DEF 14A 1 c90543_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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[  ] Soliciting Material Pursuant to §240.14a-12

Pitney Bowes Inc.
(Name of Registrant as Specified In Its Charter)
 
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

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3001 Summer Street
Stamford, Connecticut 06926

 

Notice of the 2018
Annual Meeting and
Proxy Statement

 

To the Stockholders:

 

We will hold our 2018 annual meeting of stockholders at 9:00 a.m. on Monday, May 7, 2018 at the Hyatt Regency Hotel, 1800 East Putnam Avenue, Old Greenwich, Connecticut 06870. The Notice of Meeting and Proxy Statement and accompanying proxy card describe in detail the matters to be acted upon at the meeting.

 

It is important that your shares be represented at the meeting. Whether or not you plan to attend, please submit a proxy through one of the three convenient methods described in this proxy statement in order for your shares to be voted at the meeting. Your vote is important so please act at your first opportunity.

 

We have elected to furnish proxy materials and the Annual Report to Stockholders, including the Report on Form 10-K for the year ended December 31, 2017, to many of our stockholders via the Internet pursuant to Securities and Exchange Commission rules. We urge you to review those materials as well as our proxy statement for information on our financial results and business operations over the past year. The Internet availability of our proxy materials affords us an opportunity to reduce costs while providing stockholders the information they need. On or about March 23, 2018, we started mailing to many of our stockholders a Notice of Internet Availability of Proxy Materials containing instructions on how to access our proxy statement and annual report and how to submit a proxy online along with instructions on how to receive a printed copy of the proxy statement and annual report. We provided a copy of the annual meeting materials to all other stockholders by mail or through electronic delivery.

 

If you receive your annual meeting materials by mail, the Notice of Meeting and Proxy Statement, Annual Report to Stockholders, including the Report on Form 10-K for the year ended December 31, 2017 and proxy card are enclosed. Whether or not you plan to attend the annual meeting in person, please mark, sign, date and return your proxy card in the enclosed prepaid envelope, or submit your proxy via telephone or the Internet, as soon as possible in order for your shares to be voted at the meeting. If you received your annual meeting materials via e-mail, the e-mail contains voting instructions and links to the proxy statement and annual report on the Internet, which are also available at www.proxyvote.com. If you decide to attend the annual meeting and wish to change your vote, you may do so by submitting a later dated proxy or by voting in person at the annual meeting.

 

We look forward to seeing you at the meeting.

 

Michael I. Roth
Non-Executive Chairman of the Board

 

Stamford, Connecticut
March 23, 2018

 

 

Notice of Meeting:

 

Annual Meeting Information

 

Time and Date:  Monday, May 7, 2018 at 9:00 a.m.
Place:  Hyatt Regency Hotel, 1800 East Putnam Avenue, Old Greenwich, Connecticut 06870
Requirements for Attending the Meeting:  Admission ticket, which is attached to your proxy card, or Notice of Internet Availability of Proxy Materials, together with a form of valid, government-issued photo identification, such as a driver’s license. If your shares are held in the name of a bank, broker or nominee, you must present proof of your ownership as of the record date (such as bank or brokerage account statement).
Record Date:  March 9, 2018
Voting:  Registered stockholders as of the record date (March 9, 2018) are entitled to submit proxies by Internet at www.proxyvote.com; telephone at 1-800-690-6903; or completing your proxy card; or you may vote in person at the annual meeting. If you hold your shares through a broker, bank, trustee or other nominee, you are a beneficial owner and should refer to instructions provided by that entity on voting methods.

 

Important Notice Regarding the Availability of Proxy Materials for the Stockholders Meeting to be held on May 7, 2018:

 

Pitney Bowes’ 2018 Proxy Statement and Annual Report to Stockholders, including the Report on Form 10-K for the year ended December 31, 2017, are available at www.proxyvote.com.

 

The items of business at the annual meeting are:

 

  1. Election of 11 directors named in the proxy statement.
     
  2. Ratification of the Audit Committee’s Appointment of the Independent Accountants for 2018.
     
  3. Non-binding Advisory Vote to Approve Executive Compensation.
     
  4. Approval of the Pitney Bowes Inc. 2018 Stock Plan.

 

Stockholders also will act on such other matters as may properly come before the meeting, including any adjournment or postponement of the meeting.

 

March 9, 2018 is the record date for the meeting.

 

This proxy statement and accompanying proxy card are first being distributed or made available via the Internet beginning on or about March 23, 2018.

 

Daniel J. Goldstein

Executive Vice President, Chief Legal Officer & Corporate Secretary

 

NOTICE: Your vote is important. Brokers are not permitted to vote on any proposals to be considered at the meeting except on proposal 2, ratification of the Audit Committee’s appointment of the Independent Accountants for 2018, without instructions from the beneficial owner. Therefore, if your shares are held through a broker, please instruct your broker, bank or other nominee on how to vote your shares. For your vote to be counted with respect to proposals 1, 3 or 4, you will need to communicate your voting decisions to your broker, bank, financial institution or other nominee.

 

TABLE OF CONTENTS

 

    Page
     
Proxy Summary   5  
       
Annual Meeting Information   6  
The Annual Meeting and Voting   6  
Annual Meeting Admission   6  
Outstanding Shares and Vote Entitlement   6  
How do I vote?   6  
May I revoke my proxy or change my vote?   6  
What constitutes a quorum?   6  
What vote is required for a proposal to pass?   7  
How are votes counted?   7  
Proposal 4: Approval of the Pitney Bowes Inc. 2018 Stock Plan   7  
Who will count the votes?   7  
Want more copies of the proxy statement? Getting too many copies?   7  
Want Electronic Delivery of the Annual Report and Proxy Statement?   8  
Stockholder Proposals and Other Business for the 2019 Annual Meeting   8  
       
Corporate Governance   8  
Board of Directors   9  
Leadership Structure   9  
Management Succession Planning   10  
Board Composition, Skills and Experience Review, and Board Succession Planning   10  
Role of the Board of Directors in Risk Oversight   10  
Director Independence   11  
Communications with the Board of Directors   11  
Board Committees and Meeting Attendance   12  
Audit Committee   12  
Executive Committee   12  
Executive Compensation Committee   13  
Finance Committee   13  
Governance Committee   13  
Directors’ Compensation   14  
Relationships and Related-Person Transactions   16  
Compensation Committee Interlocks and Insider Participation   17  
Security Ownership of Directors and Executive Officers   17  
Beneficial Ownership   18  
Section 16(a) Beneficial Ownership Reporting Compliance   18  
       
Proposal 1: Election Of Directors   19  
Director Qualifications   19  
Nominees for Election   20  
Vote Required; Recommendation of the Board of Directors   20  
Nominees   20  
3
    Page
     
Report of the Audit Committee   25  
       
Proposal 2: Ratification of the Audit Committee’s Appointment of the Independent Accountants for 2018   26  
Principal Accountant Fees and Services   26  
Vote Required; Recommendation of the Board Of Directors   26  
       
Proposal 3: Non-Binding Advisory Vote to Approve Executive Compensation   27  
Vote Required; Recommendation of the Board Of Directors   29  
       
Proposal 4: Approval of the Pitney Bowes Inc. 2018 Stock Plan   30  
       
Equity Compensation Plan Information   38  
       
Report of the Executive Compensation Committee   38  
       
Compensation Discussion and Analysis   39  
       
Executive Compensation Tables and Related Narrative   62  
       
Additional Information   75  
Solicitation of Proxies   75  
Other Matters   75  
Annex A: Pitney Bowes Inc. 2018 Stock Plan   76  
4

PROXY SUMMARY

Meeting Agenda Items

 

Proposal 1: Election of Directors

 

You are being asked to elect eleven directors, which constitute the entire board. Each of the director nominees is standing for election to a one-year term ending at the next annual meeting of stockholders in 2019 and until his or her successor has been duly elected and qualified.

 

All current directors attended at least 75% of the meetings of the board and board committees on which they served in 2017.

 

The board of directors recommends that stockholders vote FOR the election of all the director nominees.

 

Proposal 2: Ratification of the Audit Committee’s Appointment of the Independent Accountants for 2018

 

The board is asking stockholders to ratify the selection of PricewaterhouseCoopers LLP as our independent accountants for 2018.

 

The board of directors recommends that stockholders vote FOR the ratification of PricewaterhouseCoopers LLP as our independent accountants for 2018.

 

Proposal 3: Non-binding Advisory Vote to Approve Executive Compensation

 

The board is asking stockholders to approve, on a non-binding advisory basis, the compensation of the named executive officers as disclosed in this proxy statement. The board has determined to hold this advisory vote on an annual basis. The next advisory vote is expected to take place at the 2019 annual meeting of stockholders.

 

The board of directors recommends that stockholders vote FOR the approval of executive compensation on an advisory basis.

 

Proposal 4: Approval of the Pitney Bowes Inc. 2018 Stock Plan

 

The board is asking stockholders to approve the Pitney Bowes Inc. 2018 Stock Plan (the “2018 Stock Plan”). The 2018 Stock Plan will govern grants of stock-based awards to employees and authorize a maximum of 14,000,000 shares, in addition to any shares associated with outstanding awards under prior plans that cease to be subject to such awards. Any shares authorized but not awarded under our current 2013 Stock Plan will be extinguished under the 2013 Stock Plan upon approval of the 2018 Stock Plan.

 

The board of directors recommends that stockholders vote FOR the proposal to approve the Pitney Bowes Inc. 2018 Stock Plan.

5

 

 

Annual Meeting Information

 

The Annual Meeting and Voting

 

Our board of directors is soliciting proxies to be used at the annual meeting of stockholders to be held on May 7, 2018, at 9:00 a.m. at the Hyatt Regency Hotel, 1800 East Putnam Avenue, Old Greenwich, Connecticut 06870, and at any adjournment or postponement of the meeting. This proxy statement contains information about the items being voted on at the annual meeting.

 

Annual Meeting Admission

 

An admission ticket, which is required for entry into the annual meeting, is attached to your proxy card if you hold shares directly in your name as a registered stockholder. If you plan to attend the annual meeting, please submit your proxy but keep the admission ticket and bring it to the annual meeting.

 

If your shares are held in the name of a bank, broker or nominee and you plan to attend the meeting, you must present proof of your ownership of Pitney Bowes stock as of the record date (such as a bank or brokerage account statement) to be admitted to the meeting.

 

If you have received a Notice of Internet Availability of Proxy Materials (a “Notice”), your Notice is your admission ticket. If you plan to attend the annual meeting, please submit your proxy, but keep the Notice and bring it to the annual meeting.

 

Stockholders also must present a form of photo identification, such as a driver’s license, in order to be admitted to the annual meeting. No cameras, recording equipment, large bags, or packages will be permitted in the annual meeting. Many cellular phones have builtin cameras, and, while these phones may be brought into the annual meeting, neither the camera nor the recording functions may be used at any time.

 

For directions to the meeting, you may contact our Investor Relations, Pitney Bowes Inc., 3001 Summer Street, Stamford, Connecticut 06926.

 

Outstanding Shares and Vote Entitlement

 

Each share of Pitney Bowes common stock has one vote. In addition, we have two classes of preferred stock issued and outstanding: the 4% Preferred Stock and the $2.12 Preference Stock. The 4% Preferred Stock can be converted into 24.24 shares of common stock in certain events but does not carry any voting rights. As of March 9, 2018 (the record date), there were twelve shares of the 4% Preference Stock outstanding. The $2.12 Preference Stock can be converted into 16.53 shares of common stock in certain events and each share of the $2.12 Preference Stock carries with it 16.53 votes. Record holders of the common stock and the Preference Stock at the close of business on the record date of March 9, 2018 can vote at the meeting. As of the record date, 187,103,143 shares of common stock, and

15,590 shares of the $2.12 Preference Stock were issued and outstanding. If converted into common stock, the twelve shares of 4% preferred stock would be converted into 290 shares of common stock. The 15,590 shares of $2.12 Preference Stock can be converted into 257,702 shares of common stock.

 

How do I vote?

 

If you are a registered stockholder which means you hold shares in your name, you may choose one of three methods to submit your proxy to have your shares voted:

 

you may submit your proxy on-line via the Internet by accessing the following website and following the instructions provided: www.proxyvote.com;

 

you may submit your proxy by telephone (1-800-690-6903); or

 

if you received your annual meeting material by mail, you also may choose to grant your proxy by completing and mailing the proxy card.

 

Alternatively, you may attend the meeting and vote in person.

 

If you hold your shares through a broker, bank, trustee or other nominee, you are a beneficial owner and should refer to instructions provided by that entity on voting methods. Please note that if you are a beneficial owner and you wish to vote in person at the meeting, you must first obtain a legal proxy issued in your name from the broker, bank, trustee or other nominee that holds your shares.

 

May I revoke my proxy or change my vote?

 

If you are a registered stockholder, you may revoke your proxy or change your vote at any time before your proxy is voted at the meeting by any of the following methods:

 

you may send in a revised proxy dated later than the first proxy;

 

you may vote in person at the meeting; or

 

you may notify the Corporate Secretary in writing prior to the meeting that you have revoked your proxy.

 

Attendance at the meeting alone will not revoke your proxy.

 

If you hold your shares through a broker, bank, trustee or other nominee, you are a beneficial owner and should refer to instructions provided by that entity on how to revoke your proxy or change your vote.

 

What constitutes a quorum?

 

The holders of shares representing a majority of the votes entitled to be cast at the annual meeting constitutes a quorum. If you submit your proxy by Internet, telephone or proxy card, you will be considered part of the quorum. Abstentions and broker non-votes are included in the count to determine a quorum.


6

GENERAL INFORMATION

 

What vote is required for a proposal to pass?

 

If a quorum is present, director candidates receiving the affirmative vote of a majority of votes cast will be elected. Proposals 2, 3 and 4 will be approved if a quorum is present and a majority of the votes cast by the stockholders are voted for the proposal.

 

How are votes counted?

 

You may vote “for”, “against” or “abstain” with respect to each of the proposals presented. A vote “for” will be counted in favor of the proposal or respective director nominee and a vote “against” will be counted against each proposal or respective nominee.

 

Your broker is not permitted to vote on your behalf on any proposals to be considered at the meeting except on proposal 2, the ratification of the selection of PricewaterhouseCoopers LLP as independent accountants for 2018, unless you provide specific instructions by completing and returning the voting instruction form or following the instructions provided to you to vote your stock via telephone or the Internet. If you do not own your shares of record, for your vote to be counted with respect to proposals 1, 3 or 4, you will need to communicate your voting decisions to your broker, bank, financial institution or other nominee.

 

Under New York Stock Exchange rules, if your broker holds your shares in its “street” name, the broker may vote your shares in its discretion on proposal 2 if it does not receive instructions from you.

 

If your broker does not have discretionary voting authority and you do not provide voting instructions, or if you abstain on one or more agenda items, the effect would be as follows:

 

Proposal 1: Election of Directors

 

Broker non-votes and abstentions would not be votes cast and therefore would not be counted either for or against. As a result, broker non-votes and abstentions will have no effect in the election of directors.

 

Proposal 2: Ratification of Audit Committee’s Appointment of the Independent Accountants for 2018

 

If you choose to abstain in the ratification of the Audit Committee’s selection of the independent accountants for 2018, the abstention will have no effect on the ratification of the Audit Committee’s selection of the independent accountants for 2018.

 

Proposal 3: Non-binding Advisory Vote to Approve Executive Compensation

 

The vote to approve executive compensation is an advisory vote and the results will not be binding on the board of directors or the Company. The board of directors will review the results and take them into consideration when making future decisions regarding executive compensation. Broker non-votes and abstentions are not considered votes cast and therefore will not be counted either for or against. As a result, broker non-votes and

abstentions will have no effect on the advisory vote to approve executive compensation.

 

Proposal 4: Approval of the Pitney Bowes Inc. 2018 Stock Plan

 

Broker non-votes are not considered votes cast and therefore will not be counted either for or against this proposal. With respect to abstentions, for purposes of approval under our By-laws, abstentions are not considered votes cast and therefore will not be counted either for or against; however, for purposes of approval under New York Stock Exchange rules, abstentions are treated as votes cast, and, therefore, will have the same effect as an “against” vote.

 

How do Dividend Reinvestment Plan participants or employees with shares in the 401(k) plans vote by proxy?

 

If you are a registered stockholder and participate in our Dividend Reinvestment Plan, or our employee 401(k) plans, your proxy includes the number of shares acquired through the Dividend Reinvestment Plan and/or credited to your 401(k) plan account.

 

Shares held in our 401(k) plans are voted by the plan trustee in accordance with voting instructions received from plan participants. The plans direct the trustee to vote shares for which no instructions are received in the same proportion (for, against or abstain) indicated by the voting instructions given by participants in the plans.

 

Who will count the votes?

 

Broadridge Financial Solutions, Inc. (Broadridge) will tabulate the votes and act as Inspector of Election.

 

Want more copies of the proxy statement? Getting too many copies?

 

Only one Notice or, if paper copies are requested, only one proxy statement and annual report to stockholders including the report on Form 10-K are delivered to multiple stockholders sharing an address unless one or more of the stockholders provide contrary instructions to us or, if applicable, to your bank or broker. This process is commonly referred to as “householding”.

 

You may request to receive a separate copy of these materials, and we will promptly deliver the requested materials.

 

Similarly, you may request to receive a separate copy of these materials in the future, or if you are receiving multiple copies, you may request delivery of a single copy in the future.

 

Requests can be made to:

 

Broadridge Householding Department by phone at 1-866-540-7095 or by mail to:

 

Broadridge Householding Department
51 Mercedes Way
Edgewood, New York 11717.

 

If you own shares of stock through a bank, broker or other nominee, please notify that entity if you no longer wish to participate in householding and would prefer to


7

GENERAL INFORMATION

 

receive a separate copy of these materials, or if you are receiving duplicate copies of these materials and wish to have householding apply.

 

Additional copies of our annual report to stockholders, including the report on Form 10-K or the proxy statement will be sent to stockholders free of charge upon written request to:

 

Investor Relations, Pitney Bowes Inc.

3001 Summer Street

Stamford, CT 06926-0700.

 

Want Electronic Delivery of the Annual Report and Proxy Statement?

 

We want to communicate with you in the way you prefer. You may receive:

 

GENERAL INFORMATION

a Notice of Internet Availability of Proxy Materials or a full set of printed materials, including the proxy statement, annual report and proxy card; or

 

an email with instructions for how to view the annual meeting materials and vote online.

 

If you received the Notice of Internet Availability of Proxy Materials or a full set of annual meeting materials by mail, you may choose to receive future annual meeting materials electronically by following the instructions when you vote online or by telephone. With electronic delivery, you will receive an e-mail for future meetings listing the website locations of these documents and your choice to receive annual meeting materials electronically will remain in effect until you notify us that you wish to resume mail delivery of these documents. If you hold your Pitney Bowes stock through a bank, broker, trustee or other nominee, you should refer to the information provided by that entity for instructions on how to elect this option. This proxy statement and our 2017 annual report may be viewed online at www.pitneybowes.com.

Stockholder Proposals and Other Business for the 2019 Annual Meeting

 

If a stockholder wants to submit a proposal for inclusion in our proxy material for the 2019 annual meeting, which is scheduled to be held on Monday, May 6, 2019, it must be received by the Corporate Secretary by the close of business on November 23, 2018. Also, under our By-laws, a stockholder can present other business at an annual meeting, including the nomination of candidates for director, only if written notice of the business or candidates is received by the Corporate Secretary no earlier than the close of business on January 7, 2019 and no later than the close of business on February 6, 2019. However, in the event that the date of the 2019 annual meeting is more than 30 days before or more than 60 days after the anniversary of our 2018 annual meeting, then the stockholder’s notice must be delivered no earlier than the close of business on the 120th day prior to the meeting and no later than the close of business on the later of the 90th day prior to the meeting or, if the first public announcement of the date of the annual meeting is less than 100 days prior to the date of such meeting, the 10th day after the first public announcement of the meeting date. There are other procedural requirements in the By-laws pertaining to stockholder proposals and director nominations. The By-laws are posted on our Corporate Governance website at www.pitneybowes.com under the caption “Our Company—Our Leadership & Governance—Corporate Governance.” If notice of a matter is not received within the applicable deadlines or does not comply with the By-laws, the chairman of the meeting may refuse to introduce such matter. If a stockholder does not meet these deadlines, or does not satisfy the requirements of Rule 14a-4 of the Securities Exchange Act of 1934, the persons named as proxies will be allowed to use their discretionary voting authority when and if the matter is raised at the annual meeting.


 

Corporate Governance

 

We encourage stockholders to visit our Corporate Governance website at www.pitneybowes.com under the caption “Our Company—Our Leadership & Governance—Corporate Governance” for information concerning governance practices, including the Governance Principles of the board of directors, charters of the committees of the board, and the directors’ Code of Business Conduct and Ethics. Our Business Practices Guidelines, which is the Code of Ethics for employees, including our Chief Executive Officer (CEO) and our named executive officers (NEOs), is also available at “Our Company—Corporate Responsibility—Values & Ethics.” We intend to disclose any future amendments or waivers to certain provisions of the directors’ Code of Business Conduct and Ethics or the Business Practices Guidelines on our website within four business days following the date of such amendment or waiver.

 

Investor Outreach. It is our practice to contact many of our stockholders over the course of the year to seek their views on various governance topics and executive

compensation matters. In the spring of 2017, we reached out to stockholders representing approximately 49% of outstanding company shares, and in the fall 2017, we reached out to stockholders representing approximately 51% of outstanding company shares. We value the feedback we receive concerning the board’s leadership structure, governance practices, the company’s proxy statement, and emerging governance and executive compensation. With those stockholders who responded to our invitation in the fall of 2017, we discussed corporate governance practices, executive compensation policies and our approach to the board’s role in risk mitigation oversight, including its oversight of our cybersecurity efforts. Our investors generally have provided positive feedback on these topics, and this year our investors suggested that we continue to review our compensation and rewards programs to attract and retain top talent. Refer to section Stockholder Engagement—Executive Compensation on page 46 for further details regarding Investor Outreach.


8

GENERAL INFORMATION

 

Key Corporate Governance Practices Enhancing the Board’s Independent Leadership, Accountability and Oversight

 

Separate Chairman and CEO. Our Governance Principles include well-defined responsibilities, qualifications and selection criteria with respect to the Chairman role. The board has appointed Michael I. Roth, an independent director, as Non-Executive Chairman. In addition to chairing the Executive and Finance Committees, Mr. Roth is a member of the Audit Committee and attends most of the other board committee meetings as well.

 

Independent Committees. The board of directors has determined that all board committees, other than the Executive Committee, should consist entirely of independent directors.

 

Executive Sessions. At each regular board meeting, our independent directors meet without the CEO or other members of management present to discuss issues, including matters concerning management. The Non-Executive Chairman presides at these executive sessions.

 

Majority Voting in Director Elections. Our By-laws provide that in uncontested elections, director nominees must be elected by a majority of the votes cast.

 

Annual Election of Directors. Our By-laws provide that our stockholders elect all directors annually.

 

Stock Holding Requirements. Within five years of becoming a director, each board member is expected to accumulate and hold company common stock having a minimum aggregate market value of five times the annual base cash retainer.

 

No Hedging or Pledging. Directors may not pledge or transfer for value Pitney Bowes securities, engage in short-term speculative (“in and out”) trading in Pitney Bowes securities, or participate in hedging and other derivative transactions, including short sales, “put” or “call” options, swaps, collars or similar derivative transactions, with respect to Pitney Bowes securities.

 

Annual Assessments. Every year, the full board, as well as each board committee, conducts a self-assessment to evaluate all aspects of the board or board committee, including the members of the board and the board’s leadership. Each committee as well as the full board reviews and discusses the self-assessments and implements any appropriate action. In some years, the board engages a third party advisor for assistance in the self-assessment, as it did in 2016. The third-party advisor provides feedback in separate discussions with the full board and the Governance Committee as well as in individual discussions with the Chairman and with the Chair of the Governance Committee.

 

Board of Directors

 

Leadership Structure

 

The board of directors has separated the roles of Chairman and CEO. Michael I. Roth, an independent director, is our Non-Executive Chairman of the board of directors last reappointed by the board for an additional one-year term in May 2017. The board of directors believes it should have the flexibility to establish a leadership structure that works best for the company at a particular time, and it reviews that structure from time to time, including in the context of a change in leadership. The board believes that its current leadership structure best serves the objective of effective board oversight of management at this time and allows our CEO to focus primarily on the operations and management of the company, while leveraging the experience of the Non-Executive Chairman to lead the board.

In addition to his responsibilities in chairing the meetings of the board and of the Finance and Executive Committees, Mr. Roth is a member of the Audit Committee and attends most of the meetings of the two committees on which he is not a member. Mr. Roth is also actively involved as an advisor to the Chief Executive Officer through frequent conversations, bringing to bear his experiences as a CEO and his experiences from his service on other boards.

 

The board of directors has established well-defined responsibilities, qualifications and selection criteria with respect to the Chairman role. This information is set forth in detail in the Governance Principles of the Board of Directors, which can be found on our website at www.pitneybowes.com under the caption “Our Company—Our Leadership & Governance—Corporate Governance.”


