategic goals.”

 

Annual Assessment on Whether to Renominate Incumbents

 

The Corporate Governance and Responsibility Committee (“CGRC”) will evaluate annually whether incumbent Board members’ skills and perspectives meet Honeywell’s needs, both individually and collectively, before recommending re-nomination to the Honeywell Board.

 

Recruitment of New Members

 

Clear, transparent processes related to selection and recruitment of new Board members:

 

•   The Lead Director is now formally charged with responsibility for new director recruitment.

 

•   A process for formally identifying and prioritizing the skill sets needed in new members by the Chair of the CGRC, Chairman, CEO and Lead Director.

 

•   An emphasis on finding new members who demonstrate the right leadership traits, personality, work ethic, independence, business experience and diversity of background.

 

Improvements to our Board’s self-evaluation process to ensure the process facilitates and enables adequate Board refreshment and an appropriate evolution of Board skills, experience and perspectives:

 

•   The Lead Director is now jointly responsible for leading the self-evaluation process (together with the Chair of the CGRC).

 

•   Changes to the self-evaluation questionnaire to elicit better feedback on whether Board skills are matched to Honeywell’s commercial and strategic needs and its risk profile.

 

Continuity of best practices:

 

•   The results of director surveys and questionnaires are shared verbatim on an anonymous basis with the entire Board.

 

•   The results of the self-evaluation are discussed by the full Board in executive session.

 

Increase in Mandatory Retirement Age

 

The mandatory retirement age for Board members was increased from 72 to 75.

 

•   Absent this increase in retirement age, up to four Board members could have departed at the 2018 Annual Meeting of Shareowners.

 

•   The increase in mandatory retirement age avoids potential disruption and facilitates governance stability during the current CEO succession while the Board is recruiting new members.

 

 

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Corporate Governance > Board Leadership Structure

 

BOARD LEADERSHIP STRUCTURE

 

David M. Cote, our current Chairman and former CEO, will retire from the Honeywell Board in April at the 2018 Annual Meeting of Shareowners. After careful consideration, Honeywell’s Board of Directors determined that it is in the best long-term interests of shareowners to appoint CEO Darius E. Adamczyk as Chairman after Mr. Cote’s retirement. The Board fully understands the importance of this Board leadership decision to its shareowners and has thoroughly explored the benefits and challenges of having Mr. Adamczyk serve as both Chairman and CEO through an open-minded and unbiased decision-making process.

 

In reaching its decision, the Board considered a wide range of factors more fully described on pages 85-86 where we respond in detail to a shareowner proposal on the need for an independent board chairman. The key factors influencing the Board’s decision to combine the roles of Chairman and CEO under Mr. Adamczyk are as follows:

 

The benefits of a unified leadership structure during a period when Honeywell is in the process of both a major portfolio realignment, including the spin-off of two significant business units, and strategic shift designed to focus resources and management’s attention on high-growth businesses in six attractive industrial end-markets where we can deploy our core technological strengths related to software, data analytics and the industrial internet of things.
   
An evaluation of the strength of Mr. Adamczyk’s character, the quality of his leadership, and the likelihood that Mr. Adamczyk’s service as both Chairman and CEO will enhance Company performance. The Board does not believe that an independent Chairman will enhance Company performance or improve governance effectiveness under Mr. Adamczyk’s leadership.
   
Our longstanding track record of outperformance under a unified leadership structure in which the roles of Chairman and CEO were combined.
   
The highly independent nature of our Board where, following Mr. Adamczyk’s appointment to Chairman, there will only be one non-independent director.
   
Steps taken by Honeywell’s Board to strengthen the role of Lead Director and demonstrated ability of the Lead Director to effectively lead the Board, particularly with respect to the CEO succession process and comprehensive portfolio review, the results of which were announced in October 2017.

 

As part of its deliberations, the Board carefully weighed the views of its shareowners. Our Lead Director, Mr. Jaime Chico Pardo, and the Chair of the Corporate Governance and Responsibility Committee, Ms. Linnet Deily, extended meeting invitations to 14 of our largest shareowners, representing approximately 32.29% of the shares entitled to vote at our Annual Meeting of Shareowners, for one-on-one meetings to discuss, among other things, the decision on whether to recombine the roles of Chairman and CEO under Mr. Adamczyk. During those meetings, we heard a range of views. Most of our shareowners had confidence that the Honeywell Board understands the importance of good corporate governance and has demonstrated the ability to make the right decision regarding its leadership structure, specifically the determination of whether and when to separate and combine the roles of Chairman and CEO. We more fully describe our robust shareowner engagement program on pages 4-5.

 

Lead Director

 

Honeywell’s Lead Director plays an important role in our governance structure, serving as the de facto leader of the independent directors and the single focal point charged with ensuring that the Board as a whole is providing appropriate independent oversight of management. Over the past several years, the Board has continually sought to strengthen the role of Lead Director, including in our most recent amendment to the Corporate Governance Guidelines when we formalized the role of the Lead Director in the recruitment and selection of new Board members and the annual self-evaluation process.

 

The Lead Director is selected biennially by Honeywell’s independent directors. Mr. Jaime Chico Pardo’s first two-year term will expire at the 2018 Annual Meeting of Shareowners. The Board has unanimously decided to re-elect Mr. Chico Pardo for a second two-year term. Before re-electing Mr. Chico Pardo, the Board carefully considered the Lead Director Selection Criteria memorialized in our Corporate Governance Guidelines. Below, we summarize those criteria and the ways in which Mr. Chico Pardo satisfies those criteria.

 

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Corporate Governance > Governance Best Practices

 

Lead Director Selection Criteria   How Mr. Chico Pardo Satisfies Our Criteria
     
   Able to commit the time and level of engagement required to fulfill the substantial responsibilities of the role.    Mr. Chico Pardo has worked tirelessly on behalf of Honeywell including assisting Honeywell in its efforts to increase organic sales growth in Mexico and across Latin America, meeting with shareowners, often in person, and participating in various external governance and lead director programs to stay current on best practices and investor concerns.
   Effective communication skills to facilitate discussions among Board members, including between the non-management directors and the CEO/Chairman, and engage with key stakeholders.    Mr. Chico Pardo spends significant time soliciting the views of Board members on sensitive issues and sharing those views with Mr. Adamczyk and other Board members. Mr. Chico Pardo also proved himself to be an effective communicator in his numerous meetings with shareowners, both with respect to the significant changes made to our executive compensation programs in 2016 and governance changes in 2017.
   Strong rapport with other members of the Board.    Mr. Chico Pardo is extremely well regarded by his fellow Board members for, among other things, his encyclopedic knowledge of Honeywell, listening and communication skills, excellent judgment and ability to build consensus for informed decision making.
   High personal integrity and ethical character.    Mr. Chico Pardo has demonstrated a track record of conducting himself with the highest ethical standards, both in his long business career and as a Honeywell Board member.

   Skills and experience broadly in line with Honeywell’s corporate strategy, including, as relevant:

 

   Leadership experience within a large, complex organization;

 

   International experience and exposure to a variety of markets; and

 

   Expertise aligned with key growth initiatives.

 

   Qualifies as independent, in accordance with the Company’s By-laws and relevant listing standards.

 

   Mr. Chico Pardo’s skills and experience are well suited for his service as Honeywell’s Lead Director. He has led large, complex business enterprises in a wide range of industries that are complementary to Honeywell’s businesses and its customers. His business and leadership activities have been truly global including managing significant business activities in North and Latin America.

 

   Mr. Chico Pardo is independent in accordance with our By-laws and NYSE listing standards and, more importantly, with respect to his willingness to constructively challenge management with alternative perspectives and opinions.

 

GOVERNANCE BEST PRACTICES

 

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.

 

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Corporate Governance > Governance Best Practices

 

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.

 

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 and executive officers will be published on our website.

 

Governance Highlights

 

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.

 

2017 Corporate Governance Actions

 

  Changed our Corporate Governance Guidelines to improve Board refreshment
    
  Improved the Board’s self-evaluation process
    
  Strengthened role of Lead Director
    
  Instituted a formal Board skills and experience matrix
    
  Increased Board retirement age to ensure Board continuity through CEO succession and portfolio realignment
    
  Nominated a new director for election to the Board by the shareowners under improved recruitment process
    
  Recombined Chair and CEO roles (2018 action)
    
  Proposed reduction to the ownership threshold to call a special meeting of shareowners from 20% to 15% at 2018 Annual Meeting

 

All director nominees are independent, other than the CEO.
  
An Independent Lead Director whose role has continually been expanded and strengthened.
  
A diverse Board of our independent directors, 27% are women, 27% are Hispanic, 9% are African American and 18% are non-U.S. citizens, as of the 2018 Annual Meeting of Shareowners.
  
Strong commitment to corporate social responsibility and sustainability.
  
Robust year-round shareowner engagement, including frequent discussions between larger shareowners and directors.
  
Risk oversight by full Board and Committees, including strengthened cybersecurity oversight by the Audit Committee and full Board.
  
All Board Committees are independent.
  
Annual election of directors.
  
Majority voting in uncontested elections.
  
Adopted proxy access By-law amendment.
  
Chair of the Corporate Governance and Responsibility Committee or Lead Director can call special meetings of the Board at any time for any reason.
  
Three Audit Committee members are designated “audit committee financial experts.”
  
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.
  
Regular executive sessions of independent directors.
  
No use of corporate funds for political contributions and careful oversight of political lobbying activities.

 

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Corporate Governance > Where Shareowners Can Find More Information

 

WHERE SHAREOWNERS CAN FIND MORE INFORMATION

 

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 Corporate Secretary.

 

BOARD MEETINGS

 

The Board of Directors held seven meetings during 2017. The average attendance at meetings of the Board and Board Committees during 2017 was 97%. 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 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 2017.

 

Name Audit Corporate Governance
and Responsibility
Management Development
and Compensation
Retirement Plans
Mr. Angove     X X
Mr. Ayer   X X  
Mr. Burke X     X
Mr. Chico Pardo(a) X X X X
Mr. Davis X   Chair  
Ms. Deily X Chair    
Mr. Gregg X X    
Mr. Hollick     X X
Ms. Lieblein   X X  
Mr. Paz Chair X    
Dr. Sheares     X Chair(b)
Ms. Washington X     X
2017 Meetings 9 6 6 3

 

(a)Lead Director and ex officio member of each Committee.

 

(b)Upon Dr. Sheares’ retirement from the Board at the 2018 Annual Meeting, Ms. Washington shall become Chair of the Retirement Plans Committee.

 

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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

 

Committee Chair:

 

  George Paz*

 

Additional Committee Members:

 

Kevin Burke
D. Scott Davis*
Linnet Deily
Judd Gregg
Robin Washington*
Jaime Chico Pardo
  (ex officio member)

 

*   Audit Committee Financial Expert

 

 

Meetings Held in 2017: 9

 

   All Members Independent

   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;

 

  Consider the accountants’ independence;

 

  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

 

  Together with the full Board, exercise oversight over management’s enterprise risk management (“ERM”) process and assess whether mitigation strategies for the risks identified through the ERM process are adequate, including for such risks as cybersecurity, import-export compliance and foreign corrupt practices.

     
     

CORPORATE GOVERNANCE AND RESPONSIBILITY COMMITTEE

 

Committee Chair:

 

  Linnet Deily

 

Additional Committee Members:

 

William Ayer
Judd Gregg
Grace Lieblein
George Paz
Jaime Chico Pardo
  (ex officio member)

 

 

Meetings Held in 2017: 6

 

   All Members Independent

   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.

 

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Corporate Governance > Board Committees

 

Board Committees   Responsibilities
     

MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE (“MDCC”)

 

Committee Chair:

 

  D. Scott Davis

 

Additional Committee Members:

 

Duncan Angove
William Ayer
Clive Hollick
Grace Lieblein
Bradley Sheares
Jaime Chico Pardo
  (ex officio member)

 

 

 

Meetings Held in 2017: 6

 

   All Members Independent

   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 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.

 

Compensation Committee Interlocks And Insider Participation

 

During fiscal year 2017, all of the members of the MDCC were independent directors, and no member was an employee or former employee of Honeywell. No MDCC member had any relationship requiring disclosure under “Certain Relationships and Related Transactions” on pages 26-27 of this proxy statement. During fiscal year 2017, 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 MDCC.

     
     

RETIREMENT PLANS COMMITTEE

 

Committee Chair:

 

Bradley Sheares
(To be succeeded by Ms. Washington as of April 23, 2018)


 

Additional Committee Members:

 

Duncan Angove
Kevin Burke
Clive Hollick
Robin Washington
Jaime Chico Pardo
  (ex officio member)

 

 

Meetings Held in 2017: 3

 

   All Members Independent

 

  Appoint the trustees for funds of the employee pension benefit plans of Honeywell and certain subsidiaries;

 

  Review funding strategies;

 

   Review investment policy for fund assets; and

 

  Oversee members of management that direct the investment of pension fund assets.

 

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Corporate Governance > Board Committees

 

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 Audit 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 81 for the Audit Committee Report.

 

Board Committee Retention of the Outside Compensation Consultant

 

The Management Development and Compensation Committee (“MDCC”) has sole authority to retain a compensation consultant to assist the MDCC 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 MDCC is directly responsible for approving the consultant’s compensation, evaluating its performance, and terminating its engagement. Under the MDCC’s established policy, its consultant cannot provide any other services to Honeywell. Since October 2009, the MDCC has retained Pearl Meyer (“PM”) as its independent compensation consultant.

