ROCKWELL AUTOMATION, INC - DEF 14A


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

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2016

NOTICE OF
ANNUAL MEETING
AND PROXY STATEMENT

February 2, 2016 at 5:30 pm

 

Rockwell Automation, Inc.

1201 South Second Street

Milwaukee, Wisconsin 53204, USA

 


 

 

December 14, 2015

 

Dear Fellow Shareowner:

 

You are cordially invited to attend our 2016 Annual Meeting of Shareowners on Tuesday, February 2, 2016, at our Global Headquarters in Milwaukee, Wisconsin. You will find information about the business to be conducted at the meeting in the attached notice of meeting and proxy statement. At the meeting, I will also review the Company’s activities and performance during the last year and answer questions of general interest to shareowners. You can read more about our performance in the accompanying 2015 Annual Report and Form 10-K.

Your vote is important to us. Whether or not you plan to attend the meeting, it is important that your shares are represented and voted at the meeting. We encourage you to vote before the meeting by returning your proxy card or voting via the Internet or by telephone. If you decide to attend the meeting, you will still be able to vote in person, even if you previously submitted your proxy. Please follow the advance registration instructions on the outside back cover page of the proxy statement to obtain an admission card if you plan to attend.

We hope to see you at the meeting. On behalf of the entire Board, I want to thank you for your continued support of Rockwell Automation.

Sincerely yours,

 

 

 

Keith D. Nosbusch

Chairman and Chief Executive Officer


Table of Contents

NOTICE OF 2016 ANNUAL MEETING OF SHAREOWNERS

1

PROXY SUMMARY

2

PROXY STATEMENT

5

CORPORATE GOVERNANCE

6

ELECTION OF DIRECTORS

10

BOARD OF DIRECTORS AND COMMITTEES

15

DIRECTOR COMPENSATION

20

DIRECTOR COMPENSATION TABLE

22

OWNERSHIP OF EQUITY SECURITIES OF THE COMPANY

23

COMPENSATION COMMITTEE REPORT

24

EXECUTIVE COMPENSATION

25

Compensation Discussion and Analysis

25

Summary Compensation Table

36

Grants of Plan-Based Awards Table

38

Outstanding Equity Awards at Fiscal Year-End Table

39

Option Exercises and Stock Vested Table

40

Pension Benefits Table

40

Non-Qualified Deferred Compensation

42

Non-Qualified Deferred Compensation Table

43

Potential Payments Upon Termination or Change of Control

43

AUDIT MATTERS

46

Proposal to Approve the Selection of Independent Registered Public Accounting Firm

46

Audit Committee Report

47

PROPOSAL TO APPROVE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS

48

PROPOSAL TO APPROVE AN AMENDMENT TO OUR 2012 LONG-TERM INCENTIVES PLAN

50

PROPOSAL TO APPROVE AN AMENDMENT TO OUR BY-LAWS TO ADD AN EXCLUSIVE FORUM PROVISION

56

OTHER MATTERS

57

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

57

ANNUAL REPORT

57

SHAREOWNER PROPOSALS FOR 2017 ANNUAL MEETING

57

GENERAL INFORMATION ABOUT THE MEETING AND VOTING

58

EXPENSES OF SOLICITATION

62

SUPPLEMENTAL FINANCIAL INFORMATION

62

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREOWNERS TO BE HELD ON FEBRUARY 2, 2016

63

APPENDIX A

64

APPENDIX B

73


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Rockwell Automation, Inc.

1201 South Second Street

Milwaukee, Wisconsin 53204, USA

 

 

Notice of 2016 Annual Meeting of Shareowners

To the Shareowners of ROCKWELL AUTOMATION, INC.:

The 2016 Annual Meeting of Shareowners of Rockwell Automation, Inc. will be held in Bradley Hall at the Rockwell Automation Global Headquarters, 1201 South Second Street, Milwaukee, Wisconsin, USA on Tuesday, February 2, 2016, at 5:30 p.m. (Central Standard Time) for the following purposes:

(a)

to vote on whether to elect as directors the two nominees named in the accompanying proxy statement;

(b)

to vote on a proposal to approve the selection by the Audit Committee of our Board of Directors of Deloitte & Touche LLP as our independent registered public accounting firm for fiscal year 2016;

(c)

to vote on a proposal to approve on an advisory basis the compensation of our named executive officers;

(d)

to vote on a proposal to amend our 2012 Long-Term Incentives Plan to increase the shares available for delivery;

(e)

to vote on a proposal to approve an amendment to our by-laws to add an exclusive forum provision; and

(f)

to transact such other business as may properly come before the meeting.

 

Only shareowners of record at the close of business on December 7, 2015 may vote at the meeting.

 

By order of the Board of Directors.

 

 

 

 

 

 

Douglas M. Hagerman

Secretary

December 14, 2015

 

 

Note: The Board of Directors solicits votes by the execution and prompt return of the accompanying proxy in the enclosed return envelope or by use of the Company’s telephone or Internet voting procedures.

Rockwell Automation - FY2015 Proxy Statement    1


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PROXY SUMMARY

This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting. Page references are supplied to help you find further information in this proxy statement.

Annual Meeting of Shareowners

Date and Time: Tuesday, February 2, 2016 at 5:30 pm CST

Location: Rockwell Automation Global Headquarters, 1201 South Second Street, Milwaukee, WI 53204

Record Date: December 7, 2015

Who May Vote

You may vote if you were a shareowner of record at the close of business on the December 7, 2015 record date.

How to Cast Your Vote

You can vote by any of the following methods:

  Internet (www.proxyvote.com) until February 1, 2016;

  Telephone (1-800-690-6903) until February 1, 2016;

  Complete, sign and return your proxy by mail by January 28, 2016;

If you hold shares in one of our savings plans, by Internet (www.proxyvote.com), telephone (1-800-690-6903) or mail by January 28, 2016; or

In person, at the Annual Meeting: If you are a shareowner of record, your admission card will serve as proof of ownership. If you hold your shares through a broker, nominee or other intermediary, you must bring proof of ownership to the meeting.

Voting Matters

We are asking you to vote on the following proposals at the Annual Meeting:

 

Board Vote

Recommendation

Page Reference

(for more detail)

Election of Directors

FOR each Director Nominee

10

Approval of Auditors

FOR

46

Advisory Vote on Executive Compensation

FOR

48

Amendment to 2012 Long-Term Incentives Plan to Increase Available Shares

FOR

50

Amendment to By-laws to Add Exclusive Forum

FOR

56

Board and Governance Highlights (page 6)

All directors and nominees are independent (except our CEO)

Balanced director tenure – three continuing directors have more than ten years of service and five have less than five years of service

Balanced director ages with three directors under age 60

Independent Lead Director

Diverse Board

Code of Conduct for all employees and directors

Stock ownership requirements for officers and directors

Anti-hedging and anti-pledging policies

Annual ethics training

Active shareowner engagement

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The following chart highlights certain key qualifications represented by each continuing director. Additional information about each director’s capabilities and other qualifications is set forth in each director’s profile.

Summary of Qualifications of Continuing Directors

Skills/Attribute

Alewine

Holloman

Kalmanson

Keane

Kingsley

McCormick

Nosbusch

Parfet

Payne

Leadership

International

 

 

 

 

Finance

 

 

 

 

Industry

 

 

 

Risk

 

 

 

Technology

 

 

 

 

Other Information

 

 

 

 

 

 

 

 

 

Age

67

60

63

56

52

71

64

63

57

Tenure

15

2

4

4

2

26

11

7

<1

Other Public Company Boards

1

0

0

1

0

0

1

3

2

Board Nominees (page 10)

The following table provides summary information about each director nominee.

Name

Age

Director

Since

Occupation

Independent

Committee

Memberships

Other Public

Company Boards

William T. McCormick, Jr.

71

1989

Retired Chairman of the Board and Chief Executive Officer, CMS Energy Corporation

Yes

Board Composition and Governance

Compensation

0

Keith D. Nosbusch

64

2004

Chairman of the Board, President and Chief Executive Officer, Rockwell Automation

No

None

1

Auditor (page 46)

We ask our shareowners to approve the selection of Deloitte & Touche LLP as our independent registered public accounting firm for the year ending September 30, 2016 (the D&T appointment). Below is summary information about fees paid to Deloitte & Touche LLP for services provided in fiscal 2015 and 2014 (in millions):

Year Ended September 30

 

2015

 

2014

Audit Fees

$

5.53

$

5.74

Audit-Related Fees

 

0.22

 

0.14

Tax Fees

 

0.00

 

0.00

All Other Fees

 

0.01

 

0.01

TOTAL

$

5.76

$

5.89

Executive Compensation (page 25)

Our executive compensation program is designed to attract and retain executive talent and emphasize pay for performance. Our compensation program includes base salary, annual incentive compensation, long-term incentives, defined benefit and defined contribution retirement plans and a very limited perquisite package. Our compensation program includes the following key principles:

Compensation decisions are based on a number of factors, including market compensation rates, Company performance against pre-established goals and the relative share performance of the Company compared to the broader stock market, as well as the experience and contributions of individual executives.

A significant portion of an executive’s compensation is directly linked to our performance and the creation of shareowner value.

Long-term incentives reward management for creating shareowner value and align the financial interests of executives and shareowners.

Incentive compensation payouts vary significantly from year to year based on performance compared to goals.

We seek sustained growth and performance through various activities that depend on our executives for their planning and execution. We believe it is important to align the compensation of our leadership with this growth and performance strategy through pay for performance. We believe our shareowners support this philosophy based on the overwhelming level of shareowner support for the proposal to approve the compensation of our named executive officers presented at our 2015 Annual Meeting.

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Advisory Vote to Approve Executive Compensation (page 48)

We ask our shareowners to approve on an advisory basis the compensation of our named executive officers. We believe our compensation programs and practices are appropriate and effective in implementing our compensation philosophy, support achieving our goals with appropriate levels of risk and are aligned with shareowner interests, including:

a balanced mix of long-term incentives including stock options, performance shares and restricted stock to motivate long-term performance and reward executives for absolute gains in share price and relative performance based on total shareowner return compared to the S&P 500 Index;

very limited perquisites;

stock ownership requirements for officers;

annual incentive compensation payouts tied directly to performance and capped at 200% of target, limiting excessive awards for short-term performance;

multiple-year vesting of long-term incentive awards;

absence of employment contracts with our named executive officers; and

use of claw-back agreements and recoupment policy.

Proposal to Amend our 2012 Long-Term Incentives Plan (page 50)

We ask our shareowners to approve an amendment to our 2012 Long-Term Incentives Plan to increase by 5 million the number of shares available for delivery under the plan (the LTIP Amendment). The LTIP Amendment will allow us to maintain our focus on providing performance-based pay for our employees and continue the strong alignment of our compensation program with long-term shareowner value. The proposal also includes approval of performance measures to enable certain awards to qualify under Internal Revenue Code Section 162(m).

Proposal to Amend our By-Laws (page 56)

We ask our shareowners to approve an amendment to our by-laws to add a provision designating Delaware as the exclusive forum for certain intra-corporate disputes (the By-law Amendment). The Board believes that the By-law Amendment will provide an efficient and cost – effective means for managing litigation.

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PROXY STATEMENT

2016 Annual Meeting

The 2016 Annual Meeting of Shareowners of Rockwell Automation, Inc. will be held at 5:30 p.m. (Central Standard Time) on February 2, 2016, for the purposes set forth in the accompanying Notice of 2016 Annual Meeting of Shareowners. This proxy statement and the accompanying proxy are furnished in connection with the solicitation by our Board of Directors of proxies to be used at the meeting and at any adjournment of the meeting. We will refer to your company in this proxy statement as “we,” “us,” “our,” the “Company” or “Rockwell Automation.”

This proxy statement and form of proxy are being distributed or made available to shareowners beginning on or about December 22, 2015.

Rockwell Automation

We are a leading global provider of industrial automation power, control, and information solutions that help manufacturers achieve competitive advantages for their businesses. Our products, solutions and services are designed to meet our customers’ needs to reduce total cost of ownership, maximize asset utilization, improve time to market and reduce enterprise business risk.

The Company continues the business founded as the Allen-Bradley Company in 1903. The privately-owned Allen-Bradley was a leading North American manufacturer of industrial automation equipment when the former Rockwell International Corporation (RIC) purchased it in 1985.

We were incorporated in Delaware in connection with a tax-free reorganization completed on December 6, 1996, pursuant to which we divested our former aerospace and defense business (the A&D Business) to The Boeing Company. In the reorganization, RIC contributed all of its businesses, other than the A&D Business, to us and distributed all of our capital stock to RIC’s shareowners. Boeing then acquired RIC. RIC was incorporated in 1928.

Our principal executive office is located at 1201 South Second Street, Milwaukee, Wisconsin 53204, USA. Our telephone number is +1 (414) 382-2000 and our website is located at www.rockwellautomation.com. Our common stock trades on the New York Stock Exchange (NYSE) under the symbol ROK.

Rockwell Automation - FY2015 Proxy Statement    5


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CORPORATE GOVERNANCE

Good governance is a critical part of our corporate culture. The following provides an overview of certain of our governance practices:

The Board of Directors has adopted Guidelines on Corporate Governance that contain general principles regarding the responsibilities and function of our Board and Board Committees. The Guidelines set forth the Board’s governance practices with respect to leadership structure, Board meetings and access to senior management, director compensation, director qualifications, Board performance, management development and succession planning, director stock ownership, and enterprise risk management. The Guidelines are available on our website at http://www.rockwellautomation.com/ global /about-us/corporate-governance/overview.page.

Shareowner Engagement

Our Board values the views of shareowners and considers shareowner feedback in establishing and evaluating appropriate policies and practices. In 2014, the Board considered shareowner feedback when it decided to repeal a director qualification by-law provision. The Board also considered shareowner views in evaluating our vote standard in uncontested director elections. Last year our proxy statement included a management proposal asking shareowners to approve an amendment to our certificate of incorporation to change our vote standard.

The Board is mindful that investor engagement with companies has increased in recent years, with more investors expecting some form of regular engagement. While we have always had regular dialogue with our investors about a variety of business and strategic matters, our engagement on corporate governance matters has occurred primarily during proxy season. In 2015, however, we started a more formalized program for active shareowner engagement on governance matters. We contacted our twenty largest shareowners, who represent about 40% of our outstanding shares, and offered to discuss our corporate governance and compensation practices and address any concerns they may have

Rockwell Automation - FY2015 Proxy Statement    6


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about the Company. Thirteen shareowners accepted our invitation. We discussed various topics including investor proxy voting processes, shareowner engagement practices, various corporate governance practices, and our executive compensation program. The feedback was summarized and presented to the Board Composition and Governance Committee, the Compensation Committee and the full Board.

We received positive feedback on our management and Board, outreach efforts, responsiveness to shareowners and executive compensation program. As part of our governance discussion, we learned that most investors are supportive of exclusive forum by-laws if put to a shareowner vote. In view of this feedback, we are asking shareowners to approve an amendment to our by-laws to add an exclusive forum provision. Also, our shareowners confirmed that they want regular engagement with the Company. Accordingly, we plan to continue a program of shareowner engagement both during and outside of proxy season.

We believe that having regular engagement with our shareowners will strengthen our relationships with shareowners and help us to better understand shareowner views on our corporate governance practices and other matters of importance to our business.

Related Person Transactions

The Board of Directors adopted a written policy regarding how it will review and approve related person transactions (as defined below). The Board Composition and Governance Committee is responsible for administering this policy. The policy is available on our website at http:// www.rockwellautomation.com/global/about-us/corporate- governance/overview.page.

The policy defines a related person transaction as any transaction in which the Company is or will be a participant, in which the amount involved exceeds $120,000, and in which any director, director nominee, executive officer or more than 5% shareowner or any of their immediate family members has or will have a direct or indirect material interest. The policy sets forth certain transactions, arrangements and relationships not reportable under Securities and Exchange Commission (SEC) rules that do not constitute related person transactions.

Under this policy, each director, director nominee and executive officer must report each proposed or existing transaction between us and that individual or any of that individual’s immediate family members to our General Counsel. Our General Counsel will assess and determine whether any transaction reported to him or of which he learns constitutes a related person transaction. If our General Counsel determines that a transaction constitutes a related person transaction, he will refer it to the Board Composition and Governance Committee. The Committee will approve or ratify a related person transaction only if it determines that the transaction is in, or is not inconsistent with, the best interests of the Company and its shareowners. In determining whether to approve or ratify a related person transaction, the Committee will consider factors it deems appropriate, including:

the fairness to the Company;

whether the terms of the transaction would be on the same basis if a related person was not involved;

the business reasons for the Company to participate in the transaction;

whether the transaction may involve a conflict of interest;

the nature and extent of the related person’s and our interest in the transaction; and

the amount involved in the transaction.

There are no related person transactions to report in this proxy statement.

Potential Director Candidates

The Board Composition and Governance Committee is responsible for screening potential director candidates and recommending qualified candidates to the full Board.

The Committee will consider director candidates recommended by shareowners. Shareowners can recommend director candidates by writing to the Corporate Secretary at Rockwell Automation, 1201 South Second Street, Milwaukee, Wisconsin 53204, USA. The recommendation must include the candidate’s name, biographical data and qualifications and any other information required by the SEC to be included in a proxy statement with respect to a director nominee. Any shareowner recommendation must be accompanied by a written statement from the candidate indicating his or her willingness to serve if nominated and elected. The recommending shareowner also must provide evidence of being a shareowner of record of our common stock at that time.

The Committee, the Chairman and Chief Executive Officer or other members of the Board may identify a need to add new members to the Board or fill a vacancy on the Board. In that case, the Committee will initiate a search for qualified director candidates, seeking input from senior management and Board members, and to the extent it deems it appropriate, outside search firms. The Committee will evaluate qualified candidates and then make its recommendation to the Board.

In making its recommendations to the Board with respect to director candidates, the Committee considers various criteria set forth in our Board Membership Criteria (see Exhibit A to the Committee’s Charter), including experience, professional background, specialized expertise, diversity and concern for the best interests of shareowners as a whole. In addition, directors must be of the highest character and integrity, be free of conflicts of interest with the Company, and have sufficient time available to devote to the affairs of the Company. The Committee from time to time reviews with the Board our Board Membership Criteria.

