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Section 1: DEF 14A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A
(Rule 14a-101)

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.       )

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

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2017 PROXY STATEMENT

AND NOTICE OF ANNUAL MEETING OF SHAREOWNERS

 


 

 

Honeywell is building a smarter, safer,

and more sustainable world

 

 

 

 

 

THAT’S THE POWER OF CONNECTED

THAT’S THE POWER OF HONEYWELL

 

 

 

 

 

Connected Aircraft  •  Connected Automobiles

Connected Homes  •  Connected Buildings

Connected Plant  •  Connected Supply Chain

Connected Worker

 

 

 

 

 

 

March 9, 2017

 

To Our Shareowners:

 

You are cordially invited to attend the Annual Meeting of Shareowners of Honeywell, which will be held at 10:30 a.m. on Monday, April 24, 2017 at our headquarters, 115 Tabor Road, Morris Plains, New Jersey 07950.

 

The accompanying notice of meeting and proxy statement describe the matters to be voted on at the meeting. At this year’s meeting, you will be asked to elect directors, cast advisory votes on executive compensation and the frequency of future advisory votes on executive compensation, approve the appointment of the independent accountants, and consider two shareowner proposals.

 

The Board of Directors recommends that you vote FOR Proposals 1, 3 and 4 and “1 Year” for Proposal 2:

 

Proposal 1: Election of Directors

 

Proposal 2: Advisory Vote on the Frequency of Future Advisory Votes To Approve Executive Compensation

 

Proposal 3: Advisory Vote To Approve Executive Compensation

 

Proposal 4: Approval of Independent Accountants

 

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

 

Proposal 5: Independent Board Chairman

 

Proposal 6: Political Lobbying and Contributions

 

YOUR VOTE IS IMPORTANT. We encourage you to read the proxy statement and vote your shares as soon as possible. Shareowners may vote via the Internet, by telephone, by completing and returning a proxy card or by scanning the QR code provided on the next page in the Notice of Annual Meeting of Shareowners or on the proxy card. Specific voting instructions are set forth in the proxy statement and on both the Notice of Internet Availability of Proxy Materials and proxy card.

 

On behalf of the Board of Directors, we want to thank you for your continued support of Honeywell.

 

Sincerely,

David M. Cote

Chairman and Chief Executive Officer

 

Darius Adamczyk

President and Chief Operating Officer

 

 

NOTICE OF ANNUAL MEETING OF SHAREOWNERS

 

 

DATE Monday, April 24, 2017

TIME 10:30 a.m. EDT

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

RECORD DATE Close of business on February 24, 2017

 

 

March 9, 2017

 

Meeting Agenda:

 

Election of the 13 nominees listed in the accompanying proxy statement to the Board of Directors.
   
An advisory vote on the frequency of future advisory votes to approve executive compensation.
   
An advisory vote to approve executive compensation.
   
Approval of the appointment of Deloitte & Touche LLP as independent accountants for 2017.
   
If properly raised, two shareowner proposals described on pages 80-84 of the proxy statement.
   
Transact any other business that may properly come before the meeting.

 

Important Notice of Internet Availability of Proxy Materials

 

The Securities and Exchange Commission’s “Notice and Access” rule enables Honeywell to deliver a Notice of Internet Availability of Proxy Materials to shareowners in lieu of a paper copy of the proxy statement, related materials and the Company’s Annual Report to Shareowners. It contains instructions on how to access our proxy statement and 2016 annual report and how to vote online.

 

Shares cannot be voted by marking, writing on and/or returning the Notice of Internet Availability. Any Notices of Internet Availability that are returned will not be counted as votes.

 

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

 

   By Telephone   By Internet      By Mail      By Scanning
                     

In the U.S. or Canada, you can vote your shares by calling

+1 (800) 690-6903.

 

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

 

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

 

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

 

This Notice of Annual Meeting of Shareowners and related Proxy Materials are being distributed or made available to shareowners beginning on or about March 9, 2017.

 

By Order of the Board of Directors,

Jeffrey N. Neuman

Vice President and Corporate Secretary

 
TABLE OF CONTENTS  
   
Proxy Summary i
Proposal No. 1: Election of Directors 1
Corporate Governance 8
· Board Of Directors 8
· Board Committees 10
· Board’s Role In Risk Oversight 13
· Director Independence 14
· Identification And Evaluation Of Director Candidates 15
· Director Orientation And Continuing Education 16
· Director Attendance At Annual Meetings 16
· Director Compensation 16
· Certain Relationships And Related Transactions 19
Stock Ownership Information 20
Section 16(a) Beneficial Ownership Reporting Compliance 21
SEC Filings And Reports 21
Sustainability And Corporate Responsibility 21
Political Contributions And Activities 23
Shareowner Outreach And Engagement 24
Executive Compensation 26
· Compensation Discussion And Analysis 26
· Proposal No. 2: Advisory Vote on the Frequency of Future Advisory Votes To Approve Executive Compensation 27
· Proposal No. 3: Advisory Vote To Approve Executive Compensation 27
· Management Development And Compensation Committee Report 59
· Summary Compensation Table 60
· Grants Of Plan-Based Awards-Fiscal Year 2016 62
· Outstanding Equity Awards At 2016 Fiscal Year-End 63
· Option Exercises And Stock Vested-Fiscal Year 2016 65
· Pension Benefits 66
· Nonqualified Deferred Compensation-Fiscal Year 2016 69
· Potential Payments Upon Termination Or Change In Control 72
Audit Committee Report 78
· Proposal No. 4: Approval Of Independent Accountants 79
Shareowner Proposals 80
· Proposal No. 5: Independent Board Chairman 80
· Proposal No. 6: Political Lobbying and Contributions 82
Voting Procedures 85
Attendance at the Annual Meeting 87
Other Information 88
Appendix: Reconciliation of Non-GAAP Financial Measures A-1
Recent Awards Inside Back Cover
Reconciliation of non-GAAP financial measures used in the Compensation Discussion and Analysis section and elsewhere in this proxy statement, other than as part of disclosure of target levels, can be found in the Appendix.

 

 
Table of Contents

PROXY SUMMARY

 

This proxy summary is intended to provide a broad overview of the items that you will find elsewhere in this proxy statement. As this is only a summary, we encourage you to read the entire proxy statement for more information about these topics prior to voting.

 

ANNUAL MEETING OF SHAREOWNERS

 

TIME AND DATE April 24, 2017, 10:30 a.m. EDT

 

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

 

RECORD DATE Shareowners as of February 24, 2017 are entitled to vote.

 

ADMISSION Please follow the advance registration instructions on page 87.

 

MEETING AGENDA AND VOTING MATTERS

 

Proposal    Board’s Voting
Recommendation
  Page References
(for more detail)
No. 1 Election of Directors  FOR (each nominee)    p. 1-7
No. 2 Advisory Vote on the Frequency of Future Advisory Votes To Approve Executive Compensation  1 YEAR    p. 27
No. 3 Advisory Vote To Approve Executive Compensation  FOR    p. 27
No. 4 Approval of Independent Accountants  FOR    p. 79
No. 5 Shareowner Proposal: Independent Board Chairman  AGAINST    pp. 80-82
No. 6 Shareowner Proposal: Political Lobbying and Contributions  AGAINST    pp. 82-84

 

2016 HIGHLIGHTS

 

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Table of Contents

Proxy Summary > 2016 Highlights

 

 

 

 LEADERSHIP 

 

Darius Adamczyk

 

•  Our Board Of Directors Successfully Executed A CEO
Leadership Succession Plan:

 

o  Darius Adamczyk Was Named Honeywell’s Next Chief Executive Officer Succeeding David Cote On March 31, 2017.

o  David Cote Will Remain As Executive Chairman Until The 2018 Annual Meeting Of Shareowners.

 

 

 PORTFOLIO IMPROVEMENTS    

 

 

•  Deployed Over $8B Of Capital For Acquisitions Since 2015

o  Positions Us Well In Growing End Markets

o  Acquisitions Contributed ~$0.20 To EPS in 2016

•  In 2016, Strengthened Our Business Portfolio Through A Divestiture And A Spin-Off

o  Divested Honeywell Technology Solutions Inc. (“HTSI”) Government Services Business; Reinvested ~$175M Of Sales Proceeds

o  Spun Off Former Resins And Chemicals Business As AdvanSix Inc. Which Represented Shareowner Value Of ~$800M

 

 

 CAPITAL DEPLOYMENT 

 

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Table of Contents

Proxy Summary > Creating Value For Our Shareowners — TSR

 

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

 

 

 

CORPORATE GOVERNANCE SNAPSHOT

 

Best Practices

 

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

 

 

 

GOVERNANCE HIGHLIGHTS

 

•  All directors are independent other than the CEO and COO.

 

•  All Board Committees are independent.

 

•  Annual election of directors.

 

•  Majority voting in uncontested elections.

 

•  Adopted proxy access By-law amendment.

 

•  Chair of the Corporate Governance and Responsibility Committee or Lead Director can call special meetings of the Board at any time
for any reason.

 

•  Three Audit Committee members are designated “audit committee financial experts.”

 

•  A diverse Board—23% are women, 23% are Hispanic, 15% are African American and 15% are non-U.S. citizens.

 

•  Shareowner right to call a special meeting.

 

•  Simple majority vote requirements to amend charter and approve mergers and acquisitions.

 

•  No poison pill in place; Board will seek shareowner approval if a shareowner rights plan is adopted.

 

•  Robust year-round shareowner engagement, including discussions between larger shareowners and directors.

 

•  Regular executive sessions of independent directors.

 

•  Risk oversight by full Board and Committees, including strengthened cybersecurity oversight by the Audit Committee and full Board.

 

•  Strong commitment to corporate social responsibility and sustainability.

 

•  No use of corporate funds for political contributions and careful oversight of political lobbying activities.

 

2017     |     Proxy and Notice of Annual Meeting of Shareowners      |     iii
 
Table of Contents

Proxy Summary > Executive Compensation Snapshot

 

Board Nominees’ Skills, Qualifications, Tenure and Diversity

 

Our Board nominees possess the right skills, qualifications and business expertise to provide sound judgment, insightful perspectives and guidance in a constantly changing environment. In addition, we believe that electing directors with a mix of tenures facilitates effective Board oversight. Careful consideration is made to achieve the appropriate balance. Directors with many years of service to Honeywell provide the Board with a deep knowledge of our Company, while newer directors lend fresh perspectives. Diversity in terms of gender, race and ethnicity is also important. While Honeywell’s Corporate Governance Guidelines do not prescribe a diversity policy or standards, as a matter of practice, the Corporate Governance and Responsibility Committee is committed to enhancing both the diversity of the Board itself and the perspectives and values that are discussed in Board and Committee meetings. Our current Board composition reflects this approach and the Board’s commitment to diversity.

 

 

 

EXECUTIVE COMPENSATION SNAPSHOT

 

Shareowner Engagement on Compensation

 

During our 2016 Summer/Fall shareowner outreach, we received positive feedback on our financial performance, our strong leadership team and the Board’s approach to succession planning. In addition, our shareowners suggested several ways in which we could modify our compensation programs. We are making changes to our compensation program in response to shareowner feedback. These changes reflect our Board’s recognition that there should be a more visible linkage of compensation to business results and performance. The following table summarizes the modifications we have made or intend to make and provides a timeline for how our compensation programs will evolve.

 

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Table of Contents

Proxy Summary > Executive Compensation Snapshot

 

SIGNIFICANT CHANGES TO EXECUTIVE COMPENSATION PLANS

 

•  Replacing 2-Year Growth Plan with 3-Year Performance Plan

•  80% of Annual Bonus Becomes Formulaic

•  Shifting Weight from Stock Options to Performance Stock Units (“PSUs”)

 

 

Timeline for Implementation of Executive Compensation Changes

 

 

 

     2016   2017    2018
             
 

 

Base Salary

 

 

Base salaries are determined based on scope of responsibility, years of experience and individual performance.

             
             
             
             
             
Annual Incentive
Compensation
Program
(“ICP”)
  Cash award; 80% based on formulaic
determination against pre-established financial
metrics. 20% based on assessment of individual
performance. Prior year actual award as
baseline (Iast year we will use this approach).
  Cash award; 80% based on formulaic determination against
pre-established financial metrics. 20% based on assessment
of individual performance. Reset annual baseline award for
the CEO and the whole leadership team to their annual
target ICP as a percent of base pay.
             
             
             
             
Long Term
Incentive
Compensation
(“LTI”)
 

 

 

Stock Options:

•  CEO: 66% of LTI

•  Other NEOs: 48% of LTI

 

 

 

 

 

Biennial Growth Plan Units:

•  CEO: 34% of LTI

•  Other NEOs: 24% of LTI

 

 

 

 

Performance-based Restricted Stock Units:

•  CEO: None

•  Other NEOs: 28% of LTI

•  3-Year Relative TSR

 

 

 

Stock Options:

•  Ramp down weighting

 

 

 

 

 

 

3-Year Performance Plan:

•  Stock-based PSUs

•  Ramp up weighting

•  Will include TSR and
financial metrics

 

 

 

 

Restricted Stock Units:

•  None

 

Stock Options:

•  CEO and whole
leadership team: 25% of LTI

 

 

 

  

3-Year Performance Plan:

•   CEO and whole leadership team:
~50% of LTI

•  Stock-based PSUs

•  Will include TSR and financial metrics

  

 

 

 

Restricted Stock Units:

•  CEO and whole leadership team:
25% of LTI

•  Time-based for Retention

 

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Table of Contents

Proxy Summary > Executive Compensation Snapshot

 

2016 Total Annual Direct Compensation for Each Named Executive Officer (NEO)

 

The following table reflects 2016 annualized compensation to the NEOs from the perspective of the Management Development and Compensation Committee (“MDCC”).

 

NEO  Position  Base
Salary
  Annual
Bonus
  Stock
Options
  Performance
Restricted
Stock Units(A)(C)
  2016-2017
Growth
Plan(B)(C)
  Total Annual
Direct
Compensation(C)
David M. Cote  Chairman & CEO  $1,890,000  $5,700,000  $9,348,000  $0  $4,750,000  $21,688,000
Thomas A. Szlosek  Chief Financial Officer  $840,000  $850,000  $2,337,000  $1,337,500  $1,250,000  $6,614,500
Darius Adamczyk  Chief Operating Officer  $1,120,383  $1,450,000  $3,896,000  $1,671,875  $2,000,000  $10,138,258
Timothy O. Mahoney  Aerospace - President & CEO  $917,019  $850,000  $2,726,500  $2,006,250  $1,250,000  $7,749,769
Krishna Mikkilineni  SVP - Engineering, Ops and IT  $717,678  $725,000  $2,181,200  $1,471,250  $1,000,000  $6,095,128
(A) Performance restricted stock units with 100% of payout tied to Honeywell’s relative TSR against the Compensation Peer Group over three years. Vesting of shares under these awards occurs ratably in years three, five and seven for Messrs. Adamczyk, Szlosek and Mikkilineni and in years three and five for Mr. Mahoney. Values listed in this table reflect annualized value of biennial grant. See page 54.
(B) Annualized target value of biennial Growth Plan award for the 2016-2017 performance cycle. Starting in 2017, Honeywell will transition to annual grants of Performance Plan stock units which have a three-year performance cycle. See page 50.
(C) Reflects the MDCC’s view of the award value that should be attributed to 2016, which differs from the methodology required by the SEC for purposes of the Summary Compensation Table.

 

See Compensation Discussion and Analysis beginning on page 26 for more details on 2016 Executive Compensation.

 

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Table of Contents

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

 

PROXY STATEMENT

 

This proxy statement is being provided to shareowners in connection with the solicitation of proxies by the Board of Directors for use at the Annual Meeting of Shareowners of Honeywell International Inc. (“Honeywell” or the “Company”) to be held on Monday, April 24, 2017.

 

PROPOSAL NO. 1: ELECTION OF DIRECTORS

 

Honeywell’s directors are elected at each Annual Meeting of Shareowners and hold office for one-year terms or until their successors are duly elected and qualified. Honeywell’s By-laws provide that in any uncontested election of directors (an election in which the number of nominees does not exceed the number of directors to be elected), any nominee who receives a greater number of votes cast “FOR” his or her election than votes cast “AGAINST” his or her election will be elected to the Board of Directors.

 

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

 

Directors may serve until the Annual Meeting of Shareowners immediately following their 72nd birthday.

 

DIRECTOR NOMINATIONS — SKILLS AND CRITERIA

 

The Corporate Governance and Responsibility Committee (“CGRC”) is responsible for nominating a slate of director nominees who collectively have the complementary experience, qualifications, skills and attributes to guide the Company and function effectively as a Board. The CGRC believes that each of the nominees has key personal attributes that are important to an effective board: integrity, candor, analytical skills, the willingness to engage management and each other in a constructive and collaborative fashion, and the ability and commitment to devote significant time and energy to service on the Board and its Committees.

 

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

 

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Table of Contents

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

 

DIRECTOR SKILLS AND QUALIFICATIONS CRITERIA

  

Senior Leadership Experience

 

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

 

Industry/Global Experience

 

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

 

Financial Expertise

 

We believe that an understanding of finance and financial reporting processes is important for our directors to monitor and assess the Company’s operating and strategic performance and to ensure accurate financial reporting and robust controls. Our director nominees have relevant background and experience in capital markets, corporate finance, accounting and financial reporting and several satisfy the “accounting or related financial management expertise” criteria set forth in the New York Stock Exchange (“NYSE”) listing standards.

 

Regulated Industries/Government Experience

 

Honeywell is subject to a broad array of government regulations and demand for its products and services can be impacted by changes in law or regulation in areas such as safety, security and energy efficiency. Several of our directors have experience in regulated industries, providing them with insight and perspective in working constructively and proactively with governments and agencies globally.

 

Public Company Board Experience

 

Service on the boards and board committees of other public companies provides an understanding of corporate governance practices and trends and insights into board management, relations between the board, the CEO and senior management, agenda setting and succession planning.

 

Risk Management

 

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

 

Innovation and Technology

 

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

 

Marketing

 

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

 

Each of the nominees, other than Mr. Cote and Mr. Adamczyk, is independent of the Company and management. See “Director Independence” on page 14 of this proxy statement.

 

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

 

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

 

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Table of Contents

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

 

NOMINEES FOR ELECTION

 

DAVID M. COTE, Chairman and Chief Executive Officer of Honeywell International Inc.

 



Years of Service: 15
Age: 64

Mr. Cote has been Chairman and Chief Executive Officer since July 2002. He joined Honeywell as President and Chief Executive Officer in February 2002. Prior to joining Honeywell, he served as Chairman, President and Chief Executive Officer of TRW Inc., a provider of products and services for the aerospace, information systems and automotive markets, from August 2001 to February 2002. From February 2001 to July 2001, he served as TRW’s President and Chief Executive Officer and from November 1999 to January 2001 he served as its President and Chief Operating Officer. Mr. Cote was Senior Vice President of General Electric Company and President and Chief Executive Officer of GE Appliances from June 1996 to November 1999. Mr. Cote is a director of the Federal Reserve Bank of New York. He previously served as a director of JPMorgan Chase & Co. (2007-2013).

Specific Qualifications, Attributes, Skills and Experience

 

•  Senior leadership roles in global, multi-industry organizations

 

•  Ability to drive a consistent One Honeywell approach across a large multinational organization

 

•  Detailed knowledge and unique perspective and insights regarding the strategic and operational opportunities and challenges, economic and industry trends, and competitive and financial positioning of the Company and its businesses

 

•  Significant public policy experience, including service on the bipartisan National Commission of Fiscal Responsibility and Reform, the Bipartisan Policy Center—Energy Project, and the U.S.—India CEO Forum (co-Chair)

 


 

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

 



Years of Service: 0
Age: 51

Mr. Adamczyk has been the President and Chief Operating Officer of Honeywell since April 2016. He will succeed Mr. Cote as Honeywell’s Chief Executive Officer on March 31, 2017. From April 2014 to April 2016, Mr. Adamczyk served as President and CEO of Honeywell Performance Materials and Technologies (PMT). Prior to serving as President and CEO of PMT, Mr. Adamczyk served as President of Honeywell Process Solutions from 2012 to 2014. When he joined Honeywell in 2008, he became President of Honeywell Scanning & Mobility from 2008 to 2012. Mr. Adamczyk began at Honeywell when Metrologic, Inc., where he was the Chief Executive Officer, was acquired by Honeywell. Prior to joining Honeywell, Mr. Adamczyk held several general management assignments at Ingersoll Rand, served as a senior associate at Booz Allen Hamilton, and started his career as an electrical engineer at General Electric.

Specific Qualifications, Attributes, Skills and Experience

 

•  Senior leadership roles in global organizations, both large and small

 

•  Deep understanding of software, both technically and commercially, and a proven track record in growing software-related businesses at Honeywell

 

•  Demonstrated ability to deliver financial results as a leader in a variety of different industries, with disparate business models, technologies and customers

 

•  Strategic leadership skills necessary to grow Honeywell revenues organically and inorganically while meeting the challenges of a constantly changing environment across Honeywell’s diverse business portfolio


 

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

 



    Years of Service: 2
Age: 62

 

Board Committees:

  Corporate Governance & Responsibility

  Management Development & Compensation



Mr. Ayer is the retired Chairman of the Board and Chief Executive Officer of Alaska Air Group, the parent company of Alaska Airlines and its sister carrier, Horizon Air. Mr. Ayer served as Chief Executive Officer of Alaska Air Group and its subsidiaries through 2012, and as Chairman through 2013. A veteran of more than three decades in aviation, Mr. Ayer began his career with Horizon Air in 1982 where he held a variety of marketing and operations positions. He joined Alaska Airlines in 1995 as Vice President of Marketing and Planning, and subsequently held the posts of Senior Vice President, Chief Operating Officer, and President. In 2002, he became Alaska Air Group’s Chief Executive Officer, and, in May 2003, he was appointed Chairman. Mr. Ayer is a member of the FAA’s Management Advisory Council. Mr. Ayer was a director of Puget Sound Energy, Inc. and Puget Energy, Inc. from January 2005 until January 2015 and served as Chairman from January 2009 until January 2015.

Specific Qualifications, Attributes, Skills and Experience

 

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

 

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

 

•  Understanding of the U.S. public utility industry through his service as a director on the Board of Puget Energy

 



Leadership

Industry / Global

Financial

Government

Public Company

Risk Management

Technology

Marketing

 

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Table of Contents

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

 

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

 



    Years of Service: 7
Age: 66

 

Board Committees:

  Audit

  Retirement Plans




Mr. Burke joined Con Edison, a utility provider of electric, gas and steam services, in 1973 and held positions of increasing responsibility in system planning, engineering, law, nuclear power, construction, and corporate planning. He served as Senior Vice President from July 1998 to July 1999, with responsibility for customer service and for Con Edison’s electric transmission and distribution systems. In 1999, Mr. Burke was elected President of Orange & Rockland Utilities, Inc., a subsidiary of Con Edison. He was elected President and Chief Operating Officer of Consolidated Edison Company of New York, Inc. in 2000 and elected Chief Executive Officer in 2005. Mr. Burke served as President and Chief Executive Officer of Con Edison from 2005 through 2013, and was elected Chairman in 2006. Mr. Burke became non-executive Chairman of Con Edison in December 2013 and served in that capacity until April 2014. Mr. Burke was a member of the Board of Directors of Con Edison and a member of the Board of Trustees of Consolidated Edison Company of New York, Inc. which is a subsidiary of Con Edison, until May 2015.