 

The MDCC regularly reviews the services provided by its outside consultants and performs an annual assessment of the independence of its compensation consultant to determine whether the compensation consultant is independent. The MDCC conducted a specific review of its relationship with PM in 2017, and determined that PM is independent in providing Honeywell with executive compensation consulting services and that PM’s work for the MDCC did not raise any conflicts of interest, consistent with SEC rules and NYSE listing standards.

 

In making this determination, the MDCC 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 MDCC 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 MDCC noted that PM did not provide any services to the Company or its management other than service to the MDCC, 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 MDCC 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 41-42 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 MDCC also reviews general survey data compiled and published by third parties. Neither the MDCC nor Honeywell has any input into the scope of or the companies included in these third-party surveys.

 

While the MDCC 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 MDCC does not target a specific competitive position relative to the market in making its compensation determination.

 

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

 

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Corporate Governance > Board’s Role in Risk Oversight

 

Compensation Input From Senior Management

 

The MDCC 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 MDCC. These targets are reviewed by the MDCC 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 MDCC 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 regular updates on the financial and operating results of Honeywell, as well as the annual operating and five-year strategic plans of each Strategic Business Group (“SBG”), management provides the Board with its view of the key commercial and strategic risks faced by each business unit. During those presentations, the Board is able to provide management with feedback on whether management has identified the key risks and is taking appropriate actions to mitigate risk. 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.

 

In addition, the Board uses the Enterprise Risk Management or ERM program as a key tool for understanding the inherent risks facing Honeywell as well as assessing whether management’s processes, procedures and practices for mitigating those risks are effective. Both the Audit Committee and full Board review the results of the annual ERM assessment. Honeywell’s CFO and General Counsel jointly present the results of the ERM assessment and the presentations are designed to provide full visibility into the risks facing Honeywell and how management is mitigating those risks, thereby enabling the Board to effectively exercise its oversight function. The ERM assessment deployed by management is robust, based on both an enterprise-wide “top down” and “bottom up” view of commercial, strategic, legal, compliance, cyber and reputational risks and strategies for mitigating those risks.

 

In addition, every three years one-on-one meetings are held with each Board member and the CFO, General Counsel, Controller and Vice President, Internal Audit to solicit feedback on Honeywell’s ERM process to ensure that the universe of risks and how management ranks those risks, in terms of likelihood of occurrence and financial impact, is both realistic and appropriate. Feedback from the one-on-one interviews with the individual Board member is presented to the full Board and incorporated in our ERM program and risk mitigation efforts. In 2018, one-on-one interviews will be scheduled with each Board member.

 

The specific risk areas of focus for the Board and each of its Committees are summarized below. In addition, the Audit Committee and the MDCC meet in executive session with key management personnel (for example, the Vice President, Internal Audit meets in executive session with the Audit Committee) and in certain instances representatives of outside advisors (for example, the Audit Committee regularly meets in executive session with the Company’s independent auditors).

 

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 fluctuation, 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 annual strategic review with the Board of Directors.
  •   M&A integration and the M&A competitive landscape
  •   Legal risks arising from litigation, intellectual property infringement, health, safety, and environment, regulatory issues such as Foreign Corrupt Practices Act (“FCPA”), antitrust, conflict minerals, and product liability
  •   Cybersecurity 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

 

Audit Committee •   Cybersecurity 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 •   Labor compliance and progress in implementing our diversity goals and objectives
Responsibility Committee •   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. Angove, Ayer, Burke, Chico Pardo, Davis, Gregg, Hollick, and Paz 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 the MDCC). 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 24-26 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. Angove—Infor, Mr. Ayer—Alaska Air Group, Mr. Burke—Consolidated Edison, Mr. Davis—UPS, Ms. Lieblein—General Motors and Southwest Airlines, Mr. Paz—Express Scripts, and Ms. Washington—Gilead Sciences). In each case:

 

2018     |     Proxy and Notice of Annual Meeting of Shareowners        |       21
 

Corporate Governance > Identification and Evaluation of Director Candidates

 

  (i) The relevant products and services were provided on terms and conditions determined on an arm’s-length basis and consistent with those provided by or to similarly situated customers and suppliers;
     
  (ii) The relevant director did not initiate or negotiate the relevant transaction, each of which was in the ordinary course of business of both companies; and
     
  (iii) The combined amount of such purchases and sales was less than 0.8% 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 (“CGRC”) also serves as the Board’s Nominating Committee. The CGRC consists entirely of independent directors under applicable SEC rules and NYSE listing standards. The composition of the Board, as well as the perspective and skills of its individual members, needs to effectively support Honeywell’s growth and commercial strategy. Collectively, the Board must also be capable of overseeing risk management, capital allocation and leadership succession. Board composition and the members’ perspective and skills should evolve at an appropriate pace to meet the challenges of Honeywell’s changing commercial and strategic goals. The identification and evaluation of director candidates is an essential part of this evolutionary process.

 

The CGRC has primary responsibility for identification and evaluation of director candidates. In addition, included among the Honeywell Lead Director’s duties is the responsibility of working with the CEO, Chairman, CGRC and the full Board to help identify and prioritize the specific skill sets, experience, and knowledge that director candidates must possess. Potential director candidates meeting the criteria established by the CGRC and Lead Director are then identified either by reputation, existing Board members or shareowners. Director candidates are principally identified and evaluated in anticipation of upcoming director elections and other potential or expected Board vacancies.

 

The CGRC is also authorized, at the expense of Honeywell, to retain search firms to identify potential director candidates, as well as other external advisors, including for purposes of performing background reviews of potential candidates. Search firms retained by the CGRC shall be provided guidance as to the particular experience, skills or other characteristics that the Board is then seeking. The CGRC may delegate responsibility for day-to-day management and oversight of a search firm engagement to the Chairman of the Board and/or the Honeywell’s Senior Vice President—Human Resources, Procurement and Communications.

 

Candidates are interviewed multiple times by the Chairman, CEO, Lead Director and other members of the Board to ensure that candidates not only possess the requisites skills and characteristics but also the personality, leadership traits, work ethic, and independence of thought to effectively contribute as a member of the Board.

 

In addition to the specific criteria and priorities developed collectively, director candidates are considered by the CGRC in light of a range of more general criteria:

 

their exemplification of the highest standards of personal and professional integrity;
   
their independence from management under applicable securities law, listing regulations and Honeywell’s corporate governance guidelines;
   
their experience and industry background, particularly in light of the principal current and anticipated businesses of Honeywell and the strategic challenges facing Honeywell as a whole and the industries in which it participates;
   
their potential contribution to the composition, diversity and culture of the Board;
   
their age, educational background and relative skills and characteristics;
   
their ability to devote sufficient time to performing their duties in an effective manner; and
   
their ability and willingness to constructively challenge management through active participation in Board and Committee meetings and to otherwise devote sufficient time to Board duties.

 

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Corporate Governance > Director Orientation and Continuing Education

 

While Honeywell’s Corporate Governance Guidelines do not prescribe diversity standards, as a matter of practice, the CGRC considers diversity in the context of the Board as a whole and takes into account the personal characteristics (gender, ethnicity, age) and experience (industry, professional, public service) of current and prospective directors to facilitate Board deliberations that reflect a broad range of perspectives.

 

After this process, the Board nominates the successful candidate for election to the Board at the Annual Meeting of Shareowners. From time to time, the Board fills vacancies in its membership, using the same process described above, which arise between annual meetings of shareowners.

 

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

 

This year, one director, Duncan B. Angove, is nominated for election to the Board of Directors who has not previously stood for election to the Board by the shareowners. Mr. Angove was identified by a third-party search firm and was elected to the Board, effective February 14, 2018.

 

Shareowners wishing to recommend a director candidate to the CGRC for its consideration should write to the CGRC, in care of 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 92 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.

 

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 CGRC 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.

 

BOARD TENURE

 

We believe that electing directors with a mix of tenures facilitates effective Board oversight. Hence, 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.

 

 

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 SBGs. 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.

 

2018     |     Proxy and Notice of Annual Meeting of Shareowners        |       23
 

Corporate Governance > Director Compensation

 

DIRECTOR COMPENSATION

 

The CGRC 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 to address the time, effort, expertise and accountability required of active Board membership.

 

Annual Compensation

 

In general, the CGRC 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.

 

Board of Directors’ Annual Compensation  
Board Retainer $100,000 paid in quarterly installments
Lead Director $35,000 per annum
Board Committee Membership $10,000 for each Board Committee 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 75), death, disability or change in control, as set forth in the 2016 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 (2.69% for 2017) 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 the 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. Directors elected to the Board after September 2008 are responsible for paying

 

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Corporate Governance > Director Compensation

 

premiums for term life insurance which they elect to receive. In 2017, Mr. Hollick and Ms. Lieblein were also eligible to participate in company provided medical plans under a legacy arrangement not available to other directors. 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.

 

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. Angove who joined the Board in February 2018) have attained the prescribed ownership threshold.

 

 

DIRECTOR COMPENSATION-FISCAL YEAR 2017

 

Director Name   Fees
Earned or
Paid in Cash($)(1)
  Stock
Awards($)(2)(3)
  Option
Awards($)(2)(4)
  Change in Pension
Value and
Nonqualified
Deferred
Compensation
Earnings($)(5)
  All Other
Compensation($)(6)
  Total($)
William Ayer   $180,000   $50,006   $50,008   $0   $25,004   $305,018
Kevin Burke   $185,000   $50,006   $50,008   $0   $25,004   $310,018
Jaime Chico Pardo   $215,000   $50,006   $50,008   $0   $27,139   $342,153
D. Scott Davis   $205,000   $50,006   $50,008   $5,648   $1,831   $312,493
Linnet Deily   $205,000   $50,006   $50,008   $0   $34,463   $339,477
Judd Gregg   $185,000   $50,006   $50,008   $0   $25,004   $310,018
Clive Hollick   $180,000   $50,006   $50,008   $6,239   $41,813   $328,066
Grace Lieblein   $180,000   $50,006   $50,008   $0   $15,004   $295,018
George Paz   $205,000   $50,006   $50,008   $0   $25,004   $330,018
Bradley Sheares   $200,000   $50,006   $50,008   $11,875   $26,201   $338,090
Robin Washington   $185,000   $50,006   $50,008   $0   $25,004   $310,018
(1) Includes all fees earned, whether paid in cash or deferred under the Deferred Compensation Plan for Non-Employee Directors (including amounts treated as deferred in the Honeywell Common Stock Fund).
(2) The following table reflects all outstanding stock awards and option awards held at December 31, 2017 by each of the listed individuals.

 

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Certain Relationships and Related Transactions > Applicable Policies and Procedures

 

Director Name Outstanding
Stock Awards at
12/31/17
Outstanding Option
Awards at 12/31/17
Mr. Ayer 4,582 9,047
Mr. Burke 1,370 27,524
Mr. Chico Pardo 1,370 37,580
Mr. Davis 1,370 22,496
Ms. Deily 1,370 27,524
Mr. Gregg 1,370 22,496
Mr. Hollick 1,370 27,524
Ms. Lieblein 1,370 14,526
Mr. Paz 1,370 32,552
Dr. Sheares 1,370 22,496
Ms. Washington 4,696 14,526
(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 386 shares were made to non-employee directors in April 2017 with a value of $129.55 per share.
(4) The amounts set forth in this column represent the aggregate grant date fair value of option awards computed in accordance with FASB ASC Topic 718. The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. Option awards of 2,879 shares were made to non-employee directors in April 2017 with a Black-Scholes value of $17.37 per share. A more detailed discussion of the assumptions used in the valuation of option awards made in fiscal year 2017 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, 2017.
(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 2017, this rate was 2.69%, and is set at 3.38% for 2018. 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 2017. Honeywell matched charitable contributions in the amounts of:

 

Director Name Matched Charitable
Contributions
Mr. Ayer $25,000
Mr. Burke $25,000
Mr. Chico Pardo $25,000
Ms. Deily $25,000
Mr. Gregg $25,000
Mr. Hollick $25,000
Ms. Lieblein $15,000
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 example, by accepting gifts or loans from a current or potential customer, supplier or competitor, owning a financial interest

 

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Stock Ownership Information > Five Percent Owners of Company Stock

 

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

 

Mr. John Cote, the son of Mr. David Cote, is the founder, majority owner and chief executive officer of Industrial Inspection & Analysis, Inc. (“IIA”). IIA acquired QC Group, LLC in November 2015. QC Group provides metrology/dimensional inspection services to one of Honeywell’s businesses as part of Honeywell’s quality control processes. The services are provided on arm’s length terms and conditions. QC Group received approximately $500,000 from Honeywell in 2017 for payment of services. QC Group and Honeywell entered into the services arrangement prior to IIA’s acquisition of QC Group.

 

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, 2017.

 

Name and Complete Mailing Address   Number of
Shares
  Percent of
Common Stock
Outstanding
 
The Vanguard Group          
100 Vanguard Blvd., Malvern, PA 19355   51,357,383 (1) 6.74%  
BlackRock, Inc.          
55 East 52nd Street, New York, NY 10055   47,575,017 (2) 6.3%  
(1) The information is based on a Schedule 13G/A filed by The Vanguard Group with the SEC on February 9, 2018. The Vanguard Group and certain related entities have sole voting power in respect of 1,054,244 shares and sole dispositive power in respect of 50,153,579 shares.
(2) The information is based on a Schedule 13G/A filed by BlackRock, Inc. with the SEC on January 25, 2018. BlackRock, Inc. has sole voting power in respect of 41,087,639 shares and sole dispositive power in respect of 47,575,018 shares.