The Committee will evaluate properly submitted shareowner recommendations under substantially the same criteria and in substantially the same manner as other potential candidates.

In addition to recommending director candidates to the Committee, shareowners may nominate candidates for election to the Board directly at the annual shareowner meeting by following the procedures and providing the information, including a questionnaire, representation and agreement from the nominee, set forth in our by-laws. See “Shareowner Proposals for 2017 Annual Meeting” set forth later in this proxy statement.

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Diversity

The Board does not have a formal policy with respect to diversity, but recognizes the value of a diverse Board and thus has included diversity as a factor that is taken into consideration in its Board Membership Criteria.

When it considers the composition of the Board, especially when adding new directors, the Board Composition and Governance Committee assesses the skills and experience of Board members and compares them to the skills that might benefit the Company, in light of the current Board composition. The Committee seeks people with a variety of occupational and personal backgrounds to ensure that the Board benefits from a range of perspectives and to enhance the diversity of the Board in such areas as experience, geography, race, gender and ethnicity. When selecting director candidates, the Committee may establish specific skills, experiences or backgrounds that it believes the Board should seek in order to achieve balance and effectiveness.

The Board believes that it is important that its members reflect diverse viewpoints so that, as a group, the Board includes a sufficient mix of perspectives to allow the Board best to fulfill its responsibilities to shareowners.

Communications to the Board and Ombudsman

Shareowners and other interested parties may send communications to the Board, an individual director, the Lead Director, the non-management directors as a group, or a Board Committee at the following address:

Rockwell Automation, Inc.
c/o Corporate Secretary
1201 South Second Street
Milwaukee, Wisconsin 53204, USA
Attn: Board of Directors

The Secretary will receive and process all communications before forwarding them to the addressee. The Secretary will forward all communications unless the Secretary determines that a communication is a business solicitation or advertisement, or requests general information about us.

In accordance with procedures approved by the Audit Committee of our Board of Directors, concerns about accounting, internal controls or auditing matters should be reported to the Ombudsman as outlined in our Code of Conduct, which is available on our website at www.rockwellautomation.com, select “Sustainability & Ethics” at the bottom of the page, then under “Integrity & Compliance” click on “Code of Conduct.” These standards are also available in print to any shareowner upon request. The Ombudsman is required to report promptly to the Audit Committee all reports of questionable accounting or auditing matters that the Ombudsman receives. You may contact the Ombudsman by addressing a letter to:

Ombudsman
Rockwell Automation, Inc.
1201 South Second Street
Milwaukee, Wisconsin 53204, USA

You may also contact the Ombudsman by telephone at 1 (800) 552-3589 (US only) or +1 (414) 382-8484, e-mail at ombudsman@ra.rockwell.com, fax at +1 (414) 382-8485, or, if you wish to remain anonymous, by going to: https://rockwellautomationombudsman.alertline.com.

Board Leadership Structure

Our Board of Directors adheres to a flexible approach to the question of whether to separate or combine the roles of Chairman and CEO. The Board believes that this is a matter that should be discussed and determined by the Board from time to time and that it depends upon the current performance of the Company and the experience, knowledge and temperament of the CEO. Currently the Board has combined the roles of Chairman and CEO and Mr. Nosbusch serves in both capacities. The Board believes that at this time this leadership structure strengthens the leadership of the Company and does not impair the Board’s independence, its ability to control its agenda or its oversight of management. The Board further has concluded that this combined structure improves the efficiency of decision-making by the Board, in light of Mr. Nosbusch’s long experience and extensive knowledge of the Company’s operations, its customers and the major business issues that it faces, and provides the Company with strong and consistent leadership.

In order to ensure the effectiveness of the independent directors, the independent directors elected Verne G. Istock to serve as Lead Director. Mr. Istock is an experienced director, having served as non-executive Chairman of Masco Corporation and as retired Chairman and President of Bank One Corporation. Mr. Istock will not continue as a director after the Annual Meeting in accordance with the Board’s retirement policy. The Board has elected Donald R. Parfet to serve as Lead Director effective immediately before the Annual Meeting. Mr. Parfet is an experienced director having served as a senior executive of a pharmaceutical company, as lead director of another public company, and as an outside director on three public company boards (in addition to the Company). The duties and responsibilities of the Lead Director include: preside at all meetings of the Board at which the Chairman is not present; preside at all executive sessions of the independent directors; act as a key liaison between the Chairman and CEO and the independent directors; call meetings of the independent directors, when necessary; communicate Board feedback to the Chairman and CEO after each Board meeting (except that the Chair of the Compensation Committee will lead the discussion of the performance of the Chairman and CEO and communicate the Board’s evaluation of that performance to the Chairman and CEO); and perform such other duties as the Board may request from time to time. Our Guidelines on Corporate Governance require the appointment of an independent Lead Director in the event the Chairman is a management director.

The Board’s independent oversight function is further enhanced by the fact that all four Committees are comprised entirely of independent directors, the directors have complete access to management, the Board and these Committees may retain their own advisors and there is an annual evaluation by the independent Compensation Committee of our CEO’s performance against pre-determined goals.

The Board believes the current leadership structure is appropriate for the Company at this time, providing effective independent oversight of management and a highly engaged and functioning Board.

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Succession Planning

Our Board considers succession planning and development to be a critical part of the Company’s long-term strategy. The full Board oversees CEO and senior management succession and development plans and receives regular reports on employee engagement and retention matters. At least annually the Board reviews senior management succession and development plans with our CEO. With regard to CEO succession planning, the Board regularly discusses potential CEO candidates and their development and preparedness.

Board’s Role in Risk Oversight

The responsibility for managing risk rests with executive management. The Board has primary responsibility for oversight of management’s program of enterprise risk management for the Company. The standing Committees of the Board address the risks related to their respective areas of oversight, and the Audit Committee is responsible for reviewing the overall guidelines and policies that govern our process for risk assessment and management.

Management periodically reports to the Board regarding the system that management has implemented to assess, manage and monitor risks. Management also reports to the Board on the risks it has assessed to be the most significant, together with management’s plans to mitigate those risks.

Our risk management system seeks to ensure that the Board is informed of major risks facing the Company. The Audit Committee provides oversight regarding financial risks. The Audit Committee receives regular reports on management policies and practices relating to the Company’s financial statements, and the effectiveness of internal controls over financial reporting. The Audit Committee also receives regular reports from the Company’s independent auditors and general auditor as well as the General Counsel regarding legal and compliance risks. The Compensation Committee considers the risk implications of the incentives created by our compensation programs. The Technology and Corporate Responsibility Committee oversees risks related to technology, safety, and environmental protection, among other corporate responsibility matters. The Board Composition and Governance Committee oversees governance-related risks including conflicts of interest, director independence, and board and committee structure and performance.

Our risk oversight is aligned with the Board’s oversight of the Company’s strategies and plans. Thus, the Board ordinarily receives reports on the risks implicated by the Company’s strategic decisions concurrent with the deliberations leading to those decisions. From time to time, the full Board will receive reports from management on enterprise risks that are not specifically assigned to a specific committee.

We believe we have an effective risk management system that fosters a culture of appropriate risk taking. We have strong internal processes and a strong control environment to identify and manage risks. We also believe that our leadership structure, with Mr. Nosbusch serving as both Chairman and CEO, enhances the Board’s effectiveness in overseeing risk. Mr. Nosbusch’s extensive knowledge of the Company’s business and operations also helps the Board to identify and address key risks facing the Company. Executive officers are assigned responsibility for managing the risks deemed most significant.

Our Annual Report on Form 10-K for the year ended September 30, 2015 contains an extensive description of the most significant enterprise risks that we face.

Independent Director Sessions

The independent directors meet in executive session without any officer or member of management present in conjunction with regular meetings of the Board. The Lead Director presides over executive sessions. Following each executive session, the Lead Director will discuss with the Chairman and CEO appropriate matters from these sessions.

Corporate Governance Documents

You will find current copies of the following corporate governance documents on our website at http://www.rockwellautomation.com/global/about-us/corporate-governance/overview.page.

Board of Directors Guidelines on Corporate Governance

Audit Committee Charter

Compensation Committee Charter

Board Composition and Governance Committee Charter

Technology and Corporate Responsibility Committee Charter

Code of Conduct

Related Person Transactions Policy

Executive Compensation Recoupment Policy

Shareowner Communications to the Board and Ombudsman

Certificate of Incorporation

By-laws

We will provide printed copies of any of these documents to any shareowner upon written request to Rockwell Automation Shareowner Relations, 1201 South Second Street, Milwaukee, WI 53204, USA.

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ELECTION OF DIRECTORS

Our certificate of incorporation provides that the Board of Directors will consist of three classes of directors serving staggered three-year terms that are as nearly equal in number as possible. One class of directors is elected each year with terms extending to the third succeeding Annual Meeting after election.

The terms of four directors expire at the 2016 Annual Meeting. The Board has nominated two of these current directors, upon the recommendation of the Board Composition and Governance Committee, for election as directors with terms expiring at the 2019 Annual Meeting. The other two directors, Verne G. Istock and Barry C. Johnson, have reached the retirement age for directors and were not nominated for re-election to the Board in accordance with the Board’s retirement policy. The Board approved a decrease in the number of directors from eleven to nine effective immediately before the 2016 Annual Meeting.

Proxies properly submitted will be voted at the meeting, unless authority to do so is withheld, for the election of the two nominees specified in Nominees for Election as Directors below, subject to applicable NYSE regulations. If for any reason either of these nominees is not a candidate when the election occurs (which is not expected), proxies and shares properly authorized to be voted will be voted at the meeting for the election of a substitute nominee. Alternatively, the Board of Directors may decrease the number of directors.

Information about Director Nominees and Continuing Directors

For each director nominee and continuing director, we have stated the person’s name, age (as of December 1, 2015) and principal occupation; the position, if any, with the Company; the period of service as a director of the Company (or a predecessor corporation); and other directorships held.

Nominees for election as directors with terms expiring in 2019

 

 

William T. McCormick, Jr

 

 

Director Since: 1989

Age: 71

Committees: Board Composition & Governance and Compensation (Chair)

Independent

Retired Chairman of the Board and Chief Executive Officer, CMS Energy Corporation (diversified energy)

Experience and Qualifications:

Mr. McCormick served as Chairman of the Board and Chief Executive Officer of CMS Energy Corporation from November 1985 until May 2002. Before joining CMS, he had been Chairman and Chief Executive Officer of American Natural Resources Company (natural gas company) and Executive Vice President and a director of its parent corporation, The Coastal Corporation (energy holding company).

Mr. McCormick brings significant leadership and executive experience to the Board having served as Chairman and CEO of CMS Energy Corporation, a publicly-traded Fortune 500 company, for 17 years. CMS was involved in large energy technology development projects in oil and gas, pipeline, power generation, and electric and gas distribution. As Chairman and CEO, he was regularly exposed to issues facing leadership of a large global company, including risk management, strategic planning, corporate governance, human resources and executive compensation. He previously chaired the Nominating and Governance Committee and the Compensation Committee at Schlumberger Ltd. He also chaired the Risk Management Committee of the Board of First Chicago NBD Bank for two years. He holds a Ph.D. in nuclear engineering from the Massachusetts Institute of Technology.

 

  Leadership   International   Finance   Industry   Risk   Technology

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Keith D. Nosbusch

 

 

Director Since: 2004

Age: 64

Committees: None

Chairman of the Board, President and Chief Executive Officer

Experience and Qualifications:

Mr. Nosbusch has been our Chairman of the Board since February 2005 and our President and Chief Executive Officer since February 2004. He served as Senior Vice President and President, Rockwell Automation Control Systems from November 1998 until February 2004. Mr. Nosbusch is a director of The Manitowoc Company, Inc. and serves as a director or member of a number of business, civic and community organizations.

As our Chairman and CEO, Mr. Nosbusch has significant experience with and knowledge of the Company. He rose through management having served in various positions including president of our Control Systems business. His long experience and extensive knowledge of the Company’s operations, its customers, and the major business issues that it faces enhances overall board effectiveness and interaction with management. He also serves on the board of another public company, where he has gained experience with corporate governance, audit and risk oversight and overall board procedures and functioning. Mr. Nosbusch earned an M.B.A. from the University of Wisconsin — Milwaukee.

Continuing directors with terms expiring in 2017

 

 

Steven R. Kalmanson

 

 

Director Since: 2011

Age: 63

Committees: Board Composition & Governance and Technology & Corporate Responsibility

Independent

Retired Executive Vice President, Kimberly-Clark Corporation (consumer package goods)

Experience and Qualifications:

Mr. Kalmanson joined Kimberly-Clark Corporation in 1977 and held various marketing and business management positions within the consumer products businesses. He was appointed President, Adult Care in 1990, President, Child Care in 1992, President, Family Care in 1994, Group President of the Consumer Tissue segment in 1996, Group President-North Atlantic Personal Care in 2004 and Group President-North Atlantic Consumer Products in 2005. Mr. Kalmanson was president and sole owner of Maxair, Inc., an aviation services company, from 1988 to 2011.

Mr. Kalmanson brings extensive business and executive management experience to the Board having served in various officer positions for Kimberly-Clark, a global public company. Throughout his career, he successfully initiated and managed change to assist in the transformation of Kimberly-Clark from a pulp and paper company to a globally-recognized consumer package goods conglomerate marketing some of the most recognized brands in the world. In addition to his U.S. experience, he has international management experience through his responsibilities for Kimberly-Clark’s European and Canadian businesses and sales organizations, global procurement and supply chain organizations and marketing research and services organizations. He successfully innovated, restaged and grew Kimberly-Clark’s global consumer brands and businesses. He has experience leading mergers and acquisitions, organizational restructurings and facility closures and divestitures. In addition, he owned and operated his own aviation services business from 1988 until 2011, which gives him insights into economic, operational, regulatory and other challenges faced by the Company. Mr. Kalmanson holds an M.B.A. from the University of Witwatersrand, Johannesburg, South Africa.

 

  Leadership   International   Finance   Industry   Risk   Technology

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James P. Keane

 

 

Director Since: 2011

Age: 56

Committees: Audit and Technology & Corporate Responsibility

Independent

President and Chief Executive Officer, Steelcase Inc. (office furniture)

Experience and Qualifications:

In March 2014, Mr. Keane became President and Chief Executive Officer of Steelcase Inc. He has held several leadership roles since joining Steelcase in 1997. He served as Senior Vice President and Chief Financial Officer of Steelcase Inc. from 2001 through 2006. He was named President of the Steelcase Group in October 2006, where he had responsibility for the sales, marketing and product development activities of certain brands primarily in North America. In January 2011, he assumed leadership of the Steelcase brand across the Americas and Europe, the Middle East and Africa. From November 2012 to April 2013, he served as Chief Operating Officer, responsible for the design, engineering and development, manufacturing, sales and distribution of all brands in all countries where Steelcase does business. From April 2013 to March 2014, Mr. Keane served as President and Chief Operating Officer. Mr. Keane has served as a director of Steelcase since April 2013. He also serves as a director or trustee of a number of civic and charitable organizations.

As President, Chief Executive Officer and a board member of a global public company, Mr. Keane brings current business experience and knowledge to the Board. Through his executive roles at Steelcase, he has extensive leadership experience and a comprehensive understanding of business operations, processes and strategy as well as risk management, sales, marketing and product development. In addition, he has a high level of financial literacy and accounting experience having served as CFO of Steelcase. His understanding of financial statements, accounting principles, internal controls and audit committee functions provides the Board with expertise in addressing the complex issues that can be raised by the Company’s financial reporting and matters related to the Company’s financial position. Mr. Keane holds a master’s degree in management from the Kellogg School of Management, Northwestern University.

 

Donald R. Parfet

 

 

Director Since: 2008

Age: 63

Committees: Audit (Chair) and Compensation

Independent

Managing Director, Apjohn Group, LLC (business development); General Partner, Apjohn Ventures Fund (venture capital fund)

Experience and Qualifications:

Mr. Parfet has served as Managing Director of Apjohn Group since 2001. Before that, he served as Senior Vice President of Pharmacia Corporation (pharmaceuticals). Mr. Parfet is a director of ProNAi Therapeutics, Inc., Kelly Services, Inc. and Masco Corporation and serves as a director or trustee of a number of business, civic and charitable organizations.

Mr. Parfet brings extensive finance and industry experience to the Board. He has served as General Partner of Apjohn Ventures Fund, a venture capital fund, since 2003. In this role, he is an active investor in early stage pharmaceutical companies, which requires evaluating financial and development risk associated with emerging medicines. During his years at The Upjohn Company and its successor Pharmacia & Upjohn, he had extensive financial and corporate staff management responsibilities and ultimately senior operational responsibilities for multiple global business units. He is experienced in leading strategic planning, risk assessment, human resource planning and financial planning and control as well as the manufacturing of pharmaceuticals, chemicals and research instruments. Mr. Parfet has board oversight and corporate governance experience from his current service as Lead Director of Kelly Services, Inc. and former chairman of its Audit Committee. He is also a director of Masco Corporation, where he serves on its Audit and Compensation Committees, and ProNAi Therapeutics, Inc., where he serves as Chairman of the Board, chairman of its Compensation Committee and a member of its Nominating and Governance Committee. Mr. Parfet holds an M.B.A. from the University of Michigan.

 

  Leadership   International   Finance   Industry   Risk   Technology

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Continuing directors with terms expiring in 2018

 

 

Betty C. Alewine

 

 

Director Since: 2000

Age: 67

Committees: Compensation and Technology & Corporate Responsibility (Chair)

Independent

Retired President and Chief Executive Officer, COMSAT Corporation (now part of Lockheed Martin Corporation) (global satellite services and digital networking services and technology)

Experience and Qualifications:

Ms. Alewine was named Chief Executive Officer of COMSAT in July 1996 and served in that position until the merger of COMSAT and Lockheed Martin Corporation in 2000. Ms. Alewine joined COMSAT in 1986 as Vice President of Sales and Marketing, and then served as the Vice President and General Manager and in 1994 as President of COMSAT International, the company’s largest operating unit. Ms. Alewine is a director of New York Life Insurance Company and The Brink’s Company. She also serves as a director or member of a number of civic and charitable organizations.