Specific Qualifications, Attributes, Skills and Experience

 

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

 

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

 

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

 

 

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

 



    Years of Service: 17
Age: 67

 

Lead Director

 

Ex officio member of each Board Committee

Mr. Chico Pardo has been President and Chief Executive Officer of ENESA, a private fund investing in the Mexican energy and health care sectors since March 2010. He previously served as Co-Chairman of the Board of Telefonos de Mexico, S.A.B. de C.V. (TELMEX), a telecommunications company based in Mexico City, from April 2009 until April 2010 and as its Chairman from October 2006 to April 2009 and its Vice Chairman and Chief Executive Officer from 1995 until 2006. Mr. Chico Pardo was Co-Chairman of the Board of Impulsora del Desarrollo y el Empleo en América Latina, S.A. de C.V., a publicly listed company in Mexico engaged in investment in and management of infrastructure assets in Latin America, from 2006 until 2010. He was also Chairman of Carso Global Telecom, S.A. de C.V. from 1996 until 2010. Prior to joining TELMEX, Mr. Chico Pardo served as President and Chief Executive Officer of Grupo Condumex, S.A. de C.V. and Euzkadi/General Tire de Mexico, manufacturers of products for the construction, automotive and telecommunications industries. Mr. Chico Pardo has also spent a number of years in the international and investment banking business. Mr. Chico Pardo is a director of Grupo Bimbo, S.A.B. de C.V. He previously served as a director of AT&T (2008-2015), Grupo Carso, S.A. de C.V. and several of its affiliates (1991-2013), three mutual funds in the American Funds family of mutual funds (2011-2013) and Honeywell Inc. from September 1998 to December 1999.

Specific Qualifications, Attributes, Skills and Expertise

 

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

 

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

 

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

 

 

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

 



    Years of Service: 11
Age: 65

 

Board Committees:

  Management Development & Compensation Committee Chairperson

  Audit

Mr. Davis joined UPS, a leading global provider of package delivery, specialized transportation and logistics services in 1986. He served as the non-Executive Chairman of UPS from September 2014 until May 2016. Prior to his retirement as Chief Executive Officer of UPS, Mr. Davis served as Chairman and Chief Executive Officer from January 1, 2008 to September 2014. Prior to this, he served as Vice Chairman since December 2006 and as Senior Vice President, Chief Financial Officer and Treasurer since January 2001. Previously, Mr. Davis held various leadership positions with UPS, primarily in the finance and accounting areas. Prior to joining UPS, he was Chief Executive Officer of II Morrow Inc., a developer of general aviation and marine navigation instruments. Mr. Davis is a Certified Public Accountant. He is also a director of Johnson & Johnson. Mr. Davis previously served on the Board of the Federal Reserve Bank of Atlanta (2003-2009), serving as Chairman in 2009, and EndoChoice Holdings (2015-2016).

Specific Qualifications, Attributes, Skills and Experience

 

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

 

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

 

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

 

•  Extensive experience in the transportation and logistics services industry

 



Leadership

Industry / Global

Financial

Government

Public Company

Risk Management

Technology

Marketing

 

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Table of Contents

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

 

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

 



Years of Service: 11
Age: 71

 

Board Committees:

  Corporate Governance & Responsibility Committee Chairperson

  Audit

 

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

Specific Qualifications, Attributes, Skills and Experience

 

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

 

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

 

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

 

•  Substantial experience as a Fortune 500 company director


 

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

 



    Years of Service: 6
Age: 70

 

Board Committees:

  Corporate Governance & Responsibility

  Audit

Senator Gregg has spent over three decades in public office, most recently serving as the United States Senator from the State of New Hampshire from January 1993 until January 2011. During his tenure in the Senate, Senator Gregg served on a number of key Senate Committees including Budget; Appropriations; Government Affairs; Banking, Housing and Urban Affairs; Commerce, Science and Transportation; Foreign Relations; and Health, Education, Labor and Pensions. He has served as the Chairman and Ranking Member of the Health, Education, Labor and Pensions Committee and the Chairman and Ranking Member of the Senate Budget Committee as well as chairman of various sub-committees. Senator Gregg served as a chief negotiator of the Emergency Economic Stabilization Act of 2008 and was the lead sponsor of the Deficit Reduction Act of 2005, and, along with the late Senator Ted Kennedy, co-authored the No Child Left Behind Act of 2001. In March 2010, Senator Gregg was appointed to President Obama’s bipartisan National Commission on Fiscal Responsibility and Reform. From 1989 to 1993, Senator Gregg was the Governor of New Hampshire and prior to that was a U.S. Representative from 1981 to 1989. Senator Gregg was named as Dartmouth College’s first distinguished fellow and he teaches at the college and its graduate schools. He previously served as a director of Intercontinental Exchange, Inc. (2011-2013).

Specific Qualifications, Attributes, Skills and Experience

 

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

 

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

 

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

 

 

CLIVE HOLLICK, Former Chief Executive Officer of United Business Media

 



    Years of Service: 13
Age: 71

 

Board Committees:

  Management Development & Compensation

  Retirement Plans

Lord Hollick was Chief Executive Officer of United Business Media and its predecessor companies from 1974 to 2005. United was a London-based, international information, broadcasting, financial services and publishing group. From 2005 to 2010, he was a partner, managing director and adviser to Kohlberg Kravis Roberts & Co., a private equity firm focusing on businesses in the media and financial services sectors. Lord Hollick is a partner of GP Bullhound LLP and a member of the Advisory Board of Jefferies Inc. In addition, Lord Hollick is Chairman of the Economic Affairs Committee of the House of Lords. He previously served as a director of ProSiebenSat. 1 Media AG (2007-2014), Gogo Inc. (2013-2014), The Nielsen Company B.V. (2006-2009), Diageo plc (2001-2011), TRW Inc. (2000-2002) and BAE Systems (1992-1997).

Specific Qualifications, Attributes, Skills and Experience

 

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

 

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

 

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

 

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

 



Leadership

Industry / Global

Financial

Government

Public Company

Risk Management

Technology

Marketing

 

2017     |     Proxy and Notice of Annual Meeting of Shareowners      |     5
 
Table of Contents

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

 

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

 



    Years of Service: 4
Age: 56

 

Board Committees:

  Corporate Governance & Responsibility

  Management Development & Compensation

Ms. Lieblein served as Vice President, Global Quality of GM, a company that designs, manufactures and markets cars, crossovers, trucks, and automobile parts worldwide from November 2014 to March 2016. Ms. Lieblein served as Vice President, Global Purchasing and Supply Chain from December 2012 to November 2014, the GM Brazil President and Managing Director from June 2011 until December 2012, the GM Mexico President and Managing Director from January 2009 until June 2011 and Vehicle Chief Engineer from October 2004 to January 2009. Ms. Lieblein joined GM in 1978 as a co-op student at the General Motors Assembly Division in Los Angeles and has held a variety of leadership positions at GM in engineering, product development and manufacturing. Ms. Lieblein is also a director of Southwest Airlines Co.

Specific Qualifications, Attributes, Skills and Experience

 

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

 

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

 

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

 


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

 



Years of Service: 8
Age: 61

 

Board Committees:

  Corporate Governance & Responsibility

  Audit Committee Chairperson

Mr. Paz has served as Chairman of the Board of Express Scripts, a pharmacy benefit management company, since May 2006, as Chief Executive Officer from April 2005 to May 2016 and as President from October 2003 to February 2014. He has served as a director of Express Scripts since January 2004. Mr. Paz joined Express Scripts as Senior Vice President and Chief Financial Officer in January 1998 and continued to serve as its Chief Financial Officer following his election as President until April 2004. Mr. Paz is a Certified Public Accountant. He is also a director of Prudential Financial, Inc.

Specific Qualifications, Attributes, Skills and Experience

 

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

 

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

 

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


 

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

 



    Years of Service: 12
Age: 60

 

Board Committees:

  Management Development & Compensation

  Retirement Plans Chairperson



Dr. Sheares served as Chief Executive Officer of Reliant, a pharmaceutical company with integrated sales, marketing and development expertise that marketed a portfolio of branded cardiovascular pharmaceutical products, from January 2007 through its acquisition by GlaxoSmithKline plc in December 2007. Prior to joining Reliant, Dr. Sheares served as President of U.S. Human Health, Merck & Co., Inc. from March of 2001 until July 2006. Prior to that time, he served as Vice President, Hospital Marketing and Sales for Merck’s U.S. Human Health business. Dr. Sheares joined Merck in 1987 as a research fellow in the Merck Research Laboratories and held a wide range of positions within Merck, in business development, sales, and marketing, before becoming Vice President in 1996. He is also a director of The Progressive Corporation and Henry Schein, Inc. Dr. Sheares previously served as a director of IMS Health Incorporated (2009-2010) and Covance Inc. (2009-2015).

Specific Qualifications, Attributes, Skills and Experience

 

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

 

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

 

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

 



Leadership

Industry / Global

Financial

Government

Public Company

Risk Management

Technology

Marketing

 

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Table of Contents

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

 

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

 



    Years of Service: 4
Age: 54

 

Board Committees:

  Audit

  Retirement Plans

Ms. Washington joined Gilead, a research-based biopharmaceutical company, as Senior Vice President and Chief Financial Officer in May 2008. In her current role as Executive Vice President and Chief Financial Officer, she oversees Gilead’s Global Finance, Investor Relations and Information Technology organizations. From 2006-2007, Ms. Washington served as Chief Financial Officer of Hyperion Solutions, an enterprise software company that was acquired by Oracle Corporation in March 2007. Prior to that, Ms. Washington spent nearly 10 years at PeopleSoft, a provider of enterprise application software, where she served in a number of executive positions, most recently in the role of Senior Vice President and Corporate Controller. Ms. Washington is a Certified Public Accountant. She is a director of Salesforce.com Inc. and previously served as a director of Tektronix, Inc. (acquired by Danaher Corporation) (2005-2007) and MIPS Technologies, Inc. (acquired by Imagination Technologies Group PLC) (2008-2013).

Specific Qualifications, Attributes, Skills and Experience

 

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

 

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

 

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

 



Leadership

Industry / Global

Financial

Government

Public Company

Risk Management

Technology

Marketing

 

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Table of Contents

Corporate Governance > Board of Directors

 

CORPORATE GOVERNANCE

 

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

 

KEY CORPORATE GOVERNANCE DOCUMENTS

 

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

 

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

 

These documents are available free of charge on our website or by writing to Honeywell, 115 Tabor Road, Morris Plains, New Jersey 07950, c/o Vice President and Corporate Secretary.

 

Honeywell’s Code of Business Conduct applies to all directors, officers (including the Chief Executive Officer, Chief Financial Officer and Controller) and employees. Amendments to or waivers of the Code of Business Conduct granted to any of Honeywell’s directors and executive officers will be published on our website.

 

BOARD OF DIRECTORS

 

The primary functions of Honeywell’s Board of Directors are:

 

To oversee management performance on behalf of shareowners;
   
To ensure that the long-term interests of the shareowners are being served;
   
To monitor adherence to Honeywell standards and policies;
   
To promote the exercise of responsible corporate citizenship; and
   
To perform the duties and responsibilities assigned to the Board by the laws of Delaware, Honeywell’s state of incorporation.

 

Board Meetings

 

The Board of Directors held twelve meetings during 2016. The average attendance at meetings of the Board and Board Committees during 2016 was 98%. During this period, all of the directors attended or participated in at least 75% of the aggregate of the total number of meetings of the Board of Directors and the total number of meetings held by all Committees of the Board of Directors on which each such director served.

 

Board Leadership Structure

 

In June 2016, we announced that David Cote would step down as CEO on March 31, 2017 and serve as Chairman until the 2018 Annual Meeting of Shareowners. Darius Adamczyk, the current President and Chief Operating Officer and a member of the Board, will become CEO on March 31, 2017. Honeywell’s Corporate Governance Guidelines do not establish a fixed rule as to whether the offices of Chairman and CEO should be vested in the same person or two different people, but rather specify that board leadership structure is best considered as part of the CEO succession planning process. Prior to Mr. Cote’s retirement as Chairman of the Board in April 2018, the Board will determine whether to reinstate a combined CEO/Chairman role or separate them and appoint an independent Chairman.

 

The Board of Directors believes that the continuation of Mr. Cote’s service as Chairman of the Board until April 2018 is in the best interest of the Company and its shareowners. Mr. Cote possesses detailed and in-depth knowledge of the issues, opportunities and challenges facing the Company and its businesses and is well positioned to facilitate a seamless transition to new leadership.

 

The Board has been actively engaged in the implementation of the CEO succession plan and is focused on ensuring a successful CEO transition. A smooth transition is critical for maintaining a well-functioning company while building on a stellar track record of performance. Mr. Cote, as Chairman, is well positioned to provide leadership continuity as well as advice and guidance to Mr. Adamczyk and the Board during the leadership transition period.

 

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Table of Contents

Corporate Governance > Board of Directors

 

Lead Director

 

In June 2016, in addition to announcing the CEO transition from Mr. Cote to Mr. Adamczyk, we also took steps to strengthen the Lead Director role. Most importantly, instead of rotating lead directors annually based on seniority, the Board extended the tenure of the Lead Director to two years and made selection of the Lead Director a matter voted on by the Board using formal selection criteria. The Board also expanded the responsibilities of the Lead Director. See chart below for the selection criteria and the enhanced duties and responsibilities of the Lead Director. Based on the selection criteria, the Board elected Mr. Jaime Chico Pardo as the Lead Director to serve through the April 2018 Annual Meeting of Shareowners. The Board elected Mr. Chico Pardo because, in the opinion of the Board, he best meets the Lead Director selection criteria.

 

Lead Director Selection Criteria

 

•   Able to commit the time and level of engagement required to fulfill the substantial responsibilities of the role

 

•   Effective communication skills to facilitate discussions among Board members, including between the non-employee directors and the CEO and Chairman, and engage with key stakeholders

 

•   Strong rapport with other members of the Board

 

•   High personal integrity and ethical character

 

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

 

ο  Leadership experience within a large, complex organization

 

ο  International experience and exposure to a variety of markets

 

ο  Expertise aligned with key growth initiatives

 

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

 

Added Lead Director Responsibilities

 

•   Consult with management about what information is to be sent to the Board

 

•   Identify key strategic direction and operational issues upon which the Board’s annual core agenda is based

 

•   Serve as an ex-officio member of each Committee

 

•   Retain outside professionals on behalf of the Board

 

•   Perform such other duties as the Board may determine from time to time

 

Existing Responsibilities

 

•   Review, and when appropriate, make changes to, Board meeting agendas and schedules

 

•   Review, and when appropriate, make changes to, Board presentation materials

 

•   Preside at all executive sessions of the Board where the Chairman is not present

 

•   Serve as liaison between the Chairman and the independent directors

 

•   Be available for consultation and direct communications with our shareowners

 

•   Call meetings of the non-employee directors

 

Board Practices and Procedures

 

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

 

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Table of Contents

Corporate Governance > Board Committees

 

BOARD COMMITTEES

 

The Board currently has the following Committees: Audit; Corporate Governance and Responsibility; Management Development and Compensation; and Retirement Plans. Each Committee consists entirely of independent, non-employee directors. Each Committee operates under a written charter which is available on our website at www.honeywell.com (see “Investors/Corporate Governance/Board Committees”).

 

Committee Membership

 

The table below lists the current membership of each Committee and the number of Committee meetings held in 2016.

 

Name Audit Corporate Governance
and Responsibility
Management Development
and Compensation
Retirement Plans
Mr. Ayer   X X  
Mr. Burke X     X
Mr. Chico Pardo(a) X X X X
Mr. Davis X   Chair  
Ms. Deily X Chair    
Mr. Gregg X X    
Mr. Hollick     X X
Ms. Lieblein   X X  
Mr. Paz Chair X    
Dr. Sheares(b)     X Chair
Ms. Washington X     X
2016 Meetings 9 4 7 3
(a) Lead Director and ex officio member of each Committee; Mr. Chico Pardo stepped down as Chair of the Retirement Plans Committee, effective June 27, 2016.
(b) Dr. Sheares became Chair of Retirement Plans Committee, effective June 28, 2016.

 

Board Committees and Responsibilities

 

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

 

Board Committees   Responsibilities
     

AUDIT COMMITTEE

 

Committee Chair:

 

  George Paz*

 

Additional Committee Members:

 

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

 

*  Audit Committee Financial Expert

 

 

Meetings Held in 2016: 9

 

   All Members Independent

   Has oversight responsibility for our independent accountants

 

See further detailed information following this chart.

 

  Appoint (subject to shareowner approval), and be directly responsible for, the compensation, retention and oversight of, the firm that will serve as independent accountants to audit our financial statements and to perform services related to the audit; this includes resolving disagreements between management and the independent accountants regarding financial reporting;

 

  Review the scope and results of the audit with the independent accountants;

 

  Consider the accountants’ independence;

 

  Review with management and the independent accountants, prior to filing, the annual and interim financial results (including Management’s Discussion and Analysis) to be included in Forms 10-K and 10-Q;

 

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

 

  Review, approve and establish procedures for the receipt, retention and treatment of complaints received by Honeywell regarding accounting, internal control over financial reporting or auditing matters and for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters;

 

  Review material legal and compliance matters and the effectiveness of the Company’s integrity and compliance program; and

 

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

 

 

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Table of Contents

Corporate Governance > Board Committees

 

Board Committees   Responsibilities
     

CORPORATE GOVERNANCE AND RESPONSIBILITY COMMITTEE

 

Committee Chair:

 

  Linnet Deily

 

Additional Committee Members:

 

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

 

 

Meetings Held in 2016: 4

 

   All Members Independent

   Also serves as the Nominating Committee

 

 

  Identify and evaluate potential director candidates and recommend to the Board the nominees to be proposed by the Company for election to the Board;

 

  Review and make a recommendation to the Board regarding whether to accept a resignation tendered by a Board nominee who does not receive a majority of votes cast for his or her election in an uncontested election of directors;

 

  Review annually and recommend changes to the Corporate Governance Guidelines;

 

   Lead the Board in its annual review of the performance of the Board and its Committees;

 

  Review policies and make recommendations to the Board concerning the size and composition of the Board, the qualifications and criteria for election to the Board, retirement from the Board, compensation and benefits of non-employee directors, the conduct of business between Honeywell and any person or entity affiliated with a director, and the structure and composition of Board Committees; and

 

   Review Honeywell’s policies and programs relating to health, safety and environmental matters, political contributions and lobbying, equal employment opportunity and such other matters, including the Company’s Code of Business Conduct, as may be brought to the attention of the Committee regarding Honeywell’s role as a responsible corporate citizen.

     

MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE (“MDCC”)

 

Committee Chair:

 

  D. Scott Davis

 

Additional Committee Members:

 

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

 

 

Meetings Held in 2016: 7

 

   All Members Independent

   Administers Honeywell’s executive compensation program

 

See further detailed information following this chart.

 

 

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

 

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

 

  Review and approve the individual goals and objectives of the Company’s executive officers;

 

  Evaluate the CEO’s performance relative to established goals and objectives and, together with the other independent directors, determine and approve the CEO’s compensation level;

 

  Review and determine the annual salary and other remuneration (including incentive compensation and equity-based plans) of all other officers;

 

  Review and discuss with management, the Compensation Discussion and Analysis and other executive compensation disclosure included in this proxy statement;

 

  Produce the annual Committee Report included in this proxy statement;

 

  Review the management development program, including executive succession plans; and

 

  Review or take such other action as may be required in connection with the bonus, stock and other benefit plans of Honeywell and its subsidiaries.

 

Compensation Committee Interlocks And Insider Participation

 

During fiscal year 2016, all of the members of the MDCC were independent directors, and no member was an employee or former employee of Honeywell. No MDCC member had any relationship requiring disclosure under “Certain Relationships and Related Transactions” on page 19 of this proxy statement. During fiscal year 2016, none of our executive officers served on the compensation committee (or its equivalent) or board of directors of another entity whose executive officer served on the MDCC.

 

     

RETIREMENT PLANS COMMITTEE

 

Committee Chair:

 

  Bradley Sheares

 

Additional Committee Members:

 

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

 

 

Meetings Held in 2016: 3

 

   All Members Independent

 

 

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

 

  Review funding strategies;

 

  Review investment policy for fund assets; and

 

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

 

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Table of Contents

Corporate Governance > Board Committees

 

Board Committee Oversight of Independent Accountants

 

The Audit Committee seeks to ensure the exercise of appropriate professional skepticism by the independent accountants by reviewing and discussing, among other things, management and auditor reports regarding significant estimates and judgments and the results of peer quality review and PCAOB inspections of the independent accountants. They also review and pre-approve all audit and non-audit services provided to Honeywell by the independent accountants in order to determine that such services would not adversely impact auditor independence and objectivity. The Audit Committee also holds separate executive sessions at each in-person meeting with representatives of our independent accountants, and with Honeywell’s Chief Financial Officer and Vice President—Corporate Audit. The Board has determined that Messrs. Paz, Burke, and Davis, and Mses. Deily and Washington satisfy the “accounting or related financial management expertise” requirements set forth in the NYSE listing standards, and has designated each of Mr. Paz, Mr. Davis and Ms. Washington as the Securities and Exchange Commission (“SEC”) defined “audit committee financial expert.” See page 78 for the Audit Committee Report.

 

Board Committee Retention of the Outside Compensation Consultant

 

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

 

The MDCC regularly reviews the services provided by its outside consultants and performs an annual assessment of the independence of its compensation consultant to determine whether the compensation consultant is independent. The MDCC conducted a specific review of its relationship with PM in 2016, and determined that PM is independent in providing Honeywell with executive compensation consulting services and that PM’s work for the MDCC did not raise any conflicts of interest, consistent with SEC rules and NYSE listing standards.

 

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

 

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

 

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

 

PM compiles information and provides advice regarding the components and mix (short-term/long-term; fixed/variable; cash/equity) of the executive compensation programs of Honeywell and its “Compensation Peer Group” (see pages 40-41 of this proxy statement for further detail regarding the Compensation Peer Group) and analyzes the relative performance of Honeywell and the Compensation Peer Group with respect to stock performance and the financial metrics generally used in the programs. PM also provides information regarding emerging trends and best practices in executive compensation. In addition to information compiled by PM, the MDCC also reviews general survey data compiled and published by third parties. Neither the MDCC nor Honeywell has any input into the scope of or the companies included in these third-party surveys.