 

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Section 16(a) Beneficial Ownership Reporting Compliance

 

STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

 

The following table lists information as of February 23, 2018 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)   Common Stock
Beneficially
Owned
    Right
To Acquire(2)
    Other
Stock-Based
Holdings(3)
    Total Number
of Shares(4)
Darius Adamczyk     38,456       583,509       2,260       624,225
Duncan B. Angove     0       0       350       350
William S. Ayer     0       3,774       2,209       5,983
Kevin Burke     13,310       22,251       8,365       43,926
Jaime Chico Pardo     36,064       32,307       31,962       100,333
David M. Cote     1,774,598       3,745,461       17,332       5,537,391
D. Scott Davis     19,963       17,223       16,743       53,929
Linnet F. Deily     6,219       17,223       14,953       38,395
Judd Gregg     8,006       17,223       11,204       36,433
Clive Hollick     4,654       22,251       22,394       49,299
Grace D. Lieblein     4,338       9,253       5,348       18,939
George Paz     5,995       27,279       10,862       44,136
Bradley T. Sheares     3,310       17,223       18,831       39,364
Robin L. Washington     994       12,271       7,234       20,499
Thomas A. Szlosek     6,647       523,572       49,242       579,461
Timothy O. Mahoney     168,612       779,004       77,734       1,025,350
Krishna Mikkilineni     102,287       597,744       1,987       702,018
Rajeev Gautam     29,164       89,245       2,036       120,445
All directors, nominees and executive officers as a group, including the above-named persons (23 people)     2,377,354       7,212,772       343,397       9,933,523
(1) c/o Honeywell International Inc., 115 Tabor Road, Morris Plains, New Jersey 07950.
(2) Includes shares which the named individual or group has the right to acquire through the exercise of vested stock options, and shares which the named individual or group has the right to acquire through the vesting of performance shares, RSUs and stock options within 60 days of February 23, 2018.
(3) Includes shares and/or share-equivalents in deferred accounts, as to which no voting or investment power exists.
(4) The total beneficial ownership for any individual is less than 1% and the total for the group is approximately 1.33% of the shares of Common Stock outstanding.

 

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 2017, we believe that all applicable Section 16(a) filing requirements were met on a timely basis, other than a late Form 4 filing for Jaime Chico Pardo 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.

 

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EXECUTIVE COMPENSATION

 

TABLE OF CONTENTS

 

Proposal No. 2: Advisory Vote to Approve Executive Compensation 30
Notes And Definitions To Compensation Discussion And Analysis 30
COMPENSATION DISCUSSION AND ANALYSIS 31
Performance Summary 31
Pay For Performance 33
Engagement with Shareowners on Compensation 36
Evolution of Our Compensation Program and Link to Business Strategy and Performance 37
CEO Succession 38
Summary Description of 2017 Compensation Decisions For NEOs 38
Our Compensation Philosophy & Approach 40
How Compensation Decisions Are Made 41
Our Competitive Market-Compensation Peer Group 41
Compensation Program Description 43
Elements of 2017 Total Annual Direct Compensation 43
Program Elements and Related 2017 Compensation Decisions 44
—Annual Incentive Compensation Plan (“ICP”) 44
Long-Term Incentive Compensation (“LTI”) 49
—2017-2019 Performance Plan 50
—Stock Options 51
—2016-2017 Growth Plan 52
—Performance Restricted Stock Units (“Performance RSUs”) 54
Other Compensation & Benefit Programs 56
Retirement plans 56
Nonqualified Deferred Compensation Plans 56
Benefits and Perquisites 56
Compensation Practices and Policies 57
Best Practices 57
Risk Oversight Considerations 58
Stock Ownership Guidelines 58
Recoupment/Clawback 59
Tax Deductibility of Executive Compensation 59
Pledging and Hedging Transactions in Company Securities 60
Management Development and Compensation Committee Report 60


2018     |     Proxy and Notice of Annual Meeting of Shareowners        |       29
 

Executive Compensation > Proposal No. 2: Advisory Vote to Approve Executive Compensation

 

Proposal No. 2: ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

 

Honeywell seeks a non-binding advisory vote from its shareowners to approve the compensation of its Named Executive Officers as described in the Compensation Discussion and Analysis section beginning on page 31 and the Compensation Tables section beginning on page 61. This vote is commonly known as “Say-on-Pay,” and the Board has adopted a policy of providing for an annual Say-on-Pay vote.

 

We encourage you to read the Compensation Discussion and Analysis and Compensation Table sections to learn more about our executive compensation programs and policies and the changes being made in response to shareowner feedback. The Board believes that its 2017 compensation decisions and our executive compensation programs align the interests of shareowners and executives by emphasizing variable, at-risk compensation largely tied to measurable performance goals utilizing an appropriate balance of near-term and long-term objectives.

 

This vote is not intended to address a specific item of compensation, but rather our overall compensation policies and procedures related to the Named Executive Officers. Because the Say-on-Pay vote is advisory, it will not be binding upon the Board. However, the Board will take into account the outcome of the vote and discussions with investors when considering future executive compensation arrangements.

 

The Board recommends that shareowners vote in favor of the following resolution:

 

“RESOLVED, that the Company’s shareowners approve, on an advisory basis, the compensation of the Named Executive Officers, as disclosed in the Company’s proxy statement for the 2018 Annual Meeting of Shareowners pursuant to the executive compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the 2017 Summary Compensation Table and the other related tables and disclosure.”

 

Your Board of Directors unanimously recommends a vote FOR this proposal.

 

NOTES AND DEFINITIONS TO COMPENSATION DISCUSSION AND ANALYSIS

 

All Honeywell Earnings Per Share (“EPS”) results exclude pension mark-to-market adjustment. 2016 EPS and net income also exclude 4Q16 debt refinancing charges. 2017 EPS and net income also exclude separation costs related to spin-offs of the Homes and Global Distribution business and Transportation Systems business (“separation costs”) and provisional charges related to tax legislation (“Tax Reform”). 2017 EPS and net income V% exclude pension mark-to-market adjustment, 4Q16 debt refinancing charges, separation costs, provisional charges related to Tax Reform, and 2016 divestitures.

 

Peer Median Reflects Compensation Peer Group Median; Multi-Industry Peer Median Includes EMR, GE, MMM, and UTX.

Peer Median Net Income, EPS Reflect Adjusted (Non-GAAP) Results.

Peer Results Reflect Fiscal Years Indicated.

 

ROIC = Adjusted Net Income Before Interest ÷ Net Investment (2-Point Average)

Adjusted Net Income Before Interest = Non-GAAP Net Income + After-Tax Interest

Net Investment = Book Value Of Equity + Total Debt

Free Cash Flow = Cash Flow From Operations Less Capital Expenditures

ROA = Adjusted Net Income ÷ Total Assets (2-Point Average)

ROE = Adjusted Net Income ÷ Total Shareowner Equity (2-Point Average)

 

 

30       |         Proxy and Notice of Annual Meeting of Shareowners     |     2018
 

Executive Compensation > Compensation Discussion And Analysis

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Our 2017 Named Executive Officers (“NEOs”):

 

           
Darius Adamczyk
President & CEO
Thomas A. Szlosek
Senior Vice President
Chief Financial Officer
Timothy O. Mahoney
President & CEO
Aerospace
Krishna Mikkilineni
Senior Vice President
Engineering, Ops & IT
Rajeev Gautam
President & CEO
PMT
David M. Cote
Executive Chairman

 

PERFORMANCE SUMMARY

 

Honeywell Continued Our Track Record of Performance In 2017

 

In 2017, Honeywell continued to successfully execute on its commitments and deliver superior results. We continued to build on our record of performance as evidenced by our performance against the key metrics we use as part of our executive compensation programs. The table below shows our performance on these metrics over the past three years (2015-2017):

 

 

2018     |     Proxy and Notice of Annual Meeting of Shareowners        |       31
 

Executive Compensation > Compensation Discussion And Analysis

 

Honeywell Delivered High-Quality Earnings Growth In 2017

 

Honeywell is proud of the high-quality earnings per share growth we delivered in 2017. The majority of our year-over-year earnings growth came from improved operational performance. Excluding the 14-cent contribution in 2016 from 2016 divestitures, we achieved more than 10% earnings per share growth. This was driven by our commercial excellence processes, which are driving higher sales at better margins; the deployment of the Honeywell Operating System, or HOS Gold; and continued rigor on our productivity initiatives.

 

 

Honeywell Made Significant Strategic Progress In 2017, Better Positioned For Long-Term Sustainable Growth

 

The past year was particularly significant for Honeywell in terms of executive leadership succession and portfolio changes that set the stage for many years of sustainable growth and financial outperformance:

 

Darius Adamczyk became our new CEO in April 2017. Mr. Adamczyk’s succession to the CEO role was highly successful both in terms of continued quarter-to-quarter financial performance and the refocused strategic direction he established that aims to make Honeywell the world’s leading software-industrial company, while also enhancing its organic growth rate.
   
Mr. Adamczyk and his management team led a thorough, comprehensive portfolio review that resulted in the October 10, 2017 announcement of our intention to spin our Homes product portfolio and ADI global distribution business, as well as our Transportation Systems business, into two stand-alone, publicly-traded companies. The stand-alone businesses will be better positioned to maximize shareowner value through focused strategic decision making and capital allocation tailored for their end markets.
   
As part of that portfolio review, Mr. Adamczyk refocused Honeywell’s strategy to take better advantage of our core technology and software strengths in high-growth businesses that participate in six attractive industrial end markets. Each of these end markets is characterized by favorable global mega trends, including the emerging middle class in high growth regions, productivity, energy efficiency, infrastructure investment, urbanization, and safety. The ongoing portfolio of businesses is best positioned to leverage Honeywell’s capabilities in technology, operating systems, and financial and business models.
   
We continued to demonstrate that outstanding financial outperformance can be accomplished while holding aggregate annual bonus payments to executives (ICP – Incentive Compensation Plan) relatively flat. Since 2003, Honeywell’s management team has nearly doubled sales and more than quadrupled earnings per share while reducing the number of executives. Our total shareowner return has grown by 817% since 2003, while our incentive compensation has only grown 14% over that period.

 

32       |         Proxy and Notice of Annual Meeting of Shareowners     |     2018
 

Executive Compensation > Compensation Discussion And Analysis

 

 

Our Capital Allocation Strategy Appropriately Balances Near Term Financial Performance With Sustainable Growth

 

Our recent financial performance and smart capital deployment decisions will benefit shareowners in the long term. In 2017, we continued to execute a balanced capital deployment strategy:

 

Repurchased nearly $2.9 billion in Honeywell shares;
   
Restructured and refinanced over $1.6 billion of our debt;
   
Announced a 12% increase in our dividend — since 2010, we have increased the dividend rate by 10% or more eight times; and
   
Deployed approximately $1 billion to capital expenditures and continued efforts to identify acquisitions that meet our disciplined return metrics.

 

 

PAY FOR PERFORMANCE

 

Honeywell Consistently Outperforms Our Peers

 

In ensuring alignment between pay and performance, the Management Development and Compensation Committee of the Board of Directors (“MDCC”) assesses Honeywell’s financial performance against two sets of peer data: 1) a group of 16 companies that we call our “Compensation Peer Group,” and 2) a smaller subset of the Compensation Peer Group we call our “Multi-Industry Peer Group” made up of Emerson Electric (“EMR”), General Electric (“GE”), 3M Corporation (“MMM”), and United Technologies (“UTX”), against whom we frequently compete for investor dollars. 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 cover Honeywell, and operates in a similarly diverse set of end markets on a global basis. See page 41 for a description of how the MDCC selected the Compensation Peer Group and page 42 for a description of how the MDCC uses certain non-GAAP financial information for both Honeywell and its peers in making compensation decisions.

 

2018     |     Proxy and Notice of Annual Meeting of Shareowners        |       33
 

Executive Compensation > Compensation Discussion And Analysis

 

For both the Compensation Peer Group and Multi-Industry Peer Group, the MDCC considers four primary indicators of relative financial performance: sales growth, earnings per share growth, net income growth, and return on invested capital. The charts below summarize our performance against both the Compensation Peer Group and the Multi-Industry Peer Group.

 

 

The MDCC is also mindful of financial metrics used by institutional investors, third-party analysts and the broader financial community to compare Honeywell’s performance against our peers. The following graphs show our performance versus the median of each of the Compensation Peer Group and the Multi-Industry Peer Group for three metrics over a three-year period ending in 2017.

 

 

The MDCC also carefully considers several different ratios that are important measures of Honeywell’s earnings performance compared to both the Compensation Peer Group Median and the Multi-Industry Peer Group Median. Shareowners have told us that they regard ROIC as a particularly important metric because it shows how well management is balancing delivery of short-term results against long-term sustainable growth. Honeywell’s three-year ROIC was 16.8%, which significantly outperformed both the Multi-Industry Peer Group Median and the Compensation Peer Group Median.

 

 

NOTE: Reconciliation, notes and definitions 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 on page 30 or in Appendix B.

 

34       |         Proxy and Notice of Annual Meeting of Shareowners     |     2018
 

Executive Compensation > Compensation Discussion And Analysis

 

Over the last five years, our EPS performance has been particularly impressive because it was accomplished during a period when many companies used share repurchase programs to boost their EPS. As the chart below demonstrates, net income growth significantly lagged EPS growth for the Multi-Industry Peer Group and the Compensation Peer Group, indicating that EPS growth was to some extent achieved by decreasing the number of shares outstanding through share buybacks. Specifically, the chart shows that Honeywell’s EPS compound annual growth rate exceeded each of the Multi-Industry Peer Companies and the median of the Compensation Peer Group over a five-year period even though we repurchased far fewer shares. Moreover, the strong correlation between net income and EPS growth at Honeywell is important because it means that our growth is more reflective of our true operational performance. Also significant is that Honeywell grew EPS faster than the Multi-Industry Peer Group while maintaining balance sheet capacity for future capital deployment.