Ms. Alewine has significant leadership experience having served as the CEO of COMSAT Corporation and executive-level experience with international business operations, strategic business development, technology and sales and marketing. She brings valuable experience and knowledge through her service on the boards of other companies in finance, risk oversight, audit and corporate governance matters. She serves on the Governance (Chair) and Compensation Committees of New York Life Insurance Company and on the Audit (Chair), Corporate Governance and Executive Committees of The Brink’s Company. She also has global industrial knowledge having served as the United States representative to the Board of Governors of the International Telecommunications Satellite Organization (INTELSAT) and Chairman and Vice Chairman of the INTELSAT Board, as well as on the President’s National Security Telecommunications Advisory Council. Ms. Alewine received an Honorary Doctorate of Engineering from Stevens Institute of Technology for her contributions to the field of satellite communications technology.

 

 

J. Phillip Holloman

 

 

Director Since: 2013

Age: 60

Committees: Audit and Technology & Corporate Responsibility

Independent

President and Chief Operating Officer, Cintas Corporation (corporate identity uniforms and related business services)

Experience and Qualifications:

Mr. Holloman has been President and Chief Operating Officer of Cintas Corporation since 2008. He joined Cintas in 1996 and has served in various positions including Vice President – Engineering/Construction from 1996 to 2000, Vice President – Distribution/Production Planning from 2000 to 2003, Executive Champion of Six Sigma Initiatives from 2003 to 2005, Senior Vice President – Global Supply Chain Management from 2005 until 2008. Mr. Holloman serves as a director or member of several educational and civic organizations.

As President and Chief Operating Officer of Cintas, Mr. Holloman brings significant leadership and operational experience to our Board. He has extensive knowledge and experience in the areas of process improvement, operations and management. During his tenure at Cintas, he has led teams that built 37 new Cintas rental processing facilities and standardized the utilization of automated processing equipment systems. He also implemented a process that reduced the time it took to achieve target operating efficiency by 75 percent. In the area of distribution and production planning, he and his team, using Six Sigma methodologies, improved profit, service levels and internal customer satisfaction while reducing inventory levels. Mr. Holloman’s current leadership and operational experience give him a comprehensive understanding of processes, strategy, risk management and how to drive change and growth. Mr. Holloman received his Bachelor’s degree, Engineering, from the University of Cincinnati.

 

  Leadership   International   Finance   Industry   Risk   Technology

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Lawrence D. Kingsley

 

 

Director Since: 2013

Age: 52

Committees: Board Composition & Governance and Compensation

Independent

Former Chairman and Chief Executive Officer, Pall Corporation (filtration, separation and purification solutions for fluid management)

Experience and Qualifications:

Mr. Kingsley was named Chairman of Pall Corporation in 2013 and Chief Executive Officer in 2011 and served in those positions until Danaher Corporation acquired Pall in August 2015. From 2005 to 2011, he served as President and Chief Executive Officer of IDEX Corporation, a company specializing in the development, design and manufacture of fluid and metering technologies and health and science technologies products. Mr. Kingsley remained Chairman of IDEX until the end of 2011. Before joining IDEX, he held management positions of increasing responsibility with Danaher Corporation, Kollmorgen Corporation and Weidmuller Incorporated. Mr. Kingsley served as a director of Cooper Industries plc, an industrial electrical components company, from 2007 until 2012.

As former Chairman and CEO of Pall, a global public company, Mr. Kingsley brings strong executive leadership and business management skills to our Board. He offers in-depth knowledge and experience in strategic planning, corporate development and operations analysis. He has insights into the multitude of issues facing public companies and corporate governance practices through his service on other public company boards. He also brings significant financial expertise to the Board including all aspects of financial reporting, corporate finance, executive compensation and capital markets, having served on the audit and compensation committees of another public company. Mr. Kingsley holds an M.B.A. from the College of William and Mary.

 

 

Lisa A. Payne

 

 

Director Since: 2015

Age: 57

Committees: Audit

Independent

Vice Chairman and Chief Financial Officer, Taubman Centers, Inc. (a real estate investment trust)

Experience and Qualifications:

Ms. Payne has served as Vice Chairman and Chief Financial Officer of Taubman Centers, Inc. since 2005. She joined Taubman in 1997, serving as the Executive Vice President and the Chief Financial and Administrative Officer from 1997 to 2005. Before joining Taubman, she was an investment banker with Goldman Sachs & Co. from 1987 to 1997. Ms. Payne has been a director of Taubman since 1997. She also is a director of Masco Corporation, where she serves on its Audit and Compensation Committees, and a former trustee of Munder Series Trust and Munder Series Trust II, open-end management investment companies. She also serves as a director or trustee of several educational and charitable organizations.

As Vice Chairman and CFO of a public company, Ms. Payne brings strong leadership, operational and finance experience to our Board. Her leadership role at Taubman gives her critical insights into company operations, strategy, competition and information technology that assists our Board in its oversight function. Her present position as CFO and past experience as an investment banker provides the Board with financial, accounting and corporate finance expertise. She has a high level of financial literacy and accounting experience that provides the Board with expertise in understanding and overseeing financial reporting and internal controls. In addition, her board and board committee experience at Taubman and Masco give her significant insight as to governance, risk management and compliance-related matters of public companies. Ms. Payne holds an M.B.A. from the Fuqua School of Business Administration, Duke University.

 

The Board of Directors recommends that you vote “FOR” the election as directors of the two nominees described above, which is presented as item (a).

 

  Leadership   International   Finance   Industry   Risk   Technology

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Summary of our Continuing Directors and Nominees

BOARD OF DIRECTORS AND COMMITTEES

Board Meetings and Committees

Our business is managed under the direction of the Board of Directors. The Board has established four standing committees: the Audit Committee, the Board Composition and Governance Committee, the Compensation Committee and the Technology and Corporate Responsibility Committee, whose principal functions are briefly described below. Each Committee has a written charter that sets forth the duties and responsibilities of the Committee. Current copies of the Committee charters are available on our website at http://www.rockwellautomation.com/global/about-us/corporate-governance/overview.page. The Committees review and assess the adequacy of their charters each year and recommend any proposed changes to the Board for approval. During fiscal 2015, each Committee reviewed its charter. The Board Composition and Governance, Compensation and Technology and Corporate Responsibility Committees did not make any changes to their charters. The Audit Committee amended its charter to clarify its role regarding auditor communications.

In fiscal 2015, the Board held six meetings and on two occasions acted by written consent in lieu of a meeting. All of the directors attended 100% (except one director attended 94%) of the meetings of the Board and the Committees on which they served. Directors are expected to attend the Annual Meeting of Shareowners. All of the directors attended the 2015 Annual Meeting.

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Committees of the Board

Audit Committee

Roles and responsibilities:

Assist the Board in overseeing and monitoring the integrity of our financial reporting processes, our internal control and disclosure control systems, the integrity and audits of our financial statements, our compliance with legal and regulatory requirements, the qualifications and independence of our independent registered public accounting firm and the performance of our internal audit function and independent registered public accounting firm.

Appoint our independent registered public accounting firm, subject to shareowner approval.

Approve all audit and audit-related fees and services and permitted non-audit fees and services of our independent registered public accounting firm.

Review with our independent registered public accounting firm and management our annual audited and quarterly financial statements.

Discuss with management our quarterly earnings releases.

Review with our independent registered public accounting firm and management the quality and adequacy of our internal controls.

Discuss with management our risk assessment and risk management policies.

Independence:

All members of the Audit Committee meet the independence and financial literacy standards and requirements of the NYSE and the SEC. The Board has determined that Messrs. Istock, Keane and Parfet and Ms. Payne qualify as “audit committee financial experts” as defined by the SEC.

Fiscal 2015 Membership

Donald R. Parfet (Chair)

J. Phillip Holloman

Verne G. Istock

James P. Keane

Lisa A. Payne

Number of Meetings in Fiscal 2015: Seven (7)

Board Composition and Governance Committee

Roles and responsibilities:

Consider and recommend to the Board qualified candidates for election as directors of the Company.

Consider matters of corporate governance.

Administer the Company’s related person transactions policy.

Annually assess and report to the Board on the performance of the Board of Directors as a whole and of the individual directors.

Recommend to the Board the members of the Committees of the Board and the terms of our Guidelines on Corporate Governance.

Conduct an annual review of director compensation and recommend to the Board any changes. See “Director Compensation” below.

Independence:

All members of the Committee are independent directors as defined by the NYSE.

Fiscal 2015 Membership

Barry C. Johnson (Chair)

Steven R. Kalmanson

Lawrence D. Kingsley

William T. McCormick, Jr.

Number of Meetings in Fiscal 2015: Five (5)

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Compensation Committee

Roles and responsibilities:

Evaluate the performance of our senior executives including the CEO.

Make recommendations to the Board with respect to compensation plans.

Review and approve salaries, incentive compensation, equity awards and other compensation of officers.

Review the salary plan for the CEO and other executives who directly report to the CEO.

Review and approve corporate goals and objectives.

Administer our incentive, deferred compensation and long-term incentives plans.

Oversee the work of any advisor retained by the Committee.

Review whether the work of any compensation consultant retained by the Committee raises any conflict of interest.

Independence:

All members of the Committee are independent directors as defined by the NYSE and are not eligible to participate in any of our compensation plans or programs, except our 2003 Directors Stock Plan and Directors Deferred Compensation Plan.

Role of Executive Officers:

The Chief Executive Officer and certain other executives assist the Committee with its review of compensation of our officers. See “Executive Compensation — Compensation Discussion and Analysis — Compensation Review Process” below.

Role of Compensation Consultants:

The Compensation Committee has engaged Towers Watson, an executive consulting firm that is directly accountable to the Compensation Committee, to provide advice on compensation trends and market information to assist the Compensation Committee in fulfilling its duties, including the following responsibilities: review executive compensation and advise of changes to be considered to improve effectiveness consistent with our compensation philosophy; provide market data and recommendations on CEO and executive compensation; review materials for Committee meetings and attend Committee meetings; and advise the Committee on best practices for governance of executive compensation as well as areas of possible concern or risk in the Company’s programs. The Committee reviews the performance of the consultants annually.

Towers Watson (and its predecessor Towers Perrin) has served as the Committee’s advisor for twelve years, was directly engaged by and is accountable to the Committee, and has not been engaged by management for other services, except as described below. During fiscal 2015, Towers Watson was paid $171,000 for executive compensation advice, other services to the Committee, and director compensation advice and other services to the Board Composition and Governance Committee. During fiscal 2015, Towers Watson was also paid $2,881,000, of which $2,607,000 or 90% was for core actuarial services and $274,000 or 10% was for other human resource services to the Company and its benefit plans. The engagements for these other services were recommended by management and approved by the Compensation Committee.

In fiscal 2015, the Committee selected Towers Watson to serve as its independent compensation consultant after assessing the firm’s independence, taking into consideration the following factors, among others:

In January 2010, Towers Perrin merged with Watson Wyatt — the Company’s long-time actuary — to create Towers Watson. The Committee’s relationship with the compensation consultants at Towers Watson pre-dates the merger by over six years.

The Towers Watson consultants to the Committee have worked with the Committee since Towers Perrin was engaged by the Committee in November 2003; their performance and counsel over this period have indicated objectivity and independence.

The Committee’s oversight of the relationship between the Company and Towers Watson mitigates the possibility that management could misuse other engagements to influence Towers Watson’s compensation work for the Committee.

Towers Watson has adopted internal safeguards to ensure that its executive compensation advice is independent and has provided the Committee with a written assessment of the independence of its advisory work to the Committee for fiscal 2015.

The Committee retains ultimate decision-making authority for all executive pay matters and understands Towers Watson’s role is simply that of advisor.

There are no significant business or personal relationships between Towers Watson and any of our executives or members of the Committee.

Based on this assessment, the Compensation Committee has concluded that it is receiving objective, unbiased and independent advice from Towers Watson and that its work for the Company does not raise any conflict of interest.

The Committee intends to continue to oversee all relationships between the Company and Towers Watson to ensure that the Committee continues to receive unbiased compensation advice from Towers Watson. In addition, the Committee will review and approve the type and scope of all services provided by Towers Watson and the amounts paid by the Company for such services.

Fiscal 2015 Membership

William T. McCormick, Jr. (Chair)

Betty C. Alewine

Lawrence D. Kingsley

Donald R. Parfet

Number of Meetings in Fiscal 2015: Four (4), plus one (1) action taken by written consent

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Technology and Corporate Responsibility Committee

Roles and responsibilities:

Review and assess our innovation and technology matters.

Review and assess our policies and practices regarding corporate responsibility matters, including matters in the following areas: diversity and inclusion; environmental protection and sustainability; product safety; employee health and safety; and community relations, including programs for and contributions to educational, cultural and other social institutions.

Independence:

All members of the Committee are independent directors as defined by the NYSE.

Fiscal 2015 Membership

Betty C. Alewine (Chair)

J. Phillip Holloman

Barry C. Johnson

Steven R. Kalmanson

James P. Keane

Number of Meetings in Fiscal 2015: Three (3)

Director Qualifications

We believe that our directors should possess the highest character and integrity and be committed to working constructively with others to oversee the management of the business and affairs of the Company. Our Board Membership Criteria provide that our directors should (i) have a variety of experience and backgrounds, (ii) have high level managerial experience or be accustomed to dealing with complex problems, and (iii) represent the balanced best interests of all shareowners, considering the overall composition and needs of the Board and factors such as diversity, age, and specialized expertise in the areas of corporate governance, finance, industry, international operations, technology and risk management. The Criteria attach importance to directors’ experience, ability to collaborate, integrity, ability to provide constructive and direct feedback, lack of bias, and independence. Our Board seeks to maintain members with strong collective abilities that allow it to fulfill its responsibilities.

Director Independence

Our Guidelines on Corporate Governance require that a substantial majority of the members of the Board be independent directors. For a director to be independent, the Board must affirmatively determine that the director has no direct or indirect material relationship with the Company. The Board has established guidelines, which are contained in our Guidelines on Corporate Governance, to assist it in determining director independence in conformity with the NYSE listing requirements. These guidelines are available on our website at http://www.rockwellautomation.com/global/about-us/corporate-governance/overview.page.

After considering these guidelines and the independence criteria of the NYSE, the Board has determined that none of the current directors, other than Mr. Nosbusch (who is a current employee of the Company), has a material relationship with the Company and each of these directors (other than Mr. Nosbusch) is independent. There were no transactions, relationships or arrangements that required review by the Board for purposes of determining director independence in fiscal 2015.

Board Tenure

The Board is mindful that director tenure can be relevant to the Board’s performance. The Board believes that this is a matter that should be discussed and evaluated by the Board from time to time and it depends on the Board’s current situation and the needs of the Company.

Our Board believes that it contains an ideal balance of newer and longer-tenured directors, so we get the benefit of both fresh perspectives and extensive experience. Three continuing directors have served for more than ten years, while five directors were added to the Board in the past five years. The Board believes its current tenure mix is appropriate for the Board at this time and recognizes the merits of a board with balanced tenure. Our directors with longer service are highly valued for their experience and Company-specific knowledge. They have a deep understanding of our business, provide historical context in Board considerations of Company strategy, and enhance Board dynamics and the Board’s relationship with management.

The Board regularly addresses director succession and reviews the mix of Board composition, diversity and experience. The Board also conducts annual self-assessments and director evaluations. The Board believes it is in the best position to determine the appropriate length of service for a director and overall board tenure, with its current mix providing for a highly effective and functioning Board.

Capabilities and Experience

Our Board is carefully composed to include directors with a diverse range of skills, experience, perspective and expertise, which empowers it to provide sound guidance relevant to the Company’s scope, strategy, operations, and growth and profitability objectives.

Leadership –

 

Each of our directors has significant experience in leadership roles in large companies, with 56 percent holding or having held CEO positions. Generally people with strong leadership skills provide unique insights and are familiar with complex business strategy and operations and leadership development. We believe this type of leadership experience is valuable to the Board.

International –

Our global presence is important to our competitive advantage. Many of our directors have significant international business experience, which provides them with a deep understanding of our position in global markets and regional and local challenges.

Finance –

As a public company operating in over 80 countries, we are subject to broad financial regulations and reporting. To address the needs of the Company, all of our directors have a high level of financial literacy, an understanding of complex global financial transactions and four of our audit committee members are audit committee financial experts as defined by the SEC. All of our directors and nominees have relevant experience in accounting and financial reporting, corporate finance and audit committee functions.

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Industry –

We seek directors who have an understanding of the industries we serve. Several of our directors have experience with technology and manufacturing companies including automation, consumer products, energy, industrial products, semiconductors and pharmaceuticals. This type of experience is important to the Board’s oversight of the Company’s strategic plan and business operations.

Risk –

In the ordinary course of our business, we face various strategic, operating, compliance and financial risks. We believe that an understanding of these risks is important for directors to provide oversight of enterprise risk management and risk mitigation. All of our directors and nominees have extensive and broad experience in risk oversight.

Technology –

Our Company is committed to enabling the next generation of smart manufacturing and The Connected Enterprise. As a Company focused on technology innovation, we seek directors with technology and engineering backgrounds. Several of our directors have degrees in engineering.

Shareowner Alignment

Our Board believes its interests are aligned with shareowners both economically and in carrying out its responsibilities to the Company and its shareowners.

Our director compensation program is designed to align director compensation directly with the interests of shareowners by paying a meaningful portion of their compensation in shares of our common stock. To further align their interests, directors can defer cash fees to restricted stock units that are paid out in shares. In addition, directors are subject to stock ownership requirements. They are required to own shares of our common stock equal in value to five times the portion of the annual retainer payable in cash (with the cash retainer for fiscal 2016 at $82,500). All current directors exceed their ownership guidelines except Ms. Payne who joined the Board in 2015, and she is on track to meet the requirements within the five-year transition period contained in our stock ownership guidelines. None of our directors receive compensation for their Board service from any source other than the Company.