9

CORPORATE GOVERNANCE

 

Management Succession Planning

 

Among the board’s most important responsibilities is to oversee short and long-term succession planning and leadership development. As part of this process, the Governance Committee oversees long-term and short-term plans for CEO succession. The board of directors is responsible for evaluating the performance of the CEO and for selection of successors to that position. The criteria used when assessing the qualifications of potential CEO successors include, among others, strategic vision and leadership, operational excellence, financial management, ability to motivate employees, and an ability to develop an effective working relationship with the board. The Governance Principles of the Board of Directors, which are posted on the company’s website at www.pitneybowes.com under the caption

“Our Company—Our Leadership & Governance—Corporate Governance,” include additional information about succession planning.

 

Periodically, but not less than annually, the board of directors considers management’s recommendations concerning succession planning for senior management roles other than the role of CEO. As part of this process, the board reviews development plans to strengthen and supplement the skills and qualifications of internal succession candidates.

 

As a result of these processes, the company announced several senior management changes in 2017. These are discussed in the Compensation Discussion & Analysis (CD&A) section beginning on page 39.


 

Board Composition, Skills and Experience Review, and Board Succession Planning

 

The Governance Committee periodically updates and reviews the skills and types of experience that should be represented on the board of directors in light of the company’s current business needs and future strategy. The committee then compares these desired skills and experiences to those which current board members possess to determine whether all the identified skills and experience are sufficiently represented on the board. Based upon its review, and on its discussion with the CEO, the committee may recommend to the board that additional expertise is advisable. The committee would then develop for the board’s consideration a skills and experience profile to be used in identifying additional board candidates as appropriate.

 

The board believes that, in planning for board succession, it is advisable to maintain a board that includes both experienced directors with extensive knowledge of the company’s businesses, as well as newer directors who can refresh the board’s collective experience and expertise as business needs require. The board, as well as each of its committees, circulates to its members on an annual basis, a performance assessment questionnaire. The results of the assessment are reviewed by the respective committees, with a view toward taking action to address issues presented. The Governance Committee assesses the contributions of each director annually, and determines the skill set required for new members joining the board. The average tenure of our board members is approximately 12 years.

 

Pitney Bowes’ Governance Principles provide for directors to retire from the board at the annual meeting fol-

lowing reaching the age of 72. Both Eduardo Menascé and Michael Roth are 72. The Governance Committee (other than Mr. Menascé) and then all of the independent directors of the board (other than Mr. Menascé) have asked Mr. Menascé, the chair of the Compensation Committee, to serve on the board for one additional year at which point Mr. Menascé will retire from the board. The other independent directors reached this conclusion in light of the company’s ongoing transformation and the need to consider whether any changes in the compensation plans are appropriate during this transformation. The other independent directors thus deemed it in the best interest of the company to ask Mr. Menascé to stay on the board and remain chair of the Compensation Committee for one additional year. In addition, the Governance Committee and then all of the independent directors (other than Mr. Roth) asked Mr. Roth to continue to serve on the board and as Non-Executive Chairman of the board. The other independent members of the board reached this conclusion based upon their view that Mr. Roth is a strong and effective leader for the board. This view has been consistently articulated in the outside assessment done for the board in 2016 and the self-assessment the board conducted in the middle of 2017. Given the company’s ongoing, significant transformation efforts, the other independent board members concluded that it is in the best interest of the company to maintain continuity in the chairmanship role. Going forward, the Governance Committee and the other independent board members will evaluate on an annual basis whether it remains in the best interest of the company for Mr. Roth to continue to serve on the board.


 

Role of the Board of Directors in Risk Oversight

 

The board of directors is responsible for oversight of the risk assessment and risk management process. Management is responsible for risk management, including identification and mitigation planning. The company established an enterprise risk management process to identify, assess, monitor and address risks across the entire company and its business operations. The description, assessments, mitigation plan and status for

each enterprise risk are developed and monitored by management, including management “risk owners” and an oversight management risk committee.

 

Both the Audit Committee and the entire board review on an ongoing basis the structure of the company’s enterprise risk management program, including the overall process by which management identifies and


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manages risks. As part of this review, the board regularly provides feedback to management on its view of ways to continually improve the program. Upon the recommendation of the Governance Committee, the board of directors assigns oversight responsibility for each of the enterprise-wide risks to either a specific committee of the board, or to the full board. The board and each committee, with the exception of the Executive Committee, are responsible for oversight of one or more risks. The assignments are generally made based upon the type of enterprise risk and the linkage of the subject matter to the responsibilities of the committee as described in its charter or the nature of the enterprise risk warranting review by the full board. For example, the Finance Committee oversees risks relating to liquidity, the Audit Committee oversees risks relating to internal controls and the Executive Compensation Committee reviews risk analyses relating to the company’s compensation programs. With respect to cybersecurity, members of management from multiple disciplines in the company, including Information Technology, Research and Development, Legal and Privacy, and Internal Audit provide a detailed overview to the full board of the company’s cybersecurity efforts. Under its Charter, the Audit Com-

mittee has oversight of the enterprise risks relating to Information Technology function generally, and cybersecurity in particular.

 

Each enterprise risk and its related mitigation plan is reviewed by either the board of directors or the designated board committee on an annual basis. On an annual basis, the board of directors receives a report on the status of all enterprise risks and their related mitigation plans.

 

Management monitors the risks and determines, from time to time, whether new risks should be considered either due to changes in the external environment, changes in the company’s business, or for other reasons. Management also determines whether previously identified risks should be combined with new or emerging risks.

 

In addition to the formal components of the enterprise risk management program, management explicitly discusses risks with the board within the context of other topics, such as the company’s and individual unit strategies and specific aspects of the company’s current transformation efforts.


 

Director Independence

 

The board of directors conducts an annual review of the independence of each director under the New York Stock Exchange listing standards and our standards of independence, which are set forth in the Governance Principles of the Board of Directors available on our website at www.pitneybowes.com under the caption “Our Company—Our Leadership & Governance—Corporate Governance.” In making these determinations, the board of directors considers, among other things, whether any director or the director’s immediate family members have had any direct or indirect material relationship with Pitney Bowes or its management, including

current or past employment with Pitney Bowes or its independent accountants.

 

Based upon its review, the board of directors has concluded in its business judgment that the following directors are independent: Linda G. Alvarado, Anne M. Busquet, Roger Fradin, Anne Sutherland Fuchs, S. Douglas Hutcheson, Eduardo R. Menascé, Michael I. Roth, Linda S. Sanford, David L. Shedlarz, and David B. Snow, Jr.

 

Marc B. Lautenbach is not independent because he is a Pitney Bowes executive officer.


 

Communications with the Board of Directors

 

Stockholders and other interested parties may communicate with the Non-Executive Chairman of the board via e-mail at boardchairman@pb.com, the Audit Committee chair via e-mail at audit.chair@pb.com or they may write to one or more directors, care of the Corporate Secretary, Pitney Bowes Inc., 3001 Summer Street, Stamford, CT 06926-0700.

 

The board of directors has instructed the Corporate Secretary to assist the Non-Executive Chairman, Audit Committee chair and the board in reviewing all electronic and written communications, as described above, as follows:

 

(i)Customer, vendor or employee complaints or concerns are investigated by management and copies are forwarded to the Chairman;

 

(ii)If any complaints or similar communications regarding accounting, internal accounting controls or auditing matters are received, they will be forwarded by
  the Corporate Secretary to the General Auditor and to the Audit Committee chair for review and copies will be forwarded to the Chairman. Any such matter will be investigated in accordance with the procedures established by the Audit Committee; and
   
(iii)Other communications raising matters that require investigation will be shared with appropriate members of management in order to permit the gathering of information relevant to the directors’ review, and will be forwarded to the director or directors to whom the communication was addressed.

 

Except as provided above, the Corporate Secretary will forward written communications, as appropriate to the full board of directors, or to individual directors. Advertisements, solicitations for periodical or other subscriptions, and other similar communications generally will not be forwarded to the directors.


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CORPORATE GOVERNANCE

 

Board Committees and Meeting Attendance

 

During 2017, each director attended at least 75% of the total number of board meetings and meetings held by the board committees on which he or she served. The board of directors met ten times in 2017, and the independent directors met in executive session, without any member of management in attendance, nine times. Each member of the board of directors serves on one or more of the five standing committees described below. As the need arises, the board may establish ad hoc committees of the board to consider specific issues. Mr. Lautenbach is a member of the Executive Committee.

The members of all other board committees are independent directors pursuant to New York Stock Exchange independence standards. Each committee of the board operates in accordance with a charter. The members of each of the board committees, and the number of meetings for each committee in 2017, are set forth in the chart below.

 

It is the longstanding practice and the policy of the board of directors that the directors attend the annual meeting of stockholders. All directors then serving on the board attended the May 2017 annual meeting.


 

           Executive      
Name  Audit  Executive  Compensation  Finance  Governance
  Linda G. Alvarado           X  X
  Anne M. Busquet        X     X
  Roger Fradin  X        X   
  Anne Sutherland Fuchs        X     X
  S. Douglas Hutcheson  X        X   
  Marc B. Lautenbach     X         
  Eduardo R. Menascé     X  Chair     X
  Michael I. Roth  X  Chair     Chair   
  Linda S. Sanford  X     X      
  David L. Shedlarz  Chair  X     X   
  David B. Snow, Jr.     X  X     Chair
  Number of meetings in 2017  7  0  7  4  4

 

Audit Committee

 

The Audit Committee monitors our financial reporting standards and practices and our internal financial controls to confirm compliance with the policies and objectives established by the board of directors and oversees our ethics and compliance programs. The committee appoints independent accountants to conduct the annual audits, and discusses with our independent accountants the scope of their examinations, with particular attention to areas where either the committee or the independent accountants believe special emphasis should be directed. The committee reviews the annual financial statements and independent accountant’s report, invites the independent accountant’s recommendations on internal controls and on other matters, and reviews the evaluation given and corrective action taken by management. It reviews the independence of the independent accountants and approves their fees. It also reviews our internal accounting controls and the scope and results of our internal auditing activities, and

submits reports and proposals on these matters to the board. The committee is also responsible for overseeing the process by which management identifies and manages the company’s risks. The committee meets in executive session with the independent accountants and internal auditor at each committee meeting.

 

The Audit Committee also has oversight over the information technology function, cybersecurity risks as well as compliance generally. The Audit Committee regularly discusses cybersecurity with leaders of the technology, information security, privacy and audit functions.

 

The board of directors has determined that the following members of the Audit Committee are “audit committee financial experts,” as that term is defined by the SEC: S. Douglas Hutcheson, Michael I. Roth and David L. Shedlarz. All Audit Committee members are independent as defined under the New York Stock Exchange and SEC standards for Audit Committee independence.


 

Executive Committee

 

The Executive Committee can act, to the extent permitted by applicable law and the company’s Restated Certificate of Incorporation and its By-laws, on matters concerning management of the business which may arise between scheduled board of directors meetings and as described in the committee’s charter. The committee meets on an ad hoc basis when circumstances necessitate.

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CORPORATE GOVERNANCE

 

Executive Compensation Committee

 

The Executive Compensation Committee (“Committee”) is responsible for our executive compensation policies and programs. The Committee chair frequently consults with, and the Committee meets in executive session with, Pay Governance LLC, its independent compensation consultant. The Committee recommends to all of the independent directors for final approval policies, programs and specific actions regarding the compensation of the CEO and the Chief Operating Officer (COO), and approves the

same for all of our other executive officers. The Committee also recommends the “Compensation Discussion and Analysis” for inclusion in our proxy statement, in accordance with the rules and regulations of the SEC, and reviews and approves stock grants and other stock-based compensation awards. All Executive Compensation Committee members are independent as independence for compensation committee members is defined under New York Stock Exchange and SEC standards.


 

Finance Committee

 

The Finance Committee reviews our financial condition and capital structure, and evaluates significant financial policies and activities, oversees our major retirement programs, advises management and recommends financial action to the board of directors. The committee’s duties include monitoring our current and projected financial condition, reviewing and recommending for board approval quarterly dividends, share repurchases,

and other major investment decisions including financing, mergers and acquisitions, divestitures and overseeing the financial operations of our retirement plans. The committee recommends for approval by the board of directors the establishment of new retirement and post-retirement benefit plans and any amendments that materially affect cost, benefit coverages, or liabilities of the plans.


 

Governance Committee

 

The Governance Committee recommends nominees for election to the board of directors, recommends membership in, and functions of, the board committees, reviews and recommends to the board of directors the amount and form of compensation to non-employee members of the board, and oversees CEO and senior management succession planning. The Governance Principles of the Board of Directors, which are posted on our website at www.pitneybowes.com under the caption “Our Company—Our Leadership & Governance—Corporate Governance,” include additional information about succession planning. The committee reviews and evaluates the effectiveness of board administration and its governing documents, and reviews and monitors company programs and policies relating to directors. The committee reviews related-person transactions in accordance with company policy.

 

The Governance Committee generally identifies qualified candidates for nomination for election to the board of directors from a variety of sources, including other board members, management and stockholders. The committee also may retain a third-party search firm to assist the committee members in identifying and evaluating potential nominees to the board of directors.

 

Stockholders wishing to recommend a candidate for consideration by the Governance Committee may do so by writing to: c/o Corporate Secretary, Pitney Bowes Inc., 3001 Summer Street, Stamford, CT 06926-0700. Recommendations submitted for consideration by the committee must contain the following information: (i) the name and address of the stockholder; (ii) the name and address of the person to be nominated; (iii) a representation that the stockholder is a holder of our stock entitled to vote at the meeting; (iv) a statement in support of the stockholder’s recommendation, including a

description of the candidate’s qualifications; (v) information regarding the candidate as would be required to be included in a proxy statement filed in accordance with the rules of the SEC; and (vi) the candidate’s written, signed consent to serve if elected.

 

The Governance Committee evaluates candidates stockholders recommend based on the same criteria it uses to evaluate candidates from other sources. The Governance Principles of the Board of Directors, which are posted on our Corporate Governance website at www.pitneybowes.com under the caption “Our Company—Our Leadership & Governance—Corporate Governance,” include a description of director qualifications. A discussion of the specific experience and qualifications the committee identified for directors and nominees may be found under “Director Qualifications” on page 19 of this proxy statement.

 

If the Governance Committee believes that a potential candidate may be appropriate for recommendation to the board of directors, there is generally a mutual exploration process, during which the committee seeks to learn more about the candidate’s qualifications, background and interest in serving on the board of directors, and the candidate has the opportunity to learn more about the company, the board, and its governance practices. The final selection of the board’s nominees is within the sole discretion of the board of directors.

 

Alternatively, as referenced on page 8 of this proxy statement, stockholders intending to nominate a candidate for election by the stockholders at the meeting must comply with the procedures in Article I, Section 5 of the company’s By-laws. The By-laws are posted on our Corporate Governance website at www.pitneybowes.com under the caption “Our Company—Our Leadership & Governance—Corporate Governance.”


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CORPORATE GOVERNANCE

 

The Governance Committee assesses the contributions of each director annually, and determines the skill set for any new board members. Each committee also conducts an annual self-assessment of its performance.

The board also periodically hires an outside advisor to conduct an independent review of board effectiveness, as it did so in 2016.


 

Directors’ Compensation

 

Role of Governance Committee in Determining Director Compensation

 

In accordance with the Governance Principles of the board, the Governance Committee reviews and recommends to the board of directors the amount and form of compensation to non-employee members of the board of directors. The Governance Committee reviews the director compensation policy periodically and may consult from time to time with a compensation consultant, to be selected and retained by the committee, as to the competitiveness of the program.

 

The non-employee directors’ compensation program, including the amended and restated Directors’ Stock

Plan, was last revised and approved by the stockholders effective in May 2014. At that time, the Governance Committee retained an independent compensation consultant with no other company business, Farient Advisors, to assist in its review of the director compensation program.

 

The Governance Committee targets director compensation to be at approximately the 50th percentile of the total compensation in the peer and broader benchmark groups and used that benchmark in establishing the 2014 compensation levels.


 

Highlights of the Directors’ Compensation Program:

 

Cash component paid as an annual retainer
Leadership premiums paid to Committee Chairmen
Leadership premium paid to Chairman of the board
Annual equity grant in the form of restricted stock units, the number of which is calculated by dividing $100,000 by the fair market value of a share of the company’s common stock as of the award date
Each non-employee director is subject to a stock ownership requirement equal to five times the annual cash retainer, $375,000, to be attained over a five-year period

 

Directors’ Fees

 

Each non-employee director receives an annual retainer of $75,000 for board service and an additional retainer for service on the committees to which he or she is assigned. The Non-Executive Chairman of the Board receives an additional retainer of $100,000 commensurate with the additional responsibilities required of the chairman role.

 

Annual retainers for committee service are: $12,000 for service on the Audit Committee (with the Committee Chairman receiving an additional annual retainer of $12,000); $10,500 for service on the Executive Compensation Committee (with the Committee Chairman receiving an additional annual retainer of $10,500);

$9,000 for service on the Governance Committee (with the Committee Chairman receiving an additional annual retainer of $9,000); and $9,000 for service on the Finance Committee (with the Committee Chairman receiving an additional annual retainer of $9,000).

 

A meeting attendance fee of $2,000 is paid with respect to meetings of the Executive Committee. The Executive Committee did not meet in 2017.

 

All directors are reimbursed for their out-of-pocket expenses incurred in attending board and committee meetings.


 

Stock under the Director’s Compensation Program

 

Under the amended and restated Directors’ Stock Plan, each non-employee director received an award of restricted stock units with a fair market value of $100,000 on the date of grant, which are fully vested one year after the date of grant. (Directors appointed by the board to fill a vacancy during the year receive a prorated grant of restricted stock units as described in the Directors’ Stock Plan.) The units have no voting rights until they are converted to shares of common stock. Each non-employee director receives a quarterly cash payment equal to the amount that would have been paid

as a dividend with respect to shares represented by the restricted stock units held as of the record date for the payment of the common stock dividend. Non-employee directors may elect to defer the conversion of restricted stock units to shares until the date of termination of service as a director.

 

Shares shown in the table on page 17 of this proxy statement disclosing security ownership of directors and executive officers include shares granted to the directors under the Directors’ Stock Plan.


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CORPORATE GOVERNANCE

 

Director Stock Ownership Requirement

 

The board of directors maintains directors’ stock ownership guidelines, requiring, among other things, that each director accumulate and retain a minimum of company common stock with a market value of five times the base retainer, or $375,000, within five years of becoming a director of Pitney Bowes. The directors’

stock ownership guidelines are available within the Governance Principles on our Corporate Governance website at www.pitneybowes.com under the caption “Our Company—Our Leadership & Governance—Corporate Governance.”


 

Directors’ Deferred Incentive Savings Plan

 

We maintain a Directors’ Deferred Incentive Savings Plan under which directors may defer all or part of the cash portion of their compensation. Deferred amounts will be notionally “invested” in any combination of sev-

eral institutional investment funds. The investment choices available to directors under this plan are the same as those offered to employees under the company’s 401(k) plan.


 

Directors’ Equity Deferral Plan

 

Directors may elect to defer all of their equity portion of their compensation on an annual basis. Deferral of restricted stock units (RSU) defers settlement of the RSUs into company common stock until termination from board service. RSU awards, whether deferred or not, vest on the first anniversary of the award. Deferred

RSUs continue to receive dividend equivalents. Deferred RSUs do not have any voting rights until converted into common stock. Deferred RSUs are converted into company common stock upon the expiration of 90 days following termination of board service.


 

Directors’ Retirement Plan

 

The board discontinued the Directors’ Retirement Plan, with all benefits previously earned by directors frozen as of May 12, 1997.

 

Linda G. Alvarado is the only current director who is eligible to receive a retirement benefit under the plan after termination of service on the board of directors. As of

the date the plan was frozen, she had completed five years of service as a director, the minimum years of service required to receive an annual retirement benefit of 50% of her retainer as of May 12, 1997. Therefore, she will receive an annual benefit of $15,000 after termination from board service.


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CORPORATE GOVERNANCE

 

DIRECTOR COMPENSATION FOR 2017

 

         Change in      
         Pension Value      
         and Nonqualified      
   Fees Earned or  Stock  Deferred  All Other   
   Paid in Cash  Awards  Compensation  Compensation   
Name  ($)(1)  ($)(2)  Earnings ($)(3)  ($)(4)  Total ($)
Linda G. Alvarado   93,000   100,000   15,590    10,965       219,555
Anne M. Busquet   94,500   100,000   0    10,965   205,465
Roger Fradin   96,000   100,000   0    4,577   200,577
Anne Sutherland Fuchs   94,500   100,000   0    4,577   199,077
S. Douglas Hutcheson   96,000   100,000   0    13,827   209,827
Eduardo R. Menascé   105,000   100,000   0    13,827   218,827
Michael I. Roth   205,000   100,000   0    7,077   312,077
Linda S. Sanford   97,500   100,000   0    4,577   202,077
David L. Shedlarz   108,000   100,000   0    7,880   215,880
David B. Snow, Jr.   103,500   100,000   0    10,525   214,025
(1) Each non-employee director receives an annual retainer of $75,000 ($18,750 per quarter). The non-executive chairman receives an additional annual retainer of $100,000 ($25,000 per quarter). Each committee member receives the following annual retainer: $12,000 for Audit, $10,500 for Executive Compensation and $9,000 each for Finance and Governance. The committee chairmen receive an additional retainer of equal amounts for their respective committees.
(2) Represents the grant date fair value of 6,309 restricted stock units granted on May 8, 2017. The number of restricted stock units was derived by dividing $100,000 by $15.85, the closing price on May 8, 2017 on the New York Stock Exchange. Neither restricted stock nor stock options were awarded to non-employee directors during 2017. See Note 21 “Stock-Based Compensation” in the Notes to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2017 for the valuation assumptions used in determining the fair value of equity grants. Since the Company does not issue fractional shares, total shares issued to non-employee directors are determined by dividing $100,000 by the closing share price on May 8, 2017 and rounding to the nearest whole number.
(3) Ms. Alvarado is the only non-employee director who served on the board of directors during 2017 eligible to receive payments from the discontinued Directors’ Retirement Plan. Ms. Alvarado is eligible to receive payments upon her retirement from the board of directors. In 2017, Ms. Alvarado experienced an increase of $15,590 in her pension value. The increase in present value in 2017 is primarily driven by the decrease in discount rate (from 4.20% at December 31, 2016 to 3.70% at December 31, 2017) and the one year decrease in the deferral period.
(4) During 2017, dividend equivalents were paid quarterly in cash to non-employee directors with respect to (a) the first quarter on the award of 5,485 restricted stock units granted in May 2016 and (b) the second, third and fourth quarter on the 6,309 restricted stock units granted in May 2017. In addition, with respect to Mmes. Alvarado and Busquet and Messrs. Hutcheson, Menascé, Shedlarz, and Snow, dividend equivalents were paid with respect to the vested restricted stock units previously deferred. Mr. Roth utilized the Pitney Bowes Non-Employee Director Matching Gift Program during 2017. The company matches individual contributions by non-employee directors, dollar for dollar up to a maximum of $5,000 per board member per calendar year. For Mr. Roth, the amount shown in this column includes a company match of $2,500 made in 2017.

 

Relationships and Related-Person Transactions

 

The board of directors has a written “Policy on Approval and Ratification of Related-Person Transactions” which states that the Governance Committee is responsible for reviewing and approving any related person transactions between Pitney Bowes and its directors, nominees for director, executive officers, beneficial owners of more than five percent of any class of Pitney Bowes voting stock and their “immediate family members” as defined by the rules and regulations of the SEC (related persons).

 

Under the related-person transaction approval policy, any newly proposed transaction between Pitney Bowes and a related person must be submitted to the Governance Committee for approval if the amount involved in the transaction or series of transactions is greater than $120,000. Any related-person transactions that have not been pre-approved by the Governance Committee must be submitted for ratification as soon as they are identified. Ongoing related-person transactions are reviewed on an annual basis. The material facts of the transaction and the related person’s interest in the transaction must be disclosed to the Governance Committee. It is the

expectation and policy of the board of directors that any related-person transactions will be at arms’ length and on terms that are fair to the company.

 

If the proposed transaction involves a related person who is a Pitney Bowes director or an immediate family member of a director, that director may not participate in the deliberations or vote regarding approval or ratification of the transaction but may be counted for the purposes of determining a quorum.

 

The following related-person transactions do not require approval by the Governance Committee:

 

1. Any transaction with another company with which a related person’s only relationship is as an employee or beneficial owner of less than ten percent of that company’s shares, if the aggregate amount invested does not exceed the greater of $1 million or two percent of that company’s consolidated gross revenues;
   
2. A relationship with a firm, corporation or other entity that engages in a transaction with Pitney Bowes where the related person’s interest in the transaction


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CORPORATE GOVERNANCE

 

  arises only from his or her position as a director or limited partner of the other entity that is party to the transaction;
   
3. Any charitable contribution by Pitney Bowes to a charitable organization where a related person is an officer, director or trustee, if the aggregate amount involved does not exceed the greater of $1 million or two percent of the charitable organization’s consolidated gross revenues;
   
4. Any transaction involving a related person where the rates or charges involved are determined by competitive bids; and
   
5. Any transaction with a related person involving services as a bank depositary of funds, transfer agent,
  registrar, trustee under a trust indenture, or similar services.

 

The Governance Committee may delegate authority to approve related-person transactions to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any approval or ratification decisions to the Governance Committee at its next scheduled meeting.

 

Stanley J. Sutula, III, Executive Vice President and Chief Financial Officer, is an executive officer of the company. His brother, Troy Sutula, holds the position of Vice President, Parcel Services—Presort Services. The value of Troy Sutula’s annual compensation is approximately $255,450.


 

Compensation Committee Interlocks and Insider Participation

 

During 2017, there were no Executive Compensation Committee interlocks and no insider participation in Executive Compensation Committee decisions that were required to be reported under the rules and regulations of the Securities Exchange Act of 1934, as amended.

 

SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

 

        Shares  Options     
  Title of     Deemed to  Exercisable     
  Class of     be Benefically  Within     
  Stock  Name of Beneficial Owner  Owned(1)(2)(3)(4)  60 days(4)  % of Class  
  Common  Linda G. Alvarado   51,633    9,888    *   
  Common  Anne M. Busquet   30,087    9,888    *   
  Common  Roger Fradin   24,863    0    *   
  Common  Anne Sutherland Fuchs   33,629    0    *   
  Common  S. Douglas Hutcheson   27,960    13,704    *   
  Common  Eduardo R. Menascé   37,796    13,704    *   
  Common  Michael I. Roth   54,480    0    *   
  Common  Linda S. Sanford   25,387    0    *   
  Common  David L. Shedlarz   40,341    4,403    *   
  Common  David B. Snow, Jr.   31,920    9,301    *   
  Common  Marc B. Lautenbach   1,816,519    1,575,344    *   
  Common  Michael Monahan   1,230,345    1,040,317    *   
  Common  Roger Pilc   108,795    68,380    *   
  Common  Mark L. Shearer   150,097    61,248    *   
  Common  Stanley J. Sutula III   187,881    187,881    *   
  Common  All executive officers and directors as a group (22)   4,777,626    3,685,778    2.50%  
  * Less than 1% of Pitney Bowes Inc. common stock.  
  (1) These shares represent common stock beneficially owned as of March 1, 2018 and shares for which such person has the right to acquire beneficial ownership within 60 days thereafter. To our knowledge, none of these shares are pledged as security. There were 187,103,143 shares of our common stock outstanding as of March 1, 2018. No director or executive officer owns shares of $2.12 convertible preference stock.  
  (2) Other than with respect to ownership by family members, the reporting persons have sole voting and investment power with respect to the shares listed.  
  (3) Includes shares that are held indirectly through the Pitney Bowes 401(k) Plan.  
  (4) The director or executive officer has the right to acquire beneficial ownership of this number of shares within 60 days of March 1, 2018 by exercising outstanding stock options or through the conversion of restricted stock units into securities. Amounts in this column are also included in the column “Shares Deemed to be Beneficially Owned.”  
  (5) Mr. Lautenbach’s total includes three open market purchases of company stock using his personal funds: (i) 4,739 shares (approximately $70,015) made in November 2016 (ii) 12,007 shares (approximately $250,000) made in October 2015 and (iii) 66,000 shares (approximately $1,000,000) made in May 2013.  
       
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CORPORATE GOVERNANCE

 

Beneficial Ownership

 

The only persons or groups known to the company to be the beneficial owners of more than five percent of any class of the company’s voting securities are reflected in the chart below. The following information is based solely upon Schedules 13G and amendments thereto filed by the entities shown with the SEC as of the date appearing below.

 

Name and Address of Beneficial Owner  Amount and Nature of
Beneficial Ownership
of Common Stock
  Percent of
Common Stock(1)
BlackRock, Inc.
55 East 52nd Street
New York, NY 10055
  20,516,241(2)  11.0%
The Vanguard Group, Inc.
100 Vanguard Blvd
Malvern, PA 19355
  16,117,328(3)  8.63%
(1) There were 187,103,143 shares of our common stock outstanding as of March 1, 2018.
(2) As of December 31, 2017 BlackRock, Inc. disclosed sole voting power with respect to 19,784,568 shares and sole dispositive power with respect to 20,516,241 shares. The Aggregate amount beneficially owned by each reporting person was 20,516,241 shares. The foregoing information is based on a Schedule 13G/A filed with the SEC on January 19, 2018.
((3) As of December 31, 2017, The Vanguard Group, Inc. disclosed sole voting power of 97,968 shares, shared voting power of 22,429 shares, sole dispositive power of 16,011,359 shares and shared dispositive power of 105,969 shares. The aggregate amount beneficially owned by each reporting person was 16,117,328 shares. The foregoing information is based on a Schedule 13G/A filed with the SEC on February 9, 2018.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Directors and persons who are considered “officers” of the company for purposes of Section 16(a) of the Securities Exchange Act of 1934 and greater than ten percent stockholders (“Reporting Persons”) are required to file reports with the SEC showing their holdings of and transactions in the company’s securities. It is generally the practice of the company to file the forms on behalf of its Reporting Persons who are directors or officers. Based solely on a review of such forms and amendments furnished to us and written representations that no other reports were required, we believe that all such forms have been timely filed for 2017.

18

Proposal 1: Election of Directors

 

Director Qualifications

 

The board of directors believes that, as a whole, the board should include individuals with a diverse range of experience to give the board depth and breadth in the mix of skills represented for the board to oversee management on behalf of our stockholders. In addition, the board of directors believes that there are certain attributes that each director should possess, as described below. Therefore, the board of directors and the Governance Committee consider the qualifications of directors and nominees both individually and in the context of the overall composition of the board of directors.

 

The board of directors, with the assistance of the Governance Committee, is responsible for assembling appropriate experience and capabilities within its membership as a whole, including financial literacy and expertise needed for the Audit Committee as required by applicable law and New York Stock Exchange listing standards. The Governance Committee is responsible for reviewing and revising, as needed, criteria for the selection of directors. It also reviews and updates, from time to time, the board candidate profile used in the context of a director search, in light of the current and anticipated needs of the company and the experience and talent then represented on the board of directors. The Governance Committee reviews the qualifications of director candidates in light of the criteria approved by the board of directors and recommends candidates to the board for election by the stockholders at the annual stockholders meeting.

 

The Governance Committee seeks to include individuals with a variety of occupational and personal backgrounds on the board of directors in order to obtain a range of viewpoints and perspectives and to enhance the diversity of the board of directors in such areas as experience and geography, as well as race, gender, ethnicity and age.

 

The board believes all directors should demonstrate integrity and ethics, business acumen, sound judgment, and the ability to commit sufficient time and attention to the activities of the board of directors, as well as the absence of any conflicts with our interests.

 

Among other things, the board of directors has determined that it is important that the board should include members with the following skills and experiences:

  Financial acumen for evaluation of financial statements and capital structure.
     
  International experience and experience with emerging markets to evaluate our global operations.
     
  Software and technology acumen, coupled with in-depth understanding of our business and markets, to provide counsel and oversight with regard to our strategy.
     
  Operating experience, providing specific insight into developing, implementing and assessing our operating plan and business strategy.
     
  Human resources experience, including executive compensation experience to help us attract, motivate and retain world-class talent.
     
  Corporate governance experience at publicly traded companies to support the goals of transparency, accountability for management and the board, and protection of stockholder interests.
     
  Understanding of customer communications and marketing channels to support our client focus and customer communications and marketing strategy.
     
  Turnaround experience to help us assess opportunities to reposition certain of our businesses.
     
  Leadership to motivate others and identify and develop leadership qualities in others.

 

When evaluating and recommending new candidates, the Governance Committee assesses the effectiveness of its criteria and considers whether there are any skill gaps that should be addressed.

 

The board conducts a self-assessment of its effectiveness as well as each of its members annually. Each committee also conducts a self-assessment of its performance annually. The board also periodically hires an outside advisor to conduct an independent review of how the board functions and to provide feedback based on that review, as it did in 2016.

 

Each director brings experience and skills that complement those of the other directors. The board of directors believes that all the directors nominated for election are highly qualified, and have the attributes, skills and experience required for service on the board of directors. Additional information about each director, including biographical information, appears on the following pages.


19

PROPOSAL 1: ELECTION OF DIRECTORS

 

Nominees for Election

 

Directors are elected to terms of one year. The board of directors has eleven members whose terms expire in 2018. Upon determining to fill an open board position, the board considers candidates submitted by outside independent recruiters, directors, members of management and others. Each of the nominees for election at the 2018 annual meeting of stockholders is a current board member and was selected by the board of directors as a nominee in accordance with the recommendation of the Governance Committee. If elected at the 2018 annual meeting of stockholders, each of the nominees would serve until the 2019 annual meeting of stockholders and until his or her successor is elected

and has qualified, or until such director’s death, resignation or removal.

 

Information about each nominee for director as of March 1, 2018, is set forth below.

 

Should any nominee become unable to accept nomination or election as a director (which is not now anticipated), the persons named in the enclosed proxy will vote for such substitute nominee as may be selected by the board of directors, unless the size of the board is reduced. At the annual meeting, proxies cannot be voted for more than the eleven director nominees.


 

Vote Required; Recommendation of the Board of Directors

 

In accordance with our By-laws, in an uncontested election, a majority of the votes cast is required for the election of directors. Abstentions and broker non-votes will not be votes cast and therefore will have no effect on the outcome of the vote. The Board of Directors Governance Principles provide that any nominee for director in this election who fails to receive a majority of votes cast in the affirmative must tender his or her resignation for consideration by the Governance Committee. The Governance Committee will recommend to the board of directors the action to be taken with respect to such offer of resignation. The board of directors will act on the Governance Committee’s recommendation and publicly disclose its decision within 90 days from the date of the certification of the election results.

 

The board of directors recommends that stockholders vote FOR the election of all the director nominees.

 

Nominees

 

 

Director since: 1992

 

Committees: Finance; Governance

     

Linda G. Alvarado

 

President and Chief Executive Officer, Alvarado Construction, Inc., a commercial general contractor, development, design/build, and construction management company in the United States and internationally, since 1978. Ms. Alvarado is also an owner of the Colorado Rockies Major League Baseball Club and President of Palo Alto, Inc. and the Alvarado Restaurant Entities which owns and operates YUM! Brands restaurants in multiple states. (Formerly a director of 3M Company, Lennox International Inc., The Pepsi Bottling Group Inc. and Qwest Communications International Inc.)

 

Ms. Alvarado, 66, brings to the board of directors her significant operational experience as a principal of several diverse business enterprises, as well as an understanding of marketing, finance, shipping, transportation and product delivery, workforce and human resources issues. Ms. Alvarado’s experience as a member of other public company boards of directors contributes to her understanding of global public company issues, including those relating to international markets and government affairs.

20

PROPOSAL 1: ELECTION OF DIRECTORS

 

 

Director since: 2007

 

Committees: Executive Compensation; Governance

     

Anne M. Busquet

 

Principal, AMB Advisors, LLC, an independent consulting firm, since 2006; former chief executive officer, IAC Local & Media Services, a division of IAC/Interactive Corp., an Internet commerce conglomerate, 2004 – 2006. (Also a director of Medical Transcription Billing Corp. and InterContinental Hotels Group PLC and Elior Group. Formerly a director of Meetic S.A. and Blyth, Inc.)

 

Ms. Busquet, 68, has experience as a senior public company executive, including as American Express Company Division President, leading global interactive services initiatives. As former chief executive officer of the Local and Media Services unit of InterActiveCorp, she has experience in electronic media, communications and marketing. In addition, Ms. Busquet brings to the board of directors her substantial operational experience, including in international markets, marketing channels, emerging technologies and services, and product development.

     

 

Director since: 2012

 

Committees: Audit; Finance

 

Roger Fradin

 

Retired, Vice Chairman, Honeywell International Inc., a diversified technology and manufacturing company, since February, 2017. Formerly president and chief executive officer of Honeywell Automation and Control Solutions, a division of Honeywell. Currently, Operating Executive with The Carlyle Group, one of the largest global Private Equity firms. (Also a director of Harris Corporation and MSC Industrial Direct Co., Inc.)

 

Mr. Fradin, 64, as a retired senior executive of a major diversified technology and manufacturing company, with substantial experience as the chief executive officer of its $17 billion Automation and Control Solutions division, brings to the board significant operational experience, financial expertise, and experience in capital markets, product development, and marketing, including in international markets. He possesses a strong entrepreneurial background, with experience in driving robust growth for businesses under his leadership, and has deep experience in entering new markets, both organically and through acquisition.

     

 

Director since: 2005

 

Committees: Executive Compensation; Governance

 

Anne Sutherland Fuchs

 

Consultant to private equity firms. Formerly group president, Growth Brands Division, Digital Ventures, a division of J. C. Penney Company, Inc., a retailer, November 2010 – April 2012; former Chair of the Commission on Women’s Issues for New York City, 2002 – 2013. (Also a director of Gartner, Inc.)

 

Ms. Fuchs, 70, has experience as a senior executive with operational responsibility within the media and marketing industries, as well as experience as global chief executive officer of a unit of LMVH Moet Hennessy Louis Vuitton. Her experience in the publishing industry includes senior level operational roles at Hearst, Conde Nast, Hachette and CBS. She possesses experience in product development, marketing and branding, international operations, as well as in human resources and executive compensation. Her experience in managing a number of well-known magazines contributes to her knowledge and understanding of businesses closely tied to the mailing industry. Her work for the City of New York has further informed her understanding of government operations and government partnerships with the private sector.

21

PROPOSAL 1: ELECTION OF DIRECTORS

 

 

Director since: 2012

 

Committees: Audit; Finance

     

S. Douglas Hutcheson

 

Senior Advisor of Technology, Media and Telecom for Searchlight Capital, a global private investment firm. Formerly Chief Executive Officer of Laser, Inc., a private held technology company (March 2014 – May 2017) and also former Chief Executive Officer of Leap Wireless International, Inc., a provider of wireless services and devices through its subsidiary, Cricket Communications, Inc. (February 2005 – March 2014). (Also a director of InterDigital, Inc. Formerly a director of Leap Wireless International, Inc.)

 

Mr. Hutcheson, 61, brings to the board of directors significant operational and financial expertise as an experienced former chief executive officer of a wireless communications company. His broad business background includes strategic planning and product and business development and marketing. His expertise in developing and executing successful wireless strategies is an asset to Pitney Bowes as more products and services are transitioned to the cloud. In addition, his experience as a public company chief executive contributes to his knowledge of corporate governance and public company matters.

     

 

Director since: 2012

 

Committees: Executive

 

Marc B. Lautenbach

 

President and Chief Executive Officer of Pitney Bowes Inc. since December 3, 2012. Formerly, Managing Partner, North America, Global Business Services, International Business Machines Corporation (IBM), a global technology services company, 2010 – 2012, and General Manager, IBM North America, 2005 – 2010. (Also a director of Campbell Soup Company.)

 

Mr. Lautenbach, 56, as a former senior operating executive at a global technology services company, possesses substantial operational experience, including in technology services, software solutions, application development, and infrastructure management, as well as marketing, sales and product development. Mr. Lautenbach has extensive experience working with a breadth of client segments, including in the small and medium sized business segment and public and enterprise markets. He also has significant international experience.

     

 

Director since: 2001

 

Committees: Chair, Executive Compensation; Executive

 

Eduardo R. Menascé

 

Co-chairman, The Taylor Companies, a privately held organization that provides advisory services in mergers, acquisitions and divestitures, since April 2014. Retired president, Enterprise Solutions Group, Verizon Communications Inc., a leading provider of wireline and wireless communications, since 2006. (Also a director of Hillenbrand, Inc. Formerly a director of John Wiley & Sons, Inc., KeyCorp. and Hill-Rom Holdings)

 

Mr. Menascé, 72, has broad experience as a former senior executive responsible for a significant international operation of a public company, as well as experience in senior leadership positions with a number of European and Latin American businesses, including business operations, finance and capital markets, international and emerging markets, technology, customer communications and marketing channels, and executive compensation. His experience on other public company boards contributes to his knowledge of public company matters.

22

PROPOSAL 1: ELECTION OF DIRECTORS

 

 

Director since: 1995

 

Committees: Chair, Executive; Chair, Finance; Audit

     

Michael I. Roth

 

Chairman and Chief Executive Officer, The Interpublic Group of Companies, Inc., a global marketing communications and marketing services company, since 2005. (Also a director of Ryman Hospitality Properties, Inc. and The Interpublic Group of Companies, Inc.)

 

Mr. Roth, 72, has broad experience as the chief executive officer of a public company and as a member of other public company boards of directors, as well as previous experience as a certified public accountant and attorney. In addition to his experience as chief executive officer of The Interpublic Group of Companies, his experience includes service as the chief executive officer of The MONY Group Inc. prior to its acquisition by AXA Financial, Inc. He brings to the board of directors his deep financial expertise, and experience in business operations, capital markets, international markets, emerging technologies and services, marketing channels, corporate governance, and executive compensation.

     

 

Director since: 2015

 

Committees: Audit; Executive Compensation

 

Linda S. Sanford

 

Retired Senior Vice President, Enterprise Transformation, International Business Machines Corporation (IBM), a global technology and services company, since December 31, 2014. Prior to her leadership role as senior vice president, enterprise transformation, which she held from January 2003 to December 31, 2014, Ms. Sanford was senior vice president & group executive, IBM Storage Systems Group. Ms. Sanford joined IBM in 1975. (Also a director of RELX Group and Consolidated Edison, Inc.)

 

Ms. Sanford, 65, with extensive experience as a senior executive in a public global technology company, possesses a broad range of experience, including in technology, innovation and global operations. Ms. Sanford has significant expertise in business transformation, information technology infrastructure, and global process integration.

     

 

Director since: 2001

 

Committees: Chair, Audit; Executive; Finance

 

David L. Shedlarz

 

Retired Vice Chairman of Pfizer Inc., a pharmaceutical company. Formerly vice chairman of Pfizer Inc., 2005 – 2007; executive vice president and chief financial officer, 1999 – 2005, Pfizer Inc. (Also a director of Teachers Insurance and Annuity Association, Teladoc, Inc., and The Hershey Company.)

 

Mr. Shedlarz, 69, has broad experience as a former senior executive of a public company, experience as a former chief financial officer and as a member of other public company boards of directors. He possesses financial expertise, knowledge of business operations and capital markets, international markets, emerging technologies and services, customer communications and marketing channels, human resources and executive compensation, regulatory and government affairs, product development, and corporate governance.

23

PROPOSAL 1: ELECTION OF DIRECTORS

 

 

Director since: 2006

 

Committees: Chair, Governance; Executive; Executive Compensation

     

David B. Snow, Jr.

 

Chairman and Chief Executive Officer, Cedar Gate Technologies, Inc., a provider of analytic and information technology services to doctor, hospital, and self-insured employer organizations entering risk-based reimbursement arrangements, since February 2014. Mr. Snow is chairman of Teladoc, Inc., one of the largest telemedicine companies in the United States, since July 2015. Until April 2012, chairman and chief executive officer of Medco Health Solutions, Inc., a leading pharmacy benefit manager. (Also a director of Teladoc, Inc. Formerly a director of Medco Health Solutions, Inc.)

 

Mr. Snow, 63, in addition to his experience as the chief executive officer of a public company, has a strong background in operations, having served in senior leadership positions at several companies including WellChoice (Empire Blue Cross Blue Shield) and Oxford Health Plans. Mr. Snow also brings to the board of directors a broad range of experience, including finance and capital markets, emerging technologies, customer communications and marketing channels, human resources and executive compensation, regulatory and government affairs, corporate governance, and product development.

24

Report of the Audit Committee

 

The Audit Committee functions pursuant to a charter that is reviewed annually and was last amended in November 2016. The committee represents and assists the board of directors in overseeing the financial reporting process and the integrity of the company’s financial statements. The Committee is responsible for the appointment, compensation and retention of the independent accountants, pre-approving the services they will perform, selecting the lead engagement partner, and for reviewing the performance of the independent accountants and the company’s internal audit function. The board of directors, in its business judgment, has determined that all five of the members of the committee are “independent,” as required by applicable listing standards of the New York Stock Exchange. Three of the five members of the committee have the requisite experience to be designated as an Audit Committee financial expert as defined by the rules of the Securities and Exchange Commission.

 

In the performance of its responsibilities, the committee has reviewed and discussed the audited financial statements with management and the independent accountants. The committee has also discussed with the independent accountants the matters required to be discussed under the rules adopted by the Public Company Accounting Oversight Board (“PCAOB”). Finally, the committee has received the written disclosures and the letter from the independent accountants required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the Audit Committee concerning independence, and has discussed with the independent accountants their independence.

 

In determining whether to recommend that the stockholders ratify the selection of PricewaterhouseCoopers LLP (“PricewaterhouseCoopers”) as Pitney Bowes’ independent accountants for 2018, management and the committee, as they have done in prior years, engaged in a review of PricewaterhouseCoopers. In that review, the committee considers the continued independence of PricewaterhouseCoopers, its geographic presence compared to that of Pitney Bowes, its industry knowledge, the quality of the audit and its services, the audit approach and supporting technology, any Securities and Exchange Commission actions and other legal issues as well as PCAOB inspection reports. Pitney Bowes management prepares an annual assessment that includes an analysis of (1) the above criteria for PricewaterhouseCoopers and the other “Big Four” accounting firms; (2) an assessment of whether firms outside of the “Big Four” should be considered; and (3) a detailed analysis of the PricewaterhouseCoopers’ fees. In addition, PricewaterhouseCoopers reviews with the committee its analysis of its independence. Based on the results of this review this year, the committee concluded that PricewaterhouseCoopers is independent and that it is in the best interests of Pitney Bowes and its investors to appoint PricewaterhouseCoopers, who have been independent accountants of the company since 1934, to serve as Pitney Bowes’ independent registered accounting firm for 2018.

 

Based upon the review of information received and discussions as described in this report, the committee recommended to the board of directors that the audited financial statements be included in the company’s Annual Report on Form 10-K for the year ended December 31, 2017 as filed with the Securities and Exchange Commission on February 22, 2018.

 

By the Audit Committee of the board of directors,

 

David L. Shedlarz, Chair
Roger Fradin
S. Douglas Hutcheson
Michael I. Roth
Linda S. Sanford

25

Proposal 2: Ratification of the Audit Committee’s Appointment of the Independent Accountants for 2018

 

The Audit Committee has appointed PricewaterhouseCoopers LLP (“PricewaterhouseCoopers”) as the independent accountants for Pitney Bowes for 2018. Although not required by law, this matter is being submitted to the stockholders for ratification, as a matter of good corporate governance. If this proposal is not ratified at the annual meeting by the affirmative vote of a majority of the votes cast, the Audit Committee intends

to reconsider its appointment of PricewaterhouseCoopers as its independent accountants. PricewaterhouseCoopers has no direct or indirect financial interest in Pitney Bowes or any of its subsidiaries. A representative from PricewaterhouseCoopers is expected to attend the annual meeting and to be available to respond to appropriate questions and will have the opportunity to make a statement if he or she desires to do so.


 

Principal Accountant Fees and Services

 

Aggregate fees billed for professional services rendered for the company by PricewaterhouseCoopers for the years ended December 31, 2017 and 2016, were (in millions):

 

   2017   2016 
Audit  $5.9   $5.7 
Audit-Related   4.2    1.5 
Tax   .5    .5 
Total  $10.6   $7.7 

 

Audit fees: The Audit fees for the years ended December 31, 2017 and 2016 were for services rendered for the audits of the consolidated financial statements and internal control over financial reporting of the company and selected subsidiaries, statutory audits, issuance of comfort letters, consents, income tax provision procedures, and assistance with review of documents filed with the SEC.

 

Audit-Related fees: The Audit-Related fees for the years ended December 31, 2017 and 2016 were for audits of selected subsidiaries not included in “audit” above, the Newgistics acquisition, assurance and related services related to employee benefit plan audits, procedures performed for SSAE 18 reports, consultations concerning financial accounting and reporting standards and for assessing and advising in the pre-implementation of the new ERP system. The 2017 increase was primarily due to the Newgistics acquisition and audits of selected subsidiaries not included in “audit” above.

 

Tax fees: The Tax fees for the years ended December 31, 2017 and 2016 were for services related to tax com-

pliance, including the preparation and/or review of tax returns and claims for refunds.

 

The Audit Committee has adopted policies and procedures to pre-approve all services to be performed by PricewaterhouseCoopers. Specifically the Committee’s policy requires pre-approval of the use of PricewaterhouseCoopers for audit services as well as detailed, specific types of services within the following categories of audit-related and non-audit services: merger and acquisition due diligence and audit services; employee benefit plan audits; tax services; procedures required to meet certain regulatory requirements; assessment of and making recommendations for improvement in internal accounting controls and selected related advisory services. The Audit Committee delegates to its Chairman the authority to address requests for pre-approval services between Audit Committee meetings, if it is deemed necessary to commence the service before the next scheduled meeting of the Audit Committee. Such pre-approval decisions are discussed at the next scheduled meeting. The Committee will not approve any service prohibited by regulation or for services which, in their opinion, may impair PricewaterhouseCoopers’ independence. In each case, the Committee’s policy is to pre-approve a specific annual budget by category for such audit, audit-related and tax services which the company anticipates obtaining from PricewaterhouseCoopers, and has required management to report the actual fees (versus budgeted fees) to the Committee on a periodic basis throughout the year. In addition, any new, unbudgeted engagement for audit services or within one of the other pre-approved categories described above must be pre-approved by the Committee or its chair.


 

Vote Required; Recommendation of the Board of Directors

 

Ratification of the appointment of Pitney Bowes’ independent accountants requires the affirmative vote of a majority of votes cast. Abstentions and broker non-votes will not be votes cast and therefore will have no effect on the outcome of the vote.

 

The board of directors recommends that stockholders vote FOR the ratification of PricewaterhouseCoopers LLP as our independent accountants for 2018.

26

Proposal 3: Non-binding Advisory Vote to Approve Executive Compensation

 

In accordance with SEC rules, stockholders are being asked to approve, on an advisory or non-binding basis, the compensation of our named executive officers (NEOs) as disclosed in this proxy statement.

 

This proposal, commonly known as a “Say-On-Pay” proposal, provides our stockholders with the opportunity to express their views, on an advisory (non-binding) basis, on our executive compensation for our NEOs for fiscal year 2017 as described in the “Compensation Discussion and Analysis” or (CD&A) beginning on page 39 of this proxy statement, as well as the “Summary Compensation Table” and other related compensation tables and narratives, on pages 62 through 71 of this proxy statement.

 

The stockholders have approved the board of directors’ recommendation to hold advisory votes to approve executive compensation annually. At the company’s annual meeting of stockholders in 2017, stockholders voted in favor of the company’s executive compensation by 97.5% of the votes cast.

 

The Executive Compensation Committee (Committee) and the board of directors believe that the compensation program described in the CD&A establishes effective incentives for the sustainable achievement of positive results without encouraging unnecessary or excessive risk-taking. Our compensation program appropriately aligns pay and performance incentives with stockholder

interests and enables the company to attract and retain talented executives. The company and the Committee have reached out to stockholders to solicit their views on the company’s executive compensation structure.

 

As discussed in the CD&A, the Committee has structured our executive compensation program based on the following central principles:

  (1)Compensation should be tied to performance and long-term stockholder return and performance-based compensation should be a greater part of total compensation for more senior positions;
  (2)Compensation should reflect leadership position and responsibility;
  (3)Incentive compensation should reward both short-term and long-term performance;
  (4)Compensation levels should be sufficiently competitive to attract and retain talent; and
  (5)Executives should own meaningful amounts of Pitney Bowes stock to align their interests with Pitney Bowes stockholders.

 

We believe our executive compensation program demonstrates a strong link between pay and performance in its design and exhibits strong pay governance practices.


27

PROPOSAL 3: ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

 

Strong Pay for Performance and Governance Practices

 

88% of our CEO’s target total direct compensation, and 76% of target total direct compensation for the other named executive officers, is variable, and is subject to financial performance metrics.
More than two-thirds of the total compensation paid to our CEO, and half of the total compensation paid to the NEOs, is equity-based and aligned with shareholder interests;
100% of the 2017 long-term incentive mix is equity-based;
100% of the annual incentive and long-term incentive program is based on financial objectives;
No employment agreements with our executive officers;
No tax gross-ups on Change-of-Control payments;
No special arrangements whereby extra years of prior service are credited under our pension plans;
No perquisites other than limited financial counseling and an executive physical examination benefit;
“Double-trigger” vesting provisions in our Change-of-Control arrangements;
A “clawback” policy that permits the company to recover incentives from senior executives whose fraud or misconduct resulted in a significant restatement of financial results;
Prohibitions against pledging and hedging of our stock;
Executive stock ownership policy that aligns executives’ and directors’ interests with those of stockholders, recently expanded to: (i) include more senior executives, and (ii) count only vested shares toward stock holding requirement;
Separate roles of CEO and chairman of the board of directors;
An annual risk assessment of our pay practices;
An annual stockholder advisory vote on executive compensation;
A direct line of communication between our stockholders and the board of directors;
Use of tally sheets to review each component of executive officer compensation;
Use of two independent third-party compensation surveys (Radford Global Technology Survey and Willis Towers Watson Regressed Compensation Report) in determining the competitiveness of executive compensation;
Use of an independent compensation consultant that advises the Committee directly on the company’s compensation structure and actions and performs no other services for the company;
Enhanced disclosure of performance targets; and
Investor outreach regarding governance and executive compensation in spring and fall of each year.

 

We have for the past several years regularly contacted many of our stockholders to give them an opportunity to share their views about our executive compensation program. In the spring of 2017, we reached out to stockholders representing approximately 49% of outstanding company shares, and in the fall of 2017, we reached out to stockholders representing approximately 51% of outstanding company shares to answer questions concerning the 2017 proxy statement, including the executive compensation program. Over the past few years, the Committee has implemented features in the executive compensation program that directly related to comments received from the stockholders. We also invite our largest stockholders to provide input on executive compensation matters during the month prior to our annual meeting.

 

The CD&A beginning on page 39 of this proxy statement describes in more detail how our executive compensation policies and procedures operate and are designed to achieve our compensation objectives, as well as the “Summary Compensation Table” and other related compensation tables and narratives on pages 62 through 71, which provide detailed information on the compensation of our NEOs.

 

We also invite stockholders to read our Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the Securities and Exchange Commission

on February 22, 2018, which describes our business and 2017 financial results in more detail.

 

In accordance with Section 14A of the Exchange Act, and as a matter of good corporate governance, we are asking stockholders to indicate their support for our NEO compensation by voting FOR this advisory resolution at the 2018 Annual Meeting:

 

RESOLVED, that the stockholders of Pitney Bowes Inc. approve on a non-binding advisory basis the compensation of the company’s named executive officers disclosed in the Compensation Discussion and Analysis, the Summary Compensation Table and the related compensation tables, notes and narratives in this proxy statement for the company’s 2018 Annual Meeting of Stockholders.

 

This advisory resolution, commonly referred to as a “Say-On-Pay” resolution, is non-binding on the board of directors. Although non-binding, our board of directors and the Committee will carefully review and consider the voting results when making future decisions regarding our executive compensation program. The next “Say-on-Pay” advisory vote will occur at the 2019 annual meeting based on the recommended advisory vote on the frequency of future advisory votes on executive compensation.


28

PROPOSAL 3: ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

 

Vote Required; Recommendation of the Board of Directors

 

The vote to approve executive compensation is an advisory vote. The affirmative vote of the majority of the votes cast will constitute the stockholders’ non-binding approval with respect to our executive compensation programs. Abstentions and broker non-votes will not be votes cast and therefore will have no effect on the outcome of the vote.

 

The board of directors recommends that stockholders vote FOR the approval of our executive compensation on an advisory basis.

29

Proposal 4: Approval of the Pitney Bowes Inc. 2018 Stock Plan

 

The board of directors recommends that stockholders approve the Pitney Bowes Inc. 2018 Stock Plan (the 2018 Stock Plan). Based upon the recommendation of the Executive Compensation Committee (“Committee”), the board unanimously approved the 2018 Stock Plan in February, 2018 and approved the maximum shares to be provided under the 2018 Stock Plan. The 2018 Stock Plan will become effective May 7, 2018 subject to stockholder approval at our annual meeting. The 2018

Stock Plan would govern grants of stock-based awards to employees, which is an important component of our compensation program encouraging the alignment of executive compensation with stockholder interests. The complete text of the 2018 Stock Plan approved by the board of directors is attached as Annex A to this Proxy Statement. The following discussion is qualified in all respects by reference to Annex A.


 

Why we believe you should approve the 2018 Stock Plan

 

The 2018 Stock Plan is designed to align the interest of employees with those of the stockholders and support the company’s long-term business objectives through the ownership of stock in the company and to attract, motivate and retain experienced and highly qualified employees who will contribute to the company’s long-term success. Awards can be made in the form of performance stock units (PSUs), restricted stock units (RSUs), options, stock appreciation rights (SARs), restricted stock and other stock-based awards granted under the 2018 Stock Plan, any of which may be subject to the achievement of performance conditions.

 

Equity compensation is an essential part of our compensation program to help us attract and retain talent in order to deliver our strategy and create stockholder value. We believe our future success depends on our ability to attract, motivate and retain high quality employees and approval of the 2018 Stock Plan is critical to achieving this success.

 

The use of our stock as part of our compensation program is also important because it fosters a pay-for-per-

formance culture, which is an essential element of our overall compensation program. We believe that equity compensation motivates employees to create stockholder value because the value employees realize from equity compensation is based on our stock performance.

 

Finally, we believe that we have demonstrated our commitment to sound equity compensation practices. We recognize that equity compensation awards dilute stockholder equity and, therefore, we have carefully managed our equity incentive compensation. Our equity compensation practices are targeted to be consistent with the market median, and we believe our historical share usage has been responsible and mindful of stockholder interests, as described further below.

 

The board believes that continuing to offer employees equity-based incentive compensation is consistent with the company’s compensation philosophy. If approved, the 2018 Stock Plan will replace our 2013 Stock Plan with respect to future awards.


 

2018 Stock Plan Highlights

 

While the 2018 Stock Plan is an “omnibus” stock plan that provides for a variety of equity award vehicles to maintain flexibility, currently awards largely consist of PSUs, RSUs and nonqualified stock options.

 

Provisions Designed to Protect Stockholder Interests

 

The 2018 Stock Plan has several provisions designed to protect stockholder interests and promote effective corporate governance including:

 

  Limit on grants of full-value awards;
  Prohibition on share recycling or “Liberal Share Counting” practices;
  No re-pricing of stock options or SARs without prior stockholder approval;
  Stock options and SARs cannot be granted below 100% of fair market value;
  Maximum term for stock options and SARs is 10 years;
  Generally, a minimum three-year vesting for time-based full-value awards and stock options;
  Minimum one-year performance period for performance-based awards;
  Change-in-Control definition that requires either a 30% acquisition or a consummation of a transaction;
  “Double-trigger” requirement under a Change-in-Control;
  No “evergreen” provision to automatically increase the number of shares issuable under the 2018 Stock Plan; and
  Clawback policy applicable to awards under the 2018 Stock Plan.

 

Determination of the Shares Available and Award Limits under the 2018 Stock Plan

 

In order to decide upon a number of the 2018 Stock Plan features, the Committee consulted Pay Governance LLC, its independent compensation advisor. Pay Governance examined a number of factors, including stockholder dilution, burn rate, and overhang. The Committee considered Pay Governance’s analysis and advice in reaching its decision on the total number of shares to authorize under the 2018 Stock Plan.


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PROPOSAL 4: APPROVAL OF THE PITNEY BOWES INC. 2018 STOCK PLAN

 

A maximum of 14,000,000 shares (subject to adjustment as described below) will be available for issuance under the 2018 Stock Plan for PSUs, RSUs, stock options, SARs, restricted stock and any other type stock-based awards issued under the 2018 Stock Plan. In addition to the number of shares described in the preceding sentence, any shares associated with outstanding awards under the Prior Plans as of May 6, 2018 that on or after such date cease for any reason to be subject to such awards (other than by reason of exercise or settlement of the awards to the extent they are exercised for or settled in vested and non-forfeitable shares) will also be available for issuance under the 2018 Stock Plan. Any shares authorized but not awarded under the current 2013 Stock Plan will be extinguished under that plan upon approval of the 2018 Stock Plan. “Prior Plans” means the Pitney Bowes Inc. 2007 Stock Plan and the Pitney Bowes Inc. 2013 Stock Plan.

 

Of the maximum number of shares available for issuance under the 2018 Stock Plan, no more than 7,000,000 shares in the aggregate may be issued pursuant to grants other than options or SARs during the term of the 2018 Stock Plan. An employee may receive multiple awards under the 2018 Stock Plan.

 

A maximum of 1.5 million shares that are the subject of awards (other than tandem SARs) may be granted under the Plan to any individual during any calendar year.

 

Shares delivered under the 2018 Stock Plan will be authorized but unissued shares of Pitney Bowes common stock, treasury shares or shares purchased in the open market or otherwise. To the extent that any award payable in shares is forfeited, cancelled, returned to the company for failure to satisfy vesting requirements or upon the occurrence of other forfeiture events, or otherwise terminates without payment being made in shares, the shares covered thereby will no longer be charged against the maximum share limitation and may again be made subject to awards under the 2018 Stock Plan. Any awards settled in cash will not be counted against the maximum share reserve under the 2018 Stock Plan. However, any shares exchanged by an employee or withheld from an employee as full or partial payment to the company of the exercise price or the tax withholding upon exercise or settlement of an award, unissued shares resulting from the settlement of SARs in stock or net settlement of a stock option, and shares repurchased on the open market with the proceeds of an option exercise will not be returned to the number of shares available for issuance under the 2018 Stock Plan.

 

The board believes that 14,000,000 shares, 7,000,000 of which are reserved for full value share awards, represents a reasonable amount of potential equity dilution (7.0% of our common shares outstanding as of December 31, 2017) and provides a meaningful incentive for employees to increase the value of the company for all stockholders. Based on our past experience, we believe the 14,000,000 shares will provide us an opportunity to grant equity awards for approximately two years before we would need to seek stockholder approval of more shares. In order to determine the number of shares to

be authorized under the 2018 Stock Plan, the Committee and the board considered the need for the shares and the potential dilution that awarding the requested shares may have on current stockholders.

 

Equity Overhang

 

After the February 2018 grant, which utilized approximately 4,109,318 shares, there is a balance of 13,369,229 available for issuance under the Prior Plans, which will be extinguished upon approval of the 2018 Plan to the extent not issued prior to May 7, 2018. If approved, the 14,000,000 shares available under the 2018 Stock Plan would represent approximately 7.5% of 186,603,738 common shares outstanding as of December 31, 2017. No further grants would be made under the 2013 Stock Plan upon the approval of the 2018 Stock Plan. Assuming the approval of the 2018 Stock Plan and the extinguishment of shares from Prior Plans as described above, the potential equity overhang from all stock incentives granted and available to employees and directors would be approximately 13.8%. The equity overhang under the Prior Plans as of December 31, 2017 was 13.9%.

 

In considering the cumulative dilutive impact of the equity program, the Committee considered the overhang impact of previously issued awards. Included in the equity overhang calculation are options with exercise prices greater than the current share price. “Overhang” is defined as:

 

  outstanding stock options, plus
  outstanding full value awards, such as RSUs, plus
  the number of shares available for future grants under our 2014 Directors’ Plan and the proposed 2018 Stock Plan (disregarding the remaining unissued 2013 Stock Option Plan shares because no future grants would be made if the 2018 Stock Plan is approved),
  collectively divided by:
    187,103,143 (the total outstanding shares of common stock as of March 2, 2018) plus
    all shares in the numerator.

 

As of December 31, 2017, there were 14,291,116 shares outstanding under the Prior Plans (of which 3,796,077 are subject to awards of stock units and shares of restricted stock, and 10,495,039 are subject to awards of stock options). As of December 31, 2017, the weighted average exercise price of outstanding stock options was $21.67 and the weighted average remaining term of outstanding stock options was 4.9 years.

 

As of March 2, 2018 and inclusive of the February 2018 grant, there are approximately 15,893,080 shares outstanding under Prior Plans (of which 5,191,436 are full value shares and 10,701,644 are stock options). The total common shares outstanding is 187,103,143 as of March 2, 2018. The weighted average exercise price of outstanding stock options and the weighted average remaining term of outstanding stock options are estimated at approximately $18.10 and 5.8 years.


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PROPOSAL 4: APPROVAL OF THE PITNEY BOWES INC. 2018 STOCK PLAN

 

Burn Rate

 

The Committee also considered the burn rate with respect to the equity awards. The burn rate is the total equity awards we granted in a fiscal year plus units earned all divided by the total weighted average common shares outstanding at the end of the year. Our three-year average burn rate for the time period from

2015 to 2017 is approximately 2.5%, which is generally consistent with burn rate practices of the Equilar 500 (source: 2017 Equilar Equity Compensation Trends report). We will continue to monitor our equity use in future years to ensure our burn rate is maintained within competitive market norms. The Committee was satisfied that the burn rate over the past three years was at an acceptable level. See table below for additional detail.


 

Estimated 2015–2017 Burn Rate

 

Fiscal Year  Stock
Options
granted
  RSUs granted  PSUs (Earned)  Total Shares
Granted /
Earned(1)
  Wtd. Avg. CSO
(Common Shares
Outstanding)
  Burn Rate
2015  200,000   809,436      2,223,590   199,835,000   1.11%
2016  1,758,760   826,546      3,825,125   187,945,000   2.04%
2017  2,553,510   1,995,473   258,685   8,188,905   186,332,010   4.39%
           3-Year Average Burn Rate (2015 – 2017)  2.51%

 

(1) Uses a multiplier of 2.5 consistent with ISS calculation of 1 full value shares of PBI stock to 2.5 options.

 

2018 Stock Plan Terms and Conditions

 

2018 Stock Plan Administration

 

The 2018 Stock Plan is administered by the Executive Compensation Committee or any other committee designated by the board of directors to administer the 2018 Stock Plan. The board of directors and the Committee have the authority to delegate their duties under the 2018 Stock Plan to the fullest extent permitted by Delaware law. The Committee may delegate certain administrative tasks to an internal administrative employee benefits committee. Any power of the Committee may also be exercised by the board of directors. In the event that an action taken by the board of directors conflicts with action taken by the Committee, the board of directors’ action will control. The Committee is authorized to designate employees under the 2018

Stock Plan, determine the number of shares and type(s) of awards granted to employees, determine the terms and conditions of awards, interpret and administer the 2018 Stock Plan, establish, amend, suspend, rescind or reconcile rules and regulations under the 2018 Stock Plan, and generally make any other determination and take any other action the Committee deems necessary or desirable for the administration of the 2018 Stock Plan. The board determines all awards made to the CEO and COO. The Committee has delegated certain of its responsibilities under the 2018 Stock Plan, including the authority to make awards to employees below the executive officer level, to the chief executive officer as consistent with Delaware law.


 

Eligibility and Participation

 

Approximately 14,000 employees of the company and its affiliates are eligible to participate in the 2018 Stock Plan (Newgistics employees are not yet eligible), and approximately 650 employees (including the executive officers of the company) currently receive long-term

incentive awards in a given year. These numbers may vary from year to year. From time to time, the Committee will determine who will be granted awards, the number of shares subject to such grants and all other terms of awards.


 

Types of Plan Awards

 

The 2018 Stock Plan, like our prior equity plans, provides for a variety of equity instruments to preserve flexibility. The types of awards that may be issued under the 2018 Stock Plan are described below. Since 2015, the company has utilized PSUs, RSUs and nonqualified stock options in making awards under its long-term incentive program.

Performance Stock Units

 

PSUs provide the employee the right to receive Pitney Bowes common stock at the conclusion of a specified performance period (generally three years) based upon certain pre-established performance criteria. Based on how the company performs against the pre-established financial criteria, the award can pay out in common


32

PROPOSAL 4: APPROVAL OF THE PITNEY BOWES INC. 2018 STOCK PLAN

 

stock anywhere between zero to two times the PSUs awarded. Target payout is one common share per PSU awarded. Dividend equivalent rights are payments equivalent to dividends declared on the company’s common stock before a stock unit vests and is converted into common stock. Although it has not been the company’s past practice to grant dividend equivalents, PSUs may be granted together with related dividend equivalent rights. If granted, dividend equivalents are prohibited from being paid until the underlying award has vested.

 

Restricted Stock and Stock Units

 

A restricted stock award represents shares of Pitney Bowes common stock that are issued subject to restrictions on transfer and vesting requirements as determined by the Committee. On the other hand, a Restricted Stock Unit provides the employee the right to receive a payment in common stock or cash based on the value of a share of Pitney Bowes common stock. Both restricted stock and stock units may be subject to such vesting requirements, restrictions and conditions to payment as the Committee determines are appropriate. Generally, we issue performance-based, time-vested restricted stock and RSU awards which vest pro-rata over a period of approximately three years. Vesting requirements may be based on the continued service of the employee for specified time periods and/or on the attainment of specified business performance goals established by the Committee. Restricted stock will pay dividends earned only after the restricted stock vests. Although it has not been the company’s past practice to grant dividend equivalents, RSUs may be granted together with related dividend equivalent rights. If granted, dividend equivalents are prohibited from being paid until the underlying award has been vested.

 

Stock Options

 

Stock options granted under the 2018 Stock Plan may be either non-qualified stock options (NSOs) or incentive stock options (ISOs) under Section 422 of the Internal Revenue Code of 1986, as amended (Code). Stock options entitle the employee to purchase a share of Pitney Bowes common stock at an exercise price specified in the Award Agreement (including through net settlement or a cashless exercise through a broker facility, to the extent permitted by the Committee). The exercise price of any stock option granted, other than substitute awards or tandem SARs, may not be less than 100% of the fair market value of a share of Pitney Bowes common stock on the date of grant. The 2018 Stock Plan defines the fair market value as the closing price of Pitney Bowes common stock on the date of grant as reported by the New York Stock Exchange. The option

exercise price is payable in cash, shares of Pitney Bowes common stock, through a broker-assisted cashless exercise through share withholding or as otherwise permitted by the Committee.

 

The Committee determines the terms of each stock option grant at the time of the grant. Generally, all options have a ten-year term from the date of the grant. The Committee specifies, at the time each option is granted, the time or times at which, and in what proportions, an option becomes vested and exercisable. Vesting may be based on the continued service of the employees for specified time periods or on the attainment of specified business performance goals established by the Committee or both. Generally vesting of stock options occurs pro-rata over a three-year period. Under certain circumstances, the Committee may accelerate the vesting of options.

 

With certain exceptions, a vested stock option expires three months after termination of employment.

 

Stock Appreciation Rights

 

SARs entitle the employee, upon settlement, to receive a payment based on the excess of the fair market value of a share of Pitney Bowes common stock on the date of settlement over the base price of the right, multiplied by the applicable number of SARs of Pitney Bowes common stock. SARs may be granted on a stand-alone basis or in tandem with a related stock option. The base price may not be less than the fair market value of a share of Pitney Bowes common stock on the date of grant. The Committee will determine the vesting requirements, form of payment and other terms of a SAR, including the effect of termination of service of an employee. Vesting may be based on the continued service of the employee for specified time periods or on the attainment of specified business performance goals established by the Committee or both. Under certain circumstances, the Committee may accelerate the vesting of SARs. Generally, all SARs have a ten-year term from the date of the grant. SARs may be payable in cash or in shares of Pitney Bowes common stock or in a combination of both.

 

The company does not currently have any SARs outstanding.

 

Other Stock Based Awards

 

The Committee may grant employees such other awards denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, shares of Pitney Bowes common stock (including without limitation securities convertible into such shares), as are deemed by the Committee to be consistent with the purposes of the 2018 Stock Plan.


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PROPOSAL 4: APPROVAL OF THE PITNEY BOWES INC. 2018 STOCK PLAN

 

Performance-Based Awards

 

Subject to the other terms of the 2018 Stock Plan, the Committee may condition the grant, retention, issuance, payment, release, vesting or exercisability of any award, in whole or in part, upon the achievement of performance criteria during one or more specified performance periods. The performance criteria may be measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous year’s results or to a designated comparison group, in each case established by the Committee.

 

Performance criteria may include any one or more of the following either individually, alternatively or in any combination, applied to either the company as a whole or to a business unit, subsidiary, division or department:

 

(i) achievement of cost control, (ii) earnings before interest and taxes (EBIT), (iii) earnings before interest, taxes, depreciation and amortization (EBITDA), (iv) earnings per share, (v) economic value added, (vi) free cash flow, (vii) gross profit, (viii) growth of book or market value of capital stock, (ix) income from continuing operations, (x) net income, (xi) operating income, (xii) operating profit, (xiii) organic revenue growth, (xiv) return on investment (including return on invested capital), (xv) return on operating assets, (xvi) return on stockholder equity, (xvii) revenue, (xviii) revenue growth (xix) stock price, (xx) total

earnings, (xxi) total stockholder return, or (xxii) any other performance criteria established by the Committee.

 

The Committee will appropriately adjust any evaluation of performance under a performance goal to eliminate the effects of charges for restructurings, discontinued operations, extraordinary items and all items of gain, loss or expense determined to be extraordinary or unusual in nature or related to the disposal of a segment or a business or related to a change in accounting principle all as determined in accordance with standards established by the Accounting Principles Board if any or other applicable accounting provisions, as well as the cumulative effect of accounting changes, in each case as determined in accordance with generally accepted accounting principles or identified in the company’s financial statements, including the notes thereto. In addition there may be appropriate adjustments made to any evaluation of performance under a performance goal to exclude any of the following events that occurs during a performance period: asset write-downs, litigation, claims, judgments or settlements, the effect of changes in tax law or other such laws or provisions affecting reported results, accruals for reorganization and restructuring programs and accruals of any amounts for payment under the 2018 Stock Plan or any other compensation arrangement maintained by the company.


 

Forfeiture of Awards (Clawback)

 

The 2018 Stock Plan provides that the Committee may forfeit awards in the event that 1) an employee engages in gross misconduct (as defined in the 2018 Stock Plan), 2) an employee violates the terms of the Proprietary Interest Protection Agreement (a non-compete, non-solicitation and confidentiality agreement) or similar

agreement, or 3) in the case of Executive Officers, it is necessary to restate the company’s financial statements due to the company’s material non-compliance with any financial reporting requirement under the securities laws. Award payments may be recouped in the event that any of the above apply.


 

Effect of Change of Control

 

Upon termination of employment which is on account of and within two years of a Change of Control (as defined in the 2018 Stock Plan): (1) all unvested RSUs vest and are immediately converted into company common stock, (2) unvested PSUs vest at the target performance level and are immediately converted into common stock and (3) unvested NSOs vest and become fully exercisable for the remainder of the option term. If there is no termination of employment following a Change of Control: (1) all unvested RSUs vest but are not converted into common stock until the earlier of Termination of Employment (as defined in the 2018 Stock Plan) or the normal vesting dates of the award, (2) all unvested PSUs will vest at target but will not be converted into common stock until the earlier of Termination of Employment or the conclusion of the three-year performance

period, and (3) NSOs shall vest on the Change of Control and become fully exercisable on the earlier of Termination of Employment or the normal award vesting date and remain exercisable for the balance of the option term. If the acquiring company does not assume the company’s Stock Plan or any of its outstanding equity awards, RSUs and NSOs will vest upon the Change of Control, and in the case of PSUs will vest as if target performance for the entire performance period has been achieved, be valued at the common stock price as of the Change of Control and converted into cash payable upon the earlier of termination from employment or the normal award vesting date. Holders of vested RSUs and PSUs will be entitled to dividends payable upon the earlier of termination from employment or the normal award vesting date.


 

Limited Transferability

 

All RSUs, PSUs, NSOs and other stock-based awards granted under the 2018 Stock Plan are non-transferable except upon death, either by the employee’s will

or the laws of descent and distribution or through a beneficiary designation, or as otherwise provided by the Committee.


34

PROPOSAL 4: APPROVAL OF THE PITNEY BOWES INC. 2018 STOCK PLAN

 

Adjustments for Corporate Changes

 

In the event of recapitalizations, reclassifications or other specified events affecting the company or the outstanding shares of Pitney Bowes common stock, equitable adjustments will be made to the number and kind of shares of Pitney Bowes common stock available for

grant, as well as to other maximum limitations under the 2018 Stock Plan, and the number and kind of shares of Pitney Bowes common stock or other rights and prices of outstanding awards.


 

2018 Stock Plan Term, Amendment and Termination

 

The 2018 Stock Plan will have a term of ten years expiring on May 6, 2028, unless terminated earlier by the board of directors. Unless prohibited by applicable law or otherwise expressly provided in an award agreement or in the 2018 Stock Plan, the board may at any time and from time to time and in any respect amend, alter, suspend, discontinue or terminate the 2018 Stock Plan. The board may seek the approval of any amendment or modification by the company’s stockholders to the extent it deems necessary or advisable in its sole discretion for compliance purposes, including the listing requirements of the New York Stock Exchange or another exchange or securities market or for any other purpose. No amendment or modification of the 2018

Stock Plan will adversely affect any outstanding award without the consent of the employee or the permitted transferee of the award. Any amendment to the 2018 Stock Plan that would (a) increase the total number of shares available for awards; (b) reduce the price at which NSOs/SARs may be granted below the exercise price; (c) reduce the exercise price of outstanding NSOs/SARs; (d) extend the term of the 2018 Stock Plan; (e) change the class of persons eligible to be employees; (f) otherwise amend the 2018 Stock Plan in any manner requiring stockholder approval by law or under the New York Stock Exchange listing requirements; or (g) increase the individual maximum limits would require stockholder approval.


 

2018 Stock Plan Benefits

 

Because benefits under the 2018 Stock Plan will depend on the Committee’s actions (including a determination of who will receive future awards and the terms of those awards) and the fair market value of common shares at various future dates, it is not possible to determine the benefits that will be received by executive officers and other employees if the 2018 Stock Plan is approved by the stockholders.

On February 5, 2018, the date of the 2018 award grants, the closing price of our common stock traded on the New York Stock Exchange was $12.64 per share and as of March 9th, 2018 (the record date) the closing price of our common stock was $12.87 per share.


 

U.S. Federal Income Tax Consequences

 

The following discussion summarizes the material U.S. federal income tax consequences to the company and the participating employees in connection with the 2018 Stock Plan under applicable provisions of the Internal Revenue Code (Code) and the accompanying regulations. The discussion is general in nature and does not address issues relating to the income tax circumstances of any individual employee. The discussion is based on federal income tax laws in effect on the date of this proxy statement and is, therefore, subject to possible future changes in the law. The discussion does not address the consequences of state, local or foreign tax laws.

 

Federal Income Tax Consequences to the Company

 

Generally, to the extent that a recipient recognizes ordinary income, the company will be entitled to a corresponding deduction provided that, among other things, the income meets the test of reasonableness, is an ordinary and necessary business expense, is not an “excess parachute payment” within the meaning of Code Section 280G and, together with other compensation paid certain “covered employees,” is below the $1,000,000 deduction limitation imposed by IRC Section 162(m). Generally a “covered employee” is an executive who is or was a

named executive officer beginning with the named executive officers listed in this proxy statement and future proxy statements. Compensation paid to a covered employee whether performance-based or not, will not be deductible to the extent such amounts exceed $1 million in any one year, unless grandfathered under the Tax Cut and Jobs Act of 2017 (the Tax Act).

 

On December 22, 2017, the Congress enacted tax legislation commonly referred to as the Tax Cuts and Jobs Act. Among other things, the Tax Act substantially amended IRC Section 162(m) of the Internal Revenue Code. IRC 162(m) imposes a $1 million cap on the company’s tax deduction on compensation paid to its highest five paid executives (Named Executive Officers). Prior to 2018, qualified performance-based compensation meeting the process requirements of Section 162(m) was exempt from the $1 million cap. The Tax Act repealed the qualified performance-based compensation exception under Section 162(m) effective for tax years beginning on or after January 1, 2018 and expanded the group of covered employees potentially subject to the $1 million deductibility cap. The Tax Act grandfathered arrangements entered into on or before November 2, 2017.


35

PROPOSAL 4: APPROVAL OF THE PITNEY BOWES INC. 2018 STOCK PLAN

 

As a result of the Tax Act changes to Section 162(m), we expect that equity awards or other compensation, whether or not performance based, granted or provided under arrangements entered into or modified after November 2, 2017 to any person who is or was a Named Executive Officer will not be deductible to the extent such amounts exceed $1 million in any one year.

 

Section 409A

 

Code Section 409A may apply to awards under the 2018 Stock Plan that are deemed to be deferred compensation. If the requirements of Section 409A are not met, the recipient may be required to include deferred compensation in taxable income and additional taxes and interest may be assessed on such amounts. To the extent Section 409A is applicable to an award made under the 2018 Stock Plan, it is the company’s intent to have such award comply with the rules promulgated under Section 409A.

 

Tax Withholding

 

To the extent required by applicable federal, state, local or foreign law, an employee will be required to satisfy, in a manner satisfactory to the company, any withholding tax obligations that arise by reason of the award.

 

Taxation of the Various 2018 Stock Plan Awards

 

Performance Stock Units and Restricted Stock Units. Employees granted RSUs and PSUs do not recognize income at the time of the grant. Rather they recognize ordinary income, and subject to IRC 162(m), the company receives a corresponding tax deduction, in an amount equal to the fair market value of the units when the award vests and is converted into common stock or paid in cash. Certain employees who receive PSUs or RSUs may defer the conversion of the PSUs or RSUs beyond the award vesting date.

 

Nonqualified Stock Options. An employee will not recognize income and the company will not be entitled to a deduction upon receipt of a nonqualified stock option award. Ordinary income will be realized by the employee, and subject to IRC 162(m), a tax deduction will be recognized by the company at the time the non-qualified stock option is exercised and the shares are transferred to the employee. The amount of such taxable income and deduction upon the exercise of an Option, is the difference between the exercise or option price and the fair market value of the shares on the date of exercise.

 

Incentive Stock Options. ISOs will not result in taxable income to the employee, nor a taxable deduction for the company. However, the difference between the fair market value of the stock on the date of grant and the option exercise price is a tax preference item that may subject the employee to the alternative minimum tax. If the employee holds the ISO shares for two years from the date the option was granted and for one year after the shares were transferred to him upon the exercise of the option, the employee will recognize long-term capital

gain on the portion of the gain on the sale of the shares equal to the difference between the sales price and the option exercise price and the company will not be entitled to a deduction either at the time the employee exercises the ISO or subsequently sells the ISO shares. If the employee sells the ISO shares within two years after the date the ISO is granted or within one year after the date the ISO is exercised, then the sale is considered a disqualifying sale, and the difference between the grant price and the exercise price will be taxed as ordinary income. The balance of the gain will be treated as long- or short-term capital gain depending on the length of time the employee held the stock. If the shares decline in value after the date of exercise, the compensation income will be limited to the difference between the sale price and the amount paid for the shares. The tax will be imposed in the year the disqualifying sale is made. Subject to 162(m), the company will be entitled to a deduction equal to the ordinary income recognized by the employee.

 

With respect to both nonqualified stock options and ISOs, special rules apply if an employee uses shares already held by the employee to pay the exercise price or if the shares received upon exercise of the option are subject to a substantial risk of forfeiture by the employee.

 

Stock Appreciation Rights. An employee will recognize taxable income upon the exercise of a SAR in the amount of the aggregate cash received. In either case, subject to 162(m) the company will be entitled to an income tax deduction in the amount of such income recognized by the employee.

 

Restricted Stock. Employees receiving restricted stock will not recognize any income upon receipt of the restricted stock. Ordinary income will be realized by the holder at the time that the restrictions on transfer are removed or have expired and the stock vests. The amount of ordinary income will be equal to the fair market value of the shares on the date that the restrictions on transfer are removed or have expired. Subject to 162(m), the company will be entitled to a deduction at the same time and in the same amount as the ordinary income the employee realizes. An employee may elect to recognize taxable ordinary income in an amount equal to the fair market value of the shares at the time the award is received if the employee makes an election no later than 30 days after an employee receives the restricted stock. If a timely election is made, the employee will not recognize any additional income when the restrictions on the shares lapse. If the employee forfeits the shares to the company, the employee may not claim a deduction with respect to the income recognized as a result of the election.

 

Generally, when an employee disposes of shares acquired under the 2018 Stock Plan, the difference between the sales price and his or her basis in such shares will be treated as long- or short-term capital gain or loss depending upon the holding period for the shares.


36

PROPOSAL 4: APPROVAL OF THE PITNEY BOWES INC. 2018 STOCK PLAN

 

Registration with the SEC

 

If the 2018 Plan is approved by shareholders, the company will file a Registration Statement on Form S-8 with the SEC with respect to the shares of Pitney Bowes common stock to be registered pursuant to the 2018 Plan, as soon as reasonably practicable following shareholder approval.

Tax Treatment of Awards to Employees Outside the United States

 

The grant and exercise of options and awards under the 2018 Stock Plan to employees outside the United States may be taxed on a different basis.


 

Vote Required; Recommendation of the Board of Directors

 

Approval of the Pitney Bowes Inc. 2018 Stock Plan requires the affirmative vote of a majority of votes cast. Broker non-votes are not considered votes cast and therefore will not be counted either for or against this proposal. With respect to abstentions, for purposes of approval under our By-laws, abstentions are not considered votes cast and therefore will not be counted either for or against; however, for purposes of approval under New York Stock Exchange rules, abstentions are treated as votes cast, and, therefore, will have the same effect as an “against” vote.

 

The board of directors recommends that stockholders vote FOR the proposal to approve the Pitney Bowes Inc. 2018 Stock Plan.

37

Equity Compensation Plan Information

 

The following table provides information as of December 31, 2017 regarding the number of shares of common stock that may be issued under our equity compensation plans.

 

Plan Category                  (a)
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
  (b)
Weighted-average exercise
price of outstanding options,
warrants and rights
  (c)
Number of securities
remaining available for
future issuance under equity
compensation plans
excluding securities
reflected in column (a)
Equity compensation plans approved by security holders   10,495,039    $21.67    15,725,806 
Equity compensation plans not approved by security holders   —      —      —   
Total   10,495,039    $21.67    15,725,806(1)

 

(1)  These shares are available for stock awards made under the Stock Plan of 2013. As of December 31, 2017, of the total 15,725,806 shares remaining and available for future issuance, 6,324,469 are available for full value share awards.

 

Report of the Executive Compensation Committee

 

The Executive Compensation Committee (“Committee”) of the board of directors (1) has reviewed and discussed with management the section beginning on page 39 entitled “Compensation Discussion and Analysis” (CD&A) and (2) based on that review and discussion, the Committee has recommended to the board of directors that the CD&A be included in the company’s Annual Report on Form 10-K for the year ended December 31, 2017 and this proxy statement.

 

By the Executive Compensation Committee of the board of directors,

 

Eduardo R. Menascé, Chairman

Anne M. Busquet

Anne Sutherland Fuchs

Linda S. Sanford

David B. Snow, Jr.

38

Compensation Discussion and Analysis

 

The following discussion and analysis contains statements regarding company performance targets and goals. These targets and goals are disclosed in the limited context of our compensation programs and should not be understood to be statements of management’s expectations or estimates of results or other guidance. Investors should not apply these statements to other contexts.

 

Executive Summary

 

Overview

 

This CD&A section explains our compensation philosophy, summarizes the material components of our compensation programs and reviews compensation decisions made by the Committee and the independent board members. The Committee, comprised of only independent directors, makes all compensation decisions regarding executive officers including those identified as named executive officers (NEOs) in the Summary Compensation Table on page 62, other than the Chief Executive Officer (CEO) and the Chief Operating Officer (COO). The independent board members, based on recommendations by the Committee, determine compensation actions impacting the CEO and the COO.

 

    2017 Named Executive Officers
  Marc B. Lautenbach, President and Chief Executive Officer
  Stanley J. Sutula III, Executive Vice President and Chief Financial Officer
  Michael Monahan, Executive Vice President, Chief Operating Officer
  Mark L. Shearer, Executive Vice President
  Roger Pilc, Executive Vice President and Chief Innovation Officer

 

Pitney Bowes has bifurcated the roles of President and CEO and chairman of the board of directors. Marc B. Lautenbach is President and CEO and Michael I. Roth is non-executive chairman of the board of directors.

 

Effective February 1, 2017, Stanley J. Sutula III was appointed to the role of Executive Vice President and Chief Financial Officer succeeding Michael Monahan. Mr. Monahan continues to serve in the role of Executive Vice President and COO.

 

Mark Shearer has announced his retirement effective March 1, 2018.

39

COMPENSATION DISCUSSION AND ANALYSIS

 

2017 Summary of Business Performance

 

Over the last five years, the company moved its portfolio to positive growth. We achieved this significant change in several ways. First, we made changes in our portfolio of businesses to reflect the evolution of our strategy and to position our business to participate in higher growth markets, particularly in high growth Ecommerce shipping markets. Second, we made significant investments in our technology, our brand, and our internal systems to enable us to better serve our clients and run our business more efficiently. As a result, in 2017, when we include the revenue in the fourth quarter from the acquisition of Newgistics, Inc., we achieved our highest revenue growth rate since 2007. Also, excluding the acquisition of Newgistics, revenue grew for the first time since 2014. We were able to achieve this growth while reducing expenses by roughly $300 million (with an additional $200 million in spend reduction planned), decreasing our overall debt position, and improving working capital.

 

Specifically in 2017, the company had revenue growth in four of our six segments, and our total organic revenue showed positive growth. This growth is the result of our ongoing efforts to reposition the portfolio to growth markets. The most significant change to our portfolio of businesses was the acquisition of Newgistics, Inc., which we completed at the beginning of the fourth quarter. Newgistics provides parcel delivery, returns, fulfillment, and digital commerce solutions for retailers and Ecommerce brands. The acquisition accelerates our expansion into the United States domestic Ecommerce business and complements our existing, and rapidly growing, cross-border Ecommerce business.

 

In our Small and Medium Business group, we introduced a new, innovative product, the SendPro C-Series. This introduction was a key milestone in reinventing our mailing business. SendPro is a digitally connected product based on an open platform that enables mailing, shipping and other third party applications. In addition, we expanded our offerings of on-line shipping and mailing solutions.

 

We saw continued growth in our Digital Commerce group in 2017, primarily through growth in our Ecommerce business, through bringing more retailers on as clients and further developing our API shipping applications for United States domestic shipping at scale. Our software business grew slightly in 2017, as we saw continued progress in building out our partner-based sales channel.

 

Finally, our commitment to operational excellence efforts remained a key focus for the company. In November 2017, we announced a new set of initiatives to eliminate an additional $200 million of expenses on top of the nearly $300 million of expense we have already reduced over the last five years.

 

Exiting 2017, Pitney Bowes is a different company today than when we began this transformation five years ago. With both portfolio changes like the acquisition of Newgistics and continuing product innovations like the Send Pro C-Series and fully digital shipping applications, the company is positioned to grow.

 

As with any transformation, change for us is not in a straight line and our financial results in 2017 reflected that fact. From a financial perspective, in 2017, the company:

 

  Generated revenue of $3.5 billion
     
  Delivered free cash flow of $384 million
     
  Returned $139 million in dividends to its stockholders
     
  Made capital expenditures totaling $171 million
     
  Held at year-end over $1 billion in cash and short-term investments on the balance sheet
     
  Reported adjusted earnings per diluted share of $1.41
     
  Increased debt by $465 million, which was attributable to the funding of the Newgistics acquisition

 

Some of the amounts in the CD&A portion of this proxy statement are shown on a non-GAAP basis. For a reconciliation and additional detail on the calculation of the financial results reported in this proxy statement, including those described above, please refer to page 60 “Non-GAAP Measures.” Our Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on February 22, 2018 describes our business and 2017 financial results in more detail.

40

COMPENSATION DISCUSSION AND ANALYSIS

 

Snapshot of 2017 Pay for Performance Actions

 

Both our short-term and long-term incentive compensation programs are strongly aligned with company performance. In 2017, our short-term incentive plan paid a zero bonus because we did not achieve our incentive goals in 2016. In 2018, our short-term incentive plan paid 32.3% of target reflecting the company’s performance against 2017 goals. Over the same two year-period, the performance stock units portion of our long-term plan paid 56% and 14% of target in 2017 and 2018, respectively.

 

The company divides its performance-based compensation into an annual performance component and a three-year performance component. It does so to incent management to strike an appropriate balance between the short and long term growth of the company. The 2017 compensation short and long-term incentive plans reflect this balance and, in 2017, worked as designed to reflect the company’s performance.

 

  Short Term Incentive Plan. The company made substantial progress toward important strategic initiatives. In 2017, the company achieved above target for the revenue growth financial objective, however, it fell short of threshold for both Adjusted Earnings Before Interest and Taxes and Adjusted Free Cash Flow. Consequently, an annual incentive of 32.3% was paid.
     
  Long Term Incentive Plan. Throughout the three-year period, the company continued to invest in its future long-term success, including its enterprise resource planning system, rebranding and marketing efforts, the overhaul of the company’s go-to-market structure, and major investments in Digital Commerce. Although the first year of the three-year period reflected solid company performance, the last two years of the cycle were challenging and had a significant impact on the ultimate vested percentage. Consequently, based on financial metrics, including the relative total shareholder return (TSR) modifier, established by the Committee, the 2015-2017 PSUs vested at 14% of target. In addition, the market value of the award fluctuated with the stock price during the performance period.

 

See the Performance Stock Unit waterfall chart on page 42 of this proxy statement.

 

The following tables compare the actual payouts in 2017 and 2016:

 

Annual Incentive  2017 Actual Payout
Factor as a % of Target
  2016 Actual Payout
Factor as a % of Target
  Percentage Point Change
2017 vs. 2016
Financial Objectives   27.5%   0.0%     
Strategic Modifier(1)   4.8%   —        
Total Payout Factor   32.3%   0.0%   32.3%
                
Long-Term Incentive  2017 Actual Unit Multiplier
Value (2015 – 2017
PSU cycle)
  2016 Actual Unit Multiplier
Value (2014 – 2016
PSU cycle)
  Percentage Point Change
2017 vs. 2016
Adjusted Earnings per Share   0.13    0.46      
Adjusted Free Cash Flow   0.05    0.29      
TSR Modifier(2)   (0.04)   (0.19)     
Total Multiplier/Payout Value   0.14    0.56    (42%)

 

(1) The strategic modifier objectives in 2017 included (i) Voice of the Client, measured as an overall satisfaction score (NSAT) and (ii) High Performance Culture, measured from an annual employee survey (iii) responsiveness to client issues and (iv) increasing client use of Digital channels.
(2) The TSR Modifier is a cumulative three-year modifier, which modifies the final payout by up to +/- 25% based on the company’s TSR as compared to the company’s peer group (see page 52). The relative TSR modifier for the 2014 – 2016 and 2015 – 2017 PSU cycle was -25% and -20% respectively.
41

COMPENSATION DISCUSSION AND ANALYSIS

 

2015-2017 Performance Stock Unit Vesting Multiplier(1)

 

 

(1) The amounts above include the impact of the TSR Modifier. The sum of the metrics may not exactly equal the total due to rounding.

 

For additional detail on the calculation of the financial metrics described above, please refer to page 60 “Non-GAAP Measures” and corresponding table. Also see “2017 Compensation” beginning on page 49 of this proxy statement for a discussion of each of the compensation components and the respective payouts.

42

COMPENSATION DISCUSSION AND ANALYSIS

 

CEO 2017 Compensation

 

The board did not increase the CEO’s compensation package for 2017. Mr. Lautenbach’s base salary remained at $950,000, annual incentive target at 135%, and long-term incentive target of $5,500,000. The CEO’s long-term incentive mix includes 60% Performance Stock Units (PSUs), 20% Restricted Stock Units (RSUs), and 20% Nonqualified Stock Options (NSOs), strongly aligning his compensation to shareholder interests.

 

The target compensation package of our President and CEO reflects Pitney Bowes’ performance-linked pay philosophy and is competitive when compared to our peer group and two third-party compensation survey reports (see description on competitive benchmarking of compensation on pages 55 to 57).

 

The following are characteristics of Mr. Lautenbach’s compensation compared against our peer group and the average of the Willis Towers Watson Regressed Compensation Report and the Radford Global Technology Survey (Survey Reports):

 

Pitney Bowes CEO Compensation vs. Benchmarks
In the above illustration, because the peer median and the average median data of the Survey Reports is reported at target, Mr. Lautenbach’s compensation elements are also illustrated at target for comparison purposes.

 

Pitney Bowes CEO % of Pay

 

 

43

COMPENSATION DISCUSSION AND ANALYSIS

 

CEO Realized Compensation. The previous chart illustrated that 88% of the CEO’s pay is at risk based on company performance. The chart below demonstrates how our compensation structure is strongly linked to company performance and shows that based on the company’s performance in 2017, compared to the target value, only 31% of the CEO’s total potential compensation was realized as of February, 2018. For this purpose, realized compensation includes base pay, annual incentive, value of RSUs vested, and value of PSUs earned.

 

CEO Realizable Compensation

 

 

 

(1) Target Realizable Compensation represents 2017 base salary, 2017 target annual incentive paid in February, 2018, and: (i) the prorated grant date target value of the RSU awards which vested in February, 2018 (ii) the grant date target value of the 2015-2017 PSU award which vested in February, 2018, and (iii) the prorated grant date target value of the 2016 and 2017 option awards which vested in February, 2018.
(2) Actual Realized Compensation represents 2017 base salary, 2017 actual annual incentive paid in February, 2018, and: (i) the value realized upon vesting of the RSU awards in February, 2018, (ii) the value of the 2015-2017 PSU award based on the final performance factor of 0.14 and the closing stock price as of December 31, 2017 and (iii) the value of the prorated vesting of the option award in February, 2018.
44

COMPENSATION DISCUSSION AND ANALYSIS

 

Executive Compensation Program Structure

 

Compensation Philosophy

 

We link executive compensation to the performance of the company as a whole. We believe executives with higher levels of responsibility and a greater ability to influence enterprise results should receive a greater percentage of their compensation as performance-based compensation. Compensation for our NEOs varies from year to year primarily based on achievement of enterprise-wide objectives and in some instances individual performance. We emphasize enterprise-wide performance to break down any internal barriers that can arise in organizations that emphasize individual performance. We believe our compensation structure encourages reasonable risk-taking but discourages taking excessive risks.

 

Our executive compensation program is designed to recognize and reward outstanding achievement and to attract, retain and motivate our leaders. We solicit feedback from our major stockholders regarding our executive compensation program, and management speaks individually to stockholders who wish to provide input. At the company’s annual meeting of stockholders in 2017, stockholders voted in favor of the company’s executive compensation by 97.5% of the votes cast.

 

Below is an overview of key aspects of our pay philosophy.

 

Overall Objectives   Compensation levels should be sufficiently competitive to attract and retain talent;
       
    Compensation should reflect leadership position and responsibility;
       
    Executive compensation should be linked to the performance of the company as a whole;
       
    Compensation should motivate our executives to deliver our short and long-term business objectives and strategy.
Pay Mix Principles   Compensation should be tied to short-term performance and creation of long-term stockholder value and return;
       
    Performance-based compensation should be a significant portion of total compensation for executives with higher levels of responsibility and a greater ability to influence enterprise results; and
       
    Executives should own meaningful amounts of Pitney Bowes stock to align their interests with Pitney Bowes’ stockholders.
Pay for Performance   Incentive compensation should reward both short-term and long-term performance;
     
    A significant portion of our compensation should be variable based on performance; and
       
    The annual and long-term incentive components should be linked to operational outcomes, financial results or stock price performance.
45

COMPENSATION DISCUSSION AND ANALYSIS

 

Stockholder Engagement — Executive Compensation

 

It is our practice to conduct stockholder outreach calls and meetings twice a year in the spring and fall. We contact stockholders holding approximately 50% of our outstanding shares and actively seek their views on various governance topics and executive compensation matters. We also periodically engage proxy advisory firms for their viewpoints. If requested, we offer various board members to discuss these matters with our investors. In 2017, our Chair of the Executive Compensation Committee joined in a stockholder outreach discussion.

 

Here’s What We Heard

 

  ü Overall our investors provided positive feedback on the structure of our executive compensation programs, our dedication to stockholder outreach and in particular our making board members available for discussion if requested
     
  ü Our investors approved the alignment of our compensation programs with company’s performance and in particular our compensation best practices
     
  ü Our investors were specifically pleased about the multiple triggers in vesting, the way we benchmark against two independent surveys as well as company peers and our clawback policy
     
  ü Our investors asked us to streamline the proxy where possible, simplify explanations, and provide graphic displays to make it easier to read
     
  ü Our investors questioned why we had eliminated a relative total shareholder return metric from our 2016 long-term incentive PSU award
     
  ü Our investors suggested that we ensure that our compensation and rewards programs attract and retain top talent and contain the appropriate performance metrics to achieve strategic goals

Here’s What We’ve Done

 

  ü We’ve tried to simplify and streamline certain sections of the proxy presentation to avoid duplication of material where possible
     
  ü We include graphics where possible to assist in the presentation of the material
     
  ü We have provided explanations as to why certain actions were taken by the Committee with respect to compensation
     
  ü We provided a chart which shows total target realizable pay compared to actual realizable pay indicating a clear alignment between pay and performance
     
  ü We reintroduced a relative total shareholder return modifier in our 2017 long-term incentive PSU award
     
  ü The Committee will continue to review the compensation structure, base salary, short-term incentive, and long-term incentive to attract and retain talent


46

COMPENSATION DISCUSSION AND ANALYSIS

 

Strong Compensation and Pay Governance Practices

 

We believe our executive compensation program demonstrates a strong link between pay and performance in its design and exhibits strong governance pay practices. The following lists the principal pay for performance and governance practices adopted by the board.

 

100% of annual incentive and long-term incentive tied to financial metrics, growth in our share price, relative shareholder value, and/or business performance metrics
   
100% of long-term incentive is equity based
   
Double trigger vesting in our change of control provisions
   
Significant stock ownership guidelines for senior executives and directors
   
Enhanced disclosure of performance targets
   
Independent compensation consultant performing no other services for the company
   
Clawback provisions in event of financial restatement
   
Annual stockholder advisory vote on executive compensation
   
Significant CEO pay at risk (88%)
   
Independent Chairman of board of directors
   
Annual risk-assessment of pay practices
   
Semi-annual stockholder outreach with direct line of communication with board of directors
No individual supplemental executive retirement plans
   
No special arrangement crediting extra years of service in our benefit plans
   
No tax gross-up in change of control payments
   
No hedging, pledging or short-term speculative trading of company stock
   
No employment agreements with our executive officers
   
No stock option repricing, reloads or exchanges
   
No transferability of restricted securities
   
No dividends on unvested stock awards


47

COMPENSATION DISCUSSION AND ANALYSIS

 

Overview of Compensation Components

 

The Committee is responsible for determining the compensation for all NEOs, other than the CEO and COO, and for recommending to the independent members of the board of directors (as a whole) each specific element of compensation for the CEO and COO. The Committee considers recommendations from the CEO regarding the compensation of other NEOs. The independent board members are responsible for determining the CEO’s and COO’s compensation. No member of the management team, including the CEO, has a role in determining his or her own compensation.

 

For each NEO, the Committee sets, as a guideline, target total direct compensation (base salary plus annual incentive plus long-term incentive) levels so the base salary, total cash compensation (base salary plus annual incentive), and total direct compensation is at +/- 20% of the median of the competitive data based on the Willis Towers Watson Regressed Compensation Report, as regressed for companies with our approximate revenue size, and the Radford Global Technology Survey focusing on companies with revenue scopes similar to ours for each position. We describe these two reports in more detail under “Assessing Competitive Practice” beginning on page 55 of this proxy statement. In order to attract or retain specific talent, the general median guideline +/- 20% may be exceeded.

 

For 2017, the total target cash compensation and total target direct compensation for Mr. Lautenbach were 98% and 106%, respectively, of the market median(1) for CEOs. For the NEOs, as a group, the average total target cash compensation and total direct compensation were 105% and 112%, respectively, of the market median.

 

(1) Market median is the average of the median pay for all NEOs, including the CEO, as reported in the Willis Towers Watson Regressed Compensation Report and the Radford Global Technology Survey.

 

The following table outlines the components of direct compensation for our NEOs and how they align with our compensation principles.

 

Pay Element   Key Characteristics   What it Rewards
Short-term Compensation
Base Salary  

  Fixed cash compensation

  Increases influenced by an executive’s individual performance rating and/or competitiveness to the market

 

  Performance of daily job duties

  Highly developed skills and abilities critical to the success of the company  

Annual Incentive  

  Performance-based cash compensation primarily measured on achievement of enterprise-wide metrics

  Individual performance may be considered in establishing an executive’s annual incentive opportunity

    Achievement of pre-determined short-term objectives established in the first quarter of each year
Long-term Incentives
Performance Stock Units (PSUs)   •  Performance-based equity compensation measured on enterprise-wide metrics  

  Achievement of pre-determined financial objectives:

  Established in the first quarter of each year within the three-year cycle for awards

  Modified by a Total Shareholder Return (TSR) compared to our peer group

Performance-Based Restricted Stock Units (RSUs)     Performance-based equity compensation measured on a threshold financial target    

  Achievement of a pre-determined performance objective established at time of grant

  Company stock value

Nonqualified Stock Options (NSOs)     Performance-based equity compensation measured by company stock value     Company stock value must increase for optionees to realize any benefit
Periodic Off-cycle Long-term Awards      Depends on type of award granted   •  The Committee may also grant other long-term incentive awards in unique circumstances where needed for attracting, retaining or motivating executive talent.

 

We also provide certain other benefits for our NEOs, including retirement benefits and deferred compensation plans. For additional information, please see “Other Indirect Compensation” on page 53 of this proxy statement.

48

COMPENSATION DISCUSSION AND ANALYSIS

 

2017 Compensation

 

2017 Highlights

 

The company’s compensation program emphasizes the creation of short and long-term value.

Annual and long-term incentives are based 100% on financial targets such as Earnings Per Share, Revenue Growth, Adjusted EBIT, and Adjusted Free Cash Flow but may be modified by up to 10% based on strategic objectives
Long-term incentives are 100% equity based and consist of PSUs, RSUs, and NSOs
  PSU awards for the 2017-2019 cycle utilize pre-established annual financial objectives aggregated over a three-year period and modified by a three-year cumulative Total Shareholder Return (TSR) compared to peer companies.
  Performance RSUs must meet a financial target based on income from continuing operations (IFCO) before they can vest.
  NSO awards align NEOs’ compensation with shareholder interests.

 

Base Salary

 

Mr. Lautenbach’s annual salary did not increase for 2017. Except for Mr. Pilc, the other NEOs had an average base salary increase in 2017 of 1.0%. Mr. Pilc received an increase of $48,700 to more closely align his total compensation with the market median reference point for his role.

 

Annual Incentives

 

Based on performance against the pre-established financial objectives, an annual incentive payout of 32.3% was awarded to the NEOs for FY2017.

 

NEOs are eligible for annual incentives under the Key Employees Incentive Plan primarily for achieving challenging enterprise-wide financial objectives established at the beginning of each year. Individual performance and its impact on financial, strategic, unit or individual objectives may be considered.

 

Annual Incentives

 

The annual incentive plan is based 100% on the company’s financial performance, demonstrating our commitment to place rigor and objectivity in establishing and meeting our compensation goals. The following lists the financial objectives used under the annual incentive plan, along with the reasoning for each, which we believe effectively measure how well our business is performing on a short-term basis:

Adjusted free cash flow (Adjusted FCF). The ability to generate free cash flow on a short-term basis is extremely important as it allows the company to manage its current financial needs.
Adjusted earnings before interest and taxes (Adjusted EBIT). This is an appropriate measure for annual incentive compensation because it directly reflects current profitability and performance.
Adjusted revenue growth. This is an appropriate measure because it indicates whether our business is expanding, after excluding the impact of foreign currency translation and the disposal of certain business operations.

Each of these metrics excludes the impact of certain special items, both positive and negative, which could mask the underlying trend or performance within a business. The adjustments for special items are made consistently year-to-year and are explained on page 60 in “Non-GAAP Measures.”

 

We apply a Strategic Modifier of up to ten percentage points in determining final compensation payouts. The Strategic Modifier is based on the achievement of enterprise strategic goals. Strategic goals are targets that are important to the successful operation of the enterprise above and beyond financial goals. The strategic goals for 2017 were (i) Voice of the Client, measured as an overall satisfaction score (NSAT) and (ii) High Performance Culture, measured from an annual employee survey (iii) responsiveness to client issues and (iv) increasing client use of digital channels. These important strategic goals are the foundation for our future business success and essential for positive financial results.


49

COMPENSATION DISCUSSION AND ANALYSIS

 

The table below shows the weighting of the metrics as well as the various levels of achievement relating to the 2017 annual incentive:

 

Financial Objectives(1)    Target
Weighting
  Threshold  Target  Maximum  Actual
Result
  Actual Payout as
a % of Target
Adjusted Earnings Before Interest and Taxes(2)    35%  $618 million  $654 million  $675 million  $524 million  0%
Adjusted Revenue Growth(2)    25%  -2.5%  -0.5%  1.5%  0.1%  27.5%
Adjusted Free Cash Flow(2)    40%  $335 million  $375 million  $405 million  $247 million  0%

 

(1) We set the targets for the Adjusted EBIT, Adjusted revenue growth and Adjusted FCF financial objectives relative to overall guidance provided to stockholders and the financial community at the beginning of 2017. We believe that the 2017 financial objectives at each level (threshold, target and maximum) accurately balance the difficulty of attainment of the level with the related payout.
   
(2) For compensation purposes, (a) Adjusted EBIT is translated at 2017 budget rates and presented on a continuing operations basis excluding any nonrecurring items; and (b) Adjusted revenue growth is presented on a continuing operations and constant currency basis. Adjusted EBIT, Adjusted revenue growth and Adjusted FCF are non-GAAP measures. For a reconciliation and additional information, please see “Non-GAAP Measures” on page 60 of this proxy statement.

 

Funding of the Annual Incentive Pool and 2017 Actual Payout

 

Funding of the annual incentive pool begins with the sum of the annual incentive targets of eligible Pitney Bowes Incentive Plan (PBIP) participants. For more information on setting the target see “Assessing Competitive Practice” on page 55.

 

For NEOs, executive officers, unit presidents and staff vice presidents, the 2017 annual incentive was contingent on the company achieving its Section 162(m) threshold goal of $222,181,000 in income from contin-

uing operations, excluding certain special events. (See “Treatment of Special Events” beginning on page 60 of this proxy statement.) This target was intended to allow payments under the 2017 annual incentive program to qualify as performance-based compensation for purposes of Code Section 162(m) as in effect at the time the goal was established. Actual 2017 income from continuing operations, excluding all special events, was $264,769,000.

 

Based on the financial performance shown above, the annual incentive pool was funded for 2017 at 32.3%, which includes the strategic modifier of 4.8%


 

Long-term Incentives

 

Long-term incentives link the NEOs’ rewards to the company’s long-term financial performance and stock price. We also pay long-term incentives in order to be competitive in the markets in which we operate and in order to attract and retain high-performing executives.

 

Long-term incentive awards are linked to changes in shareholder value and continue to be 100% equity based. In 2017, the award mix for NEOs consisted of 60% PSUs, 20% performance-based RSUs and 20% NSOs. Stock denominated grants, by their nature, convey market-based standards over time.

 

Performance Stock Units (PSUs)

 

PSUs are long-term equity awards granted annually constituting 60% of a NEO’s long-term incentive award. In recognition of the challenges inherent in establishing cumulative three-year financial targets during the company’s transformation period, in February 2017 the Committee approved a return to the PSU design last utilized for the 2015-2017 award cycle. This design includes annual financial targets (AEPS and AFCF) set at the beginning of each calendar year within the three year cycle, which results are aggregated at the end of the three-year performance period. Additionally, final results would be modified by a cumulative three-year total shareholder return (TSR) modifier of up to plus or minus 25% based on relative performance compared

with the proxy peer group. The TSR modifier cannot result in a positive adjustment if there is a negative TSR over the three-year cycle.

 

The purpose of this change was to focus on succeeding at each step of the three-year performance period while meeting the company’s long-term financial goals. Our long-term incentives consisting of PSUs, RSUs, and NSOs demonstrate a strong commitment to long-term growth from a stockholder perspective as the value of these awards increase as company stock price increases.

 

PSUs vest at the end of the three-year performance period when the Committee determines their value based on performance against the pre-established financial metrics. At any given time there will be three PSU cycles outstanding. The vesting of pre-2018 long-term incentive awards are generally subject to achieving an average income from continuing operations (IFCO) financial performance threshold target established in part for purposes of Code Section 162(m) as in effect at the time those awards were granted. If the average IFCO target is not met, then the entire award is forfeited. In addition, vesting of PSUs is based on achieving various challenging enterprise-wide financial objectives.

 

The enterprise-wide financial objectives set by the Committee include adjusted earnings per share and adjusted free cash flow. We believe both of these financial factors


50

COMPENSATION DISCUSSION AND ANALYSIS

 

are important indicators of the company’s long-term viability and performance and align with the company’s long-term growth strategy, and thus are appropriate metrics upon which to base long-term incentive awards.

 

  Adjusted earnings per share (Adjusted EPS) is an appropriate measure of long-term profitability.
     
  Adjusted FCF provides us with needed resources to reposition and pursue new growth opportunities. While we recognize that this metric is also utilized in our short-term one-year goal, we believe Adjusted FCF is important as well to the company’s long-term success, measured over a three-year period.

 

The Committee generally sets the financial targets considering the guidance we provide to stockholders and

the investment community. Subsequent revisions of guidance do not affect the targets set at the beginning of a year. Our long-term financial targets take into account budgeted levels of share repurchases. The Committee sets the objectives with the appropriate level of difficulty and stretch for each grant.

 

The number of PSUs granted at target in 2017 was determined by dividing the target dollar amount set for each NEO by the closing price of company stock on the date of grant.

 

The number of shares vesting at the end of the cycle can range from 0 to 200% of the initial number granted based on achievement of the Committee pre-established financial goals. The Committee also can employ discretion in determining the vesting percentage to reflect more accurately the company’s overall performance.


 

Performance Stock Units (PSUs) Objectives and Metrics for completed 2015-2017 grant cycle

 

The table below shows the financial metrics, each weighted at 50%, and various levels of achievement relating to the 2015-2017 PSUs:

 

2015 – 2017
Adjusted Earnings Per Share(1)
    Threshold  Target  Maximum  Actual
Result
  Metric
Payout
Value
  TSR
Modifier
  Final
Performance
Multiplier
2015    $1.65  $1.85  $2.00  $1.79  0.13      
2016    $1.75  $1.90  $2.05  $1.68  0.00      
2017    $1.65  $1.78  $1.85  $1.41  0.00      
                               
2015 – 2017
Adjusted Free Cash Flow(1)
    Threshold   Target   Maximum   Actual
Result
  Metric
Payout
Value
       
2015     $380 million   $405 million   $455 million   $384 million   0.05        
2016     $385 million   $435 million   $485 million   $317 million   0.00        
2017     $335 million   $375 million   $405 million   $247 million   0.00        
Total                     0.18   -20%   0.14

 

(1) Adjusted EPS and adjusted free cash flow are non-GAAP measures. For a reconciliation and additional information, please see “Non-GAAP Measures” on page 60 of this proxy statement.

 

For the 2015 – 2017 PSU cycle, the unit multiplier at target is 100%. The PSU multiplier range is between 0% and 200% based upon the achievement of the pre-determined financial objectives described above, each weighted at 50%. The Committee modifies the resulting unit value by up to +/- 25% based on our cumulative three-year TSR as ranked against the cumulative three-year TSR of companies within our peer group linking pay-out to our relative TSR. If TSR is negative for the cumulative three-year period, there is no positive application of the TSR modifier. Based on relative performance versus our peer group over the cumulative three-year period, the TSR modifier is applied as shown on page 52.

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COMPENSATION DISCUSSION AND ANALYSIS

 

PBI rank vs. Peer Group Modifier
Above 75th %ile +25 %
70th to 75th %ile +20 %
65th to 70th %ile +15 %
60th to 65th %ile +10 %
55th to 60th %ile +5 %
45th to 55th %ile +0 %
40th to 45th %ile –5 %
35th to 40th %ile –10 %
30th to 35th %ile –15 %
25th to 30th %ile –20 %
Below 25th %ile –25 %

 

For NEOs, executive officers, unit presidents and staff vice presidents, the 2015-2017 PSU cycle is only vested if the company achieves average income from continuing operations over the cycle of $271,190,000, excluding certain special events. (See “Treatment of Special Events” beginning on page 60 of this proxy statement.) Average annual adjusted income from continuing operations for the 2015-2017 PSU cycle was $311,299,000 which exceeded the performance threshold.

 

Based on the 2015-2017 PSU performance multiplier of 0.14 per unit, the NEOs each vested in the following number of PSUs in February 2018:

 

Executive    Target PSUs Awarded  Performance Multiplier  Units Vested
Marc B. Lautenbach    164,551  .14  23,037
Stanley J. Sutula III    N/A  N/A  N/A
Michael Monahan    65,820  .14  9,215
Mark L. Shearer    42,783  .14  5,990
Roger Pilc    19,746  .14  2,764

 

Performance-Based Restricted Stock Units

 

An annual grant of performance-based restricted stock units (RSUs) is made during the first quarter of the year. While RSUs continue to support the executives’ long-term outlook, they also act as a significant retention tool.

 

For NEOs, executive officers, unit presidents and staff vice presidents, no 2017 RSUs will vest unless the company achieves a Section 162(m) threshold target of $222,181,000 income from continuing operations, excluding certain special events in 2017. (See “Treatment of Special Events” beginning on page 60 of this proxy statement.) Actual 2017 income from continuing operations, excluding certain special events, was $264,769,000 which exceeded the target.

 

In 2017 performance-based RSUs comprised 20% of a NEO’s long-term incentive award. The 2017 award vests in three equal installments if the executive is still employed on the installment vesting date. If the income from continuing operations target had not been achieved, the RSUs granted in 2017 would have been forfeited.

 

Nonqualified Stock Options (NSOs)

 

An annual grant of stock options is made during the first quarter of the year constituting 20% of a NEO’s long-term incentive award.

On February 6, 2017, the named executive officers were awarded an annual grant of stock options to purchase common stock of the company under the 2013 Stock Plan at an exercise price of $13.16 per share, the closing price of our common stock on the day of grant. These stock options have a ten-year exercise period and will vest and become exercisable in equal installments over three years commencing on the first anniversary after the date of grant, subject to continued service through each such vesting date.

 

Periodic Off-Cycle Long-Term Awards

 

In special circumstances, the Committee, or in the case of the CEO and COO, the independent members of the board of directors, may determine that it is appropriate to make additional grants to executives and new hires during the course of the year. These awards are in addition to the annual long-term incentive awards.

 

Mr. Sutula joined Pitney Bowes on February 1, 2017 as Executive Vice President, Chief Financial Officer at which time he received a special award grant to make up for awards forfeited from his prior employment. Mr. Pilc received a special retention award due to the strategic nature of his work during this transformation period. For additional information, please see the Summary Compensation Table on page 62.


52

COMPENSATION DISCUSSION AND ANALYSIS

 

Other Indirect Compensation

 

Retirement Compensation

 

In the United States, retirement benefits include:

Qualified and nonqualified restoration 401(k) plans with company matching contributions up to 4% of eligible compensation and 2% company core contributions. Participants become eligible for the company matching and company core contributions after one year of employment with the company.
Qualified and nonqualified restoration pension plans for employees hired prior to January 1, 2005. Accruals under these plans were frozen at the end of 2014. Mr. Monahan is the only NEO who qualifies for this benefit.

 

Nonqualified plans are unfunded obligations of the company subject to claims by our creditors. Nonqualified restoration plans (pension and 401(k)) are based on the same formulas as are used under the broad-based qualified plans and make up for benefits that would have been provided under the qualified plans except for limitations imposed by the Internal Revenue Code of 1986, as amended. Restoration plans are available to a select group of management or highly compensated employees, including the NEOs.

 

An individual account under the 401(k) Restoration Plan:

is adjusted on the basis of notional investment returns of publicly-available mutual fund investments offered under the qualified 401(k) plan; and
does not receive any above-market earnings.

 

The Pension Restoration Plan applies the same standard actuarial rules as are applied under the qualified Pension Plan.

For additional information, please see the narrative accompanying the “Pension Benefits as of December 31, 2017” table on page 68 and the narrative accompanying the “Nonqualified Deferred Compensation for 2017” table beginning on page 69 of this proxy statement.

 

Other Benefits

 

Other benefits include:

Nonqualified Deferred Incentive Savings Plan (DISP) which provides certain executives the ability to voluntarily defer in a tax efficient manner pay-outs of annual cash incentives and base pay into a nonqualified deferred compensation plan
Certain executives with RSUs and PSUs who are subject to the executive stock ownership policy, may voluntarily elect to defer settlement of RSUs and PSUs until termination or retirement. Executives who choose deferral receive dividend equivalents after the award vests which are also deferred.
Relocation assistance for executives asked to move to a new work location facilitates the placement of the right person in the job and aids in developing talent
Limited perquisites, including financial counseling (to assist with tax compliance, investments, legal and estate matters), executive physicals and spousal travel.


 

Process for Determining Named Executive Officer Compensation

 

Committee

 

The Committee is responsible for reviewing the performance of and approving compensation awarded to our executive officers, other than the CEO and COO. The independent board members, with the input of the Committee, (i) set individual target compensation and performance targets annually for the CEO and COO, (ii) review their performance, (iii) determine their compensation pay-outs by comparing actual performance

against the established objectives and approve the TSR modifier. In addition, the Committee, and the independent board members with respect to the CEO and COO, may exercise discretion in its sole determination. The Committee works closely with its independent consultant, Pay Governance LLC, and management to examine various pay and performance matters throughout the year.


 

Independent Compensation Consultant

 

The Committee retains Pay Governance as its independent compensation consultant and considers advice and information provided by Pay Governance in determining the compensation paid to NEOs and making its recommendation to the board for CEO and COO pay. The consultant regularly attends the Committee meetings and advises on a range of matters, including peer group composition, plan design, and competitive pay practices. The consultant does not perform other services for the company. We incurred $89,614 in fees for Pay Governance

for services performed for the Committee during 2017. The Committee considered the following six factors and determined there was no conflict in the engagement of Pay Governance and that Pay Governance is independent: (i) the provision of other services to the company by Pay Governance; (ii) the amount of fees received from the company by Pay Governance, as a percentage of the total revenue of Pay Governance; (iii) the policies and procedures of Pay Governance that are designed to prevent conflicts of interest; (iv) any business or personal


53

COMPENSATION DISCUSSION AND ANALYSIS

 

relationship of the Pay Governance consultant with a member of the Committee; (v) any company stock owned by the Pay Governance consultants; and (vi) any business or personal relationship of the Pay Governance consultant or Pay Governance with any of the company’s executive officers. The Committee has the sole authority to hire and terminate its consultant.

The Committee also reviews independence factors applicable to other consultants, including, outside law firms and Willis Towers Watson, management’s compensation consultant.


 

Determining Compensation—The Decision Process

 

 

 

At the beginning of each year our CEO, on behalf of senior management, recommends to the Committee financial objectives for the annual and long-term incentive plans based on the financial objectives set by the board of directors in light of guidance provided to the investment community. The Committee and the independent directors review the recommendations of management particularly with respect to the appropriateness and rigor of the objectives and approve the final annual and long term objectives.

 

After reviewing benchmarking data presented by external consultants, our CEO and Executive Vice President and Chief Human Resources Officer recommend compensation target levels for base, annual, long-term incentive, as well as total direct compensation in the aggregate for executive officers, including the NEOs, other than the CEO and COO. The Committee reviews management’s recommendations and determines the appropriate financial objectives, base salary and the target levels of annual and long-term incentive compensation. The Committee also recommends for approval by the independent board members the base salary and annual and long-term incentive target levels for the CEO and COO. Generally at this time, the Committee also approves any changes to the compensation program for the coming year.

 

At the end of each year, each NEO completes a written self-assessment of his or her performance against his or her objectives. The CEO evaluates the performance of his executive officer direct reports and recommends incentive compensation actions other than for himself and the COO to the Committee. The Committee recommends to the independent board members an individual

rating for the CEO and COO. The Committee reviews the financial accomplishments of the company, taking into account predetermined objectives for the preceding year, and determines actual base salary increases as well as the annual and long-term incentive compensation for the NEOs and recommends for approval by the independent board members the compensation for the CEO and COO. The actual payout levels for annual incentive compensation are based upon the company’s performance against the predetermined financial objectives and other criteria, as discussed in further detail under “Annual Incentives” beginning on page 49. With respect to long-term incentive compensation, the Committee determines payout levels based on pre-determined financial objectives, and to the extent applicable, a relative TSR modifier, as discussed in further detail under “Long-term Incentives” beginning on page 50 of this proxy statement.

 

To assist in this process, the Committee also reviews tally sheets prepared by the Human Resources department to evaluate the individual components and the total mix of current and historical compensation. These tally sheets aid the Committee in analyzing the individual compensation components as well as the compensation mix and weighting of the components within the total compensation package.

 

To evaluate whether each NEO’s compensation package is competitive with the marketplace, the Committee, and with respect to the CEO and COO, the independent board members, also review each executive’s total direct compensation against market data during the benchmarking process as more fully described in “Assessing Competitive Practice” below. Based on the


54

COMPENSATION DISCUSSION AND ANALYSIS

 

structure of our current management team, the Committee and the board strive to ensure that the relationship between the compensation paid to the CEO and the second highest paid NEO are within acceptable market norms, subject to considerations such as per-

formance, the market median compensation of the respective positions, contributions to the company and experience that may lead to deviations from market relationships.


 

Assessing Competitive Practice

 

To evaluate whether Pitney Bowes’ executive compensation is competitive in the marketplace, the Committee annually compares each executive’s total direct compensation (base salary, annual incentive and long-term incentives) against two independent reports, the Willis Towers Watson Regressed Compensation Report (Willis Towers Watson Report) and the Radford Global Technology Survey Report (Radford Report) with a view towards determining the optimal mix and level of compensation. The Committee then reviews the targets and actual payouts against publicly available data from our peer group to evaluate ongoing compensation opportunity and competitiveness. Finally, the Committee’s independent compensation consultant reviews the data presented to the Committee, before the Committee establishes the target total direct compensation structure. The Committee sets compensation targets assuming achievement of specific incentive award performance objectives at target.

 

The Willis Towers Watson data is regressed for corporate revenue of approximately $4.0 billion for corporate leaders and actual regressed revenue for business unit leaders. The Willis Towers Watson Report is a sub-section of the 2017 US Compensation Data Bank (CDB) General Industry Executive Database. The Radford Report is regressed for corporate revenue of approximately $3.0 - $5.0 billion for corporate leaders and bases its analysis on applicable revenue ranges as they pertain to various roles. The Radford Report is derived from a database of survey results from high-tech companies. The Committee believes using the Willis Towers Watson and Radford Reports assist the Committee in determining market competitiveness of executive officer compensation against external benchmarks.

 

This market data provides important reference points for the Committee but is not the sole basis for determining appropriate compensation design, compensation targets, or individual pay levels. Use of comparative industry data and outside surveys only serves to indicate to the Committee whether those decisions are in line with industry in general and our peer group in particular. The Committee believes that the comparative industry data used from the Willis Towers Watson Report, the Radford Report and the peer group are consistent with our compensation philosophy. In addition, compensation targets

and individual pay levels may vary from the median for various reasons, including:

 

the value of the total rewards package;
program design and strategic considerations;
affordability;
changing competitive conditions;
program transition considerations;
the definition and scope of the executive’s role;
the executive’s individual contributions to the company; and
succession or retention considerations.

 

In making its determination that the Pitney Bowes compensation package is appropriate and competitive, the Committee takes the following actions.

 

The Committee first identifies for each NEO the median of the data presented in the Willis Towers Watson and Radford Reports in determining target base salary, target total cash compensation and target total direct compensation. In making its final determination on any one position, the Committee will also take into account unique skill sets presented by the employee.

 

In addition, the Committee asks Pay Governance to analyze the appropriateness of the company’s short and long-term compensation program design. The Committee and the board also consider the burn rate with respect to the equity awards when deciding how much of the total direct compensation package should be composed of equity-based awards. Burn rate is the total equity awarded in a fiscal year divided by the total weighted average common shares outstanding for the year. Our three-year average burn rate for the time period from 2015 to 2017 is approximately 2.5%, which is generally consistent with burn rate practices among our peers and the Equilar 500 (source: 2017 Equilar Equity Compensation Trends report).

 

Next, the Committee annually reviews our relative performance, compensation targets and actual payouts against the relative performance and compensation of the peer group listed below.

 

Based on this rigorous review, the Committee has determined that the Pitney Bowes total compensation package for 2017 is appropriate and competitive considering all the factors outlined above.


55

COMPENSATION DISCUSSION AND ANALYSIS

 

Peer Group

 

In 2016, the Committee reviewed the composition of the peer group and approved changes effective as of January 1, 2017 for the purposes of benchmarking NEO peer median pay levels, conducting pay practice reviews, and measuring TSR if included in future award designs. We made these changes as a result of some changes occurring in the businesses of our peers as well as the ongoing transformation of the company. We do not have a single completely overlapping competitor due to the unique mix of our business, however, we use a peer group of companies similar in size and complex-

ity to benchmark our executive compensation. Our peer group consists of companies with revenues between $1.9 billion and $10.3 billion, and market capitalization between $0.4 billion and $31.4 billion. Xerox and Fidelity National Information Services remain in our peer group despite the revenue size difference because the Committee considers them close peers.

 

Effective January 1, 2017 the following companies were removed or added to the peer group.


 

Peer Company Removed   Reason
Lexmark International Inc.   Became private in 2016
Harris Corporation   Spun-off printing business and became highly concentrated on defense
Iron Mountain Inc.   Became a REIT
DST Systems Inc.   Sold its print and electronic communications business
     
Peer Company Added   Reason
Deluxe Corporation   Primary focus on Small and Medium Business (SMB) and providing custom packaging and logistics
Teradata Corporation   Aligns strongly with our data analytics portfolio
NetApp Inc.   Represents a balanced equipment and software comparator with exposure to the Ecommerce market

 

The peer group as amended effective 2017 was implemented with respect to the 2015-2017 PSU cycle and TSR calculation, except that the three companies added to the peer group effective 2017 (Deluxe Corp., Teradata Corp., and NetApp Inc.) were excluded because they were not in the peer group for the entire performance cycle.

 

Pay Governance and the Committee designed our peer group so the Committee could analyze compensation packages, including compensation mix and other benefits, within the competitive market to attract and retain the talent and skill required to lead our business. This peer group consists of services, industrial and technology companies. When evaluating the appropriateness of the peer group, the Committee considered factors such as revenue, net income, market capitalization, number of employees, and complexity of the business to ensure a reasonable balance in terms of company size and an adequate number of peers. The Committee also considered any feedback received from stockholders.

56

COMPENSATION DISCUSSION AND ANALYSIS

 

Peer Group as of December 31, 2017(1)

 

   Fiscal 2017  12/31/2017         
   RevenueMarket Capitalization Total Stockholder Return
Company Name  ($ millions)  ($ millions)  1-Year  3-Year  5-Year
Alliance Data Systems Corporation  $7,719   $14,004    12%   -4%   12%
Deluxe Corporation  $1,966   $3,698    9%   9%   21%
Diebold, Incorporated  $4,609   $1,235    -34%   -20%   -9%
EchoStar Corp.  $1,886   $5,736    17%   4%   12%
Fidelity National Information Services, Inc.  $9,123   $31,414    26%   16%   24%
Fiserv, Inc.  $5,696   $27,327    23%   23%   27%
NCR Corp.  $6,516   $4,140    -16%   5%   6%
NetApp Inc.  $5,519   $14,759    60%   13%   13%
Pitney Bowes Inc.  $3,550   $2,565    -22%   -19%   6%
R.R. Donnelley & Sons Company  $6,940   $652    -40%   -23%   0%
Rockwell Automation Inc.  $6,311   $25,210    49%   24%   21%
Teradata Corporation  $2,156   $4,654    42%   -4%   -9%
Unisys Corporation  $2,744   $411    -45%   -35%   -14%
The Western Union Company  $5,524   $8,731    -9%   5%   10%
Xerox Corporation  $10,265   $7,421    31%   -4%   13%
25th Percentile  $3,210   $3,808    -14%   -4%   1%
Median  $5,610   $6,579    14%   5%   12%
75th Percentile  $6,834   $14,570    30%   12%   19%
                          
Pitney Bowes Inc.  $3,550   $2,565    -22%   -19%   6%
PBI Percentile Rank   26%    20%    21%   16%   30%
Source: S&P Capital I.Q.                         

 

(1)Peer group as of December 31, 2017 used for benchmarking NEO peer median pay levels and conducting pay practice reviews. The calculation of the 2015-2017 TSR modifier excludes Deluxe Corp., Teradata Corp., and NetApp Inc.
57

COMPENSATION DISCUSSION AND ANALYSIS

 

Other Policies and Guidelines

 

Clawback Policy

 

The company’s executive compensation programs include a “clawback” feature, allowing the board of directors to adjust, recoup or require the forfeiture of any awards made or paid under the Stock Plan or the Key Employees Incentive Plan (KEIP) under the following circumstances:

 

to any executive officer, including NEOs, in the event of any financial restatement due to a misrepresentation of the financial statements of the company. This applies to vesting or to payments made or paid during the 36-month period prior to the financial restatement; or
to any employee, including NEOs, whom the board of directors reasonably believes engaged in gross misconduct or breached any provisions in their Proprietary Interest Protection Agreement, which generally provides for confidentiality, and non-competition and non-solicitation of employees and customers for one year following termination of employment.

 

No Agreements with Executives

 

We have not entered into fixed term employment agreements with any of our NEOs, including the CEO. Therefore, such officers are “at will” employees.

 

No Pledging, Hedging and Other Short-term Speculative Trading

 

We have policies prohibiting both the pledging and hedging of our stock. Neither the board of directors nor management-level employees may pledge or transfer for value Pitney Bowes securities, engage in short-term speculative (“in and out”) trading in Pitney Bowes securities, or participate in hedging and other derivative transactions, including short sales, “put” or “call” options, swaps, collars or similar derivative transactions, with respect to Pitney Bowes securities (other than transactions in employee stock options).

 

Executive Stock Ownership Policy

 

We maintain an executive stock ownership policy that encourages executives to think as owners and to own substantial amounts of company stock to more closely align our key executives’ interests with the long-term interests of our stockholders.

 

The chart below illustrates the policy ownership requirements:

 

  Stock Ownership as a
Title Multiple of Base Salary
Chief Executive Officer 5X
Chief Operating Officer 3X
Other Executive Officers 2X
Unit Presidents and Staff Vice Presidents 1X

Only shares owned outright, shares held in a trust and shares owned under a deferred compensation arrangement are counted toward the ownership requirement. Unvested shares and unexercised options do not count toward the ownership requirement.

 

Beginning with RSU and PSU awards made in February 2015, executives who are required to own certain levels of company stock under the executive stock ownership policy may elect to defer the settlement of RSUs and PSUs upon vesting until the executives terminate employment or retire. Executives who choose to defer in this manner receive dividend equivalents once the awards vest, which are also deferred as vested RSUs.

 

The Committee reviews executive stock ownership annually to make sure it is in line with the policy’s objectives.


 

Change of Control

 

We believe that the cash payments and benefit levels provided to our executives following a Change of Control transaction are consistent with current market practice for companies of our size. Our Change of Control arrangements are intended to encourage those executives most closely connected to a potential Change of Control to act more objectively, and therefore, in the best interests of our stockholders, despite the fact that such a transaction could result in the executives’ termination. Our Change of Control protections also encourage executives to remain with the company until the completion of the transaction to enable a successful transition. Payments of equity awards and Change of

Control severance occur only when an employee is terminated without cause or when an employee voluntarily terminates for good reason (such as a reduction in position, pay or other constructive termination event) within two years following a Change of Control (a “double trigger” payment mechanism). The Change of Control, by itself, does not cause severance payments or accelerated vesting of equity awards.

 

The company does not gross up its executives for any excise tax imposed on Change of Control payments.

 

A Change of Control is defined as (i) an acquisition of 30% or more of our common stock, or 30% or more of


58

COMPENSATION DISCUSSION AND ANALYSIS

 

the combined voting power of our voting securities by an individual, entity or group, (ii) replacement of a majority of the board of directors other than as approved by the incumbent board, (iii) as a result of a reorganization, merger, consolidation or sale, more than 50% of our common stock and voting power changes hands, or (iv) approval by stockholders of a liquidation or dissolution of the company.

 

Our Change of Control arrangements fit into our overall compensation objectives because they are aligned with

our goal of providing a compensation package sufficiently competitive to attract and retain talent and aligned with stockholder interests. With the double trigger payment mechanism applicable to both equity and cash awards and the lack of any gross-up, we believe the Change of Control arrangements are market leading from a corporate governance perspective. See discussion on Change of Control Arrangements on page 74.


 

Tax and Accounting

 

On December 22, 2017, the U.S. enacted tax legislation commonly referred to as the Tax Cuts and Jobs Act (Tax Act). Among other things, the Tax Act substantially amended IRC Section 162(m) of the Internal Revenue Code. IRC 162(m) imposes a $1 million cap on the company’s tax deduction on compensation paid to its highest five paid executives (Named Executive Officers). Prior to 2018, qualified performance-based compensation meeting the process requirements of Section 162(m) was exempt from the $1 million cap. The Tax Act repealed the qualified performance-based compensation exception under Section 162(m) effective for tax years beginning on or after January 1, 2018 and expanded the group of covered employees potentially subject to the $1 million deductibility cap. The Tax Act grandfathered arrangements entered into on or before November 2, 2017.

 

As a result of the Tax Act changes to Section 162(m), we expect that equity awards or other compensation, whether or not performance based, granted or provided under arrangements entered into or modified after November 2, 2017 to any person who is or was a Named Executive Officer will not be deductible to the extent such amounts exceed $1 million in any one year. With respect to compensation arrangements that were entered into prior to November 2, 2017, we will continue to follow the processes in IRC 162(m) as necessary to preserve their continued tax deductibility under the grandfathering provisions of the Tax Act. However, because there are and have been uncertainties regarding the application of Section 162(m) of the Code, it is possible that awards intended to qualify for deductions under Section 162(m) may be challenged or disallowed.

 

We do not expect any of these tax law changes to cause us to change our underlying compensation; namely, that executive compensation should be linked to company

performance with criteria that incentivize behavior driving future company success. Our compensation program was designed with the intention that compensation paid in various forms may be eligible to qualify for deductibility under Section 162(m). However, since corporate objectives may not always be consistent with the requirements for full deductibility, we have always reserved the ability, when appropriate, to enter into compensation arrangements under which payments are not anticipated to be deductible under Section 162(m).

 

We value stock options based upon the Black-Scholes valuation method, consistent with the provisions of FASB Accounting Standards Codification Topic 718 (ASC 718). Key assumptions used to estimate the fair value of stock options include:

 

the volatility of our stock price;
the risk-free interest rate;
expected term; and
our dividend yield.

 

We value PSU awards using a Monte-Carlo simulation, which is a generally accepted statistical technique, to value PSUs.

 

In determining the number of PSUs and RSUs to be awarded in the mix of long-term incentives for 2017, we value these awards based upon the closing price of our common stock on the grant date. In reporting the value in the Summary Compensation Table, we discount the value for non-payment of dividends during the vesting period as required by accounting guidance under ASC 718.

 

For additional information on the accounting treatment for stock-based awards, see Note 1 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017.


59

COMPENSATION DISCUSSION AND ANALYSIS

 

Treatment of Special Events

 

In determining performance goals and evaluating enterprise performance results, the Committee may use its discretion and judgment to ensure that management’s rewards for business performance are commensurate with their contributions to that performance while still holding management accountable for the overall results of the business. The Committee believes that the metrics for incentive compensation plans should be specific and objective. However, the Committee recognizes that interpretation of the application of pre-determined metrics to results may be necessary from time to time to better reflect the operating performance of the company’s business segments and take into account certain one-time events. In adopting its philosophy in establishing metrics and compensating the management team for its actual performance, the Committee believes it to be a fairer measure to remove the impact of certain events that may distort, either positively or negatively, the actual performance of management.

 

Non-GAAP Measures

 

The Company’s financial results are reported in accordance with generally accepted accounting principles (GAAP); however, in setting and measuring compensation targets, we use certain non-GAAP measures, such as adjusted income from continuing operations, adjusted earnings before interest and taxes, adjusted earnings per share, adjusted revenue growth, free cash flow and adjusted free cash flow.

 

Adjusted income from continuing operations, adjusted earnings before interest and taxes and adjusted earnings per share exclude the impact of special items like restructuring charges, tax adjustments, goodwill and asset write-downs, and costs related to dispositions and acquisitions. While these are actual company expenses, they can mask underlying trends associated with its business. Such items are often inconsistent in amount and frequency and as such, the adjustments provide greater insight into the current underlying operating trends of the business.

 

Adjusted revenue growth is presented on a constant currency basis to exclude the impact of changes in foreign currency exchange rates since the prior period under comparison and the impact of disposals of certain business operations. This comparison provides better insight into the underlying revenue performance of the business and true operational performance from a comparable basis to prior period.

 

Free cash flow and adjusted free cash flow provides insight into the amount of cash that management could have available for other discretionary uses. Free cash flow adjusts GAAP cash flow provided by operating activities for capital expenditures, restructuring payments, unusual tax settlements or payments, special pension plan contributions and other special items. Adjusted free cash flow excludes the impact of reserve account deposits and finance receivables.

 

Non-GAAP measures should not be construed as an alternative to our reported results determined in accordance with GAAP. Further, our definitions of these non-GAAP measures may differ from similarly titled measures used by other companies.

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COMPENSATION DISCUSSION AND ANALYSIS

 

Pitney Bowes Inc.

Reconciliation of Reported Consolidated Results to Adjusted Measures
(Unaudited)

 

(Dollars in thousands, except per share data)  2017  2016  2015
GAAP diluted earnings per share from continuing operations  $1.39   $0.51   $2.00 
Restructuring charges and asset impairments   0.21    0.22    0.09 
Tax legislation   (0.21)        
Goodwill impairment       0.89     
Impact of divestiture transactions       0.02    (0.42)
Transaction costs   0.03        0.06 
Sale of technology   (0.03)        
Extinguishment of debt   0.01         
Preferred stock redemption       0.03     
Acquisition related compensation expense           0.04 
Legal settlement           0.02 
Investment divestiture           (0.04)
Adjusted diluted earnings per share from continuing operations   1.41    1.68    1.75 
Investment divestiture           0.04 
Adjusted diluted earnings per share(1)  $1.41   $1.68   $1.79 
GAAP net cash provided by operating activities(2)  $495,813   $496,122   $522,989 
Capital expenditures   (170,990)   (160,831)   (166,746)
Restructuring payments   40,804    64,930    62,086 
Pension contribution       36,731     
Reserve account deposits   10,954    (2,183)   (24,202)
Payments related to investment divestiture           20,602 
Acquisition/disposition related expenses           10,483 
Tax payment related to sale of Imagitas           21,224 
Cash transaction fees   7,396    335    17,971 
Free cash flow   383,977    435,104    464,407 
Reserve account deposits   (10,954)   2,183    24,202 
Net finance receivables   (125,991)   (119,883)   (95,341)
Adjusted free cash flow  $247,032   $317,404   $393,268 
GAAP net income  $261,340   $111,850   $426,318 
Less: Preferred stock dividends attributable to noncontrolling interests       19,045    18,375 
Net income attributable to PBI   261,340    92,805    407,943 
Loss (income) from discontinued operations, net of tax       2,701    (5,271)
GAAP net income from continuing operations   261,340    95,506    402,672 
Restructuring charges and asset impairments   39,671    42,343    18,089 
Tax legislation   (38,774)        
Goodwill impairment       169,024     
Impact of divestiture transactions       3,893    (84,250)
Transaction costs   5,762    206    11,475 
Sale of technology   (5,605)        
Extinguishment of debt   2,375         
Preferred stock redemption       6,430     
Acquisition related compensation expense           7,246 
Legal settlement           4,250 
Investment divestiture           (7,756)
Adjusted income from continuing operations   264,769    317,402    351,726 
Preferred stock dividends attributable to noncontrolling interests, as adjusted       15,415    18,375 
Provision for income taxes, as adjusted   84,586    154,062    186,651 
Interest expense, net   164,162    144,211    159,374 
Adjusted earnings before interest and taxes   513,517    631,090    716,126 
Impacts of foreign currency compared to budget(3)   10,200    7,010    22,353 
Alignment of management to shareholders(4)           (21,639)
Adjusted earnings before interest and taxes for compensation purposes  $523,717   $638,100   $716,840 
Reported revenue growth   4.2%   (4.8%)   (6.4%)
Impact of 2017 acquisition(5)   (4.1%)   0.0%    0.0% 
Impacts of foreign currency   0.0%    1.0%    3.5% 
Disposal of non-core businesses(6)   0.0%    0.5%    0.0% 
Adjusted revenue growth   0.1%    (3.2%)   (2.9%)

 

(1) The sum of the earnings per share amounts may not equal the totals due to rounding.
(2) Prior year amounts have been recast for new accounting standard adopted January 1, 2017.
(3) Adjusted earnings before interest and taxes, as adjusted is translated at budget rates.
(4) Adjusted earnings before interest and taxes excludes the impact of adjustments to performance-based accruals.
(5) Adjusted revenue growth excludes the growth in revenue attributed to the acquisition of Newgistics in October 2017.
(6) Adjusted revenue growth excludes the impact of the disposal of non-core businesses.
61

Executive Compensation Tables and Related Narrative

 

The following “Summary Compensation Table” shows all compensation earned by or paid to Messrs. Lautenbach, Sutula, Monahan, Shearer, and Pilc. The compensation shown below was paid for services performed during or with respect to 2017, 2016, and 2015. The “Summary Compensation Table” includes amounts earned and deferred during the periods covered under the Deferred Incentive Savings Plan.

 

The “Grants of Plan-Based Awards in 2017” table on page 64 provides additional information regarding grants made during 2017 to the NEOs.

 

SUMMARY COMPENSATION TABLE

 

                     Change in      
                     Pension Value      
                     and      
                  Non-Equity  Nonqualified      
                  Incentive  Deferred      
            Stock  Option  Plan  Compensation  All Other   
      Salary  Bonus   Awards  Awards  Compensation  Earnings  Compensation   
Name and Principal Position  Year  ($)  ($)  ($)(1)  ($)(2)  ($)(3)  ($)(4)  ($)(5)  Total ($)
Marc B. Lautenbach  2017  950,000    3,799,012  1,100,000  414,248    78,108  6,341,368
President and Chief  2016  950,000    3,876,808  1,100,001  0    115,240  6,042,049
Executive Officer  2015  941,667    4,902,597    4,787,025    166,424  10,797,713
                            
Stanley J. Sutula III(6)  2017  547,727  50,000  4,494,301  600,000  155,040    13,214  5,860,283
Executive Vice President                           
and Chief Financial Officer                           
                            
Michael Monahan  2017  648,685    1,381,459  400,000  189,191  15,927  53,060  2,688,323
Executive Vice President,  2016  635,966    1,409,752  400,001  0  70,529  71,502  2,587,750
Chief Operating Officer  2015  622,503    1,961,039    1,639,102  81,973  89,184  4,393,801
                            
Mark L. Shearer  2017  583,083    897,948  260,000  150,669    44,086  1,935,786
Executive Vice President  2016  583,083    916,336  260,001  0    62,312  1,821,731
   2015  581,178    1,274,669    1,584,086    83,236  3,523,169
                            
Roger Pilc(7)  2017  531,884    1,071,543  170,000  104,652    45,955  1,924,033
Executive Vice President  2016  488,583    599,143  170,001  0    41,930  1,299,657
and Chief Innovation Officer                           

 

(1) This column includes the value of stock awarded to NEOs during 2017, 2016 and 2015 based upon its grant date fair value, as determined under SEC guidance. Performance Stock Units (PSUs) and performance-based Restricted Stock Units (RSUs) were granted to the NEOs in 2017. Details regarding the grants of PSUs and performance-based RSUs can be found in the “Grants of Plan-Based Awards in 2017” table and details regarding outstanding stock awards can be found in the “Outstanding Equity Awards at 2017 Fiscal Year-End” table. See pages 50-52 in “Compensation Discussion and Analysis” for additional information on PSUs and RSUs. The value of the PSUs shown in 2017 represents the full value of the award based on a targeted number of shares multiplied by the Monte-Carlo value on the date of the award. If performance conditions allow for PSUs granted in 2017 to reach the 200% maximum number of shares, based on the Monte-Carlo simulated grant date value, the total value of stock awarded in 2017 inclusive of RSUs and PSUs would be $6,532,295 for Mr. Lautenbach; $5,985,182 for Mr. Sutula; $2,375,380 for Mr. Monahan; $1,543,997 for Mr. Shearer; and $1,493,959 for Mr. Pilc.
(2) This column includes the value of stock options awarded to NEOs during 2017, 2016 and 2015 based upon its grant date fair value, as determined under SEC guidance. Nonqualified Stock Options (NSOs) were granted to the NEOs in 2017. Details regarding the grants of NSOs can be found in the “Grants of Plan-Based Awards in 2017” table and details regarding outstanding stock awards can be found in the “Outstanding Equity Awards at 2017 Fiscal Year-End” table. See page 52 in “Compensation Discussion and Analysis” for additional information on NSOs. Refer to our Annual Report 10-K for more information on valuation assumptions.
(3) This column includes annual incentive compensation earned in 2017, 2016 and 2015, and Cash Incentive Unit (CIU) payouts earned over the 2013-2015 award cycles, if applicable. The 2013-2015 CIU payout represented the final cycle, as the award was replaced with PSUs beginning in 2014. When considering all elements of the table above, the majority of compensation for the NEOs is at-risk and is earned based on company and executive performance against pre-determined financial objectives. The 2016 annual incentive payout amount is zero for each NEO.
(4) This column shows the change in the actuarial present value of the accumulated pension benefit applicable to all eligible employees during 2017, 2016 and 2015. Mr. Monahan is the only pension eligible NEO and is fully vested in his pension benefit. Both the qualified Pension Plan and nonqualified Pension Restoration Plan were frozen to all participants on December 31, 2014.
(5) Amounts shown for 2017 include all other compensation received by the NEOs that is not reported elsewhere.
  For Mr. Lautenbach, 2017 includes: company match of $10,800 and 2% core contribution of $5,400 to the Pitney Bowes 401(k) Plan, company match of $21,300 and 2% core contribution of $13,600 to the Pitney Bowes 401(k) Restoration Plan earned in 2017, financial counseling of $13,885, and the company’s actual cost of spousal travel and group term life insurance provided by the company in excess of $50,000.
  For Mr. Sutula, 2017 includes: Financial counseling of $12,706 and the company’s actual cost of group term life insurance provided by the company in excess of $50,000. Mr. Sutula was not eligible for the company match or the 2% core contribution under either the Pitney Bowes 401(k) Plan or the Pitney Bowes Restoration plan in 2017.
62

EXECUTIVE COMPENSATION TABLES AND RELATED NARRATIVE

 

  For Mr. Monahan, 2017 includes: company match of $10,800 and 2% core contribution of $5,400 to the Pitney Bowes 401(k) Plan, company match of $12,600 and 2% core contribution of $7,574 to the Pitney Bowes 401(k) Restoration Plan earned in 2017, financial counseling of $13,885, and the company’s actual cost of group term life insurance provided by the company in excess of $50,000.
  For Mr. Shearer, 2017 includes: company match of $10,800 and 2% core contribution of $5,400 to the Pitney Bowes 401(k) Plan, company match of $7,200 and 2% core contribution of $6,262 to the Pitney Bowes 401(k) Restoration Plan earned in 2017, financial counseling of $13,885, and the company’s actual cost of group term life insurance provided by the company in excess of $50,000.
  For Mr. Pilc, 2017 includes: company match of $10,800 and 2% core contribution of $5,400 to the Pitney Bowes 401(k) Plan, company match of $10,475 and 2% core contribution of $5,238 to the Pitney Bowes 401(k) Restoration Plan earned in 2017, and financial counseling of $13,543 and the cost of group term life insurance provided by the company in excess of $50,000.
(6) Mr. Sutula joined Pitney Bowes on February 1, 2017 as Executive Vice President, Chief Financial Officer at which time he was paid a $50,000 cash sign-on bonus, a special award consisting of 60% PSUs (68,389 units), 20% RSUs (22,796 units) and 20% NSOs (150,000 options) and a RSU grant (189,970 units) to make up for awards Mr. Sutula forfeited from his prior employment. Mr. Sutula also received his normal annual long-term incentive award of $1.5 million in February of 2017. The chart above shows these awards at their grant date fair value. Refer to our Annual Report 10-K for more information on valuation assumptions.
(7) Roger Pilc received a special retention award consisting of RSUs (37,994 units) due to the strategic nature of his work during this transformation period in addition to his annual long-term incentive award in February 2017. The chart above shows these awards at their grant date fair value. Refer to our Annual Report 10-K for more information on valuation assumptions.
63

EXECUTIVE COMPENSATION TABLES AND RELATED NARRATIVE

 

GRANTS OF PLAN-BASED AWARDS IN 2017

        Estimated Future
Payouts Under Non-Equity
Incentive Plan Awards
  Estimated Future
Payouts Under Equity
Incentive Plan Awards
  All Other
Stock
Awards:
Number of
Shares of
  All Other
Option
Awards:
Number of
Securities
  Exercise
or Base
Price of
Option
  Grant
Date Fair
Value of
Stock and
Option
 
Name   Grant
Date
  Threshold
($)
  Target
($)
  Maximum
($)
  Threshold
(#)
  Target
(#)
  Maximum
(#)
  Stock or
Units(#)
  Underlying
Options(#)
  Awards
($/Sh)
  Awards(1)
($)
 
Marc B. Lautenbach                                              
(Annual Incentive)(2)       224,438   1,282,500   4,000,000                              
(Performance Stock Units)(3)   2/6/2017               8,275   250,760   501,520               2,733,283  
(Performance-based RSUs)(4)   2/6/2017                   83,587                   1,065,729  
(Nonqualified Stock Options)(5)   2/6/2017                               550,000   13.16   1,100,000  
Stanley J. Sutula III                                              
(Annual Incentive)(2)       84,000   480,000   4,000,000                              
(Performance Stock Units)(3)   2/6/2017               2,257   68,389   136,778               745,441  
(Performance-based RSUs)(4)   2/6/2017                   22,796                   290,653  
(Nonqualified Stock Options)(5)   2/6/2017                               150,000   13.16   300,000  
(Special Performance Stock Units)(6)   2/6/2017               2,257   68,389   136,778               745,441  
(Special Performance-based RSUs)(6)   2/6/2017                   212,766                   2,712,766  
(Special Nonqualified Stock Options)(6)   2/6/2017                               150,000   13.16   300,000  
Michael Monahan                                              
(Annual Incentive)(2)       102,503   585,731   4,000,000                              
(Performance Stock Units)(3)   2/6/2017               3,009   91,185   182,370               993,921  
(Performance-based RSUs)(4)   2/6/2017                   30,395                   387,538  
(Nonqualified Stock Options)(5)   2/6/2017                               200,000   13.16   400,000  
Mark L. Shearer                                              
(Annual Incentive)(2)       81,632   466,466   4,000,000                              
(Performance Stock Units)(3)   2/6/2017               1,956   59,271   118,541               646,049  
(Performance-based RSUs)(4)   2/6/2017                   19,757                   251,900  
(Nonqualified Stock Options)(5)   2/6/2017                               130,000   13.16   260,000  
Roger Pilc                                              
(Annual Incentive)(2)       56,700   324,000   4,000,000                              
(Performance Stock Units)(3)   2/6/2017               1,279   38,754   77,508               422,416  
(Performance-based RSUs)(4)   2/6/2017                   12,918                   164,704  
(Nonqualified Stock Options)(5)   2/6/2017                               85,000   13.16   170,000  
(Special Performance-based RSUs)(7)   2/6/2017                   37,994                   484,422  

 

The Grants of Plan-Based awards table captures the potential threshold, target and maximum award payouts for annual incentive, performance stock units (PSUs), performance-based restricted stock units (RSUs) and nonqualified stock options (NSOs).

 

(1) The amounts in this column represent the grant date fair values of PSU, RSU and NSO awards. The fair values are calculated in accordance with SEC guidance and reflect an adjustment for the exclusion of dividend equivalents during the vesting period. PSUs, which cliff vest after three years, have a grant date fair value of $10.90 and are calculated based on the Monte-Carlo simulation methodology. RSUs and NSOs, which vest pro-rata over three years, have a fair value of $12.75 and $2.00, respectively.
(2) Values in this row represent the range in payout for the 2017 annual incentive award. IRC 162(m) requires that we state the maximum payouts a named executive officer could receive for annual incentive awards under the Key Employee Incentive Plan, which is $4,000,000. The Committee applies negative discretion to reduce the annual awards such that individual payments are in line with financial enterprise, business unit and/or individual performance.
(3) PSUs were granted based on the actual closing price of $13.16 on the February 6, 2017 grant date. PSUs represent a right to Pitney Bowes stock on the vesting date, with the number of shares determined after a specified performance period. This award is subject to achievement of the pre-determined annual performance metrics, a three-year cumulative total shareholder return modifier, and a three-year cumulative average income from continuing operations objective. The Committee may apply negative discretion to reduce long-term awards such that payments are in line with financial enterprise performance. Please see page 50 in “Performance Stock Units” for additional information on this performance award.
(4) Performance-based RSUs were granted based on the actual closing price of $13.16 on the February 6, 2017 grant date. The closing price is utilized to determine the number of RSUs to be awarded to NEOs. The performance metric tied to income from continuing operations was met as of December 31, 2017, however, the award remains subject to forfeiture over the remaining vesting period. This award will vest on a pro-rata basis over a three-year period ending February 11, 2020.
(5) These options have an exercise price of $13.16, equal to the closing price of the company’s common stock on the February 6, 2017 grant date. The Black-Scholes value for each option granted on February 6, 2017 grant date was $2.00, based on assumptions detailed in Note 18 to our financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017 as filed with the SEC on February 22, 2018.
(6) These awards are one-time special awards made to Mr. Sutula upon his joining Pitney Bowes on February 1, 2017 in order to make up for awards Mr. Sutula forfeited from his prior employment. For additional detail refer to footnote 6 on the Summary Compensation Table.
(7) This is a special award made to Mr. Pilc in 2017. For additional detail refer to footnote 7 on the Summary Compensation Table.
64

EXECUTIVE COMPENSATION TABLES AND RELATED NARRATIVE

 

OUTSTANDING EQUITY AWARDS AT 2017 FISCAL YEAR-END

 

The following table provides information on the current holdings of stock option and stock awards by the NEOs. This table includes unexercised or unvested option awards, unvested RSUs and PSUs. Each equity grant is shown separately for each NEO. The vesting schedule for each outstanding award is shown following this table(1). For additional information about the stock option and stock awards, see the description of equity incentive compensation in the Compensation Discussion and Analysis on page 50.

 

      Option Awards  Stock Awards
Name  Grant Date  Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
  Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
  Option
Exercise
Price
($)
  Option
Expiration
Date
  Number
of Shares
or Units
of Stock
That Have
Not Vested
(#)
  Market Value
of Shares
or Units
of Stock
That Have
Not Vested
($)(2)
  Equity
Incentive
Plan Awards:
Number
of Unearned
Shares, Units
or Other Rights
That Have
Not Vested
(#)
  Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other Rights
That Have
Not Vested
($)(2)
Marc B. Lautenbach  12/3/2012   100,000    0    13.3860   12/3/2022                
   12/3/2012   200,000    0    15.1320   12/3/2022                
   12/3/2012   300,000    0    16.8780   12/3/2022                
   2/11/2013   400,000    0    22.1600   12/2/2022                
   2/9/2015                 22,085    246,910         
   2/9/2015                         23,037    257,555 
   2/8/2016   129,564    259,129    16.8200   2/7/2026                
   2/8/2016                 43,599    487,437         
   2/8/2016                         13,734    153,542 
   2/6/2017       550,000    13.1600   2/5/2027                
   2/6/2017                 83,587    934,503         
   2/6/2017                         132,903    1,485,853 
Stanley J. Sutula III  2/6/2017       150,000    13.1600   2/5/2027                
   2/6/2017       150,000    13.1600   2/5/2027                
   2/6/2017                 22,796    254,859         
   2/6/2017                 22,796    254,859         
   2/6/2017                 189,970    2,123,865         
   2/6/2017                         36,246    405,232 
   2/6/2017                         36,246    405,232 
Michael Monahan  2/11/2008   153,846    0    36.9600   2/10/2018                
   2/9/2009   90,461    0    24.7500   2/8/2019                
   2/8/2010   106,383    0    22.0900   2/7/2020                
   2/14/2011   94,203    0    26.0700   2/13/2021                
   7/1/2013   40,000    0    17.2000   6/30/2023                
   7/1/2013   80,000    0    19.4500   6/30/2023                
   7/1/2013   120,000    0    21.6900   6/30/2023                
   7/1/2013   160,000    0    23.9400   6/30/2023                
   2/9/2015                 8,834    98,764         
   2/9/2015                         9,215    103,021 
   2/8/2016   47,114    94,229    16.8200   2/7/2026                
   2/8/2016                 15,854    177,248         
   2/8/2016                         4,994    55,834 
   2/6/2017       200,000    13.1600   2/5/2027                
   2/6/2017                 30,395    339,816         
   2/6/2017                         48,328    540,308 
Mark L. Shearer  2/9/2015                 5,742    64,196         
   2/9/2015                         5,990    66,964 
   2/8/2016   30,624    61,249    16.8200   2/7/2026                
   2/8/2016                 10,306    115,221         
   2/8/2016                         3,246    36,292 
   2/6/2017       130,000    13.1600   2/5/2027                
   2/6/2017                 19,757    220,883         
   2/6/2017                         31,414    351,204 
Roger Pilc  2/9/2015                 2,651    29,638         
   2/9/2015                         2,764    30,906 
   2/8/2016   20,023    40,048    16.8200   2/7/2026                
   2/8/2016                 6,738    75,331         
   2/8/2016                         2,122    23,729 
   2/6/2017       85,000    13.1600   2/5/2027                
   2/6/2017                 12,918    144,423         
   2/6/2017                 37,994    424,773         
   2/6/2017                         20,540    229,633 

(Table continued on next page)

65

EXECUTIVE COMPENSATION TABLES AND RELATED NARRATIVE

 

(1) Option and Stock Awards Vesting Schedule

 

Grant Date   Award Type   Name of Executive   Vesting Schedule
2/9/2015   PSU   Lautenbach, Monahan, Shearer, Pilc   Three year cliff vesting; 100% vests on February 13, 2018
2/9/2015   RSU   Lautenbach, Monahan, Shearer, Pilc   Three year vesting; 33% remains unvested; 33% vests on February 13, 2018
2/8/2016   NQSO   Lautenbach, Monahan, Shearer, Pilc   Three year vesting; 66% remains unvested; 33% vests on February 13, 2018 and 33% vests on February 12, 2019
2/8/2016   RSU   Lautenbach, Monahan, Shearer, Pilc   Three year vesting; 66% remains unvested; 33% vests on February 13, 2018 and 33% vests on February 12, 2019
2/8/2016   PSU   Lautenbach, Monahan, Shearer, Pilc   Three year cliff vesting; 100% vests on February 12, 2019
2/6/2017   NQSO   Lautenbach, Sutula, Monahan, Shearer, Pilc   Three year vesting; 100% remains unvested; 33% vests on February 13, 2018; 33% vests on February 12, 2019 and 33% vests on February 11, 2020
2/6/2017   RSU   Lautenbach, Sutula, Monahan, Shearer, Pilc   Three year vesting; 100% remains unvested; 33% vests on February 13, 2018; 33% vests on February 12, 2019 and 33% vests on February 11, 2020
2/6/2017   RSU   Sutula   Special Performance-based RSUs of 189,970 units vest 40% on February 13, 2018, 40% on February 12, 2019, and 20% on February 11, 2020
2/6/2017   RSU   Pilc   Special Performance-based RSUs of 37,994 units cliff vest on February 11, 2020
2/6/2017   PSU   Lautenbach, Sutula, Monahan, Shearer, Pilc   Three year cliff vesting; 100% vests on February 11, 2020
   
(2) These amounts were calculated based on the closing price of the company’s common stock of $11.18 per share as of December 31, 2017. Values shown for PSUs granted in 2015 are calculated as follows: (i) the target number of shares awarded, multiplied by (ii) the final performance factor for the 2015-2017 cycle, 0.18, based on financial results, further multiplied by (iii) a -20% TSR adjustment based on 2015-2017 relative performance versus the company’s peer group, (iv) further multiplied by $11.18, the closing stock price as of December 31, 2017. Values shown for PSUs granted in 2016 are calculated as follows: (i) the target number of shares awarded, multiplied by (ii) the estimated performance factor for the 2016-2018 cycle, 0.07, based on 2016 and 2017 results and estimated 2018 results, further multiplied by (iii) $11.18, the closing stock price as of December 31, 2017. Values shown for PSUs granted in 2017 are calculated as follows: (i) the target number of shares awarded, multiplied by (ii) the estimated performance factor for the 2017-2019 cycle, 0.66, based on financial results in 2017 and estimated results for 2018 and 2019, further multiplied by (iii) a -20% TSR adjustment based on 2016-2017 relative performance versus the company peer group, (iv) further multiplied by $11.18, the closing stock price as of December 31, 2017. The total number of PSUs that can vest is capped at 200% (subject to annual individual grant limitations under the stock plan) of the number of PSUs granted.
66

EXECUTIVE COMPENSATION TABLES AND RELATED NARRATIVE

 

OPTION EXERCISES AND STOCK VESTED DURING 2017 FISCAL YEAR

  Option Awards Stock Awards
Name Number of
Shares Acquired
on Exercise (#)
Value Realized
On Exercise ($)
Number of
Shares Acquired
on Vesting (#)
Value Realized
on Vesting ($)(1)
Marc B. Lautenbach 0 0 160,967(2)   2,126,957  
Stanley J. Sutula III 0 0 0(2)   0  
Michael Monahan 0 0 51,628(2)   682,623  
Mark L. Shearer 0 0 45,479(2)   600,701  
Roger Pilc 0 0 19,280(2)   254,881  
   
(1) These values were determined based on the average of the high and low trading price of $13.17 on the February 7, 2017 vesting date and $13.33 on the February 14, 2017 vesting date
(2) Performance-based RSUs granted in 2013 and 2014 had a pro-rata vesting on February 7, 2017 and grants made in 2015 and 2016 had a pro-rata vesting on February 14, 2017. Performance based PSUs granted in 2014 vested on February 7, 2017. The figures reported for Mr. Lautenbach also includes 21,321 deferred RSUs from the 2015 grant and 21,046 deferred RSUs from the 2016 grant, the receipt of which has been deferred until six months following termination or retirement from the company. Figures reported include shares withheld to cover taxes. Mr. Sutula has not yet achieved vesting requirements.

 

Pension Benefits

 

The qualified Pension Plan and nonqualified Pension Restoration Plan were frozen for all participants, effective December 31, 2014. There are no further accruals under the qualified Pension Plan or the nonqualified Pension Restoration Plan, except as required by law. (See discussion under “Other Indirect Compensation” on page 53 of this proxy statement.) Mr. Monahan is the only pension eligible NEO and is fully vested in his pension benefit.

 

The following table provides information regarding the present value of accumulative pension benefits. It includes data regarding the Pitney Bowes Pension Plan and the Pension Restoration Plan. The Pitney Bowes Pension Plan which is a broad-based tax-qualified plan under which employees hired prior to January 1, 2005 are generally eligible to retire with unreduced benefits at age 65. The Pension Restoration Plan is a nonqualified deferred compensation plan, which provides benefits to employees with compensation greater than the $270,000 IRC compensation limit for 2017 who participate in the qualified Pension Plan, and to those employees who defer portions of their compensation under the Deferred Incentive Savings Plan. The Pension Restoration Plan mirrors the formula in the qualified Pension Plan and does not provide above-market interest rates on deferred compensation.

 

The amounts reported in the table below equal the present value of the accumulated benefit on December 31, 2017 under the Pitney Bowes pension plans determined based on years of service and covered earnings (as described below). The present value has been calculated based on benefits payable commencing upon the executive attaining age 65, and in an amount consistent with the assumptions as described in Note 12 to the financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC on February 22, 2018.

67

EXECUTIVE COMPENSATION TABLES AND RELATED NARRATIVE

 

PENSION BENEFITS AS OF DECEMBER 31, 2017(1)

Name  Plan Name  Number of Years
Credited Service (#)
  Present Value of
Accumulated Benefit ($)(2)
Michael Monahan  Pitney Bowes Pension Plan   26.6    407,917 
   Pitney Bowes Pension Restoration Plan   26.6    1,560,874 
   
(1) Mr. Monahan is the only pension eligible NEO and is fully vested in his pension benefit.
(2) Material assumptions used to calculate the present value of accumulated benefits under the Pitney Bowes Pension Plan are detailed in Note 12 to the financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2017. These lump sum values are expressed as the greater of the Pension Equity Account and the Present Value of the Age 65 Accrued benefit using the PPA 417(e) Unisex Mortality table.

 

The material terms of the Pitney Bowes Pension Plan and Pension Restoration Plan are as follows:

  The Pitney Bowes Pension and Pension Restoration Plans apply only to U.S. employees hired prior to January 1, 2005 and were frozen for all participants effective December 31, 2014.
  Normal retirement age is 65 with at least three years of service, while early retirement is allowed at age 55 with at least ten years of service.
  The vesting period is three years.
  Earnings include base salary, vacation, severance, before-tax plan contributions, annual incentives (paid and deferred), and certain bonuses. Earnings do not include CIU payments, stock options, restricted stock, RSUs, PSUs, hiring bonuses, company contributions to benefits, and expense reimbursements.
  The formula to determine benefits is generally based on age, years of service, and final average of the five highest consecutive calendar year earnings.
  The maximum benefit accrual under the Pitney Bowes Pension Restoration Plan is an amount equal to 16.5% multiplied by the participant’s final average earnings and further multiplied by the participant’s credited service.
  Upon retirement, benefits are payable in a lump-sum or various annuity forms, including life annuity and 50% joint and survivor annuity.
  The distribution options under the Pitney Bowes Pension Restoration Plan are designed to comply with the requirements of IRC 409A of the Code.
  No extra years of credited service are provided and no above-market earnings are credited under the plan.

 

Deferred Compensation

 

Information included in the following table includes contributions, earnings, withdrawals, and balances with respect to the Pitney Bowes 401(k) Restoration Plan, a nonqualified deferred compensation plan restoring benefits that would have otherwise been made in the qualified 401(k) Plan but for IRC limitations, and the Pitney Bowes Deferred Incentive Savings Plan (DISP), a nonqualified deferred compensation plan where certain employees may defer their incentives and base salaries. The Pitney Bowes 401(k) Restoration Plan and DISP are unfunded plans established for a select group of management or highly compensated employees under ERISA. All payments pursuant to the plans are made from the general assets of the company and are subject to the company’s creditors. The company reserves the right to fund a grantor trust to assist in accumulating funds to pay the company’s obligations under the plans. Any assets of the grantor trusts are subject to the claims of the company’s creditors.

 

Executives who are required to own certain levels of company stock under the executive stock ownership policy may elect to defer the settlement of RSUs and PSUs upon vesting until the executives terminate employment or retire. Executives who choose to defer in this manner receive dividend equivalents once the award vests, which are also deferred as RSUs. Deferred RSUs and PSUs are unfunded deferred compensation subject to the company’s general creditors.

68

EXECUTIVE COMPENSATION TABLES AND RELATED NARRATIVE

 

NONQUALIFIED DEFERRED COMPENSATION FOR 2017

Name  Executive
Contributions
in Last FY ($)(1)
  Registrant
Contributions
in Last FY ($)(2)
  Aggregate
Earnings/(Loss)
in Last FY ($)(3)
  Aggregate
Withdrawals/
Distributions ($)
  Aggregate
Balance at
Last FYE ($)(4)
Marc B. Lautenbach                                                       
401(k) Restoration Plan       84,962    55,625    0    400,214 
Deferred Incentive Savings Plan           21,472    0    181,450 
Stanley J. Sutula III(5)                         
401(k) Restoration Plan               0     
Deferred Incentive Savings Plan               0     
Michael Monahan                         
401(k) Restoration Plan       41,512    (13,917)   0    291,762 
Deferred Incentive Savings Plan           203,756    0    1,608,592 
Mark L. Shearer