 

 

We Continue To Create Value For Our Shareowners

 

Another important indicator of performance for the MDCC is our relative TSR performance. The following graph displays our annual and five-year cumulative TSR performance relative to the median of the Compensation Peer Group and the Multi-Industry Peer Group, as well as the S&P 500. Honeywell’s five-year cumulative TSR is more than triple the Multi-Industry Peer Group Median, and more than double the Compensation Peer Group Median.

 

 

2018     |     Proxy and Notice of Annual Meeting of Shareowners        |       35
 

Executive Compensation > Compensation Discussion And Analysis

 

ENGAGEMENT WITH SHAREOWNERS ON COMPENSATION

 

We routinely engage with our shareowners to better understand their views on our governance and compensation practices. Our Lead Director and MDCC Chair often participate in these engagements. The feedback we received from shareowners enabled the Board to better understand shareowners’ perspectives on our executive compensation programs, which resulted in significant changes to those programs. This led to 93% of shareowners voting in favor of ’Say on Pay’ for 2017.

 

The table below summarizes the feedback we received from shareowners and the changes we have made:

 

  What We Heard From Some
Shareowners
Design Changes
(for CEO and the entire Leadership Team*)
Change Takes Effect
ICP (Annual Incentive Compensation Plan) Want better visibility into how financial metrics and discretion factor into determining awards. 80% of target ICP awards to be based on performance against pre-established goals for EPS and Free Cash Flow. 20% based on qualitative assessment of individual performance. Completed. In effect for 2016 ICP Awards (paid March 2017).
Prefer resetting baseline to target each year over using the prior year actual award as the baseline. Reset annual baseline award to each leadership team member’s annual target ICP award as a percentage of base pay. Completed. In effect for 2017 ICP Awards.
       
Growth Plan (multi-year) The 2-year non-overlapping performance cycle viewed as too short, even with the delayed payout feature.

Replace the biennial cash-based Growth Plan with an annual share-based Performance Plan (i.e., PSUs) with 3-year overlapping performance cycles. Plan is 100% formulaic with performance measured against key financial metrics and relative TSR. Reporting full value in year of grant will eliminate lumpy reporting.

 

With respect to Mr. Cote’s 2016-2017 Growth Plan award, the MDCC retroactively changed the form of payout from all cash to all shares.

Completed. Initial grant of new 3-year PSUs awarded in 2017. Annual grants to be made thereafter.
The whole 2 years of value must be reported in the 2nd year, which leads to lumpy reporting.
Prefer long-term performance awards to be share-based instead of cash.
Desire a relative metric, such as TSR, to be added to the plan.
       
Form and Mix of Long-Term Incentive (“LTI”) Awards Investors prefer heavier weighting in performance-based equity other than stock options. Reduce weighting for stock options to ~25% of target LTI over two annual compensation cycles. Increase weighting for PSUs to 50%+ of target mix. RSUs will represent the remaining 25% of target LTI. Transition commenced in 2017 and will be completed in 2018.
RSUs granted every other July gives impression they are “one off” vs. part of regular program.

All annual LTI awards will be granted at the same time each year, generally in February.

 

Relative TSR performance requirements added to 100% of the biennial RSU awards made in 2016.

No RSU grants made in 2017. Starting in 2018, annual RSU grants to be made with weighting at ~25% of target LTI.

 

* Design changes apply to the CEO and all his executive direct reports (i.e., the “Leadership Team”). Mr. Cote was excluded from the LTI design changes in his final year with the Company as Executive Chairman.

 

36     |      Proxy and Notice of Annual Meeting of Shareowners     |     2018
 

Executive Compensation > Compensation Discussion And Analysis

 

EVOLUTION OF OUR COMPENSATION PROGRAM AND LINK TO BUSINESS STRATEGY AND PERFORMANCE

 

Over the period of 2016-2018, our compensation program is evolving from a program weighted more heavily in stock options to a program majority-weighted in Performance Stock Unit (“PSU”) awards, with all LTI grants to be made on an annual basis.

 

The table below provides an overview of our evolution, and demonstrates the strong link between each of our direct compensation elements and our business strategy and performance.

 

EXECUTIVE COMPENSATION PROGRAM EVOLUTION — 2017 ACTIONS

 

80% of the Annual Bonus was determined on a formulaic basis; 20% was qualitative
   
Shifted mix of Leadership Team LTI to be more heavily weighted in PSU awards; lower weight in options
   
Granted 3-year PSUs under the Performance Plan, which replaced the 2-year cash-based Growth Plan
   
Added Relative TSR as a metric in the Performance Plan
   

 

Timeline for Implementation of Executive Compensation Changes

 

 

 

 

     2016    2017    2018   LINK TO STRATEGY &
PERFORMANCE
                 
Base Salary   Base salaries are determined based on scope of responsibility, years of experience and individual
performance.
  To attract and compensate high-performing and experienced leaders at a competitive level of cash compensation.
                 
                 
                 
                 
                 
                 
Annual
Incentive
Compensation
Program
(“ICP”)
  Cash award; 80% based on formulaic determination against pre-established financial metrics. 20% based on assessment of individual performance. Prior year actual award as baseline   80% based on formulaic determination against pre-established financial metrics. 20% based on assessment of individual performance.

Reset annual baseline award to their annual target ICP as a percentage of base pay.
  To motivate and reward executives for achieving annual corporate, SBG and functional goals in key areas of financial and operational performance.
                 
                 
                 
                 
                 
Long Term
Incentive
Compensation
(“LTI”)*
 

 

Stock Options:

•   CEO: 66% of LTI

•   Other NEOs: 48% of LTI

 

 

 

 

 

 

Biennial Growth Plan Units:

•   CEO: 34% of LTI

•   Other NEOs: 24% of LTI

 

 

 

 

 

Performance Restricted Stock Units:

•   CEO: None

•   Other NEOs: 28% of LTI

•   3-Year Relative TSR

 

 

Stock Options:

•   Reduce weighting:

- CEO: 31% of LTI

- Other NEOs: 30% of LTI

 

 

 

 

3-Year Performance Plan:

•   Stock-based PSUs

•   Added relative TSR along with financial metrics

•   Ramp up weighting:

- CEO: 45% of LTI

- Other NEOs: 35% of LTI

 

 

 

 

 

Restricted Stock Units:

•   None issued

 

2017 annualized value of 2016 biennial Growth Plan and Performance RSU grants:

-   CEO: 24% of LTI

-   Other NEOs: 35% of LTI

 

 

Stock Options:

•   CEO and the whole Leadership Team: ~ 25% of annual LTI

 

 

 

  

3-Year Performance Plan

•   Stock-based PSUs

•   Relative TSR along with
financial metrics

•   CEO and the whole
Leadership Team: ~ 50%
of annual LTI

  

 

 

 

 

 

 

Restricted Stock Units:

•   CEO and the whole
Leadership Team: ~ 25%
of annual LTI

 

 

Directly aligns the interest of our executives with shareowners. Options only have value for executives if the operating performance results in stock price appreciation.

 

 

 

 

 

 

Focuses executives on the achievement of specific long-term financial performance goals directly aligned with our operating and strategic plans.

 

 

 

 

 

 

 

 

Encourages key executive retention.

 

* References to “CEO” and “Other NEOs” based on executive in the position as of December 31 for the year noted. For 2017 & 2018, “Other NEOs” excludes Mr. Cote in his interim role of Executive Chairman of the Board. 2016 and 2017 LTI weighting from MDCC perspective: annualizes 2016 biennial grants of Performance RSUs and Growth Plan units, which covered a 2-year period. Because of the shift to annual equity LTI grants from this point forward, 2017 is the last year this annualization treatment is required.

 

2018     |     Proxy and Notice of Annual Meeting of Shareowners      |     37
 

Executive Compensation > Compensation Discussion And Analysis

 

CEO SUCCESSION

 

On March 31, 2017, Mr. Darius Adamczyk succeeded Mr. David Cote as the Company’s President and Chief Executive Officer (“CEO”). Mr. Cote retained the position of Executive Chairman of the Board, which shareowners approved through April 2018.

 

The MDCC approved the following compensation arrangement for Mr. Adamczyk upon his promotion to CEO:

 

  An initial base salary of $1,500,000.
     
  A target annual incentive compensation opportunity of 175% of base salary.
     
  An initial LTI award with a target value of $12,000,000.
     
  Beginning in 2018, no less than 50% of his target annual LTI value will be in the form of Performance Stock Units.
     
  Participation in the Severance Plan for Designated Officers, which would provide 36 months of base salary continuation and target bonus if his employment is involuntarily terminated for a reason other than cause.

 

Mr. Adamczyk did not enter into a formal employment contract in connection with his promotion to CEO.

 

SUMMARY DESCRIPTION OF 2017 COMPENSATION DECISIONS FOR NEOS

 

The table below summarizes the 2017 compensation actions, which reflect the changes to the compensation program described above and are consistent with our commitment to align pay with company performance and the interests of our shareowners. Details about the compensation decisions made in 2017 are more fully discussed later in this Compensation Discussion and Analysis or “CD&A.”

 

        Other NEOs    
Pay Element   CEO (Mr. Adamczyk)   (excluding CEO & Chairman)   Comments
Base Salary   Base salary was increased to $1,500,000 as a result of his promotion to CEO in April 2017.  

Merit increases averaging 4.7% were approved.

 

Base increases to Messrs. Mahoney and Szlosek were their first increases since March 2015.

 

  Consistent with Mr. Cote’s 2016 CEO Continuity Agreement, his base salary was reduced from $1.89M to $500,000, when he stepped down as CEO and continued as Executive Chairman of the Board.

 

  Mr. Gautam is a first-year NEO.

Annual Incentive Compensation Program (“ICP”)  

ICP Target as CEO set at 175% of base salary.

 

Earned award paid at 131% of target, reflecting strong performance for his first year as CEO.

 

  Average earned award paid at 132% of individual target awards.  

  80% of payout based on company performance against the two pre-established ICP metrics of EPS and Free Cash Flow. For Messrs. Mahoney and Gautam, performance against SBG-level goals of Net Income and Free Cash Flow count toward half of their calculated award.

 

  20% of payouts were determined based on the MDCC’s qualitative assessment of individual performance and accomplishments (pages 46-48).

 

  As Executive Chairman, Mr. Cote’s 2017 ICP award was paid at 50% of his prior year actual ICP award.

Stock Options

– annual

 

 

Option grant represented initial grant as CEO.

 

Represented 31% of annualized LTI for 2017.

 

 

Option grant sizes reduced from 2016 consistent with planned changes to the compensation program.

 

In the aggregate, represented 30% of annualized LTI for 2017.

 

 

  Over 2017 and 2018, the MDCC will be lowering the target LTI weighting in stock options to ~25% of total LTI value.

 

  Final stock option grant was made to Mr. Cote as CEO prior to transitioning to the Executive Chairman role. Reflects potential impact of his leadership on future stock appreciation. No other equity was granted to Mr. Cote in 2017.

Performance Plan Stock Units (PSUs) – annual

 

 

Initial annual grant made under the 2017-2019 Performance Plan.

 

Represented 45% of annualized LTI for 2017.

 

Initial annual grant made under the 2017-2019 Performance Plan.

 

Represented 35% of annualized LTI for 2017.

 

  New three-year stock-based PSU Plan introduced in 2017 as part of compensation program changes. Will represent 50% of target LTI beginning in 2018.

 

  Earned awards will be determined at the end of the three-year performance period based on four equally weighted metrics: total revenue, average return on investment (“ROI”), average segment margin rate and total shareowner return relative to the Compensation Peer Group.

 

38     |      Proxy and Notice of Annual Meeting of Shareowners     |     2018
 

Executive Compensation > Compensation Discussion And Analysis

 

Pay Element   CEO (Mr. Adamczyk)   Other NEOs
(excluding CEO & Chairman)
  Comments
Growth Plan Units
(GPUs) – biennial
 

No award issued in 2017.

 

2016 grant earned at 61% of target for last biennial performance cycle.

 

Represented 10% of annualized LTI for 2017.

 

 

No awards issued in 2017.

 

2016 grants earned at 62% of target, on average, for last biennial performance cycle.

 

Represented 11% of annualized LTI for 2017.

 

 

  2016 was the last year that biennial cash-based GPU awards were made. No Growth Plan grant was made in 2017, but MDCC attributed half the 2016 award value to 2017. The Growth Plan has now been replaced by the stock-based PSU Plan.

 

  Earned awards under the 2016-2017 Growth Plan were determined based on performance against three pre-established financial targets measured over the two-year performance cycle: total revenue, return on investment (“ROI”) expansion and segment margin expansion.

Performance Restricted Stock Units (RSUs) – biennial  

No award issued in 2017.

 

Annualized value of 2016 biennial grant represented 14% of annualized LTI for 2016.

 

 

No awards issued in 2017.

 

Average annualized value of 2016 biennial grants represented 24% of annualized LTI for 2017.

 

 

  2016 was the last year of biennial RSU grants. No RSUs were granted in 2017, but MDCC attributed half the 2016 award value to 2017. Beginning in 2018, time-based RSUs will be granted annually as part of the regular LTI mix.

 

  100% of the 2016 Performance RSUs will be earned based on cumulative Total Shareowner Return (“TSR”) relative to the Compensation Peer Group performance over a 3-year period, followed by an extended time-vesting period.