We seek to maintain a Board with experienced leaders who are familiar with governance issues and compliance with the laws and regulations applicable to our business. Our Board monitors shareowner views and considers shareowner feedback and perspectives in establishing and evaluating Company policies and practices.

Director Education

Our Board believes in continuous improvement of board effectiveness and functioning as well as individual skills and knowledge. All new directors are required to participate in our director orientation program to familiarize them with the Company’s business, strategic plans, significant financial, accounting and risk management issues, ethics and compliance programs, principal officers, and internal and independent auditors.

We also provide directors with regular presentations and memoranda on key business, governance and other important topics intended to assist directors in carrying out their responsibilities. Directors from time to time tour Company facilities and attend our trade shows and investor events. In addition, directors participate in outside continuing education programs to increase their knowledge and understanding of the duties and responsibilities of directors and the Company, regulatory developments and best practices.

Summary

We have provided certain information about the capabilities, experience and other qualifications of our directors in their biographies and as set forth above. The Board considered these qualifications in particular in concluding that each current director is qualified to serve as a director of the Company. In addition, the Board has determined that each director is financially literate and possesses the skills, judgment, experience, reputation and commitment to make a constructive contribution to the Board.

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Board and Committee Evaluations

The Board and its Committees conduct self-assessments annually at their November meetings (other than the Technology and Corporate Responsibility Committee, which conducts its annual self-assessment in February). The Chair of the Board Composition and Governance Committee oversees the process. The annual evaluation process is summarized below.

Action

Description

Preparation

Each director receives materials for the annual evaluation of (i) the Board’s performance and contributions of individual directors and (ii) his or her Committees. The materials include the Board and Committee self-assessment process, Committee charters and suggested topics for discussion.

Performance Review

Each director is asked to consider a list of questions to assist with the evaluation of the Board, individual directors and Committees, including topics such as Board composition, the conduct and effectiveness of meetings, quality of discussions, roles and responsibilities, quality and quantity of information provided, opportunities for improvement and follow through on recommendations. As part of this process, directors are asked to provide feedback on the performance of other directors.

Interviews

The Chair of the Board Composition and Governance Committee conducts in-depth confidential interviews with each director to discuss Board, Committee, Lead Director, and individual director performance.

Corporate Governance Review

The Board reviews its Governance Guidelines, including the guidelines for determining director independence, and revises as appropriate to promote effective board functioning, and receives reports from the General Counsel on recent governance developments, regulations and best practices. Each Committee reviews its charter and confirms compliance with all charter requirements. In addition, the Board Composition and Governance Committee reviews the Board membership criteria.

Evaluation Report

The Chair of the Board Composition and Governance Committee prepares a written report summarizing the annual evaluation of Board performance including findings and recommendations. The report is distributed to the Board for consideration and discussed at the next Board meeting. The Committee chairs report to the Board on their Committee evaluations, noting any actionable items. Past evaluations have addressed a wide range of topics such as strategy, board communications, risk management, acquisitions and succession planning.

Actionable Items

The Board and Committees address any actionable items throughout the year.

DIRECTOR COMPENSATION

Our director compensation program is designed to attract and retain qualified directors, fairly compensate directors for the time they must spend in fulfilling their duties and align their compensation directly with the interests of shareowners. The Board Composition and Governance Committee determines the form and amount of director compensation, with discussion and approval by the full Board. The Committee relies on Towers Watson to provide advice on compensation trends and market information. The Board believes that a meaningful portion of director compensation should be in our common stock to further align the economic interests of directors and shareowners. Employees who serve as directors do not receive any compensation for their director service.

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Annual Director Compensation

There are three elements of our director compensation program: an annual retainer, equity awards and committee fees. The following table describes each element of director compensation for fiscal 2015.

 

Annual Retainer

 

Equity Awards

 

Committee Fees

 

Lead Director Fee

Cash

Common Stock

Common Stock

Cash

Cash

Amount

$75,000

$75,000

 

$40,000
(not to exceed 1,000 shares)

 

Varies by Committee

 

$25,000

Timing of Payment/Award

Paid in equal installments on 1st business day of each quarter

Granted on 1st business day of fiscal year (or pro-rata amount upon initial election to the Board)

 

Granted on date of Annual Shareowners Meeting (or pro-rata amount upon initial election to the Board)

 

Paid in equal installments on 1st business day of each quarter

 

Paid in equal installments on 1st business day of each quarter

Deferral Election Available

Yes

Yes

 

Yes

 

Yes

 

Yes

Dividend/Dividend Equivalent Eligible

Not Applicable

Yes

 

Yes

 

Not Applicable

 

Not Applicable

Annual Retainer. Directors receive an annual retainer that consists of cash and shares of our common stock. The total annual retainer for fiscal 2015, excluding committee fees, was $150,000, of which $75,000 was paid in cash and $75,000 in shares of common stock under the 2003 Directors Stock Plan. The $75,000 equated to 686 shares granted on October 1, 2014 based on the closing price of our common stock on the NYSE on that date of $109.39.

Equity Awards. Directors receive an annual grant of $40,000 paid in shares of our common stock, not to exceed 1,000 shares, under the 2003 Directors Stock Plan immediately after our Annual Meeting of Shareowners (and for directors elected after the Annual Meeting, a prorated number of shares are awarded upon election). The $40,000 equated to 350 shares granted on February 3, 2015 based on the closing price of our common stock on the NYSE on that date of $114.33.

Committee Fees. Directors receive additional annual compensation for serving on Committees of the Board. The fees for the Chair and for serving on certain Committees are higher than others due to the greater workload and responsibilities.

 

During fiscal 2015, annual Committee fees were as follows:

 

 

Audit

Committee

Compensation

Committee

Board Composition and

Governance Committee

Technology and Corporate

Responsibility Committee

Chair

$

25,000

$

18,000

$

13,000

$

13,000

Member

$

12,500

$

8,000

$

6,000

$

5,000

Lead Director. The Lead Director receives an annual cash retainer of $25,000.

Deferral Election. Under the terms of our Directors Deferred Compensation Plan, directors may elect to defer all or part of the cash payment of Board retainer or Committee fees until such time as the director specifies, with interest on deferred amounts accruing quarterly at 120% of the federal long-term rate set each month by the Secretary of the Treasury. In addition, under the 2003 Directors Stock Plan, each director has the opportunity each year to defer all or any portion of the annual grant of common stock, cash retainer, common stock retainer and Committee fees by electing to instead receive restricted stock units valued, in the case of cash deferrals, at the closing price of our common stock on the NYSE on the date each payment would otherwise be made in cash.

Other Benefits. We reimburse directors for transportation, lodging and other expenses actually incurred in attending Board and Committee meetings. We also reimburse directors for similar travel, lodging and other expenses for their spouses to accompany them to a limited number of Board meetings held as retreats to which we invite spouses for business purposes. Spouses were invited to one Board meeting in fiscal 2015. The directors’ spouses are generally expected to attend Board meetings held as retreats. From time to time and when available, directors and their spouses are permitted to use our corporate aircraft for travel to Board meetings.

Directors are eligible to participate in a matching gift program under which we match donations made to eligible educational, arts or cultural institutions. Gifts are matched up to an annual calendar year maximum of $10,000. This same program is available to all of our U.S. salaried employees.

Director Stock Ownership Requirement

Non-management directors are subject to stock ownership requirements. To further align directors’ and shareowners’ economic interests, our Guidelines on Corporate Governance provide that non-management directors are required to own, within five years after joining the Board, shares of our common stock (including restricted stock units) equal in value to five times the portion of the annual retainer that is payable in cash. All directors, except Ms. Payne, met the requirements as of September 30, 2015. Ms. Payne, who became a director in February 2015, is on track to meet the ownership requirements within the five-year transition period.

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Changes to Director Compensation for Fiscal 2016

Effective October 1, 2015, we changed our director compensation to remain competitive with market levels. The total annual retainer, excluding Committee fees, was changed to $165,000, of which $82,500 will be paid in cash and $82,500 in shares of common stock under the 2003 Directors Stock Plan. The annual retainer was increased by $15,000 to bring Board fees closer to the market median based on a review of companies with revenues of $4 to $8 billion. Also, the annual committee fees increased from $18,000 to $20,000 for the Chair of the Compensation Committee and from $13,000 to $15,000 for each of the Chair of the Board Composition and Governance Committee and the Chair of the Technology and Corporate Responsibility Committee to bring these fees closer to market median.

DIRECTOR COMPENSATION TABLE

The following table shows the total compensation earned by each of our independent directors during fiscal 2015.

Name

Fees Earned

or Paid In

Cash(1)

($)

Stock

Awards(2)

($)

Option

Awards

($)

Change in

Pension Value

and Nonqualified

Deferred

Compensation

Earnings(3)

($)

All Other

Compensation(4)

($)

TOTAL

($)

Betty C. Alewine

96,000

115,000

0

0

0

211,000

J. Phillip Holloman

92,500

115,000

0

0

6,227

213,727

Verne G. Istock

115,500

115,000

0

0

0

230,500

Barry C. Johnson

93,000

115,000

0

0

24,363

232,363

Steven R. Kalmanson

86,000

115,000

0

0

0

201,000

James P. Keane

92,500

115,000

0

0

9,759

217,259

Lawrence D. Kingsley

92,250

115,000

0

0

3,402

210,652

William T. McCormick, Jr.

99,000

115,000

0

0

10,000

224,000

Donald R. Parfet

108,000

115,000

0

0

15,621

238,621

Lisa A. Payne(5)

58,334

90,000

0

0

0

148,334

(1)

This column represents the amount of cash compensation earned in fiscal 2015 for Board and Committee service (whether or not deferred and whether or not the directors elected to receive restricted stock units in lieu of cash fees). Includes lead director fees for Mr. Istock.

(2)

Values in this column represent the grant date fair value of stock awards computed in accordance with accounting principles generally accepted in the United States (U.S. GAAP). On October 1, 2014 each director, except Ms. Payne, received 686 shares with an aggregate grant date fair value of $75,000 in payment of the share portion of the annual retainer. On February 3, 2015 (the date of her initial election to the Board), Ms. Payne received a pro-rated award under the 2003 Directors Stock Plan consisting of 438 shares of common stock with a grant date fair value of $50,000. On February 3, 2015 (the date of our Annual Meeting) each director received 350 shares of common stock under the 2003 Directors Stock Plan with an aggregate grant date fair value of $40,000. The amounts shown do not correspond to the actual value that may be realized by the directors. Directors may elect to defer the annual share awards by electing instead to receive restricted stock units in the same number.

(3)

Aggregate earnings in fiscal 2015 on the directors’ deferred cash compensation balances were $19,163 for Ms. Alewine and $4,616 for Mr. Kingsley. We do not pay “above market” interest on non-qualified deferred compensation; therefore, this column does not include these amounts.

(4)

This column consists of cash dividend equivalents paid on restricted stock units for Messrs. Holloman, Johnson, Kingsley and Parfet, and, for Messrs. Keane, McCormick and Parfet, the Company’s matching donations under the Company’s matching gift program of $9,759, $10,000, and $10,000, respectively. This column does not include the perquisites and personal benefits provided to each non-employee director because the aggregate amount provided to each director was less than $10,000. During fiscal 2015, one Board meeting was held as a retreat at which we provided leisure activities for the directors and their spouses. The directors’ spouses generally are expected to attend Board retreats.

(5)

Ms. Payne was elected as a director on February 3, 2015.

 

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OWNERSHIP OF EQUITY SECURITIES OF THE COMPANY

Directors and Executive Officers

The following table shows the beneficial ownership, reported to us as of October 31, 2015, of our common stock, including shares as to which a right to acquire ownership within 60 days exists, of each director, and each executive officer listed in the table on page 36 (named executive officers) and of these persons and other executive officers as a group. On October 31, 2015 we had outstanding 132,051,341 shares of our common stock.

Name

Beneficial Ownership on October 31, 2015

Shares of

Common Stock(1)

 

Derivative

Securities(2)

Total Shares(1)

Percent of

Class(3)

Betty C. Alewine

26,331

 

26,331

J. Phillip Holloman

1,582

(4) 

1,582

Verne G. Istock

23,560

 

23,560

Barry C. Johnson

4,834

(4) 

4,834

Steven R. Kalmanson

7,209

 

7,209

James P. Keane

7,209

 

7,209

Lawrence D. Kingsley

2,613

(4) 

2,613

William T. McCormick, Jr.

12,391

 

12,391

Keith D. Nosbusch

407,621

(5,6) 

581,985

989,606

Donald R. Parfet

13,096

(4) 

13,096

Lisa A. Payne

1,611

 

1,611

 

Theodore D. Crandall

95,805

(5,6) 

110,288

206,093

Douglas M. Hagerman

33,857

(5,6) 

86,685

120,542

Frank C. Kulaszewicz

23,332

(5,6) 

41,535

64,867

Blake D. Moret

16,790

(5,6) 

80,768

97,558

All of the above and other executive officers as a group (22 persons)

832,544

(4,5,6) 

1,217,019

2,049,563

1.54

(1)

Each person has sole voting and investment power with respect to the shares listed (either individually or with spouse). None of the listed shares are pledged.

(2)

Represents shares that may be acquired upon the exercise of outstanding stock options and settlement of performance shares within 60 days.

(3)

The shares owned by each person, and by the group, and the shares included in the number of shares outstanding have been adjusted, and the percentage of shares owned (where such percentage exceeds 1%) has been computed, in accordance with Rule 13d-3(d)(1) under the Securities Exchange Act of 1934, as amended (Exchange Act).

(4)

Does not include 3,848, 10,281, 2,219 and 2,162 restricted stock units granted under the 2003 Directors Stock Plan as compensation for services as directors for Messrs. Holloman, Johnson, Kingsley and Parfet, respectively.

(5)

Includes shares held under our savings plan. Does not include 161, 2,308, 174, 273, 146 and 5,384 share equivalents for Messrs. Nosbusch, Crandall, Hagerman, Kulaszewicz and Moret, and the group, respectively, held under our non-qualified savings plan.

(6)

Includes 16,670, 4,360, 2,970, 4,510 and 4,510 shares granted as restricted stock under our 2012 Long-Term Incentives Plan for Messrs. Nosbusch, Crandall, Hagerman, Kulaszewicz and Moret, respectively, and 29,100 shares granted as restricted stock for the group.

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Certain Other Shareowners

Based on filings made under Sections 13(d) and 13(g) of the Exchange Act on or before December 7, 2015, the following table lists the persons who we believe beneficially owned more than 5% of our common stock as of such date.

Name and Address of Beneficial Owner

Number of Shares Beneficially Owned

Percent of Class(1)

BlackRock, Inc.

40 East 52nd Street, New York, NY 10022

 

10,677,867(2)

7.9%

Capital World Investors

333 South Hope Street

Los Angeles, CA 90071

9,806,010(3)

7.2%

The Vanguard Group

100 Vanguard Blvd.

Malvern, PA 19355

7,159,870(4)

5.27%

(1)

The percent of class owned has been computed in accordance with Rule 13d-3(d)(1) under the Exchange Act.

(2)

Based on a Schedule 13G/A filed by BlackRock, Inc. with the SEC on January 12, 2015. BlackRock and its named subsidiaries reported sole power to dispose of all the shares and vote 9,460,320 shares.

(3)

Based on a Schedule 13G filed by Capital World Investors with the SEC on February 13, 2015. Capital World Investors reported sole voting power and sole dispositive power for 9,806,010 shares. According to the filing, Capital World Investors is a registered investment adviser and a division of Capital Research and Management Company. Capital World Investors reported that it is deemed to be the beneficial owner of the shares as a result of Capital Research and Management Company acting as investment adviser to various investment companies.

(4)

Based on a Schedule 13G filed by The Vanguard Group with the SEC on February 10, 2015. Vanguard reported sole voting power for 237,333 shares, sole dispositive power for 6,935,065 shares and shared dispositive power for 224,805 shares. According to the filing, Vanguard beneficially owns the shares as a registered investment adviser and through its subsidiaries as result of serving as investment managers.

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis prepared by management and contained in this proxy statement. Based on this review and discussion, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.

 

Compensation Committee

William T. McCormick, Jr., Chair

Betty C. Alewine

Lawrence D. Kingsley

Donald R. Parfet

 

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Executive Summary

 

Overview

Rockwell Automation has a long-standing and strong orientation toward pay for performance in its executive compensation programs. We maintain this orientation throughout economic cycles that may cause fluctuation in our operating results.

Our executive compensation programs include:

base salary

annual incentive compensation

long-term incentives

defined benefit and defined contribution retirement plans

very limited perquisite package

In 2015, despite challenging economic conditions and unfavorable currency translation impacts in many of the markets in which we operate, we:

increased adjusted earnings per share (EPS) by 3.7%,

realized one percent organic sales growth,

expanded segment operating margin by 120 basis points, and

had a record year for free cash flow generation and return on invested capital (ROIC).

During fiscal 2015 oil prices declined significantly, the U.S. dollar strengthened and we saw Industrial Production soften, all having an unfavorable impact on our results during the year.

We are performance-oriented and set stretch financial goals, balancing rewards with appropriate risk. We fell below target goals under our Incentive Compensation Plan (ICP) for EPS, Sales and ROIC while surpassing our free cash flow goal and, as a result, fiscal 2015 ICP payouts averaged 72% of target for named executive officers (NEOs) compared to 106% of target average NEO payout for fiscal 2014. For the performance period from October 1, 2012 to September 30, 2015, our total shareowner return (TSR) was at the 58th percentile of the companies in the S&P 500 Index, resulting in 93% of the target number of performance shares being earned for that performance period. We believe all of the decisions described in this proxy statement reflect this orientation toward pay for performance and our ongoing commitment to sustain this philosophy.