 

While the MDCC reviews information provided by PM regarding compensation paid by the Compensation Peer Group, as well as third-party survey data, as a general indicator of relevant market conditions, the MDCC does not target a specific competitive position relative to the market in making its compensation determination.

 

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

 

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Table of Contents

Corporate Governance > Board’s Role in Risk Oversight

 

Compensation Input From Senior Management

 

The MDCC considers input from senior management in making determinations regarding the overall executive compensation program and the individual compensation of the executive officers.

 

As part of Honeywell’s annual planning process, the CEO, CFO and Senior Vice President-Human Resources, Procurement and Communications develop targets for Honeywell’s incentive compensation programs and present them to the MDCC. These targets are reviewed by the MDCC to ensure alignment with our strategic and annual operating plans, taking into account the targeted year-over-year and multi-year improvements as well as identified opportunities and risks. The CEO recommends base salary adjustments and cash and equity incentive award levels for Honeywell’s other executive officers. These recommendations are based on performance appraisals (including an assessment of the achievement of pre-established financial and non-financial management objectives) together with a review of supplemental performance measures and prior compensation levels relative to performance.

 

Each year, the CEO presents to the MDCC and the full Board his evaluation of each executive officer’s contribution and performance over the past year, strengths and development needs and actions, and reviews succession plans for each of the executive officers.

 

BOARD’S ROLE IN RISK OVERSIGHT

 

While senior management has primary responsibility for managing risk, the Board as a whole has responsibility for risk oversight. Relevant Board Committees review specific risk areas, as enumerated below, and report on their deliberations to the Board. The full Board oversees risk in several ways. Through regular updates on the financial and operating results of Honeywell, as well as the annual operating and five-year strategic plans of each Strategic Business Unit (“SBG”), management provides the Board with management’s view of the key commercial and strategic risks faced by each business unit. During those presentations, the Board is able to provide management with feedback on whether management has identified the key risks and is taking appropriate actions to mitigate risk. In addition, management reports to the Board and each Committee periodically on specific, material risks as they arise or as requested by individual Board members. Annually, management reports to the Audit Committee and full Board on its Enterprise Risk Management or ERM program. These presentations are designed to provide full visibility into the risks facing Honeywell and how management is mitigating risk, thereby enabling the Board to effectively exercise its oversight function. Through its ERM program, management identifies the most significant risks facing the Company and ensures that, where possible, it deploys adequate risk mitigation strategies. Through dialogue with the Board as a whole and individual Board members, the Board provides oversight and guidance to management to ensure that the ERM process identifies the complete universe of risks facing Honeywell and that adequate mitigation steps, where appropriate, are in place.

 

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

 

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

 

Board/Committee Primary Areas of Risk Oversight
Full Board

•   General commercial risks such as new product launch, capital spend, raw material price increases, foreign currency fluctuation, diminished customer demand, technology obsolescence, reductions to government spending, and a slowdown in economic growth. Each of the Presidents and CEOs of our SBGs reviews these risks as part of his annual strategic review with the Board of Directors.

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

•   Legal risks arising from litigation, intellectual property infringement, health, safety, and environment, regulatory issues such as Foreign Corrupt Practices Act (FCPA), antitrust, conflict minerals, and product liability

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

 

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Corporate Governance > Director Independence

 

Audit Committee

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

•   Accounting, controls, and financial disclosure

•   Tax and liquidity management

•   Compliance matters associated with import/export, International Traffic in Arms Regulations (ITAR) and FCPA

•   Certain kinds of employee misconduct

•   Catastrophic risks such as pandemics, natural disasters, and plant accidents

Corporate Governance and Responsibility Committee

•   Labor compliance and progress in implementing our diversity goals and objectives

•   Political contributions and lobbying

•   Health, safety, environmental, product stewardship and sustainability

Management Development and Compensation Committee

•   Senior management succession planning

•   Executive compensation plans, programs and arrangements

Retirement Plans Committee •   Employee pension and saving plans

 

DIRECTOR INDEPENDENCE

 

Our Corporate Governance Guidelines state that the “Board intends that, at all times, a substantial majority of its directors will be considered independent under relevant NYSE and SEC guidelines.” The Corporate Governance and Responsibility Committee conducts an annual review of the independence of the directors and reports its findings to the full Board.

 

Based on the report and recommendation of the Corporate Governance and Responsibility Committee, the Board has determined that each of the non-employee nominees standing for election to the Board at the Annual Meeting—Messrs. Ayer, Burke, Chico Pardo, Davis, Gregg, Hollick, Paz, and Sheares and Mses. Deily, Lieblein and Washington—satisfies the independence criteria in the applicable NYSE listing standards and SEC rules (including the enhanced criteria with respect to members of the Audit Committee and the MDCC). Each Board Committee member qualifies as a non-employee director within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

For a director to be considered independent, the Board must determine that the director does not have any material relationships with Honeywell, either directly as a partner, shareowner or officer of an organization that has a relationship with Honeywell, other than as a director and shareowner. Material relationships can include vendor, supplier, consulting, legal, banking, accounting, charitable and family relationships, among others.

 

Criteria for Director Independence

 

The Board considered all relevant facts and circumstances in making its determinations, including the following:

 

No non-employee director or nominee receives any direct compensation from Honeywell other than under the director compensation program described on pages 16-19 of this proxy statement.
   
No immediate family member (within the meaning of the NYSE listing standards) of any non-employee director or nominee is an employee of Honeywell or otherwise receives direct compensation from Honeywell.
   
No non-employee director or nominee is affiliated with Honeywell or any of its subsidiaries or affiliates.
   
No non-employee director or nominee is an employee of Honeywell’s independent accountants and no non-employee director or nominee (or any of their respective immediate family members) is a current partner of Honeywell’s independent accountants, or was within the last three years, a partner or employee of Honeywell’s independent accountants and personally worked on Honeywell’s audit.
   
No non-employee director or nominee is a member, partner, or principal of any law firm, accounting firm or investment banking firm that receives any consulting, advisory or other fees from Honeywell.
   
No Honeywell executive officer is on the compensation committee of the board of directors of a company that employs any of our non-employee directors or nominees (or any of their respective immediate family members) as an executive officer.
   
No non-employee director or nominee (or any of their respective immediate family members) is indebted to Honeywell, nor is Honeywell indebted to any non-employee director or nominee (or any of their respective immediate family members).
   
No non-employee director or nominee serves as an executive officer of a charitable or other tax-exempt organization that received contributions from Honeywell.
   
Honeywell has commercial relationships (purchase and/or sale of products and services) with companies at which our directors serve or have served as officers (Mr. Ayer—Alaska Air Group, Mr. Burke—Consolidated Edison, Mr. Davis—UPS, Ms. Lieblein—General Motors, Mr. Paz—Express Scripts, and Ms. Washington—Gilead Sciences). In each case:
   
  (i) The relevant products and services were provided on terms and conditions determined on an arm’s-length basis and consistent with those provided by or to similarly situated customers and suppliers;

 

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Corporate Governance > Identification and Evaluation of Director Candidates

 

  (ii) The relevant director did not initiate or negotiate the relevant transaction, each of which was in the ordinary course of business of both companies; and
     
  (iii) The combined amount of such purchases and sales was less than 0.8% of the consolidated gross revenues of each of Honeywell and the other company in each of the last three completed fiscal years. This level is significantly below the requirements of the NYSE listing standards for director independence, which uses a 2% of total revenue threshold and applies it to each of purchases and sales rather than the combination of the two.
     
While a non-employee director’s or nominee’s service as an outside director of another company with which Honeywell does business would generally not be expected to raise independence issues, the Board also considered those relationships and confirmed the absence of any material commercial relationships with any such company. Specifically, those commercial relationships were in the ordinary course of business for Honeywell and the other companies involved and were on terms and conditions available to similarly situated customers and suppliers.

 

The above information was derived from Honeywell’s books and records and responses to questionnaires completed by the director nominees in connection with the preparation of this proxy statement.

 

IDENTIFICATION AND EVALUATION OF DIRECTOR CANDIDATES

 

The Corporate Governance and Responsibility Committee (“CGRC”) also serves as the Board’s Nominating Committee. The CGRC consists entirely of independent directors under applicable SEC rules and NYSE listing standards. In this role, they seek individuals qualified to become directors, evaluate the qualifications of individuals suggested or nominated by third parties, including shareowners (and recommend actions if needed), and recommend to the Board the nominees to be proposed by Honeywell for election to the Board. The CGRC considers director candidates in anticipation of upcoming director elections and other potential or expected Board vacancies.

 

The CGRC considers director candidates suggested by its members, other directors, senior management and shareowners. The CGRC has, from time to time, retained, at Honeywell’s expense, a search firm to identify potential director candidates. The CGRC is also authorized to retain other external advisors for specific purposes, including performing background reviews of potential candidates. The search firm retained by the CGRC has been provided guidance as to the particular experience, skills and other characteristics that the Board is seeking. The CGRC has delegated responsibility for day-to-day management and oversight of the search firm engagement to Honeywell’s Senior Vice President—Human Resources, Procurement and Communications.

 

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

 

The CGRC annually reviews with the Board the requisite skills and characteristics of Board members, as well as the composition of the Board as a whole. This assessment includes a consideration of independence, diversity, age, skills, experience and industry backgrounds in the context of the needs of the Board and the Company, as well as the ability of current and prospective directors to devote sufficient time to performing their duties in an effective manner. Directors are expected to exemplify the highest standards of personal and professional integrity, and to constructively challenge management through their active participation and questioning. In particular, the CGRC seeks directors with established strong professional reputations and expertise in areas relevant to the strategy and operations of Honeywell’s businesses. The CGRC conducts regular reviews of current directors in light of the considerations described above and past contributions to the Board.

 

OUR COMMITMENT TO BOARD DIVERSITY

 

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

 

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Corporate Governance > Director Orientation and Continuing Education

 

BOARD TENURE

 

We believe that electing directors with a mix of tenures facilitates effective Board oversight. Hence, careful consideration is made to achieve the appropriate balance. Directors with many years of service to Honeywell provide the Board with a deep knowledge of our Company, while newer directors lend fresh perspectives.

 

Shareowners wishing to recommend a director candidate to the CGRC for its consideration should write to the CGRC, in care of Vice President and Corporate Secretary, Honeywell, 115 Tabor Road, Morris Plains, New Jersey 07950. To receive meaningful consideration, a recommendation should include the candidate’s name, biographical data, and a description of his or her qualifications in light of the above criteria. Shareowners wishing to nominate a director should follow the procedures set forth in the Company’s By-laws and described under “Director Nominations” on page 88 of this proxy statement.

 

This year, one director is proposed for nomination to the Board of Directors that has not previously been nominated for election to the Board by the shareowners, Mr. Darius Adamczyk. Mr. Adamczyk was elected to the Board by its directors effective December 9, 2016 and will succeed Mr. Cote as Honeywell’s CEO on March 31, 2017. Mr. Adamczyk is currently Honeywell’s President and Chief Operating Officer, a position he will continue to hold until he succeeds Mr. Cote as CEO.  Mr. Adamczyk will not serve on any of the Committees of the Board of Directors. 

 

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

 

DIRECTOR ORIENTATION AND CONTINUING EDUCATION

 

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

 

DIRECTOR ATTENDANCE AT ANNUAL MEETINGS

 

Honeywell has no specific policy regarding director attendance at its Annual Meeting of Shareowners. Generally, however, Board and Committee meetings are held immediately preceding and following the Annual Meeting of Shareowners, with directors attending the Annual Meeting. All of the directors attended last year’s Annual Meeting of Shareowners.

 

DIRECTOR COMPENSATION

 

The CGRC reviews and makes recommendations to the Board regarding the form and amount of compensation for non-employee directors. Directors who are employees of Honeywell receive no compensation for service on the Board. Honeywell’s director compensation program is designed to enable continued attraction and retention of highly qualified directors and is designed to address the time, effort, expertise and accountability required of active Board membership.

 

Annual Compensation

 

In general, the CGRC and the Board believe that annual compensation for non-employee directors should consist of both a cash component, designed to compensate members for their service on the Board and its Committees, and an equity component, designed to align the interests of directors and shareowners and, by vesting over time, to create an incentive for continued service on the Board.

 

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Corporate Governance > Director Compensation

 

Board of Directors’ Annual Compensation  
Board Retainer $100,000
Lead Director $35,000 per annum
Board Committee Membership

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

 

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

Common Stock Equivalents

These amounts are credited annually but payment is deferred until termination of Board service. Payments are made in cash, as either a lump sum or in equal annual installments.

 

At the commencement of each year, $60,000 in Common Stock equivalents is automatically credited to each director’s account in the Deferred Compensation Plan for Non-Employee Directors. Dividend equivalents are credited with respect to these amounts.

Annual Equity Grants

Stock options vest in equal annual installments over the four years following the grant date. The options also become fully vested at the earliest of the director’s retirement from the Board on or after the mandatory retirement age set by the Board and in effect on the date of grant (currently age 72), death, disability or change in control, as set forth in the 2016 Stock Plan for Non-Employee Directors of Honeywell (the “Non-Employee Director Plan”) and the relevant award agreements.

 

The RSUs will vest on the earliest of the third anniversary of the date of grant, the director’s death or disability, or change in control.

 

Each non-employee director receives an annual equity grant with a target value of $100,000 consisting of 50% restricted stock units (“RSUs”) and 50% options to purchase shares of Common Stock at a price per share equal to the fair market value of a share of Common Stock on the date of grant, which is the date of the Annual Meeting of Shareowners.

 

Deferred Compensation

 

A non-employee director may elect to defer all or any portion of his or her annual cash retainers and fees, until a specified calendar year or termination of Board service. Compensation is credited to their account in the Deferred Compensation Plan for Non-Employee Directors. Amounts credited either accrue interest (3.64% for 2016) or are valued as if invested in a Honeywell Common Stock fund or one of the other funds available to participants in our employee savings plan. The unit price of the Honeywell Common Stock fund is increased to take dividends into account. In addition to payments at the termination of Board service, upon a change of control, as defined in the Non-Employee Director Plan, a director may receive, pursuant to a prior election, a lump-sum payment for amounts deferred before 2006.

 

Mr. Chico Pardo participates in the legacy Honeywell Inc. Non-Employee Directors Fee and Stock Unit Plan. The last fee deferral under this plan occurred on December 1, 1999. Since that date, deferred amounts are increased only by dividend equivalents. Payment will be made to the participating director in whole shares of Common Stock following the earlier of a change in control or the director’s termination of Board service for any reason, in one payment or annual installments, as elected by the director.

 

Other Benefits

 

Non-employee directors are also provided with $350,000 in business travel accident insurance. They are also eligible to elect to receive $100,000 in term life insurance and medical and dental coverage, for themselves and their eligible dependents, which is consistent with similar coverage offered to Honeywell’s active salaried employees. Directors elected to the Board after September 2008 are responsible for paying premiums for term life insurance and medical and dental coverage which they elect to receive. Honeywell also matches, dollar for dollar, any charitable contribution made by a director to any charity, up to a maximum of $25,000 in the aggregate per director, per calendar year. In addition, directors may utilize available Company aircraft for travel to and from Board and Committee meetings.

 

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Corporate Governance > Director Compensation

 

Restricted Stock Unit Grant Upon Election to Board

 

New non-employee directors receive a one-time grant of 3,000 RSUs upon their election to the Board that vest on the earliest of the fifth anniversary of continuous Board service, death, disability or change in control. During this period, the director will receive dividend equivalents that will be automatically reinvested into additional RSUs which vest according to the same schedule as the underlying RSUs to which they relate. The director may defer the receipt of the RSUs on substantially the same terms and conditions as Honeywell officers with respect to new grants of RSUs.

 

Stock Ownership Guidelines

 

Director stock ownership guidelines have been adopted under which each non-employee director, while serving as a director of Honeywell, must hold Common Stock (including restricted shares and RSUs and/or Common Stock equivalents) with a market value of at least five times the annual cash retainer (or $500,000). They must hold net gain shares from option exercises for one year. “Net gain shares” means the number of shares obtained by exercising the option, less the number of shares the director sells to cover the exercise price of the options and pay applicable taxes. Directors have five years from election to the Board to attain the prescribed ownership threshold. All current directors have attained the prescribed ownership threshold.

 

 

 

DIRECTOR COMPENSATION—FISCAL YEAR 2016

 

            Change in Pension      
            Value and      
            Nonqualified      
   Fees        Deferred      
   Earned or  Stock  Option  Compensation  All Other   
Director Name  Paid in Cash($)(1)  Awards($)(2)(3)  Awards($)(2)(4)  Earnings($)(5)  Compensation($)(6)  Total($)
William Ayer  $180,000  $50,076  $49,998  $0  $25,004  $305,078
Gordon Bethune*  $97,912  $50,076  $49,998  $64,841  $4  $262,831
Kevin Burke  $185,000  $50,076  $49,998  $0  $25,004  $310,078
Jaime Chico Pardo  $225,000  $50,076  $49,998  $0  $26,963  $352,037
D. Scott Davis  $205,000  $50,076  $49,998  $5,352  $1,686  $312,112
Linnet Deily  $205,000  $50,076  $49,998  $0  $33,919  $338,993
Judd Gregg  $185,000  $50,076  $49,998  $0  $3,254  $288,328
Clive Hollick  $180,000  $50,076  $49,998  $5,913  $41,022  $327,009
Grace Lieblein  $180,000  $50,076  $49,998  $0  $5,004  $285,078
George Paz  $205,000  $50,076  $49,998  $0  $25,004  $330,078
Bradley Sheares  $190,000  $50,076  $49,998  $11,253  $26,110  $327,437
Robin Washington  $185,000  $50,076  $49,998  $0  $25,004  $310,078
* Mr. Bethune retired from the Board at the 2016 Annual Meeting of Shareowners.
(1) Includes all fees earned, whether paid in cash or deferred under the Deferred Compensation Plan for Non-Employee Directors (including amounts treated as deferred in the Honeywell Common Stock Fund).
(2) The following table reflects all outstanding stock awards and option awards held at December 31, 2016 by each of the listed individuals. All outstanding stock awards and option awards listed below include adjustments made as a result of the spin-off of Honeywell’s wholly owned subsidiary, AdvanSix Inc. (“AdvanSix”) to holders of record of Honeywell common stock as of September 16, 2016. The spin-off of AdvanSix was effective October 1, 2016. In accordance with the terms of the underlying Stock Incentive Plans, unexercised non-qualified stock options and unvested and deferred restricted stock units were adjusted to preserve their pre-spin-off economic value. Each stock option or stock award was adjusted upward by multiplying the number of shares outstanding before the spin-off by a conversion ratio of 1.005724. Outstanding stock option exercise prices were adjusted downward on a grant-by-grant basis, by dividing the exercise price before the spin-off by a conversion ratio of 1.005724.

 

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Corporate Governance > Certain Relationships and Related Transactions

 

  Outstanding
Stock Awards at
Outstanding Option
Director Name 12/31/16 Awards at 12/31/16
Mr. Ayer 4,108 6,168
Mr. Burke 1,392 24,645
Mr. Chico Pardo 1,392 39,729
Mr. Davis 1,392 29,673
Ms. Deily 1,392 29,673
Mr. Gregg 1,392 19,617
Mr. Hollick 1,392 34,701
Ms. Lieblein 4,670 11,647
Mr. Paz 1,392 29,673
Dr. Sheares 1,392 24,645
Ms. Washington 4,652 11,647
(3) The amounts set forth in this column represent the aggregate grant date fair value of stock awards computed in accordance with FASB ASC Topic 718. The fair value of each stock award is estimated on the date of grant by averaging the high and low of the Company’s stock price on the day of grant. Stock awards of 440 shares were made to non-employee directors in April 2016 with a value of $113.81 per share.
(4) The amounts set forth in this column represent the aggregate grant date fair value of option awards computed in accordance with FASB ASC Topic 718. The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. Option awards of 3,121 shares were made to non-employee directors in April 2016 with a Black-Scholes value of $16.02 per share. A more detailed discussion of the assumptions used in the valuation of option awards made in fiscal year 2016 may be found in Note 18 of the Notes to the Financial Statements in the Company’s Form 10-K for the year ended December 31, 2016.
(5) Amounts included in this column reflect above-market earnings on deferred compensation. Amounts invested in cash under the Deferred Compensation Plan for Non-Employee Directors are credited with the same rate of interest that applies to executives under the Honeywell Salary and Incentive Award Deferral Plan for Selected Employees. Deferrals for the 2006 plan year and later earn a rate of interest, compounded daily, based on the Company’s 15-year cost of borrowing. The rate is subject to change annually. For 2016, this rate was 3.64%, and is set at 2.69% for 2017. Deferrals for the 2005 plan year earn a rate of interest, compounded daily, which was set at an above-market rate before the beginning of the plan year and is subject to change annually. Deferrals for the 2004 plan year and prior plan years earn a rate of interest, compounded daily, that was set at an above-market rate before the beginning of each plan year. This rate is fixed until the deferral is distributed.
(6) See “Director Compensation—Other Benefits” above for a description of the items included in the All Other Compensation column for 2016. Honeywell matched charitable contributions in the amounts of:
   
  Matched Charitable
Director Name Contributions
Mr. Ayer $25,000
Mr. Burke $25,000
Mr. Chico Pardo $25,000
Ms. Deily $25,000
Mr. Gregg $3,250
Mr. Hollick $25,000
Ms. Lieblein $5,000
Mr. Paz $25,000
Dr. Sheares $25,000
Ms. Washington $25,000

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Applicable Policies and Procedures

 

Honeywell has written policies and procedures for approval or ratification of related person transactions. Article EIGHTH of Honeywell’s Amended and Restated Certificate of Incorporation provides that a related or interested party transaction shall not be void or voidable if such transaction is duly authorized or ratified by a majority of the disinterested members of the Board of Directors. Consistent with SEC rules, a related or interested party transaction includes a transaction between the Company and a director, director nominee or executive officer of the Company or a beneficial owner of more than 5% of the Company’s Common Stock or any of their respective immediate family members. Furthermore, the Honeywell Code of Business Conduct requires that each director and executive officer report to the Board of Directors on an ongoing basis any relationship or transaction that may create or appear to create a conflict between the personal interests of those individuals (or their immediate family members) and the interests of the Company. A conflict, or appearance of a conflict, might arise, for

 

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Stock Ownership Information > Five Percent Owners of Company Stock

 

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

 

If a conflict of interest or related party transaction is of a type or a nature that falls within the scope of oversight of a particular Board Committee, it is referred to that Committee for review. The Board or the responsible Committee must review any potential conflict and determine whether any action is required. This includes whether to authorize, ratify or direct the unwinding of the relationship or transaction under consideration, as well as ensure that appropriate controls are in place to protect Honeywell and its shareowners. In making that determination, the Board or responsible Committee considers all relevant facts and circumstances, such as:

 

The benefits of the transaction to Honeywell;
   
The terms of the transaction and whether they are arm’s-length and in the ordinary course of the Company’s business;
   
The direct or indirect nature of the related person’s interest in the transaction;
   
The size and expected term of the transaction; and
   
Other facts and circumstances that bear on the materiality of the related person transaction under applicable law and listing standards.

 

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

 

Related Person Transactions

 

The Honeywell ADI business leases its administrative office building in Melville, New York at a current rent of approximately $1,066,240 per year. After ADI entered into this lease, the property was acquired by a partnership known as “New Island Holdings.” There have been no material amendments to the lease since the property was acquired by New Island Holdings. Both Mr. Roger Fradin and Mr. Andreas Kramvis, each a former Vice Chairman, are limited partners in New Island Holdings, holding 12% and 9% ownership interests, respectively. The limited partners of New Island Holdings receive distributions based on total lease payments generated from the portfolio of buildings that the partnership owns, less applicable mortgage and other expenses.

 

Mr. John Cote, the son of Mr. David Cote, is the founder and chief executive officer of Industrial Inspection & Analysis, Inc. (“IIA”) which acquired QC Group, LLC in November 2015. Mr. J. Cote is the manager of QC Group which provides metrology/dimensional inspection services to one of Honeywell’s businesses as part of Honeywell’s quality control processes. The services are provided on terms and conditions determined on an arm’s-length basis. QC Group received approximately $600,000 from Honeywell in 2016 for payment of services. QC Group and Honeywell entered into the services arrangement prior to Mr. J. Cote’s involvement with QC Group. IIA, as the ultimate parent of QC Group, receives distributions based on the total revenues generated from QC Group’s inspection services, and Mr. J. Cote, the majority owner of IIA, receives distributions from IIA based on the total revenues generated from IIA’s portfolio of companies.

 

STOCK OWNERSHIP INFORMATION

 

FIVE PERCENT OWNERS OF COMPANY STOCK

 

The following table lists information about those holders known to Honeywell to be the beneficial owners of 5% or more of the outstanding shares of Common Stock as of December 31, 2016.

 

   Percent of  
   Number of   Common Stock  
Name and Complete Mailing Address  Shares   Outstanding  
The Vanguard Group 
100 Vanguard Blvd., Malvern, PA 19355  46,875,180(1)  6.15% 
BlackRock, Inc.       
55 East 52nd Street, New York, NY 10055  43,697,040(2)  5.7% 
(1) The Vanguard Group and certain related entities have sole voting power in respect of 1,171,785 shares and sole dispositive power in respect of 45,575,165 shares.
(2) BlackRock, Inc. has sole voting power in respect of 37,290,644 shares and sole dispositive power in respect of 43,697,040 shares.

 

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Section 16(a) Beneficial Ownership Reporting Compliance

 

STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

 

The following table lists information as of February 24, 2017 about the beneficial ownership of Common Stock by each director or director nominee, each executive officer named in the Summary Compensation Table, and by all directors (including nominees) and executive officers of Honeywell as a group. Except as otherwise noted, the individuals listed in the following table have the sole power to vote or transfer the shares reflected in the table.

 

   Components of Beneficial Ownership (Number of Shares)    
Name(1)  Common Stock
Beneficially
Owned
   Right
To Acquire(2)
   Other
Stock-Based
Holdings(3)
   Total Number
of Shares(4)
William S. Ayer   0    1,514    1,780    3,294
Kevin Burke   12,747    19,374    7,815    39,936
Jaime Chico Pardo   32,650    34,458    30,949    98,057
David M. Cote   514,636    5,707,479    890,262    7,112,377
D. Scott Davis   15,970    24,402    16,029    56,401
Linnet F. Deily   4,269    24,402    14,274    42,945
Judd Gregg   7,571    14,346    9,696    31,613
Clive Hollick   4,219    29,430    21,569    55,218
Grace D. Lieblein   540    6,376    4,857    11,773
George Paz   5,540    24,402    10,263    40,205
Bradley T. Sheares   3,268    19,374    18,076    40,718
Robin L. Washington   540    6,376    5,805    12,721
Thomas A. Szlosek   36,135    406,047    48,743    490,925
Darius Adamczyk   15,354    426,926    1,763    444,043
Timothy O. Mahoney   73,020    1,038,407    52,311    1,163,738
Krishna Mikkilineni   87,370    495,817    1,726    584,913
All directors, nominees and executive officers as a group,
including the above-named persons (22 people)
   1,063,474    9,684,623    1,148,462    11,896,559

 

(1) c/o Honeywell International Inc., 115 Tabor Road, Morris Plains, New Jersey 07950.
(2) Includes shares which the named individual or group has the right to acquire through the exercise of vested stock options, and shares which the named individual or group has the right to acquire through the vesting of performance shares, RSUs and stock options within 60 days of February 24, 2017.
(3) Includes shares and/or share-equivalents in deferred accounts, as to which no voting or investment power exists.
(4) The total beneficial ownership for any individual is less than 1% and the total for the group is approximately 1.56% of the shares of Common Stock outstanding.

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Exchange Act requires our directors, executive officers, and persons who own more than 10% of our Common Stock to file reports of ownership and changes in ownership of our Common Stock with the SEC. Based on the information available to us during fiscal year 2016, we believe that all applicable Section 16(a) filing requirements were met on a timely basis.

 

SEC FILINGS AND REPORTS

 

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports, are available free of charge on our website at www.honeywell.com under the heading “Investor Relations” (see “SEC Filings & Reports”) immediately after they are filed with or furnished to the SEC.

 

SUSTAINABILITY AND CORPORATE RESPONSIBILITY

 

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

 

Honeywell’s Sustainable Opportunity policy is based on the principle that by integrating health, safety, and environmental considerations into all aspects of its business, Honeywell:

 

Protects its people and the environment;
   
Achieves sustainable growth and accelerated productivity;
   
Drives compliance with all applicable regulations; and
   
Develops the technologies that expand the sustainable capacity of our world.

 

Nearly 50% of Honeywell’s product portfolio is linked to energy efficiency.

 

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Sustainability and Corporate Responsibility > Highlights of Our Environmental and Safety Goals and Achievements

 

HIGHLIGHTS OF OUR ENVIRONMENTAL AND SAFETY GOALS AND ACHIEVEMENTS

 

Program   Achievements

Greenhouse Gas Reduction and Energy Efficiency

 

Honeywell reports on its global greenhouse gas emissions publicly through the Carbon Disclosure Project and through reports submitted to the U.S. Environmental Protection Agency and the United Kingdom Environmental Agency. A qualified third party has verified Honeywell’s 2011, 2012, 2013, 2014 and 2015 greenhouse gas emission inventories.

 

  In 2007, the Company established five-year greenhouse gas and energy efficiency objectives for its internal operations for the period 2007-2011.

 

  By the end of 2011, Honeywell had reduced its greenhouse gas emissions by more than 30%, and increased its energy efficiency by more than 20%, in each case, from a 2004 baseline year.

 

  To sustain this progress, Honeywell set an additional public commitment to reduce its greenhouse gas emissions per dollar of revenue from our 2011 level by an additional 15% by 2017.

 

  We met this goal three years early and, in 2015, set an additional goal at an event at the U.S. Department of Energy: by 2019 Honeywell will reduce its greenhouse gas emissions per dollar of revenue from our 2013 level by an additional 10%.

Water

 

Honeywell has developed a global inventory of water usage in its manufacturing operations.

 

•  In 2013, the Company implemented water conservation projects at sites that are significant water consumers in areas that are experiencing “water stress” as defined by the World Resources Institute.

 

•  The Company implemented additional water conservation projects in these areas in 2014, 2015 and 2016.

Safety

 

Honeywell utilizes a comprehensive Health, Safety, Environment, Product Stewardship and Sustainability (“HSEPS”) Management System based on recognized third-party standards, including ISO 14001 and OHSAS 18001, and industry best practices. The management system is fully integrated into the Honeywell Operating System, which drives continuous sustainable operational improvement. Compliance with standards and regulatory requirements is monitored through a Company-wide, HSEPS-led audit process. The timely development and implementation of process improvements and corrective action plans are closely monitored.

 

•  We maintain a Company-wide global Total Case Incident Rate (the number of occupational injuries and illnesses per 100 employees) of less than half of the combined U.S. averages of the industries in which we operate, based on data from the Bureau of Labor Statistics.

 

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

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

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

 

Honeywell’s Vice President of HSEPS reports to the Company’s Senior Vice President and General Counsel and has overall responsibility for HSEPS programs. A Corporate Energy & Sustainability Team, led by the Vice President of HSEPS, the Vice President of Global Real Estate and the Director of Sustainability, helps drive the Company’s sustainability goals. Progress on these goals is reported to Honeywell’s CEO on a monthly basis and is reviewed with the Board’s Corporate Governance and Responsibility Committee at least annually.

 

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Political Contributions and Activities

 

Honeywell’s Integrity and Compliance program

 

Honeywell’s Integrity and Compliance program reflects our vision and values and helps our employees, representatives, contractors, consultants, and suppliers comply with a high standard of business conduct globally. At the core of the Integrity and Compliance program is the Company’s Code of Business Conduct (the “Code”) that applies across the Company in all businesses and in all countries. All employees are required to complete Code of Business Conduct training and certify that they will comply with the Code. In addition, managers and executives certify on an annual basis that they will act in accordance with the Code.

 

The Code is a baseline set of requirements that enables employees to recognize and be aware of how to report integrity, compliance, and legal issues. In addition, the Code outlines our pledge to recognize the dignity of each individual, respect each employee, provide compensation and benefits that are competitive, promote self-development through training that broadens work-related skills, and value diversity of perspectives and ideas. The Code provides guidance and outlines expectations in a number of key integrity and compliance areas, including how employees should treat each other, conflicts of interest, HSEPS, books and records, anti-corruption and proper business practices, trade compliance, insider trading, data privacy, respect for human rights, and the appropriate use of information technology and social media.

 

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

 

Honeywell Hometown Solutions

 

Honeywell demonstrates its commitment to corporate social responsibility and community involvement through Honeywell Hometown Solutions, which focuses on five important societal needs that align with Honeywell’s culture, products and people: safety and security, housing and shelter, math and science education, habitat and conservation, and humanitarian relief.

 

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

 

Teaching parents and children potentially life-saving lessons to help avoid abduction and preventable childhood injuries;
   
Repairing homes and community centers for low-income families, the elderly and the disabled;
   
Offering academic opportunities that inspire students to pursue careers in science, technology, engineering and math (STEM), and providing teachers with new and innovative techniques to teach STEM education;
   
Partnering with environmental organizations to provide students with unique learning opportunities and teaching tools for educators to promote environmental science in the classroom; and
   
Helping Honeywell employees and communities recover from natural disasters such as Hurricanes Matthew and Sandy along the eastern seaboard of the U.S., wildfires in Alberta, Canada, and Colorado Springs, flooding in Louisiana, Super Typhoon Haiyan in the Philippines, the Great Japan Earthquake and Tsunami, and earthquakes in Mexico, Haiti and China.
   

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

 

POLITICAL CONTRIBUTIONS AND ACTIVITIES

 

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

 

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

 

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Shareowner Outreach and Engagement

 

MANAGEMENT AND BOARD OVERSIGHT

 

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

 

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

 

POLITICAL CONTRIBUTIONS

 

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

 

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

 

In 2016, the Center for Political Accountability (“CPA”), a non-profit, non-partisan organization, assessed our disclosure for its annual CPA-Zicklin Index of Corporate Political Disclosure and Accountability (“CPA-Zicklin Index”). The CPA-Zicklin Index measures the transparency, policies, and practices of the S&P 500. Our enhanced disclosure on political lobbying and contributions ranked us in the “First Tier” of the 2016 CPA-Zicklin Index for the third year in a row. Our enhanced disclosure was also influenced by feedback received from our largest shareowners during our shareowner outreach initiative where we met with shareowners to discuss their views on several topics, including Honeywell’s disclosure on lobbying and political contributions.

 

For additional detail on Honeywell’s policies and processes on political contributions and lobbying, please see our response to Shareowner Proposal Number 6 on pages 82-84.

 

SHAREOWNER OUTREACH AND ENGAGEMENT

 

Understanding the issues that are important to our shareowners is critical in ensuring that we address their interests in a meaningful and effective way. It is also a tenet of good governance. In that light, we engage with our shareowners on a regular basis to discuss a range of topics including our performance, strategy, risk management, executive compensation, and corporate governance. We recognize the value of taking our shareowners’ views into account. Dialogue and engagement with our shareowners helps us understand how they view us, set goals and expectations for our performance, and identify emerging issues that may affect our strategies, corporate governance, compensation practices or other aspects of our operations.

 

Our shareowner and investor outreach includes investor road shows, analyst meetings, and investor conferences. We also communicate with shareowners and other stakeholders through various media, including our annual report and SEC filings, proxy statement, news releases, and our website. We hold conference calls for our quarterly earnings releases and other major corporate events which are open to all. These calls are available in real time and as archived webcasts on our website.

 

Our Chairman and CEO, Chief Operating Officer, Chief Financial Officer, Vice President of Investor Relations and other senior management meet periodically with investors to discuss Honeywell’s strategy, financial and business performance and to update investors on key developments. Our Lead Director and the Chair of the Management Development and Compensation Committee met with a significant number of our largest shareowners in 2016 to discuss a range of issues including executive compensation and corporate governance.

 

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Shareowner Outreach and Engagement > Governance and Compensation Outreach

 

GOVERNANCE AND COMPENSATION OUTREACH

 

In the Summer/Fall of 2016, outreach invitations were sent to our 32 largest shareowners (representing approximately 45% of the shares outstanding) and direct meetings were held with investors holding approximately one-third of the shares outstanding. Among the specific matters we discussed were the following:

 

•   Review of our CEO succession plan, the CEO transition from David Cote to Darius Adamczyk and the retention of Mr. Cote as Chairman through the 2018 Annual Meeting of Shareowners.

 

•   Changes to our Lead Director role to formalize selection criteria and expand the duties and responsibilities of the Lead Director. We also discussed shareowner views on separation of the roles of Chairman of the Board and Chief Executive Officer. See “Board Leadership Structure” and “Lead Director” on pages 8-9 and “Proposal No. 5: Independent Board Chairman” on pages 80-82. Opinions expressed by shareowners profoundly affected our decision to enhance our Lead Director role.

 

•   Modifications to our executive compensation program based on shareowner feedback. See “Engagement with Shareowners on Compensation” on page 36.

 

•   An update on our recent segment realignment in which we separated one of our reporting segments, ACS into two new segments, HBT and SPS. See “Executive Summary” on page 28.

 

 

COMMUNICATING WITH MANAGEMENT AND IR

 

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

 

Mark Macaluso

Vice President, Investor Relations

Honeywell

115 Tabor Road, Morris Plains, NJ 07950

Phone: +1 (973) 455-2222

 

Visit our website at www.honeywell.com

 

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

 

PROCESS FOR COMMUNICATING WITH BOARD MEMBERS

 

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

 

Honeywell
c/o Vice President and Corporate Secretary
115 Tabor Road
Morris Plains, NJ 07950

 

Honeywell’s Corporate Secretary reviews and promptly forwards communications to the directors as appropriate. Communication involving substantive accounting or auditing matters are forwarded to the Chair of the Audit Committee. Certain items that are unrelated to the duties and responsibilities of the Board will not be forwarded such as: business solicitation or advertisements; product or service related inquires; junk mail or mass mailings; resumes or other job-related inquires; spam and overly hostile, threatening, potentially illegal or similarly unsuitable communications.

 

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EXECUTIVE COMPENSATION

 

COMPENSATION DISCUSSION AND ANALYSIS

 

In this section, we review the objectives and elements of Honeywell’s executive compensation program, its alignment with performance and the 2016 compensation decisions regarding our Named Executive Officers.

 

TABLE OF CONTENTS  
Proposal No. 2: Advisory Vote on the Frequency of Future Advisory Votes to Approve Executive Compensation 27
Proposal No. 3: Advisory Vote to Approve Executive Compensation 27
Executive Summary 28
• Overview of Executive Compensation 28
• Strong Succession Planning Changes 29
• Overview of Financial Performance 30
• Pay For Performance 31
• We Are Creating Value For Our Shareowners 34
• We Are Deploying Capital Wisely 34
• Engagement with Shareowners on Compensation 36
• Evolution of Our Compensation Program and Link to Business Strategy and Performance 37
• Summary Description of 2016 Compensation Decisions For NEOs 38
Our Compensation Philosophy & Approach 39
• How Compensation Decisions Are Made 40
• Our Competitive Market - Compensation Peer Group 40
• Succession Plan Activities 41
Compensation Program Description 43
• Elements of 2016 Total Annual Direct Compensation 43
• Program Elements and Related 2016 Compensation Decisions 43
—Annual Incentive Compensation Plan (“ICP”) 43
• Long-Term Incentive Compensation (“LTI”) 49
—Stock Options 49
—Growth Plan Unit (“GPU”) Awards 50
—Performance Restricted Stock Units (“Performance RSUs”) 53
Other Compensation & Benefit Programs 55
• Retirement plans 55
• Nonqualified Deferred Compensation Plans 55
• Benefits and Perquisites 55
Compensation Practices and Policies 56
• Best Practices 56
• Risk Oversight Considerations 57
• Stock Ownership Guidelines 57
• Recoupment/Clawback 58
• Tax Deductibility of Executive Compensation 58
• Pledging and Hedging Transactions in Company Securities 59
• Management Development and Compensation Committee Report 59

 

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Executive Compensation > Proposal No. 2: Advisory Vote on the Frequency of Future Advisory Votes to Approve Executive Compensation

 

Proposal No. 2: ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY VOTES TO APPROVE EXECUTIVE COMPENSATION

 

We are seeking a non-binding vote from our shareowners as to the frequency with which shareowners should have an opportunity to provide an advisory approval of our executive compensation program. Under the Dodd-Frank Act, every six years the Company is required to seek a non-binding advisory shareowner vote regarding the frequency of the submission to shareowners of an advisory vote to approve executive compensation. The Dodd-Frank Act specifies that shareowners be given the opportunity to vote on executive compensation every one, two or three years or abstain. For the reasons described below, we recommend that our shareowners select a frequency of one year (i.e., annually). Starting with our annual meeting held in 2011, we have held annual votes on executive compensation.

 

The Board believes that an annual advisory vote on executive compensation is consistent with having a regular dialogue with our shareowners on corporate governance matters, including executive compensation. An annual shareowner vote allows our shareowners to provide us with direct and immediate feedback regarding the effectiveness of our compensation programs, and provides our Board and compensation committee with the opportunity to consider shareowner views as part of its regular compensation review.

 

We therefore request that our shareowners select “1 Year” when voting on the frequency of advisory votes on executive compensation. Although the advisory vote is non-binding, our Board will review the results of the vote and, consistent with our record of shareowner engagement, take them into account in making a determination concerning the frequency of advisory votes on executive compensation.

 

Your Board of Directors unanimously recommends a vote for the option of “1 Year” on the frequency of future advisory votes on executive compensation.

 

Proposal No. 3: ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

 

Honeywell seeks a non-binding advisory vote from its shareowners to approve the compensation of its Named Executive Officers as described in the Compensation Discussion and Analysis section beginning on page 26 and the Compensation Tables section beginning on page 60. This vote is commonly known as “Say-on-Pay”.

 

We have made some significant modifications to our compensation programs in part as a result of feedback we received from our shareowners after our 2016 Annual Meeting. We encourage you to read the Compensation Discussion and Analysis and Compensation Table sections to learn more about our executive compensation programs and policies and the changes we are making. The Board believes that its 2016 compensation decisions and our executive compensation programs align the interests of shareowners and executives by emphasizing variable, at-risk compensation largely tied to measurable performance goals utilizing an appropriate balance of near-term and long-term objectives.

 

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

 

The Board has adopted a policy of providing for an annual Say-on-Pay vote. As required by the executive compensation rules of the Securities and Exchange Commission, in Proposal 2 of this proxy statement, we are requesting that shareowners vote on the frequency of the Say-on-Pay vote and recommend that shareowners continue to support an annual Say-on-Pay vote to approve executive compensation.

 

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

 

“RESOLVED, that the Company’s shareowners approve, on an advisory basis, the compensation of the Named Executive Officers, as disclosed in the Company’s proxy statement for the 2017 Annual Meeting of Shareowners pursuant to the executive compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the 2016 Summary Compensation Table and the other related tables and disclosure.”

 

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

 

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Executive Compensation > Executive Summary

 

EXECUTIVE SUMMARY

 

In 2016, Honeywell once again successfully balanced short-term financial performance and long-term value creation for our shareowners. In terms of comparing our 2016 financial results to our compensation peer group:

 

We grew reported revenue 1.9%, whereas median reported revenues among our compensation peer group declined 0.9%.
   
Our net income(1) increased 6.4%, whereas the median net income among our compensation peer group increased only 2.0%.
   
We grew EPS(1) 8.2%, whereas median adjusted EPS growth among our compensation peer group was only 7.4% (despite the fact that compensation peers were more aggressive in their use of share repurchases) and we incurred the following expenses and costs during 2016 that negatively impacted 2016 EPS but which represent investments that create long-term value for our shareowners:
   
  $0.24 per share of commercial aerospace original equipment manufacturers (“OEM”) incentive payments by our Aerospace (“Aero”) Strategic Business Group (“SBG”) to secure our position on key air transport and business jet platforms;
     
  $0.22 per share of acquisition related amortization expense and integration costs;
     
  $0.28 per share representing increased R&D expenditures;
     
  $0.09 per share representing increased repositioning expenses that will make our operations more efficient and productive and which we estimate will reduce costs annually by $200-$300 million once fully implemented; and
     
  $0.05 per share representing increased depreciation largely attributable to significant capital expenditure investment in high return on investment (“ROI”) projects such as Solstice® refrigerant and UOP catalyst manufacturing capacity.

 

In 2016 we continued executing on a balanced capital deployment strategy by repurchasing $2.1 billion of our shares, restructuring and refinancing over $8 billion in debt, increasing our dividend rate by 12% and funding high ROI capital projects through $1.1 billion in capital expenditures. 2016 was also notable in terms of the number of transformational events and transactions that will ensure the sustainability of our annual financial performance:

 

We undertook a significant reorganization of our SBGs. In order to better drive top-line growth through customer focus and technological innovation and improve the overall speed of decision-making in the organization, we separated our former Automation and Control Solutions (“ACS”) SBG into two new SBGs: Home and Building Technologies (“HBT”) and Safety and Productivity Solutions (“SPS”). Going forward, we will operate out of four SBGs: Aero, HBT, Performance Materials and Technologies (“PMT”) and SPS.
   