 

2017 Compensation Summary:

 

Total Annual Direct Compensation For Each Named Executive Officer (NEOs)

 

The following table reflects 2017 annualized compensation amounts earned by the NEOs from the perspective of the MDCC*.

 

                    2017-2019   2016 Biennial-       Total Annual
        Base   Annual   Stock   Performance   Performance   2016-2017   Direct
NEO   Position   Salary   Bonus   Options   Plan-PSUs(A)   RSUs(B)   Growth Plan(C)   Compensation
Darius Adamczyk   President & CEO   $1,414,615   $3,275,000   $3,596,400   $5,254,000   $1,671,875   $1,224,000   $16,435,890
Thomas A. Szlosek   SVP - Chief Financial Officer   $865,039   $1,100,000   $1,798,200   $2,101,600   $1,337,500   $687,500   $7,889,839
Timothy O. Mahoney   Aerospace - President & CEO   $963,615   $1,540,000   $2,064,600   $2,232,950   $2,006,250   $450,000   $9,257,415
Krishna Mikkilineni   SVP- Engineering, Ops and IT   $785,769   $915,000   $1,798,200   $1,970,250   $1,471,250   $550,000   $7,490,469
Rajeev Gautam   PMT - President & CEO   $717,885   $1,040,000   $1,165,500   $1,576,200   $668,750   $772,500   $5,940,835
David M. Cote(D)   Executive Chairman & Former CEO   $900,962   $3,420,000   $9,990,000   $0   $0   $2,612,500   $16,923,462

 

* Table reflects the view of the MDCC by annualizing 2016 biennial awards over a 2-year period (half of the award was attributed to 2016 and half to 2017), which differs from how amounts are reported on the SEC Summary Compensation Table. This is the last year reporting on this basis with normalizaton in 2018 as part of the changes to the executive compensation program.
(A) Grant date value of the first annual award of 3-year Performance Stock Units (PSUs).
(B) Reflects 2017 portion of the 2016 biennial Performance-based RSU grant with 100% of payout tied to Honeywell’s relative TSR performance against Compensation Peer Group over 3-years, followed by longer-term vesting period. Last such biennial RSU grant prior to compensation program changes.
(C) Annualized amount earned from the 2016 biennial Growth Plan grant for the 2016-2017 performance cycle. Portion attributable to 2017. Plan discontinued after this payout.
(D) Mr. Cote not included in broader compensation program changes for last full year of employment as Executive Chairman. The 2017 stock option grant to Mr. Cote, was made while in the CEO role and represented his last LTl grant from Honeywell. No other LTl was granted to Mr. Cote in 2017. Mr. Cote will receive no other compensation for the five-year consulting services arrangement included in his June 2016 CEO Continuity Agreement, which will begin when he leaves the Board in April of 2018. Earned Growth Plan award to be settled in stock, pursuant to 2016 MDCC decision to reduce value of his compensation paid in cash in response to shareowner feedback.

 

2018     |     Proxy and Notice of Annual Meeting of Shareowners      |     39
 

Executive Compensation > Compensation Discussion And Analysis

 

OUR COMPENSATION PHILOSOPHY & APPROACH

 

Our executive compensation program creates long-term shareowner value through four key objectives:

 

1. Attract and Retain World-Class Leadership Talent with the ability and experience necessary to develop and execute business strategies; drive superior financial results; and nimbly adapt and react to constantly evolving end market conditions in an enterprise with our scale, breadth, complexity, and global footprint;
   
2. Emphasize 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 enterprise, business unit, and individual objectives as well as efforts to advance Honeywell’s long-term 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.

 

Each year, the MDCC reviews each NEO’s four-year compensation history in total and each element of total annual direct compensation. The MDCC also reviews projected benefit payments under Honeywell’s retirement and deferred compensation plans, and any previously granted awards or grants. This enables the MDCC 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.

 

Some of the key factors that shape the MDCC’s overall assessment of performance and appropriate levels of compensation include (in no particular order):

 

Operational and financial performance — for the entire corporation and the relevant business group;
   
Aggressiveness of each executive’s financial goals and targets compared to peers as well as the business/macroeconomic conditions in which our businesses operate;
   
Each executive’s long-term leadership potential and associated retention risk;
   
The extent which each executive made decisions or took actions that adversely impacted the current year’s financial performance but represented an investment that will benefit financial performance in future years;
   
The senior executive succession plan;
   
Stock price performance and total shareowner return;
   
Trends and best practices in executive compensation; and
   
Peer group comparisons, including performance, pay levels and related practices.

 

The MDCC reviews these factors over various time frames during the year to ensure a strong linkage between pay and performance.

 

Honeywell’s senior executives are recognized as industry leaders with backgrounds, depth of experience, and management skills that are highly attractive to competitors. The MDCC prefers to address critical retention and succession risks through the existing compensation program. It reserves the right, if deemed necessary, to take appropriate compensation actions that it believes are in the best interest of the Company and its shareowners to strengthen the succession plan and guard against the loss of key talent, especially during critical transition periods.

 

40       |         Proxy and Notice of Annual Meeting of Shareowners     |     2018
 

Executive Compensation > Compensation Discussion And Analysis

 

HOW COMPENSATION DECISIONS ARE MADE

 

Decision making over executive compensation rests with the MDCC, which holds six regularly scheduled meetings each year. Each meeting includes an executive session comprised solely of independent directors, and those meetings are attended by the MDCC’s independent compensation consultant. Meeting agendas contain items proposed by either management or the MDCC members.

 

In carrying out its responsibilities, the MDCC balances a number of important considerations, including:

 

The importance of aligning pay with Company and individual performance;
   
The need to attract, retain and reward executives with a proven track record of delivering consistent financial results and driving “seed-planting” initiatives that will create sustainable long-term shareowner value;
   
The complex multi-industry and global nature of our businesses and the importance of growth outside of the United States for future success;
   
The positioning of pay relative to the competitive market; and
   
The importance of maintaining and executing on a thorough and rigorous succession planning process.

 

To create long-term shareowner value, the MDCC believes that Honeywell’s compensation programs must be financially competitive and structured to drive sustained performance against our strategic and financial goals and objectives. The MDCC is focused on maintaining a compensation program for Honeywell that emphasizes variable, at-risk compensation and has an appropriate balance of near-term and long-term objectives. The MDCC also considers shareowner feedback and the results of the annual advisory vote on executive compensation in making determinations about the structure of Honeywell’s pay program.

 

OUR COMPETITIVE MARKET — COMPENSATION PEER GROUP

 

The MDCC 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. Our independent compensation consultant compiles compensation data on the Compensation Peer Group and presents this data to the MDCC on an annual basis.

 

This review includes a comparison of each element of compensation for Honeywell’s executive officers (including the NEOs) with that of comparable positions in each Compensation Peer Group company. The intent is to provide the MDCC with an understanding of Honeywell’s pay positioning relative to the competitive marketplace.

 

The MDCC also reviews the Compensation Peer Group on an annual basis with a focus on companies that have one or more of the following attributes:

 

Business operations in the industries and markets in which Honeywell participates;
   
Similar revenue and/or market capitalization;
   
Similar breadth of portfolio and complexity;
   
Global scope of operations and/or diversified product lines; and
   
Demonstrated competitor for executive talent.

 

The following provides a view of the multi-industry profile of Honeywell’s businesses in 2017:

 

 

In 2016, the MDCC made changes to the Compensation Peer Group to better reflect Honeywell’s evolving portfolio of businesses. This included adding Schlumberger Limited and Phillips 66 to better reflect Honeywell’s significant position in oil and gas industry through its UOP and HPS strategic business units.

 

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Executive Compensation > Compensation Discussion And Analysis

 

In 2017, the MDCC made one adjustment to the Compensation Peer Group by removing E.I Dupont de Nemours and Dow Chemical as a result of their planned merger and articulated plan to then split into three separate companies. This transformational activity would make financial comparisons difficult and less comparable during their transitions. It should also be noted that in comparing the financial performance of Honeywell to both the Compensation Peer Group and the Multi-Industry Peer Group, the MDCC uses certain non-GAAP financial information that both Honeywell and each peer company utilizes in its financial disclosure and investor presentations.

 

COMPENSATION PEER GROUP - 2017
                               
Company Name  Mkt Cap
(Current $M)
  Total Assets
($M)
  Revenue ($M)  # Employees  Total Shareholder Return (12/31/2017)
          1 Year  3 Years  5 Years  10 Years
HONEYWELL INTL INC  $115,159   $59,387   $40,534   131,000*  35%  64%  170%  220%
Multi-Industry Peer Group                              
3M CO  $140,188   $37,987   $31,657   91,536  35%  55%  186%  262%
EMERSON ELECTRIC CO  $44,506   $19,589   $15,264   76,500  29%  25%  54%  68%
GENERAL ELECTRIC CO  $151,328   $377,945   $122,092   313,000  -43%  -24%  -2%  -32%
UNITED TECHNOLOGIES  $101,874   $96,920   $59,837   205,000  19%  19%  75%  112%
Honeywell Percentile Rank   45%    45%    44%   45%  100%  100%  95%  91%
Honeywell Rank Order   3    3    3   3  1  1  2  2
Other Comp Peers                              
BOEING CO  $175,642   $92,333   $93,392   140,800  95%  147%  345%  339%
CATERPILLAR INC  $93,750   $76,962   $45,462   98,400  75%  92%  105%  191%
DEERE & CO  $50,593   $65,786   $29,738   60,500  55%  91%  105%  112%
EATON CORP PLC  $34,812   $32,600   $20,404   96,000  22%  29%  71%  124%
GENERAL DYNAMICS CORP  $60,747   $35,046   $30,973   98,600  20%  57%  225%  189%
ILLINOIS TOOL WORKS INC  $57,163   $16,780   $14,314   50,000  39%  88%  205%  299%
INGERSOLL-RAND PLC  $22,286   $18,173   $14,198   46,000  21%  49%  155%  186%
JOHNSON CONTROLS  $35,268   $51,884   $30,172   121,000  -5%  0%  55%  160%
LOCKHEED MARTIN CORP  $92,056   $46,521   $51,048   100,000  32%  81%  307%  325%
PHILLIPS 66  $51,739   $54,371   $104,622   14,600  21%  54%  118%  N/A
RAYTHEON CO  $54,305   $30,860   $25,348   64,000  34%  86%  267%  304%
SCHLUMBERGER LTD  $93,353   $71,987   $30,440   115,000  -17%  -15%  9%  -18%
                               
Honeywell Percentile Rank   93%    68%    70%   96%  65%  48%  57%  63%
Honeywell Rank Order   2    5    5   2  5  7  6  5
                               
ALL COMPENSATION PEERS                              
Honeywell Percentile Rank   82%    63%    64%   83%  74%  62%  63%  67%
Honeywell Rank Order   4    7    7   4  5  7  7  6

 

*Excludes 12,000 government contracted employees.

 

Note: In August 2016, MSCI and S&P Global changed in Honeywell’s sub-industry GICs code from “Aerospace & Defense” to “Industrial Conglomerates” to better reflect the Company’s more diversified set of businesses with activities in multiple sectors.

 

42       |         Proxy and Notice of Annual Meeting of Shareowners     |     2018
 

Executive Compensation > Compensation Discussion And Analysis

 

COMPENSATION PROGRAM DESCRIPTION

 

ELEMENTS OF 2017 TOTAL ANNUAL DIRECT COMPENSATION

 

 

 

2018     |     Proxy and Notice of Annual Meeting of Shareowners        |       43
 

Executive Compensation > Compensation Discussion And Analysis

 

PROGRAM ELEMENTS AND RELATED 2017 COMPENSATION DECISIONS

 

Annual Incentive Compensation Plan (“ICP”)

 

In 2017, the MDCC fully implemented changes in the methodology for determining annual ICP awards based on feedback received from some shareowners in 2016. Specific changes requested were that some portion of the annual bonus be formulaic and that baseline ICP amounts be reset to target each year (instead of using prior year actual payouts as the baseline, a discontinued prior practice). For 2017, ICP awards were determined by having 80% formulaic based on financial targets established by the MDCC at the beginning of 2017. 20% of the award was determined based on the MDCC’s qualitative assessment of individual performance against objectives for 2017 and the significant accomplishments listed on pages 46-48. The attainment percentage for both the formulaic and individual qualitative portions of the award can range from 0% to 200%.

 

The individual 2017 ICP Target Amounts for Messrs. Adamczyk, Szlosek, Mahoney, Mikkilineni, and Gautam were determined by multiplying their 2017 calendar year base salary by their individual ICP target award percentage. Individual ICP target percentages in 2017 were:

 

  Mr. Adamczyk: 175%
     
  Mr. Mahoney: 115%
     
  Messrs. Szlosek, Mikkilineni and Gautam: 100%.

 

As part of the CEO transition and for continued performance as Executive Chairman, Mr. Cote’s 2017 ICP Target Amount was set at $2,850,000, equal to half of his actual 2016 ICP payout.

 

ICP Formulaic Portion (80% of Target Award)

 

2017 ICP Goals:

 

The table below includes a description of each of the financial ICP targets and the relative weighting percentage for each target that is included in the formulaic portion of the ICP payout (i.e., 80%) for each NEO. The MDCC approved these targets in February 2017. The company-wide (“Total Honeywell”) targets for EPS and Free Cash Flow (“FCF”) were based on the midpoint of the external guidance that was communicated to our shareowners during our December 2016 outlook call.

 

For Messrs. Adamczyk, Szlosek, and Mikkilineni (the “Corporate NEOs”), the formulaic portion of their ICP award was based on Total Honeywell EPS and FCF. For Mr. Mahoney and Mr. Gautam (the “SBG-Level NEOs”), in addition to Total Honeywell EPS and FCF, the MDCC also established financial targets for Net Income and FCF for their SBGs of Aerospace and Performance Materials and Technologies (“PMT”), respectively.