 

 

Objectives

 

 

 

Our executive compensation programs are designed to:

Balance rewards with appropriate risk

Create shareowner value

Attract and retain executive talent

Philosophy

 

 

 

 

 

 

Our executive compensation philosophy is built on the following principles:

Align compensation with the Company’s strategy

Motivate superior long-term performance

Balance rewards with appropriate risk-taking and the creation of shareowner value

Pay for performance by establishing goals tied to the Company’s results

Provide market-competitive pay

Recognize that the quality of our leadership has a direct impact on our performance

Results Focus

 

 

 

 

 

 

Our performance measures are aligned with shareowner interests:

Total Shareowner Return (TSR)

Sales

Adjusted Earnings per Share (EPS)

Return on Invested Capital (ROIC)

Segment Operating Earnings

Free Cash Flow

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Decisions and Actions

 

 

Factors Guiding Our Compensation Decisions

Market compensation rates for each position

Company’s performance against pre-established goals

Relative share performance of the Company compared to the broader stock market

Experience, skills and expected future contribution and leadership of each individual

Contributions and performance of each individual

2015 Compensation Decisions
(see pages 34-35 for details)

Total direct compensation for NEOs in fiscal 2015 ranged from 2.0% lower to 4.8% higher than fiscal 2014.

Base Pay: NEO salary increases ranged from 2.9% to 5.1% to reflect market-based adjustments, except for Messrs. Kulaszewicz and Moret who were still in progression to reach the market for their roles.

Annual Incentive Compensation Plan (ICP): ICP was based on Company and segment financial results, as in prior years. We fell below target goals for EPS, Sales and ROIC while surpassing our free cash flow goal. The resulting fiscal 2015 ICP awards are below target for our NEOs (average 72% of target payout).

Long-Term Incentives (LTI): The Committee considered the Company’s performance during fiscal 2014 with record levels of EPS and sales, market competitive pay, and the Company’s philosophical orientation toward performance-based compensation when determining fiscal 2015 equity grants. Fiscal 2015 grant values increased 12% for Mr. Nosbusch, 14% for Messrs. Crandall, Kulaszewicz and Moret, and 6% for Mr. Hagerman relative to fiscal 2014.

Shareowner Advisory Vote and Shareowner Outreach

At our 2015 Annual Meeting of Shareowners, 96% of the shares voted at the meeting approved our executive compensation programs.

In each of the last three years of shareowner advisory voting, we received 94% or greater shareowner approval.

We believe these results represent a strong endorsement of our executive compensation philosophy and pay programs.

In fiscal 2015, we invited our twenty largest shareowners, who represent 40% of our outstanding shares, for phone conferences with our management to discuss governance, compensation and proxy matters. Thirteen shareowners agreed to participate in the calls. The comments related to our executive compensation programs were overwhelmingly supportive.

2016 Program Updates
(see page 35 for details)

Based on our shareowner advisory vote on executive compensation, as well as input gained during shareowner outreach, the Compensation Committee determined that our current executive compensation program is well aligned with shareowner expectations. There are no significant changes to the design of our executive compensation programs for fiscal 2016.

Fiscal 2015 Goals and Performance

 

Early in the year, the Board of Directors approved an annual operating plan that reflected our expectations for our performance during fiscal 2015. Despite global economic uncertainty, the annual operating plan called for continued improvement in our financial results from fiscal 2014.

Goal Setting Process

The Compensation Committee used the annual operating plan as the basis for setting goals for sales, Adjusted EPS, ROIC, free cash flow and segment operating earnings under our incentive compensation plans. For fiscal 2015, the annual ICP target payout was set based upon goals for each measure between midpoint and the high end of the external guidance range established at the beginning of the fiscal year. This was viewed by the Committee as appropriate based on economic conditions and sales growth expectations.

The Compensation Committee determined that meeting these goals would require significant effort and achievement on the part of the management team and all Company employees in the continued execution of our growth and performance strategy. The charts below display the fiscal 2015 actual results relative to the goals set at the beginning of the year as well as to the fiscal 2014 actual results for the financial measures in the annual ICP for our CEO. Unlike Adjusted EPS and sales goals, which are determined based primarily on expected year-over-year growth, the ROIC and free cash flow goals are reset each year. The Committee determines the ROIC goal based upon a number of factors, including macroeconomic and accounting impacts. The free cash flow goal is set at 100% of Adjusted Income.

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Key Business Results and Goals: Annual Incentive Compensation Plan for Our CEO

 

 

(1) Please refer to ICP measures table on page 31 for further explanation of how each measure is calculated.

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Aligning Pay with Performance

 

 

Supports

Attraction

and Retention

Supports Pay for Performance

Current Year

Financial and

Operational

Performance

Long-Term

Financial

Performance

Creation of

Shareowner

Value

Salary

 

 

 

 

 

 

 

 

Annual Incentive Compensation (ICP)

 

 

 

 

 

 

 

 

Long-Term Incentives (LTI)

 

 

 

 

 

 

 

 

Retirement Plans

 

 

 

 

 

 

 

 

Our long-term business strategy seeks sustained organic growth through, among other things, expanding our served markets and enhancing our market access. We have developed a strong productivity culture that has allowed us to reinvest in organic growth. We believe:

Our employees’ knowledge of our customers and their applications and our technology are key factors that make our long-term business strategy work.

It is important to align the compensation of our leadership with our long-term business strategy.

Our short- and long-term incentive plans, among other things, should focus the management team’s efforts in the areas that are critical to the success of our long-term business strategy.

The quality of our leadership has a direct impact on our performance and, with the oversight of the Compensation Committee, we offer compensation plans, programs and policies intended to attract and retain executive talent and “pay for performance,” including the creation of shareowner value.

We believe that a significant portion of an executive’s compensation should be variable and the variable portion (ICP and LTI) directly linked to our performance and the creation of shareowner value. As shown in the charts below, the Compensation Committee targeted 84% of the CEO’s target compensation and approximately 73% of the other Named Executive Officers’ target compensation to be linked to performance in fiscal 2015.

 

The following table illustrates the changes in Mr. Nosbusch’s actual Total Direct Compensation (TDC), calculated as salary, actual annual ICP awards and LTI grants calculated at the grant date fair value outlined in the Grants of Plan-Based Awards Table, compared to the changes in adjusted EPS.

 

Change in CEO Total Direct Compensation Compared to Change in EPS

 

Adjusted EPS

Percent Change

from Prior Year

CEO TDC

Percent Change

from Prior Year

Fiscal 2013

7.9

%

-8.9

%

Fiscal 2014

8.1

%

11.6

%

Fiscal 2015

3.7

%

3.7

%

As the table shows, Mr. Nosbusch’s compensation has been aligned with the performance of the Company over this period of time. The Committee looks at compensation decisions over a long-term horizon, taking into account not only a given year’s results but sustained performance over time.

 

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Compensation Review Process

 

We evaluate and take into account market data in setting each element of our officers’ compensation. We define market practice by using the results of surveys of major companies (the Major Companies) provided by Towers Watson and Aon Hewitt (collectively, the Survey Providers). The Towers Watson and Aon Hewitt databases include over 600 and 325 companies, respectively. In setting compensation levels for each element of pay, we analyze data relating to the Major Companies using regression analyses developed by the Survey Providers based on our sales. The market data analysis is typically the starting point for, and a significant factor in, our compensation determinations, but is not the only factor as we also consider the scope of the individual officer’s responsibilities and more subjective factors, such as the Compensation Committee’s (and the CEO’s in the case of other officers) assessment of the officer’s individual performance and expected future contributions and leadership.

The Compensation Committee has engaged Towers Watson, its independent compensation advisor, to provide advice on compensation trends and market information. See page 17 for a description of the services provided by Towers Watson to the Company.

Our Compensation Committee and management employ the following best practices to effectively

manage our executive compensation programs, including:

Annual benchmarking of executive pay levels and design based on data from nationally recognized compensation consulting firms

Rigorous executive stock ownership requirements

Independent directors with significant Compensation Committee experience and knowledge of the drivers of our long-term performance

Incentive plan claw-backs for our CEO and CFO

Annual review of consultant independence

Assessment of incentive plan risk

Set an EPS threshold equal to prior year EPS performance for ICP payout

Set target performance share payout at 60th percentile of relative TSR performance

No employment agreements with officers

Limited use of change of control agreements, including no excise tax gross-ups, and with a double-trigger requirement for equity vesting

Limited use of perquisites

Use of Tally Sheets

We consider the total compensation (earned or potentially available) for each NEO in establishing each element of compensation. As part of our compensation review process, the Compensation Committee’s independent consultant conducts a total compensation review or “Tally Sheet” study for the Compensation Committee. This review encompasses all elements of compensation, including base salary, annual incentives, LTI grants, perquisites, health benefits, and retirement and termination benefits. This review includes a consideration of amounts to be paid and other benefits accruing to our NEOs upon their retirement or other termination of employment. We consider the potential outcomes of annual incentives and LTI grants under a variety of performance scenarios. We also review the NEOs’ current balances in various compensation and benefit plans. Based upon the results of this analysis, the Compensation Committee concluded that our compensation programs are in line with our compensation philosophy and provide an appropriate range of outcomes tied directly to the Company’s and individual’s performance.

Compensation Risk Assessment

We do not believe our compensation programs encourage our executives to take excessive risk due to the following plan design elements:

Our ICP provides a balance among sales, earnings, cash flow and asset performance, limiting the effect of over-performance in one area at the expense of others

Payouts under our ICP are capped at twice the individual’s ICP target, limiting excessive rewards for short-term results

Recoupment policy and claw-back agreements mitigate against risk

Compensation Committee can reduce or withhold the incentive if it determines that the executive has caused the Company to incur excessive risk

Majority of the Total Direct Compensation for our NEOs is in the form of long-term incentives

Our mix of equity vehicles appropriately motivates long-term performance

Majority of equity vests over a period of multiple years with performance shares and restricted stock vesting at three years

Stock ownership requirements for our NEOs, which encourage a long-term view

The Committee engaged Towers Watson in September 2011 to conduct a review of all of our compensation programs relative to the potential for incentives to motivate excessive risk-taking in a way that could materially affect the Company. Towers Watson reviewed the measures used in each program, the target setting process, and the overall governance of our compensation plans. The review concluded that we have strong governance procedures and that our plans do not present a material risk to the Company or encourage excessive risk taking by participants. Towers Watson updated this review in September 2015 and came to a similar conclusion regarding the Company’s compensation programs.

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Role of Management

The Compensation Committee assesses the performance of the CEO and sets the CEO’s compensation in executive session without the CEO present. The CEO reviews the performance of our other officers, including the NEOs, with the Compensation Committee and makes recommendations regarding each element of their compensation for the Compensation Committee’s review and approval. The Compensation Committee and the CEO are assisted in their review by Towers Watson, the Senior Vice President, Human Resources and the Vice President, Compensation & Benefits. The other NEOs do not play a role in their own compensation determination other than discussing their performance with the CEO.

Elements of Compensation

 

Base Salary

We develop base salary guidelines for our officers at the median of the market data. However, the Compensation Committee’s salary decisions reflect the market data as well as the individual’s responsibilities and more subjective factors, such as the Compensation Committee’s (and the CEO’s in the case of other officers) assessment of the officer’s individual performance, skills and experience, internal equity, and expected future contributions and leadership. It is the Compensation Committee approach to move base salaries to market over time when there are significant promotions. The Compensation Committee reviews base salaries for our officers every year.

Annual Incentive Compensation

Our annual incentive compensation plans are designed to reward our executives for achieving Company and business segment results and for individual performance. Under our ICP, we establish for each executive at the start of each fiscal year an incentive compensation target equal to a percentage of the individual’s base salary. The target for annual incentive compensation is generally set at the median of the market data. Actual incentive compensation payments under our ICP may be higher or lower than the incentive compensation target based on financial, operating and individual performance as described below. In line with our pay-for-performance orientation, actual ICP payouts vary from year to year based on performance compared to goals.

In the early part of each fiscal year, the CEO reviews with the Compensation Committee the recommended financial goals for the fiscal year for purposes of our ICP. These goals include:

measurable financial goals with respect to our overall performance; and

for certain officers engaged in our business segments, measurable financial goals with respect to the performance of those business segments.

The Compensation Committee approves a set of financial goals, taking into account the CEO’s recommendations, and allocates a weighting of the target incentive compensation among the various goals that it establishes. For fiscal 2015, the Compensation Committee determined in the early part of the year that no payments were to be made under our ICP if EPS were less than the previous year’s results.

After the end of the fiscal year, the Compensation Committee and the CEO evaluate our performance and the performance of our business segments and consider the results compared to the pre-established goals. As a starting point, target amounts under our ICP are generally earned if we achieve our financial goals for the year. For fiscal 2015, the annual ICP target payout was set based upon goals for each measure between midpoint and the high end of the external guidance range established at the beginning of the fiscal year. This was viewed by the Committee as appropriate based on economic conditions and an expectation of sales growth slightly below our long-term financial goals. In addition to performance relative to pre-established financial goals, awards to each officer under our ICP may be adjusted based on the Compensation Committee’s year-end assessment (and except in the case of the CEO, based on the CEO’s recommendation) as to the individual’s achievement of individual goals and objectives and certain more subjective assessments of leadership acumen and the individual’s expected future contributions. Accordingly, while achieving our financial goals is extremely important in determining our annual incentive compensation, the Compensation Committee maintains discretion to adjust annual incentive compensation, not to exceed the maximum under our Annual Incentive Compensation Plan for Senior Executive Officers (Senior ICP) as described in the following paragraph.

Under our Senior ICP, which applies to the CEO and the other NEOs, annual incentive compensation payments to those officers in total may not exceed 1% of our applicable net earnings (as defined in that plan) with the CEO’s maximum payment not to exceed 35% of the available funds, and each of the other four NEOs, maximum payouts, respectively, not to exceed 15% of the available funds. The process for determining ICP awards for these individuals is the same as that used for the other ICP participants with the exception being that these individuals are subject to the noted limit on payments.

The annual incentive compensation measures for Messrs. Nosbusch, Crandall, and Hagerman are based upon Company performance and the annual incentive compensation measures for Messrs. Kulaszewicz and Moret are based upon a combination of Company performance and the performance of the business segment they lead.

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The following table shows the 2015 Company and segment financial goals used to determine awards under our ICP for fiscal 2015 and our performance compared to those goals:

 

ICP Sales Measure

($ in millions)(1)

ICP Adjusted

EPS Measure(2)

ICP Return on Invested

Capital Measure(3)

ICP Segment

Operating Earnings

Measure

($ in millions)(4)

ICP Free Cash

Flow Measure

($ in millions)(5)

Goal

Performance

%

Goal

Performance

%

Goal

Performance

Difference

Goal

Performance

%

Goal

Performance

%

Company

$7,133

$6,821

95.6%

$6.85

$6.40

93.4%

33.1%

32.6%

(.5) pts

 

 

 

$957

$1,077

112.5%

Architecture & Software

$3,075

$2,977

96.8%

 

 

 

 

 

 

$893

$809

90.6%

 

 

 

Control Products & Solutions

$4,058

$3,844

94.7%

 

 

 

 

 

 

$549

$552

100.6%

 

 

 

(1)

Sales for the Company as used for ICP purposes is a non-GAAP financial measure and is equal to sales from continuing operations only and excludes the effect of changes in currency exchange rates ($513 million unfavorable). Sales for Architecture & Software excludes the effect of changes in currency exchange rates ($227 million). Sales for Control Products & Solutions excludes the effect of changes in currency exchange rates ($286 million). We use sales excluding the effect of changes in currency exchange rates as one measure to monitor and evaluate our performance. We measure the currency impact on sales as the difference between local currency sales translated to U.S. dollars using annual operating plan rates versus local currency sales translated to U.S. dollars using GAAP rates.

(2)

Adjusted EPS is a non-GAAP measure that excludes non-operating pension costs and their related tax effects from income from continuing operations and corresponding EPS. The Company defines non-operating pension costs as defined benefit plan interest cost, expected return on plan assets, amortization of actuarial gains and losses and the impact of any plan curtailments or settlements.

(3)

For a complete definition and explanation of our calculation of return on invested capital, see Supplemental Financial Information on page 62.

(4)

Information regarding how we define segment operating earnings is set forth in note 15, Business Segment Information, to our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2015.

(5)

We calculated the $1,077 million in free cash flow performance, an internal non-GAAP performance measure, as cash provided by continuing operating activities ($1,188 million), plus excess income tax benefit from share-based compensation ($12 million), minus capital expenditures ($123 million). Our definition of free cash flow for this internal performance measure takes into consideration capital investments required to maintain the operations of our businesses and execute our strategy. Cash provided by continuing operating activities adds back non-cash depreciation expense to earnings but does not reflect a charge for necessary capital expenditures. Our definition of free cash flow excludes the operating cash flows and capital expenditures related to our discontinued operations. U.S. GAAP requires the excess income tax benefit from share-based compensation to be reported as a financing cash flow rather than as an operating cash flow. We have added this benefit back to our calculation of free cash flow in order to generally classify cash flows arising from income taxes as operating cash flows. We use free cash flow as one measure to monitor and evaluate performance. Our definition of free cash flow may differ from definitions used by other companies.

Long-Term Incentives

The principal purpose of our long-term incentives is to reward management for creating shareowner value and to align the financial interests of management with shareowners. The creation of shareowner value is important not only in absolute terms, but also relative to the value created as compared to other investment alternatives available to our shareowners. Our practice is to make annual grants of LTI awards to executives using a combination of stock options, performance shares and restricted stock.

As a critical element of our executive compensation programs, long-term incentives make up the largest component of total pay for our NEOs. We establish long-term incentive values at the median (50th percentile) of the Major Companies, the same process we use to establish base salary guidelines and ICP target opportunities. The companies used in determining these values are included in the Towers Watson and Aon Hewitt executive compensation databases described above.

The Committee then considers a variety of factors in determining whether actual grant date values for long-term incentive awards should deviate from the median values. These factors include:

the Company’s recent financial performance;

changes in market long-term incentive grant practices;

share availability and usage patterns at the Company;

individual performance;

scope of an individual’s role; and

internal equity and retention.

These factors are not weighted and there is no formula for how the factors are applied in determining actual grant date values. Instead, the Committee uses its judgment in considering these factors to ensure there is a strong correlation between pay and performance, a theme prevalent throughout the executive pay programs. Actual grant date values are expected to approximate the median baseline level in years when these factors do not warrant increased grant values. Actual grant date values are positioned between the 50th and 75th percentile of the relevant market in years when performance and the factors noted above warrant higher than median grant date values. Actual realized values from these grants will reflect changes in Company stock price over time and how the Company’s stock price performs relative to the S&P 500 Index. For fiscal 2015, we calculated the number of options, performance shares and shares of restricted stock based on the grant date values and the fair market value of Company stock on December 2, 2014, the date of grant.