The Board of Directors successfully implemented a CEO and SBG leadership succession plan by designating Darius Adamczyk as Honeywell’s next Chief Executive Officer and Messrs. Terrence Hahn, Rajeev Gautam and John Waldron as the leaders of HBT, PMT and SPS.
   
We continued to improve our portfolio of businesses through the divestiture of the Honeywell Technology Solutions (HTSI) government services business and tax-free spin-off of the former Resins and Chemicals business as AdvanSix Inc. which, based on the trading price of AdvanSix shares on the spin date, represented the transfer to our shareowners of approximately $800 million in value. These transactions demonstrate our commitment to evolving our business portfolio to ensure alignment with our core technology strengths and focus on businesses which offer compelling organic and inorganic growth opportunities.
   
We continued our track record of successful M&A activity by announcing and closing three significant transactions: the $1.5 billion acquisition of Intelligrated, a leader in supply chain and warehouse automation; the $515 million acquisition of Xtralis, a global provider of aspirating smoke detection systems, advanced perimeter security technologies, and video analytics software; and the $347 million acquisition of COM DEV, a leading satellite and space components provider. All told, we have deployed over $8 billion of capital in acquisitions in 2015 and 2016.

 

(1) Excluding Pension Mark-To-Market (“MTM”) and 4Q 2016 Debt Refinancing Expenses

 

OVERVIEW OF EXECUTIVE COMPENSATION

 

Honeywell’s executive compensation program is designed to motivate and incentivize our executives to deliver sustainable, long-term financial outperformance for our shareowners. In designing our executive compensation plans, the members of the Board’s Management Development and Compensation Committee (“MDCC”) are focused on aligning our goals with the interests of our shareowners. An important part of ensuring this alignment involves engaging with, and listening to, our shareowners. The MDCC also benchmarks our executive compensation programs against a relevant group of peer companies, all of whom would be interested in recruiting our executives.

 

In recent years, the MDCC has been particularly focused on the need to ensure a smooth transition in the leadership of our Company. On June 28, 2016, we announced that Darius Adamczyk would become Honeywell’s Chief Executive Officer on March 31, 2017. Effective December 9, 2016, Mr. Adamczyk was elected to our Board of Directors reflecting the strength of leadership already demonstrated by Mr. Adamczyk during his tenure as President and Chief Operating Officer and the Board’s confidence in the transition plan and his future performance. Our current Chairman and Chief Executive Officer, David Cote, will remain as an

 

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employee of the Company in the capacity of Executive Chairman of the Board through Honeywell’s 2018 Annual Meeting of Shareowners (subject to shareowner approval). In addition to announcing Mr. Cote’s successor, we also announced the promotion of three individuals with long and outstanding track records at Honeywell to become SBG Presidents and Chief Executive Officers of three of our four SBGs. Hence, in addition to aligning the interests of shareowners and executives through the design of Honeywell’s executive compensation program, the MDCC also demonstrated the effectiveness of our compensation programs in retaining and developing a new generation of leaders to continue the success achieved during the 15-year tenure of Mr. Cote.

 

STRONG SUCCESSION PLANNING CHANGES

 

Success Achieved Under David Cote

 

Our shareowners tend to hold our stock for extended periods of time which makes the table below incredibly important to them. It reflects how the financial performance of Honeywell has changed since Mr. Cote’s first full year with Honeywell. While likely not measured by many companies this way, notice how Honeywell has effectively grown shareowner value while reducing the total number of executives by 10%. Our market cap is up 330%, EPS (excluding pension MTM and 4Q 2016 debt refinancing expenses) is up 337% and segment profit is up 206%, while annual bonus cost is only up 10%. In addition to delivering strong financial performance and increased shareowner value while controlling executive costs, having fewer executives reduces bureaucracy and results in faster decision-making. It also makes the remaining executive jobs more critical and meaningful to delivering future shareowner value.

 

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EPS Excludes Pension MTM and 4Q 2016 Debt Refinancing Expenses
Free Cash Flow = Cash Flow from Operations less Capital Expenditures
Dividend per share includes cash dividends and 2016 AdvanSix share dividend

 

OVERVIEW OF FINANCIAL PERFORMANCE

 

2016 was a year of not only superior financial performance but also of significant strategic actions that will set a solid foundation for sustainable top-line and profit growth during Mr. Adamczyk’s tenure as CEO. The table below summarizes the portfolio restructuring actions we took through acquisitions, divestitures and a spin-off, organizational changes we implemented by realigning our reporting segments, and a significant debt restructuring we undertook for greater capital flexibility and reduced interest expense, all of which set the stage for future growth under Mr. Adamczyk’s leadership.

 

2016 Performance Context

 

 

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The actions described above required strong executive leadership and a disciplined and focused business organization capable of simultaneously delivering superior 2016 financial results and executing complex strategic and financial projects certain to have long term benefits for our shareowners. In terms of our 2016 financial performance, we once again overcame difficult challenges in the macro environment and end markets in which Honeywell operates to build on our three-year track record of solid relative and absolute performance in each of the key metrics relevant to our executive compensation programs: Sales, EPS, Segment Margin, Return on Invested Capital (or “ROIC”), TSR and Free Cash Flow. The table below sets forth our performance on each metric for the past three years (2014-2016):

 

 

PAY FOR PERFORMANCE

 

2016 Performance Relative to Peers

 

In ensuring alignment between pay and performance, the MDCC assesses Honeywell’s financial performance against two sets of peer data: a group of 18 companies that we call our “Compensation Peer Group” and a smaller subset of the Compensation Peer Group made up of Emerson Electric (“EMR”), General Electric (“GE”), 3M Corporation (“MMM”), and United Technologies (“UTX”), against whom we frequently compete for investment dollars. We refer to these four companies as our “Multi-Industry Peer Group”. Each of these four companies is a multi-industrial company that has broadly overlapping institutional ownership, is covered by the same set of Wall Street research analysts that covers Honeywell, and operates in a similarly diverse set of end markets on a global basis. See page 40 for a description of how the MDCC selected the Compensation Peer Group and changes made in 2016 to the composition of the Compensation Peer Group and page 33 for a description of how the MDCC uses certain non-GAAP financial information for both Honeywell and its peers in making compensation decisions.

 

For both the Compensation Peer Group and Multi-Industry Peer Group, the MDCC considers four primary indicators of financial performance: Sales growth, EPS growth, Net Income growth, and ROIC. The table below summarizes our performance against both our Compensation Peer Group and Multi-Industry Peer Group:

 

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Five-Year Net Income and EPS Growth vs. Peers

 

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

 

*EPS and Net Income Exclude Pension MTM and 4Q 2016 Debt Refinancing Expenses

 

 

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Other Relevant Indicators of Three-Year Financial Performance

 

The MDCC is also mindful of financial metrics used by institutional investors, third-party analysts and the broader financial community to compare Honeywell’s performance versus our peers. The following graphs set forth our performance versus the median of each of the Compensation Peer Group and Multi-Industry Peer Group for four metrics, in each case, over a three year period ending in 2016:

 

 

The MDCC also carefully considers several different ratios that are important measures of Honeywell’s earnings performance compared to both the Compensation Peer Group Median and the Multi-Industry Peer Group Median. Our shareowners told us that they regard ROIC as a particularly important metric because it shows how well management is balancing delivery of short-term results against long-term sustainable growth. Honeywell’s three-year ROIC was 17.2% versus 13.1% for the Multi-Industry Peer Group Median and 12.5% for the Compensation Peer Group Median.

 

 

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WE ARE CREATING VALUE FOR OUR SHAREOWNERS

 

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

 

 

 

WE ARE DEPLOYING CAPITAL WISELY

 

Our financial performance has not come at the expense of making smart capital deployment decisions. We continue to deliver shareowner value through a number of means. Our dividend payout ratio has grown from 34.2% in 2014 to 37.5% in 2016, not including the tax-free spin-off of AdvanSix which occurred on October 1, 2016. Based on the stock price of AdvanSix as of the spin-off date, this transaction represented the return of approximately $800 million in value to shareowners. We also continue to return capital to shareowners through opportunistic share repurchases while at the same time undertaking a carefully planned and executed M&A program.

 

 

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Improving Growth Profile Through M&A Activity

 

We have achieved attractive returns on capital deployed to ten acquisitions completed over the past 18 months through the end of 2016:

 

  Portfolio Offering
Elster Advanced Gas Heating, Controls And Metering
Intelligrated Warehouse Automation And Software, Addressing e-Commerce Trend
Xtralis Smoke Detection, Advanced Perimeter Security and Video Analytics Software
COM DEV Space-Based Communications Components and Related Subsystems
SatCom1 On-Board Communications Routing Software, In-Flight Airtime and Consulting
Aviaso Software As A Service That Reduces Airline Fuel Consumption
Movilizer Created One Of The World’s First Cloud Platforms For Field Service Applications
RSI Leading Provider Of Intrusion Detection With Video Verification
Sigma Aldrich
(Research Chemicals)
Growing Faster Than High-Purity Research Chemicals Market
Thomas Russell
(Remaining 30% Stake)
Technology And Modular Equipment Provider For Natural Gas Processing / Treating

 

Capital Investment

 

Capital expenditures in 2016 were $1.1 billion, consistent with the level of spending in both 2014 and 2015 when our reinvestment ratio(1) was over 150%. We continue to focus our capital expenditures on projects in high ROI businesses intended to help grow revenues in-line with our long-term targets. Product lines for which we are building new manufacturing facilities or materially expanding existing facilities include the Honeywell Solstice® family of low global-warming potential refrigerants, blowing agents, aerosols and solvents. We are also building new production facilities to make UOP catalyst and adsorbent products that, among other things, remove radioactive material from water such as was required for the Fukushima earthquake disaster clean-up.

 

(1)Reinvestment ratio equals capital expenditures divided by depreciation expense.

 

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ENGAGEMENT WITH SHAREOWNERS ON COMPENSATION

 

We routinely seek our shareowners’ views on our governance and compensation practices. After our 2016 Annual Meeting, we extended invitations to 32 shareowners representing 45% of our outstanding shares. Sixteen shareowners accepted our invitation, representing 33% of our outstanding shares. Our Lead Director and Chairman of the MDCC directly participated in eight of these meetings with shareowners. We heard very positive feedback on the financial performance of Honeywell, the high caliber of the management team and how well we are handling succession activities.

 

Our shareowners did, however, suggest several ways in which we could modify our compensation programs. The changes we are implementing have been well received by the shareowners with whom we have engaged on compensation and governance matters during the summer and fall of 2016. These changes also reflect our Board’s recognition that there should be a more visible linkage of compensation to business results and performance. The table below reflects those suggested changes and describes the changes that we made in 2016 and will continue to make over the next two compensation cycles.

 

  What We Heard From Some
Shareowners
Changes Being Made
(for CEO and the entire Leadership Team)
Change Takes Effect
ICP
(Annual
Incentive

Compensation
Plan)
Want better visibility into how objective financial metrics and discretion factor into determining awards. Transitioning to more formulaic approach. 80% of target ICP awards to be based on performance against pre-established goals for EPS and Free Cash Flow. 20% based on qualitative assessment of individual performance. For 2016 ICP Awards
(Paid in March 2017)
Prefer resetting baseline to target each year over using the prior year actual award as the baseline. Reset annual baseline award to each leadership team member’s annual target ICP award as a percent of base pay. For 2017 ICP Awards because we were already half way through 2016
       
Growth Plan
(multi-year)
The 2-year non-overlapping performance cycle was viewed as too short, even with the delayed payout feature.

Replace the biennial Growth Plan with an annual share-based Performance Plan (i.e., PSUs) with 3-year overlapping performance cycles. Plan will be 100% formulaic with performance measured against key financial metrics and relative TSR. Shares earned and paid at the end subject to holding requirements.

 

 

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

Initial grant of new 3-year PSUs will be made in 2017. Annual grants to be made thereafter.
The whole 2 years of value must be reported in the 2nd year which leads to lumpy reporting.
Prefer long-term performance awards to be share-based instead of cash.
Desire a relative metric, such as TSR, to be added to our Growth Plan.
       
Form and
Mix of
Long-Term
Incentive
(“LTI”)
Awards
Mix too heavily weighted in stock options. Investors desire heavier weighted in performance-equity. Reduce weighting in stock options to ~25% of target LTI over next two annual compensation cycles. Increase weighting in PSUs to 50%+ of target mix. Transition will commence in 2017 and be completed in 2018.
RSUs granted every other July gives impression they are “one off” vs. part of regular program.   Relative TSR performance requirements added to 100% of the biennial RSU awards made in 2016. No RSU grants to be made in 2017, then starting in 2018 there will be annual RSU grants.

 

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

 

Over the next two years, our compensation program will evolve from a program weighted heavily in stock options, to a program more heavily weighted in Performance Stock Unit (“PSU”) awards with all Long-Term Incentive grants to be made on a consistent annual basis.

 

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

 

 

SIGNIFICANT CHANGES TO EXECUTIVE COMPENSATION PLANS

 

•   80% of Annual Bonus Becomes Formulaic

 

•   Replacing 2-year Growth Plan with 3-Year Performance Plan

 

•   Shifting Weight from Stock Options to Performance Stock Units

 

•   ~50% of Annual Long-Term Incentives to be Performance-Based

 

 

Timeline for Implementation of Executive Compensation Changes

 

 

     2016    2017    2018   LINK TO STRATEGY &
PERFORMANCE
                 
Base Salary   Base salaries are determined based on scope of responsibility, years of experience and
individual performance.
  To attract and compensate high-performing
and experienced leaders at a competitive
level of cash compensation.
                 
                 
                 
                 
Annual
Incentive
Compensation
Program
(“ICP”)
  Cash award; 80% based on
formulaic determination
against pre-established
financial metrics. 20%
based on assessment of
individual performance.
Prior year actual award as
baseline (Iast year we will
use this approach).
  Cash award; 80% based on formulaic determination against
pre-established financial metrics. 20% based on assessment
of individual performance. Reset annual baseline award for
the CEO and the whole leadership team to their annual
target ICP as a percent of base pay.
  To motivate and reward executives for
achieving annual corporate, SBG and
functional goals in key areas of financial
and operational performance.
                 
                 
                 
Long Term
Incentive
Compensation
(“LTI”)
 

 

 

Stock Options:

•  CEO: 66% of LTI

•  Other NEOs: 48% of LTI

 

 

 

 

 

Biennial Growth Plan
Units:

•  CEO: 34% of LTI

•  Other NEOs: 24% of LTI

 

 

 

 

Performance-based
Restricted Stock Units:

•  CEO: None

•  Other NEOs: 28% of LTI

•  3-Year Relative TSR

 

 

 

Stock Options:

•  Ramp down weighting

 

 

 

 

 

 

3-Year Performance Plan:

•  Stock-based PSUs

•  Ramp up weighting

•  Will include TSR and financial metrics

 

 

 

 

Restricted Stock Units:

•  None

 

Stock Options:

•  CEO and whole leadership team: 25% of LTI

 

 

 

  

3-Year Performance Plan

•   CEO and whole
leadership team:
~50% of LTI

•  Stock-based PSUs

•  Will include TSR and
financial metrics

  

 

 

 

Restricted Stock Units:

•  CEO and whole
leadership team: 25%
of LTI

•  Time-based for
Retention

 

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

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Encourages key executive retention.

 

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SUMMARY DESCRIPTION OF 2016 COMPENSATION DECISIONS FOR NEOS

 

The table below summarizes the 2016 compensation actions, which were consistent with our long-standing commitment to aligning pay with company performance and the interests of our shareowners. Details about the compensation decisions made in 2016 are more fully discussed later in this Compensation Discussion and Analysis or “CD&A”.

 

Pay Element   CEO (Mr. Cote)   NEOs (excluding the CEO)   Comments
Base Salary   No increase   No increase for Messrs. Mahoney and Szlosek.     Messrs. Adamczyk and Mikkilineni are first year NEOs.
Annual Incentive Compensation
Program (“ICP”)
  Earned award flat to 2015 (100% payout percentage)   Aggregate annual ICP payout percentage of 104%  

 80% of payout based on company performance against the two pre-established ICP metrics of EPS(1) and free cash flow(2).

 

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

Stock Options – annual   Same number of Options, but reduction of 10% value vs. 2015   Aggregate grant-date value represented 48% of 2016 LTI opportunity    Over 2017 and 2018, the MDCC will be lowering the target LTI weighting in stock options to 25%
Long-Term Performance Plan (Growth Plan) – biennial   Received same number of Growth Plan Units (“GPUs”) as in previous two cycles.

Retroactive decision to vest in shares, not cash.
  Aggregate annualized target value represented 24% of 2016 LTI opportunity  

 Earned awards will be based on performance against three pre-established financial targets measured over the two-year performance cycle: total revenue, return on investment (“ROI”) expansion and segment margin expansion.

 

 This was the last two-year Growth Plan performance cycle, prior to implementing the new three-year Performance Plan.

Performance Restricted Stock Units – biennial   Not issued to CEO   Additional performance features added to 2016 grants.

Vest over an extended period (typically over seven years).

Aggregate annualized target value represented 28% of 2016 LTI opportunity
 

 100% of award based on Cumulative Total Shareowner Return (“TSR”) relative to the Compensation Peer Group performance over a 3-year period.

 

 2016 was the final year of biennial grants. There will be no RSUs granted in 2017. Beginning in 2018, RSUs will be granted annually as part of the regular LTI mix.

 

(1) Excluding Pension MTM and 4Q 2016 Debt Refinancing Expenses
   
(2) Cash Flow from Operations less Capital Expenditures

 

2016 Total Annual Direct Compensation for Each Named Executive Officer (NEO)

 

The following table reflects 2016 annualized compensation to the NEOs from the perspective of the MDCC.

 

NEO   Position   Base
Salary
  Annual
Bonus
  Stock
Options
  Performance
Restricted
Stock Units(A)(C)
  2016-2017
Growth
Plan(B)(C)
  Total Annual
Direct
Compensation(C)
David M. Cote   Chairman & CEO   $1,890,000   $5,700,000   $9,348,000   $0   $4,750,000   $21,688,000
Thomas A. Szlosek   Chief Financial Officer   $840,000   $850,000   $2,337,000   $1,337,500   $1,250,000   $6,614,500
Darius Adamczyk   Chief Operating Officer   $1,120,383   $1,450,000   $3,896,000   $1,671,875   $2,000,000   $10,138,258
Timothy O. Mahoney   Aerospace - President & CEO   $917,019   $850,000   $2,726,500   $2,006,250   $1,250,000   $7,749,769
Krishna Mikkilineni   SVP - Engineering, Ops and IT   $717,678   $725,000   $2,181,200   $1,471,250   $1,000,000   $6,095,128

 

(A) Performance restricted stock units with 100% of payout tied to Honeywell’s relative TSR against the Compensation Peer Group over three years. Vesting of shares under these awards occurs ratably in years three, five and seven for Messrs. Adamczyk, Szlosek and Mikkilineni and in years three and five for Mr. Mahoney. Values listed in the table reflect annualized value of biennial grant.
   
(B) Annualized target value of biennial Growth Plan award for the 2016-2017 performance cycle. Starting in 2017, Honeywell will transition to annual grants of Performance Stock Units which have a three-year performance cycle.
   
(C) Reflects the MDCC’s view of the award value that should be attributed to 2016, which differs from the methodology required by the SEC for purposes of the Summary Compensation Table

 

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OUR COMPENSATION PHILOSOPHY & APPROACH

 

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

 

1. Attract and Retain World-Class Leadership Talent with the ability and experience necessary to develop and execute business strategies, drive superior financial results, and nimbly adapt and react to constantly evolving end market conditions in an enterprise with our scale, breadth, complexity and global footprint;

 

2. Emphasize Variable, At-risk Compensation with an appropriate balance of near-term and long-term objectives that align executive and shareowner interests;

 

3. Pay for Superior Results and Sustainable Growth by rewarding and differentiating among executives based on the achievement of enterprise, business unit and individual objectives as well as efforts to advance Honeywell’s long-term growth initiatives; and

 

4. Manage Risk through Oversight and Compensation Design features and practices that balance short-term and long-term incentives, are not overly leveraged and cap maximum payments.

 

Each year, the MDCC reviews each NEO’s four-year compensation history in total and each element of total annual direct compensation. The MDCC also reviews projected benefit payments under Honeywell’s retirement and deferred compensation plans, and any previously granted awards or grants. This enables the MDCC to understand how each element of compensation interacts with the other elements and to see how current compensation decisions may affect future wealth accumulation and executive retention.

 

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

 

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

 

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

 

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

 

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HOW COMPENSATION DECISIONS ARE MADE

 

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

 

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

 

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

 

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

 

OUR COMPETITIVE MARKET — COMPENSATION PEER GROUP

 

The MDCC believes it is important to understand the relevant market for executive talent to ensure that Honeywell’s executive compensation program supports the attraction and retention of highly-qualified leaders. On an annual basis, our independent compensation consultant compiles compensation data on both our Compensation Peer Group and Multi-Industry Peer Group and presents this data to the MDCC.

 

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

 

On an annual basis, the MDCC also reviews the peer groups for appropriateness, with focus on companies that have one or more of the following attributes:

 

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

 

Recognizing we have completed 37 acquisitions and 30 divestitures since last changing our compensation peer group in 2009, the MDCC made changes to the Compensation Peer Group in 2016 in order to make it more representative of Honeywell’s evolving portfolio of businesses. Specifically, the MDCC viewed the former peer group as over weighted in aerospace and defense and under weighted in other key industries such as oil and gas. The changes made by the MDCC are consistent with MSCI and S&P Global’s August 2016 announcement of a change in Honeywell’s sub-industry GICs code from “Aerospace & Defense” to “Industrial Conglomerates” to better reflect the Company’s more diversified set of businesses with activities in multiple sectors. The 2016 Compensation Peer Group companies are listed on page 41.

 

It should also be noted that in comparing the financial performance of Honeywell to both its Compensation Peer Group and the Multi-Industry Peer Group, the MDCC uses certain non-GAAP financial information that both Honeywell and each peer company utilizes in its financial disclosure and investor presentations. For example, we adjust Net Income and EPS by excluding the pension mark-to-market and 4Q 2016 debt refinancing expenses. The MDCC believes it is important to review the same type of financial information that our investors use in making investment decisions and that Wall Street research analysts use when comparing and contrasting us to our peers and making investment recommendations.