 

Metric Significance ICP Weighting (formulaic)
       
    Corporate NEOs SBG-Level NEO
Earnings Per Share (“EPS”) Viewed as the most important measure of near-term profitability that has a direct impact on stock price and shareowner value creation. 50% 25%
SBG-Level Net Income Business unit measure of near-term profitability and contribution to overall company performance. - 25%
Free Cash Flow (Total Honeywell) 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. 50% 25%
SBG-Level Free Cash Flow Business unit contribution to overall company FCF performance. - 25%
    100% 100%

 

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Executive Compensation > Compensation Discussion And Analysis

 

2017 ICP Goals: Quantitative Targets:

 

Total Honeywell:

 

ICP Goal 2016 Actual* 2017 ICP Goal
(Target)
v. 2016
Actual*
Basis for 2017 Goals   2017 Threshold
(50% Payout)
2017 Maximum
(200% Payout)
EPS $6.46 $6.975 +8.0% Midpoint of initial guidance range communicated to investors in December 2016.   $5.58 $8.37
Honeywell FCF $4,291 million $4,650 million +8.4%   $3,720 million $5,580 million

 

Actual Performance against 2017 ICP Goals:

 

Total Honeywell:

 

ICP Goal 2017 ICP Goal
(Target)
  2017 Actual
Performance
Achievement
%
2017 Performance Metric
Payout
Percentage
  Corporate
NEO
Weighting
  Calculated
Payout
Percentage
EPS $6.975   $7.11 101.9%

Exceeded the Target ICP Goal for 2017.

 

Represented a 10.1% increase over 2016 Actual.*

 

New record-level of performance for the Company.

109.7%   50%   54.84%
Free Cash Flow $4,650 million   $4,935 million 106.1%

Exceeded the Target ICP Goal for 2017.

 

Represented a 15.0% increase over 2016 Actual.*

 

New record-level of performance for the Company.

130.6%   50%   65.32%
                     
          Total Calculated (Formulaic) Payout: Corporate NEOs 120.16%

 

* 2016 Actual restated to exclude impact of 2016 HTSI divestiture and the 2016 spin of the Resins & Chemicals business.

 

Aerospace:

 

Mr. Mahoney’s formulaic payout portion of ICP (80% of ICP) was based on performance against 2017 ICP goals for both Total Honeywell and Aerospace as follows:

 

ICP Goal 2017 ICP Goal
(Target)
  2017 Actual
Performance
Achievement % Metric Payout
Percentage
  SBG-Level
Weighting
  Calculated
Payout
Percentage
EPS $6.975   $7.11 101.9% 109.7%   25%   27.42%
Total Honeywell Free Cash Flow $4,650 million   $4,935 million 106.1% 130.6%   25%   32.66%
Aerospace Net Income $2,210 million   $2,488 million 112.6% 162.9%   25%   40.72%
Aerospace Free Cash Flow $2,436 million   $2,506 million 102.9% 114.4%   25%   28.59%
                   
      Total Calculated (Formulaic) Payout: Mr. Mahoney 129.40%

 

PMT:

 

Mr. Gautam’s formulaic payout portion of ICP (80% of ICP) was based on performance against 2017 ICP goals for both Total Honeywell and PMT as follows:

 

ICP Goal 2017 ICP Goal
(Target)
  2017 Actual
Performance
Achievement
%
Metric Payout
Percentage
  SBG-Level
Weighting
  Calculated
Payout
Percentage
EPS $6.975   $7.11 101.9% 109.7%   25%   27.42%
Total Honeywell Free Cash Flow $4,650 million   $4,935 million 106.1% 130.6%   25%   32.66%
PMT Net Income $1,446 million   $1,444 million 99.8% 99.6%   25%   24.90%
PMT Free Cash Flow $1,203 million   $1,442 million 119.8% 199.2%   25%   49.79%
                   
      Total Calculated (Formulaic) Payout: Mr. Gautam 134.78%

 

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Executive Compensation > Compensation Discussion And Analysis

 

ICP-Individual Qualitative Portion (20% of Target Award)

 

General Assessment:

 

The MDCC conducted a qualitative assessment to determine the individual qualitative portion of the ICP award payout, which accounted for 20 percent of the target award. The MDCC first reviewed overall industry conditions for each business segment and noted general 2017 accomplishments that were significant to understanding individual NEO performance. The following summarizes key aspects of that analysis:

 

Honeywell’s 2017 Performance And Critical Business Transformation Activities

 

4%   70 bps   10%   35%   12%
Organic   Margin   EPS   1-Year   FCF
Growth   Expansion   Growth   TSR   Growth

 

Completed successful CEO transition: continued superior financial performance, refocused strategic direction
Completed portfolio review and announced spin-offs that are anticipated to enhance value
Completed successful acquisition integrations (Intelligrated, Movilizer, RSI, Xtralis)
Expanded P/E multiple from 16.5x on January 1, 2017 to 21.6x at year-end, closing the gap with our Multi-Industry Peer Group
Grew segment profit more than two times the 2015/2016 average while funding nearly $350 million in restructuring
Completed the NextNine and SCAME Sistemi acquisitions and FLUX Information Technology joint venture in China

 

Honeywell 2017 Performance Relative To Peers

 

Net income growth of 9.6% vs. multi-industry peer median of 2.4%
Earnings per share growth of 10.1% vs. multi-industry peer median of 4.2%
Return on invested capital of 16.2% vs. multi-industry peer median of 11.8% and compensation peer median of 12.3%

 

Individual Assessments:

 

The MDCC then reviewed and considered the key 2017 activities and accomplishments for Mr. Adamczyk and each of the other NEOs, some of which are summarized below:

 

Mr. Adamczyk—Qualitative Considerations—President and CEO

 

Successfully transitioned into the role of CEO after our long-serving former CEO David M. Cote stepped down in April 2017.
   
Led Honeywell through an outstanding year of financial outperformance during which we delivered EPS growth of 10%, organic revenue growth of 4%, margin expansion of 70 basis points, and free cash flow growth of 12%. Our EPS growth, organic revenue growth, and free cash flow growth all exceeded the high-end of our initial guidance.
   
Under Mr. Adamczyk’s leadership, our financial performance exceeded that of our Multi-Industry Peers in organic sales, EPS, net income, and free cash flow growth.
   
Led a comprehensive strategic review of Honeywell’s business portfolio that resulted in our October 2017 announcement that Honeywell intends to separately spin off its Homes product portfolio and ADI global distribution business, as well as its Transportation Systems business, into two stand-alone, publicly-traded companies. As part of that portfolio review, Mr. Adamczyk engineered the transition and integration of our Smart Energy business unit, previously part of Home and Building Technologies, into the Process Solutions unit within Honeywell Performance Materials and Technologies.
   
Continued to deepen and strengthen Honeywell’s transformation into a software-industrial company through a focused organic and inorganic investment strategy across our business portfolio. Key accomplishments in 2017 in this regard include ongoing organic investments in the Honeywell Sentience platform for all software efforts; equity investment and creation of a joint venture with FLUX Information Technology in China (to accelerate the growth of our connected solutions to serve the needs of operators and workers in the supply chain); the acquisition of NextNine, a leading cyber-security software provider; the acquisition of SCAME Sistemi, a leading provider of fire and gas safety systems; and the launch of a $100 million investment fund that will invest in early-stage, high-growth technology companies that are strategically aligned to our portfolio and software capabilities. Our Connected software sales for the year were up 23%.
   
Launched a focused effort to improve Commercial Excellence, including driving improvements in strategic planning, strategy development, and execution of breakthrough initiatives; revitalizing our Velocity Product Development process; improving the effectiveness of our salesforce; and enhancing customer decision-making abilities through the use of the Honeywell User Experience and digital tools.
   
Continued to invest in business unit restructuring actions across all of our reporting segments. In 2017, we funded nearly $350 million toward portfolio restructuring actions that will contribute to our ability to deliver ongoing margin expansion for the years ahead.

 

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Executive Compensation > Compensation Discussion And Analysis

 

Mr. Szlosek — Qualitative Considerations — Finance

 

Led Honeywell’s financial reporting, analysis and planning organization and delivered EPS growth of 10%, organic revenue growth of 4%, margin expansion of 70 basis points, and free cash flow growth of 12%.
   
EPS, free cash flow, and organic revenue growth exceeded the high end of our initial guidance.
   
Among our Multi-Industry Peers, ranked No. 1 for free cash flow growth and No. 2 for EPS growth.
   
Provided key leadership in Honeywell’s strategic business portfolio review.
   
Built the Transportation Systems and Homes spin-off models and established transition teams and plans, including a roadmap for stranded cost elimination.
   
Significantly reduced Honeywell’s global effective tax rate to 21.0%, excluding the impact of the fourth quarter provisional charge related to tax legislation.
   
Executed a series of debt capital market transactions that enabled Honeywell to take advantage of historically low interest rates, lower its annual interest rate expense, and extend the tenure of its outstanding indebtedness.
   
Maintained Honeywell’s solid investment grade credit rating and sterling reputation in the debt capital markets.

 

Mr. Mahoney — Qualitative Considerations — Aerospace

 

Delivered strong Aerospace performance with a 2% increase in organic sales growth and a 10% increase in segment profit.
   
Led several successful platform and airline pursuits and certifications, including the selection of Honeywell’s 131-9 auxiliary power unit as standard technology on the Airbus A320, and the critical certifications of the Textron Longitude engine and integrated avionics certifications on the Embraer E2, Pilatus PC-24, and Gulfstream G500.
   
Continued to grow our Connected Aircraft business by double digits, driven by JetWave revenue growth of 63%; completed over 20 aircraft certifications; and delivered the first defense platform installation with the Royal Australian Air Force.
   
Drove significant commercial aviation aftermarket growth of 6% on the strength of software and services through our GoDirect offerings supporting maintenance, fuel efficiency and cabin services. These offerings were selected for the Dassault Falcon Connect and major global airlines, including Cathay Pacific, KLM, Japan Airlines, Tiger Airways, and Royal Jordanian.
   
Oversaw manufacturing excellence improvements and footprint consolidation efforts that generated over 5% factory productivity while improving quality, product producibility, and consistency of delivery, and contributing to substantial fixed-cost reduction.
   
Led successful new product introductions, including the new Primus Epic Touch Screen cockpit and Primus Elite LCD displays. Launched new breakthrough business offerings for Industrial Inertial Measurement Units and Unmanned Aerial Vehicles for use in adjacent, non-aerospace markets.
   
Continued to expand in High Growth Regions. Achieved double digit growth in China and helped enable the successful first flight of the COMAC C919 platform. Established a new business and distribution center in Malaysia that will help drive significant revenue growth in the region.

 

Mr. Mikkilineni — Qualitative Considerations — Engineering, Ops and IT

 

Oversaw Honeywell Technology Solutions (“HTS”), which was involved in 35-40% of Honeywell’s global new product introductions (“NPI”) and continues to provide Honeywell a competitive advantage in product development. Expanded HTS global capability to Latin America.
   
Drove significant cost savings initiatives while maintaining high levels of customer satisfaction through centralization of the IT function and the deployment of process/data standards while ensuring a robust cyber-safety discipline.
   
Attained Honeywell Operating System (“HOS”) world-class performance for five sites globally based on results and maturity. Improved end-to-end improvement in integrated supply chain performance via the introduction of a new order-to-cash operating system.
   
Established a center of excellence (“COE”) focused on company-wide logistics and material management to drive consolidation of Honeywell’s warehouse and distribution footprint and reducing logistics and distribution spend.
   
Opened a new U.S.-based connected software center in Atlanta that is now fully operational. Recruited top-calibre software resources into the company, leveraging a formal evaluation system called multiplier assessment.

 

2018     |     Proxy and Notice of Annual Meeting of Shareowners        |       47
 

Executive Compensation > Compensation Discussion And Analysis

 

Mr. Gautam — Qualitative Considerations — Performance Materials & Technologies

 

Delivered strong PMT organic revenue growth of 8%, exceeding the peer group and outperforming in a slow oil and gas market recovery.
   
Grew segment profit 4% in 2017, with consistent performance across PMT’s strategic business units driven by productivity and commercial excellence initiatives.
   
Positioned PMT for success into 2018 by expanding long-cycle backlog 8%, driven by significant orders growth. Won key global oil and gas projects in China and the Middle East.
   
Achieved 24% growth in breakthrough growth initiatives such as Connected Plant and Cyber Security.
   
Oversaw successful launches of key growth capex initiatives, including the Solstice plant in Geismar, LA, enabling double-digit Solstice® revenue growth.
   
Led performance in High Growth Regions, including double-digit growth in China and India, driven by sales force deployment and localization.
   
Acquired NextNine, an industry leader in security solutions and secure remote service capabilities, which enhances Honeywell’s existing range of innovative cyber security technologies and significantly increases Honeywell’s Connected Plant cyber security customer base.

 

Mr. Cote — Qualitative Considerations — Executive Chairman (CEO through March 30, 2017)

 

Delivered strong Q1 results and set the stage for Honeywell’s strong financial performance in 2017.
   
Assisted Mr. Adamczyk in his transition to CEO in April 2017 which was widely regarded as one of the most successful CEO transitions in the Multi-Industrial space as noted by analysts and investors.
   
Conducted extensive outreach to investors in the US and abroad, participating in numerous investor events leading up to and after Mr. Adamczyk’s appointment to CEO.
   
Ensured leadership continuity in his role of Executive Chairman-provided counsel and direction to Mr. Adamczyk and the Leadership Team during the comprehensive strategic review of Honeywell’s business portfolio.