We generally make long-term incentive grants near the beginning of each fiscal year at the same time the Compensation Committee performs its annual management performance evaluation and takes other compensation actions. Annual equity grants for officers occur on the same date as our annual equity grants for our other professional and managerial employees, which in fiscal 2015 was the date of the Compensation Committee’s December 2014 meeting. As the grant date for our annual long-term incentive awards generally occurs on the day the Compensation Committee meeting is held in the first quarter of our fiscal year, the grant date is set in advance when the schedule of Compensation Committee meetings is arranged. We do not grant equity awards in anticipation of the release of material non-public information. Similarly, we do not time the release of information based on equity award grant dates.

The CEO recommends to the Compensation Committee the equity grants for other executives, and the Compensation Committee approves all equity grants for executives. We also at times award equity grants to new executives as they are hired or promoted during the year. These grants are approved by the Compensation Committee, and the grant date is the date the Compensation Committee approves the grant or, if later, the start date for a new executive.

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In fiscal 2015, the overall structure of our long-term incentives program to executives continued to have three components. We granted stock options, performance shares and restricted stock at approximately 50%, 37.5% and 12.5% of the total long-term incentive value, respectively. We determined this allocation of equity vehicles taking into account a review of market practice conducted by Towers Watson. Like other high-performing companies, we grant a greater percentage of our long-term incentives as stock options than market practice because we believe that a greater proportion of long-term incentives should reward future performance determined by an increase in shareowner value. We believe that this mix emphasizes shareowner value creation.

Stock Options

We believe that stock options are an appropriate vehicle to reward management for increases in shareowner value, as they provide no value if the share price does not increase. Our stock option grants vest in 1/3 increments at one, two and three years from the grant date and have a 10-year life. The exercise price of all stock option grants is the fair market value of our stock at the close of trading on the date of the grant. Our long-term incentives plan does not allow us to reprice stock options. Stock options granted to executives and other employees during fiscal 2015 represented approximately 0.8% of outstanding common shares at the end of fiscal 2015. Total options outstanding at the end of fiscal 2015 were approximately 3.5% of outstanding shares at the end of fiscal 2015. The Compensation Committee takes these figures into account when determining the annual stock option grant.

Performance Shares

Performance shares are designed to reward management for our relative performance compared to the companies in the S&P 500 Index over a three-year period. The payouts of performance shares granted will be made in shares of our common stock or cash, and will range from zero to 200% of the target number of shares awarded based on our total shareowner return compared to the companies in the S&P 500 Index over a three-year period. The payouts will be at zero, the target amount and the maximum amount if our total shareowner return is equal to or less than the 30th percentile, equal to the 60th percentile and equal to or greater than the 75th percentile of the total shareowner return of companies in the S&P 500 Index, respectively, over the applicable three-year period. The number of shares earned will be interpolated for results between those percentiles. If performance shares are earned but total shareowner return is negative, the amount of shares earned will be reduced by 50%.

For the performance period from October 1, 2012 to September 30, 2015, our total shareowner return (TSR) of 56.9% was at the 58th percentile of the companies in the S&P 500 Index, resulting in 93% of the target number of performance shares being earned for that performance period. The starting price for this performance period of $71.03 was based on the 20-day average trading price of our Company stock prior to October 1, 2012 and the ending price of $104.49 was based on the 20-day average trading price prior to October 1, 2015. During these three years, the Company also paid dividends of $6.90 per share of common stock. The Committee determined that the performance shares would be paid to participants in shares of our common stock.

Restricted Stock

We grant restricted shares primarily in order to retain high quality executives throughout a business cycle. Accordingly, restricted shares do not vest until three years after the grant date.

Perquisites

During fiscal 2015, our officers received a very limited perquisite package that included personal liability insurance, annual physicals, spouse travel and recreational activities at Board retreats and expatriate assignments. Upon retirement, officers may elect to continue the personal liability insurance coverage at their own expense. Mr. Kulaszewicz was on international assignment in Singapore until June 2014. The expense reimbursements related to his standard expatriate package, including housing, travel, taxes and standard allowances, are reported as perquisites.

Other

With regard to other benefits, our officers receive the same benefits as other eligible U.S. salaried employees. They participate on the same basis as other eligible U.S. salaried employees in:

our health and welfare plans, pension plan and 401(k) savings plan;

our non-qualified pension and savings plans (these plans use the same formulas as our qualified plans and provide benefits that may not be paid under our qualified plans due to Internal Revenue Code limitations); and

our deferred compensation plan (this plan offers investment measurement options similar to those in our 401(k) savings plan and does not have any guaranteed rates of return).

Compensation Deductibility

 

Internal Revenue Code Section 162(m) provides that we may not deduct in any taxable year compensation in excess of $1 million paid in that year to our chief executive officer and our other three most highly compensated executive officers, other than the chief financial officer, unless the compensation is “performance-based.” Grants of stock options, performance shares and awards under our Senior ICP are considered “performance-based” compensation for this purpose. Base salaries and restricted stock awards do not qualify as “performance-based” compensation for this purpose. With the exception of the portion of base salary in excess of $1 million for Mr. Nosbusch, we do not anticipate that any other portion of our fiscal 2015 compensation to the NEOs covered by Section 162(m) will exceed the deductibility limitations of Section 162(m).

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Change of Control and Severance

 

We do not have employment contracts with any officers. However, we have change of control agreements with Mr. Nosbusch and each of the other NEOs and certain other officers. These agreements become effective if there is a change of control before October 1, 2016.

There are two main purposes of these agreements.

First, they provide protection for the executive officers who would negotiate any potential acquisitions of the Company, thus encouraging them to negotiate a good outcome for shareowners, without concern that their negotiating stance will put at risk their financial situation immediately after an acquisition.

Second, the agreements seek to ensure continuity of business operations during times of potential uncertainty, by removing the incentive to seek other employment in anticipation of a possible change of control.

In short, they seek to ensure that we may rely on key executives to continue to manage our business consistent with the Company’s best interests despite concerns for personal risks. We do not believe these agreements encourage our executives to favor or oppose a change of control. We believe these agreements strike a balance that the amounts are neither so low to cause an executive to oppose a change of control nor so high as to cause an executive to favor a change of control.

For a description of the value of the change of control agreements, see “Potential Payments Upon Termination or Change of Control.”

In the case of terminations other than those to which our change of control agreements apply, we have no severance agreements in place. However, in the past we have at times entered into severance agreements with executives upon termination of their employment with the terms and conditions depending upon the individual circumstances of the termination, the transition role we expect from the executive and our best interests.

Executive Stock Ownership Policy

 

We believe our focus on pay for performance is sharpened by aligning closely the financial interests of our officers with those of shareowners. Accordingly, our stock ownership policy sets the following minimum ownership requirements for our NEOs. Officers must meet these requirements within five years after becoming an officer and are expected to make progress at the rate of 20% of target each year.

 

 

 

 

 

Common Stock Market Value

(Multiple of Base Salary)

Chief Executive Officer

5

Other NEOs and Senior Vice Presidents

3

Shares owned directly (including restricted shares) or through our savings plans (including share equivalents under our non-qualified savings plans) and the after-tax value of vested unexercised stock options are considered in determining whether an officer meets the requirements, except that no more than 50% of the requirements can be met by the after-tax value of vested unexercised stock options. If officers fall behind expected progress or fail to maintain their required level of ownership, they may not sell any shares of Company common stock until the ownership requirements are met, except that when exercising options or upon vesting of restricted or performance shares, they may sell shares to cover the award price and applicable taxes and are required to retain the net shares until the ownership requirements are met. Also, if an NEO subject to the requirements does not make appropriate progress to meet the requirements, the NEO’s future long-term incentive grants may be adversely affected.

At September 30, 2015, the five NEOs owned an aggregate of 580,359 shares (including share equivalents under our non-qualified savings plans) of our common stock, with an aggregate market value of $58.9 million. As of September 30, 2015, all of the NEOs met the stock ownership requirements.

Officer Trading Requirements

 

Under our trading procedures, officers may not engage in any transactions involving Company securities, including gifts and option exercises, without first obtaining pre-clearance of the transaction from our General Counsel. Generally, trading is only permitted during announced trading periods. Employees subject to trading restrictions, including officers, may enter into a trading plan under Rule 10b5-1 under the Exchange Act that would allow trades outside a trading period. Our policy on Rule 10b5-1 trading plans requires (i) plans to be entered into during an open trading window, (ii) trades to occur during a trading window unless the plan uses a limit price or is used to pay taxes on equity vesting outside a window, (iii) a 60-day wait before the first trade can occur (unless the trade is to cover taxes on equity vesting before then), and (iv) Company approval. Plans can be amended only during an open trading window and cannot be terminated except in extraordinary circumstances, subject in both cases to approval by our General Counsel. We also have (a) an anti-hedging policy that prohibits employees from engaging in any transaction that is designed or intended to hedge or otherwise limit exposure to decreases in the market value of Company stock and (b) an anti-pledging policy that prohibits officers from pledging Company securities.

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Recoupment Policy, Claw-backs and Other Post-Employment Provisions

 

In September 2009, the Company entered into agreements with Mr. Nosbusch as CEO and Mr. Crandall as CFO with respect to the reimbursement (or claw-back) of certain compensation if the Company is required to restate any financial statements due to material noncompliance with the financial reporting requirements under the federal securities laws. In 2013 we also adopted a recoupment policy that provides that if the Company is required to restate any financial statements for periods from and after fiscal year 2013 due to the Company’s material noncompliance with any financial reporting requirements under the federal securities laws, the Company will recover, as determined by the Compensation Committee, from the CEO and CFO, any incentive- or equity- based compensation received by the executives from the Company during the 12 months following the public filing of such financial statements and any profits realized by the executives on the sale of Company securities during that 12-month period. Incentive compensation subject to the claw-back or recoupment includes: ICP, equity-based compensation received, profits realized from the sale of securities of the Company and other incentive-based compensation.

In addition, our stock option agreements for officers contain certain post-employment restrictive covenants, including two-year non-competition and non-solicitation covenants, that give the Company the right, in the event of a breach, to recoup the gain on any shares of Company common stock acquired upon exercise of any Company stock options during the two years before the date of the officer’s retirement or other termination of employment.

Compensation of the Chairman of the Board and Chief Executive Officer

 

Mr. Nosbusch’s base salary was increased 2.9% to $1,225,000 from $1,190,000 effective December 29, 2014. The Compensation Committee considered similar factors as those in relation to other NEOs, and Mr. Nosbusch’s increase in base salary was aligned with increases provided to other NEOs. His total annual compensation continues to depend significantly on incentive compensation tied to the Compensation Committee’s assessment of the Company’s and his performance.

In December 2015, Mr. Nosbusch was awarded an ICP payment of $952, 7 00 for fiscal 2015. Mr. Nosbusch’s ICP payment was 78% of his target annual incentive compensation. In determining Mr. Nosbusch’s annual incentive compensation, the Compensation Committee concluded that under his leadership the Company performed well and achieved financial results in less than favorable market conditions. The Committee also considered:

Our performance, under Mr. Nosbusch’s leadership, compared to our operating goals and objectives;

Information on Mr. Nosbusch’s annual cash compensation compared to annual cash compensation of CEOs in our market data; and

ICP awards to other NEOs.

As stated earlier, for the performance period October 1, 2012 to September 30, 2015 performance shares earned 93% of the target number of performance shares resulting in 14,155 shares vesting for Mr. Nosbusch on December 6, 2015.

For fiscal 2015 Mr. Nosbusch was granted stock options for 91,300 shares, 19,200 performance shares at target and 5,260 restricted shares. Consistent with our executive compensation philosophy, the anticipated value of this grant was first set at the median of LTI grants to CEOs in the market data. Then the grants were adjusted by the Compensation Committee based on the following considerations:

Information on Mr. Nosbusch’s total compensation compared to the total compensation of CEOs of the market data. For long-term incentives the results of the Towers Watson database were used for conducting the comparison. The data showed that Mr. Nosbusch’s total compensation and long-term incentives compensation are consistent with our compensation philosophy and are largely based on performance;

Internal comparisons with the other named executive officers. Mr. Nosbusch’s pay relative to the other named executive officers is in line with the survey data of CEOs to other named executive officers of the Major Companies in the Survey Providers database using the regression analyses developed by the Survey Providers based on our sales. Mr. Nosbusch’s pay is higher than the other named executive officers due to his greater level of responsibility and accountability, and consistent with market practices that follow a similar pattern;

Historical information regarding Mr. Nosbusch’s long-term compensation opportunities. This information indicated that Mr. Nosbusch’s long-term compensation opportunities have yielded significant realized and unrealized value for Mr. Nosbusch, particularly with respect to equity awards. The value reflects Mr. Nosbusch’s long service to the Company, the fact that he has held significant portions of his equity awards rather than cashing them in, and most importantly, the value of his equity awards has varied along with the returns to our shareowners. We believe this is in line with the creation of shareowner value objective of our pay-for-performance philosophy; and

Mr. Nosbusch’s past and expected future contributions to our long-term performance. The Committee believes that he has contributed significantly to our growth and profitability over time, and is expected to continue to contribute to our success for the benefit of shareowners, customers and other stakeholders.

The grant date fair value of these awards to Mr. Nosbusch in fiscal 2015 was $5,033,627, which was 12% higher than the grant date fair value of equity awards granted to Mr. Nosbusch in fiscal 2014. These amounts were determined using the valuation method described in the Grants of Plan-Based Awards Table.

Compensation of Other Named Executive Officers

 

In determining the compensation for Messrs. Crandall, Hagerman, Kulaszewicz and Moret we considered:

the market data for their positions;

internal equity between each named executive officer and our other officers;

salary increase plans for other employees; and

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our performance and the performance of their business segments and regions (where applicable) as well as their performance compared to their operating and leadership objectives.

In determining the fiscal 2015 ICP payouts for Messrs. Crandall, Hagerman, Kulaszewicz and Moret, we considered:

our performance compared to pre-established financial goals;

each officer’s achievement of individual goals and objectives; and

certain more subjective assessments of leadership acumen and the individual’s expected future contributions.

As discussed above, despite excellent free cash flow performance, we achieved results below the target goals for EPS, sales, ROIC and operating earnings measures. The resulting fiscal 2015 ICP awards are below target for our NEOs (average 72% of target payout). As a result, in December 2015, Messrs. Crandall, Hagerman, Kulaszewicz, and Moret were awarded ICP payments of $348,400, $289, 3 00, $247,100 and $276, 7 00, respectively, which represent awards that were 78%,78%, 59% and 66% of target, respectively.

As stated earlier, for the performance period October 1, 2012 to September 30, 2015 performance shares earned 93% of the target number of performance shares resulting in 3,618, 2,716, 3,971, and 3,971 shares vesting for Messrs. Crandall, Hagerman, Kulaszewicz, and Moret on December 6, 2015.

At the beginning of fiscal 2015, Messrs. Crandall, Kulaszewicz, and Moret were each granted options for 24,400 shares, 5,130 performance shares at target and 1,410 restricted shares; Mr. Hagerman was granted options for 15,100 shares, 3,160 performance shares at target and 870 restricted shares. Consistent with our executive compensation philosophy, in determining these grants, we considered:

information on the officers’ total compensation compared to the compensation of similar positions at the Major Companies in the Towers Watson executive compensation database, using a regression analysis developed by Towers Watson based on our sales;

internal comparisons with other officers;

historical information regarding their long-term compensation opportunities; and

past and expected future contributions to our long-term performance.

Changes in Compensation Programs for Fiscal 2016

 

At our 2015 Annual Meeting of Shareowners, 96% of the advisory vote shares cast at the meeting approved the compensation of our NEOs. Based on this strong endorsement, the Compensation Committee did not implement any changes in our executive compensation program as a result of such vote.

Base Salary

Based on financial results for fiscal 2015, the Compensation Committee determined that the salaries for Messrs. Nosbusch, Crandall, Hagerman, Kulaszewicz, and Moret would remain unchanged at $1,225,000, $640,000, $595,100, $600,000 and $600,000, respectively.

Annual Incentive Compensation

For fiscal 2016, the ICP financial measures and weightings will remain the same as for fiscal 2015 (sales, EPS, free cash flow and ROIC or segment operating earnings). The Compensation Committee has set an EPS threshold equal to fiscal 2015 EPS performance. Target amounts will generally be earned under our ICP if we achieve our financial goals for the year, and maximum payouts will be earned if we significantly exceed the goals. In determining the payout curves, the Compensation Committee considered:

actual fiscal 2015 performance,

the rate of growth required to achieve our goals, and

the impact of global macroeconomic factors on the Company’s business prospects.

The Compensation Committee retains the discretion to modify the formula award based on their assessment of our performance.

Long-Term Incentives

For the fiscal 2016 grants, the overall structure of our long-term incentive program remains unchanged. However, the Committee adjusted the proportion of stock options, performance shares and restricted stock from 50%, 37.5% and 12.5% to 45%, 40% and 15% respectively, going forward. We believe that this adjusted mix maintains our strong emphasis on shareowner value creation while increasing the percentage of pay tied to whether the Company outperforms alternative investment choices.

We calculated the number of options, performance shares and shares of restricted stock using the closing price of our common stock on December 3, 2015, which was the date of grant. The exercise price of options continues to be the closing price on the date of the grant. As discussed under the earlier section describing Mr. Nosbusch’s 2015 compensation, the Committee started with market median grants and then adjusted the grants based on the factors described above, including Company and individual performance to determine the actual grant date value of long-term incentive awards.