 

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COMPENSATION PEER GROUP – 2016

 

Company Name   Market
Capitalization ($M)
  Revenue ($M)   Total Assets ($M)   Number of
Employees
 
3M(1)   $107,404     $30,109     $32,906     91,584    
The Boeing Company   $96,080     $94,571     $89,997     150,500    
Caterpillar Inc.(2)   $54,260     $38,537     $74,704     95,400    
Deere & Company   $32,823     $26,644     $57,981     56,800    
Dow Chemical   $64,165     $48,158     $79,511     56,000    
E.I. DuPont de Nemours   $64,175     $24,594     $39,964     46,000    
Eaton Corporation(2)   $30,305     $19,747     $30,419     95,000    
Emerson Electric(1)   $35,928     $20,232     $22,088     103,500    
General Electric(1)   $279,546     $123,693     $365,200     295,000    
General Dynamics   $52,578     $31,353     $32,872     98,800    
Illinois Tool Works(2)   $42,984     $13,599     $15,201     50,000    
Ingersoll-Rand(2)   $19,385     $13,509     $17,397     45,000    
Johnson Controls   $38,583     $37,674     $63,253     209,000    
Lockheed Martin   $73,227     $47,248     $47,806     97,000    
Phillips 66(2)   $45,007     $88,435     $50,254     14,800    
Raytheon Co.   $41,698     $24,069     $30,052     63,000    
Schlumberger Limited(2)   $116,800     $27,810     $77,956     95,000    
United Technologies   $90,262     $57,244     $89,706     202,000    
Median:   $53,419     $30,731     $49,030     95,000    
Honeywell International   $88,143     $39,302     $54,146     131,000    
Honeywell Percentile Rank:   76%     65%     56%     80%    
   
(1) Also included in our Multi-Industry Peer Group for comparison of business performance. See page 31 for a discussion of why the Committee considers the Multi-Industry Peer Group a particularly relevant set of companies when reviewing Honeywell’s performance.
   
(2) Added in 2016
   
Companies removed from the Compensation Peer Group in 2016 as being in an unrelated industry or to address the overweighting in Aerospace & Defense were Alcoa, Northrop Grumman and Textron.

 

SUCCESSION PLAN ACTIVITIES

 

Leadership Changes:

 

David Cote will step down as CEO on March 31, 2017 and serve as Chairman until April 2018
   
Darius Adamczyk, current COO, will become CEO on March 31, 2017

 

Retention of highly-qualified leadership talent is critical to Honeywell’s continued performance and to successful succession planning. The MDCC routinely considers, and reviews with the full Board, succession candidates for the CEO and other senior leadership positions under both near-term and long-term planning scenarios, taking into account demonstrated performance, leadership qualities and potential to take on more complex responsibilities.

 

The CEO succession plan announced on June 28, 2016 demonstrates the success of the MDCC’s robust planning process. Mr. Darius Adamczyk, who will succeed Mr. Cote as Honeywell’s CEO on March 31, 2017, had served in roles of increasing responsibility in several different business units. Most notably, Mr. Adamczyk was CEO of our PMT SBG from April 2014 until April 2016 when he was promoted to the newly created position of Chief Operating Officer (“COO”). In that capacity, all of the SBG CEOs reported to Mr. Adamczyk, and he was also responsible for implementation of our HOS Gold operating system across the enterprise.

 

After Mr. Cote steps down as CEO on March 31, 2017, he will remain as Executive Chairman of the Board, subject to shareowner approval, until the April 2018 Annual Meeting of Shareowners. Coincident with the above announcements, in June 2016, Mr. Cote entered into a CEO Continuity Agreement which formalized the terms of his transition. This agreement, the details of which were included in the materials discussed with shareowners during 2016 outreach meetings, contained the following key terms:

 

Mr. Cote’s December 2014 retention agreement was entirely replaced as the new Continuity Agreement shortened his previously contemplated tenure as CEO and added certain obligations in connection with his continued service as Executive Chairman from

 

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  March 31, 2017 until our April 2018 Annual Meeting of Shareowners. The effect of the replacement was to rescind the $5 million target value performance stock option grant issued to Mr. Cote in 2014 and to restore, as pensionable, $500,000 of his earned 2015 annual incentive compensation award which was previously excluded.
   
In the role of Executive Chairman, Mr. Cote will receive base compensation of $500,000.
   
In the role as Executive Chairman, Mr. Cote will no longer be eligible for new grants of equity or performance plan units.
   
For the 2017 performance year, Mr. Cote will remain eligible for an annual incentive compensation award payment, to be made at normal timing, with his target award set at 50% of his actual 2016 ICP award.
   
Mr. Cote will be entitled to retain stock options and Growth Plan Units previously granted to him as CEO, with the full original 10-year term to exercise the stock options. Mr. Cote’s payout under the Growth Plan, if any, remains fully contingent on Honeywell achieving the previously defined levels of performance under the plan.
   
Mr. Cote will not be eligible for other compensation provided to the independent directors on the Board.
   
Mr. Cote agreed to provide consulting services for five years post retirement (Honeywell to provide secretarial support, office space and IT support but no other compensation), in exchange for which the obligations under his non-competition agreement were extended for an equivalent period.
   
Mr. Cote will be permitted to lease available aircraft from Honeywell’s fleet, under a standard form aircraft lease agreement, with Mr. Cote reimbursing the Company for the cost of any usage at the maximum rate permitted by the FAA.

 

The MDCC believes the CEO Continuity Agreement is critical to facilitating and supporting a smooth transition of the CEO role which is in the best interest of Honeywell and its shareowners.

 

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Executive Compensation > Compensation Program Description

 

COMPENSATION PROGRAM DESCRIPTION

 

ELEMENTS OF 2016 TOTAL ANNUAL DIRECT COMPENSATION

 

 

Short- Term: Base Salary and Baseline ICP Amount  

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

 

The percentages in the charts above are based on target Total ADC. ICP is included at the 2016 Baseline ICP Amount (described on page 44). Stock options are included at the grant date value. The 2016 portion of the 2016-2017 Growth Plan award is included at target. The grant date value of the biennial Performance RSUs is annualized over two years as there will be no grant in 2017.

 

 

PROGRAM ELEMENTS AND RELATED 2016 COMPENSATION DECISIONS

 

Annual Incentive Compensation Plan (“ICP”)

 

In 2016, the MDCC implemented changes in the methodology for determining annual ICP awards. These changes were in response to feedback from some shareowners desiring that some portion of the annual bonus be formulaic and that we reset payouts to individual targets each year instead of using prior year actual payouts as the baseline. Because these changes were announced midyear, they were partially implemented in 2016, but will be fully implemented for 2017.

 

For 2016, ICP awards were determined as follows:

 

1. Determination of Individual ICP Payout Percentages (“ICP Payout %”):
   
  80% of each ICP award determination was formulaic based on financial targets established by the MDCC at the beginning of 2016 (“2016 ICP Goals”). The 2016 ICP Goals table below describes the financial targets and respective weighting.
     
  20% of each ICP award was determined based on the MDCC’s qualitative assessment of individual performance against objectives for 2016 and the significant accomplishments listed on pages 46-48.
     
  The attainment percentage for both the formulaic and individual qualitative portions of the award can range from 0% to 200%.

 

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2. Determination of 2016 ICP Payout Amounts:
   
  For each NEO, the individual ICP Payout % determined in step 1 above was multiplied by their Baseline ICP Amount in determining their actual 2016 payout.
     
    For Messrs. Cote, Szlosek, Mahoney and Mikkilineni (“Continuing NEOs”), and consistent with past practice, their Baseline ICP Amount was equal to their prior year actual ICP award, and
       
    For Mr. Adamczyk, who was promoted to COO in anticipation of the CEO succession plan action, the Baseline ICP Amount was equal to his 2016 base salary times 125%, which is his individual target ICP award percentage.

 

Additional Change to be Made in 2017: In response to shareowner feedback, beginning with the determination of ICP awards for the 2017 performance year and for future periods, the MDCC will determine ICP awards using the approach described above, but discontinue the practice of using prior year actual bonuses as the ICP Baseline Amount for Continuing NEOs. Instead, the Baseline ICP Amount for all NEOs will be reset each year to be equal to their annual base salary times their individual target ICP award percentage.

 

ICP Formulaic Portion (80% of Target Award)

 

2016 ICP Goals:

 

The table below sets forth each of the financial targets and the relative weighting of each target that comprises the formulaic payout percentage portion of ICP (i.e., 80%) for each NEO. The MDCC established all of the targets listed below in February 2016. The company-wide (“Total Honeywell”) targets for EPS and Free Cash Flow (“FCF”) were based on the midpoint of the external guidance which was communicated to our shareowners during our December 2015 outlook call. For Messrs. Cote, Szlosek, Adamczyk and Mikkilineni (the “Corporate NEOs”), the formulaic portion of their ICP award was based on EPS and FCF. For Mr. Mahoney (“SBG-Level NEO”), in addition to EPS and FCF, the MDCC also established financial targets for Aerospace Net Income and Aerospace Free Cash Flow.

 

Metric* Significance ICP Weighting (formulaic)
    Corporate NEOs SBG-Level NEO
Earnings Per Share (“EPS”) Viewed as the most important measure of near-term profitability that has a direct impact on stock price and shareowner value creation. 50% 25%
SBG-Level Net Income Business unit measure of near-term profitability and contribution to overall company performance. - 25%
Free Cash Flow (Total Honeywell)(1) Reflects quality of earnings and incremental cash generated from operations that may be reinvested in our businesses, used to make acquisitions, or returned to shareowners in the form of dividends or share repurchases. 50% 25%
SBG-Level Free Cash Flow   Business unit contribution to overall company FCF performance. - 25%
(1)  Cash Flow from Operations less Capital Expenditures 100% 100%

 

As disclosed in the 2016 Proxy Statement, working capital turns was dropped as an ICP metric in 2016 to focus executives on the primary metrics linked to external guidance.

 

2016 ICP Goals: Quantitative Targets:

 

This table sets forth the 2016 ICP Goals established by the MDCC for the 80% formulaic portion of the ICP award determination, and shows how they compare to 2015 targets and actual results.

 

ICP Goal   2015 Target   2015 Actual   2016 ICP Goal
(Target)
v. 2015
Actual
Basis for 2016 Goals      2016 Threshold (50% Payout)  2016 Maximum (200% Payout)
EPS(1) $6.05 $6.10 $6.575 +8% Midpoint of initial guidance range communicated to investors in December 2015.   $5.26 $7.89
Free Cash Flow (2) $4,250 million $4,381 million $4,700 million +7%   $3,760 million $5,640 million

 

(1) EPS, V% Exclude Pension MTM Adjustment
(2) Cash flow from operations less capital expenditures; 2015 actual represents free cash flow calculated with cash flow from operations, as reported in the 2015 Annual Report on Form 10-K.
   
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Threshold and Maximum payout levels were established by the MDCC for performance above and below the targets set for the ICP Goals in 2016 using the following leverage table, with interpolation applied for intermediate points:

 

 

 

Actual Performance against 2016 ICP Goals:

 

The formulaic payout percentage for all Corporate NEOs (80% of ICP) was determined as follows:

 

ICP Goal 2016 ICP Goal
(Target)
  2016 Actual
Performance
Achievement  
%
2016 Performance Metric
Payout
Percentage
(2.5)/ 5.0
  Corporate
NEO
Weighting
  Calculated
Payout
Percentage
EPS(1) $6.575   $6.60 100.4% Exceeded the Target ICP Goal for 2016.

Represented an 8% increase over 2015 Actual EPS.

New record-level of performance for the Company.
101.9%   50%   51.0%
Free Cash Flow (2) $4,700 million   $4,403 million 93.7% Exceeded 2015 Actual FCF by 1%; Short of Target ICP Goal for 2016. Impacted by higher Investment and slower than expected growth in certain markets, such as business jets and defense & space. 84.1%   50%   42.0%

 

  Total Calculated (Formulaic) Payout: Corporate NEOs 93.0%

 

Mr. Mahoney’s formulaic payout percentage (80% of ICP) was based on performance against 2016 ICP goals for both Total Honeywell and Aerospace as follows:

 

ICP Goal 2016 ICP Goal (Target)   2016 Actual Performance Achievement % Metric Payout
Percentage
(2.5)/ 5.0
  SBG-Level Weighting   Calculated
Payout
Percentage
EPS(1) $6.575   $6.60 100.4% 101.9%   25%   25.5%
Free Cash Flow (2) $4,700 million   $4,403 million 93.7% 84.1%   25%   21.0%
Aerospace Net
Income(3)
$2,519 million   $2,321 million 92.1% 80.3%   25%   20.1%
Aerospace Free
Cash Flow (2)(3)
$2,466 million   $2,229 million 90.4% 76.0%   25%   19.0%
                   
                   
      Total Calculated (Formulaic) Payout: Mr. Mahoney   85.6%

 

(1) EPS, V% Exclude Pension MTM and 4Q 2016 Debt Refinancing Expenses
(2) Cash Flow from Operations less Capital Expenditures
(3) Represents internal metrics used solely for measurement of performance under the ICP
   
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ICP-Individual Qualitative Portion (20% of Target Award)

 

General Assessment:

 

In conducting the qualitative assessment related to 2016 ICP awards and provide context to the quantitative results determination, the MDCC first reviewed overall industry conditions for each business segment and noted general 2016 accomplishments which were significant to understanding individual NEO performance. The following summarizes key aspects of that analysis;

 

Relative performance:

 

HON Revenue +1.9% vs Comp Peer median -0.9%
HON Net Income(1) +6.4% vs Multi-Industry Peer median +1.1%
  -

Best Net Income Performance among Multi-Industry Peers

HON EPS(1) +8.2% vs Multi-Industry Peer median +6.3%

 

2016 EPS and Net Income vs. Multi-Industry Peers

 

 

 

Absolute Performance against ICP Goals:

 

Absolute Performance – Free Cash Flow(2):

 

While Free Cash Flow of $4,403 million was 94% achievement against the ICP goal set in February 2016, it was 1% higher than actual 2015 FCF performance even after absorbing incremental cash requirements needed for future growth.

Critical Business Transformation activities that were successfully executed in 2016:

CEO Succession Plan Actions and Communication
Portfolio Realignments and Related Leadership Transitions
AdvanSix Spin-off to Shareowners
HTSI Divestiture and Gain Deployment
Integration of eight of the acquisitions closed over the past 18 months through the end of 2016.
Successful Debt Restructuring
Incremental Investments For Future Growth

 

 
(1) Excluding Pension MTM and 4Q 2016 Debt Refinancing Expenses
(2) Cash Flow from Operations less Capital Expenditures

 

Individual Assessments:

 

The MDCC then reviewed and considered the key 2016 activities and accomplishments for each individual NEO, some of which are summarized below, as input for determining the appropriate individual attainment percentage for the qualitative portion of their 2016 ICP award:

 

Mr. Cote

 

Continued to build on an outstanding and lengthy track record of growth and performance. Since Mr. Cote joined Honeywell, the Company has grown EPS by 337%, sales by 78%, segment profit by 206% and free cash flow by 185%. In addition, under Mr. Cote’s leadership, Honeywell’s dividend has increased by 315% and its market capitalization has grown by 330%.
   
Worked closely with the Honeywell Board of Directors to architect and implement an effective CEO succession plan that will ensure Honeywell’s long-term financial performance. Many of the portfolio and other restructuring activities which occurred in 2016 created a firm foundation for Mr. Cote’s successor to sustain Honeywell’s past performance.
   
Led a major portfolio restructuring initiative pursuant to which Honeywell successfully split apart the former Automation and Control Solutions segment to form two new segments — Home and Building Technologies (“HBT”) and Safety and Productivity Solutions (“SPS”) — in a manner that will ensure two segments that are more entrepreneurial, better focused on their end markets and customers, and able to opportunistically grow through M&A.
   
Authorized a number of significant investments and expenses that negatively impacted 2016 EPS but which will benefit shareowners in 2017 and beyond, including: acceleration of certain OEM incentive payments by our Aero SBG to secure our position on key air transport and business jet platforms and a significant increase in R&D expenditures compared to prior years.
   
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Executed on several major transactions to better position Honeywell for future growth as an industrial software company including the acquisition of Intelligrated, divestiture of HTSI and spin-off of AdvanSix in a tax-free transaction to our shareowners.
   
Undertook a significant debt restructuring transaction in a manner that will enable Honeywell to lock-in historically low interest rates for a significant portion of its debt, thereby supporting a sustainable dividend payout ratio of approximately 38%.

 

Mr. Szlosek

 

Led a financial reporting, analysis and planning organization that successfully balanced delivery of 2016 financial commitments with long-term investments, including 2016 net income growth greater than our multi-industry peers and 8% growth in 2016 EPS (excluding pension MTM and 4Q 2016 debt refinancing expenses) based in part on 80 basis points of operational cost savings across the enterprise, a significant portion of which was identified and acted upon with finance department leadership.
   
Oversaw execution of numerous transactions that are transforming Honeywell’s business portfolio including the successful deployment of $2.6 billion for high growth M&A, the spin-off of AdvanSix which created approximately $800 million of value for our shareowners (as measured on the date of the spin-off) and the divestiture of HTSI.
   
Drove execution on a significant segment realignment whereby we separated our former ACS segment into two new reporting segments, HBT and SPS, that not only resulted in approximately $175 million in annual cost savings but will also better drive top-line growth through improved customer focus and technological innovation and improvement in the overall speed of decision-making in the organization.
   
Utilized HOS Gold to drive finance department excellence including reducing costs attributable to the finance department by $6.5 million annually while at the same time maintaining high levels of service and customer satisfaction among the business units that rely on Mr. Szlosek’s group for support.
   
Supported the CEO and other leadership succession activities taking place in our C-suite as well as in three of our SBGs.

 

Mr. Adamczyk

 

Demonstrated an ability to lead Honeywell as its next CEO through direct and personal leadership of the Corporation’s 2017 annual operating planning process that anticipates earnings growth of 6 – 10% (excluding pension MTM and 4Q 2016 debt refinancing expenses and divestitures) in 2017, successful oversight of a series of strategic transactions and portfolio restructuring initiatives, mentoring and supporting three new SBG CEOs as they transitioned into their new leadership roles, the conduct of strategic and business planning activities with each SBG, and establishment of credibility and confidence with investors, customers and employees.
   
Established the building blocks for accelerating Honeywell’s organic sales growth by, among other things, overhauling the velocity product development process, one of Honeywell’s key enablers for launching and commercializing new products and technologies and creating a new organizational structure to support corporate-wide activities in the connected home, building, factory and aircraft area including the recruitment and hiring of a senior executive to coordinate this organic growth initiative.
   

Led initiatives to significantly grow the Corporation’s software revenues in several business units, including supply chain and warehouse automation where the successful acquisition and integration of Intelligrated has positioned Honeywell as a leader in the fast growing E-commerce warehouse automation solutions, software and services segment.

 

As President and CEO of Performance Materials and Technologies since 2014 and for a portion of 2016, set the stage to ensure delivery of that SBG’s segment profit commitments by nimbly reacting to significant headwinds in oil and gas end markets, expansion of UOP’s and HPS’ share of demand, and substantially increasing revenues associated with new technologies and products, particularly related to software and cyber security.

 

Led productivity initiatives in several business units that materially improved margins including significant savings through improved organizational design of the newly formed HBT and SPS businesses and initiatives in Aero to drive productivity in advance of deteriorating conditions in the business jet segment.
   
Oversaw the integration of ten acquisitions made in the past 18 months which will contribute significantly to the growth trajectory of Honeywell over the mid- to near-term time horizon.

 

Mr. Mahoney

 

Led our Aero SBG in several successful pursuits for key positions on new aircraft platforms, including the Citation Hemisphere large-cabin business jet and Cessna Aircraft cockpit where we provide the synthetic vision system, volumetric weather radar, and JetWaveTM cabin satellite communications system.
   
Led an Aero-wide manufacturing excellence effort that increased 2016 segment profit by $20 million by reducing waste and improving quality on over 2,500 parts while increasing yield on new “entry into service” products from 78% to 92%.
   
Continued to expand our “connected aircraft” initiative through achievement of significant sales and operational milestones in the JetWaveTM suite of satellite communication and aircraft router equipment and completion of several successful acquisitions of equipment and software companies including COM DEV and Satcom1 businesses.
   
Oversaw the successful launch of a new engine for the Textron Longitude which is also equipped with our auxiliary power units and mechanical systems.
   
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Directed the overhaul of Aero’s new product development program that significantly reduced cost variances and overruns while increasing customer milestone attainment to 92%.
   
Continued to expand Aero’s presence in High Growth Regions through the support of entry into service of the A350XWB airplane, which has a large amount of Honeywell content, COMAC ARJ21, Bombardier C-series and the HTS900 engine for the Bell 407.

 

Mr. Mikkilineni

 

Led Honeywell’s cross business RD&E center, Honeywell Technology Solutions (“HTS”), which grew by 5.5% to constitute ~35% of new product introduction (“NPI”) revenue. HTS’ centers of excellence were instrumental in enabling scale and speed in several key areas of product development including Human User Experience (“HUE”), Mobile Apps, Testing and Additive Manufacturing. Mr. Mikkilineni also led the establishment of HTS’ presence in Mexico for Latin America.
   
Drove significant improvement in our IT functions while reducing cost. He did this through a 30% change in skill mix, the creation of large scale centers of excellence and development of a business partnership mentality in the IT organization. IT costs, and the number of individual IT software applications were reduced by ~5% and 35%, respectively, year-over-year while IT customer sentiment improved by 25%.
   
Continued to play a leadership role in institutionalizing and deploying HOS Gold across our HOS Gold business enterprises. We measured a 17% improvement in the HOS Gold maturity level across our Gold Business Units while 63% of our manufacturing sites are now HOS Silver. In terms of improving and standardizing the way we launch new products, we believe that 76% of all Honeywell revenues are now derived from businesses that operate at a Bronze level or higher  when measured by our VPD or Velocity Product Development standard.
   
Led the development of a horizontal IoT platform, which we call Honeywell Sentience, through which we have already launched several connected new products. Honeywell Sentience was developed by a pool of our data scientists who combine cutting edge data science and machine learning that will leverage Honeywell’s access to “big data” in a number of end markets to offer analytics-based products to our customers.
   
Developed a plan to rationalize the ERP systems we use across our diverse businesses by conceiving nine common business processes and related data models, creating a dedicated team of ERP experts with a clear timeline, and beginning the process of implementing a robust ERP system integration that will greatly simplify and standardize our use of ERP systems and serve as a foundation to digitally transform the way we operate.

 

Approved ICP Payout Amounts

 

After applying the formulaic payout percentages described above (80% weight) and deciding individual performance attainment percentages for each NEO based on their qualitative assessment (20% weight), the MDCC approved 2016 ICP payments as follows:

 

  Formulaic Portion (1) + Individual Portion (2)  =  Total Individual
ICP Payout
Percentage
 x  Baseline ICP
Amount (3)
 =  Actual 2016
(rounded)
ICP Award
  Attainment x Weight Payout % Attainment x Weight Payout
%
Mr. Cote 93.0%   80% 74.4%   128%   20% 25.6%   100.0%   $5,700,000   $5,700,000
Mr. Szlosek 93.0%   80% 74.4%   128%   20% 25.6%   100.0%   $850,000   $850,000
Mr. Adamczyk 91.6% (4) 80% 73.3%   179%   20% 35.8%   109.1%   $1,328,774   $1,450,000
Mr. Mahoney 85.6% (5) 80% 68.5%   130%   20% 26.0%   94.5%   $900,000   $850,000
Mr. Mikkilineni 93.0%   80% 74.4%   186%   20% 37.2%   111.6%   $650,000   $725,000
(1) Attainment based on performance against 2016 ICP Goals and application of leverage table. Attainment can range from 0% to 200%.
(2) Attainment based on Committee assessment of individual performance. Attainment can range from 0% to 200%.
(3) Baseline equal to prior year actual ICP award for all except Mr. Adamczyk. Baseline for Mr. Adamczyk is eligible base salary times prorated target award percentage (118%) due to 2016 promotion.
(4) Formulaic Attainment percentage for Mr. Adamczyk includes 12.5% of PMT performance against PMT ICP goals for period of time prior to his promotion to COO.
(5) Formulaic Attainment percentage for Mr. Mahoney reflects 50% of award based on full year Aerospace performance against Aerospace ICP goals.