 

Approved ICP Payout Amounts

 

After applying the formulaic payout percentages described above (80% weight) and deciding individual performance attainment percentages for each NEO based on their qualitative assessment (20% weight), the MDCC approved 2017 ICP payments as follows:

 

  FormulaicPortion(2)   Qualitative Portion(2)   Total Individual   Target ICP   Actual 2017
        Payout +       Payout = ICP Payout x Award = ICP Award
  Attainment x Weight %   Attainment x Weight %   Percentage   Amount(5)   (rounded)
Mr. Adamczyk 120.16%   80% 96.1 %   175.3%   20% 35.1%   131.2%   $2,496,986   $3,275,000
Mr. Szlosek 120.16%   80% 96.1 %   154.3%   20% 30.9%   127.0%   $866,466   $1,100,000
Mr. Mahoney 129.40% (3) 80% 103.5 %   176.2%   20% 35.2%   138.7%   $1,110,034   $1,540,000
Mr. Mikkilineni 120.16%   80% 96.1 %   100.2%   20% 20.0%   116.1%   $787,808   $915,000
Mr. Guatam 134.77% (4) 80% 107.8 %   184.3%   20% 36.9%   144.7%   $718,904   $1,040,000
Mr. Cote 120.16%   80% 96.1 %   119.5%   20% 23.9%   120.0%   $2,850,000   $3,420,000

 

(1) Attainment based on performance against 2017 ICP Goals and application of leverage table. Attainment can range from 0% to 200%.
   
(2) Attainment based on MDCC assessment. Attainment can range from 0% to 200%. Payout % can range from 0% to 40%.
   
(3) Formulaic attainment percentage for Mr. Mahoney includes 50% of award based on full year Aerospace performance against Aerospace ICP goals
   
(4) Formulaic attainment percentage for Mr. Gautam includes 50% of award based on full year PMT performance against PMT ICP goals.
   
(5) Target ICP award amounts are equal to each NEOs 2017 calendar year base salary multiplied by their individual Target ICP award percentage, except for Mr. Cote, whose target award amount was fixed at $2,850,000 (50% of his prior year actual ICP payout). Details for others:

 

  2017 Base   Individual Target   Target ICP
  Salary(1)  x  ICP Award % = Award Amount
Mr. Adamczyk $1,426,849   175%   $2,496,986
Mr. Szlosek $866,466   100%   $866,466
Mr. Mahoney $965,247   115%   $1,110,034
Mr. Mikkilineni $787,808   100%   $787,808
Mr. Guatam $718,904   100%   $718,904
(1) Reflects the ICP applicable base salary for the 2017 calendar year


 

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Executive Compensation > Compensation Discussion And Analysis

 

Maximum Aggregate and Individual ICP Award Caps

 

Aggregate Spending Caps: The maximum aggregate amount of ICP awards that can be paid to all senior executive employees, including the NEOs, is 2.0% of the Company’s consolidated earnings. The actual spending was well under the permitted cap.

 

Individual Caps: The maximum individual ICP award that can be paid to the CEO is 0.4% of Consolidated Earnings. The maximum individual ICP award that can be paid to any other employee is 0.2% of Consolidated Earnings. Individual ICP awards are also capped at 200% of each NEO’s individual Target ICP award amount. Actual 2017 ICP awards to the NEOs were significantly below the individual caps.

 

LONG-TERM INCENTIVE COMPENSATION (“LTI”)

 

The mix of LTI awards to the NEOs for 2017 reflects the evolution of our LTI program, with full implementation of the new program mix to occur in 2018.

 

In 2017, the NEOs were granted Performance Stock Units (“PSUs”) under the new Performance Plan for the 2017-2019 performance period along with a reduced number of Stock Options (with lower weight in the mix). The MDCC also attributed half of the biennial Performance RSUs and Growth Plan awards granted to the NEOs in 2016 as compensation for 2017, as these grants covered a 2-year period. After 2017, all LTI will be granted on an annual basis, as biennial grants are now phased out.

 

The following reflects the shift in LTI to a program more heavily weighted toward PSUs, as described earlier on page 37.

 

 

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Executive Compensation > Compensation Discussion And Analysis

 

Description of 2017 LTI Program Elements

 

2017-2019 Performance Plan

 

The Performance Plan is a share-based long-term incentive plan introduced in 2017, under which a target number of PSUs were issued to each NEO (except Mr. Cote as Executive Chairman) for the performance period January 1, 2017 through December 31, 2019. The actual number of PSUs earned by each NEO will be determined at the end of the three-year period based on Company performance as measured by the following four equally weighted performance metrics:

 

3-year Cumulative Revenue
(25% weight)
Measures the effectiveness of our organic growth strategies, including new product introduction and marketing and sales effectiveness, as well as projected growth in our end markets.
Performance Plan targets were developed from a 2016 revenue baseline of $38.8B, which reflects the inclusion of pre-2017 acquisitions and the removal of pre-2017 divestitures for the full year.
Reported revenue will be adjusted to exclude the impact of corporate transactions (e.g., acquisitions, divestitures, spin-offs) and fluctuations in foreign currency rates.
     
3-Year Average Segment Margin %
(25% weight)
Focuses executives on driving continued operational improvements and delivering synergies from recent corporate actions and acquisitions.
Performance Plan targets were developed from a 2016 baseline of 18.1%, which reflects the inclusion of pre-2017 acquisitions and the removal of pre-2017 divestitures for the full year.
 
Results will not be adjusted for foreign currency changes over the cycle.
     
3-Year Average ROI
(25% weight)
Focuses leadership on making investment decisions that deliver a high level of profitability.
Performance Plan targets were developed from a 2016 ROI baseline of 19.7%, which reflects the inclusion of pre-2017 acquisitions and the removal of pre-2017 divestitures for the full year.
Results will not be adjusted for foreign currency changes over the cycle.
     
Relative TSR
(25% weight)
Measures Honeywell’s three-year cumulative TSR relative to the 2017 Compensation Peer Group over the Plan’s three-year performance plan.
The beginning point for TSR determination (all companies) will be based on 30 trading days from the beginning of the measurement period. The ending point will be based on 30 days leading up to the end of the measurement period.

 

In February 2017, the MDCC established the actual performance goals for the 2017-2019 performance period. Goals were set for the total Company (“Total Company”) and separately for each of the SBGs. For Corporate NEOs, including the CEO, awards are earned based on performance against the performance metrics stated above. For SBG-level NEOs (i.e., SBG Presidents), the financial goals portion of the award (75% at target) is based 50% on performance against goals set for their respective SBG and 50% against the Total Company goals.

 

The table below sets out each metric at the Total Company level, their respective goals for the three-year period, and the number of PSUs that would be earned at each specified level of performance. No PSUs will be earned for a metric if performance falls below the noted threshold. If the Company’s performance for any of the performance metrics falls between the percentages listed on the table, the percentage of PSUs earned shall be determined by linear interpolation. The total number of PSUs that may be earned can range from 0% to 200% of the target number of PSUs originally awarded.

 

Performance Goals for 2017-2019 PSU Awards

 

  3-YEAR CUMULATIVE
REVENUE ($M)
% of PSUs 3-YEAR AVERAGE
SEGMENT
MARGIN RATE
% of PSUs 3-YEAR
AVERAGE ROI
% of PSUs 3-YEAR RELATIVE
SHAREHOLDER RETURN
% of PSUs TOTAL % of
PSUs
No payout below $113,809 0% below 18.80% 0% below 20.4% 0% below 35th Percentile 0% 0%
Threshold -   -   -   35th Percentile* 6.25% 6.25%
$113,809 12.5% 18.8% 12.5% 20.4% 12.5% 40th Percentile 12.5% 50%
Target $117,937 25% 19.3% 25% 21.1% 25% 50th Percentile 25% 100%
  $120,000 37.5% 19.55% 37.5% 21.5% 37.5% 60th Percentile 37.5% 150%
Maximum $122,064 50% 19.8% 50% 21.9% 50% >= 75th Percentile 50% 200%
  * Represents Threshold for the relative TSR metric.    

 

50       |         Proxy and Notice of Annual Meeting of Shareowners     |     2018
 

Executive Compensation > Compensation Discussion And Analysis

 

The targets for each of the three operational metrics of the 2017-2019 Performance Plan were established based on levels of performance contemplated in the Company’s 2017 annual operating plan (“AOP”), external guidance, and its five-year strategic plan (“STRAP”). Targets also reflect expectations about the external environment, changes in the portfolio, historical trends, and performance versus peers. Cumulative revenue targets were based on the midpoint of external revenue guidance for 2017, which also aligned with 2016 world GDP growth. The 2018 and 2019 revenues were based on 2014-2016 average actual organic growth. Average margin targets were based on the midpoint of external margin guidance for 2017, which was at the high end of multi-industry peer group, and incremental growth in both 2018 and 2019 adjusted for the expected foreign currency headwind from 2017 hedges. For average ROI targets, net income before interest (“NIBI”)-the ROI numerator-was based on the after-tax profit dollars implied in the revenue and margin targets and the same level of after-tax, below-the-line cost included in 2017 EPS guidance. Net Investment-the ROI denominator-was based on AOP and STRAP depreciation, amortization, capex, and working capital improvement adjusted to drive more than 2 percentage points of ROI expansion through 2019. The MDCC believes the growth reflected in these targets is expected to motivate performance that will continue to drive high levels of total shareowner returns relative to our peers.

 

2017-2019 Performance Plan Awards to NEOs

 

PSUs were awarded to the NEOs (other than Mr. Cote) for the 2017-2019 performance period in the first quarter of 2017:

 

  # of
PSUs
Grant Date
Value*
Mr. Adamczyk 40,000 $5,254,000
Mr. Szlosek 16,000 $2,101,600
Mr. Mahoney 17,000 $2,232,950
Mr. Mikkilineni 15,000 $1,970,250
Mr. Gautam 12,000 $1,576,200

 

* Grant Date Value of $131.35 determined based on the fair market value of Honeywell stock on the date of grant of $124.99 for the three internal financial metrics, and a value of $150.44 for the TSR metric, based on a multifactor Monte Carlo simulation conducted by an independent valuation service provider.

 

At the end of the three-year performance period, the total number of PSUs earned for each NEO shall be determined on a strictly formulaic basis. Dividend equivalents applied during the vesting period as additional PSUs will be adjusted based on the final number of PSUs earned. 50% of the resulting PSUs earned will be converted to shares of Company common stock and issued to each NEO, subject to the holding period requirements for officers (see page 58). The remaining 50% shall be converted to cash based on the fair market value of a share of Honeywell stock on the last day of the performance period and paid to each NEO in the first quarter following the end of the performance period.

 

Stock Options

 

As part of the transitional changes to the overall compensation program in response to prior year shareowner feedback, stock options granted to the NEOs in 2017 represented a lower percentage of the overall LTI mix and will ramp down again in 2018 to represent approximately 25% of the total LTI mix (other than to Mr. Cote). The MDCC believes that stock options continue to be an important element for focusing executives on actions that drive long-term stock appreciation.

 

Award to Mr. Adamczyk: In February 2017, the MDCC granted Mr. Adamczyk 216,000 stock options, with an exercise price of $124.99 and a grant date value of $3,596,400.

 

In setting the Stock Option grant size for Mr. Adamczyk, the MDCC considered the overall value and mix of long-term incentive awards being made to CEOs in the Compensation Peer Group companies along with the grant date value of his 2017 Performance Plan PSU grant and the annualized value of the 2017 portion of his biennial Growth Plan award and Performance RSU grant made in 2016. On this basis, Mr. Adamczyk’s 2017 stock option grant represented 31% of his total LTI for 2017.

 

Stock options granted to Mr. Adamczyk, and all the other NEOs, vest 25% per year over four years, and have a 10-year term to exercise. The strike price for the 2017 annual stock options is $124.99, which was the fair market value of Honeywell stock on the date of grant (February 28, 2017). The grant date value was determined using a Black-Scholes value of $16.65 per share as provided by a third-party valuation company.

 

Awards to other NEOs: For each of the other NEOs, the MDCC considered various factors in determining grant sizes, such as:

 

Each NEO’s leadership impact and expected contribution toward the overall success of Honeywell.
   
The size of previous grants of stock options awarded to each NEO.
   
The transitional reduction in percentage of LTI delivered as stock options in 2017 vs. 2016, consistent with the ramp down of stock options in the overall LTI mix.
   
The amount of vested and unvested equity each NEO holds.
   
The annualized value of the 2017 portion of each NEO’s biennial Growth Plan award and Performance RSU grant made in 2016.
   
The value and mix of long-term incentive awards granted to comparable named executive officers at the Compensation Peer Group companies.

 

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Executive Compensation > Compensation Discussion And Analysis

 

The following table presents the number of stock options granted to the other NEOs along with their respective grant date values.

 

  # of Stock
Options
Awarded
Grant Date Value
Mr. Szlosek 108,000 $1,798,200
Mr. Mahoney 124,000 $2,064,600
Mr. Mikkilineni 108,000 $1,798,200
Mr. Gautam 70,000 $1,165,500
Mr. Cote 600,000 $9,990,000

 

Granted on February 28, 2017. The grant date value was determined using a Black-Scholes value of $16.65 per share.

 

The 2017 stock option grant to Mr. Cote was made while in the CEO role and represented his last LTI grant from Honeywell. The MDCC considered this grant in the context of the overall CEO succession activities and the expected impact on future stock appreciation from his continued leadership as Executive Chairman and post-retirement availability as a consultant. No other LTI was granted to Mr. Cote in 2017. Mr. Cote will receive no other direct compensation or consulting fees for the five-year consulting services arrangement included in his June 2016 CEO Continuity Agreement, which will begin when he leaves the Board in April 2018.