 

The Compensation Committee approved at its December 2015 meeting the following grants of equity awards to the NEOs for fiscal 2016:

Name

Options

Performance Shares

Shares of Restricted Stock

Keith D. Nosbusch

101,900

21,280

6,920

Theodore D. Crandall

27,600

5,770

1,880

Douglas M. Hagerman

17,000

3,550

1,160

Frank C. Kulaszewicz

27,600

5,770

1,880

Blake D. Moret

27,600

5,770

1,880

The performance shares and restricted stock grant agreements have terms and conditions that are the same as the grants made in fiscal year 2015. See footnotes 2 and 4 to the Grants of Plan-Based Awards Table.

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Summary Compensation Table

The following table sets forth the total compensation of each of the named executive officers for the fiscal years ended September 30, 2015, 2014 and 2013.

Name and Principal

Position

Year

Salary

($)

Bonus

($)

Stock

Awards(1)

($)

Option

Awards(2)

($)

 

Non-Equity

Incentive Plan

Compensation(3)

($)

Change in

Pension Value

and  Nonqualified

Deferred

Compensation

Earnings(4)

($)

All Other

Compensation(5)

($)

TOTAL

($)

Keith D. Nosbusch
President & Chief
Executive Officer

2015

1,216,115

0

2,599,569

2,434,058

952, 7 00

1,308,758

97,268

8,608, 4 68

2014

1,182,414

0

2,197,804

2,309,280

1,254,000

1,447,797

82,287

8,473,582

2013

1,152,414

0

1,984,116

1,958,580

1,125,500

-

80,820

6,301,430

Theodore D. Crandall
Senior Vice President &
Chief Financial Officer

2015

635,431

0

695,104

650,504

348,400

819,038

30,794

3,179,271

2014

617,423

0

573,340

604,488

458,700

821,559

30,520

3,106,030

2013

599,879

0

507,577

499,689

410,200

-

30,066

2,047,411

Douglas M. Hagerman
Senior Vice President,
General Counsel & Secretary

2015

590,785

0

428,342

402,566

289, 3 00

273,189

25,874

2, 010,056

2014

573,852

0

382,227

404,124

380,600

307,966

26,070

2,074,839

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Frank C. Kulaszewicz
Senior Vice President

2015

594,923

0

695,104

650,504

247,100

689,937

28,845

2,906,413

2014

566,092

0

573,340

604,488

489,400

678,779

465,017

3,377,116

2013

512,356

0

556,890

549,909

328,700

59,409

457,444

2,464,708

Blake D. Moret
Senior Vice President

2015

594,923

0

695,104

650,504

276, 7 00

714,987

29,585

2,961, 803

2014

566,092

0

573,340

604,488

371,500

735,044

28,388

2,878,852

2013

512,356

0

556,890

549,909

325,200

235,845

24,423

2,204,623

(1)

Amounts in this column represent the grant date fair value of restricted stock and performance share awards granted calculated in accordance with U.S. GAAP. The grant date fair value of restricted stock was $115.69, $108.89, and $80.11 per share for 2015, 2014, and 2013, respectively. Performance share awards are valued at target shares with a grant date fair value of $103.70, $108.48, and $98.15, for 2015, 2014, and 2013, respectively. The assumptions applicable to these valuations are set forth in note 10, Share-Based Compensation, to our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2015. The amounts shown may not correspond to the actual value that may be realized by the named executive officers. If the performance share awards are valued at two times the target number of shares (the maximum potential payout), then for fiscal 2015 the stock award amount would increase by $1,991,040, $531,981, $327,692, $531,981 and $531,981 for Messrs. Nosbusch, Crandall, Hagerman, Kulaszewicz, and Moret, respectively. For additional information on awards made in fiscal 2015, see the Grants of Plan-Based Awards Table and Outstanding Equity Awards Table.

(2)

Amounts in this column represent the grant date fair value of option awards granted computed in accordance with U.S. GAAP. The grant date fair value was $26.66, $33.96, and $25.11 per share for 2015, 2014, and 2013, respectively. The assumptions applicable to these valuations are set forth in note 10, Share-Based Compensation, to our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2015. The amounts shown may not correspond to the actual value that may be realized by the named executive officers. For additional information on awards made in fiscal 2015, see the Grants of Plan-Based Awards Table and Outstanding Equity Awards Table.

(3)

This column represents amounts paid under our ICP for performance in the fiscal year. For more information about our ICP, see the “Compensation Discussion and Analysis” and Grants of Plan-Based Awards Table.

(4)

We do not pay “above market” interest on non-qualified deferred compensation; therefore, this column reflects changes in pension values only. The changes in pension value amounts for each year represent the difference from September 30 of the prior year to September 30 of each year in the actuarial present value of the named executive officers’ accrued pension benefit at their unreduced retirement age under our qualified and non-qualified pension plans. These amounts are based on benefits provided by the plan formula described on page 41 and converted to a present value using a discount rate which was 4.55% in fiscal year 2015, 4.50% in fiscal year 2014, and 5.05% in 2013. For information on the formula and assumptions used to calculate these amounts see the Pension Benefits Table.

(5)

This column represents the Company matching contributions for the named executive officers under our savings plans. The aggregate amount of personal benefits and perquisites provided to each named executive officer during fiscal 2015, 2014, and 2013, are less than $10,000 and, therefore, are not included in All Other Compensation with the exception of Mr. Kulaszewicz during fiscal 2014 and 2013. Mr. Kulaszewicz’s international assignment in Singapore ended June 2014 and he returned to Milwaukee, Wisconsin. The 2014 and 2013 amounts for Mr. Kulaszewicz primarily represent payments related to the Company standard expatriate packages for his international assignment in Singapore based on the incremental cost to the Company for these benefits as well as other personal benefits as set forth below in the All Other Compensation Table. The assignment costs for 2014 were adjusted to reflect actual tax costs restated from the estimated tax costs included at the time of fiscal 2014 disclosure. All other compensation was decreased to $465,017 from $1,307,152 in 2014 for Mr. Kulaszewicz due to tax credits returned from the Singapore tax on equity under the deemed exercise rule.

Rockwell Automation - FY2015 Proxy Statement    36


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ALL OTHER COMPENSATION TABLE

The following table describes each element of the All Other Compensation column in the Summary Compensation Table for fiscal 2015.

Name

Value of Company

Contributions to

Savings Plans(1)

$

Dividends on

Restricted

Stock(2)

$

Perquisites(3)

$

Other(4)

$

TOTAL

$

Keith D. Nosbusch

36,467

60,801

-

-

97,268

Theodore D. Crandall

19,055

11,739

-

-

30,794

Douglas M. Hagerman

17,716

8,158

-

-

25,874

Frank C. Kulaszewicz

16,099

11,746

-

1,000

28,845

Blake D. Moret

17,839

11,746

-

-

29,585

(1)

This column includes the Company matching contributions to the named executive officers’ 401(k) savings plan and non-qualified savings plan accounts. This is consistent with the practice we use for all eligible employees.

(2)

This column represents cash dividends paid on restricted shares held by the named executive officers.

(3)

The aggregate amount of personal benefits and perquisites provided to each named executive officer during fiscal 2015 are less than $10,000 and, therefore, are not included in All Other Compensation.

(4)

This column includes a patent award paid during fiscal 2015.

Rockwell Automation - FY2015 Proxy Statement    37


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Grants of Plan-Based Awards Table

The following table provides information about equity and non-equity awards made to the named executive officers in fiscal 2015.

Name

Grant Type

Grant

Date(3)

Estimated Possible Payouts

Under Non-Equity Incentive

Plan Awards(1)

 

Estimated Future Payouts

Under Equity Incentive

Plan Awards(2)

All Other

Stock

Awards(4):

Number

of Shares

of Stock

or Units

(#)

All Other

Option

Awards(5):

Number of

Securities

Underlying

Options

(#)

Exercise

or Base

Price of

Option

Awards(6)

($ / Sh)

Grant Date

Fair Value

of Stock

and Option

Awards(7)

($)

Threshold

($)

Target

($)

Maximum

($)

Threshold

(#)

Target

(#)

Maximum

(#)

Keith D. Nosbusch

Incentive Compensation

12/2/2014

0

1,225,000

2,450,000

 

 

 

 

 

 

 

 

Performance Shares

12/2/2014

 

 

 

 

0

19,200

38,400

 

 

 

1,991,040

Restricted Shares

12/2/2014

 

 

 

 

 

 

 

5,260

 

 

608,529

 

Stock Options

12/2/2014

 

 

 

 

 

 

 

 

91,300

115.69

2,434,058

Theodore D. Crandall

Incentive Compensation

12/2/2014

0

448,000

896,000

 

 

 

 

 

 

 

 

 

Performance Shares

12/2/2014

 

 

 

 

0

5,130

10,260

 

 

 

531,981

 

Restricted Shares

12/2/2014

 

 

 

 

 

 

 

1,410

 

 

163,123

 

Stock Options

12/2/2014

 

 

 

 

 

 

 

 

24,400

115.69

650,504

Douglas M. Hagerman

Incentive Compensation

12/2/2014

0

371,938

743,876

 

 

 

 

 

 

 

 

 

Performance Shares

12/2/2014

 

 

 

 

0

3,160

6,320

 

 

 

327,692

 

Restricted Shares

12/2/2014

 

 

 

 

 

 

 

870

 

 

100,650

 

Stock Options

12/2/2014

 

 

 

 

 

 

 

 

15,100

115.69

402,566

Frank C. Kulaszewicz

Incentive Compensation

12/2/2014

0

420,000

840,000

 

 

 

 

 

 

 

 

 

Performance Shares

12/2/2014

 

 

 

 

0

5,130

10,260

 

 

 

531,981

 

Restricted Shares

12/2/2014

 

 

 

 

 

 

 

1,410

 

 

163,123

 

Stock Options

12/2/2014

 

 

 

 

 

 

 

 

24,400

115.69

650,504

Blake D. Moret

Incentive Compensation

12/2/2014

0

420,000

840,000

 

 

 

 

 

 

 

 

 

Performance Shares

12/2/2014

 

 

 

 

0

5,130

10,260

 

 

 

531,981

 

Restricted Shares

12/2/2014

 

 

 

 

 

 

 

1,410

 

 

163,123

 

Stock Options

12/2/2014

 

 

 

 

 

 

 

 

24,400

115.69

650,504

(1)

These columns show the potential value of the cash payout for each named executive officer under the ICP for fiscal 2015 if the target and maximum goals are met. For each named executive officer, an incentive compensation target equal to a percentage of the individual’s base salary is set at the beginning of the year. Amounts shown are based on base salary at September 30, 2015. Actual incentive compensation payments under the plan may be higher or lower than the target based on financial, operating and individual performance. The Compensation Committee has discretion to change the amount of any award irrespective of whether the measures are met. Incentive compensation payments under the Senior ICP may not exceed 1% of our applicable net earnings (as defined in the plan).

(2)

These columns show the threshold, target and maximum payouts under performance shares awarded during fiscal year 2015. The payout in respect of these performance shares will be made in shares of our common stock and/or cash in an amount determined based on the total shareowner return of our common stock, assuming reinvestment of all dividends, compared to the performance of companies in the S&P 500 Index for the period from October 1, 2014 to September 30, 2017, if the individual continues as an employee until the third anniversary of the grant date (subject to provisions relating to the grantee’s death, disability or retirement or a change of control of the Company). The payouts will be at zero, the target amount and the maximum amount if our shareowner return is equal to or less than the 30th percentile, equal to the 60th percentile and equal to or greater than the 75th percentile of the total shareowner return of companies in the S&P 500 Index, respectively, over the applicable three-year period, with the payout interpolated for results between those percentiles. We use the 20-trading day average ending September 30 to determine the starting price and the final TSR. The potential value of a payout will fluctuate with the market value of our common stock.

(3)

In fiscal 2015 annual equity grants were made at the Compensation Committee meeting on December 2, 2014.

(4)

This column shows the number of shares of restricted stock granted in fiscal 2015 to the named executive officers. The restricted stock vests on December 2, 2017 (three years from the grant date), provided the individual is still employed by the Company on that date. Restricted stock owners are entitled to any cash dividends paid, but are not entitled to any dividends paid in shares until the restricted shares vest. Cash dividends are paid at the Company’s regular dividend rate. The grant date fair value of these awards was $115.69 per share computed in accordance with U.S. GAAP and the assumptions set forth in note 10, Share-Based Compensation, to our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2015.

(5)

This column shows the number of stock options granted in fiscal 2015 to the named executive officers under our 2012 Long-Term Incentives Plan. The options vest and become exercisable in three substantially equal installments beginning on December 2, 2015, one year after the grant date. The grant date fair value of these awards computed in accordance with U.S. GAAP was $26.66 per share. This amount was calculated using the Black-Scholes pricing model and the assumptions set forth in note 10, Share-Based Compensation, to our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2015.

(6)

This column shows the exercise price for stock options granted, which was the closing price of our common stock on December 2, 2014, the grant date of the options.

(7)

This column shows the aggregate grant date fair value of the performance share awards at target, which was based on $103.70 per share computed in accordance with U.S. GAAP and the assumptions set forth in note 10, Share-Based Compensation, to our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2015. The aggregate grant date fair value of the performance share awards at two times the target number of shares was $3,982,080, $1,063,962, $655,384, $1,063,962, and $1,063,962 for Messrs. Nosbusch, Crandall, Hagerman, Kulaszewicz, and Moret, respectively.

Rockwell Automation - FY2015 Proxy Statement    38


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Outstanding Equity Awards at Fiscal Year-End Table

The following table provides information about equity awards made to the named executive officers that are outstanding as of September 30, 2015.

Name

Grant Date

OPTION AWARDS(1) 

STOCK AWARDS

Number of

Securities

Underlying

Unexercised

Options

Exercisable

(#)

Number of

Securities

Underlying

Unexercised

Options

Unexercisable

(#)

Equity

Incentive

Plan Awards:

Number of

Securities

Underlying

Unexercised

Unearned

Options

(#)

Option

Exercise

Price

($)

Option

Expiration

Date

Number of

Shares or

Units of Stock

That Have

Not Vested(2)

(#)

Market Value

of Shares or

Units of Stock

That Have

Not Vested(3)

($)

Equity

Incentive

Plan Awards:

Number

of Unearned

Shares,

Units or

Other Rights

That Have

Not Vested(4)

(#)

Equity

Incentive

Plan Awards:

Market or

Payout Value

of Unearned

Shares, Units

or Other

Rights

That Have

Not Vested(3)

($)

Keith D. Nosbusch

12/2/2014

 

91,300

 

115.69

12/2/2024

5,260

533,732

19,200

1,948,224

 

12/4/2013

22,666

45,334

 

108.89

12/4/2023

5,290

536,776

14,950

1,516,977

 

12/6/2012

52,000

26,000

 

80.11

12/6/2022

6,120

620,996

15,220

1,544,373

 

12/1/2011

100,500

 

 

74.14

12/1/2021

 

 

 

 

 

12/7/2010

133,900

 

 

69.57

12/7/2020

 

 

 

 

 

12/9/2009

178,600

 

 

46.16

12/9/2019

 

 

 

 

Theodore D. Crandall

12/2/2014

 

24,400

 

115.69

12/2/2024

1,410

143,073

5,130

520,541

 

12/4/2013

5,933

11,867

 

108.89

12/4/2023

1,380

140,029

3,900

395,733

 

12/6/2012

13,266

6,634

 

80.11

12/6/2022

1,570

159,308

3,890

394,718

 

12/1/2011

25,700

 

 

74.14

12/1/2021

 

 

 

 

 

12/7/2010

35,300

 

 

69.57

12/7/2020

 

 

 

 

 

12/9/2009

2,100

 

 

46.16

12/9/2019

 

 

 

 

 

12/3/2008

3,400

 

 

29.37

12/3/2018

 

 

 

 

Douglas M. Hagerman

12/2/2014

 

15,100

 

115.69

12/2/2024

870

88,279

3,160

320,645

 

12/4/2013

3,966

7,934

 

108.89

12/4/2023

920

93,352

2,600

263,822

 

12/6/2012

10,000

5,000

 

80.11

12/6/2022

1,180

119,735

2,920

296,292

 

12/1/2011

19,500

 

 

74.14

12/1/2021

 

 

 

 

 

12/7/2010

26,800

 

 

69.57

12/7/2020

 

 

 

 

 

12/9/2009

9,500

 

 

46.16

12/9/2019

 

 

 

 

Frank C. Kulaszewicz

12/2/2014

 

24,400

 

115.69

12/2/2024

1,410

143,073

5,130

520,541

 

12/4/2013

5,933

11,867

 

108.89

12/4/2023

1,380

140,029

3,900

395,733

 

12/6/2012

800

7,300

 

80.11

12/6/2022

1,720

174,528

4,270

433,277

 

12/1/2011

1,300

 

 

74.14

12/1/2021

 

 

 

 

 

12/9/2009

1,367

 

 

46.16

12/9/2019

 

 

 

 

 

12/3/2008

6,500

 

 

29.37

12/3/2018

 

 

 

 

Blake D. Moret

12/2/2014

 

24,400

 

115.69

12/2/2024

1,410

143,073

5,130

520,541

 

12/4/2013

5,933

11,867

 

108.89

12/4/2023

1,380

140,029

3,900

395,733

 

12/6/2012

14,600

7,300

 

80.11

12/6/2022

1,720

174,528

4,270

433,277

 

12/1/2011

18,200

 

 

74.14

12/1/2021

 

 

 

 

 

4/1/2011

9,000

 

 

97.00

4/1/2021

 

 

 

 

 

12/7/2010

7,400

 

 

69.57

12/7/2020

 

 

 

 

(1)

All options vest 1/3 per year beginning on the first anniversary of the grant date (subject to provisions related to the grantee’s death, retirement or a change of control).

(2)

All restricted stock vests in full on the third anniversary of the grant date (subject to provisions related to the grantee’s death, retirement or a change of control).

(3)

The market value of the stock awards is based on the closing market price of our common stock as of September 30, 2015, which was $101.47.