 

Maximum Aggregate and Individual ICP Award Caps

 

Each year, the MDCC reviews the aggregate and individual funding caps for ICP awards, as defined by the incentive plan rules, and verifies that all paid awards and plan spending are within plan limitations.

 

Aggregate Spending Caps:

 

The maximum aggregate amount of ICP awards that can be paid to all senior executive employees, including the NEOs, is 2% of the Company’s Consolidated Earnings. “Consolidated Earnings” is defined as annual net income, adjusted to omit the effects of extraordinary items, gain or loss on the disposal of a business segment (other than provisions for operating losses or income during the phase-out period), unusual or infrequently occurring events and transactions, the effects of the annual fourth quarter mark-to-market adjustment that recognizes pension-related net actuarial gains and losses outside the corridor, and the effects of changes in accounting principles, all as determined in accordance with generally accepted accounting principles.

 

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Individual Caps:

 

The maximum individual ICP award that can be paid to the CEO is .4% of Consolidated Earnings. The maximum individual ICP award that can be paid to any other employee is .2% of Consolidated Earnings.

 

Individual ICP awards are also capped at 200% of each NEO’s target ICP award amount (base salary * individual ICP target award percentage). ICP target percentages in 2016 for the NEOs were: Mr. Cote: 175%, Mr. Adamczyk: 125%, Mr. Mahoney: 115% and Messrs. Szlosek and Mikkilineni: 100%.

 

LONG-TERM INCENTIVE COMPENSATION (“LTI”)

 

The mix of LTI awards to the NEOs for 2016 is summarized under the 2016 columns in the table below, along with a preview of how we will transition the LTI program over the next two compensation cycles in response to shareowner feedback. In summary, over the next two years, we intend to implement the following changes:

 

Reduction in use of Time-Based Stock Options. In the past, our executives received a significant amount of their LTI in the form of time-based stock options. Going forward, our use of stock options will be reduced considerably.
   
Changes to our Growth Plan. In the past, we relied heavily on biennial grants of cash-based Growth Plans Units, which had a two-year performance cycle. Going forward, we will replace the Growth Plan with a new Performance Plan that will grant annual share-based awards and have three-year overlapping performance cycles. The Performance Plan will represent the most significant component of LTI and a relative metric will be added to the performance measures.
   
Elimination of biennial grants of RSUs. In the past, we granted discretionary RSUs on a biennial basis with 30% of the payout linked to performance. In 2016, we issued the last biennial grant of RSUs, but made 100% of the award performance contingent. Beginning in 2018, RSUs will be issued on an annual basis.

 

Evolution of Long-Term Incentive Program

 

2016

  2017
Transition
Year
  2018
                     
CEO   CEO Staff   Terms       CEO & Staff   Terms
66%Stock
Options
  48% Stock
Options
  4-year graded vesting.
10-year term.
  Stock Options
(ramp down)
  ~25% Stock
Options
  4-year graded vesting.
10-year term.
                     
34% Biennial
Growth Plan
  24% Biennial
Growth Plan
  Granted Every Other Year.
2-Year Non-Overlapping
Performance Cycles.
100% Cash-based Award.
100% Formulaic - 3 Internal Financial
Metrics (equally weighted).
Cash Awards Paid over 2 years
following Performance Cycle.
  3-Year
Performance
Plan
introduced
(ramp up)
  ~50% 3-Year
Performance Plan
(PSUs)
  Granted Every Year.
3-Year Overlapping
Performance Cycles.
100% Share-based Award.
100% Formulaic - Relative TSR added
as 4th Metric (equally weighted).
Earned Award in Shares.
Single Payment following Cycle.
                     
No RSUs
Granted to
CEO
  28% Biennial
Performance
RSUs
  Granted Every Other Year.
Pre-2016 - 30% Performance-Adjusted.

2016 - 100% Relative-TSR (3-year)
Performance Contingent.
3-5 or 3-5-7 vesting.
  No RSU grant
in 2017
  ~25% Annual
RSUs
  Granted Every Year.
Variable vesting - minimum 3-year cliff.

 

LTI Awards Granted to NEOs in 2016

 

The following provides additional details regarding the LTI awards granted to the NEOs in 2016. All awards to officers are approved by the MDCC (and by all of the independent directors in the case of the CEO).

 

Stock Options

 

Annual Stock Option grants to the NEOs in February 2016 represented the most significant component of each officer’s target total annual LTI opportunity (see table above for 2016 weighting). The MDCC believes stock options to be a highly effective long-term incentive vehicle as they only have value if the Company’s stock appreciates (compensation value directly aligned with shareowner value creation).

 

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Executive Compensation > Compensation Program Description

 

CEO Award: In February 2016, the MDCC granted Mr. Cote 600,000* annual stock options (same number as 2015), with an exercise price of $103.65* and a grant date value of $9,348,000. This stock option grant represented 66% of his target long-term incentive opportunity. The MDCC believes this award to be appropriate due to Mr. Cote’s proven track record of leading Honeywell in a manner that has created long-term shareowner value and consistent financial and operational performance. The MDCC also views this award as an appropriate incentive for Mr. Cote as he continues to provide strategic guidance to Honeywell in the role of Executive Chairman after he transitions from being CEO in March of 2017. As Executive Chairman, Mr. Cote will no longer be eligible for grants of stock options or other forms of LTI. Mr. Cote has a history of holding stock options until close to their expiration date and generally exercises in the tenth year of the ten-year term (only exercised once in the ninth year), evidence of his commitment and confidence in the long-term performance of the Company.

 

Awards to other NEOs: For each of the other NEOs, the MDCC considered a number of factors:

 

Each NEO’s individual performance in the prior year as well as the relative contribution of each NEO to the overall success of Honeywell.
   
Each NEOs future leadership potential.
   
The size of previous grants of stock options awarded to each NEO.
   
The amount of vested and unvested equity each executive holds.
   
The annualized value of the 2016 portion of each NEOs’ biennial Growth Plan and Performance RSU grant made in 2016.
   
The value and mix of long-term incentive awards granted to comparable named executive officers at the Compensation Peer Group companies.

 

Based on these considerations, in 2016, the MDCC granted stock options to each of the other NEOs as follows:

 

    # Options*   Grant Date
Value
 
Mr. Szlosek   150,000    $2,337,000 
Mr. Adamczyk   250,000    $3,896,000 
Mr. Mahoney   175,000    $2,726,500 
Mr. Mikkilineni   140,000    $2,181,200 

 

All stock options vest 25% per year over four years, and have a ten-year term to exercise. The strike price for 2016 annual stock options of $103.65* was set equal to the fair market value of Honeywell stock on the date of grant. The grant date value was determined using a Black-Scholes value of $15.58* per share. Included in Mr. Adamczyk’s totals are 100,000 stock options granted upon his promotion to COO in April 2016, valued at $15.59* per share with a strike price of $112.82.*

 

* Prior to adjustments made pursuant to the spin-off of AdvanSix Inc. from Honeywell on October 1, 2016 (see page 62). The impact of these adjustments is reflected in the outstanding options reported on the Outstanding Equity Awards table presented on page 63.

 

Growth Plan Unit (“GPU”) Awards

 

Our Growth Plan is a long-term incentive plan which provides performance-contingent, cash-based incentive awards to focus executives on achievement of objective, two-year financial metrics that are aligned with Honeywell’s five-year financial goals which were communicated to shareowners in February 2014. The operational focus of the Growth Plan balances our focus on stock appreciation in the use of stock options.

 

Changes that will be made to the Growth Plan as a result of shareowner feedback: The MDCC has had a long-standing belief that the two-year performance cycle of the Growth Plan provides a reasonable line of sight to set realistic stretch targets aligned with our longer-term objectives and that non-overlapping performance cycles facilitate the communication of progress against one set of long-term goals at a time. However, over the past ten-years, market practices have evolved to a point where overlapping performance cycles of at least three years is considered best practice for long-term performance incentive plans. In our outreach efforts, some shareowners have indicated their preference for three-year cycles. In light of shareowner feedback and our 2016 Say-on-Pay vote results, the MDCC determined that the awards for the 2016-2017 Growth Plan cycle would be the last biennial cycle awards, and that the Growth Plan will be replaced with a new share-based Performance Plan with three-year overlapping cycles beginning in 2017. The MDCC is confident that the design of the new Performance Plan will continue to incentivize executives to deliver on objective financial and operational metrics that will create long-term shareowner value.

 

In addition, the MDCC retroactively changed the form of payout for Mr. Cote’s 2016-2017 GPU award. Mr. Cote’s payout under this award will be in shares, not cash.

 

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Table of Contents

Executive Compensation > Compensation Program Description

 

2016-2017 Growth Plan Awards to NEOs

 

Biennial GPUs for the 2016-2017 performance cycle were granted to the NEOs in the first quarter of 2016. Because performance cycles do not overlap, the Committee attributes 50% of the value of the GPUs to each year in the performance cycle.

 

The following table presents the number of GPUs granted to each NEO in 2016 along with their annualized target award value:

 

   # of GPUs
Awarded for
2016-2017
Performance
Cycle
  x  Annualized
Growth
Plan Unit
Value at
Target
($100/2)*
 =  Annualized
Target Award
Value**
Mr. Cote  95,000     $50      $4,750,000
Mr. Szlosek  25,000     $50      $1,250,000
Mr. Adamczyk  40,000     $50      $2,000,000
Mr. Mahoney  25,000     $50      $1,250,000
Mr. Mikkilineni  20,000     $50      $1,000,000

 

* Represents the target value of one GPU shown on an annualized basis (i.e., $100 unit value divided by 2) to recognize non-overlapping performance cycles.
   
** Consistent with how the MDCC assigns value when planning NEO compensation, which considers the Growth Plan as being earned 50% in the first year of the performance cycle (2016) and 50% in the second year of the performance cycle (2017).

 

Growth Plan Mechanics

 

The following provides more detail on how the Growth Plan works:

 

Two-year performance targets for each of the three metrics described below are established by the MDCC at the beginning of the two-year performance cycle. Metrics are established at the total company level (“Total HON”) and for each SBG.
   
GPUs are awarded to each NEO, at the same time GPU awards are made to other executives, in February of the first year of each two-year performance cycle (e.g., 2016 for the 2016-2017 cycle).
   
At the end of the two-year performance cycle, Growth Plan payouts are determined on a purely formulaic basis. Each GPU has a target value of $100 ($50 when annualized), with performance metrics weighted equally in determining final payout. For each performance metric, a required minimum level of achievement (i.e., threshold) must be attained before the plan will fund for that particular goal.
   
Plan payouts are capped at 200% of target (i.e., $200 for each GPU) to the extent plan maximums are met or exceeded.
   
For Corporate executives, including the CEO, payouts are based solely on the achievement of the Total HON level metrics. For SBG executives, 50% of their payout will be based on achievement of Total HON metrics, and 50% will be based on achievement of corresponding objectives for their respective SBG.
   
50% of the earned payout amounts are paid in the first quarter of the year following the completion of a two-year performance cycle, and the remaining 50% is paid a year later. This feature has been an effective retention tool.

 

The 2016-2017 Growth Plan: Performance Goals

 

 

Total Revenue
(1/3 weight) 
 

 The Total Revenue goal measures the effectiveness of our organic growth strategies including new product introduction and marketing and sales effectiveness as well as projected growth in our end markets.

 We use reported revenues for evaluating achievement of the Total Revenue goal, however we exclude the impact of acquisitions and divestitures.

ROI Expansion
(1/3 weight)
 

 The ROI goal ensures that our organic and inorganic revenue growth does not come at the expense of profitability.

 The 2015 ROI baseline was adjusted to 20.5% to reflect the inclusion of pre-2016 acquisitions not included in the prior cycle (as contemplated by our guidelines for treatment of transactions under the plan).

 Results not adjusted for foreign currency changes over the cycle.

Segment Margin Expansion
(1/3 weight) 
 

 Focuses executives on driving continued operational improvements and delivering synergies from recent acquisitions.

 The 2015 Segment Margin baseline was adjusted to 18.3% to reflect the inclusion of pre-2016 acquisitions not included in the prior cycle.

 

Threshold funding requirement: No awards are funded unless the compound annual growth rate in EPS (excluding unusual, infrequently occurring items, extraordinary items, the effect of changes in accounting methods and any pension mark-to-market adjustment) for the 2016-2017 period is at least 1.25%.

 

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Executive Compensation > Compensation Program Description

 

Growth Plan — Performance Payout Ranges

 

The following table presents the performance goals that were set for the 2016-2017 Growth Plan cycle:

 

 

 

2016-2017 Growth Plan — Discussion on Rigor of Goals

 

The Committee sets Growth Plan goals at challenging levels that are consistent with Honeywell’s current five-year long-term plan covering 2014-2018 communicated to shareowners in February 2014. As part of its goal-setting process, the Committee also considers the degree of stretch compared to targets for the prior Growth Plan cycle, actual results for the prior cycle, and reported financial results for the most recent, completed two-year cycle against performance for our Compensation Peer Group and Multi-Industry Peer Group.

 

The Total Revenue target for the 2016-2017 Growth Plan performance cycle was set at 5.1% CAGR, which reflects our pipeline of new products, technologies and services against a challenging slow-growth, macroeconomic environment. Threshold and maximum payouts were set at +/- 3.5% of target, a range of performance deemed appropriate by the Committee based on our strategic growth plans and the macroeconomic outlook for our end markets.

 

As an example of the review process for goal-setting, the Committee also evaluated the 5.1% CAGR Total Revenue target for 2016-2017 in the context of three factors, each of which underscores the degree of challenge:

 

Target of 3.9% for the 2014-2015 Growth Plan cycle;
   
Actual results of 1.5% for the 2014-2015 Growth Plan cycle, resulting in a payout near threshold, which the Committee viewed as aligned with performance; and
   
A comparison of Honeywell’s reported sales growth for the 2014-2015 period against peers - Honeywell’s reported growth was 100 basis points above the median for our Multi-Industry Peer Group and 1,200 basis points above the median for our Compensation Peer Group, effectively providing a threshold payout on that metric for 63rd percentile performance.

 

With respect to the Growth Plan Segment Margin and ROI goals, it is important to note that both of these are expansion goals, not simple targets, so the 2016-2017 targets are building on the improved margins and investment returns delivered in the prior cycle, which are already quite attractive relative to our peers.

 

The 2016-2017 Segment Margin Expansion target anticipates 130 basis points of segment margin expansion during 2016 and 2017, bringing our segment margin to 19.6% of revenues over the two-year period. This reflects an increase over the Segment Margin Expansion target for the 2014-2015 performance cycle, which was 100 basis points, or 17.3% of revenues. As further indication of the degree of difficulty of the 2016-2017 Segment Margin Expansion target, the end-of-cycle margin of 19.6% is at the high end of the segment margin range established in February 2014 when we announced our five-year strategic plan.

 

The 2017 ROI Expansion target represents 330 basis points of ROI growth. The Committee set the target after adjusting ROI for 2015 to account for the large number of acquisitions completed during the 2014-2015 performance cycle. Although the previously disclosed 2014-2015 ROI goals were set before these acquisition activities, the 2016-2017 ROI expansion goal is well above both the target and actual ROI expansion levels for the 2014-2015 cycle.

 

As part of our shareowner outreach, we have discussed the Growth Plan performance metrics, goals and performance with our top shareowners and they reiterated their positive feedback regarding the rigor of the goals and our practice of aligning the Growth Plan goals with Honeywell’s disclosed long-term targets.

 

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Executive Compensation > Compensation Program Description

 

Growth Plan — Timing of Payouts

 

Earned payouts under the Growth Plan are made in two installments after the end of the performance cycle to provide an additional retention incentive. The table below demonstrates the overlap of the performance and payout cycles for an executive who participated in two Growth Plan cycles.

 

 

 

Impact of Changes Being Made in 2017 – The 2-year Growth Plan, with grants made every other year followed by a two year payout, will be replaced with a 3-year Performance Plan, with overlapping grants made every year followed by a single payout. The following table shows the performance and payout cycle of the new Performance Plan and how the transitional overlap with the final Growth Plan will work.

 

 

 

Performance Restricted Stock Units (“Performance RSUs”)

 

In response to feedback from our shareowners, the MDCC decided that biennial RSU awards made to executive officers (other than the CEO) in 2016 would be 100% performance-contingent. In the past, we granted discretionary RSUs on a biennial basis with 30% of the payout linked to performance. RSUs generally vest ratably over three, five and seven years.

 

Performance Features:

 

The target number of Performance RSU shares issued to each executive officer in 2016 (other than Mr. Cote) is reflected on the table shown on page 54. The actual number of shares earned by each executive officer will be determined solely on the basis of Honeywell’s relative TSR performance against our Compensation Peer Group over a three-year period (August 1, 2016-July 31, 2019). The target number of shares will be earned if Honeywell’s TSR is at the 50th percentile versus our Compensation Peer Group. No shares will be earned unless Honeywell’s relative TSR performance is at least 35th percentile versus the TSR of our Compensation Peer Group.

 

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Executive Compensation > Compensation Program Description

 

The complete payout matrix related to the Performance RSUs follows:

 

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

 

Extrapolate payout % for intermediate relative TSR points on matrix.

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

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

 

After the three-year performance-period is over, earned shares are subject to an additional period of time vesting, which may vary by NEO, as shown on the table below which shows the target number Performance RSU granted to each NEO in 2016 and the related vesting periods.

 

2016 Performance RSU Awards    
     
NEO  Target # of
Shares (1)*
   Grant Date
Value (2)
   Vesting (3)  Attributed to
2016 (4)
 
Thomas A. Szlosek   20,000    $2,675,000   33% in 3 years; 33% in 5 years; 34% in 7 years   $1,337,500 
Darius Adamczyk   25,000    $3,343,750   33% in 3 years; 33% in 5 years; 34% in 7 years   $1,671,875 
Timothy O. Mahoney   30,000    $4,012,500   50% in 3 years; 50% in 5 years   $2,006,250 
Krishna Mikkilineni   22,000    $2,942,500   33% in 3 years; 33% in 5 years; 34% in 7 years   $1,471,250 

 

(1)  - Performance RSUs with 100% of payout tied to Honeywell’s relative TSR performance against Compensation Peer Group over three years, followed by longer-term vesting period.
   
(2)  - Based on grant date value of $133.75, which reflects performance features. Valuation conducted by independent valuation company.
   
(3)  - Reflects longer time-vesting period. First three years corresponds with the relative-TSR performance period.
   
(4)  - Reflects annualized value attributed to the 2016 Compensation year by the Committee. Last cycle with this treatment prior to changes.
   
* Prior to adjustment made pursuant to the spin-off of AdvanSix Inc. from Honeywell on October 1, 2016 (see page 62). The impact of this adjustment is reflected in the outstanding stock awards reported on the Outstanding Equity Awards table on page 63.


The award size and vesting terms are tailored for each individual NEO. The Committee takes into consideration factors similar to those evaluated for option grants. These include each NEO’s performance results, relative contribution to the overall success of Honeywell, future leadership potential, previous RSU grants, the amount of unvested equity each executive holds and the value and mix of long-term incentive awards granted to comparable named executive officers at the Compensation Peer Group companies. In particular, extended vesting periods are intended to strengthen the retention of these key executives in support of the company’s management development and succession plans.

 

Changes Being Made to the Timing of RSU Grants Based on Shareowner Feedback: In the past, RSU awards were considered on a biennial basis and issued off-cycle (typically in July) to correspond with the senior leadership succession plan review. Some shareowners felt that this practice made the awards appear as ‘one-off’ incremental awards and they preferred annual RSU grants be made as a regular part of the compensation program. As a result, the MDCC has decided that the 2016 Performance RSUs will be the last RSU grants to cover a two-year period (i.e., 2016 and 2017). No RSUs will be granted in 2017. Starting in 2018, RSUs granted on an annual basis as a part of the compensation program transition will be granted at the same time as other annual LTI awards.

 

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Executive Compensation > Other Compensation & Benefit Programs

 

OTHER COMPENSATION & BENEFIT PROGRAMS

 

RETIREMENT PLANS

 

We offer certain retirement benefits to our NEOs. Specifically, NEOs may participate in broad-based plans including a defined benefit pension plan and a 401(k) savings plan that provides matching Company contributions. We also maintain an unfunded supplemental retirement plan to replace the portion of an executive’s pension benefit that cannot be paid under the broad-based plans because of Internal Revenue Service (“IRS”) limitations. In addition, Mr. Cote is entitled to supplemental retirement benefits provided under a separate arrangement deemed necessary to recruit him to Honeywell in 2002. More information on retirement benefits can be found beginning on page 66.

 

NONQUALIFIED DEFERRED COMPENSATION PLANS

 

Executive officers (including the NEOs) may choose to participate in certain nonqualified deferred compensation plans to permit retirement savings in a tax-efficient manner. Executive officers can elect to defer up to 100% of their annual ICP awards. In addition, executive officers may also participate in the Honeywell Supplemental Savings Plan maintained in order to permit deferral of base salary that cannot be contributed to the Company’s 401(k) savings plan due to IRS limitations. These amounts are matched by the Company only to the extent required to make up for a shortfall in the available match under the 401(k) savings plan due to such IRS limitations. Deferred compensation balances earn interest at a fixed rate based on the Company’s 15-year cost of borrowing, which is subject to change on an annual basis. Consistent with the long-term focus of the executive compensation program, matching contributions are treated as if invested in Company Common Stock. These plans are explained in detail beginning on page 70.

 

BENEFITS AND PERQUISITES

 

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

 

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Table of Contents

Executive Compensation > Compensation Practices and Policies

 

COMPENSATION PRACTICES AND POLICIES

 

BEST PRACTICES

 

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

 

GOVERNANCE AND EXECUTIVE COMPENSATION POLICIES AND PRACTICES
Shareowner Engagement
Directors and management engagement with shareowners
Upon a Change in Control
Eliminated excise tax gross-ups for any new officers.
For LTI awards granted after the 2014 annual meeting of shareowners, eliminated the right to single trigger accelerated vesting of options, RSUs and GPUs.
Pay ICP awards at the time they would typically be paid (no acceleration) and based on business performance rather than target.
Balanced use of Performance Metrics to align pay with performance
Use different sets of operational metrics for ICP and the Growth Plan to drive top and bottom-line growth over multiple time frames aligned with our goal of sustained long-term performance.
Made RSU awards to officers contingent on three-year relative TSR performance against peers.
Eliminated perquisites
Eliminated annual cash flexible perquisite allowance for executive officers.
No tax gross-ups on perquisites for officers and directors.
Compensation Recovery (Clawbacks)
Permit the recapture of incentive compensation from senior executives in the event of a significant financial restatement.
Permit the cancellation and recovery of gains attributable to equity awards from employees who leave the Company to join a competitor.
Stock Ownership and other requirements for executive officers
Require officers to hold and maintain Common Stock equal in value to at least four times their base salary (six times for the CEO).
Require officers to hold the net shares from RSU vesting and the net gain shares from option exercises for at least one year.
Require automatic reinvestment of dividend equivalents on RSUs into additional RSUs, which vest according to the same schedule as the underlying RSUs to which they relate.
Prohibit granting of stock options with an exercise price less than the fair market value of Honeywell’s Common Stock on the date of grant.
Prohibit repricing (reduction in exercise price or exchange for cash) or reloading of stock options.
Prohibit hedging and pledging of shares by our executive officers and directors.
Independent Compensation Consultant
Employ an independent compensation consultant to review and advise the MDCC on executive compensation.
Prohibit them from performing any other services for Honeywell.
Regularly review the independence of any outside advisors as a component of the MDCC’s charter.
Guard the Company against competitive harm
Obtain enhanced restrictive covenants in connection with annual equity grants and certain succession planning actions.

 

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Executive Compensation > Compensation Practices and Policies

 

RISK OVERSIGHT CONSIDERATIONS

 

The MDCC believes that balancing the various elements of Honeywell’s executive compensation program:

 

Supports the achievement of competitive revenue, earnings and cash performance in variable economic and industry conditions without undue risk; and
   
Mitigates the potential to reward risk-taking that may produce short-term results that appear in isolation to be favorable, but that may undermine the successful execution of the Company’s long-term business strategy and destroy shareowner value.

 

The following compensation design features guard against unnecessary or excessive risk-taking:

 

RISK OVERSIGHT AND COMPENSATION DESIGN FEATURES
Robust processes for developing strategic and annual operating plans, approval of capital investments, internal control over financial reporting and other financial, operational and compliance policies and practices.
Diversity of the Company’s overall portfolio of businesses with respect to industries and markets served (types, long cycle/short cycle), products and services sold, and geographic footprint.
Review and Approval of Corporate, SBG and individual executive officer objectives by the MDCC to ensure that these goals are aligned with the Company’s annual operating and strategic plans, achieve the proper risk/reward balance, and do not encourage unnecessary or excessive risk-taking.
Executive Compensation features that guard against unnecessary or excessive risk-taking include:
Pay mix between fixed and variable, annual and long-term, and cash and equity compensation is designed to encourage strategies and actions that are in the Company’s long-term best interests;
Base salaries are positioned to be consistent with executives’ responsibilities so they are not motivated to take excessive risks to achieve financial security;
Incentive awards are determined based on a review of a variety of indicators of performance, thus diversifying the risk associated with any single indicator of performance;
Design of long-term compensation program rewards executives for driving sustainable, profitable, growth for shareowners;
Vesting periods for equity compensation awards encourage executives to focus on sustained stock price appreciation; and
Incentive plans are not overly leveraged with maximum payouts capped and design features that are intended to balance pay for performance with an appropriate level of risk taking. The MDCC also has discretionary authority to adjust annual ICP payments, which further reduces the potential for negative business risk associated with such plans.
Adoption of “clawback” policies, which provide for the recoupment of incentive compensation paid to senior executives in event of a significant restatement of Company financial results. “Clawback” provisions in the Company’s current stock plan also allow the Company to cancel shares or recover gains realized by an executive if non-competition provisions are violated.
Prohibition on hedging and pledging of shares by our executive officers and directors.
Ownership thresholds in the Company’s stock ownership guidelines for officers that require NEOs to hold shares of Common Stock equal to four times their current annual base salary (six times for the CEO), as detailed in the Stock Ownership Guidelines.
Officers must also hold the net shares from vesting of RSUs and the net gain shares from option exercises for at least one year.

 

Based upon the MDCC’s risk oversight and compensation policies, the risks arising from our compensation policies and practices are not reasonably likely to have a material adverse effect on Honeywell’s operations or results. For a full discussion of the role of the Board of Directors in the risk oversight process, see page 13 of this proxy statement.

 

STOCK OWNERSHIP GUIDELINES

 

The MDCC believes that our executives more effectively pursue our shareowners’ long-term interests if our executives hold substantial amounts of stock. Accordingly, the MDCC adopted minimum stock ownership guidelines in May 2003 for all executive officers.

 

Under these guidelines, the CEO must hold shares of Common Stock equal in value to six times his current annual base salary. Other executive officers are required to own shares equal in value to four times their current base salary. Shares used in determining whether these guidelines are met include shares held personally, share equivalents held in qualified and nonqualified retirement accounts, and RSUs. The NEO’s currently maintain ownership levels well in excess of the minimum requirements.

 

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Executive Compensation > Compensation Practices and Policies

 

NAMED EXECUTIVE OFFICER STOCK OWNERSHIP

 

  CEO     Other NEOs (average)
    REQUIRED 6x base pay     REQUIRED 4x base pay
             
  ACTUAL 83× base pay*   ACTUAL 21× base pay*  

 

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

* As of December 31, 2016

 

In addition, the stock ownership guidelines require officers to hold for at least one year the “net shares” from the vesting of RSUs or the “net gain shares” of Common Stock that they receive by exercising stock options. “Net shares” means the number of shares obtained when an RSU vests, less the number of shares withheld or sold to pay applicable taxes. “Net gain shares” means the number of shares obtained by exercising the option, less the number of shares the officer sells to cover the exercise price of the options and pay applicable taxes.

 

After the one-year holding period, officers may sell net shares or net gain shares, provided that, following any sale, they continue to hold shares of Common Stock in excess of the prescribed minimum stock ownership level.

 

RECOUPMENT/CLAWBACK

 

Our Corporate Governance Guidelines provide for the recoupment (or “clawback”) of incentive compensation paid to senior executives in the event of a significant restatement of financial results (a “Restatement”). Under the guidelines, the Board can seek recoupment if and to the extent that:

 

(i)the amount of incentive compensation was calculated based upon the achievement of financial results that were subsequently reduced due to a Restatement;
  
(ii)the senior executive engaged in misconduct; and
  
(iii)the amount of incentive compensation that would have been awarded to the senior executive had the financial results been properly reported would have been lower than the amount actually awarded.

 

The complete text of the Corporate Governance Guidelines is posted on our website at www.honeywell.com (see “Investors/Corporate Governance/Guidelines”).

 

In addition, if during the two-year period following an executive officer’s termination of employment with Honeywell, he or she commences employment with, or otherwise provides services to a Honeywell competitor without the MDCC’s prior approval, then the Company reserves the right, for awards issued under the 2003, 2006, 2011 and 2016 Stock Incentive Plans, to:

 

Cancel all unexercised options; and
  
Recover any gains attributable to options that were exercised, and any value attributable to GPUs and RSUs that were paid, during the period beginning six months before and ending two years after the executive officer’s termination of employment.

 

Finally, we have entered into non-competition agreements with our executive officers that preclude them from going to work for a competitor for up to two years after termination of employment. The list of competitors and the duration of the non-competition covenant has been tailored, in each case, to the executive officer’s position and the competitive threat this represents. Because money damages cannot adequately compensate Honeywell for violations of these non-competition covenants, we have a full range of equitable remedies at our disposal to enforce these agreements, including the ability to seek injunctive relief.

 

TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION

 

Section 162(m) of the Internal Revenue Code restricts deductibility for federal income tax purposes of annual individual compensation in excess of $1 million to the NEOs (excluding the Chief Financial Officer) if certain conditions are not satisfied. The MDCC’s general policy is to preserve the deductibility of compensation paid to the NEOs while maintaining compensation programs that effectively attract, motivate and retain exceptional executives in a highly competitive environment. Nevertheless, the MDCC authorizes payments that might not be deductible if it believes they are in the best interests of the Company and its shareowners and consistent with the objectives of the Company’s executive compensation program. In addition, in certain years, individuals may receive non-deductible payments resulting from awards made prior to becoming an NEO.

 

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Executive Compensation > Compensation Practices and Policies

 

PLEDGING AND HEDGING TRANSACTIONS IN COMPANY SECURITIES

 

Executive officers and directors are prohibited from pledging Honeywell’s securities or using Honeywell’s securities to support margin debt. All other employees must exercise extreme caution in pledging Honeywell’s securities or using Honeywell’s securities to support margin debt.

 

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

 

All employees and directors are prohibited from engaging in short sales of Honeywell securities. Also, selling or purchasing puts or calls or otherwise trading in or writing options on Honeywell’s securities by employees, officers and directors is also prohibited.

 

MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE REPORT

 

The MDCC reviewed and discussed Honeywell’s Compensation Discussion and Analysis with management. Based on this review and discussion, the MDCC recommended that the Board of Directors include the Compensation Discussion and Analysis in this proxy statement and the Form 10-K for the year ended December 31, 2016.

 

The Management Development and Compensation Committee

 

D. Scott Davis, Chair

 

William S. Ayer

 

Clive Hollick

 

Grace D. Lieblein

 

Bradley T. Sheares

 

2017     |     Proxy and Notice of Annual Meeting of Shareowners      |     59
 
Table of Contents

Executive Compensation > Summary Compensation Table

 

SUMMARY COMPENSATION TABLE

 

Named Executive Officer
and Principal Position
Year Salary($) Bonus($)(2) Stock
Awards($)(3)
Option
Awards
($)(4)
Non-
Equity
Incentive
Plan
Compen-
sation($)(5)
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings($)(6)
All
Other
Compen-
sation($)(7)
SEC
Total
Compensation
 

David M. Cote

Chairman of the
Board and Chief
Executive Officer

2016 $1,890,000 $5,700,000 $0 $ 9,348,000 $0 $3,632,959 $690,542 $21,261,501  
2015 $1,890,000 $5,700,000 $0 $10,338,000 $14,250,000 $1,421,493 $927,851 $34,527,344  
2014 $1,865,769 $5,500,000 $0 $14,816,000 $0 $6,183,531 $776,821 $29,142,121  

Thomas A. Szlosek

Senior Vice President,
Chief Financial Officer

2016 $840,000 $850,000 $2,675,000 $2,337,000 $0 $240,715 $51,400 $6,994,115  
2015 $829,077 $850,000 $0 $2,153,750 $3,000,000 $200,277 $56,812 $7,089,916  
2014 $754,750 $700,000 $2,494,750 $1,636,000 $0 $126,519 $46,285 $5,758,304  

Darius Adamczyk(1)

Chief Operating Officer

2016 $1,120,383 $1,450,000 $3,343,750 $3,896,000 $0 $349,933 $95,888 $10,255,954  

Timothy O. Mahoney

President & Chief
Executive Officer,
Aerospace

2016 $917,019 $850,000 $4,012,500 $2,726,500 $0 $998,274 $56,021 $9,560,314  
2015 $907,462 $900,000 $0 $3,015,250 $3,725,000 $924,036 $55,448 $9,527,196  
2014 $878,365 $800,000 $2,993,700 $2,863,000 $0 $1,979,018 $53,702 $9,567,785  

Krishna Mikkilineni(1)

Senior Vice President,
Engineering, Operations
& Information Technology

2016 $717,678 $725,000 $2,942,500 $2,181,200 $0 $1,183,040 $43,915 $7,793,333  

 

Footnotes to Summary Compensation Table:

 

(1)   First reported as NEO in 2016.

 

(2)   Amounts reflect annual ICP awards in year earned.

 

(3)   The grant date fair value of the 2016 Stock Awards (Performance RSUs) of $133.75 includes assumptions relative to the potential of achievement of the relative-TSR performance conditions underlying the award, calculated in accordance with FASB ASC Topic 718 based on a multifactor Monte Carlo simulation of Honeywell’s stock price and TSR relative to each of the other companies in the Compensation Peer Group. Valuation conducted by independent valuation company.

 

(4)   The 2016 Option Awards shown reflect the aggregate grant date fair value of the awards computed in accordance with FASB ASC Topic 718, using the Black-Scholes option-pricing model at the time of grant, with the expected-term input derived from a risk-adjusted Monte Carlo simulation of the historical exercise behavior and probability-weighted movements in Honeywell’s stock price over time. The 2016 annual Option Awards were awarded on February 25, 2016, with a Black-Scholes value of $15.58 per share at the time of grant. A discussion of the assumptions used in the valuation of option awards made in fiscal year 2016 may be found in Note 18 of the Notes to the Financial Statements in the Company’s Form 10-K for the year ended December 31, 2016.

 

(5)   The 2015 amounts reflect the full earned award under the Growth Plan with respect to the 2014-2015 performance cycle, reported in a single year as required by applicable SEC rules. Actual payments of earned Growth Plan awards are made in two equal installments following the performance period. The first payment for the 2014-2015 Growth Plan performance cycle award was made in March 2016 and the second payment was made in March 2017.

 

Named Executive Officer  Change in Aggregate
Pension Value(a)
   Above Market
Interest
 
David M. Cote  $2,909,919   $723,040 
Thomas A. Szlosek  $186,417   $54,298 
Darius Adamczyk  $348,858   $1,075 
Timothy O. Mahoney  $896,536   $101,738 
Krishna Mikkilineni  $1,171,997   $11,043 
(a) Change in aggregate pension value amounts include a change in discount rate from 4.46% as of December 31, 2015 to 4.20% as of December 31, 2016.

(6)   The 2016 values represent (i) the aggregate change in the present value of each Named Executive Officer’s accumulated benefit under the Company’s pension plans from December 31, 2015 to December 31, 2016 (as disclosed in the Pension Benefits table on page 66 of this proxy statement) and (ii) interest earned in 2016 on deferred compensation that is considered “above-market interest” under SEC rules (as discussed beginning on page 71 of this proxy statement).

 

60     |      Proxy and Notice of Annual Meeting of Shareowners     |     2017
 
Table of Contents

Executive Compensation > Summary Compensation Table

 

(7)   For 2016, all other compensation consists of the following:

 

Item  Mr. Cote   Mr. Szlosek   Mr. Adamczyk   Mr. Mahoney   Mr. Mikkilineni 
Excess liability insurance(a)  $1,000   $1,000   $1,000   $1,000   $1,000 
Executive life insurance(b)  $62,000                 
Matching Contributions(c)  $117,150   $50,400   $66,635   $55,021   $42,915 
Personal use of Company aircraft(d)  $352,816       $18,985         
Security Systems(e)  $21,016       $9,268         
Tax, Legal and Financial Planning  $135,404                 
Honeywell Products/Services(f)  $1,156                 
Totals  $690,542   $51,400   $95,888   $56,021   $43,915 
(a) Represents the annual premiums paid by the Company to purchase excess liability insurance coverage for each Named Executive Officer.
(b) Under the terms of Mr. Cote’s 2002 employment agreement, which was entered into upon his joining the Company, the Company is obligated to provide Mr. Cote with $10 million in life insurance coverage at the Company’s cost. The Company reimbursed Mr. Cote a total of $62,000 for life insurance premiums paid by him in 2016.
(c) Represents total Company matching contributions to each Named Executive Officer’s accounts in the tax-qualified Honeywell Savings and Ownership Plan and the non-tax-qualified Supplemental Savings Plan.
(d) For security reasons, Messrs. Cote and Adamczyk are required by Company policy to use Company aircraft for all business and personal travel (in the case of Mr. Adamczyk, the requirement to use Company aircraft for specific personal travel may be waived at the discretion of Honeywell’s security personnel). Other NEOs may have access to available corporate aircraft for personal travel, from time to time, if approved by the CEO. The amount shown for each Named Executive Officer represents the aggregate incremental cost of personal travel by the Named Executive Officer. This amount is calculated by multiplying the total number of personal flight hours by the average direct variable operating costs (e.g., expenses for aviation employees, variable aircraft maintenance, telecommunications, transportation charges, including but not limited to hangar and landing fees, aviation fuel, and commissaries) per flight hour for Company aircraft. In 2016, 95% of the use of Company aircraft was for business purposes.
(e) In accordance with the Company’s CEO security plan (which was updated in 2016 to cover Mr. Adamczyk), represents the total cost paid by the Company in 2016 for equipment, installation and expenses relating to personal residential security provided to protect Mr. Cote and Mr. Adamczyk.
(f) Represents the incremental cost of Honeywell products and services provided for personal use. Mr. Cote was imputed for income related to these costs (no tax gross-up).

 

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Table of Contents

Executive Compensation > Grants of Plan-Based Awards—Fiscal Year 2016

 

GRANTS OF PLAN-BASED AWARDS—FISCAL YEAR 2016

 

                              All Other           
                              Option     Closing     
                              Awards:  Exercise  Price on     
            Estimated Future  Estimated Future  Number of  or Base  Date of  Grant Date  
            Payouts Under Non-Equity  Payouts Under Equity  Securities  Price  Grant of  Fair Value  
            Incentive Plan Awards(2)  Incentive Plan Awards(3)  Underlying  of Option  Option  of Stock  
Named  Award  Grant  Units   Threshold Target  Maximum  Threshold   Target   Maximum  Options  Awards  Awards  and Option  
Executive Officer  Type(1)  Date  (#)  ($)  ($)  ($)  (#)  (#)  (#)  (#)(4)  ($/Sh)  ($/Sh)  Awards(5)  
David M. Cote  NQSO  2/25/2016                600,000  $103.65  $104.19  $9,348,000  
   GPU  2/25/2016  95,000  $4,750,000  $9,500,000  $19,000,000                    
Thomas A. Szlosek  NQSO  2/25/2016                150,000  $103.65  $104.19  $2,337,000  
   GPU  2/25/2016  25,000  $1,250,000  $2,500,000  $5,000,000                    
   RSU  7/29/2016           5,000  20,000  40,000        $2,675,000  
Darius Adamczyk  NQSO  2/25/2016                150,000  $103.65  $104.19  $2,337,000  
   NQSO  4/4/2016                100,000  $112.82  $112.55  $1,559,000  
   GPU  2/25/2016  40,000  $2,000,000  $4,000,000  $8,000,000                    
   RSU  7/29/2016           6,250  25,000  50,000        $3,343,750  
Timothy O. Mahoney  NQSO  2/25/2016                175,000  $103.65  $104.19  $2,726,500  
   GPU  2/25/2016  25,000  $1,250,000  $2,500,000  $5,000,000                    
   RSU  7/29/2016           7,500  30,000  60,000        $4,012,500  
Krishna P. Mikkilineni  NQSO  2/25/2016                140,000  $103.65  $104.19  $2,181,200  
   GPU  2/25/2016  20,000  $1,000,000  $2,000,000  $4,000,000                    
   RSU  7/29/2016           5,500  22,000  44,000        $2,942,500  
 
Note: Equity awards and estimated future payouts on this schedule are shown as of the grant date.
 
(1) Award Type:

NQSO = Nonqualified Stock Option

GPU = Growth Plan Unit

RSU = Performance Restricted Stock Unit
   
(2) The amount in the Units column represents the number of GPUs awarded for the performance period of January 1, 2016-December 31, 2017. Each GPU is worth $50 at Threshold, $100 at Target and $200 at Maximum. Any earned award is paid out in equal installments as follows: 50% in March 2018 and 50% in March 2019. While the award to Mr. Cote is listed as a non-equity incentive award, the MDCC retroactively changed the form of payment for this award to be paid in shares instead of cash.
   
(3) The amount in the Target column represents the number of RSUs granted to the Named Executive Officer on the grant date under the 2016 SIP. The RSUs granted to Mr. Adamczyk, Mr. Mikkilineni and Mr. Szlosek vest 33% each on July 31, 2019 and July 31, 2021 with the remaining RSUs vesting on July 31, 2023 and the RSUs granted to Mr. Mahoney vest 50% each on July 31, 2019 and July 31, 2021.
   
(4) NQSO awards in this column represent annual stock options granted to the Named Executive Officers on the grant date. These stock options vest in equal annual installments over a period of four years.
   
(5) The grant date fair value of each NQSO in this column was $15.58 ($15.59 for grant to Mr. Adamczyk on April 4, 2016), calculated in accordance with FASB ASC Topic 718, using the Black-Scholes option valuation model at the time of grant.

 

DESCRIPTION OF PLAN BASED AWARDS

 

All NQSO awards granted to the Named Executive Officers in fiscal year 2016 were granted under the Company’s 2016 Stock Incentive Plan and are governed by and subject to the terms and conditions of the 2016 Stock Incentive Plan and the relevant award agreements. A detailed discussion of these long-term incentive awards can be found beginning on page 49 of this proxy statement.

 

IMPACT OF ADVANSIX SPIN-OFF ON OUTSTANDING EQUITY AWARDS

 

Effective October 1, 2016, Honeywell completed the spin-off of its wholly owned subsidiary, AdvanSix Inc. (“AdvanSix”) to holders of record of Honeywell common stock as of September 16, 2016. In accordance with the terms of the underlying Stock Incentive Plans, unexercised non-qualified stock options and unvested and deferred restricted stock units (including Performance RSUs) that were outstanding as of the October 1, 2016 distribution date were adjusted to preserve their pre-spin-off economic value. Each stock option or full value award was adjusted upward by multiplying the number of shares outstanding before the spin-off by a conversion ratio of 1.005724. Outstanding stock option exercise prices were adjusted downward on a grant-by-grant basis, by dividing the exercise price before the spin-off by a conversion ratio of 1.005724.

 

The number of securities underlying unexercised stock options and stock awards, as well as the option exercise prices, listed on the Outstanding Equity Awards at 2016 Fiscal Year-End table below include the adjustments made as a result of the AdvanSix spin-off.

 

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Table of Contents

Executive Compensation > Outstanding Equity Awards at 2016 Fiscal Year-End

 

OUTSTANDING EQUITY AWARDS AT 2016 FISCAL YEAR-END

 

   Option Awards  Stock Awards
      Number of  Number of          Number of    Market Value  
      Securities  Securities          Shares or    of Shares  
      Underlying  Underlying          Units of    or Units  
      Unexercised  Unexercised    Option  Option  Stock That    of Stock  
   Grant  Options(#)  Options(#)    Exercise  Expiration  Have Not    That Have  
Name  Year  Exercisable  Unexercisable    Price($)  Date  Vested(#)    Not Vested($)(1)  
David M. Cote  2016  0  603,434(2)   $103.07  2/24/2026       
   2015  150,858  452,576(3)   $103.31  2/25/2025       
   2014  301,717  301,717(4)