 

2016-2017 Growth Plan

 

Our Growth Plan was a long-term incentive plan that provided performance-contingent, cash-based incentive awards to focus executives on achievement of objective, two-year financial metrics. In response to shareowner feedback received in 2016, the MDCC determined in 2017 that Growth Plan Unit (“GPU”) awards granted in 2016 for the 2016-2017 Growth Plan performance cycle would be the last biennial cycle awards under the Growth Plan, and that the new 3-year, share-based Performance Plan (discussed on pages 50-51) would be implemented in its place.

 

Summary of Growth Plan (now discontinued)
GPUs were granted every other year (non-overlapping cycles). The 2016-2017 cycle grant was made in February 2016.
Each GPU had a 2-year target value of $100 ($50 when annualized).
Performance was measured against three equally weighted internal performance metrics. For each metric, a required minimum level of achievement (i.e. threshold) needed to be attained before the plan would fund for that metric.
Goals for each metric were established at the total company level (“Total HON”) and for each SBG.
At the end of the 2-year performance cycle, payouts were determined on a purely formulaic basis.
Individual earned amounts were paid in cash in two installments. 50% was paid in March of the year following the completion of the performance cycle, with the remaining 50% paid a year later as a retention tool.

 

At the beginning of 2016, the MDCC set goals for the 2016-2017 Growth Plan based on financial metrics which were directly aligned with long-term strategic goals of the Company.

 

At the end of the performance cycle, calculated payouts for executives working in an SBG were based 50% on Total HON performance and 50% based on the performance of their SBG against separate SBG-level Growth Plan goals. An executive who transferred between SBGs at any time during the two-year performance cycle, had their earned payout prorated based on the time spent in each respective SBG.

 

52       |         Proxy and Notice of Annual Meeting of Shareowners     |     2018
 

Executive Compensation > Compensation Discussion And Analysis

 

Performance Summary:

 

The following table presents the rigorous performance goals that were set for the 2016-2017 biennial Growth Plan performance cycle, and how the Company performed against those goals at the Total HON level:

 

 

 

Note: Growth Plan results exclude the impact of items not contemplated in the targets including mid-cycle acquisitions, divestitures and spin-offs, incremental restructuring, changes in accounting, changes in pension, and impact of significant and unusual or infrequently occurring items such as tax reform.

 

Calculated payments for the SBGs were: Aerospace 36%, PMT 103%, HBT 43%, and SPS 48%. The “low level” of pay out for this performance cycle underscores the formulaic basis and pay-for-performance alignment of the compensation program.

 

Recap: Awards under the 2016-2017 Growth Plan cycle were earned at a low level based on a combination of factors. Performance was weighed down significantly by a very challenging macroeconomic environment in 2016, especially in Aerospace. The cumulative Total Revenue target required 2% and 3% organic growth in 2016 and 2017 which, given market conditions, proved to be too aggressive. The 2017 revenue performance also put pressure on the 2017 segment margin performance. Growth Plan margins partially recovered in 2017 from the slowed momentum in 2016, landing just at the 50% achievement threshold for performance against that metric.

 

The following table presents the target number of GPUs granted to each NEO in February 2016, and the annualized value of the final earned awards attributed to 2017:

 

   # of GPUs
Awarded for
2016-2017
Performance
Cycle
x Annualized
Growth Plan
Unit Value at
($100/2) (1)
= Annualized
Target Award
Value (2)
x Final Pay Out
Percentage
(based on
Business Unit)
= Earned Award
Attributable to
2017 (2) (3)
  Reported on
Summary
Compensation
Table (5)
Mr. Adamczyk   40,000    $50     $2,000,000    61.2%   $1,224,000    $2,448,000 
Mr. Szlosek   25,000    $50   $1,250,000    55%   $687,500    $1,375,000 
Mr. Mahoney   25,000    $50   $1,250,000    36%   $450,000    $900,000 
Mr. Mikkilineni   20,000    $50   $1,000,000    55%   $550,000    $1,100,000 
Mr. Gautam   15,000    $50    $750,000    103%   $772,500    $1,545,000 
Mr. Cote(4)   95,000    $50   $4,750,000    55%   $2,612,500    $5,225,000 
(1) Represents the target value of one GPU shown on an annualized basis (i.e., $100 unit value divided by 2) consistent with MDCC’s approach for biennial awards.
(2) Consistent with how the MDCC assigns value when planning NEO compensation, which considers the Growth Plan as being earned 50% in the first year of the performance cycle (2016) and 50% in the second year of the performance cycle (2017).
(3) Represents the portion of the earned award under the biennial Growth Plan attributable to 2017. The full earned award is shown in the column to the right. 50% of the full earned award was paid in March 2018 and the remaining 50% will be paid in March 2019, subject to continued employment with the Company.
(4) The earned award to Mr. Cote is being settled in shares of Honeywell stock which must be held for at least one year, in accordance with a decision by the MDCC in 2016 to reduce the portion of his compensation paid in cash.

 

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Executive Compensation > Compensation Discussion And Analysis

 

(5) As a cash-based award, SEC rules require that the full amount of the 2016-2017 Growth Plan earned award for the two-year performance cycle be reported on the Summary Compensation Table as a component of Non-Equity Compensation for 2017. This treatment is inconsistent with how the MDCC has historically viewed the Growth Plan when planning NEO compensation (see note 2 above). As a result of the discontinuance of the biennial Growth Plan in 2017 and the implementation of annual stock-based awards under the Performance Plan, this inconsistency between reporting and planning NEO compensation will be eliminated beginning in 2018.

 

Mr. Adamczyk’s 2016-2017 Growth Plan earned award was determined on prorated basis using the PMT payout percentage for the number of days he worked in PMT in 2016 and using the Total HON payout percentage for the number of days he worked in Corporate in 2016 and 2017 as both COO and CEO.

 

Messrs. Szlosek, Mikkilineni and Cote, who worked in Corporate for the full performance cycle, had their 2016-2017 Growth Plan earned awards determined based on the Total HON performance.

 

Messrs. Mahoney and Gautam, who each worked in the same SBG for the full performance cycle, had 50% of their 2016-2017 Growth Plan earned award determined based on the Total HON performance and 50% based on the performance of their respective SBGs.

 

Growth Plan — Timing of Payouts

 

Historically, grants under the Growth Plan were made every other year and earned awards were then paid in two installments after the end of the performance cycle to normalize payouts and provide an additional retention incentive. Due to the planned discontinuance of the Growth Plan, in 2017 there was a one-year transitional overlap of the 2016-2017 Growth Plan with the 2017-2019 Performance Plan to avoid a gap year in payout opportunity and facilitate the transition to the revised compensation structure that will be fully implemented in 2018. The following table shows the performance and payout cycle of the new Performance Plan and how the transitional overlap with the final Growth Plan will work.

 

 

Performance Restricted Stock Units (“Performance RSUs”)

 

No Performance RSUs were granted to the NEOs in 2017. As part of the broader changes in the overall executive compensation program that will be fully implemented in 2018, the MDCC determined that 2016 would be the final year of issuing biennial Performance RSU grants. Beginning in 2018, RSUs will be reintroduced and granted annually as part of the regular LTI mix. As was the case with the biennial Growth Plan, because the Performance RSUs granted in 2016 covered two years, the MDCC attributed half of the grant date value to 2017 when planning compensation for the NEOs.

 

In response to feedback from shareowners, in 2016, the MDCC made 100% of the biennial Performance RSU awards contingent on relative TSR performance. Prior biennial performance-based RSU grants to officers had 30% of the payout linked to relative TSR performance.

 

The target number of Performance RSUs issued to the NEOs in 2016 is shown in the table below. The actual number of shares earned will be determined based on Honeywell’s relative TSR performance against the Compensation Peer Group over a three-year period (August 1, 2016 - July 31, 2019). The target number of shares will be earned if Honeywell’s TSR is at the 50th percentile versus our Compensation Peer Group. No shares will be earned unless Honeywell’s relative TSR performance is at least 35th percentile.

 

54       |         Proxy and Notice of Annual Meeting of Shareowners     |     2018
 

Executive Compensation > Compensation Discussion And Analysis

 

The complete payout matrix related to the Performance RSUs follows:

 

Honeywell’s
Relative TSR
Percentile
Rank
Shares
Earned as
% of Target
>=75th 200%
60th 150%
50th 100%
40th 50%
35th 25%
<35th 0%

 

Extrapolate payout % for intermediate relative TSR points on matrix.

Beginning point for TSR determination based on 30 trading days from beginning of 3-year measurement period.

Ending point based on 30 trading days to end of measurement period.

 

After the three-year performance-period is over, earned shares will be subject to an additional time vesting period, which may vary by NEO. The table below shows the target number of Performance RSUs that were granted to each NEO in 2016 and the related vesting periods. The extended vesting periods are intended to strengthen the retention of these key executives in support of the company’s management development and succession plans.

 

2016 Performance RSU Awards

 

NEO Target # of
Shares(1)*
Grant Date
Value(2)
Vesting(3) Attributed to
2017 by MDCC(4)
Mr. Adamczyk 25,000 $3,343,750 33% in 3 years; 33% in 5 years; 34% in 7 years $1,671,875
Mr. Szlosek 20,000 $2,675,000 33% in 3 years; 33% in 5 years; 34% in 7 years $1,337,500
Mr. Mahoney 30,000 $4,012,500 50% in 3 years; 50% in 5 years $2,006,250
Mr. Mikkilineni 22,000 $2,942,500 33% in 3 years; 33% in 5 years; 34% in 7 years $1,471,250
Mr. Gautam 10,000 $1,337,500 50% in 3 years; 50% in 5 years $668,750
Mr. Cote No grant $0   $0
(1) Performance RSUs with 100% of payout tied to Honeywell’s relative TSR performance against Compensation Peer Group over three years, followed by longer-term vesting period.
(2) Based on grant date value of $133.75, which reflects performance features. Valuation conducted by independent valuation company.
(3) Reflects longer time-vesting period. First three years corresponds with the relative-TSR performance period.
(4) Reflects annualized value attributed to the 2017 Compensation year by the MDCC. This is the last cycle with this treatment prior to program design changes.
* Prior to adjustment made pursuant to the spinoff of AdvanSix Inc. from Honeywell on October 1, 2016. The impact of this adjustment, and applied dividend equivalents, are reflected in the outstanding stock awards reported on the Outstanding Equity Awards table on page 64.

 

Note: Because these equity awards were granted in 2016, the full grant date value was reported as Stock Awards for 2016 in the prior year’s Proxy Statement. Amounts are discussed in this CD&A because the MDCC attributes half the value to 2017. Beginning in 2018, as part of the changes to the overall compensation program, this treatment will be discontinued.

 

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Executive Compensation > Compensation Discussion And Analysis

 

OTHER COMPENSATION & BENEFIT PROGRAMS

 

RETIREMENT PLANS

 

We offer various retirement benefits to our NEOs. Specifically, depending upon when and where they joined the Company, some 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. More information on retirement benefits can be found beginning on page 67.

 

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 to defer 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 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 70.

 

BENEFITS AND PERQUISITES

 

Our NEOs are entitled to participate in Honeywell-wide benefits such as life, medical, dental, and 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 executive-level personnel, including the NEOs. Mr. Cote 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 and Executive Chair to use Honeywell aircraft for all air travel (business or personal) to ensure the personal security of these officers and protect the confidentiality of our business. The security plan for the CEO and Executive Chair also provides for 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.

 

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Executive Compensation > Compensation Discussion And Analysis

 

COMPENSATION PRACTICES & POLICIES

 

BEST PRACTICES

 

The MDCC regularly reviews best practices in governance and executive compensation and has revised Honeywell’s policies and practices over time, as follows:

 

GOVERNANCE AND EXECUTIVE COMPENSATION POLICIES AND PRACTICES

 

Shareowner Engagement

 

Directors and management participate in direct engagement with shareowners.

 

Upon a Change in Control

 

No excise tax gross-ups for any new officers since 2009.
   
No 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 base on business performance rather than target.

 

Balanced use of Performance Metrics to align pay with performance

 

Use different sets of operational metrics for ICP and performance-based LTI to drive top and bottom-line growth over multiple time frames, aligned with our goal of sustained long-term performance.
   
Added three-year relative TSR to performance stock awards beginning in 2016.

 

Eliminated perquisites

 

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

 

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.

 

Stock Ownership and other requirements for executive officers

 

Require executive officers to hold and maintain Common Stock equal in value to at least four times their base salary (six times for the CEO).
   
Require executive officers to hold the net shares from vesting of RSU and PSU grants and the net gain shares from option exercises for at least one year.
   
Require automatic reinvestment of dividend equivalents on RSU/PSU awards into additional RSUs/PSUs, which vest according to the same schedule as the underlying awards 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 other consideration) or reloading of stock options.
   
Prohibit hedging and pledging of shares by our executive officers and directors.

 

Independent Compensation Consultant

 

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

 

Guard the Company against competitive harm

 

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

 

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Executive Compensation > Compensation Discussion And Analysis

 

RISK OVERSIGHT CONSIDERATIONS

 

The MDCC 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.

 

The following compensation design features 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, and internal controls 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.

 

MDCC review and approval of Corporate, SBG and individual executive officer objectives 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 performance indicators, thus diversifying the risk associated with any single performance indicator;
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 payout caps and design features that are intended to balance pay for performance with an appropriate level of risk taking. The MDCC 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 if there is 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.

&n