(4)

This column shows the target number of performance shares outstanding. The payout can be from 0 to 200% of the target as described in footnote 2 to the Grants of Plan-Based Awards Table. All performance shares will vest and be paid out on the third anniversary of the grant date (subject to provisions relating to the grantee’s death, disability or retirement or a change of control). The performance shares awarded on December 6, 2012 were earned at 93% of target. The Compensation Committee approved at its November 2015 meeting the payout of such performance shares in shares of our common stock, which resulted in the following number of shares being delivered to the named executive officers:

 

 

 

Name

Shares of Common Stock Delivered in Respect of

Performance Shares Awarded on

December 6, 2012 and Vested on December 6, 2015

Keith D. Nosbusch

14,155

Theodore D. Crandall

3,618

Douglas M. Hagerman

2,716

Frank C. Kulaszewicz

3,971

Blake D. Moret

3,971

 

Rockwell Automation - FY2015 Proxy Statement    39


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Option Exercises and Stock Vested Table

The following table provides additional information about stock option exercises and shares acquired upon the vesting of stock awards, including the value realized, during the fiscal year ended September 30, 2015 by the named executive officers.

Name

OPTION AWARDS

 

STOCK AWARDS

Number of Shares

Acquired on Exercise(1)

(#)

Value Realized

on Exercise(2)

($)

Number of Shares

Acquired on Vesting

(#)

Value Realized

on Vesting(2)

($)

Keith D. Nosbusch

1,300

64,324

 

41,092

4,586,689

Theodore D. Crandall

22,067

2,049,538

 

10,370

1,157,499

Douglas M. Hagerman

 

 

 

7,861

877,445

Frank C. Kulaszewicz

21,168

829,719

 

7,349

820,295

Blake D. Moret

 

 

 

7,349

820,295

(1)

Mr. Nosbusch retained all 1,300 shares.

(2)

Based on the closing price of our common stock on the NYSE on the exercise date or vesting date, as applicable.

Pension Benefits Table

The following table shows the present value of accumulated benefits as of September 30, 2015 payable to the named executive officers under the Rockwell Automation Pension (Qualified) Plan and Rockwell Automation Pension (Non-Qualified) Plan based on the assumptions described in Footnote 1 to this table.

Name

Plan Name

Number of Years

Credited Service

(#)

Present Value of

Accumulated Benefit

($)

Payments During

Last Fiscal Year

($)

Keith D. Nosbusch

Rockwell Automation Pension (Qualified) Plan

41

2,027,157

-

 

Rockwell Automation Pension (Non-Qualified) Plan

41

20,944,909

-

Theodore D. Crandall(2)

Rockwell Automation Pension (Qualified) Plan

29

1,182,048

-

 

Rockwell Automation Pension (Non-Qualified) Plan

29

4,249,676

-

Douglas M. Hagerman

Rockwell Automation Pension (Qualified) Plan

11

375,590

-

 

Rockwell Automation Pension (Non-Qualified) Plan

11

1,175,916

-

Frank C. Kulaszewicz

Rockwell Automation Pension (Qualified) Plan

30

849,900

-

 

Rockwell Automation Pension (Non-Qualified) Plan

30

1,726,111

-

Blake D. Moret

Rockwell Automation Pension (Qualified) Plan

31

921,544

-

 

Rockwell Automation Pension (Non-Qualified) Plan

31

1,935,614

-

(1)

These amounts have been determined using the assumptions set forth in note 11, Retirement Benefits, to our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2015, and represent the accumulated benefit obligation for benefits earned to date, based on age, service and earnings through the measurement date of September 30, 2015.

(2)

Mr. Crandall is eligible to participate in our Supplemental Retirement Plan for Certain Senior Executives, which is a closed plan. Participants are eligible for this benefit at Normal Retirement, if eligible for Disability pension benefits as described below, or if permitted to retire early by action of the President or CEO if such individual also commences early retirement at that time under the Qualified Pension Plan. If eligible, the September 30, 2015 present value of benefits from this plan would be $547,983 for Mr. Crandall.

The named executive officers participate in two pension plans with the same requirements/benefits as other employees: the Rockwell Automation Pension Plan (the Qualified Pension Plan), which is qualified under the Internal Revenue Code, and the Rockwell Automation Non-Qualified Pension Plan (the Non-Qualified Pension Plan), which is an unfunded, non-tax-qualified plan. The Qualified Pension Plan provides retirement benefits to nearly all U.S. employees of the Company hired before July 1, 2010. The Qualified Pension Plan and the Non-Qualified Pension Plan were closed to entrants hired or re-hired on or after July 1, 2010. In place of becoming a participant in the Qualified Pension Plan and, if applicable, the Non-Qualified Pension plan, employees hired or re-hired on or after July 1, 2010, will be eligible for a non-elective contribution (the “NEC”) in the Qualified and, if applicable, Non-Qualified Savings Plan. The NEC is based on a combination of age and service and the percentage contribution is outlined in the Non-Qualified Savings Plan section below. The NEC formula is the same for both the Qualified Savings Plan and the Non-Qualified Savings Plan.

The Non-Qualified Pension Plan provides benefits that may not be paid from the Qualified Pension Plan due to limitations imposed by the Internal Revenue Code on qualified plan benefits. Non-Qualified Pension Plan benefits are provided to any U.S. salaried employee whose benefits are affected by these limits. Our policy with respect to funding our pension obligations is to fund at least the minimum amount required by applicable laws and governmental regulations. We maintain a rabbi trust for our non-qualified plans, including the Non-Qualified Pension Plan, which we will fund in the event there is a change of control of the Company.

Effective January 1, 2011, the pension plans were amended to allow participants to elect a lump sum payment instead of an annuity option offered under the plans. The present values in the above table are determined based on assumptions required by SEC rules, which are different from those used to calculate the lump sum payment under the plans. Note that due to Internal Revenue Code Section 409A regulations, if a named executive officer elected to receive his benefit from the Non-Qualified Plan in the form of a lump sum, he would not be eligible to receive the lump sum payment for at least five years.

For employees hired before July 1, 2010, benefits provided by both the Qualified Pension Plan and the Non-Qualified Pension Plan have the same requirements for vesting, which occurs at five years of service. Benefits in both plans are determined using the same formula. Named executive officers do not receive any additional service or other enhancements in determining the form, timing or amount of their benefits.

Rockwell Automation - FY2015 Proxy Statement    40


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Normal retirement benefits

 

Normal retirement benefits are payable at age 65 with five years of service.

Early retirement with reduced benefits

 

Reduced early retirement benefits after 10 years of service are payable at the earlier of either:

age 55 or older; or

75 or more points (age plus credited service equals or exceeds 75).

The reduction for early retirement benefits is determined using an actuarial equivalence with an applicable interest rate and mortality table. Currently, Messrs. Crandall, Kulaszewicz, and Moret have met the eligibility requirements for early retirement with a reduced benefit. Mr. Nosbusch has met the eligibility requirements for early retirement with an unreduced benefit.

An optional early distribution was added to the Qualified Pension Plan starting January 1, 2014, for those who do not meet early or normal retirement eligibility described above. The reduction in benefits is determined using an actuarial equivalence with the applicable interest rate and mortality table as used for lump sum calculations.

Pension plan formula

 

Pension plan benefits are payable beginning at a named executive officer’s normal retirement date and are determined by the following formula:

Two-thirds (66 2/3%) of the participant’s average monthly earnings up to $1,666.67;

Multiplied by a fraction, not to exceed 1.00, the numerator of which is the participant’s years of credited service, including fractional years, and the denominator of which is thirty-five (35);

Plus 1.50% of the participant’s average monthly earnings in excess of $1,666.67 times the participant’s years of credited service, including fractional years, up to a maximum of thirty-five (35) years;

Plus 1.25% of the participant’s average monthly earnings in excess of $1,666.67 times the participant’s years of credited service, including fractional years, in excess of thirty-five (35) years;

Less 50% of primary Social Security benefit times a fraction not to exceed 1.00, the numerator of which is the participant’s years of credited service, including fractional years, and the denominator of which is thirty-five (35).

Average monthly earnings represent the monthly average of the participant’s pensionable earnings for the highest five calendar years during the last 10 calendar years while the participant was actively employed. A participant’s earnings used for calculating pension plan benefits (pensionable earnings) include base salary and annual incentive compensation awards. Awards of stock options, restricted stock, performance shares and performance-based long-term cash awards, and all other cash awards are not considered when determining pension benefits.

Disability pension benefits

 

Disability pension benefits are available under the Qualified Pension Plan and the Non-Qualified Pension Plan to active employees before age 65 upon total and permanent disability if the participant has at least 15 years of credited service or at least 10 years of credited service with 70 points or more (age plus credited service is equal to or greater than 70). The benefit is generally calculated in the same manner as the normal retirement benefit.

 

Rockwell Automation - FY2015 Proxy Statement    41


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Pension benefits payable to beneficiaries upon death of a participant

 

Pension benefits under the Qualified Pension Plan and the Non-Qualified Pension Plan are payable to the participant’s beneficiaries upon the death of the participant while eligible for normal or early retirement.

The surviving spouse will receive a monthly lifetime benefit calculated as if the participant retired and elected the 50% surviving spouse option.

If the participant dies after starting to receive benefits, the benefit payments are processed in accordance with the benefit option selected.

If the retiree has started monthly pension benefit payments, the beneficiary is eligible for a lump-sum death benefit equal to $150 per year of credited service up to $5,250.

If the participant dies before he or she is eligible for early retirement, pension benefits may begin in the month following the date the participant would have attained earliest retirement date; otherwise they may begin in the month following the date of death.

If the participant elects the lump sum payment option and the lump sum payment is made, no further benefits are provided to the beneficiary or surviving spouse upon death of the participant.

Non-Qualified Deferred Compensation

The following table provides information on our non-qualified defined contribution and other non-qualified deferred compensation plans in which all eligible U.S. salaried employees, including the named executive officers, participate, which consist of the following:

Rockwell Automation Non-Qualified Savings Plan (the Non-Qualified Savings Plan)

Our U.S. employees, including the named executive officers, whose earnings exceed certain applicable federal limitations on compensation that may be recognized under our Qualified Savings Plan, are entitled to defer earnings on a pre-tax basis to the Non-Qualified Savings Plan. Company matching contributions that cannot be made to the Qualified Savings Plan due to applicable federal tax limits are also made to the Non-Qualified Savings Plan. Under the Qualified Savings Plan, we match half up to 6% of the employee’s eligible earnings contributed to the Plan each pay period, subject to a maximum amount of earnings under applicable federal tax regulations. Earnings under the Non-Qualified Savings Plan are credited to participant accounts on a daily basis in the same manner as under the Qualified Savings Plan. Investment options are selected by the participant, may be changed daily, and include the same fund and Company stock investments that are offered by the Qualified Savings Plan. No preferential interest or earnings are provided under the Non-Qualified Savings Plan. Account balances under the Non-Qualified Savings Plan are distributed in a lump-sum cash payment within 60 days after the end of the month occurring six months after the employee terminates employment or retires.

In addition to the Company matching contributions, a non-elective contribution (NEC) is provided for employees hired or rehired on or after July 1, 2010. If employed on the last day of the year, eligible employees receive an annual NEC benefit equal to eligible pay multiplied by a percentage based on “points”, which equal the sum of age and years of service as of each December 31 and based on the following chart. The NEC is provided by the end of the first quarter of the following year.

 

Total Points (Age + Years of Service as of 12/31)

Percentage of Pay Contributed as NEC

<40

3.00%

40-59

4.00%

60-79

5.00%

80+

7.00%

All NEOs were hired before July 1, 2010 and are not eligible for NEC.

Current Rockwell Automation Deferred Compensation Plan (the Deferred Compensation Plan)

Our U.S. salaried employees in career band E, including the named executive officers, may elect annually to defer up to 50% of base salary and up to 100% of their annual incentive compensation award to the Deferred Compensation Plan.

Matching. For participants who defer base salary to the plan, we provide a matching contribution equal to what we would have contributed to the Qualified Savings Plan or Non-Qualified Savings Plan for the deferred amounts.

Distribution elections

For contributions before 2005. Participants could opt to receive the deferred amounts on a specific date, at retirement, or in installments up to 15 years following retirement. Participants may make a one-time change of distribution election or timing (at least one year before payments would otherwise begin).

Contributions after January 1, 2005. Participants may elect either a lump-sum distribution at termination of employment or installment distributions for up to 15 years following retirement. Participants may make a one-time change of the distribution election or timing (at least one year before payments would otherwise begin), provided that the changed distribution cannot begin until five years after the original distribution date.

Timing of distributions

For contributions before 2005. We make distributions within the first 60 days of a calendar year.

For contributions after January 1, 2005. We make distributions beginning in July of the year following termination or retirement. Ongoing installment payments are made in February of each year.

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Earnings on deferrals. Participants select investment measurement options, including hypothetical fund investments that correspond to those offered by the Qualified Savings Plan, excluding the Company’s stock. Investment measurement options may be changed daily. Earnings are credited to participant accounts on a daily basis in the same manner as under the Qualified Savings Plan. No preferential interest or earnings are provided under the Deferred Compensation Plan.

Prior Rockwell Automation Deferred Compensation Plan (the Old Plan)

Of the named executive officers, only Mr. Crandall participates in the Old Plan, which is a closed plan. Participants were only permitted to defer incentive compensation to this plan. Distributions are made annually in January; however, if a participant is considered a “key employee” under the terms of the Internal Revenue Code, there may be a six-month delay in the commencement of distributions. The plan provides an interest rate that is one-twelfth of the annual interest rate for quarterly compounding that is 120% of the applicable Federal long-term monthly rate for the three-month period ending on the last day of each calendar year quarter. The interest is applied to participant accounts quarterly on the last business day of the quarter.

We maintain a rabbi trust for our non-qualified plans, including the Non-Qualified Savings Plan and deferred compensation plans, which we will fund in the event there is a change of control of the Company.

Non-Qualified Deferred Compensation Table

Name

Executive

Contributions in

Last Fiscal Year(1)

($)

Registrant

Contributions in

Last Fiscal Year(2)

($)

Aggregate

Earnings in

Last Fiscal Year(3)

($)

Aggregate

Withdrawals/

Distributions

($)

Aggregate

Balance at Last

Fiscal Year End(4)

($)

Keith D. Nosbusch

76,330

28,624

(54,239)

2,260,346

Theodore D. Crandall

30,131

11,299

(18,164)

1,161,873

Douglas M. Hagerman

433,379

9,896

(8,575)

3,038,017

Frank C. Kulaszewicz

16,968

8,484

(3,979)

83,987

Blake D. Moret

19,964

9,982

(3,556)

116,812

(1)

These amounts include contributions made by each named executive officer to the Non-Qualified Savings Plan, and for Mr. Hagerman to the Deferred Compensation Plan. These amounts are also reported in the “Salary” column in the Summary Compensation Table.

(2)

These amounts represent Company matching contributions for each named executive officer under the Non-Qualified Savings Plan. These amounts are also reported in the “All Other Compensation” column in the Summary Compensation Table and as part of the “Value of Company Contributions to Savings Plans” column in the All Other Compensation Table.

(3)

These amounts include earnings (losses), dividends and interest provided on current contributions and existing balances, including the change in value of the underlying investment options in which the named executive officer is deemed to be invested. These amounts are not reported in the Summary Compensation Table as compensation.

(4)

These amounts represent each named executive officer’s aggregate balance in the Non-Qualified Savings Plan, and for Mr. Hagerman in the Deferred Compensation Plan, and for Mr. Crandall in the Deferred Compensation Plan and the “Old” Deferred Compensation Plan, in each case at September 30, 2015. The numbers also include the contributions made by each named executive officer to the Non-Qualified Savings Plan and Deferred Compensation Plan, which are also reported in the “Salary” column of the Summary Compensation Table, and the Company matching contributions, which are also reported in the “All Other Compensation” column in the Summary Compensation Table for each fiscal year. The amounts included in the Summary Compensation Table for fiscal 2013 for Messrs. Nosbusch, Crandall, Kulaszewicz, and Moret are $99,032, $38,452, $16,791, and $23,324, respectively; for fiscal 2014 for Messrs. Nosbusch, Crandall, Hagerman, Kulaszewicz, and Moret are $101,792, $39,855, $18,604, $230,419, and $27,784, respectively; and for fiscal 2015 for Messrs. Nosbusch, Crandall, Hagerman, Kulaszewicz, and Moret are $104,954, $41,430, $443,275, $25,451, and $29,945, respectively.

Potential Payments Upon Termination or Change of Control

The tables and narrative below describe and quantify compensation that would become payable to the named executive officers under existing plans and arrangements if the named executive officer’s employment had terminated on September 30, 2015 for the reasons set forth below. We do not have employment agreements with the named executive officers, but do have change of control agreements with Messrs. Nosbusch, Crandall, Hagerman, Kulaszewicz, and Moret and certain other officers. There are two main purposes of these agreements.

1.

They provide protection for the executive officers who would negotiate any potential acquisitions of the Company, thus encouraging them to negotiate a good outcome for shareowners, without concern that their negotiating stance will put at risk their financial situation immediately after an acquisition.

2.

The agreements seek to ensure continuity of business operations during times of potential uncertainty, by removing the incentive to seek other employment in anticipation of a possible change of control.

In short, the change of control agreements seek to ensure that we may rely on key executives to continue to manage our business consistent with our best interests despite concerns for personal risks. We do not believe these agreements encourage our executives to favor or oppose a change of control. We believe these agreements strike a balance that the amounts are neither so low to cause an executive to oppose a change of control nor so high as to cause an executive to favor a change of control. In addition, in the past we at times have entered into severance arrangements with executive officers upon termination of their employment, with the terms and conditions depending on the individual circumstances of the termination, the transition role we expect from the officer and our best interests. The information set forth below does not include payments and benefits to the extent they are provided on a non-discriminatory basis to salaried employees upon termination of employment, including unused vacation pay, distributions of balances under savings and deferred compensation

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plans and accrued pension benefits. The information set forth below also does not include any payments and benefits that may be provided under severance arrangements that may be entered into with any named executive officer upon termination of their employment.

We have change of control agreements with Mr. Nosbusch and each of the other named executive officers and certain other officers. These agreements become effective if there is a change of control before October 1, 2016. Each agreement provides for the continuing employment of the executive for two years after the change of control on conditions no less favorable than those in effect before the change of control. If the executive’s employment is terminated by us without “cause” or if the executive terminates his employment for “good reason” within that two year period, each agreement entitles the executive to: