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Notice of 2015 Annual Meeting and Proxy Statement |
Notice of Annual Meeting of Stockholders
Date: |
Wednesday, February 25, 2015 |
Time: |
10:00 a.m. Central Standard Time |
Place: |
Deere & Company World Headquarters |
One John Deere Place, Moline, Illinois 61265 |
At the Annual Meeting, stockholders will be asked to:
1. | Elect the ten director nominees named in the Proxy Statement (see page 4) |
2. | Approve an amendment to Deeres Bylaws to permit stockholders to call special meetings (see page 20) |
3. | Approve the Companys executive compensation on an advisory basis (say-on-pay) (see page 21) |
4. | Amend the John Deere Omnibus Equity and Incentive Plan (see page 57) |
5. | Re-approve the John Deere Short-Term Incentive Bonus Plan (see page 62) |
6. | Ratify the appointment of Deloitte & Touche LLP as Deeres independent registered public accounting firm for fiscal 2015 (see page 65) |
7. | Consider any other business properly brought before the meeting |
You may vote at the Annual Meeting if you were a Deere stockholder of record at the close of business on December 31, 2014.
YOUR VOTE IS VERY IMPORTANT. We urge all stockholders to vote on the matters described in the accompanying Proxy Statement as soon as possible, whether or not they attend the Annual Meeting. Please refer to the section beginning on page 1 of the Proxy Statement entitled Voting and Meeting Information for information about voting by mail, telephone, internet, or in person at the Annual Meeting.
Along with the accompanying Proxy Statement, we are also sending you our Annual Report, which includes our fiscal 2014 financial statements. Most of you can elect to view future proxy statements and annual reports via the internet instead of receiving paper copies in the mail. Please refer to your proxy card and the section entitled Electronic Delivery of Proxy Statement and Annual Report on page 3 of the Proxy Statement for further information.
For the Board of Directors,
Todd E. Davies
Secretary
Moline, Illinois
January 14, 2015
REVIEW YOUR PROXY STATEMENT AND VOTE IN ONE OF FOUR WAYS: | ||||
VIA THE
INTERNET |
BY MAIL | |||
BY TELEPHONE |
IN PERSON |
Proxy Statement Summary
This summary highlights selected information contained in this Proxy Statement. It does not contain all the information you should consider and as such we urge you to carefully read the Proxy Statement in its entirety prior to voting. For additional information, please review the Companys Annual Report on Form 10-K for the fiscal year ended October 31, 2014.
Meeting Agenda and Voting Recommendations
Item | Voting Standard | Vote Recommendation | Page Reference | |
1 | Annual Election of Directors | Majority of votes cast | FOR each nominee | 4 |
2 | Approval of Special Meeting Rights Bylaw Amendment | Majority of votes present in person or by proxy | FOR | 20 |
3 | Advisory Vote on Executive Compensation | Majority of votes present in person or by proxy | FOR | 21 |
4 | Amendment of John Deere Omnibus Equity and Incentive Plan | Majority of votes present in person or by proxy | FOR | 57 |
5 | Re-Approval of John Deere Short-Term Incentive Bonus Plan | Majority of votes present in person or by proxy | FOR | 62 |
6 | Ratification of Independent Registered Public Accounting Firm | Majority of votes present in person or by proxy | FOR | 65 |
Director Nominees
You are being asked to vote on the election of these 10 directors. Each member of our Board of Directors is elected annually by majority voting. All directors other than Mr. Allen are independent.
Committee Memberships* | |||||||||
Name | Age | Director Since | Primary Occupation | Independent? |
E |
ARC |
CC | CG | PPOC |
Samuel R. Allen | 61 | 2009 | Chairman & CEO, Deere & Company | No | C | ||||
Crandall C. Bowles | 67 | 1990-1994; since 1999 |
Chairman, The Springs Company | Yes | X | X | C | ||
Vance D. Coffman | 70 | 2004 | Retired Chairman, Lockheed Martin | Yes | X | C | X | ||
Charles O. Holliday, Jr. | 66 | 2007 | Chairman, National
Academy of Engineering |
Yes |
X |
C |
X | ||
Dipak C. Jain | 57 | 2002 | Director, Sasin Graduate Institute of Business Administration |
Yes | X | X | |||
Clayton M. Jones | 65 | 2007 | Retired Chairman, Rockwell Collins | Yes | X | X | |||
Joachim Milberg | 71 | 2003 | Chairman of the Supervisory Board, BMW |
Yes | X | X | |||
Gregory R. Page | 63 | 2013 | Executive Chairman, Cargill | Yes | X | X | |||
Thomas H. Patrick | 71 | 2000 | Chairman, New Vernon Capital | Yes |
X |
X |
C | ||
Sherry M. Smith | 53 | 2011 | Former Executive VP and CFO, Supervalu | Yes | X | X |
Corporate Governance Highlights
At Deere, we recognize the importance of corporate governance as a component of providing long-term stockholder value. That is why we are committed to sound governance practices, including the following:
INDEPENDENCE | BEST PRACTICES |
●9 of our 10 director
nominees are independent
●Independent
Presiding Director has strong role with significant governance
responsibilities
●All Board committees
that meet regularly are comprised wholly of independent
directors
●Independent
directors meet regularly in executive session without management
present |
●Directors may not stand for reelection after their 72nd
birthdays absent rare circumstances approved by the
Board
●Recoupment policy for executive incentive
compensation
●Stock ownership requirements for directors and executives that are
reviewed annually
●Anti-hedging and anti-pledging
policies |
ACCOUNTABILITY |
RISK OVERSIGHT |
●Annual election of all directors
●Majority voting in uncontested elections
●Annual performance self-evaluations by Board and
committees |
●Board oversight of overall Company risk management
infrastructure
●Committee oversight of certain risks related to each committees
areas of
responsibility |
Fiscal 2014 Performance Highlights
Fiscal 2014 was a year of continued solid performance representing the second highest year of earnings in Deeres history, exceeded only by fiscal 2013. The Companys performance reflects weaker conditions in the agricultural equipment market, partially offset by improvements in the results for the Construction & Forestry and Financial Services operations. Overall, the Company continued executing on the business strategy and is positioned to earn solid returns for our stockholders throughout the business cycle.
Net Sales and Revenues (Millions) | ||
Worldwide net sales and revenues decreased 5% in 2014 compared with 2013 due to lower agriculture and turf equipment sales, partially offset by higher construction and forestry equipment sales and financial services revenues. |
Net Income* (Millions) |
||
Net income* declined 11% in 2014
due to lower shipment and production volumes, a less favorable product
mix, the unfavorable effects of foreign exchange rates, and higher production
costs mainly related to engine emissions programs, partially offset by
price realization. |
Earnings Per Share (Diluted) |
||
Net income* per share decreased
by $.46 for 2014 compared with 2013. Dividends declared per share were
$1.79 in 2012; $1.99 in 2013; and $2.22 in 2014. |
Deere Share Price (at October 31) |
||
Deere & Company stock is traded on the New York Stock Exchange under the ticker symbol DE. Average number of common shares outstanding (basic) was 397.1 million in 2012; 385.3 million in 2013; and 363.0 million in 2014. |
Cash Flow from Operating Activities (Millions) |
||
Cash Flow | ||
Dividends | ||
Share Repurchases | ||
In 2014, Deere repurchased 31.5 million shares, reducing average diluted shares outstanding by 6%, and, in May, increased the quarterly dividend on common stock by 18%, to $.60 a share. It was the 12th dividend increase since 2004. |
Fiscal 2014 Executive Compensation Highlights
Our compensation programs and practices are designed to create incentive opportunities that align with our stockholders long-term interests. We use consistent metrics that align with our business strategy and motivate our employees to create value for stockholders at all levels of the business cycle:
| Operating Return on Operating Assets and Return on Equity → Exceptional Operating Performance | |||
| Shareholder Value Added and Revenue Growth → Disciplined Growth | |||
| Total Shareholder Return → Stockholder Experience |
The table below highlights the 2014 compensation for the CEO and average named executive officer (NEO) as disclosed in the Summary Compensation Table of the Proxy Statement. It also shows the delivery of cash versus equity and the significant portion of compensation that is performance-based. The STI and MTI amounts for the CEO reflect a reduction of 25% below the amount the CEO would have otherwise earned based on previously-approved plan metrics and goals and actual performance results. See further explanation under Pay for Performance Review and Analysis in the Executive Summary of the Compensation Discussion & Analysis on page 25 of the Proxy Statement.
Summary Compensation Table Elements |
Salary | STI | MTI | Performance Stock Units |
Restricted Stock Units and Stock Options |
Retirement
and Other Compensation |
Total |
CEO
% of Total |
$1,495,204 |
$2,779,846 |
$2,618,045 |
$4,421,271 |
$5,243,606 |
$3,715,324 |
$20,273,296 |
Cash vs. Equity |
|
Total Cash 34% |
Total equity 48% |
Other 18% |
100% | ||
Short-Term
vs. |
Short-Term 21% |
Long-Term 79% |
100% | ||||
Fixed vs. |
Fixed 7% |
Performance Based 75% |
Other 18% |
100% | |||
Average NEO
% of Total |
$604,665 |
$1,019,283 |
$994,022 |
$784,662 |
$930,683 |
$763,129 |
$5,096,444 |
Cash vs. Equity |
|
Total Cash 52% |
Total equity 33% |
Other 15% |
100% | ||
Short-Term
vs. |
Short-Term 32% |
Long-Term 68% |
100% | ||||
Fixed vs. |
Fixed 12% |
Performance Based 73% |
Other 15% |
100% |
COMPENSATION ELEMENT: | DESCRIPTION: |
Salary |
Annual base pay |
STI |
Short-term incentive; annual performance-based bonus |
MTI |
Mid-term incentive; performance-based bonus using 3-year results |
Performance Stock Units |
Performance-based equity using 3-year results |
Restricted Stock Units and Stock Options |
Other equity whose value increases with stock price |
Retirement and Other Compensation |
Retirement plan values, benefits, and miscellaneous compensation |
Proxy Statement
Voting and Meeting Information
Why am I receiving
this proxy statement?
The Deere
& Company Board of Directors (the Board) has made available to you the
Notice of Annual Meeting of Stockholders, this proxy statement (Proxy
Statement), our annual report for the fiscal year ended October 31, 2014
(Annual Report), a proxy card, and a voter instruction card (collectively,
Proxy Solicitation Materials) either on the internet or by mail in connection
with the Deere & Company (Deere, the Company, we, or us) 2015 Annual
Meeting of Stockholders (the meeting or Annual Meeting). You are receiving
this Proxy Statement because you owned shares of Deere common stock at the close
of business on December 31, 2014, which entitles you to vote at the Annual
Meeting. By use of a proxy, you can vote whether or not you attend the Annual
Meeting. This Proxy Statement describes the matters on which you are asked to
vote and provides information about those matters so that you can make an
informed decision.
The Proxy Solicitation Materials are being mailed to, or can be accessed online by, stockholders on or about January 14, 2015.
What is Notice and
Access and why did Deere elect to use it?
We make the Proxy Solicitation Materials available to stockholders
electronically via the internet under the Notice and Access regulations of the
U.S. Securities and Exchange Commission (the SEC).
Most of our stockholders have received a Notice of Electronic Availability (Notice) in lieu of receiving a full set of Proxy Solicitation Materials in the mail. The Notice includes information on how to access and review the Proxy Solicitation Materials, and how to vote, via the internet. We believe this method of delivery will expedite distribution of Proxy Solicitation Materials to you while allowing us to conserve natural resources and reduce the costs of printing and distributing these materials.
Stockholders who received a Notice but would like to receive printed copies of the Proxy Solicitation Materials in the mail should follow the instructions in the Notice for requesting such materials.
How do I
vote?
You can vote either
in person at the
Annual Meeting or by proxy without attending the meeting. We urge you to vote by proxy
even if you plan on attending the Annual Meeting so that we will know as soon as
possible whether enough votes will be present for us to hold the meeting. If you
attend the meeting in person, you may vote at the meeting and your proxy will
not be counted.
To vote your shares, follow the instructions in the Notice, voter instruction form, or proxy card. Telephone and internet voting is available to all registered and most beneficial holders.
Stockholders voting by proxy may use one of the following three options:
|
fill out the enclosed voter instruction form or proxy card, sign it, and mail it in the enclosed postage-paid envelope; |
|
vote by internet (if available; instructions are on the voter instruction form, proxy card, or Notice); or |
|
vote by telephone (if available; instructions are on the voter instruction form, proxy card, or Notice). |
If your shares are held in street name by a bank, broker, or other holder of record, telephone or Internet voting will be available to you for voting these shares only if offered by them. Please refer to the information forwarded by your holder of record to see the options available to you. If your shares are held in street name and you wish to vote them in person at the meeting, you must obtain a legal proxy from your record holder to do so.
The telephone and internet voting facilities for stockholders will close at 11:59 p.m. Eastern Standard Time on February 24, 2015. If you vote over the internet, you may incur costs, such as telephone and internet access charges, for which you will be responsible. The telephone and internet voting procedures are designed to authenticate stockholders and to allow you to confirm that your instructions have been properly recorded.
If you hold shares through one of our employee savings plans, your vote must be received by the plan administrator by February 20, 2015, or the shares represented by the card will not be voted.
Can I change my
proxy vote?
Yes. At any time before
your shares are voted by proxy at the meeting, you may change your vote
by:
|
revoking it by written notice to Todd E. Davies, our Corporate Secretary, at the address on the cover of this Proxy Statement; |
|
delivering a later-dated proxy (including a telephone or internet vote); or |
|
voting in person at the meeting. |
If you hold your shares in street name, please refer to the information forwarded by your bank, broker, or other holder of record for procedures on revoking or changing your proxy.
How many votes do I
have?
You will have one vote for
each share of Deere common stock that you owned at the close of business on
December 31, 2014.
How many shares are
entitled to vote?
There are
_______shares of Deere common stock outstanding as of December 31, 2014 and
entitled to vote at the meeting. Each share is entitled to one vote. There is no
cumulative voting.
1
How many votes must be
present to hold the meeting?
Under our
Bylaws, a majority of the votes that can be cast must be present in person or by
proxy to hold the Annual Meeting. Abstentions and shares represented by broker
non-votes, as described below, will be counted as present and entitled to vote
for purposes of determining a quorum.
What will I be voting on?
| Election of directors (see page 4) |
| Approval of an amendment to Deeres Bylaws to permit stockholders to call special meetings (see page 20) |
| Advisory resolution to approve executive compensation (say-on-pay) as disclosed in this Proxy Statement (see page 21) |
| Amendment of the John Deere Omnibus Equity and Incentive Plan (see page 57) |
| Re-approval of the John Deere Short-Term Incentive Bonus Plan (see page 62) |
| Ratification of the independent registered public accounting firm (see page 65) |
How many votes are needed for the proposals to pass?
| Nominees for director who receive a majority of for votes cast will be elected as directors. The number of shares voted for a nominee must exceed the number of shares voted against that nominee. If an incumbent director nominee does not receive a majority of votes cast in an uncontested election, our Bylaws require the director to promptly tender his or her written resignation to the Board. The Corporate Governance Committee of the Board will make a recommendation to the Board on whether to accept or reject the resignation. The Board will act on the tendered resignation, taking this recommendation into account, and publicly disclose its decision and the rationale behind it within 90 days of the date the election results are certified. In the event the number of nominees exceeds the number of directors to be elected, the nominees who receive the most votes will be elected as directors. |
| For each of the other proposals to be voted on, the affirmative vote of a majority of the shares present in person or by proxy must be cast in favor of the proposal for it to pass. |
What if I vote
abstain?
If you vote to abstain, your
shares will be counted as present for purposes of determining whether enough
votes are present to hold the Annual Meeting. A vote to abstain on the
election of directors will have no
effect on the outcome. A vote to abstain on
the other proposals will have the effect of a vote against the proposal.
What if I dont return my
proxy card and dont attend the Annual Meeting?
If you are a holder of record (that is, your shares are registered in
your own name with our transfer agent) and you do not vote your shares, your
shares will not be voted.
If you hold your shares in street name and you do not give your bank, broker, or other holder of record specific voting instructions for your shares, your record holder can vote your shares on the ratification of the independent registered public accounting firm. However, your record holder cannot vote your shares without your specific instructions on the election of directors, the approval of the Companys proposal to amend its Bylaws to permit stockholders to call special meetings, the advisory vote on executive compensation, the amendment of the John Deere Omnibus Equity and Incentive Plan, or the re-approval of the John Deere Short-Term Incentive Bonus Plan.
For the aforementioned proposals on which a broker cannot vote without your instruction, if you do not provide voting instructions to your broker, the votes will be considered broker non-votes and will not be counted in determining the outcome of the vote. Broker non-votes will be counted as present for purposes of determining whether enough votes are present to hold the Annual Meeting.
What happens if a nominee
for director declines or is unable to accept election?
If you vote by proxy, and if unforeseen circumstances make it
necessary for the Board to substitute another person for a nominee, we will vote
your shares for that other person.
Is my vote
confidential?
Yes. Your voting records
will not be disclosed to us except:
| as required by law; |
| to the inspectors of voting; or |
| if the election is contested. |
The tabulator, the proxy solicitation agent, and the inspectors of voting must comply with confidentiality guidelines that prohibit disclosure of votes to Deere. The tabulator of the votes and at least one of the inspectors of voting will be independent of Deere and our officers and directors.
If you are a holder of record or an employee savings plan participant and you write comments on your proxy card, your comments will be provided to us but your vote will remain confidential.
2
Annual Report
Will I receive a copy of
Deeres Annual Report?
We have either
mailed the Annual Report to you with this Proxy Statement or, if you have
previously elected to view our annual reports over the internet, provided in the
Notice the web address for you to access the Annual Report online. The Annual
Report includes our audited financial statements and other financial information
for the fiscal year ended October 31, 2014. We urge you to read it
carefully.
How can I receive a copy
of Deeres 10-K?
You can obtain, free of
charge, a copy of our Annual Report on Form 10-K for the fiscal year ended
October 31, 2014 (the Form 10-K), by:
| accessing our internet site at www.deere.com/stock; or |
| writing to: |
Deere &
Company
Stockholder Relations
One John Deere Place
Moline, Illinois
61265-8098
You can also obtain a copy of our Form 10-K and other filings with the SEC from the SECs EDGAR database at www.sec.gov.
What is
householding?
Either a single copy of
the Proxy Solicitation Materials or the Notice, as applicable, will be sent to
households at which two or more stockholders reside if they appear to be members
of the same family unless one of the stockholders at that address notifies us
that they wish to receive individual copies. This procedure reduces our printing
costs and fees. Householding will not affect dividend check mailings in any
way.
A number of brokerage firms have instituted householding. If you hold your shares in street name, please contact your bank, broker, or other holder of record to request information about householding.
If Proxy Solicitation Materials were delivered to an address that you share with another stockholder, we will promptly deliver a separate copy if you make a written or verbal request to Deere & Company Stockholder Relations, One John Deere Place, Moline, Illinois 61265-8098, (309) 765-4539.
How do I revoke my
consent to the householding program?
You
must revoke your consent to the householding program by contacting Broadridge
Financial Solutions, Inc. (Broadridge), either by calling toll free at (800)
542-1061 or by writing to Broadridge, Householding Department, 51 Mercedes Way,
Edgewood, New York 11717. You will be removed from the householding program
within 30 days of Broadridges receipt of the revocation of your
consent.
Electronic Delivery of
Proxy
Statement and Annual Report
Can I access Deeres
proxy materials and Annual Report electronically?
Most stockholders can elect to view future proxy statements and annual
reports over the internet instead of receiving copies in the mail.
You can choose this option and save us the cost of producing and mailing these documents by:
| following the instructions provided on your proxy card, voter instruction form, or Notice; or |
| going to www.proxyvote.com and following the instructions provided. |
If you choose to receive future proxy statements and annual reports over the internet, you will receive an e-mail message next year containing the internet address to access future proxy statements and annual reports. This e-mail will include instructions for voting over the internet. If you have not elected electronic delivery, you will receive a notice indicating that proxy solicitation materials are available at www.proxyvote.com.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON FEBRUARY 25, 2015: The Proxy Statement and Annual Report are available on our website at www.deere.com/stock.
Information not Incorporated into this Proxy Statement
The information on our website (www.deere.com) is not, and shall not be deemed to be, a part of this Proxy Statement nor, by reference or otherwise (except to the extent we specifically incorporate it by reference), incorporated into any other filings we make with the SEC.
3
Item 1 Election of Directors
Identification and
Evaluation of Director Nominees
The
Corporate Governance Committee of the Board is responsible for screening
candidates and recommending director nominees to the full Board, which nominates
the slate of directors for election at each annual meeting of stockholders and
also elects directors to fill vacancies or newly-created seats on the Board. The
Corporate Governance Committee considers candidates as recommended by
stockholders, directors, officers, and third party search firms. Recommendations
from stockholders are considered by the Corporate Governance Committee in
accordance with the procedures described under the section of this Proxy
Statement entitled 2016 Stockholder Proposals and Nominations. The Corporate
Governance Committee reviews all candidates in the same manner, regardless of
the source of the recommendation.
The general criteria and framework for assessing director candidates are provided by our Corporate Governance Policies, which are described below in the Corporate Governance section of this Proxy Statement. In accordance with our Corporate Governance Policies, when screening candidates for nomination to the Board, the Corporate Governance Committee considers skills, experience, international versus domestic background, diversity, age, and legal and regulatory requirements in the context of an assessment of the perceived needs of the Board. The Corporate Governance Committee seeks to ensure that the Board is composed of members whose particular skills, qualifications, experiences, and attributes, when taken together, allow the Board to satisfy its oversight responsibilities effectively.
At a minimum, the Board assesses the diversity of its members and nominees on an annual basis during its performance evaluation by considering, among other factors, diversity in expertise, experience, background, ethnicity, and gender.
Directors of Deere must tender their resignation from the Board upon any material change in their occupation, career, or principal business activity, including retirement. Directors must retire from the Board upon the first annual meeting of stockholders following their 72nd birthday, except in rare circumstances approved by the Board.
Director
Nominees
Following the process described
above, the Corporate Governance Committee has recommended, and the Board has
nominated, each of Samuel R. Allen, Crandall C. Bowles, Vance D. Coffman,
Charles O. Holliday, Jr., Dipak C. Jain, Clayton M. Jones, Joachim Milberg,
Gregory R. Page, Thomas H. Patrick, and Sherry M. Smith to be elected for terms
expiring at the annual meeting in 2016. As required by the Companys Certificate
of Incorporation, all members of the Board are elected annually.
Pursuant to Deeres mandatory retirement age policy for directors as described above, Richard B. Myers will be leaving the Board effective with the 2015 annual meeting. The size of the Board will be reduced accordingly.
Each nominees age as of December 31, 2014, present and past professional positions (including positions with Deere, if applicable), current directorships at other companies, previous directorships at public companies and registered investment companies held during the past five or more years, and key qualifications, experiences, and attributes qualifying them to serve on the Companys Board appear below.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ALL TEN NOMINEES. |
4
Samuel R. Allen |
Current and Past Positions: |
Chairman and Chief
Executive Age: 61 Director since: 2009 Committees: |
Chairman and Chief Executive Officer of Deere since February 2010 President and Chief Executive Officer of Deere - August 2009 to February 2010 President and Chief Operating Officer of Deere - June 2009 to August 2009 President, Worldwide Construction & Forestry Division and John Deere Power Systems of Deere - March 2005 to June 2009 President, Global Financial Services, John Deere Power Systems, and Corporate Human Resources of Deere - November 2003 to March 2005 Other Current Directorships: Whirlpool Corporation Key Qualifications,
Experiences, and Attributes: |
Crandall C. Bowles |
Current and Past Positions: |
Chairman of The
Springs Age: 67 Director from: 1990 to 1994 Committees: |
Chairman of The Springs Company (asset management company) since August 2007 Chairman of Springs Industries, Inc. (Springs Window Fashions) - January 2006 to June 2013 Co-Chairman and Co-Chief Executive Officer of Springs Global US, Inc. and Springs Global Participacoes S.A. - January 2006 to June 2007 Chairman and Chief Executive Officer of Springs Industries, Inc. - April 1998 to January 2006 Other Current Directorships: JPMorgan Chase & Co. Other Previous Directorships: Sara Lee Corporation Key Qualifications,
Experiences, and Attributes: |
5
Vance D. Coffman |
Current and Past Positions: |
Retired Chairman of
Age: 70 Director since: 2004 Committees: |
Retired Chairman of Lockheed Martin Corporation (aerospace, defense, and information technology) since April 2005 Chairman of Lockheed Martin Corporation - April 1998 to April 2005 Chief Executive Officer of Lockheed Martin Corporation - August 1997 to August 2004 Other Current Directorships: 3M Company Amgen Inc. Key Qualifications,
Experiences, and Attributes: |
Charles O. Holliday, Jr. |
Current and Past Positions: |
Chairman of the
National Age: 66 Director since: 2007 Committees: Presiding Director |
Chairman of the National Academy of Engineering (nonprofit engineering institution) since July 2012 Chairman of Bank of America Corporation (banking, investing, and asset management) - April 2010 to October 2014 Chairman from January 1999 to December 2009 and Chief Executive Officer from 1998 through 2008 of DuPont (agricultural, electronics, materials science, safety and security, and biotechnology) Other Current Directorships: Bank of America Corporation CH2M HILL Companies, Ltd. Royal Dutch Shell plc Other Previous Directorships: E.I. du Pont de Nemours and Company Key Qualifications,
Experiences, and Attributes: |
6
Dipak C. Jain |
Current and Past Positions: |
Director, Sasin
Graduate Age: 57 Director since: 2002 Committees: |
Director, Sasin Graduate Institute of Business Administration (international graduate business school) since August 2014 Chaired Professor of Marketing, INSEAD - March 2013 to August 2014 Dean, INSEAD - May 2011 to March 2013 Dean, Kellogg School of Management, Northwestern University, Evanston, Illinois - July 2001 to September 2009 Associate Dean for Academic Affairs, Kellogg School of Management, Northwestern University - 1996 to 2001 Sandy and Morton Goldman Professor of Entrepreneurial Studies and Professor of Marketing, Kellogg School of Management, Northwestern University - 1994 to 2001 and since 2009 Other Current Directorships: Northern Trust Corporation Reliance Industries Limited, India Global Logistics Properties Limited, Singapore Key Qualifications,
Experiences, and Attributes: |
7
Clayton M. Jones |
Current and Past Positions: |
Retired Chairman of Age: 65 Director since: 2007 Committees: |
Retired Chairman of Rockwell Collins, Inc. (aviation electronics and communications) since July 2014 Chairman of Rockwell Collins, Inc. - July 2013 to July 2014 Chairman and Chief Executive Officer of Rockwell Collins, Inc. - September 2012 to July 2013 Chairman, President, and Chief Executive Officer of Rockwell Collins, Inc. - June 2002 to September 2012 Other Current Directorships: Cardinal Health, Inc. Other Previous Directorships: Rockwell Collins, Inc. Unisys Corporation Key Qualifications,
Experiences, and Attributes: |
Joachim Milberg |
Current and Past Positions: |
Chairman of the
Supervisory Age: 71 Director since: 2003 Committees: |
Chairman of the Supervisory Board of Bayerische Motoren Werke (BMW) AG (motor vehicles) since May 2004 Retired Chief Executive Officer of BMW AG since May 2002 Chairman of the Board of Management and Chief Executive Officer of BMW AG - February 1999 to May 2002 Other Current Directorships: Bertelsmann AG BMW AG Other Previous Directorships: Festo AG SAP AG ZF Friedrichshafen AG Key Qualifications,
Experiences, and Attributes: |
8
Gregory R. Page |
Current and Past Positions: |
Executive Chairman of
Cargill, Age: 63 Director since: 2013 Committees: |
Executive Chairman of Cargill, Incorporated (agricultural, food, financial, and industrial products and services) since December 2013 Chairman and Chief Executive Officer of Cargill, Incorporated 2011 to December 2013 Chairman, Chief Executive Officer, and President of Cargill, Incorporated - 2007 to 2011 President and Chief Operating Officer of Cargill, Incorporated - 2000 to 2007 Other Current Directorships: Carlson Eaton Corporation plc Key Qualifications,
Experiences, and Attributes: |
Thomas H. Patrick |
Current and Past Positions: |
Chairman of New Vernon
Age: 71 Director since: 2000 Committees: |
Chairman of New Vernon Capital, LLC (private equity fund) since 2003 Executive Vice Chairman of Merrill Lynch & Co., Inc. - November 2002 to July 2003 Executive Vice President and Chief Financial Officer of Merrill Lynch & Co., Inc. - February 2000 to November 2002 Other Current Directorships: Baldwin & Lyons, Inc. Other Previous Directorships: Computer Sciences Corporation Key Qualifications,
Experiences, and Attributes: |
9
Sherry M. Smith |
Current and Past Positions: |
Former Executive
Vice Age: 53 Director since: 2011 Committees: |
Executive Vice President and Chief Financial Officer of Supervalu Inc. (retail and wholesale grocery and retail general merchandise products) - December 2010 to August 2013 Senior Vice President, Finance of Supervalu Inc. - 2005 to 2010 Senior Vice President, Finance and Treasurer of Supervalu Inc. - 2002 to 2005 Other Current Directorships: Tuesday Morning Corporation Key Qualifications,
Experiences, and Attributes: |
10
Our
Values
At Deere, our actions are guided by
our core values of integrity, quality, commitment, and innovation. We strive to
live up to these values in everything we do, not just because it is good
business, but because it is the right thing to do. We are committed to strong
corporate governance as a means of upholding these values and ensuring that we
are accountable to our stockholders.
In recognition of the importance of corporate governance as a component of providing stockholder value, our Board of Directors has adopted Corporate Governance Policies for the Company. Our Corporate Governance Policies are periodically reviewed and revised as appropriate by the Board to ensure that the policies reflect the Boards corporate governance objectives.
Please visit the Corporate
Governance portion of our website (www.deere.com/corpgov) to learn more
about our corporate governance practices and access the following
materials:
●Our Corporate
Governance Policies
●Our Code of Business
Conduct
●Our Guiding
Principles ●Charters for our Board Committees
●Our Code of
Ethics
●Our Supplier Code of
Conduct |
Director
Independence
As part of our Corporate
Governance Policies, the Board has adopted categorical standards to assist the
Board in evaluating the independence of each director. The categorical standards
are intended to assist the Board in determining whether or not certain
relationships between our directors and Deere or its affiliates (either directly
or indirectly as a partner, stockholder, officer, director, trustee, or employee
of an organization that has a relationship with Deere) are material
relationships for purposes of the New York Stock Exchange (NYSE) independence
standards. The categorical standards establish thresholds at which such
relationships are deemed to not be material. The categorical standards are
attached as Appendix A to this Proxy Statement and are included as part of the
Corporate Governance Policies referenced above. A copy may also be obtained upon
request to the Deere & Company Stockholder Relations Department. In
addition, each directors independence is evaluated under our Related
Person Transactions Approval Policy, as discussed in the Review and Approval of Related Persons Transactions section below. The independence standards set forth in our Corporate Governance Policies meet or exceed the independence requirements of the NYSE.
In November 2014, we reviewed the independence of each director, applying the independence standards set forth in our Corporate Governance Policies. The review considered relationships and transactions between each director (and his or her immediate family and affiliates) and each of the following: Deere, Deeres management, and Deeres independent registered public accounting firm.
Based on this review, at the December 2014 Board meeting the Board affirmatively determined that no director other than Mr. Allen had a material relationship with Deere and its affiliates and that each director other than Mr. Allen is independent as defined in our Corporate Governance Policies and the listing standards of the NYSE. Mr. Allen is not considered to be an independent director because of his employment relationship with Deere.
Board Leadership
Structure
The Chairman of the Board also
serves as our Chief Executive Officer. The Board believes that combining the
Chairman and Chief Executive Officer roles is the most appropriate structure for
the Company at this time because the Board believes that: (1) this structure has
a longstanding history of serving our stockholders well, through many economic
cycles, business challenges, and the succession of multiple leaders; (2) its
governance processes, as reflected in the Corporate Governance Policies and
Board committee charters, preserve Board independence by ensuring independent
discussion among directors and independent evaluation of, and communication
with, members of senior management; and (3) the enhanced role of the independent
Presiding Director strengthens the Companys governance structure such that
separation of the Chairman and Chief Executive Officer roles is unnecessary at
this time.
Presiding
Director
Charles O. Holliday, Jr., an
independent director, currently serves as our Presiding Director. Mr. Holliday
is currently serving his sixth term as our Presiding
Director.
11
The Presiding Director is elected by a majority of the independent directors upon a recommendation from the Corporate Governance Committee. The Presiding Director is appointed for a one-year term beginning upon election and expiring upon the selection of a successor Presiding Director.
The Board has determined that the Presiding Director should have the following duties and responsibilities:
The Board believes that the role of the Presiding Director furthers the Companys continuing commitment to strong corporate governance and Board independence.
Board
Meetings
Under the Companys Bylaws,
regular meetings of the Board are held at least quarterly at such times and
places as the Board may designate. Our typical practice is to schedule at least
one Board meeting per year at a Company location other than our worldwide
headquarters in order to provide our directors with first-hand perspectives on
different aspects of our business. The Board met five times during fiscal 2014.
Directors are expected to attend Board meetings, meetings of committees on which they serve, and stockholder meetings. Directors are expected to spend the time needed and meet as frequently as necessary to properly discharge their responsibilities. During fiscal 2014, all directors attended 75% or more of the meetings of the Board and committees on which they served. Overall attendance at such meetings was approximately 96%. All directors then in office attended the Annual Meeting of Stockholders in February 2014.
Each Board meeting normally begins or ends with a session between the CEO and the independent directors. This provides a platform for discussions outside the presence of the non-Board management attendees, as well as an opportunity for the independent directors to go into executive session (without the CEO) if requested by any director. The independent directors may meet in executive session, without the CEO, at any time, and such non-management executive sessions are scheduled (and in practice typically occur) at each regularly scheduled Board meeting. The Presiding Director presides over these executive sessions.
Board
Committees
The Board has delegated some of
its authority to the following five committees of the Board: the Executive
Committee, the Audit Review Committee, the Compensation Committee, the Corporate
Governance Committee, and the Pension Plan Oversight Committee. Each such
committee has adopted a charter that complies with current NYSE rules relating
to corporate governance matters. Copies of the committee charters are available
at www.deere.com/corpgov, and may also be obtained upon request to the Deere
& Company Stockholder Relations Department. Each committee (other than the
Executive Committee, of which Mr. Allen serves as chair) is comprised solely of
independent directors.
Executive
Committee
2014 Meetings: 0 Members: |
●Acts on behalf of
the Board on matters requiring Board action between meetings of the full
Board
●Authority to act on
certain significant matters limited by our Bylaws and applicable
law
●All members, other
than Mr. Allen, are
independent |
12
Audit
Review
Committee 2014 Meetings: 5 Members: |
●Oversees the
independent registered public accounting firms qualifications,
independence, and performance
●Assists the Board in
overseeing the integrity of our financial statements, compliance with
legal requirements, and the performance of our internal
auditors
●Pre-approves all
audit and allowable non-audit services by the independent registered
public accounting firm
●Reports its
activities to the full Board
●All members have
been determined to be independent and financially literate under current
NYSE listing standards
●The Board has also
determined that Mr. Holliday, Mr. Page, Mr. Patrick, and Ms. Smith are
audit committee financial experts as defined by the SEC and that each
has accounting or related financial management expertise as required by
NYSE listing standards |
Compensation
Committee 2014 Meetings: 5 Members: |
●Makes
recommendations to the Board regarding incentive and equity-based
compensation plans
●Evaluates and
(except for the CEO) approves the compensation of our executive officers,
including reviewing and approving corporate performance goals and
objectives related to the compensation of our executive
officers
●Evaluates and
approves compensation granted pursuant to the Companys equity-based and
incentive compensation plans, policies, and
programs
●Retains, oversees,
and assesses the independence of compensation consultants and other
advisors
●Oversees our
policies on structuring compensation programs for executive officers to
preserve tax deductibility
●Reviews and
discusses the CD&A with our management and determines whether to
recommend to the Board that the CD&A be included in our filings with
the SEC
●Reports its
activities to the full Board
●All members have
been determined to be independent under current NYSE listing standards,
including those standards applicable specifically to compensation
committee members |
Corporate
Governance
Committee 2014 Meetings: 4 Members: |
●Monitors corporate
governance policies and oversees our Center for Global Business
Conduct
●Reviews senior
management succession plans and identifies and recommends to the Board
individuals to be nominated as directors
●Makes
recommendations concerning the size, composition, committee structure, and
fees for the Board
●Reviews and reports
to the Board on the performance and effectiveness of the Board and the
Corporate Governance Committee
●Oversees the
evaluation of our management
●Reports its
activities to the full Board
●All members have
been determined to be independent under current NYSE listing
standards |
13
Pension Plan Oversight Committee |
●Oversees our pension
plans
●Establishes
corporate policy with respect to pension
plans
●Formulates Company
pension funding policies
●Is authorized to
make substantive amendments and modifications to the pension
plans
●Reports its
activities to the full Board
●All members have
been determined to be independent under current NYSE listing
standards |
2014 Meetings: 4 Members: |
Board Oversight of
Risk Management
The Board believes that
strong and effective internal controls and risk management processes are
essential elements in achieving long-term stockholder value. The Board, directly
and through its committees, is responsible for overseeing risks potentially
affecting the Company.
Risk Management
Approach
The Company maintains a
structured risk management approach to enable the achievement of its strategic
business objectives. Under this approach, risks are identified and classified
into specified categories and escalated as necessary within a well-defined
internal risk management structure, which is administered at a management level
by a Management Risk Committee consisting of the CEO and his direct reports. The
Management Risk Committee,
in turn, is responsible for providing periodic reports to the Board regarding the Companys risk management processes and reviewing with the Board high-priority areas of enterprise risk. Dedicated risk management sessions typically take place at the regularly-scheduled Board meetings each February and August, and risk management topics are also discussed as necessary at other Board and committee meetings.
Board and Committee Risk Oversight
Responsibilities
Each Board committee
is responsible for oversight of risk categories related to the committees
specific function, while the full Board exercises ultimate responsibility for
overseeing the risk management function as a whole. The respective areas of risk
oversight exercised by the Board and its committees are as
follows:
Board/Committee | Primary Areas of Risk Oversight |
Full Board |
●Oversees overall
Company risk management procedures and regularly receives and evaluates
reports and presentations from the Chairs of the Audit Review,
Compensation, Corporate Governance, and Pension Plan Oversight Committees
on risk-related matters falling within each respective committees
oversight responsibilities |
Audit Review Committee |
●Oversees financial, operational, strategic, and
hazard-related risks by regularly reviewing reports and presentations
given by management, including our Senior Vice President and General
Counsel, Senior Vice President and Chief Financial Officer, and Vice
President, Internal Audit, as well as other operational Company
personnel
●Regularly reviews
our risk management practices and risk-related policies (for example, the
Companys Code of Business Conduct, information security policies, risk
management and insurance portfolio, and legal and regulatory reviews) and
evaluates potential risks related to internal control over financial
reporting |
Compensation Committee |
●Oversees potential
risks related to the design and administration of our compensation plans,
policies, and programs, including our performance-based compensation
programs, to promote appropriate incentives which do not encourage
unnecessary and excessive risk-taking by our executive officers or other
employees |
14
Board/Committee | Primary Areas of Risk Oversight |
Corporate Governance Committee |
●Oversees potential risks related to our governance practices
by, among other things, reviewing succession plans and performance
evaluations of the Board and CEO, monitoring legal developments and trends
regarding corporate governance practices, and evaluating potential related
person transactions
●Monitors risks
relating to environmental factors as well as product
safety/compliance |
Pension Plan Oversight Committee |
●Oversees potential
risks related to funding our U.S. qualified pension plans (other than the
defined contribution savings and investment plans) and monitoring
compliance with applicable laws and Company policies and
objectives |
Political
Contributions
In order to promote
transparency and good corporate citizenship, we have since 2012 provided
voluntary disclosure relating to the political contribution activities of the
Company and its political action committee. This information is publicly
available at www.deere.com/politicalcontributions.
Communication with the
Board
If you wish to communicate with the
Board you may send correspondence to: Corporate Secretary, Deere & Company,
One John Deere Place, Moline, Illinois 61265-8098.
The Corporate Secretary will submit your correspondence to the Board or the appropriate committee, as applicable.
You may communicate directly with the Presiding Director of the Board by sending correspondence to: Presiding Director, Board of Directors, Deere & Company, Department A, One John Deere Place, Moline, Illinois 61265-8098.
We pay nonemployee directors an annual retainer along with additional fees to committee chairpersons and the Presiding Director as described below. We do not pay any other committee retainers or meeting fees. In addition, nonemployee directors are awarded restricted stock units (RSUs) after each annual meeting during their service as directors. A person who becomes a nonemployee director between annual meetings, or who serves a partial term, receives a prorated retainer and a prorated RSU award. We also reimburse directors for expenses related to meeting attendance. Directors who are employees receive no additional compensation for serving on the Board or its committees. Compensation for nonemployee directors is reviewed annually by
the Corporate Governance Committee. No changes to nonemployee director compensation were approved in fiscal 2014. The following chart describes amounts we pay and the value of awards we grant to nonemployee directors:
Date Approved by Corporate | ||
Governance Committee: | August 2013 | |
Effective Date of Annual Amounts: | January 2014 | |
Retainer | $120,000 | |
Equity Award | $120,000 | |
Presiding Director Fee | $20,000 | |
Audit Review Committee Chair Fee | $20,000 | |
Compensation Committee Chair Fee | $20,000 | |
Corporate Governance Committee Chair Fee | $15,000 | |
Pension Plan Oversight Committee Chair Fee | $10,000 |
Under our Nonemployee Director Deferred Compensation Plan, directors may choose to defer some or all of their annual retainers until their retirement as a director. A director may elect to have these deferrals invested in either an interest-bearing account or an account with a return equivalent to an investment in Deere common stock.
Prior to fiscal 2008, nonemployee directors received the equity award in the form of restricted shares. Beginning in fiscal 2008, directors receive the equity award in the form of RSUs. In fiscal 2012, the Board adopted stock ownership guidelines requiring each nonemployee director to own Company common stock equivalent in value to at least three times the directors annual cash retainer. This ownership level must be achieved within five years of the date the director joins the Board. Restricted shares, RSUs, and any common stock held personally by the nonemployee director are included in determining whether the applicable ownership requirement has been achieved. Other than Mr. Page, who was first elected to
15
the Board in June 2013, each director has achieved stockholdings in excess of the applicable multiple as of the date of this Proxy Statement. Additionally, we require nonemployee directors to hold all equity awards until the occurrence of one of the following triggering events: retirement from the Board, permanent and total disability, death, or a change in control of Deere combined with a qualifying termination of the director. The directors are prohibited from selling, gifting, or otherwise disposing of their equity awards prior to a triggering event. While the restrictions are in effect, the nonemployee directors may vote the restricted shares (but not shares underlying RSUs) and receive dividends on the restricted shares and dividend equivalents on the RSUs.
In fiscal 2014, we provided the following compensation to our nonemployee directors:
Fiscal 2014 Director Compensation Table | ||||||||||||||||
Nonqualified | ||||||||||||||||
Fees Earned | Deferred | |||||||||||||||
or Paid in | Stock | Compensation | ||||||||||||||
Name | Cash (1) | Awards (2) | Earnings (3) | Total | ||||||||||||
Crandall C. Bowles | $ | 130,000 | $ | 119,972 | $ | | $ | 249,972 | ||||||||
Vance D. Coffman | $ | 135,000 | $ | 119,972 | $ | | $ | 254,972 | ||||||||
Charles O. Holliday, Jr. | $ | 155,000 | $ | 119,972 | $ | | $ | 274,972 | ||||||||
Dipak C. Jain | $ | 115,000 | $ | 119,972 | $ | 12,697 | $ | 247,669 | ||||||||
Clayton M. Jones | $ | 115,000 | $ | 119,972 | $ | | $ | 234,972 | ||||||||
Joachim Milberg | $ | 115,000 | $ | 119,972 | $ | | $ | 234,972 | ||||||||
Richard B. Myers | $ | 115,000 | $ | 119,972 | $ | | $ | 234,972 | ||||||||
Gregory R. Page | $ | 115,000 | $ | 119,972 | $ | 571 | $ | 235,543 | ||||||||
Thomas H. Patrick | $ | 125,000 | $ | 119,972 | $ | | $ | 244,972 | ||||||||
Aulana L. Peters (4) | $ | 25,000 | $ | | $ | | $ | 25,000 | ||||||||
Sherry M. Smith | $ | 115,000 | $ | 119,972 | $ | 1,441 | $ | 236,413 |
(1) All fees earned in fiscal 2014 for services as a director, including Committee Chairperson and Presiding Director fees, whether paid in cash or deferred under the Nonemployee Director Deferred Compensation Plan, are included in this column.
(2) Represents the aggregate grant date fair value of RSUs computed in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718, Compensation Stock Compensation, and does not correspond to the actual value that will be realized by the nonemployee directors. The values in this column exclude the effect of estimated forfeitures. All grants are fully expensed in the fiscal year granted based on the grant price (the average of the high and low price for Deere common stock on the grant date). For fiscal 2014, the grant date was March 5, 2014, and the grant price was $86.56.
The nonemployee director grant date is seven calendar days after the Annual Meeting. The assumptions made in valuing the RSUs reported in this column are discussed in Note 24, Stock Option and Restricted Stock Awards, of our consolidated financial statements filed with the SEC on Form 10-K for the fiscal year ended October 31, 2014. The following table lists the cumulative restricted shares and RSUs held by the nonemployee directors as of October 31, 2014:
Restricted | ||||
Director Name* | Stock | RSUs | ||
Crandall C. Bowles | 19,916 | 11,920 | ||
Vance D. Coffman | 6,532 | 11,920 | ||
Charles O. Holliday, Jr. | 1,160 | 11,920 | ||
Dipak C. Jain | 13,234 | 11,920 | ||
Clayton M. Jones | 824 | 11,920 | ||
Joachim Milberg | 10,708 | 11,920 | ||
Richard B. Myers | 3,176 | 11,920 | ||
Gregory R. Page | | 2,372 | ||
Thomas H. Patrick | 19,252 | 11,920 | ||
Sherry M. Smith | | 4,522 |
* Aulana L. Peters did not hold any restricted shares or RSUs as of October 31, 2014 and as such is not included in this table.
(3) Directors are eligible to participate in the Nonemployee Director Deferred Compensation Plan. Under this plan, participants may defer part or all of their annual cash compensation. For these deferrals, two investment choices are available:
– | an interest-bearing
alternative which pays interest at the end of each calendar quarter based
on the Moodys A rated Corporate Bond Rate for amounts deferred during
or after fiscal 2010. For amounts deferred prior to fiscal 2010, the
interest rate is based on the prime rate as determined by the Federal
Reserve Statistical Release plus 2%; or |
– | an equity alternative denominated in units of Deere common stock which earns additional shares each quarter at the quarterly dividend rate on Deere common stock. |
Amounts included in this column represent the above-market earnings on any amounts deferred under the Nonemployee Director Deferred Compensation Plan. Above-market earnings represent the difference between the interest rate used to calculate earnings under the applicable investment choice and 120% of the applicable federal long-term rate.
(4) Ms. Peters retired from the Board effective as of the 2014 annual meeting (February 26, 2014). Her compensation amounts reflect a prorated retainer fee covering the portion of fiscal 2014 during which she served as a director.
16
Security Ownership of
Certain
Beneficial Owners and Management
The following table shows the number of shares of Deere common stock beneficially owned as of December 31, 2014 (unless otherwise indicated) by:
– | each person, who, to
our knowledge, beneficially owns more than 5% of our common
stock; |
– | each of our
nonemployee directors; |
– | each of the named
executive officers listed in the Summary Compensation Table of this Proxy
Statement; and |
– | all individuals who served as directors or executive officers on December 31, 2014, as a group. |
A beneficial owner of stock is a person who has sole or shared voting power, meaning the power to control voting decisions, or sole or shared investment power, meaning the power to cause
the sale or other disposition of the stock (represented in column (a) below). A person is also considered the beneficial owner of shares to which that person has the right to acquire beneficial ownership (within the meaning of the preceding sentence) within 60 days. For this reason, the following table includes exercisable stock options (represented in column (b) below) and options, restricted shares, and RSUs that would become exercisable or be settled within 60 days of December 31, 2014 at the discretion of an individual identified in the table (for example, upon retirement) (represented in column (c) below).
All individuals listed in the table have sole voting and investment power over the shares unless otherwise noted. As of December 31, 2014, Deere had no preferred stock issued or outstanding.
Shares | Options, Restricted | ||||||||||||
Beneficially | Shares, and RSUs | ||||||||||||
Owned | Exercisable | Available | Percent of | ||||||||||
And Held | Options | Within 60 Days | Shares | ||||||||||
(a) | (b) | (c) | Total | Outstanding | |||||||||
Greater Than 5% Owners | |||||||||||||
Cascade Investment, L.L.C. (1) | |||||||||||||
2365 Carillon Point | |||||||||||||
Kirkland, WA 98033 | 30,008,573 | | | 30,008,573 | 8.1 | % | |||||||
Vanguard Group, Inc. (2) | |||||||||||||
P.O. Box 2600 V26 | |||||||||||||
Valley Forge, PA 19482 | 20,488,439 | | | 20,488,439 | 5.85 | % | |||||||
Non-Employee Directors (3) | |||||||||||||
Crandall C. Bowles | * | ||||||||||||
Vance D. Coffman | * | ||||||||||||
Charles O. Holliday, Jr. | * | ||||||||||||
Dipak C. Jain | * | ||||||||||||
Clayton M. Jones | * | ||||||||||||
Joachim Milberg | * | ||||||||||||
Richard B. Myers | * | ||||||||||||
Gregory R. Page | * | ||||||||||||
Thomas H. Patrick | * | ||||||||||||
Sherry M. Smith | * | ||||||||||||
Named Executive Officers (4) | |||||||||||||
Samuel R. Allen | * | ||||||||||||
James M. Field | * | ||||||||||||
Jean H. Gilles | * | ||||||||||||
Rajesh Kalathur | * | ||||||||||||
Michael J. Mack, Jr. | * | ||||||||||||
All directors and executive officers as a group (19 persons) (5) | * |
* Less than 1% of the outstanding shares of Deere common stock.
17
(1) The ownership information for Cascade Investment, L.L.C. (Cascade) is based on information supplied by Cascade in a statement on Schedule 13D filed with the SEC on December 18, 2013. All shares of common stock held by Cascade may be deemed beneficially owned by William H. Gates III as the sole member of Cascade. Cascade has sole voting power and sole dispositive power over 30,008,573 shares owned.
(2) The ownership information for Vanguard Group, Inc. (Vanguard) is based on information supplied by Vanguard in a statement on Form 13F filed with the SEC for the period ended September 30, 2014. Vanguard holds the shares in its capacity as a registered investment advisor on behalf of numerous investment advisory clients, none of which is known to own more than five percent of Deeres shares. Vanguard has sole voting power over 589,541 shares owned and sole dispositive power over 19,925,659 shares owned.
(3) The table includes restricted shares and RSUs awarded to directors under the Deere & Company Nonemployee Director Stock Ownership Plan (see footnote (2) to the Fiscal 2014 Director Compensation Table). Restricted shares and RSUs may not be transferred prior to retirement as a director. RSUs are payable only in Deere common stock following retirement and have no voting rights until they are settled in shares of stock. In addition, directors own the following number of deferred stock units, which are payable solely in cash under the terms of the Nonemployee Director Deferred Compensation Plan:
Director | Deferred Units | |
Crandall C. Bowles | ||
Vance D. Coffman | ||
Dipak C. Jain | ||
Thomas H. Patrick |
(4) See the Outstanding Equity Awards at Fiscal 2014 Year-End table for additional information regarding equity ownership for NEOs as of October 31, 2014.
(5) The number of shares shown for all directors and executive officers as a group includes ______ shares owned jointly with family members over which the directors and executive officers share voting and investment power.
Review and Approval of Related
Person Transactions
The Board has adopted a Related Person Transactions Approval Policy (the Related Person Policy). Under the Related Person Policy, our Corporate Governance Committee is responsible for reviewing, approving, and ratifying all related person transactions.
The following are considered to be related persons under the Related Person Policy:
(1) executive officers and directors of Deere;
(2) any holder of 5% or more of Deeres voting securities; or
(3) immediate family members of anyone in categories (1) or (2).
A related person transaction is a transaction, relationship, or arrangement between a related person and Deere where:
– | the amount involved
exceeds $120,000; and |
– | any related person (as defined above) has or will have a direct or indirect material interest in the transaction. |
Each year, our directors and executive officers complete annual questionnaires designed to elicit information about potential related person transactions. Deeres directors and officers must promptly advise our Corporate Secretary if there are any changes to the information they previously provided. After consultation with our General Counsel, management, and outside counsel, as appropriate, our Corporate Secretary determines whether the transaction is reasonably likely to be a related person transaction. Transactions deemed reasonably likely to constitute related person transactions are submitted to the Corporate Governance Committee for consideration at its next meeting. If action is required prior to the next meeting, the transaction is submitted to the Chairperson of the Corporate Governance Committee (the Chairperson) and the Chairpersons determination is then reported to the Corporate Governance Committee at its next meeting.
When evaluating potential related person transactions, the Corporate Governance Committee or the Chairperson, as applicable, considers all reasonably available relevant facts and circumstances and approves only those related person transactions determined in good faith to be in compliance with, or not inconsistent with, our Code of Ethics, Code of Business Conduct, and the best interests of our stockholders.
Patrick E. Mack is an employee in the Companys Financial Services division and is the brother of Michael J. Mack, Jr., the Group President of that division. Patrick E. Mack does not directly report to Michael J. Mack, Jr. During fiscal 2014, Patrick E. Mack received $770,245 in direct cash compensation, along with stock options valued at $198,000 at the time of grant. Patrick E. Macks compensation is consistent with that of other employees at his grade level. Pursuant to the Related Person Policy, this transaction was approved by the Corporate Governance Committee after determining that it is not inconsistent with our Code of Ethics or Code of Business Conduct.
18
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act), requires our directors, certain of our officers, and persons who own more than 10% of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC. These individuals are required by SEC regulations to furnish Deere with copies of all such Section 16(a) forms.
We help our directors and officers prepare and file the required reports. We have established procedures where the directors and officers (and others on their behalf) provide us with the relevant information regarding their transactions in Deere shares. Based on this information, we prepare and file the required ownership reports on behalf of the directors and officers. We have reviewed the reports we prepared and filed. In addition, our directors and officers have made written statements to us regarding their Deere stock ownership and reports. Based solely upon a review of these statements and reports, we believe that during 2014 all Section 16(a) filing requirements applicable to our insiders were complied with except for the following: due to a miscommunication, a statement of change in beneficial ownership on Form 4 for Gregory R. Page was not timely filed for his purchase of Deere common stock on the open market on August 22, 2014. The Form 4 for Mr. Page was filed on November 4, 2014.
19
Item 2
Approval of Bylaw
Amendment to Permit Stockholders
to Call Special
Meetings
Summary of the
Proposal
The Board unanimously recommends
that the Companys stockholders approve an amendment to the Companys Bylaws
(the Special Meeting Bylaw Amendment) that would add a right permitting
holders of record of at least twenty-five percent (25%) of the voting power of
the Companys outstanding capital stock who have held such shares in a net long
position continuously for at least one year to call a special meeting of
stockholders by written request filed with the Corporate Secretary and otherwise
in accordance with the Bylaws. Shares subject to hedging transactions will not
be included toward satisfying the 25% threshold. Currently, the Companys Bylaws
provide that only the Chairman of the Board or the Board may call a special
meeting of stockholders.
The presentation of this proposal reflects the Boards belief that granting such a right to stockholders is good corporate governance. In establishing an ownership threshold of at least 25% in order for stockholders to request a special meeting, the Board believes it is striking an appropriate balance between enhancing the rights of stockholders and avoiding the costs and distractions associated with the calling of special meetings, unless a significant group of stockholders believes that the calling of a special meeting of stockholders is warranted. Organizing and preparing for a special meeting involves a significant commitment of time and focus by management, and imposes substantial legal, administrative, and distribution costs. Accordingly, the Board believes that special meetings should be held only to cover special or extraordinary events, when fiduciary, strategic, or other similar considerations dictate that the matter be addressed on an expeditious basis, rather than waiting until the next annual meeting. A 25% threshold also minimizes the risk of frequent meeting requests, potentially covering agenda items relevant to particular constituencies as opposed to stockholders generally. In addition, the net long position and one year holding requirements are intended to protect against a special meeting being called by stockholders whose interests are transitory or otherwise not aligned with the interests of other stockholders in the long-term success of the Company. We therefore believe that a threshold of 25% based on net long ownership with a one year holding period is appropriate and reflects the best interests of stockholders.
The Special Meeting Bylaw Amendment contains procedural and informational requirements that are intended to facilitate the Company and stockholders receiving basic information about the meeting and to ensure, among other things, that the special meeting is not duplicative of matters that were or, in the near term, could be covered at an annual meeting. In particular, the Special Meeting Bylaw Amendment provides, among other things, that: no business may be conducted at the special meeting except as set
forth in the Companys notice of meeting; no stockholder special meeting request may be made during the period commencing 120 days prior to the first anniversary of the date of the immediately preceding annual meeting and ending on the earlier of the date of the next annual meeting or 30 days after the first anniversary of the previous annual meeting; a special meeting request cannot cover business substantially similar to what was covered at an annual or special meeting held not more than 12 months, or in the case of director elections 120 days, before the special meeting request was received by the Secretary; a special meeting will not be held if similar business is to be covered at an annual or special meeting called by the Board to be held within 120 days after the special meeting request is received by the Corporate Secretary; any shares beneficially owned or held of record as of the date of the request and sold by the requesting holder prior to the meeting will be treated as a revocation of the request to the extent of the shares sold; and the requesting stockholders notice must include information (as specified in the Special Meeting Bylaw Amendment) as to the business proposed to be conducted and as to each director nominee (if applicable). Only those stockholders soliciting requests for a special meeting and their affiliates must provide the additional information that would otherwise be required to be provided by stockholders seeking to propose business or nominate directors at an annual or special meeting of stockholders, including information with respect to any material interest of such stockholder in the proposed business and any information required to be disclosed in a proxy statement or other filings required to be made in connection with the solicitation of proxies with respect to the proposed business (or the election of directors, if applicable).
This description of the Special Meeting Bylaw Amendment is a summary and is qualified by the complete text of Article II, Section 4 of the Bylaws, as proposed to be amended, which is set forth in Appendix B to this Proxy Statement.
Upon approval of the Companys stockholders, the Special Meeting Bylaw Amendment will become effective.
Vote
Required
The affirmative vote of a
majority of the shares present in person or by proxy is needed to approve the
Special Meeting Bylaw Amendment.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE SPECIAL MEETING BYLAW AMENDMENT. |
20
Item 3
Advisory Vote on
Executive Compensation
In accordance with Section 14A of the Exchange Act, we are asking our stockholders to approve, on an advisory basis, the compensation of the executives named in the Summary Compensation Table of this Proxy Statement (the Named Executive Officers or NEOs) as disclosed in the Compensation Discussion & Analysis (CD&A) and tabular and narrative executive compensation disclosures of this Proxy Statement. The Companys practice, which was approved by its stockholders at the 2011 annual meeting, is to conduct this non-binding vote on an annual basis.
SUPPORTING STATEMENT
Pay for
Performance
Deeres compensation
philosophy is to pay for performance, support Deeres business strategies, and
offer competitive compensation arrangements. Our compensation programs consist
of elements designed to complement one another and reward achievement of
short-term and long-term objectives. The metrics used for our incentive programs
are associated with operating performance or based upon a function of the
Companys stock price with linkage to revenue growth and total shareholder
return. See the Pay for Performance for 3 Years Ended October 31, 2013 graph
in the Executive Summary of the CD&A, which highlights our success in
aligning executive compensation with the Companys financial
performance.
Program
Design
In the CD&A, we provide
stockholders with a detailed description of our compensation programs and
philosophy. Our compensation approach is supported by the following principles,
among others, as fully described in the CD&A:
| Attracting, retaining, and
motivating high-caliber executives |
| With greater responsibility,
placing a larger portion of total compensation at-risk with a larger portion tied to
long-term incentives |
| Recognizing the cyclical nature
of our equipment businesses and the need to
manage value throughout the business cycle |
| Providing opportunity for NEOs to
be long-term stockholders of Deere |
| Structuring compensation programs to be regarded positively by our stockholders and employees |
The Board believes that the executive compensation as disclosed in the CD&A, tabular disclosures, and other narrative executive compensation disclosures in this Proxy Statement is consistent with our compensation philosophy and aligns with the pay practices of our peer group.
FOR THE REASONS STATED, THE BOARD OF DIRECTORS RECOMMENDS
THAT YOU VOTE FOR THE FOLLOWING NON-BINDING
RESOLUTION: |
Effect of
Proposal
The say-on-pay resolution is
non-binding. The approval or disapproval of this proposal by stockholders will
not require the Board or the Compensation Committee to take any action regarding
the Companys executive compensation practices. The final decision on the
compensation and benefits of our NEOs and on whether, and if so, how, to address
stockholder disapproval remains with the Board and the Compensation
Committee.
The Board believes that the Compensation Committee is in the best position to consider the extensive information and factors necessary to make independent, objective, and competitive compensation recommendations and decisions that are in the best interests of the Company and its stockholders.
The Board values the opinions of the Companys stockholders as expressed through their votes and other communications. Although the resolution is non-binding, the Board and the Compensation Committee will carefully consider the outcome of the advisory vote and those opinions when making future compensation decisions.
21
Compensation Discussion & Analysis
In this section, we provide a detailed description of our compensation programs, including the philosophy and strategy underpinning the programs, the individual elements of the programs, the methodology and processes used by the Board and the Compensation Committee (the Committee) to make compensation decisions, and the relationship between Company performance and compensation delivered in fiscal 2014. The discussion in this CD&A focuses on the compensation of our CEO, CFO, and the next three most highly compensated executive officers (the NEOs) for the fiscal year ended October 31, 2014, who were:
Name | Title | |
Samuel R. Allen | Chairman and Chief Executive Officer | |
Rajesh Kalathur | Senior Vice President and Chief Financial Officer | |
James M. Field | President, Agricultural Equipment Operations | |
Jean H. Gilles | Senior Vice President, John Deere Power Systems, Worldwide Parts Services, Advanced Technology and Engineering, and Global Supply Management and Logistics | |
Michael J. Mack, Jr. | Group President, John Deere Financial Services, Global Human Resources, and Public Affairs |
Executive
Summary
Our compensation strategy is
designed to motivate our NEOs and salaried employees to execute our business
strategy and strive for higher Company performance while maintaining our core
values of quality, innovation, integrity, and commitment. In order to ensure
that our compensation strategy aligns with our core values and drives
performance across the Company, we regularly compare our compensation practices
and governance against market best practices. Here are some of the best
practices we have incorporated into our compensation programs:
● | We use a combination
of short-term and long-term incentives to ensure a strong connection
between Deeres performance and actual compensation. |
● | We do not enter into
employment agreements with our executives except where legally
required. |
● | Burn rate and dilution
associated with our equity incentive program are reviewed annually by the
Committee and have historically been competitive within our peer
group. |
● | Our equity incentive
plan prohibits us from: (i) granting stock options with an exercise price
less than the fair market value of the Companys common stock on the date
of grant; (ii) re-pricing stock options without the prior approval of our
stockholders; (iii) cashing out underwater stock options; and (iv)
including reload provisions in any stock option
grant. |
● | We annually conduct a
review of all our compensation plans, policies, and significant practices
as well as a comprehensive review of risks associated with
compensation. |
● | Our executive officers (including the NEOs) participate in Company benefits programs (including health care, life insurance, disability, and retirement plans) on the same basis as other full-time employees of the Company. |
● | We do not provide tax gross ups for
executives except for those available to all
employees generally and we do not provide excise tax gross ups upon a change in control. |
● | We include a double-trigger change in
control provision in our executive Change in
Control Severance Program as well as our current
equity plan, under which participants will receive severance benefits only if both a change in control and
qualifying termination occur. |
● | Executive perquisites are limited and
reviewed annually by the Committee. |
● | The Committee and Company management
regularly evaluate our peer group and pay
positioning under a range of performance
scenarios. |
● | The Committee is advised by an
independent compensation consultant that performs
no other services for the Company. |
● | We have adopted an Executive Incentive
Compensation Recoupment Policy to ensure
accountability in the presentation of our
financial statements. |
● | We have established stock ownership
requirements to ensure the retention of stock by
our directors and executives and strengthen the
relationship between compensation and performance. |
● | We prohibit all directors and employees,
including our executive officers, and their
related persons from engaging in short sales of
the Companys stock or trading in instruments designed to hedge against price declines by the Companys
stock. |
● | We prohibit our directors and officers from holding Company securities in margin accounts or pledging Company securities as collateral for loans or other obligations. |
22
In addition to the practices described above, in order to strengthen the relationship between compensation and the experience of our stockholders, we added a total shareholder return (TSR) modifier for payouts to executive officers under our Mid-Term Incentive (MTI) plan for the three-year performance period starting in November 2014. This action is an example of the commitment of the Company and the Committee to continually review and modify our compensation programs to enhance the relationship between pay and performance.
Pay for Performance Review and
Analysis
Pay for performance is an
essential component of our longstanding compensation philosophy. Our
compensation approach is designed to motivate our executives, including our
NEOs, to substantially contribute individually and
collaboratively to the Companys long-term, sustainable growth and help us
achieve our aspiration to distinctively serve our customers those linked to
the land through a great business. To achieve this aspiration, our business
strategy includes:
| Exceptional operating
performance; |
| Disciplined growth of shareholder
value added (SVA); and |
| Aligned high-performance teamwork. |
We continue to demonstrate our commitment to stockholders through our performance-based compensation programs using metrics that align with our business strategy:
● |
To align compensation with exceptional operating performance, we use Operating Return on Operating Assets (OROA) and Return on Equity (ROE) as the metrics for our Short-Term Incentive (STI) plan. These metrics are designed to incentivize the efficient use of assets and capital. STI goals are adjusted based on the business cycle to ensure the level of difficulty of earning STI awards will be comparable for a range of sales volumes and capacity utilization levels. |
2014 OROA Performance
● |
To align compensation with disciplined growth, we use SVA as the metric for our MTI plan. SVA measures our success in delivering sustained growth in economic profitability. |
Deere Enterprise SVA
● |
To align compensation with stockholder experience, our Long-Term Incentive (LTI) plan utilizes stock options and restricted stock units (RSUs), whose ultimate values are tied to the Companys stock price, and performance stock units (PSUs), the ultimate value of which also depends on relative revenue growth and TSR as compared to the S&P Industrial Sector. |
PSU Performance Metrics for 3-Year Period Ended 10/31/14
23
The following chart shows the direct and indirect components of our compensation strategy:
COMPENSATION STRATEGY
TOTAL DIRECT COMPENSATION | TOTAL INDIRECT COMPENSATION | |||
Short-Term Compensation | Long-Term Compensation |
Other Compensation and Benefits | ||
Base Salary | STI | MTI | LTI | |
Fixed cash component |
Annual cash award for profitability and efficient operations during the fiscal year | Cash award for sustained profitable growth during a multi-year period | Equity award for creation of stockholder value, as reflected by the Companys stock price, with linkage to revenue growth and TSR | Perquisites; Retirement Benefits; Deferred Compensation Benefits; and Additional Benefits Payable upon a Change-in-Control Event |
As our NEOs assume greater responsibility, our pay for performance approach provides that: (1) a larger portion of their total compensation should be at-risk in the form of short-term, mid-term, and long-term incentive awards; and (2) a larger proportion of their incentive awards should be in the form of long-term awards
in order to drive sustainable growth of stockholder value. The following chart illustrates the allocation of all fiscal 2014 Total Direct Compensation components at target for our CEO and for our other NEOs as a group. This chart highlights the Companys emphasis on long-term and at-risk compensation.
2014 Target Direct Compensation Mix for Named Executive Officers
24
The Committee believes that the Companys Total Direct Compensation program is strongly aligned with stockholders interests. Each performance metric is rigorously reviewed for alignment with stockholder value creation and performance goals are consistently calibrated to deliver meaningful value to stockholders. Nevertheless, there are times when financial results do not align with relative TSR results. In order to further refine the pay-for-performance relationship, the Committee has approved a modification to future MTI plan cycles that increases the influence of relative TSR performance (see the Mid-Term Incentive (MTI) section below).
In addition, in light of recent stock price performance as well as in recognition of more recent, challenging business conditions, and in spite of strong financial performance against established goals, Mr. Allen has requested that the Board reduce his cash incentive plan compensation for fiscal 2014. The Board considered Mr. Allens request and agreed to exercise its discretion to reduce his cash incentive awards by 25%, resulting in total payments under these awards of $1.8 million less than the amounts he would have otherwise earned based on previously-approved plan metrics and goals and actual performance results (see footnote (4) to the Fiscal 2014 Summary Compensation Table).
Consultant Review of Pay for
Performance Relative to Peer Group
In
the course of reviewing our overall executive compensation program, the
Committees consultant, Pearl Meyer & Partners (Pearl Meyer), reviewed the
relationship between total realizable compensation and our performance for the
three fiscal years ended October 31, 2013. This approach was selected because
this is the most recent time period coinciding with our fiscal year-end for
which corresponding compensation information is available for our peer
companies. This review was conducted to understand the degree of alignment
between total compensation delivered to our NEOs during the period and our
performance relative to our peer group as identified in the Market Analysis
section below. For purposes of this review, company performance is defined as
TSR. Total realizable compensation for Deeres NEOs is defined as the sum of
the following components:
1. Actual base salaries paid over the three-year period;
2. Actual STI awards paid over the three-year period;
3. The Black-Scholes value as of October 31, 2013 of any stock options granted over the three-year period;
4. The value as of October 31, 2013 of RSUs granted over the three-year period;
5. The value as of October 31, 2013 of PSUs reflecting actual performance for (i) the 2011-2013 performance cycle and (ii) the in-process 2012-2014 and 2013-2015 performance cycles; and
6. The value of actual MTI payouts made over the three-year period.
For peer companies, realizable pay includes cash-based long-term incentive plan and performance share plan payouts for performance cycles fully contained within the 3-year period with award values multiplied by a factor that reflects grant frequency and long-term incentive vehicle mix.
Pearl Meyers analysis, as shown in the chart below, reveals that TSR was aligned with realizable pay, for our CEO and other NEOs, near the 25th percentile of our peer group. Based on these results, combined with the results of past comparisons of pay and performance alignment as discussed in our proxy statements for previous years, we believe that our pay programs are effective at ensuring that pay levels for our executives are aligned with performance.
The Company works closely with the Committee and the Committees outside consultant to continually review its compensation programs to ensure that they meet the objectives of the Companys compensation philosophy.
2014 Compensation
Overview
At Deere, we remain committed to
our longstanding compensation philosophy, which incorporates the principles of
paying for performance, supporting business strategies, and paying competitively. The Committee believes this
philosophy continues to drive our NEOs and salaried employees to produce
sustainable, positive results for the Company and our stockholders.
25
Compensation Strategy and
Objectives
Our compensation strategy
includes Total Direct Compensation (base salary, short-term, mid-term, and
long-term incentive compensation) and Total Indirect Compensation (other
compensation and benefits). The award ranges and values for each of the
incentive compensation components are tied to our performance through
association with operating metrics or as a function of our stock price. As
discussed above, we have chosen financial metrics that align compensation with
our business strategy and our stockholders interests. This alignment is further
accomplished by keeping our metrics simple, transparent, and consistently
communicated from year to year. SVA, for example, has been published in the
annual report every year since 2002 in the section following the Chairmans
message.
Although this compensation strategy applies to most salaried employees, this Proxy Statement focuses on its applicability to our NEOs based on the following principles:
● | Attract, retain, and motivate high-caliber executives |
● | With greater responsibility,
place a larger portion of total compensation at-risk with a larger
portion tied to long-term incentives |
● | Provide the appropriate level
of reward for performance (below median total compensation for substandard
Company performance; median total compensation for median levels of
performance; and upper quartile total compensation for sustained upper
quartile performance) |
● | Recognize the cyclical nature
of our equipment businesses and the need to manage value throughout the
business cycle |
● | Provide opportunity for NEOs
to be long-term stockholders of the Company |
● | Structure compensation
programs to meet the tax deductibility criteria in the U.S. Internal
Revenue Code (IRC) where practicable |
● | Structure compensation programs to be regarded positively by our stockholders and employees |
Compensation
Elements
The elements of our
compensation program are summarized in the table below:
Component | Purpose | Characteristics | Where Reported in Accompanying Tables |
Base Salary |
Reward for level of responsibility, experience, and sustained individual performance |
Fixed cash component targeted at our peer group median; Base salary can vary from the market due to individual performance, experience, time in position, and internal equity considerations |
Fiscal 2014 Summary Compensation Table under the column Salary |
Discretionary |
To recognize outstanding individual achievement |
A cash award that may not exceed 20% of base salary, except in unusual circumstances |
No discretionary bonuses were awarded in fiscal 2014 to our NEOs |
Short-Term |
Reward for the achievement of higher profitability through operating efficiencies and asset management during the fiscal year |
A target STI award is designed to provide median annual cash compensation compared with our peer group when combined with base salary and median overall compensation compared with our peer group when combined with base salary, a target MTI award, and a base-level LTI award |
Fiscal 2014 Summary Compensation Table under the column Non-Equity Incentive Plan Compensation and Fiscal 2014 Grants of Plan-Based Awards under the column Estimated Future Payouts Under Non-Equity Incentive Plan Awards |
Mid-Term |
Reward for the achievement of sustained profitable growth over a multi-year performance period |
Cash portion of long-term compensation; A target MTI award is designed to provide median compensation compared with our peer group in combination with base salary, a target STI award, and a base-level LTI award |
Fiscal 2014 Summary Compensation Table under the column Non-Equity Incentive Plan Compensation and Fiscal 2014 Grants of Plan-Based Awards under the column Estimated Future Payouts Under Non-Equity Incentive Plan Awards |
26
Component | Purpose | Characteristics | Where Reported in Accompanying Tables |
Long-Term |
Reward for the creation of stockholder value as reflected by our stock price with linkage to revenue growth and TSR |
Equity-based portion of long-term compensation; A base-level LTI award is designed to provide median compensation compared with our peer group when combined with base salary and target STI and MTI awards; Award is delivered through a combination of PSUs, RSUs, and stock options; Ultimate value of award depends on our stock price and operating performance |
Fiscal 2014 Summary Compensation Table under the columns Stock Awards and Option Awards; Fiscal 2014 Grants of Plan-Based Awards under the columns referencing stock and option awards; Outstanding Equity Awards at Fiscal 2014 Year-End; Fiscal 2014 Option Exercises and Stock Vested; Fiscal 2014 Nonqualified Deferred Compensation Table in the row Deferred RSUs |
Perquisites |
Provide our executives with selected benefits commensurate with those provided to executives at our peer group companies |
Types of compensation that personally benefit an employee, are not related to job performance, and are available to a select group of employees |
Fiscal 2014 Summary Compensation Table under the column All Other Compensation |
Retirement |
Provide income upon retirement |
Defined benefit pension plans plus a 401(k) plan; Our matches to the 401(k) plan are based on the applicable pension option and Company performance |
Fiscal 2014 Summary Compensation Table under the columns Change in Pension Value and Nonqualified Deferred Compensation Earnings and All Other Compensation; Fiscal 2014 Pension Benefits Table |
| |||
Deferred |
Allow executives to defer compensation on a tax-efficient basis |
Executives can elect to defer base salary, STI, or MTI into the Voluntary Deferred Compensation Plan; Executives participating in the Contemporary pension option can defer employee contributions and receive matching employer contributions under the Defined Contribution Restoration Plan; RSUs may also be deferred |
Accumulated amounts deferred are reported in the Fiscal 2014 Nonqualified Deferred Compensation Table; Above-market earnings on these amounts are reported in the Fiscal 2014 Summary Compensation Table under the column Change in Pension Value and Nonqualified Deferred Compensation Earnings |
Potential |
Encourage executives to operate in the best interests of stockholders both before and after a Change in Control event |
Contingent in nature; Most elements are payable only if a NEOs employment is terminated as specified under various plans |
Fiscal 2014 Potential Payments upon Change in Control |
Other
Potential |
Provide potential payments under the scenarios of death, disability, retirement, termination without cause or for cause, and voluntary separation |
Contingent in nature; Amounts are payable only if a NEOs employment is terminated as specified under the arrangements of various plans |
Fiscal 2014 Potential Payments upon Termination of Employment Other than Following a Change in Control |
27
Compensation Methodology
and Process
Independent Review and
Approval of Executive Compensation
The
Committee, all the members of which are independent under current NYSE listing
standards, is responsible for reviewing and approving goals and objectives
related to incentive compensation for the majority of salaried employees. The
Committee evaluates the NEOs performances in relation to established goals and
ultimately approves the compensation for the NEOs (except for the CEO). See the
Board Committees section of this Proxy Statement for a detailed listing of
Committee responsibilities and members.
The Committee does not delegate any substantive responsibilities related to the compensation of NEOs and exercises its independent judgment when approving executive compensation. No member of the Committee is a former or current officer of Deere or any of its subsidiaries.
The Committee periodically reviews compensation delivery to ensure its alignment with our business strategy, the Companys performance, and the interests of our employees and stockholders. In addition, the Committee periodically reviews market practices for all significant elements of executive compensation and approves necessary adjustments to remain competitive.
The Corporate Governance Committee of the Board directs an annual evaluation process of the CEO. Generally, at the Board meeting in August of each year, the full Board (in executive session without the CEO present) evaluates the CEOs performance. The Committee considers the Boards evaluation when providing recommendations to the Board for the CEOs compensation. The Committees recommendations for the CEOs compensation are presented to and approved by the independent members of the Board. The CEO does not play a role in and is not present during discussions regarding his own compensation.
The CEO plays a significant role in setting the compensation for the other NEOs. The CEO presents an evaluation of each NEOs individual performance. The CEO also provides recommendations for changes to the NEOs base salaries and LTI awards. Since the STI and MTI awards are calculated using predetermined factors, the CEO does not provide recommendations for changes to the other NEOs STI and MTI awards. The Committee has the discretion to accept, reject, or modify the CEOs recommendations. The other NEOs are not present during these discussions.
As part of its process for making compensation decisions, the Committee reviews the results of the Companys most recent annual advisory say-on-pay vote. A substantial majority (approximately 93%) of our stockholders who voted on the say-on-pay proposal in our fiscal 2013 proxy statement approved our executive compensation as described in the CD&A and tabular and narrative disclosures. The Committee took account of this strong
level of stockholder support in determining to apply the same effective principles and philosophy in structuring our executive compensation program for fiscal 2014.
The Role of the Compensation
Consultant
The Committee has retained
Pearl Meyer as its compensation consultant. Pearl Meyer reviews our executive
compensation program design and assesses our compensation approach relative to
our performance and the market. The Committee has sole responsibility for
setting and modifying Pearl Meyers compensation, determining the nature and
scope of its services, evaluating its performance, and terminating its
engagement and/or hiring another compensation consultant at any time.
Pearl Meyer attends Committee meetings, reviews compensation data with the Committee, and participates in general discussions regarding executive compensation issues. While the Committee considers input from Pearl Meyer, ultimately the Committees decisions reflect many factors and considerations. Management works with Pearl Meyer at the Committees direction to develop materials and analysis essential to the Committees compensation evaluations and determinations. Such materials include competitive market assessments and summaries of current legal and regulatory developments.
Pearl Meyer periodically meets independently with the Chairman of the Committee to discuss compensation matters. In addition, Pearl Meyer regularly participates in executive sessions with the Committee (without any of the Companys personnel or executives present) to discuss compensation matters. Pearl Meyer does not provide other significant services to Deere and has no other direct or indirect business relationships with Deere or any of its affiliates. Taking these and other factors into account, the Committee has determined that the work performed by Pearl Meyer does not raise any conflicts of interest. Additionally, based on its analysis of the factors identified in the Committees charter as being relevant to compensation consultant independence, the Committee has concluded that Pearl Meyer is independent of the Companys management.
Market
Analysis
To ensure that total
compensation for our NEOs aligns with the market, we compared our compensation
and performance against the companies in our executive compensation peer group.
This comparison includes an evaluation of the mix of cash versus equity and
short-term versus long-term components. The companies in the peer group that we
used in our fiscal 2014 market analysis process, listed in the chart below, are
similar to Deere in sales volume, products, services, market capitalization,
and/or global presence.
28
Fiscal 2014 Executive Compensation Peer Group
Revenues * | Market Value 10/31/2014 | |||||||||||||||||
Company | Fiscal Year | Employees * | ($MM) | ($MM) | ||||||||||||||
3M Company | Dec 13 | 88,667 | $ | 30,871 | $ | 98,539 | ||||||||||||
Alcoa Inc. | Dec 13 | 60,000 | $ | 23,032 | $ | 19,757 | ||||||||||||
The Boeing Company | Dec 13 | 168,400 | $ | 86,623 | $ | 89,052 | ||||||||||||
Caterpillar Inc. | Dec 13 | 118,501 | $ | 55,656 | $ | 61,394 | ||||||||||||
Cummins Inc. | Dec 13 | 47,900 | $ | 17,321 | $ | 26,706 | ||||||||||||
E.I. du Pont de Nemours and Company | Dec 13 | 64,000 | $ | 35,935 | $ | 62,646 | ||||||||||||
Eaton Corp. Plc | Dec 13 | 102,000 | $ | 22,046 | $ | 32,547 | ||||||||||||
Emerson Electric Co. | Sep 14 | 115,100 | $ | 24,537 | $ | 44,434 | ||||||||||||
General Dynamics Corporation | Dec 13 | 96,000 | $ | 31,218 | $ | 46,315 | ||||||||||||
Honeywell International Inc. | Dec 13 | 131,000 | $ | 39,055 | $ | 75,244 | ||||||||||||
Illinois Tool Works Inc. | Dec 13 | 51,000 | $ | 14,135 | $ | 35,595 | ||||||||||||
Johnson Controls, Inc. | Sep 14 | 168,000 | $ | 42,828 | $ | 31,445 | ||||||||||||
Lockheed Martin Corporation | Dec 13 | 115,000 | $ | 45,358 | $ | 60,206 | ||||||||||||
Northrop Grumman Corporation | Dec 13 | 65,300 | $ | 24,661 | $ | 27,868 | ||||||||||||
PACCAR Inc | Dec 13 | 21,800 | $ | 17,124 | $ | 23,176 | ||||||||||||
Raytheon Company | Dec 13 | 63,000 | $ | 23,706 | $ | 32,033 | ||||||||||||
United Technologies Corporation | Dec 13 | 212,400 | $ | 62,626 | $ | 97,547 | ||||||||||||
Whirlpool Corporation | Dec 13 | 69,000 | $ | 18,769 | $ | 13,398 | ||||||||||||
Xerox Corporation | Dec 13 | 143,100 | $ | 21,435 | $ | 15,160 | ||||||||||||
75th Percentile | 121,626 | $ | 39,998 | $ | 61,707 | |||||||||||||
Median | 92,334 | $ | 27,766 | $ | 34,071 | |||||||||||||
25th Percentile | 62,250 | $ | 21,893 | $ | 27,577 | |||||||||||||
Deere & Company | Oct 14 | 58,210 | $ | 36,067 | $ | 30,659 | ||||||||||||
Deere Percentile | 16th | 68th | 32nd |
Source: Factset Research Systems,
Inc.
* Reflects employees and revenues
for last reported fiscal year
Compensation paid by our peer group is representative of the compensation we believe is required to attract, retain, and motivate executive talent. The Committee, in consultation with Pearl Meyer, periodically reviews the peer group list to confirm that it continues to be an appropriate point of reference for NEO compensation. The Boeing Company and E.I. du Pont de Nemours and Company were added to the executive compensation peer group for fiscal 2014 while Ingersoll-Rand Plc, Parker-Hannifin Corp, and Textron Inc. were dropped, reflecting the Committees desire to bring the peer group into closer alignment with Deere in terms of revenue levels. No changes were made to the peer group for fiscal 2015.
Total Direct Compensation
Elements
The following information
describes each direct compensation element, including discussion of performance
metrics where applicable.
Base Salary
In determining salary levels for each of our NEOs, the
Committee takes into consideration factors such as fulfillment of job
responsibilities, the financial and operational performance of the activities
directed by each NEO, experience, time in position, internal equity, and
potential. The Committee also considers each NEOs current salary as compared to
the salary range and the median salary practices of our peer group.
In fiscal 2014, after considering the aforementioned factors, the Board approved a base salary increase of 4% for the CEO and the Committee approved increases ranging from 3-6% for the other NEOs. The resulting salary levels align with the market median for similar positions except for Mr. Kalathur, whose base salary is below the market median due to his relatively short time in the CFO position.
29
Short-Term Incentive
(STI)
The following factors are used
to calculate the amount of the STI award paid to our NEOs:
| Salary; |
| Target STI rate as described below under Approval of STI Rates; and |
| Deeres actual Operating Return on Operating Assets (OROA) and Return on Equity (ROE) performance as defined below under Performance Metrics for STI. |
Individual awards under the STI plan are capped at $5 million per performance period. The STI plan is periodically approved by our stockholders and was last approved at the annual meeting in February 2010. The STI plan will be considered for re-approval at the February 2015 annual meeting.
Performance Metrics for
STI
There are two metrics used in the
calculation of STI:
| OROA for the Equipment Operations (consisting of our worldwide Agriculture and Turf Operations and Construction and Forestry Operations) |
| ROE for our Financial Services segment |
Deere is primarily a manufacturing company with high investment in fixed assets, such as buildings and machinery, and significant expenses with longer term payoffs, such as research and development. OROA was selected as the STI performance metric for the Equipment Operations because the Committee believes it effectively measures the efficient use of the Equipment Operations assets.
Targeted OROA performance for each Equipment Operations business segment varies based on the segments sales volume. The actual sales volume is measured in relationship to mid-volume sales. Mid-volume sales is determined at the beginning of the fiscal year using historical sales volumes, industry growth rates, and market share data, among other considerations, and represents the midpoint of a business cycle.
The preceding graph represents how Deeres operating leverage functions in a given business. For Deere, operating leverage means:
| When sales volumes and capacity utilization are low compared to mid-volume, it is more difficult to cover fixed costs and achieve high asset turnover; therefore, OROA performance goals are lower; and |
| When sales volumes and capacity utilization are high compared to mid-volume, it is easier to cover fixed costs and achieve high asset turnover; therefore, OROA performance goals are higher. |
By adjusting OROA performance goals as sales volumes change, Deere believes the level of difficulty in attaining targeted performance will be comparable for a range of sales volumes and capacity utilization levels. Using OROA aligns employee decisions with our strategic approach to sound investment of capital and asset utilization. This model encourages our management team to make necessary structural changes, such as those related to capacity, margin enhancements, and asset turnover for a given volume level.
At the beginning of fiscal 2014, the Committee approved the following OROA goals at different sales volume levels for the Equipment Operations:
Fiscal 2014 OROA Goals | Minimum | Target | Maximum | ||||||
OROA Goals at Low Volume | 4% | 8% | 12% | ||||||
OROA Goals at Mid-Volume | 8% | 12% | 20% | ||||||
OROA Goals at High Volume | 12% | 20% | 28% |
These OROA goals have not changed since fiscal 2007. Minimum, target, and maximum OROA goals are interpolated for sales volumes between low and mid-volume and between mid-volume and high volume.
ROE is the performance metric for Financial Services. Financial Services experiences different cash flow risk characteristics and operates with significantly different debt-to-equity leverage than the Equipment Operations. ROE goals are adjusted for the actual mix of business subsidized by the Equipment Operations versus the business that is not subsidized. The Committee approved the following ROE goals at the beginning of fiscal 2014:
Fiscal 2014 ROE Goals | Minimum | Target | Maximum | ||||||
Subsidized Business | 10% | 10% | 10% | ||||||
Non-Subsidized Business | 10% | 13% | 16% |
These ROE goals have not changed since fiscal 2011. See Appendix C, Deere & Company Reconciliation of Non-GAAP Measures, for additional information regarding the calculation of OROA and ROE for fiscal 2014.
30
For fiscal 2014, the various business results were weighted to calculate STI as follows (which weighting has not changed since fiscal 2011):
Equipment Operations OROA | 50% | |
Agriculture and Turf Operations OROA | 25% | |
Construction and Forestry Operations OROA | 15% | |
Financial Services ROE | 10% |
Approval of STI Rates
At the beginning of the fiscal year, after
review and consideration of Deeres peer group data for target cash bonuses, the
Committee approves target STI rates as a percentage of the NEOs base salary. A
target STI award is designed to provide median annual cash compensation compared
with our peer group when combined with base salary and median overall
compensation compared with our
peer group when combined with base salary, a target MTI award, and a base-level LTI award. In December 2013, the Committee approved STI rates for fiscal 2014 as follows:
Target STI Rates: | ||
CEO | 125% | |
Other NEOs | 85% |
Fiscal 2014 Performance Results for
STI
The chart below details:
| the goals that were necessary to achieve STI payout based on the actual sales volumes (OROA) and the actual mix of subsidized and non-subsidized business (ROE); and |
| the actual OROA and ROE performance results. |
Fiscal 2014 Performance Results for STI | Goal to Achieve Payout |
Fiscal 2014 Performance Results |
Performance as % of Target |
Fiscal 2014
Award Weighting |
Weighted Award Results | |||||||
Equipment Operations OROA | 19.2% for maximum | 27.7% | 200% | 50% | 100% | |||||||
Agriculture and Turf Operations OROA | 19.2% for maximum | 30.9% | 200% | 25% | 50% | |||||||
Construction and Forestry Operations OROA | 18.4% for maximum | 17.6% | 189% | 15% | 28% | |||||||
Financial Services ROE | 12.1% for maximum | 13.6% | 200% | 10% | 20% | |||||||
Actual Performance as % of Target 198% |
To further explain this chart and the fiscal 2014 OROA goals, actual sales volumes for the combined Equipment Operations were slightly below mid-volume levels for fiscal 2014. Therefore, the combined Equipment Operations needed to achieve 19.2% OROA to earn maximum payout. Since an OROA of 27.7% was achieved, a maximum payout for that component of STI was earned.
The amount of the STI award paid to a NEO is calculated as follows:
Base salary for the fiscal year
x
Target STI rate
x Actual performance as a percent of target (up to a maximum
of 200%)
= STI award amount
STI awards paid to NEOs are detailed in the Fiscal 2014 Summary Compensation Table under footnote (4). At the request of the CEO, the Board agreed to exercise its discretion to reduce the CEOs STI compensation by 25% below the amount he would have otherwise earned for fiscal 2014 based on previously-approved plan metrics and goals and actual performance results. The Committee did not exercise its authority to decrease or eliminate the STI awards for the other NEOs.
The STI plan and the results for fiscal 2014 described above are also used to determine the STI awards paid to most other executive, administrative, and professional employees worldwide. For fiscal
2014, STI awards paid to the NEOs consisted of approximately 1.3% of the total amount of STI awards paid to all eligible employees.
Long-Term
Compensation
Long-term compensation
includes a combination of MTI and LTI. MTI is paid in cash and is considered
part of long-term compensation because multiple fiscal years are included in the
performance period. LTI, the equity-based portion of long-term compensation,
consisted of RSUs, PSUs, and stock options in fiscal 2014.
Mid-Term Incentive
(MTI)
The following factors are used
to calculate the amount of the MTI award paid to our NEOs:
| Median of actual salaries for the salary grade; |
| Target MTI rate as described below under Approval of MTI Rates; and |
| SVA results as defined below under Performance Metrics for MTI. |
Individual awards under the MTI plan are capped at $4.5 million per performance period. The MTI plan is periodically approved by our stockholders and was last approved at the annual meeting in February 2013.
31
Performance Metrics for
MTI
In 2003, the Committee established SVA
as the MTI performance metric. SVA measures Deeres success in delivering
sustained growth in economic profitability. SVA was selected as the MTI
performance metric because the Committee believes that Deere should:
(a) | earn, at a minimum, its weighted average cost of capital each year; | |
(b) | ensure that investments in capital and research and development earn their cost of capital; and | |
(c) | ensure that acquisitions do not dissipate stockholder value. |
SVA is fundamental to how Deere operates its business at the corporate and business unit level. We believe that sustained growth for Deere can be accomplished through a combination of revenue growth and high returns on invested capital, both of which are reflected in the SVA metric. Since it is based on enterprise-wide SVA, MTI encourages teamwork across all units of our business. In addition, providing Deere employees the opportunity to share in a
portion of SVA fosters and reinforces a culture of ownership and alignment with stockholders, which has been critical to Deeres long-term success. For fiscal 2014, the MTI payout for all employees amounted to about 7% of our average annual SVA over the three-year performance period. See Appendix C, Deere & Company Reconciliation of Non-GAAP Measures, for an explanation regarding the calculation of SVA.
The Committee has approved three-year performance periods to emphasize and reward consistent, sustained operating performance. The Committee conducts annual reviews of the target and maximum SVA goals. The accumulated maximum SVA goal for a three-year performance period is set at a level that reflects market upper quartile return on invested capital performance and matches enterprise SVA goals set by the business for the first year of that performance period plus compounded 7% annual growth for the remaining two years. The target SVA is set at half of the maximum SVA goal. The chart below details the target and maximum SVA goals for each performance period that includes fiscal 2014:
Fiscal 2012 | Fiscal 2013 | Fiscal 2014 | |
through | through | through | |
SVA Goals for MTI | Fiscal 2014 | Fiscal 2015 | Fiscal 2016 |
SVA Goal for Target Payout | $2.5 billion | $2.755 billion | $3.605 billion |
SVA Goal for Maximum Payout | $5 billion | $5.51 billion | $7.21 billion |
Payable in | Dec 2014 | Dec 2015 | Dec 2016 |
Approved by Committee | Dec 2011 | Dec 2012 | Dec 2013 |
Inherent in the MTI plan is a lagging, three-year impact of SVA. Whether positive or negative, SVA results for a given year become part of the MTI award calculation for that year and the subsequent two years. Negative SVA in a given year can offset positive SVA earned in a prior or future year. Thus, MTI plan payouts in a strong-performance year, following a number of weak-performance years, will be lower than the financial results that the strong-performance year alone would justify. The opposite is also true: MTI plan payouts made in a weak-performance year, following several strong-performance years, will be higher than the financial results that the weak-performance year alone would justify. Employees are motivated to achieve optimal SVA performance each year because each year is included in three separate rolling performance periods.
In an effort to further align executive compensation with stockholder interests, in August 2014 the Committee approved the addition of a relative TSR modifier to potential MTI payouts for our executive officers (including each of the NEOs). Starting with the performance period that ends in fiscal 2017, the TSR modifier is triggered if Deeres TSR relative to the S&P Industrial Sector
(the same index used to measure relative performance for PSU purposes) is below median for the performance period. For TSR at or below the 25th percentile, the final MTI payout will be reduced 25%. For TSR between the 25th and 50th percentiles, the final MTI payout will be reduced between 0-25% on a linear basis as shown in the following chart:
32
Approval of MTI
Rates
After review and consideration of
compensation data for our peer group, the Committee approves target MTI rates as
a percentage of the median salary of the NEOs salary grade. A target MTI award
is designed to provide median compensation compared with our peer group in
combination with base salary, a target STI award, and a base-level LTI award. In
December 2011, the Committee approved the following target MTI rates for the
performance period ended October 31, 2014. When maximum SVA goals are met or
exceeded, 200% of target rates are paid.
Target MTI Rates*: | |
CEO | 121% |
Other NEOs | 93% |
* A minimum MTI award ($1,100 for the CEO and $400 for the other NEOs) will not be paid unless accumulated SVA exceeds $1 million for the performance period.
Fiscal 2014 Performance Results for
MTI
Deeres accumulated SVA, calculated in
accordance with the MTI performance metrics as described in Appendix C, is
reported in the following table for the three-year performance period ended
October 31, 2014:
Deere Enterprise SVA
For the three-year performance period ended October 31, 2014, the accumulated SVA exceeded the maximum payout goal of $5 billion, resulting in a maximum MTI award. MTI awards paid to NEOs are detailed in the Fiscal 2014 Summary Compensation Table under footnote (4). At the request of the CEO, the Board agreed to exercise its discretion to reduce the CEOs MTI compensation by 25% below the amount he would have otherwise earned for fiscal 2014 based on previously-approved plan metrics and goals and actual performance results. The Committee did not exercise its authority to decrease or eliminate the MTI awards for the other NEOs.
The MTI plan and the results for the performance period ended in fiscal 2014 described above are also used to determine the MTI awards paid to other eligible employees worldwide. MTI awards paid to the NEOs for fiscal 2014 consisted of approximately 3.5% of the MTI payout to all eligible employees.
In the ten years preceding the implementation of MTI, fiscal years 1994 through 2003, accumulated SVA, as reported, was negative $1.4 billion as compared to accumulated positive SVA of $17.9 billion in the ten most recent fiscal years. The Committee believes that Deeres adoption of the SVA model is an important factor driving the Companys performance.
Long-Term Incentive
(LTI)
The purpose of LTI is to
reward the NEOs for the creation of sustained stockholder value, encourage
ownership of Deere stock, foster teamwork, and retain and motivate high-caliber
executives while aligning their interests with those of our stockholders.
Historically, LTI awards consisted of annual grants of restricted stock or RSUs,
along with market-priced stock options, under the John Deere Omnibus Equity and
Incentive Plan (Omnibus Plan). In fiscal 2011, the Committee introduced PSUs
as an element of the annual award mix in order to strengthen the incentive
features of LTI awards and create stronger alignment between ultimate payouts
and Company performance. The Omnibus Plan is periodically approved by our
stockholders and was last approved at the annual meeting in February 2010. The
Omnibus Plan will be considered for re-approval at the February 2015 annual
meeting.
The Committee established LTI grants to the NEOs based on the following criteria: level of responsibility, individual performance, current market practice, peer group data, and the number of shares available under the Omnibus Plan. Awards granted in previous years are not a factor in determining the current years LTI award, nor is potential accumulated wealth viewed as being relevant. The following table summarizes the mix, performance measurements, and general terms for each form of equity awarded to the NEOs for fiscal year 2014:
Fiscal Year 2014 LTI Award Overview for NEOs
PSUs | RSUs | Stock Options | ||||
LTI Mix | 40% | 25% | 35% | |||
Performance |
50% revenue growth* and 50% TSR relative to the S&P Industrial Sector over a three-year performance period |
Stock price appreciation |
Stock price appreciation | |||
Vesting Period |
Cliff vest on the third anniversary of the grant date |
Cliff vest on the third anniversary of the grant date |
Vest in approximately equal annual installments over three years | |||
Restrictions/ |
Converted to Deere common stock upon vesting |
Converted to Deere common stock upon vesting |
Expire ten years from the grant date |
* Based on the Companys compound annual growth rate
33
Approval of LTI Award
Values
At the beginning of the fiscal
year, after review and consideration of peer group data on target long-term
incentives, the Committee approves a dollar value for a base-level LTI award and
the mix of awards (options, RSUs, and PSUs) to be delivered. A base-level LTI
award is designed to provide median compensation compared with our peer group
when combined with base salary and target STI and MTI awards. The Committee
determines LTI awards at the first Committee meeting at the beginning of the
fiscal year. The Committee has the ability to increase (up to 20%) or decrease
(down to $0) the base-level award to distinguish an individuals level of
performance, deliver a particular LTI value, or reflect other adjustments as the
Committee deems necessary. For fiscal 2014, adjustments to base-level award
values ranging up to 15% were approved in recognition of the individual
performance of the NEOs. LTI awards were approved for the NEOs as
follows:
Adjusted Award Values*: | |
Samuel R. Allen | $8,740,000 |
Rajesh Kalathur | $1,420,000 |
James M. Field | $1,562,000 |
Jean H. Gilles | $1,618,800 |
Michael J. Mack, Jr. | $1,604,600 |
* Amounts differ from the value of equity awards shown in the Fiscal Year 2014 Summary Compensation Table and Grants of Plan-Based Awards table because those tables reflect the probable outcome of the performance metrics for PSUs. The amounts shown here include PSUs valued at the grant price on the date of grant, reflecting the value the Committee considered when granting the LTI awards for fiscal 2014.
See the Fiscal 2014 Grants of Plan-Based Awards table and footnotes for more information on LTI awards delivered as well as the terms of the awards.
For fiscal 2014, the number of RSUs and PSUs granted to the NEOs represented 51% of all RSUs and PSUs granted to eligible salaried employees. The number of stock options granted to the NEOs represented 9% of all stock options granted to eligible salaried employees in fiscal 2014. These proportions are consistent with our philosophy that as NEOs assume greater responsibility, a larger portion of their incentive compensation should be focused on long-term awards.
PSUs Granted in Fiscal Year 2014
For PSUs granted in fiscal 2014, the
actual number of shares to be issued upon conversion will be based equally on Deeres
revenue growth and TSR for the three-year performance period ending in 2016. The
Companys performance will be measured relative to the companies in the S&P
Industrial Sector as of the end of the performance period.
Performance Targets (Performance Period Ending in 2016) | |||||||||
|
Revenue Growth Payout
% × Weighted Portion of PSUs Awarded |
|
+ |
|
TSR Payout % × Weighted Portion of PSUs Awarded |
|
= |
Final |
The number of PSUs that vest and convert to shares can range from 0% to 200% of the number of PSUs awarded depending on the Companys relative performance during the performance period as illustrated in the following table:
% of Target Shares | |
Deeres Revenue Growth or TSR | Earned |
Relative to the S&P Industrial Sector | (Payout %) * |
Below 25th percentile | 0% |
At 25th percentile | 25% |
At 50th percentile | 100% |
At or above 75th percentile | 200% |
* Interim points are interpolated
These performance targets reflect the Committees belief that median levels of relative performance should lead to median levels of compensation.
2012-2014 PSU Program (Payable in
Fiscal 2015)
The performance period for
PSUs granted in fiscal year 2012 ended on October 31, 2014. The final number of
shares earned was based on Deeres revenue growth and TSR relative to the
S&P Industrial Sector over the three-year performance period. The final
payout determination was made by the Committee in December 2014 following a
review of the relative performances of the Company and the S&P Industrial
Sector. Revenue growth and TSR were comparable to the 49th and 8th percentiles,
respectively, of the S&P Industrial Sector. This resulted in an overall
payout of 48.5% of target.
Performance | ||||||||
Results for | ||||||||
Performance | ||||||||
Period Relative | % of Target | |||||||
to S&P Industrial | Shares | Award | Weighted | |||||
Metric | Sector | Earned | Weighting | Payout % | ||||
Revenue Growth | 49th percentile | 97% | 50% | 48.5% | ||||
TSR | 8th percentile | 0% | 50% | 0% | ||||
Final Payout as % of Target | 48.5% |
The number of units that are or would be payable based on actual achievement relative to the S&P Industrial Sector and year-end values for PSUs granted in fiscal years 2012 through 2014 are included in the Outstanding Equity Awards at Fiscal 2014 Year-End table.
34
LTI Grant Practices
For more than 20 years, the Committee has authorized the
annual LTI awards for all eligible employees on a single date each year. The
grant date is seven calendar days after the first Board meeting of the fiscal
year. This timing allows for stock price stabilization after the release of
year-end financial results and Board meeting announcements. The grant price for
all currently-outstanding LTI awards is the average of the high and low common
stock price on the grant date as reported on the NYSE, although for awards made
after February 25, 2015 the grant price will be the closing price of Deere
common stock on the NYSE on the grant date. The grant price is also used to
determine the number of PSUs, RSUs, and stock options to be awarded.
Stock Ownership
Requirements
Stock ownership requirements
apply to NEOs to ensure the retention of stock acquired through our equity
incentive plan. The required levels of ownership are five times base salary for
the CEO and 3.5 times base salary for the other NEOs, to be achieved within five
years of the date the NEO is first appointed as CEO or as an executive officer,
as applicable. Only vested RSUs and any common stock held personally by the NEOs
are included in determining whether the applicable ownership requirement has
been met. Once the appropriate ownership level is achieved by the NEO, the
number of shares held at that time becomes the fixed stock ownership requirement
for the NEO for three years, even if base salary increases or stock price
decreases. Other than Mr. Kalathur, who was first appointed Senior Vice
President and Chief Financial Officer on September 1, 2012, each NEO has
achieved stockholdings in excess of the applicable multiple as of the date of
this Proxy Statement.
Our Insider Trading Policy precludes all directors and employees, including our NEOs, and their related persons from engaging in short sales of the Companys stock or trading in instruments designed to hedge against price declines by the Companys stock. Our Insider Trading Policy also prohibits our directors and officers (including NEOs) from holding Company stock in margin accounts or pledging Company stock as collateral for loans or other obligations.
Summary of Total Direct
Compensation
The Committee believes
each pay element included in Total Direct Compensation is consistent with our
compensation philosophy. The Committee reviews Total Direct Compensation in the
aggregate for the NEOs (excluding the CEO) as well as for each NEO individually
and compares this compensation to the market position data of our peer group.
This market position data takes into account the level of responsibility
(including the level of sales volume) for each NEOs respective operations. We
have a practice of rotating individuals among the executive officer positions.
As described above, a primary part of our strategy is aligned high-performance
teamwork.
A substantial portion of the evaluation of individual performance is a careful analysis of each NEOs collaboration and contribution to the success of a high-performing team. Thus, while the market data for each position is a factor in reviewing Total Direct Compensation, the Committee also considers individual fulfillment of duties, teamwork, development, time in position, experience, and internal equity among NEOs (other than the CEO). The Committee recognizes individual performance through adjustments to base salary and LTI.
Total Direct Compensation for the CEO is higher than other NEOs due to the CEOs breadth of executive and operating responsibilities for the entire global enterprise. The Committee does not target CEO compensation as a certain multiple of the compensation of the other NEOs. The relationship between the CEOs compensation and that of the other NEOs is influenced by our organizational structure, which does not include a chief operating officer. For Mr. Allen, Total Direct Compensation as compared to the other NEOs Total Direct Compensation is generally comparable to that of our peer group.
In light of recent stock price performance as well as in recognition of more recent, challenging business conditions, and in spite of strong financial performance against established goals, Mr. Allen has requested that the Board reduce his cash incentive plan compensation for fiscal 2014. The Board considered Mr. Allens request and agreed to exercise its discretion to reduce his cash incentive awards by 25%, resulting in total payments under these awards of $1.8 million less than the amounts he would have otherwise earned based on previously-approved plan metrics and goals and actual performance results (see footnote (4) to the Fiscal 2014 Summary Compensation Table).
Limitations on Deductibility of
Compensation
Section 162(m) of the IRC
generally limits to $1 million the U.S. federal income tax deductibility of
compensation paid in one year to a companys CEO or any of its three
next-highest-paid executive officers (other than the Chief Financial Officer).
Performance-based compensation is not subject to the limits on deductibility of
Section 162(m), provided such compensation meets certain requirements, including
stockholder approval of material terms of compensation. The Committee strives to
provide NEOs with incentive compensation programs that will preserve the tax
deductibility of compensation paid by Deere, to the extent reasonably
practicable and consistent with Deeres other compensation objectives. The
Committee believes, however, that stockholder interests are best served by not
restricting the Committees discretion and flexibility in structuring
compensation programs, even though such programs may result in certain
non-deductible compensation expenses.
35
Recoupment of Previously Paid
Incentive Compensation
In November
2007, the Committee adopted the Executive Incentive Compensation Recoupment
Policy (Recoupment Policy). The Recoupment Policy authorizes the Committee to
determine whether to require recoupment of incentive compensation paid to or
deferred by certain executives (including the NEOs) if certain conditions are
met. The Committee may require recoupment if the executive engaged in misconduct
that:
| contributed to the need for a restatement of all or a portion of Deeres financial statements filed with the SEC; or |
| contributed to inaccurate operating metrics being used to calculate incentive compensation; |
and, in either case, the Committee determines that the executives incentive compensation would have been less had the misconduct not occurred.
Total Indirect
Compensation Elements
The following
sections describe each Total Indirect Compensation element:
Perquisites
We offer our NEOs various perquisites that the Committee
believes are reasonable in order to remain competitive. These perquisites
constitute a small percentage of the NEOs total compensation. The Committee
conducts an annual review of the perquisites offered to the NEOs. For more
information on the perquisites provided and to whom they apply, see footnote (6)
to the Fiscal 2014 Summary Compensation Table. In addition to the items listed
in the aforementioned footnote, NEOs, as well as other selected employees, are
also provided indoor parking and access to Deere-sponsored skyboxes at local
venues for personal use when not occupied for business purposes, both at no
incremental cost to the Company. All security services provided by the Company
are reimbursed by the NEOs.
In August 2006, the Board voted to require the CEO to use the Companys aircraft for all business and personal travel, believing that the ability to travel safely and efficiently provides substantial benefits that justify the cost. The geographic location of Deeres headquarters in the Midwest, outside of a major metropolitan area, makes personal and business travel challenging. Traveling by company aircraft for business and personal reasons allows the CEO to conduct business confidentially while in transit. Since the CEO travels extensively, inefficient travel is costly to the Company. Personal use of company aircraft by other NEOs is minimal. Any personal travel on Deere aircraft by the other NEOs, individually or accompanied by their family members, must be approved by the CEO. The Committee has limited the CEOs annual personal usage of company aircraft to approximately 100 hours.
Retirement
Benefits
Each of our NEOs is currently
covered by the same defined benefit pension plans, which include the same plan
terms, as most qualifying U.S. salaried employees. We also maintain two
additional defined benefit pension plans in which NEOs may participate, the
Senior Supplementary Pension Benefit Plan (the Supplementary Plan) and the
John Deere Supplemental Benefit Plan (the Supplemental Plan).
The defined benefit pension plans have compensation limits imposed by the IRC. The Supplementary Plan provides participants with the same benefit they would have received without these limits. This avoids the relative disadvantage that participants would experience compared to other qualified plan participants. The Supplemental Plan is designed to reward career service at Deere above a specified grade level by utilizing a formula that takes into account only years of service above that grade level. We believe that the defined benefit plans serve as important retention tools, provide a level of competitive income upon retirement, and reward long-term employment and service as an officer of Deere. For additional information, see the Fiscal 2014 Pension Benefits Table, along with the accompanying narrative and footnotes.
We also maintain a tax-qualified defined contribution plan, the John Deere Savings and Investment Plan (SIP), which is available to the majority of U.S. employees, including the NEOs. We make matching contributions on up to six percent of an employees pay to participant SIP accounts. The STI results for the previous fiscal year (see the Performance Metrics for STI section above) are used to determine the level of actual Company match for the following calendar year. The level of Company match also depends on the pension option in which the employee participates, as explained in the narrative preceding the Fiscal 2014 Pension Benefits Table. The following table illustrates the Companys match for calendar 2014, which is reported for our NEOs under the All Other Compensation column of the Fiscal 2014 Summary Compensation Table:
Traditional Option match on 1-6% of eligible earnings | 100% |
Contemporary Option match on first 2% of eligible earnings | 300% |
Contemporary Option match on next 4% of eligible earnings | 100% |
Deferred Compensation
Benefits
We also maintain certain
deferred compensation plans that provide the NEOs with longer-term savings
opportunities on a tax-efficient basis. All deferred compensation benefits are
designed to attract, retain, and motivate employees. Such deferred compensation
benefits are commonly offered by companies with whom we compete for talent. See
the Nonqualified Deferred Compensation section below for additional
details.
36
Potential Payments upon Change in
Control and Other Potential Post-Employment Payments
Potential Payments upon Change in Control
In August 2009, the Committee approved a Change in Control
Severance Program (the CIC Program) to replace the change in control
agreements that had been in place since 2000. The CIC Program covers certain
executive officers, including each of the NEOs, and is intended to facilitate
continuity of management in the event of a change in control. The Committee
believes that the CIC Program serves the following purposes:
| Encourages executives to act in
the best interests of stockholders in evaluating transactions that,
without a change in control arrangement, could be personally
detrimental; |
| Keeps executives focused on
running the business in the face of real or rumored
transactions; |
| Protects Deeres value by
retaining key talent in the face of corporate
changes; |
| Protects Deeres value after a
change in control by including restrictive covenants (such as non-compete
provisions) and a general release of claims in favor of Deere;
and |
| Assists in the attraction and retention of executives as a competitive practice. For more information, see Fiscal 2014 Potential Payments upon Change in Control and the corresponding tables. |
Other Potential Post Employment
Payments
The Companys various plans and policies
provide payments to NEOs upon certain types of employment terminations that are
not related to a change in control. These events and amounts are explained in
the section below entitled Fiscal 2014 Potential Payments upon Termination of
Employment Other than Following a Change in Control.
Risk Assessment of
Compensation Policies and Practices
During
fiscal 2014, management conducted a comprehensive risk assessment of the
Companys compensation policies and practices. The risk assessment process
included the following:
(1) Convened a Compensation Risk Assessment Team (Management Team) comprised of management personnel representing relevant areas of oversight;
(2) Completed an inventory of the Companys compensation programs globally for both executive and non-executive employees; and
(3) Established a detailed risk assessment questionnaire and applied it to the compensation programs that, due to their size, potential payout, and/or structure, could potentially have a material adverse effect on the Company.
The inquiries in the risk assessment questionnaire focused on the following issues: (a) pay-for-performance comparison against the Companys peer group; (b) balance of compensation components; (c) program design and pay leverage; (d) program governance; and (e) mitigating factors that offset program risks.
After review, the Management Team concluded that the Companys compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company. The Committee, along with its independent compensation consultant, Pearl Meyer, reviewed the risk assessment and concurred with the Management Teams conclusion. Specifically, the Committee believes the following key factors support the Management Teams conclusion: (i) the performance metrics for determining STI (OROA and ROE) and MTI (SVA) are based on worldwide, publicly reported metrics with only minor adjustments and, therefore, are not easily susceptible to manipulation; (ii) the variety of performance metrics incorporated in our compensation plans discourage excessive risk taking by removing the incentive to focus on a single performance goal or performance over the course of a single year to the detriment of the Company; (iii) the metrics for STI are capped at maximum levels of OROA and ROE performance, thereby reducing the risk that executives might be motivated to attain excessively high stretch goals in order to maximize short-term payouts; and (iv) the metrics for MTI are capped at a maximum level of SVA performance, thereby reducing the risk that executives might be motivated to attain excessively high stretch goals in order to maximize mid-term payouts. In addition, Deere maintains stock ownership requirements that are designed to incentivize our management team to focus on the Companys long-term, sustainable growth. Finally, Deere has a Recoupment Policy (described above) designed to prevent misconduct relating to financial reporting.
37
The reports of the Compensation Committee and the Audit Review Committee that follow do not constitute soliciting material and will not be deemed filed or incorporated by reference by any general statement incorporating by reference this Proxy Statement or future filings into any filing under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except to the extent that Deere specifically incorporates the information by reference, and will not otherwise be deemed filed under these Acts.
The Compensation Committee of the Board of Directors has reviewed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K and discussed it with Deeres management. Based on the Compensation Committees review and discussions with management, the Compensation Committee recommends to the Board of Directors that the Compensation Discussion and Analysis be included in Deeres Proxy Statement.
Vance D. Coffman, Chair
Crandall C. Bowles
Clayton M. Jones
Richard B. Myers
38
In this section, we provide tabular and narrative information regarding the compensation of our NEOs for the fiscal year ended October 31, 2014.
Fiscal 2014 Summary Compensation Table
Name & Position | Fiscal Year |
Salary (1) |
Stock Awards (2) |
Option Awards (3) |
Non-Equity Incentive Plan Compensation (4) |
Change in Pension Value and Nonqualified Deferred Compensation Earnings (5) |
All
Other Compensation (6) |
Total | |||||||||||||||||||||||
Samuel R. Allen | 2014 | $ | 1,495,204 | $ | 6,606,197 | $ | 3,058,680 | $ | 5,397,891 | $ | 3,137,079 | $ | 578,245 | $ | 20,273,296 | ||||||||||||||||
Chairman and | 2013 | $ | 1,435,644 | $ | 6,241,025 | $ | 3,058,773 | $ | 6,705,518 | $ | 1,187,712 | $ | 520,067 | $ | 19,148,739 | ||||||||||||||||
Chief Executive Officer | 2012 | $ | 1,352,400 | $ | 6,022,556 | $ | 3,059,041 | $ | 6,274,944 | $ | 1,884,238 | $ | 438,972 | $ | 19,032,151 | ||||||||||||||||
Rajesh Kalathur | 2014 | $ | 525,437 | $ | 1,073,209 | $ | 496,928 | $ | 1,879,751 | $ | 190,760 | $ | 131,124 | $ | 4,297,209 | ||||||||||||||||
Senior Vice President and | 2013 | $ | 465,552 | $ | 1,165,925 | $ | 571,490 | $ | 1,718,594 | $ | 9,061 | $ | 330,621 | $ | 4,261,243 | ||||||||||||||||
Chief Financial Officer | 2012 | $ | 347,565 | $ | | $ | 179,990 | $ | 485,945 | $ | 94,515 | $ | 156,421 | $ | 1,264,436 | ||||||||||||||||
James M. Field | 2014 | $ | 646,353 | $ | 1,180,392 | $ | 546,630 | $ | 2,083,579 | $ | 459,197 | $ | 167,586 | $ | 5,083,737 | ||||||||||||||||
President, Agricultural | 2013 | $ | 620,543 | $ | 1,115,269 | $ | 546,644 | $ | 1,969,106 | $ | 28,796 | $ | 159,379 | $ | 4,439,737 | ||||||||||||||||
Equipment Operations | 2012 | $ | 586,306 | $ | 1,125,239 | $ | 571,551 | $ | 2,002,226 | $ | 348,156 | $ | 145,988 | $ | 4,779,466 | ||||||||||||||||
Jean H. Gilles | 2014 | $ | 590,722 | $ | 1,223,406 | $ | 566,521 | $ | 1,989,802 | $ | 942,341 | $ | 154,290 | $ | 5,467,082 | ||||||||||||||||
Senior Vice President | 2013 | $ | 561,341 | $ | 1,165,925 | $ | 571,490 | $ | 1,873,417 | $ | 27,622 | $ | 152,991 | $ | 4,352,786 | ||||||||||||||||
JDPS/Adv Tech & Eng | 2012 | $ | 520,517 | $ | 1,027,253 | $ | 521,849 | $ | 1,895,523 | $ | 688,417 | $ | 134,138 | $ | 4,787,697 | ||||||||||||||||
Michael J. Mack, Jr. | 2014 | $ | 656,147 | $ | 1,212,742 | $ | 561,549 | $ | 2,100,089 | $ | 822,000 | $ | 185,218 | $ | 5,537,745 | ||||||||||||||||
Group President, | 2013 | $ | 637,536 | $ | 1,064,500 | $ | 521,799 | $ | 1,996,571 | $ | 85,771 | $ | 171,229 | $ | 4,477,406 | ||||||||||||||||
John Deere Financial Services | 2012 | $ | 624,532 | $ | 1,027,253 | $ | 521,849 | $ | 2,064,224 | $ | 621,724 | $ | 158,140 | $ | 5,017,722 |
(1) Includes amounts deferred by the NEO under the John Deere Voluntary Deferred Compensation Plan. Salary amounts deferred in fiscal 2014 are included in the first column of the Fiscal 2014 Nonqualified Deferred Compensation Table corresponding with Deferred Plan.
(2) Represents the aggregate grant date fair value of PSUs and RSUs computed in accordance with FASB ASC Topic 718. The values in this column exclude the effect of estimated forfeitures. Assumptions made in the calculation of these amounts are included in Note 24, Stock Option and Restricted Stock Awards, of our consolidated financial statements filed with the SEC on Form 10-K for the fiscal year ended October 31, 2014. For PSUs, the value at the grant date is based upon the probable outcome of the performance metrics over the three-year performance period. If the highest level of payout was achieved, the value of the award as of the grant date for PSUs would be as follows: $8,842,500 (Allen); $1,436,600 (Kalathur); $1,579,900 (Field); $1,637,500 (Gilles); and $1,623,300 (Mack). RSUs granted in fiscal years 2013 and 2014 will vest three years after the grant date, at which time they may be settled in Deere common stock. RSUs granted in fiscal year 2012 must be held until five years after the grant date. Refer to the Fiscal 2014 Grants of Plan-Based Awards table and footnote (7) thereto for a detailed description of the grant date fair value of stock awards.
(3) Represents the aggregate grant date fair value of stock options computed in accordance with FASB ASC Topic 718. The values in this column exclude the effect of estimated forfeitures. The assumptions made in valuing option awards reported in this column and a more detailed discussion of the binomial lattice option pricing model are described in Note 24, Stock Option and Restricted Stock Awards, of our consolidated financial statements filed with the SEC on Form 10-K for the fiscal year ended October 31, 2014. Refer to the Fiscal 2014 Grants of Plan-Based Awards table and footnote (7) thereto for a detailed description of the grant date fair value of option awards.
(4) Non-equity incentive plan compensation includes cash awards under the STI and MTI plans. Cash awards earned under the STI and MTI plans for the performance period ended in fiscal 2014 were paid to NEOs on December 15, 2014 unless deferred under the Voluntary Deferred Compensation Plan. Deferred STI and MTI amounts are included in the first column of the Fiscal 2014 Nonqualified Deferred Compensation Table corresponding with Deferred Plan.
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The following table shows the awards earned under the STI and MTI plans:
STI (a) | MTI (b) | |||||||||||||||||||||||||||||||||||
Name | Target Award as % of Salary |
Actual Performance as % of Target |
Award Amount |
Target Award as % of Median Salary |
Actual Performance as % of Target |
Award Amount |
Total Non-Equity Incentive Plan Compensation |
|||||||||||||||||||||||||||||
Samuel R. Allen (c) | 125% | 198% | $ | 2,779,846 | 121% | 200% | $ | 2,618,045 | $ | 5,397,891 | ||||||||||||||||||||||||||
Rajesh Kalathur | 85% | 198% | $ | 885,729 | 93% | 200% | $ | 994,022 | $ | 1,879,751 | ||||||||||||||||||||||||||
James M. Field | 85% | 198% | $ | 1,089,557 | 93% | 200% | $ | 994,022 | $ | 2,083,579 | ||||||||||||||||||||||||||
Jean H. Gilles | 85% | 198% | $ | 995,780 | 93% | 200% | $ | 994,022 | $ | 1,989,802 | ||||||||||||||||||||||||||
Michael J. Mack, Jr. | 85% | 198% | $ | 1,106,067 | 93% | 200% | $ | 994,022 | $ | 2,100,089 |
(a) Based on actual performance, as discussed in the CD&A under Fiscal 2014 Performance Results for STI, the NEOs earned an STI award equal to 198% of the target opportunity.
(b) Based on actual performance, as discussed in the CD&A under Fiscal 2014 Performance Results for MTI, the NEOs earned an MTI award equal to 200% of the target opportunity.
(c) At Mr. Allens request, the Board agreed to exercise its discretion to reduce his non-equity incentive plan compensation by 25% below the amount he would have otherwise earned for fiscal 2014 based on previously-approved plan metrics and goals and actual performance results. See Pay for Performance Review and Analysis in the Executive Summary of the CD&A.
(5) The following table shows the change in pension value and above-market earnings on nonqualified deferred compensation during fiscal 2014:
Name | Change in Pension Value (a) |
Nonqualified Deferred Compensation Earnings (b) |
Total | |||||||||||
Samuel R. Allen | $ | 3,074,776 | $ | 62,303 | $ | 3,137,079 | ||||||||
Rajesh Kalathur | $ | 185,859 | $ | 4,901 | $ | 190,760 | ||||||||
James M. Field | $ | 438,774 | $ | 20,423 | $ | 459,197 | ||||||||
Jean H. Gilles | $ | 914,028 | $ | 28,313 | $ | 942,341 | ||||||||
Michael J. Mack, Jr. | $ | 786,903 | $ | 35,097 | $ | 822,000 |
(a) Represents the change in the actuarial present value of each NEOs accumulated benefit under all defined benefit plans from October 31, 2013 to October 31, 2014. The pension value calculations include the same assumptions as used in the pension plan valuations for financial reporting purposes. For more information on the assumptions, see footnote (4) under the Fiscal 2014 Pension Benefits Table.
(b) Represents above-market earnings on compensation that is deferred by the NEOs under our nonqualified deferred compensation plans. Above-market earnings represent the difference between the interest rate used to calculate earnings under the applicable plan and 120% of the applicable federal long-term rate prescribed by the IRC. See the Fiscal 2014 Nonqualified Deferred Compensation Table for additional information.
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(6) The following table provides details about each component of the All Other Compensation column in the Fiscal 2014 Summary Compensation Table:
Name | Personal Use of Company Aircraft (a) |
Financial Planning (b) |
Medical Exams (c) |
Misc Perquisites (d) |
Company Contributions to Defined Contribution Plans (e) |
Total
All Other Compensation | |||||||||||||||||||||||
Samuel R. Allen | $ | 80,051 | $ | | $ | 3,191 | $ | 4,244 | $ | 490,759 | $ | 578,245 | |||||||||||||||||
Rajesh Kalathur | $ | | $ | | $ | 2,140 | $ | 1,193 | $ | 127,791 | $ | 131,124 | |||||||||||||||||
James M. Field | $ | | $ | 1,810 | $ | | $ | 842 | $ | 164,934 | $ | 167,586 | |||||||||||||||||
Jean H. Gilles | $ | | $ | | $ | 3,614 | $ | 874 | $ | 149,802 | $ | 154,290 | |||||||||||||||||
Michael J. Mack, Jr. | $ | | $ | | $ | 15,346 | $ | 1,212 | $ | 168,660 | $ | 185,218 |
(a) Per Internal Revenue Service (IRS) regulations, the NEOs recognize imputed income on the personal use of Deeres aircraft at rates established by the IRS. For SEC disclosure purposes, the cost of personal use of Deeres aircraft is calculated based on the incremental cost to Deere. To determine the incremental cost, Deere calculates the variable costs for fuel on a per mile basis, plus any direct trip expenses such as on-board catering, landing/ramp fees, and crew expenses. Fixed costs that do not change based on usage, such as pilot salaries, depreciation of aircraft, and maintenance costs, are excluded. Mr. Allens personal usage of Company aircraft in fiscal 2014 amounted to approximately 30 hours of travel, which represents less than 1% of the total hours flown by Company aircraft.
(b) This column contains amounts Deere paid for financial planning assistance on behalf of the NEOs. The CEO may annually receive up to $15,000 of assistance and the other NEOs may receive up to $10,000 annually.
(c) This column contains the amounts Deere paid for annual medical exams for NEOs.
(d) Miscellaneous perquisites include spousal attendance at company events.
(e) Deere makes contributions to the John Deere Savings and Investment Plan (SIP) for all eligible employees. Deere also credits contributions to the John Deere Defined Contribution Restoration Plan for all employees covered by the Contemporary Option under the tax-qualified pension plan. All of our current NEOs are covered by the Contemporary Option.
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Fiscal 2014 Grants of
Plan-Based Awards
The following table
provides additional information regarding fiscal 2014 grants of RSU, PSU, and
stock option awards under the Omnibus Plan, and the potential range of awards
that were approved in fiscal 2014 under the STI and MTI plans for payout in
future years. These awards are further described in the CD&A under Total
Direct Compensation Elements.
All Other | All Other | ||||||||||
Stock | Option | Exercise | |||||||||
Awards: | Awards: | or Base | Grant Date | ||||||||
Estimated Future Payouts | Estimated Future Payouts | Number of | Number of | Price of | Fair Value | ||||||
Under Non-Equity Incentive Plan | Under Equity Incentive Plan | Shares of | Securities | Option | of Stock | ||||||
Awards | Awards | Stock or | Underlying | Awards | and Option | ||||||
Grant Date | (2) | (3) | Units | Options | ($ / Sh) | Awards | |||||
Name | (1) | Threshold | Target | Maximum | Threshold | Target | Maximum | (4) | (5) | (6) | (7) |
Samuel R. Allen | 12/3/2013-STI | $ | $1,869,005 | $3,738,010 | |||||||
12/3/2013-MTI | $1,100 | $1,815,000 | $3,630,000 | ||||||||
12/11/2013 | 24,982 | $2,184,926 | |||||||||
12/11/2013 | 9,993 | 39,972 | 79,944 | $4,421,271 | |||||||
12/11/2013 | 123,633 | $87.46 | $3,058,680 | ||||||||
$1,100 | $3,684,005 | $7,368,010 | 9,993 | 39,972 | 79,944 | 24,982 | 123,633 | $9,664,877 | |||
Rajesh Kalathur | 12/3/2013-STI | $ | $446,621 | $893,242 | |||||||
12/3/2013-MTI | $400 | $510,102 | $1,020,204 | ||||||||
12/11/2013 | 4,058 | $354,913 | |||||||||
12/11/2013 | 1,623 | 6,494 | 12,988 | $718,296 | |||||||
12/11/2013 | 20,086 | $87.46 | $496,928 | ||||||||
$400 | $956,723 | $1,913,446 | 1,623 | 6,494 | 12,988 | 4,058 | 20,086 | $1,570,137 | |||
James M. Field | 12/3/2013-STI | $ | $549,400 | $1,098,800 | |||||||
12/3/2013-MTI | $400 | $510,102 | $1,020,204 | ||||||||
12/11/2013 | 4,464 | $390,421 | |||||||||
12/11/2013 | 1,785 | 7,142 | 14,284 | $789,971 | |||||||
12/11/2013 | 22,095 | $87.46 | $546,630 | ||||||||
$400 | $1,059,502 | $2,119,004 | 1,785 | 7,142 | 14,284 | 4,464 | 22,095 | $1,727,022 | |||
Jean H. Gilles | 12/3/2013-STI | $ | $502,114 | $1,004,228 | |||||||
12/3/2013-MTI | $400 | $510,102 | $1,020,204 | ||||||||
12/11/2013 | 4,627 | $404,677 | |||||||||
12/11/2013 | 1,850 | 7,402 | 14,804 | $818,729 | |||||||
12/11/2013 | 22,899 | $87.46 | $566,521 | ||||||||
$400 | $1,012,216 | $2,024,432 | 1,850 | 7,402 | 14,804 | 4,627 | 22,899 | $1,789,927 | |||
Michael J. Mack, Jr. | 12/3/2013-STI | $ | $557,725 | $1,115,450 | |||||||
12/3/2013-MTI | $400 | $510,102 | $1,020,204 | ||||||||
12/11/2013 | 4,586 | $401,092 | |||||||||
12/11/2013 | 1,834 | 7,338 | 14,676 | $811,650 | |||||||
12/11/2013 | 22,698 | $87.46 | $561,549 | ||||||||
$400 | $1,067,827 | $2,135,654 | 1,834 | 7,338 | 14,676 | 4,586 | 22,698 | $1,774,291 |
(1) For the non-equity incentive plan awards, the grant date is the date the Committee approved the range of the estimated potential future payouts for the performance periods noted under footnote (2) below. For equity awards, the grant date is seven calendar days after the first regularly scheduled Board meeting of the fiscal year.
(2) These columns show the range of potential payouts under the STI and MTI plans. The performance period for STI in this table covers November 1, 2013 through October 31, 2014. For actual performance between threshold, target, and maximum, the earned STI award is prorated.
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The range of the MTI award covers the three-year performance period beginning in fiscal 2014 and ending in fiscal 2016. Awards are not paid unless Deere generates at least $1 million of SVA for the performance period. The target MTI award will be earned if $3.605 billion of SVA is accumulated and the maximum MTI award will be earned if $7.21 billion or more is accumulated during the performance period. The amounts shown in the table represent potential MTI awards based on the median salary of the NEOs salary grades as of September 30, 2014. The actual MTI awards will depend upon Deeres actual SVA performance and the median salary of the NEOs salary grades as of September 30, 2015.
(3) Represents the potential payout range of PSUs granted in fiscal 2014 (in December 2013). The number of shares that vest is equally based on TSR and revenue growth, both relative to companies in the S&P Industrial Sector. Performance and payouts are determined independently for each metric. At the end of the three-year performance period, the actual award, delivered as Deere common stock, can range from 0% to 200% of the original grant.
(4) Represents the number of RSUs granted during fiscal 2014 (in December 2013). RSUs will vest three years after the grant date, at which time they may be settled in Deere common stock. Prior to settlement, each RSU entitles the individual to receive dividend equivalents in cash at the same time as dividends are paid on Deeres common stock.
(5) Represents the number of options granted during fiscal 2014 (in December 2013). These options vest in approximately three equal annual installments on the first, second, and third anniversaries of the grant date.
(6) The exercise price is the average of the high and low price of Deere common stock on the NYSE on the grant date.
(7) Amounts shown represent the grant date fair value of equity awards granted to the NEOs in fiscal 2014 calculated in accordance with FASB ASC Topic 718. The values in this column exclude the effect of estimated forfeitures. For RSUs, fair value is the market value of the underlying stock on the grant date (which is the same as the exercise price in column (6) for stock options). For options, the fair value on the grant date was $24.74, which was calculated using the binomial lattice option pricing model. The grant date fair value of the PSUs subject to the TSR metric was $116.86 based on a lattice valuation model excluding dividends. The grant date fair value of the PSUs subject to the revenue growth metric was $81.53 based on the market price of a share of underlying common stock excluding dividends.
For additional information on the valuation assumptions, refer to Note 24, Stock Option and Restricted Stock Awards, of Deeres consolidated financial statements filed with the SEC on Form 10-K for the fiscal year ended October 31, 2014.
Outstanding Equity Awards
at Fiscal 2014 Year-End
The following
table itemizes outstanding options, RSUs, and PSUs held by the NEOs as of
October 31, 2014:
Option Awards | Stock Awards | ||||||||||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options Exercisable (1) |
Number of Securities Underlying Unexercised Options Unexercisable (1) |
Option Exercise Price |
Intrinsic Value of Unexercised Options (2) |
Option Expiration Date (3) |
Number of Shares or Units of Stock That Have Not Vested (4) |
Market Value of Shares or Units of Stock That Have Not Vested (5) |
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (6) |
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (7) | ||||||||||||||||||||||||||||||
Samuel R. Allen | 28,808 | | $ | 88.82 | $ | | 12/5/2017 | | $ | | |||||||||||||||||||||||||||||
62,704 | | $ | 39.67 | $ | 2,876,546 | 12/17/2018 | | $ | | ||||||||||||||||||||||||||||||
269,353 | | $ | 52.25 | $ | 8,966,761 | 12/9/2019 | | $ | | ||||||||||||||||||||||||||||||
114,253 | | $ | 80.61 | $ | 563,267 | 12/8/2020 | | $ | | ||||||||||||||||||||||||||||||
91,050 | 44,847 | $ | 74.24 | $ | 1,535,636 | 12/14/2021 | 52,269 | $ | 4,471,090 | ||||||||||||||||||||||||||||||
43,825 | 85,074 | $ | 86.36 | $ | | 12/12/2022 | 25,301 | $ | 2,164,248 | | $ | | |||||||||||||||||||||||||||
| 123,633 | $ | 87.46 | $ | | 12/11/2023 | 24,982 | $ | 2,136,960 | 9,193 | $ | 786,369 | |||||||||||||||||||||||||||
609,993 | 253,554 | $ | 13,942,210 | 102,552 | $ | 8,772,298 | 9,193 | $ | 786,369 |
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Option Awards | Stock Awards | ||||||||||||||||||||||||||||||||||||||||||
Name | Number
of Securities Underlying Unexercised Options Exercisable (1) |
Number
of Securities Underlying Unexercised Options Unexercisable (1) |
Option Exercise Price |
Intrinsic Value of Unexercised Options (2) |
Option Expiration Date (3) |
Number of Shares or Units of Stock That Have Not Vested (4) |
Market Value of Shares or Units of Stock That Have Not Vested (5) |
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (6) |
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (7) | ||||||||||||||||||||||||||||||||||
Rajesh Kalathur | 4,366 | | $ | 34.44 | $ | 223,103 | 12/7/2015 | | $ | | |||||||||||||||||||||||||||||||||
5,816 | | $ | 48.38 | $ | 216,152 | 12/6/2016 | | $ | | ||||||||||||||||||||||||||||||||||
4,519 | | $ | 88.82 | $ | | 12/5/2017 | | $ | | ||||||||||||||||||||||||||||||||||
11,133 | | $ | 39.67 | $ | 510,726 | 12/17/2018 | | $ | | ||||||||||||||||||||||||||||||||||
12,151 | | $ | 52.25 | $ | 404,507 | 12/9/2019 | | $ | | ||||||||||||||||||||||||||||||||||
7,379 | | $ | 80.61 | $ | 36,378 | 12/8/2020 | | $ | | ||||||||||||||||||||||||||||||||||
5,357 | 2,639 | $ | 74.24 | $ | 90,355 | 12/14/2021 | | $ | | ||||||||||||||||||||||||||||||||||
8,188 | 15,895 | $ | 86.36 | $ | | 12/12/2022 | 4,727 | $ | 404,348 | | $ | | |||||||||||||||||||||||||||||||
| 20,086 | $ | 87.46 | $ | | 12/11/2023 | 4,058 | $ | 347,121 | 1,493 | $ | 127,711 | |||||||||||||||||||||||||||||||
58,909 | 38,620 | $ | 1,481,221 | 8,785 | $ | 751,469 | 1,493 | $ | 127,711 | ||||||||||||||||||||||||||||||||||
James M. Field | 17,680 | | $ | 88.82 | $ | | 12/5/2017 | | $ | | |||||||||||||||||||||||||||||||||
42,178 | | $ | 39.67 | $ | 1,934,916 | 12/17/2018 | | $ | | ||||||||||||||||||||||||||||||||||
56,457 | | $ | 52.25 | $ | 1,879,454 | 12/9/2019 | | $ | | ||||||||||||||||||||||||||||||||||
21,735 | | $ | 80.61 | $ | 107,154 | 12/8/2020 | | $ | | ||||||||||||||||||||||||||||||||||
17,011 | 8,380 | $ | 74.24 | $ | 286,918 | 12/14/2021 | 9,766 | $ | 835,384 | ||||||||||||||||||||||||||||||||||
7,832 | 15,204 | $ | 86.36 | $ | | 12/12/2022 | 4,521 | $ | 386,726 | | $ | | |||||||||||||||||||||||||||||||
| 22,095 | $ | 87.46 | $ | | 12/11/2023 | 4,464 | $ | 381,851 | 1,642 | $ | 140,457 | |||||||||||||||||||||||||||||||
162,893 | 45,679 | $ | 4,208,442 | 18,751 | $ | 1,603,961 | 1,642 | $ | 140,457 | ||||||||||||||||||||||||||||||||||
Jean H. Gilles | 10,704 | | $ | 88.82 | $ | | 12/5/2017 | | $ | | |||||||||||||||||||||||||||||||||
50,163 | | $ | 52.25 | $ | 1,669,926 | 12/9/2019 | | $ | | ||||||||||||||||||||||||||||||||||
20,376 | | $ | 80.61 | $ | 100,454 | 12/8/2020 | | $ | | ||||||||||||||||||||||||||||||||||
15,532 | 7,651 | $ | 74.24 | $ | 261,968 | 12/14/2021 | 8,915 | $ | 762,589 | ||||||||||||||||||||||||||||||||||
8,188 | 15,895 | $ | 86.36 | $ | | 12/12/2022 | 4,727 | $ | 404,348 | | $ | | |||||||||||||||||||||||||||||||
| 22,899 | $ | 87.46 | $ | | 12/11/2023 | 4,627 | $ | 395,794 | 1,702 | $ | 145,589 | |||||||||||||||||||||||||||||||
104,963 | 46,445 | $ | 2,032,348 | 18,269 | $ | 1,562,731 | 1,702 | $ | 145,589 | ||||||||||||||||||||||||||||||||||
Michael J. Mack, Jr. | 24,388 | | $ | 88.82 | $ | | 12/5/2017 | | $ | | |||||||||||||||||||||||||||||||||
21,347 | | $ | 80.61 | $ | 105,241 | 12/8/2020 | | $ | | ||||||||||||||||||||||||||||||||||
15,532 | 7,651 | $ | 74.24 | $ | 261,968 | 12/14/2021 | 8,915 | $ | 762,589 | ||||||||||||||||||||||||||||||||||
7,476 | 14,513 | $ | 86.36 | $ | | 12/12/2022 | 4,316 | $ | 369,191 | | $ | | |||||||||||||||||||||||||||||||
| 22,698 | $ | 87.46 | $ | | 12/11/2023 | 4,586 | $ | 392,286 | 1,687 | $ | 144,306 | |||||||||||||||||||||||||||||||
68,743 | 44,862 | $ | 367,209 | 17,817 | $ | 1,524,066 | 1,687 | $ | 144,306 |
(1) Options become vested and exercisable in approximately three equal annual installments on the first, second, and third anniversaries of the grant date.
44
(2) The amount shown represents the number of options that have not been exercised (vested and unvested) multiplied by the difference between the closing price for Deere common stock on the NYSE on October 31, 2014, which was $85.54, and the option exercise price. No value is shown for underwater options.
(3) Options expire ten years from the grant date.
(4) RSUs vest three years from the grant date. RSUs granted in fiscal years 2013 and 2014 must be held until three years after the grant date before they are settled in Deere common stock. RSUs granted in fiscal year 2012 must be held for five years. RSUs that have vested, but have not been settled in Deere common stock, are included in the Fiscal 2014 Nonqualified Deferred Compensation Table.
The three-year performance period for PSUs granted in fiscal 2012 ended on October 31, 2014. The final payout determination was made by the Committee in December 2014 and the award vested and was settled in Deere common stock on December 14, 2014 (the third anniversary of the grant date). As discussed in the CD&A under 2012-2014 PSU Program (Payable in Fiscal 2015), the final payout under the award was equal to 48.5% of the target opportunity. The numbers of shares earned by the applicable NEOs were as follows: 22,838 (Allen); 4,267 (Field); 3,895 (Gilles); and 3,895 (Mack).
(5) The amount shown represents the number of RSUs that have not vested and PSUs described in footnote (4) to this table multiplied by the closing price for Deere common stock on the NYSE on October 31, 2014, which was $85.54.
(6) The amount shown represents actual achievement of the PSUs granted in fiscal years 2013 and 2014 relative to the S&P Industrial Sector assuming truncated performance measurement periods. The final number of shares earned, if any, will be based upon performance as determined by revenue growth and TSR relative to the S&P Industrial Sector at the end of the applicable performance period.
PSU Grant Date | December 12, 2012 | December 11, 2013 | ||
Truncated performance period | 11/1/2012 - 10/31/2014 | 11/1/2013 - 10/31/2014 | ||
Actual performance period ending date | 10/31/2015 | 10/31/2016 | ||
Payout of target number of shares based on revenue growth | 0% | 0% | ||
Payout of target number of shares based on TSR | 0% | 46% |
(7) The amount shown represents the number of PSUs described in footnote (6) to this table multiplied by the closing price for Deere common stock on the NYSE on October 31, 2014, which was $85.54.
Fiscal 2014 Option
Exercises and Stock Vested
The following
table provides information regarding option exercises and vesting of RSUs and
PSUs during fiscal 2014. These options and stock awards were granted in prior
fiscal years and are not related to performance in fiscal 2014.
Option Awards | Stock Awards | |||||||||||||||||||||
Name | Number of Shares Acquired on Exercise (1) |
Value Realized on Exercise (2) |
Number of Shares Acquired on Vesting (3) |
Value Realized on Vesting (4) | ||||||||||||||||||
Samuel R. Allen | 32,371 | $ | 1,412,834 | 67,409 | $ | 5,751,336 | ||||||||||||||||
Rajesh Kalathur | 4,860 | $ | 273,505 | | $ | | ||||||||||||||||
James M. Field | 13,380 | $ | 591,144 | 12,822 | $ | 1,093,973 | ||||||||||||||||
Jean H. Gilles | 22,650 | $ | 1,201,905 | 12,022 | $ | 1,025,717 | ||||||||||||||||
Michael J. Mack, Jr. | | $ | | 12,594 | $ | 1,074,520 |
(1) Represents the total number of shares that were exercised before any withholding of shares to pay the exercise price and taxes.
(2) Value realized on exercise is based on the market price upon exercise minus the exercise price (the grant price).
(3) Represents the number of RSUs and PSUs that vested during fiscal 2014. The RSUs were granted on December 8, 2010 and vested on December 8, 2013. Although they are vested, these RSUs will not be settled in Deere common stock until five years after the grant date (in December 2015).
The three-year performance period for PSUs granted in fiscal 2011 ended on October 31, 2013. The final number of shares earned was based on Deeres revenue growth and TSR relative to the S&P Industrial Sector over the performance period. The final payout determination was made by the Committee in December 2013 following a review of the relative performances of the Company and the S&P Industrial Sector, and the award was settled in Deere common stock on December 8, 2013 (the third anniversary of the grant date). The final payout under the award was equal to 100% of the target opportunity, as disclosed in the CD&A in last years proxy statement.
45
The following table shows the number of RSUs and PSUs that vested during fiscal 2014:
Name | RSUs | PSUs | ||
Samuel R. Allen | 25,927 | 41,482 | ||
James M. Field | 4,932 | 7,890 | ||
Jean H. Gilles | 4,624 | 7,398 | ||
Michael J. Mack, Jr. | 4,844 | 7,750 |
(4) Represents the number of RSUs and PSUs vested multiplied by the closing price ($85.32) of Deere common stock on the NYSE as of the vesting date.
Pension
Benefits
The NEOs are eligible to
participate in pension plans that provide benefits based on years of service and
pay. Pension benefits are provided under a qualified defined benefit pension
plan called the John Deere Pension Plan for Salaried Employees (the Salaried
Plan) and two nonqualified pension plans called the Senior Supplementary
Pension Benefit Plan (the Supplementary Plan) and the John Deere Supplemental
Pension Benefit Plan (the Supplemental Plan).
In 1996, we introduced a new pension option under the Salaried Plan known as the Contemporary Option. At that time, participants were given the choice between remaining in the existing Salaried Plan option, known as the Traditional Option, or choosing the new Contemporary Option. New employees hired between January 1, 1997 and October 31, 2014 automatically participated in the Contemporary Option. For new employees hired on or after November 1, 2014, pension benefits under the Salaried Plan are calculated based on a cash balance methodology instead of the Traditional or Contemporary Option formulas discussed below. None of the NEOs participate in the cash balance plan.
Salaried Plan
The Salaried Plan is a qualified plan subject to certain IRC
limitations on benefits and is subject to the Employee Retirement Income
Security Act of 1974. Deere makes contributions to, and benefits are paid from,
a tax-exempt pension trust. Pension benefits provided by the Salaried Plan under
the Traditional and Contemporary Options are summarized as follows:
Traditional
Option
The Traditional Option pension
benefit is based on a formula that calculates a retirement benefit using service
credit, Final Average Pay as defined below, and a multiplier. Generally, Final
Average Pay is the participants aggregate salary (up to IRC limits) for the
last 60 months prior to retirement divided by 60, unless the last 60 months does
not represent the participants highest earnings. In that case, Final Average
Pay would be calculated using the participants five highest consecutive
anniversary years of earnings.
The formula for calculating monthly pension benefits under the qualified Traditional Option is:
Final Average
Pay (up to IRC limits)
x Years of Service
x 1.5%
Eligibility to retire with unreduced pension benefits under the Traditional Option is based on age and years of service. Participants who are age 60 with ten or more years of service, or who are age 65 with five or more years of service, receive unreduced pension benefits.
Under the Traditional Option, early retirement eligibility occurs upon the earliest of:
(1) having 30
years of service; or
(2) the sum of the participants years of service and
age equaling 80 or more.
Pension amounts are reduced 4% for each year that retirement benefits are received before age 60. At this time, none of our NEOs participate in the Traditional Option.
Contemporary Option
Under the Contemporary Option, Career Average Pay replaces
Final Average Pay in computing retirement benefits. Career Average Pay is
calculated using salary plus STI (up to IRC limits). For participants electing
the Contemporary Option, the transition to Career Average Pay includes salary
and STI awards from 1992 until retirement. For salaried employees participating
in this option, Deere makes enhanced contributions to the employees 401(k)
retirement savings account.
The formula for calculating benefits under the qualified Contemporary Option is:
Career Average
Pay (up to IRC limits)
x Years of Service
x 1.5%
46
Eligibility to retire with unreduced benefits under the Contemporary Option occurs at age 67 for all participating employees that were hired on or after January 1, 1997. For employees hired before this date, the eligibility age for retiring with unreduced benefits is based on years of service as of January 1, 1997 and ranges from ages 60 to 67. None of our NEOs are currently eligible to retire with unreduced benefits under the Contemporary Option.
For employees hired before January 1, 1997 who were not eligible to retire on January 1, 1997, and for employees participating in the Contemporary Option that were hired on or after January 1, 1997, early retirement eligibility under the Contemporary Option is the earlier of:
(1) age 55 with
ten or more years of service; or
(2) age 65 with five or more years of
service.
Pension payments are reduced 4% for each year the employee is under the unreduced benefits age upon retirement. Messrs. Allen, Gilles, and Mack are the only NEOs currently eligible to retire early with reduced benefits under the Contemporary Option.
Supplementary Plan
The Supplementary Plan is an unfunded,
nonqualified excess defined benefit plan that provides additional pension
benefits in a comparable amount to those benefits the participant would have
received under the Salaried Plan in the absence of IRC limitations. Benefit
payments for the Supplementary Plan are made from the assets of
Deere.
The Supplementary Plan uses the same formula as the Salaried Plan to calculate the benefit payable, except that eligible earnings include only amounts above IRC qualified plan limits.
Supplemental Plan
The Supplemental Plan is an unfunded, nonqualified
supplemental retirement plan for certain employees, including all the NEOs.
Benefit payments for the Supplemental Plan are made from the assets of Deere.
The Supplemental Plan was closed to new participants effective November 1, 2014,
although benefits will continue to accrue for employees who were already
participating in the plan as of such date.
The formulas for calculating benefits under the Supplemental Plan for the Contemporary and Traditional Options can be summarized as follows:
Contemporary Option
Career Average
Pay
x Years of Service at grade 13 and above beginning January 1, 1997
x
0.5%
Traditional Option
The Supplemental Plan benefit under the Traditional Option is
derived by subtracting the value of the Traditional Option (Salaried Plan plus
Supplementary Plan) from the value of the Contemporary Option (Salaried Plan,
Supplementary Plan, plus Supplemental Plan) had it been chosen. If this amount
is positive, the NEO will receive this additional amount as a Supplemental Plan
benefit.
Fiscal 2014 Pension Benefits Table
Assumed | Number of Years | Present Value of | |||||||||
Name | Plan Name (1) | Retirement Age (2) | of Credited Service (3) | Accumulated Benefit (4) | |||||||
Samuel R. Allen | Salaried Plan | 63 | 39.4 | $ | 1,522,594 | ||||||
Contemporary Option | Supplementary Plan | 63 | 39.4 | $ | 9,529,325 | ||||||
Supplemental Plan | 63 | 17.8 | $ | 1,605,436 | |||||||
Total | $ | 12,657,355 | |||||||||
Rajesh Kalathur | Salaried Plan | 65 | 17.4 | $ | 270,355 | ||||||
Contemporary Option | Supplementary Plan | 65 | 17.4 | $ | 200,792 | ||||||
Supplemental Plan | 65 | 8.8 | $ | 83,346 | |||||||
Total | $ | 554,493 | |||||||||
James M. Field | Salaried Plan | 65 | 20.5 | $ | 403,967 | ||||||
Contemporary Option | Supplementary Plan | 65 | 20.5 | $ | 932,990 | ||||||
Supplemental Plan | 65 | 15.7 | $ | 348,912 | |||||||
Total | $ | 1,685,869 | |||||||||
Jean H. Gilles | Salaried Plan | 64 | 26.6 | $ | 906,259 | ||||||
Contemporary Option | Supplementary Plan | 64 | 26.6 | $ | 2,800,721 | ||||||
Supplemental Plan | 64 | 17.8 | $ | 827,402 | |||||||
Total | $ | 4,534,382 |
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Assumed | Number of Years | Present Value of | |||||||||
Name | Plan Name (1) | Retirement Age (2) | of Credited Service (3) | Accumulated Benefit (4) | |||||||
Michael J. Mack, Jr. | Salaried Plan | 65 | 28.3 | $ | 792,051 | ||||||
Contemporary Option | Supplementary Plan | 65 | 28.3 | $ | 2,255,345 | ||||||
Supplemental Plan | 65 | 17.8 | $ | 634,938 | |||||||
Total | $ | 3,682,334 |
(1) Benefits are provided under the Salaried Plan, the Supplementary Plan, and the Supplemental Plan as described in the narrative preceding the table. A portion of Mr. Gilles benefits will be provided by certain German pension plans in which he participated during his period of employment at Deeres European Office in Germany. Any benefits received from these German plans will offset benefits that would have otherwise been provided under the Salaried Plan. Mr. Gilles total pension benefits are calculated for all purposes as if he had been a participant in the U.S. pension plans his entire career.
(2) The assumed retirement age is the earliest age at which the NEO could retire without any benefit reduction due to age or normal retirement age, if earlier. The assumed retirement age may vary depending on whether the NEO is covered by the Traditional Option or the Contemporary Option, as explained in the narrative preceding the table.
(3) Years and months of service credit under each plan as of October 31, 2014. The years of credited service are equal to years of eligible service with Deere for the Salaried and Supplementary Plan. Service credit under the Supplemental Plan is based on service at grade 13 or above, beginning January 1, 1997.
(4) The actuarial present value of the accumulated benefit is shown as of October 31, 2014, and is provided as a straight-life annuity for the qualified pension plan and a lump sum for nonqualified pension plan benefits. Pension benefits are not reduced for any social security benefits or other offset amounts that the NEO may receive. A portion of the benefit for Mr. Gilles will be provided under certain German pension plans as described in footnote (1) above.
The actuarial present value is calculated by estimating expected future payments starting at an assumed retirement age, weighting the estimated payments by the estimated probability of surviving to each post-retirement age, and discounting the weighted payments at an assumed discount rate to reflect the time value of money. The actuarial present value represents an estimate of the amount which, if invested today at the discount rate, would be sufficient on an average basis to provide estimated future payments based on the current accumulated benefit. Actual benefit present values will vary from these estimates depending on many factors, including actual retirement age.
The following assumptions were used to calculate the present value of the accumulated benefit:
| Each of the NEOs
continues as an executive until the earliest age at which he could retire
without any benefit reduction due to age or normal retirement age,
whichever is earlier, as defined in the Salaried
Plan; |
| Present value amounts
were determined based on the financial accounting discount rate for U.S.
pension plans of 4.20%; |
| Benefits subject to a
lump sum distribution were determined using an interest rate of
3.26%; |
| The mortality table
used for the Salaried Plan was the RP2000 table (with mortality projection
scale BB, as published by the Society of Actuaries), while the mortality
table used for the Supplementary and Supplemental Plans was the RP 2021
table, each table as published by the IRS; and |
| Pensionable earnings are calculated for the most recently completed fiscal year using base pay as an estimate (assuming one base pay increase of 3.5% - 4.5% depending on age) with no future increase and the STI bonus at target. Pensionable earnings for prior years are calculated based on actual base pay and actual STI earned for prior years. |
Nonqualified Deferred
Compensation
The Fiscal 2014 Nonqualified
Deferred Compensation Table below shows information about four programs:
(1) the John Deere Voluntary Deferred Compensation Plan (Deferred Plan), a nonqualified deferred compensation plan;
(2) the Deere & Company European Office Vorsorgeplan 2001 (German Deferral Plan), a voluntary deferral plan;
(3) the John Deere Defined Contribution Restoration Plan (DCRP), a nonqualified savings plan; and
(4) deferred RSUs.
Deferred Plan
Under the Deferred Plan, through fiscal 2008, NEOs could defer
their base salary, STI, and/or MTI in 5% increments up to 95%. For deferrals
elected after 2008, up to 70% of base salary can be deferred while STI and MTI
awards can be deferred up to 95%. On the first day of each calendar quarter, the
balance in each account under the Deferred Plan is credited with interest. For
deferrals made through calendar 2009, interest is credited at the prime rate (as
determined by the Federal Reserve Statistical Release for the prior month) plus
2% as of the last day of the preceding quarter. For deferrals made after
December 31, 2009, the deferred amounts
48
earn interest based on the Moodys A rated Corporate Bond Rate. During fiscal 2014, amounts deferred under the Deferred Plan were credited with interest at the following rates:
Earnings Under Deferred Plan | ||||
Deferrals through | Deferrals after 2009 | |||
calendar 2009 | Moodys A Corporate | |||
Prime plus 2% | Bond Rate | |||
November-13 | 5.25% | 4.82% | ||
February-14 | 5.25% | 4.60% | ||
May-14 | 5.25% | 4.31% | ||
August-14 | 5.25% | 4.20% |
An election to defer salary must be made prior to the beginning of the calendar year in which deferral occurs. An election to defer STI must be made prior to the beginning of the fiscal year upon which the award is based. An election to defer MTI must be made prior to the close of the fiscal year preceding the calendar year of payment. Participants may elect to receive the deferred funds in a lump sum or in equal annual installments not to exceed ten years. Distribution must be completed within ten years following retirement. All deferral elections and associated distribution schedules are irrevocable. This plan is unfunded and participant accounts are at-risk in the event of the Companys bankruptcy.
German Deferral
Plan
Mr. Gilles participated in the German
Deferral Plan during his period of employment at Deeres European Office in
Germany. The German Deferral Plan was available to all salaried employees in
Germany and permitted participants to defer up to 100% of their base salary,
STI, and/or MTI. Interest on deferrals is determined on the basis of
transforming factors specified in the plan documentation. All distributions
are paid in a lump sum in the January following the year in which the
participant retires or, if the participant retires prior to age 65, no later
than the January following the year the participant turns 65.
DCRP
The DCRP is designed to allow executives participating in our
Contemporary Option to defer employee contributions and receive employer
matching contributions on up to 6% of eligible earnings that are otherwise
limited by the IRC. For DCRP purposes, eligible earnings include base salary,
STI, and commission compensation. None of the NEOs receive commission
compensation. The 401(k) deferral percentage selected by the employee in place
each October 31st is used during the following calendar year to calculate the
DCRP employee contribution. This plan is unfunded and participant accounts are
at-risk in the event of the Companys bankruptcy.
Two investment options are available under the DCRP: the prime rate (as determined by the Federal Reserve Statistical Release for the prior month) plus 2%; or a rate of return based on the S&P 500 Index for the prior month. Participants may choose either investment option for any portion of their account. Participants can change investment options between the 1st and 10th day of any month. During fiscal 2014, the annualized rates of return under the two options were as follows:
Earnings For DCRP | ||||||
Prime plus 2% | S&P 500 Index | |||||
November-13 | 5.25% | 23.37% | ||||
December-13 | 5.25% | 44.31% | ||||
January-14 | 5.25% | 16.31% | ||||
February-14 | 5.25% | 9.68% | ||||
March-14 | 5.25% | -3.51% | ||||
April-14 | 5.25% | 30.70% | ||||
May-14 | 5.25% | 0.48% | ||||
June-14 | 5.25% | 16.42% | ||||
July-14 | 5.25% | 36.40% | ||||
August-14 | 5.25% | 16.03% | ||||
September-14 | 5.25% | -7.04% | ||||
October-14 | 5.25% | 19.39% |
Distribution options under the DCRP consist of a lump sum distribution one year following the date of separation, or, in the case of retirement, five annual installments beginning one year following the retirement date.
Deferred RSUs
There are two scenarios under which deferred RSUs can appear
in the Fiscal 2014 Nonqualified Deferred Compensation Table:
| Certain RSUs are required to be held for a defined period of time after they vest three years from the grant date. The following tranches of RSUs have vested but remain subject to mandatory restriction as described in the following chart: |
Grant Date | Date Vested | Restriction Period | ||
December 2002 | December 2005 | Until retirement or no longer active employee | ||
December 2007 | December 2010 | Until retirement
or no longer active employee | ||
December 2008 | December 2011 | Until retirement or no longer active employee | ||
December 2009 | December 2012 | Until retirement
or no longer active employee | ||
December 2010 | December 2013 | 5 years (until December 2015) |
49
| For RSUs granted starting in December 2003, NEOs may elect deferral of settlement for a minimum of five years. If a deferral election is made, the RSUs will be settled in shares of Deere common stock five or more years after the originally scheduled conversion date. |
Deferred RSUs will not be settled in Deere common stock until either the election period or the restriction period expires.
Fiscal 2014 Nonqualified Deferred Compensation Table
Executive | Registrant | Aggregate | ||||||||||||||||||||
Contributions | Contributions | Earnings in Last | Aggregate Balance at | |||||||||||||||||||
in Last FY | in Last FY | Fiscal Year | Last FYE | |||||||||||||||||||
Name | Plan | (1) | (2) | (3) | (4) | |||||||||||||||||
Samuel R. Allen | DCRP | $ | 279,155 | $ | 465,259 | $ | 224,791 | $ | 4,589,204 | |||||||||||||
Deferred RSUs | $ | | $ | 2,212,092 | $ | 275,134 | $ | 8,446,733 | ||||||||||||||
Total | $ | 279,155 | $ | 2,677,350 | $ | 499,925 | $ | 13,035,937 | ||||||||||||||
Rajesh Kalathur | DCRP | $ | 61,375 | $ | 102,291 | $ | 17,648 | $ | 387,666 | |||||||||||||
Total | $ | 61,375 | $ | 102,291 | $ | 17,648 | $ | 387,666 | ||||||||||||||
James M. Field | DCRP | $ | 83,660 | $ | 139,434 | $ | 73,649 | $ | 1,502,279 | |||||||||||||
Deferred RSUs | $ | | $ | 420,798 | $ | 95,879 | $ | 2,613,418 | ||||||||||||||
Total | $ | 83,660 | $ | 560,232 | $ | 169,528 | $ | 4,115,697 | ||||||||||||||
Jean H. Gilles | German Deferral Plan | $ | | $ | | $ | 19,718 | $ | 310,958 | |||||||||||||
DCRP | $ | 74,581 | $ | 124,302 | $ | 67,509 | $ | 1,374,612 | ||||||||||||||
Deferred RSUs | $ | | $ | 394,520 | $ | 60,787 | $ | 1,777,350 | ||||||||||||||
Total | $ | 74,581 | $ | 518,821 | $ | 148,014 | $ | 3,462,920 | ||||||||||||||
Michael J. Mack, Jr. | Deferred Plan | $ | | $ | | $ | 93,422 | $ | 1,838,237 | |||||||||||||
DCRP | $ | 85,896 | $ | 143,160 | $ | 284,742 | $ | 2,355,665 | ||||||||||||||
Deferred RSUs | $ | | $ | 413,290 | $ | 118,863 | $ | 3,137,693 | ||||||||||||||
Total | $ | 85,896 | $ | 556,450 | $ | 497,027 | $ | 7,331,595 |
(1) The amounts in this column represent employee compensation deferrals that are included in the Fiscal 2014 Summary Compensation Table under the Salary and Non-Equity Incentive Plan Compensation columns.
(2) The amounts in this column associated with the DCRP represent Deeres contributions during the fiscal year as included in the Fiscal 2014 Summary Compensation Table under the All Other Compensation column. The amounts in this column associated with deferred RSUs represent RSUs that vested in the current fiscal year but have not been converted into Deere common stock, and are included in the Fiscal 2014 Option Exercises and Stock Vested table under the column Value Realized on Vesting.
(3) For rates of return on account balances under the Deferred Plan and DCRP, see the applicable earnings charts in the narrative preceding this table. The notional rate of return on amounts deferred by Mr. Gilles under the German Deferral Plan was 6.77%. For the deferred RSU accounts, the earnings represent the change in the intrinsic value of the RSUs. The above-market portions of the amounts shown in this column are reported in the Fiscal 2014 Summary Compensation Table under the Change in Pension Value and Nonqualified Deferred Compensation Earnings column and are quantified in footnote (5) to that table.
(4) Of the aggregate balance, the following amounts were reported as compensation to each respective NEO in the Summary Compensation Table in prior years: $6,950,905 (Allen); $84,464 (Kalathur); $1,746,973 (Field); $264,981 (Gilles); and $4,285,620 (Mack).
50
Fiscal 2014 Potential
Payments upon Change in Control
The CIC
Program includes a double trigger approach, under which participants will
receive severance benefits only if both a change in control and qualifying
termination occur. A qualifying termination is either:
| Deeres termination of
an executives employment within the six months preceding or within 24
months following a change in control for reasons other than termination
for death, disability, or cause (defined as an executives willful and
continued nonperformance of duties after written demand; willful conduct
that is demonstrably and materially injurious to Deere; or illegal
activity); or |
| An executives termination of his or her own employment for good reason (defined as material reductions or alterations in an executives authorities, duties, or responsibilities; change in office location of at least 50 miles from current residence; material reductions in an executives participation in certain Deere compensation plans; or certain other breaches of the covenants in the CIC Program) within 24 months following a change in control. |
The CIC Program defines the following as change in control events:
| any person, as
defined in the Exchange Act (with certain exceptions), acquires 30% or
more of Deeres voting securities; |
| a majority of Deeres
directors are replaced without the approval of at least two-thirds of the
existing directors or directors previously approved by the then-existing
directors; |
| any merger or business
combination of Deere and another company, unless the outstanding voting
securities of Deere prior to the transaction continue to represent at
least 60% of the voting securities of the new company;
or |
| Deere is completely liquidated or all, or substantially all, of Deeres assets are sold or disposed. |
Benefits provided under the CIC program and other benefit plans are described in the footnotes to the table. Although not reflected in the table, the CIC Program provides that Deere will pay the executives reasonable legal fees and expenses if the executive must enforce the program terms. Under the CIC Program, the executives agree: (a) not to disclose or use for their own purposes confidential and proprietary Deere information; and (b) for a period of two years following termination of employment, not to induce Deere employees to leave Deere, or to interfere with Deeres business.
In addition, the Omnibus Plan, the MTI plan, and the Deferred Plan each contain change in control provisions that may trigger payments under these plans. Under the Omnibus Plan, unless the Board or the Committee determines otherwise, and regardless of whether the employee was terminated or not, all then-outstanding equity awards that were granted before February 24, 2010 would vest and restriction periods would end upon a change in control. All outstanding RSUs would be cashed out as of the date of the change in control and the employee would have the right to exercise all outstanding options. Such potential payments are disclosed in the table below adjacent to Change in Control only. For awards made under the Omnibus Plan on and after February 24, 2010, the foregoing provisions will apply only if there is both a change in control and the employee experiences a qualifying termination. The MTI plan provides for payment upon a change in control based on actual performance results to date for all performance periods then in progress. Under the Deferred Plan, in the event of certain changes in control, the Committee may elect to terminate the plan within 12 months following the change in control and distribute all account balances, or the Committee may decide to keep the Deferred Plan in effect and modify it to reflect the impact of the change in control.
The following table includes estimated potential payments that would have been due to each NEO if a change in control event had occurred and, if applicable, the NEO experienced a qualifying termination as of October 31, 2014. Although the calculations are intended to provide reasonable estimates of the potential payments, they are based on numerous assumptions, as described in the footnotes, and may not represent the actual amount each NEO would receive if a change in control occurred. As explained in the footnotes, the payments listed represent the incremental amounts due to NEOs beyond what the NEOs would have received without the change in control. Not included in this table are the following payments to which the NEOs are already entitled and which are reported in previous sections of this Proxy Statement:
| amounts already earned
under the STI and MTI plans as of October 31, 2014 (reported in the Fiscal
2014 Summary Compensation Table); |
| the exercise of
outstanding vested options (reported in the Outstanding Equity Awards at
Fiscal 2014 Year-End table); and |
| distribution of nonqualified deferred compensation (reported in the Fiscal 2014 Nonqualified Deferred Compensation Table). |
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Stock | Stock | Welfare | Defined | |||||||||||||||||||||
Awards | Options | Benefits | Contribution | Total | ||||||||||||||||||||
Name | Salary (1) | STI (2) | MTI (3) | (4) | (5) | (6) | Plans (7) | Payments | ||||||||||||||||
Samuel R. Allen | ||||||||||||||||||||||||
Change in Control only | $ | | $ | | $ | 4,986,261 | $ | | $ | | $ | | $ | | $ | 4,986,261 | ||||||||
Change in Control and | ||||||||||||||||||||||||
Qualifying Termination | $ | 4,500,000 | $ | 5,607,015 | $ | 4,986,261 | $ | 10,909,943 | $ | | $ | 34,386 | $ | 1,472,277 | $ | 27,509,882 | ||||||||
Rajesh Kalathur | ||||||||||||||||||||||||
Change in Control only | $ | | $ | | $ | 1,401,378 | $ | | $ | | $ | | $ | | $ | 1,401,378 | ||||||||
Change in Control and | ||||||||||||||||||||||||
Qualifying Termination | $ | 1,583,784 | $ | 1,339,864 | $ | 1,401,378 | $ | 1,953,819 | $ | 29,821 | $ | 38,418 | $ | 383,373 | $ | 6,730,457 | ||||||||
James M. Field | ||||||||||||||||||||||||
Change in Control only | $ | | $ | | $ | 1,401,378 | $ | | $ | | $ | | $ | | $ | 1,401,378 | ||||||||
Change in Control and | ||||||||||||||||||||||||
Qualifying Termination | $ | 1,945,296 | $ | 1,648,200 | $ | 1,401,378 | $ | 3,221,265 | $ | 94,694 | $ | 39,234 | $ | 494,802 | $ | 8,844,869 | ||||||||
Jean H. Gilles | ||||||||||||||||||||||||
Change in Control only | $ | | $ | | $ | 1,401,378 | $ | | $ | | $ | | $ | | $ | 1,401,378 | ||||||||
Change in Control and | ||||||||||||||||||||||||
Qualifying Termination | $ | 1,779,228 | $ | 1,506,341 | $ | 1,401,378 | $ | 1,967,078 | $ | | $ | 38,859 | $ | 517,872 | $ | 7,210,756 | ||||||||
Michael J. Mack, Jr. | ||||||||||||||||||||||||
Change in Control only | $ | | $ | | $ | 1,401,378 | $ | | $ | | $ | | $ | | $ | 1,401,378 | ||||||||
Change in Control and | ||||||||||||||||||||||||
Qualifying Termination | $ | 1,973,232 | $ | 1,673,175 | $ | 1,401,378 | $ | 1,905,318 | $ | | $ | 39,297 | $ | 505,980 | $ | 7,498,380 |
(1) In the event of a change in control and qualifying termination, the CIC Program provides for a lump sum payment of three times the annual base salary.
(2) In the event of a change in control and qualifying termination, the CIC Program provides for a lump sum payment of three times the target STI bonus amount for the fiscal year in which the termination occurs. In addition, the NEO is entitled to a prorated STI award for the current year. Since the change in control calculations in this table are made as of the end of the fiscal year, the prorated award for the current year is equal to the STI earned for the current fiscal year as reported in the Fiscal 2014 Summary Compensation Table under the column Non-Equity Incentive Plan Compensation and is not duplicated in this table.
(3) The MTI plan contains a change in control provision that entitles participants, as of the date of a change in control, to a lump sum MTI payment based on actual performance results to date for all performance periods then in progress. The payout for the three-year performance period ended October 31, 2014 is reported in the Fiscal 2014 Summary Compensation Table under the column Non-Equity Incentive Plan Compensation and is not duplicated in this table. For each of the NEOs, the amount shown in this table represents the payout for the two remaining performance periods.
(4) Vesting of unvested RSUs and PSUs does not accelerate in the event of a change in control only. In the event of a change in control and qualifying termination:
| For unvested RSUs, the
vesting and restriction requirements no longer apply and the awards are
cashed out; and |
| For unvested PSUs, the vesting and restriction requirements no longer apply and the awards are cashed out at a target award level. |
For purposes of the table, all unvested PSUs and RSUs are valued based on the closing price for Deere common stock on the NYSE on October 31, 2014, which was $85.54. Since Messrs. Allen, Gilles, and Mack are eligible for retirement and all currently unvested RSUs would vest immediately on the date of such event, there is no incremental benefit of the accelerated vesting for these individuals. Vested RSUs are not included since they have been earned and are included on the Fiscal 2014 Nonqualified Deferred Compensation Table. Unvested PSUs and RSUs are included in the Outstanding Equity Awards at Fiscal 2014 Year-End table.
(5) Vesting of outstanding stock options does not accelerate in the event of a change in control only. Instead, outstanding stock options will continue to vest over the three-year vesting period, subject to continued employment conditions.
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In the event of a change in control and qualifying termination, all outstanding stock options vest and can be exercised immediately. Since Messrs. Allen, Gilles, and Mack are eligible for retirement and all currently unvested stock options would vest immediately on the date of such event, there is no incremental benefit of the accelerated vesting for these individuals. For Messrs. Kalathur and Field, who are not eligible for retirement, the amount represents the number of outstanding, unexercisable options multiplied by the difference between the closing price for Deere common stock on the NYSE on October 31, 2014, which was $85.54, and the option exercise prices. These amounts are included in the Outstanding Equity Awards at Fiscal 2014 Year-End table.
(6) In the event of a change in control and qualifying termination, the CIC Program provides for continuation of health care, life, accidental death and dismemberment, and disability insurance for three full years at the same premium cost and coverage. This benefit will be discontinued if the NEO receives similar benefits from a subsequent employer during this three-year period.
(7) In the event of a change in control and qualifying termination, the CIC Program includes cash payment equal to three times Deeres contributions on behalf of each of the NEOs under our defined contribution plans for the plan year preceding termination (or, if greater, for the plan year immediately preceding the change in control). The amount reported for Mr. Gilles also includes the amount by which the value of his account balance under the German Deferral Plan would have increased had he remained employed for an additional three years following a change in control and his qualifying termination.
The following table summarizes the estimated payments to be made to the NEOs under our plans or established practices in the event of termination of employment for death, disability, retirement, termination without cause, termination for cause, and voluntary separation. Although the calculations are intended to provide reasonable estimates of the potential payments, they are
based on numerous assumptions, as described in the footnotes, and may not represent the actual amounts the NEOs would receive in the event of an eligible termination.
The amounts shown assume the termination event occurred on, and the NEO was actively employed until, October 31, 2014.
Present | ||||||||||||||||||||||||
Value of | ||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||
Deferred | Pension | |||||||||||||||||||||||
Salary | STI | MTI | Stock Awards | Stock Options | Compensation | Benefit | Total | |||||||||||||||||
Name | (1) | (2) | (3) | (4) | (5) | (6) | (7) | Payments | ||||||||||||||||
Samuel R. Allen | ||||||||||||||||||||||||
Death | $ | | $ | 2,779,846 | $ | 2,618,045 | $ | 18,005,400 | $ | 13,942,210 | $ | 4,589,204 | $ | 8,243,294 | $ | 50,177,999 | ||||||||
Disability | $ | 14,050,508 | $ | 2,779,846 | $ | 2,618,045 | $ | 18,005,400 | $ | 13,942,210 | $ | 4,589,204 | $ | 14,824,294 | $ | 70,809,507 | ||||||||
Retirement | $ | | $ | 2,779,846 | $ | 2,618,045 | $ | 18,005,400 | $ | 13,942,210 | $ | 4,589,204 | $ | 14,924,084 | $ | 56,858,789 | ||||||||
Termination Without Cause | $ | 1,500,000 | $ | 2,779,846 | $ | 2,618,045 | $ | 8,446,733 | $ | | $ | 4,589,204 | $ | 14,924,084 | $ | 34,857,912 | ||||||||
Termination For Cause | $ | | $ | 2,779,846 | $ | 2,618,045 | $ | 8,446,733 | $ | | $ | 4,589,204 | $ | 14,924,084 | $ | 33,357,912 | ||||||||
Voluntary Separation (8) | ||||||||||||||||||||||||
Rajesh Kalathur | ||||||||||||||||||||||||
Death | $ | | $ | 885,729 | $ | 994,022 | $ | 879,180 | $ | 1,481,221 | $ | 387,666 | $ | 397,021 | $ | 5,024,839 | ||||||||
Disability | $ | 9,721,838 | $ | 885,729 | $ | 994,022 | $ | 879,180 | $ | 1,481,221 | $ | 387,666 | $ | 1,782,554 | $ | 16,132,210 | ||||||||
Retirement (9) | ||||||||||||||||||||||||
Termination Without Cause | $ | 373,949 | $ | 885,729 | $ | 994,022 | $ | | $ | | $ | 387,666 | $ | 724,919 | $ | 3,366,285 | ||||||||
Termination For Cause | $ | | $ | 885,729 | $ | 994,022 | $ | | $ | | $ | 387,666 | $ | 724,919 | $ | 2,992,336 | ||||||||
Voluntary Separation | $ | | $ | 885,729 | $ | 994,022 | $ | | $ | | $ | 387,666 | $ | 724,919 | $ | 2,992,336 | ||||||||
James M. Field | ||||||||||||||||||||||||
Death | $ | | $ | 1,089,557 | $ | 994,022 | $ | 4,357,835 | $ | 4,208,442 | $ | 1,502,279 | $ | 1,032,119 | $ | 13,184,254 | ||||||||
Disability | $ | 13,819,121 | $ | 1,089,557 | $ | 994,022 | $ | 4,357,835 | $ | 4,208,442 | $ | 1,502,279 | $ | 3,507,530 | $ | 29,478,786 | ||||||||
Retirement (9) | ||||||||||||||||||||||||
Termination Without Cause | $ | 540,360 | $ | 1,089,557 | $ | 994,022 | $ | 2,613,418 | $ | | $ | 1,502,279 | $ | 1,880,495 | $ | 8,620,131 | ||||||||
Termination For Cause | $ | | $ | 1,089,557 | $ | 994,022 | $ | 2,613,418 | $ | | $ | 1,502,279 | $ | 1,880,495 | $ | 8,079,771 | ||||||||
Voluntary Separation | $ | | $ | 1,089,557 | $ | 994,022 | $ | 2,613,418 | $ | | $ | 1,502,279 | $ | 1,880,495 | $ | 8,079,771 |
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Present | ||||||||||||||||||||||||
Value of | ||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||
Deferred | Pension | |||||||||||||||||||||||
Salary | STI | MTI | Stock Awards | Stock Options | Compensation | Benefit | Total | |||||||||||||||||
Name | (1) | (2) | (3) | (4) | (5) | (6) | (7) | Payments | ||||||||||||||||
Jean H. Gilles | ||||||||||||||||||||||||
Death | $ | | $ | 995,780 | $ | 994,022 | $ | 3,485,669 | $ | 2,032,348 | $ | 1,752,891 | $ | 3,101,546 | $ | 12,362,256 | ||||||||
Disability | $ | 8,068,240 | $ | 995,780 | $ | 994,022 | $ | 3,485,669 | $ | 2,032,348 | $ | 1,685,570 | $ | 6,488,817 | $ | 23,750,446 | ||||||||
Retirement | $ | | $ | 995,780 | $ | 994,022 | $ | 3,485,669 | $ | 2,032,348 | $ | 1,685,570 | $ | 5,628,783 | $ | 14,822,172 | ||||||||
Termination Without Cause | $ | 593,076 | $ | 995,780 | $ | 994,022 | $ | 1,777,350 | $ | | $ | 1,685,570 | $ | 5,628,783 | $ | 11,674,581 | ||||||||
Termination For Cause | $ | | $ | 995,780 | $ | 994,022 | $ | 1,777,350 | $ | | $ | 1,685,570 | $ | 5,628,783 | $ | 11,081,505 | ||||||||
Voluntary Separation (8) | ||||||||||||||||||||||||
Michael J. Mack, Jr. | ||||||||||||||||||||||||
Death | $ | | $ | 1,106,067 | $ | 994,022 | $ | 4,806,065 | $ | 367,209 | $ | 4,193,902 | $ | 2,509,302 | $ | 13,976,567 | ||||||||
Disability | $ | 8,566,269 | $ | 1,106,067 | $ | 994,022 | $ | 4,806,065 | $ | 367,209 | $ | 4,193,902 | $ | 5,287,994 | $ | 25,321,528 | ||||||||
Retirement | $ | | $ | 1,106,067 | $ | 994,022 | $ | 4,806,065 | $ | 367,209 | $ | 4,193,902 | $ | 4,549,959 | $ | 16,017,224 | ||||||||
Termination Without Cause | $ | 657,744 | $ | 1,106,067 | $ | 994,022 | $ | 3,137,693 | $ | | $ | 4,193,902 | $ | 4,549,959 | $ | 14,639,387 | ||||||||
Termination For Cause | $ | | $ | 1,106,067 | $ | 994,022 | $ | 3,137,693 | $ | | $ | 4,193,902 | $ | 4,549,959 | $ | 13,981,643 | ||||||||
Voluntary Separation (8) |
(1) Our NEOs do not have employment agreements. However, we have severance guidelines that provide compensation if termination is initiated by Deere for reasons other than cause. Our severance guidelines provide for payment of one-half month of salary for each complete year of employment, up to a maximum of one years salary. We may elect to pay severance in either a lump sum or via salary continuance, unless the amount of severance exceeds two times the applicable limit under Section 401(a)(17) of the IRC, in which case severance will be paid in a lump sum.
Under our Long-Term Disability Plan, if disabled before age 62, NEOs receive monthly benefits until age 65 equal to 60% of their salary plus the average of the three STI awards received immediately prior to the start of disability. The amount shown for disability represents the present value of the monthly benefit from the time of the disability, assumed to be October 31, 2014, until the time the NEO attains age 65.
(2) Under all termination events, the amount of STI earned for the fiscal year ended October 31, 2014 would be payable in a lump sum generally within two months after the end of the fiscal year, but in no event later than March 15th of the calendar year following the end of the fiscal year. This amount is also reported in the Fiscal 2014 Summary Compensation Table under the column Non-Equity Incentive Plan Compensation.
(3) Under all termination events, the amount of MTI earned for the performance period ended October 31, 2014 would be payable in a lump sum generally within two months after the end of the fiscal year, but in no event later than March 15th of the calendar year following the end of the fiscal year. This amount is also reported in the Fiscal 2014 Summary Compensation Table under the column Non-Equity Incentive Plan Compensation.
(4) In the event of death, disability, or retirement, the most recent RSU and PSU awards are prorated based on the number of months the NEOs remain active in the year of grant, meaning that the NEOs retain 1/12th of the RSUs and PSUs awarded during the year for each month of active employment. The remaining units are forfeited. All unvested and non-forfeited RSUs will vest on the date of separation from service, while PSUs that are not forfeited will continue to convert to shares at the end of the three-year performance period based on the performance metrics. Upon lapse of the applicable restrictions, vested RSUs will be converted to shares of common stock. Restrictions on vested RSUs will lapse as provided in the following table:
Type of Separation from Service | Fiscal Year of RSU Award | Lapse of Restrictions | ||
Death | 2010 and prior | First business day of January following death | ||
2011 and 2012 | First business day in the later of January or July following death | |||
2013 and 2014 | Third anniversary of grant date | |||
Disability or Retirement | 2012 and prior After 2012 |
First business day in the later
of January or July following separation from service Third anniversary of grant date |
In the event of termination with or without cause or voluntary separation, any vested RSUs will be cashed out. All unvested PSUs and RSUs will be forfeited. The amounts shown in the table correspond to vested RSUs (including RSUs that vest as a result of the termination of employment).
54
The value of PSUs for each outstanding tranche represents actual achievement relative to the S&P Industrial Sector assuming, in the case of PSUs granted in fiscal years 2013 and 2014, truncated performance measurement periods. The performance period for PSUs granted in fiscal year 2012 ended on October 31, 2014. The final number of shares earned, if any, will be based upon performance as determined by revenue growth and TSR relative to the S&P Industrial Sector at the end of the applicable performance period. See footnotes (4) and (6) to the Outstanding Equity Awards at Fiscal 2014 Year-End table for performance information relating to each outstanding tranche of PSUs.
All amounts shown in the table are based on the closing price for Deere common stock on the NYSE on October 31, 2014, which was $85.54.
(5) In the event of death, all outstanding stock options vest immediately. In the event of disability or retirement, vesting accelerates for all outstanding stock options but occurs no sooner than six months following the grant date. In the case of death, the heirs have one year to exercise options. In the case of disability or retirement, options expire within five years. In the event of retirement, the most recent stock option awards granted to the NEOs are prorated based on the number of months the NEOs remain active in the year of grant, meaning that the NEOs retain 1/12th of the options awarded during the year for each month of active employment. The remaining options are forfeited. The amount shown in this table represents the number of stock options multiplied by the difference between the closing price for Deere common stock on the NYSE on October 31, 2014, which was $85.54, and the option exercise prices. These outstanding stock options are reported in the Outstanding Equity Awards at Fiscal 2014 Year-End table. In the event of a termination other than for death, disability, or retirement, all outstanding stock options are forfeited.
(6) In all cases, balances held in the U.S. nonqualified deferred compensation plans and the German Deferral Plan are payable to the employee. These amounts are reported in the Fiscal 2014 Nonqualified Deferred Compensation Table under Deferred Plan, German Deferral Plan, and DCRP. Under the German Deferral Plan, the amount payable in the event of death differs from the amount payable under the other scenarios based on the application of the transforming factors specified in the plan documentation. The deferred RSUs reported in the Fiscal 2014 Nonqualified Deferred Compensation Table are reported in this table under the column Stock Awards.
(7) The present value of the accumulated pension benefit was calculated using the following assumptions:
| present value amounts were determined based on a discount rate of 4.20%; |
|
lump sum distribution amounts were determined using an interest rate of 3.26% for the Supplementary and Supplemental Plans; |
|
the mortality table used for the Salaried Plan was RP2000 with mortality projection scale BB; |
|
the mortality table used for the Supplementary and Supplemental Plans was RP2021; and |
|
pensionable earnings earned were based on actual base salary and forecasted STI for fiscal 2014. |
Following are additional explanations related to the various scenarios:
|
Death: This amount represents the present value of the accrued survivor benefit as of October 31, 2014. |
|
Disability: This amount assumes service through age 65 and includes service credit for time on long-term disability. |
|
Retirement: For the NEOs eligible to retire, this amount represents the present value of the accrued benefits if they were to retire as of October 31, 2014. |
|
Termination Without Cause, Termination For Cause, and Voluntary Separation: This amount represents the present value of the accrued benefit as of October 31, 2014. |
(8) Since Messrs. Allen, Gilles, and Mack are eligible for early retirement, the scenario for Voluntary Separation is not applicable. Under this scenario, these NEOs would retire.
(9) Since Messrs. Kalathur and Field are not eligible for normal or early retirement, this scenario is not applicable.
55
Equity Compensation Plan Information
The following table shows the total number of outstanding options and shares available for future issuances under our equity compensation plans as of October 31, 2014:
Number of | Weighted- | Number of Securities | ||||||||||||
Securities to be Issued Upon |
Average | Remaining Available | ||||||||||||
Exercise Price of | for Future Issuance | |||||||||||||
Exercise of | Outstanding | Under Equity | ||||||||||||
Outstanding | Options, | Compensation Plans | ||||||||||||
Options, Warrants, | Warrants, and | (excluding securities | ||||||||||||
and Rights | Rights | reflected in column (a)) | ||||||||||||
Plan Category | (a) | (b) | (c) | |||||||||||
Equity Compensation Plans Approved by Security Holders | 16,069,393 | (1) | $ | 71.64 | 7,211,684 | (2) | ||||||||
Equity Compensation Plans Not Approved by Security Holders | | | | (3) | ||||||||||
Total | 16,069,393 | $ | 71.64 | 7,211,684 |
(1) This amount includes 1,073,937 PSUs and RSUs awarded under the Omnibus Plan and 102,254 RSUs awarded under the Nonemployee Director Stock Ownership Plan. Under the Omnibus Plan, the PSUs are payable only in stock after the three-year performance period is ended and the RSUs are payable only in stock three to five years after the award is granted or upon retirement. Under the Nonemployee Director Stock Ownership Plan, RSUs are payable only in stock upon retirement. The weighted-average exercise price information in column (b) does not include these units.
(2) This amount includes 455,203 shares available under the Nonemployee Director Stock Ownership Plan for future awards of restricted stock or RSUs and 6,756,481 shares available under the Omnibus Plan. Under the Omnibus Plan, Deere may award shares in connection with stock options and stock appreciation rights, performance awards, restricted stock or restricted stock equivalents, or other awards consistent with the purposes of such plan as determined by the Committee. In addition, shares covered by outstanding awards become available for new awards if the award is forfeited or expires before delivery of the shares.
(3) Deere currently has no equity compensation plans that have not been approved by stockholders.
56
Summary of the
Proposal
The Board has amended the
John Deere Omnibus Equity and Incentive Plan (referred to in this section of the
Proxy Statement as the Plan). The amendments were recommended to the Board by
the Compensation Committee and are subject to the approval of our stockholders.
We are asking our stockholders to approve the following amendments to the
Plan:
● | Increase by 13,000,000 the number of shares authorized for making awards under the Plan; and |
● |
Extend the period during which we may make grants to eligible employees to December 31, 2020. |
Stockholder approval of these amendments is required under the Plan which, both currently and as amended, in alignment with NYSE rules, requires stockholder approval (to the extent required by law, agreement, or stock exchange rules) of any amendments that:
● | materially increase the number of shares authorized for Plan awards; |
● | expand the types of awards available; |
● | materially expand the class of employees eligible to participate; |
● | materially extend the term of the Plan; |
● | materially change the method of determining the strike price of options; or |
● | delete or limit provisions prohibiting repricing of stock options. |
In addition to the amendments described above, the Board has also amended the Plan to modify various other provisions to conform to regulatory changes and current market practices as well as other matters related to the administration and interpretation of the Plan.
A copy of the Plan as amended is attached as Appendix D to this Proxy Statement. The description that follows is qualified in its entirety by reference to the full text of the Plan as set forth in Appendix D.
The purpose of the Plan, as discussed in the Long-Term Incentive (LTI) portion of the CD&A section of this Proxy Statement, is to foster and promote the long-term financial success of the Company and materially increase stockholder value by: (a) strengthening the Companys capability to develop, maintain, and direct an outstanding employee team; (b) motivating superior performance by means of long-term performance related incentives; (c) encouraging and providing the means for employees to obtain an ownership interest in the Company; (d) attracting and retaining outstanding talent by providing incentive compensation
opportunities competitive with other major companies; and (e) enabling eligible employees to participate in the long-term growth and financial success of the Company.
Our stockholders originally approved the Plan in 2000 and approved amendments to the Plan in 2003, 2006, and 2010. The Plan allows us to grant our salaried employees a range of compensation awards based on or related to Deere common stock, including stock options, stock appreciation rights, restricted stock and stock units, performance awards, and substitute awards. The amount of compensation realized by employees with respect to certain awards may be reduced or eliminated unless certain performance goals are met or restrictions are removed. We may use previously unissued common stock or common stock held in treasury for awards under the Plan.
At its inception in 2000, the Plan reserved 19,000,000 shares of common stock plus approximately 9,800,000 unused shares authorized under prior plans. The amendment approved in 2003 authorized an additional 18,000,000 shares for grants of options and stock appreciation rights, while the 2006 and 2010 amendments authorized an additional 29,500,000 shares in total for the grant of awards of all types. As of December 31, 2014, approximately ________ of these previously-approved shares remained available for new awards under the Plan. The market closing price for Deere common stock on December 31, 2014 was $_____.
The amendments authorize an additional 13,000,000 shares for awards under the Plan (representing approximately 3.6% of all currently outstanding shares of Deere common stock). In setting and recommending to stockholders the number of additional shares to authorize, the Compensation Committee and the Board considered the historical number of equity awards granted under the Plan, as well as the Companys three-year average burn rate (2012-2014) of approximately 0.72% (which is significantly below the median of the Companys peer group). Based on historical granting practices and the recent trading price of the Companys common stock, the Company currently expects future awards under the amended Plan to utilize annually approximately 0.93% of fully diluted shares outstanding. Based on the same assumptions, the additional shares (if approved and remaining available for grant), in combination with the remaining authorized and unused shares, should be sufficient to provide for approximately 4 to 5 years of awards under the Plan. Consistent with existing Plan provisions, the number of shares authorized for the Plan will be reduced by one share for each stock option or stock appreciation right granted, and by 2.5 shares for each share awarded in connection with full value awards, such as restricted stock, restricted stock units, and performance awards (generally, full value awards are any awards other than stock options and stock appreciation rights). The
57
number of authorized shares is reduced by a greater amount for full value awards in recognition of the greater initial value of these types of awards.
The Plan is currently scheduled to expire on December 31, 2015. The amendments extend the term of the Plan by five years, until December 31, 2020.
The amendments will enable us to continue an equity-based long-term incentive program that has been in effect since 1960. The Board believes that the program and the Plan have helped Deere compete for, motivate, and retain high caliber executive, administrative, and professional employees. The Board believes that it is in the best interests of Deere and its stockholders to amend the Plan as proposed. Consistent with our compensation objectives, rewards under the Plan primarily depend on factors that directly benefit our stockholders: dividends paid and appreciation in the market value of our common stock.
The affirmative vote of a majority of the shares present in person or by proxy and entitled to vote at the Annual Meeting is required to approve the proposed amendments to the Plan. If our stockholders fail to approve these amendments, they will not be given effect, and the Plan will continue as in effect prior to amendment. Stockholder approval of the Plan as amended will also constitute approval of the material terms of the performance goals contained in the Plan for purposes of enabling Deere to meet the requirements under Section 162(m) of the IRC (Section 162(m)) for amounts paid under the Plan to certain of our executive officers to be tax deductible to the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE AMENDMENTS TO THE JOHN DEERE OMNIBUS EQUITY AND INCENTIVE PLAN. |
Principal Features
of the Plan
We describe below the
other principal terms of the Plan.
Administration
The Plan is
administered by the Compensation Committee or a subcommittee thereof (the
Committee), which Committee, for purposes of the Plan, is required to be
composed of at least two members of the Board who qualify as outside directors
within the meaning of Section 162(m) and as non-employee directors within the
meaning of Rule 16b-3 under the Exchange Act. The Committee is responsible for
interpreting and administering the Plan and for selecting those salaried
employees (including executive officers) who will receive awards. The Committee
may delegate any of its authority under the Plan to other persons, including
officers of the
Company, except for its authority to amend, suspend, or terminate the Plan or as may otherwise be prohibited by law, regulation, or stock exchange rule.
Eligibility and
Participation
Salaried employees,
including executive officers, of Deere and its subsidiaries are eligible to
receive awards under the Plan. The Committee, in its discretion, selects those
eligible employees who will receive awards. Deere is not obligated to make
awards under the Plan at any time or to any person. During the fiscal year ended
October 31, 2014, we granted stock options under the Plan covering 2,453,941
shares to 998 employees and restricted stock units equivalent to 84,176 shares
and performance stock units equivalent to 134,678 shares to 24 executives. In
December 2014, we granted for fiscal 2015 compensation purposes stock options
under the Plan covering 3,069,030 shares to 983 employees and restricted stock
units equivalent to 78,587 shares and performance stock units equivalent to
125,732 shares to 23 executives.
We cannot at this time identify the class of persons to whom we will grant awards in the future, nor can we state the form or value of any future awards.
Individual
Limits
During any fiscal year, no
participant may receive awards of stock options and stock appreciation rights
covering more than 1,000,000 shares of Deere common stock. In addition, no
participant may receive more than the equivalent of 400,000 shares of our common
stock in any fiscal year pursuant to performance awards, restricted stock
awards, restricted stock equivalent awards, other awards, and/or substitute
awards.
Options and Stock Appreciation
Rights
The per share exercise price of
options granted under the Plan may not be less than the fair market value of a
share of Deere common stock on the date of grant, and may not be modified once
it is established except pursuant to anti-dilution adjustments (see Amendment
and Adjustment below). For purposes of the Plan, the fair market value of a
share on any date is the closing price on the NYSE at the conclusion of regular
trading hours on that date (or the last date on which this information was
reported). With certain exceptions, option holders may pay the exercise price of
options in cash, in Deere common stock, in a combination of cash and stock,
through a cashless exercise program, or through a net share settlement
procedure established by the Committee.
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The Committee may designate options awarded under the Plan as incentive stock options (ISOs), a type of option authorized under the IRC. Options not designated as ISOs are referred to as nonqualified options. In recent years, Deere has issued only nonqualified options.
The Plan also authorizes the Committee to grant stock appreciation rights. A stock appreciation right entitles the grantee to receive, upon exercise of the right, an amount equal to the excess of (a) the fair market value on the exercise date of a specified number of shares of Deere common stock over (b) the exercise price of the right. The exercise price may not be less than the fair market value of Deere common stock on the date the right is granted. We may pay the amount due to the holder of a stock appreciation right in Deere common stock, cash, or a combination of cash and stock. Stock appreciation rights may be unrelated to a stock option or may be granted alternative to (in tandem with) an option.
Generally, the date when stock options and stock appreciation rights first become exercisable must be at least six months after the date of grant. Options and stock appreciation rights may have a term of up to ten years. Dividends and dividend equivalents may not be paid or accrued on unexercised options or stock appreciation rights.
Options and stock appreciation rights generally remain exercisable for a limited time following termination of employment due to death, disability, retirement, or otherwise with the consent of the Committee. Upon any other kind of termination, options and stock appreciation rights immediately expire.
Except in connection with certain corporate transactions, the exercise and base prices of options and stock appreciation rights may not be lowered and out-of-the-money options and rights may not be repurchased or exchanged without stockholder approval.
Performance
Awards
The Committee may grant
performance awards either as performance shares (with each performance share
representing one share of Deere common stock) or performance units (representing
a value established by the Committee at the time of the award). Performance
awards are earned over a performance period of at least one year. There may be
more than one performance award in existence at any one time, and the
performance periods may differ or overlap.
The Committee establishes minimum, target, and maximum performance goals when it grants performance awards, and determines the portion of the performance award to be earned by the participant based on the degree to which the performance
goals are achieved over the relevant performance period. A participant will not earn any portion of a performance award unless the minimum performance goals are met. When earned, performance awards may be paid in cash, Deere common stock, or a combination of cash and stock, and in lump sums or installments. The Committee determines the form and manner of payment. Dividends may be accrued but not paid on performance shares while they are subject to performance targets.
The Committee, as it deems appropriate, may establish performance goals for each performance period from among any of the following factors, or any combination of the following:
● | total stockholder return; |
● |
growth in revenues, sales, settlements, market share, customer conversion, net income, operating income, cash flow, stock price, and/or earnings per share; |
● |
return on assets, net assets, and/or capital; |
● |
return on stockholders equity; |
● |
economic or shareholder value added; |
● |
improvements in costs and/or expenses; or |
● |
except with respect to executives subject to Section 162(m), any other performance measure established by the Committee. |
Performance goals may be measured on an absolute basis or relative to selected peer companies or market indices. The Plan also authorizes the Committee, subject to the restrictions of Section 162(m), to reduce grants or adjust performance goals if Deere acquires or disposes of certain assets or securities.
Restricted Stock and Restricted
Stock Equivalents
Restricted stock and
restricted stock equivalents have restriction periods and/or price goals that
the Committee designates at the time of the award. Restriction periods must be
at least three years for time-based restrictions and at least one year for
performance-based restrictions. A maximum of 5% of the aggregate shares
authorized for the Plan may be awarded in the form of restricted stock or stock
equivalents with no minimum vesting periods.
Each restricted stock equivalent represents the right to receive either shares or an amount determined by the Committee at the time of the award. The value of a restricted stock equivalent may be equal to the full monetary value of one share of our common stock. Any award of restricted stock or stock equivalents to an executive officer intended to qualify as performance-based compensation must include a stock price goal during the restriction period.
59
Other Awards
The Committee may grant other forms of equity-based awards
consistent with the purposes of the Plan. The Committee may base other awards on
the value of Deere common stock or other criteria. Other awards with a
performance goal may not vest in less than one year while those without a
performance goal may not vest in less than three years. Other awards include the
restricted stock units and performance stock units we have awarded in the past
to certain executives (as described below under the heading Plan Benefits that
follows Item 5, Re-Approval of the John Deere Short-Term Incentive Bonus
Plan).
The Plan also authorizes the Committee to grant awards in substitution for awards granted by an entity that Deere acquires or that combines with Deere. Substitute awards are not subject to the minimum holding period and minimum exercise price provisions of the Plan, and do not count towards the Plans authorized share limits.
Stockholder
Rights
During the performance or
restriction periods applicable to restricted stock or performance share awards,
participants generally have the right to receive dividends on and vote the
shares of common stock that they have been awarded, provided that in the case of
performance share awards, dividends may be accrued but not paid while these
awards are subject to performance targets. Holders of stock options do not have
rights as a stockholder prior to exercise. Holders of restricted stock units,
restricted stock equivalents, and performance stock units also generally do not
have rights as a stockholder prior to vesting and payment in shares, although
holders of restricted stock equivalents and restricted stock units may receive
dividend equivalents in cash at the same time as dividends are paid on Deeres
common stock (which has been the Companys practice with respect to restricted
stock units awarded in the past). With limited exceptions, participants may not
transfer, assign, pledge, or encumber awards under the Plan.
Cash Equivalents and
Deferral
The Committee may permit
participants to elect to receive performance awards and restricted stock in cash
instead of shares. The Committee may also award cash equivalent awards or other
alternative forms of awards to employees of non-U.S. subsidiaries or branches.
Payments of cash equivalent awards are applied against the Plans authorized
share limits based on the number of shares that would have been paid had the
award been settled in stock. The Committee may also permit participants eligible
for our voluntary deferred compensation plan to elect within certain time limits
to defer the payment or settlement of performance and restricted
awards.
Obligations to
Deere
Participants who leave Deere may
lose their unexercised stock options and stock appreciation rights, unearned
performance awards, and restricted stock and stock equivalent awards if they
fail to honor certain consulting or noncompetition obligations to Deere or
otherwise fail to satisfy the terms specified in the awards.
Change in
Control
Awards granted under the Plan
on or after February 24, 2010 do not vest solely as a result of a change in
control of Deere. Instead, if there is a change in control of Deere, the
restrictions and vesting requirements of awards may, subject to certain
regulatory restrictions, lapse and the value of other awards may be paid to the
participants in cash (at the change in control price defined in the Plan) only
if the participant also experiences a qualifying termination of employment. For
awards granted prior to February 24, 2010 that remain outstanding, these
provisions may apply if there is a change in control or potential change in
control of Deere without the need for a qualifying termination of employment.
For purposes of the Plan, change in control and qualifying termination have the same meanings as in the CIC Program, as described above under Fiscal 2014 Potential Payments upon Change in Control.
A potential change in control is defined generally to include the entering into of an agreement the consummation of which would result in a change in control, or the acquisition by a third party of securities representing 15% or more of the combined voting power of the Company accompanied by a determination by the Board that a potential change in control has occurred for purposes of the Plan. Awards made on or after February 24, 2010 do not contain any provisions triggered by a potential change in control.
The double trigger provisions of the Plan will not preclude participants from participating at the discretion of the Committee or the Board on the same terms as stockholders generally in a change in control transaction in which Deere shares are cancelled in exchange for other consideration (such as cash).
The lapse of limitations and payment of the value of equity incentive compensation in the event of a change in control or potential change in control may increase the net cost of the change in control and thus theoretically could render more difficult or discourage a change in control, even if the change in control would benefit Deere stockholders generally.
60
Repayment of
Awards
Awards paid under the Plan to certain
executives may be recovered by the Company pursuant to the terms of the
Recoupment Policy or otherwise as required by law.
Amendment and
Adjustment
The Committee may suspend or terminate the
Plan or any portion thereof at any time, but, as described under Summary of the
Proposal above, stockholder approval is required for certain amendments that
materially revise the Plan.
No amendment, suspension, or termination of the Plan may materially and adversely affect the rights of any participant under any outstanding awards without the consent of the participant.
If there is a stock dividend or stock split, a combination, or another kind of increase or reduction in the number of issued shares of Deere common stock, the Board or the Committee will adjust the number and type of shares authorized under the Plan and covered by outstanding awards and the exercise price of outstanding awards, as appropriate, to prevent the dilution or enlargement of rights under Plan awards.
Federal Income Tax Consequences of
Stock Options
The following summarizes the consequences
under existing U.S. federal income tax rules of the award and exercise of stock
options under the Plan.
ISOs
ISOs are intended to qualify as incentive
stock options under Section 422 of the IRC. We understand that under current
federal income tax law:
● | Our employees do not recognize income when we grant them ISOs. | |
● |
An optionee does not recognize income when an ISO is exercised, although the difference between the option price and the fair market value of the shares acquired upon exercise is a tax preference item which, under certain circumstances, may give rise to alternative minimum tax liability on the part of the optionee. | |
● |
If the optionee holds shares purchased pursuant to the exercise of an ISO for cash for at least two years from the option grant date and at least one year after the transfer of the shares to the optionee, then: | |
° |
The optionee will recognize gain or loss only upon ultimate disposition of the shares. Any gain or loss generally will be treated as long-term capital gain or loss. |
° |
Deere will not be entitled to a federal income tax deduction in connection with the grant or exercise of the option. | |
● |
If the optionee disposes of the shares purchased pursuant to the exercise of an ISO before the expiration of the required holding period, then: | |
° |
The optionee will recognize ordinary income in the year of the disposition in an amount equal to the difference between the option price and the lesser of the fair market value of the shares on the exercise date or the selling price. The balance of any gain the optionee realizes on the disposition will be taxed as capital gain. | |
° |
Deere will be entitled to a deduction in the year of the disposition equal to the amount of ordinary income recognized by the optionee. |
Nonqualified
Options
Nonqualified stock options
are stock options that do not qualify as ISOs. We understand that under existing
U.S. federal income tax law:
● | Our employees do not recognize income when we grant them nonqualified stock options. |
● |
Upon exercise of a nonqualified option, the optionee recognizes ordinary income in the amount by which the fair market value of the shares purchased exceeds the exercise price of the option. Deere generally is entitled to a deduction in an equal amount. |
Other Tax
Matters
Certain additional rules apply
if an optionee pays the exercise price of an option in shares he or she already
owns.
To the extent permitted by applicable law, we may permit an optionee to have us withhold all or a portion of the shares that the optionee acquires upon the exercise of an option to satisfy all or part of the minimum withholding requirements for federal, state, and local income taxes. We may also permit the optionee to deliver other previously acquired shares (other than restricted stock) for the purpose of tax withholding.
Since awards under the Plan are determined by the Committee in its sole discretion, we cannot determine the benefits or amounts that will be received or allocated in the future under the Plan. For an explanation of the stock options, restricted stock units, and performance stock units granted in December 2014, see the Plan Benefits section that follows Item 5, Re-Approval of the John Deere Short-Term Incentive Bonus Plan.
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Summary of the
Proposal
We are submitting the John
Deere Short-Term Incentive Bonus Plan (referred to in this section of the Proxy
Statement as the STI Plan) for stockholder re-approval to meet the
requirements under Section 162(m) for amounts paid under the STI Plan to certain
of our executive officers to be tax deductible to the Company. The STI Plan
provides for cash payments to executive, administrative, and professional
employees based on the achievement of pre-established performance goals over a
performance period of one fiscal year. Amounts paid to our executive officers
under the STI Plan are intended to qualify as performance-based compensation
for purposes of Section 162(m).
A copy of the STI Plan is attached as Appendix E to this Proxy Statement. The description that follows is qualified in its entirety by reference to the full text of the STI Plan as set forth in Appendix E.
The affirmative vote of a majority of the shares present in person or by proxy and entitled to vote at the meeting is required to re-approve the STI Plan. If our stockholders fail to re-approve the STI Plan, no further awards will be made under the STI Plan, although the Committee will retain the right to consider adopting other short-term incentive arrangements that do not benefit from Section 162(m). Failure to approve the STI Plan, however, will not affect the validity of, or our obligations under, awards made prior to the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE RE-APPROVAL OF THE JOHN DEERE SHORT-TERM INCENTIVE BONUS PLAN. |
Description of the STI Plan and Performance Goals
Purpose
The purpose of the STI Plan is to provide participants with a
meaningful annual incentive opportunity conditioned on the achievement of
specific performance goals.
Administration
The STI Plan is
administered by the Compensation Committee or a subcommittee thereof (the
Committee), which Committee, for purposes of the STI Plan, is required to be
composed of at least two members of the Board who qualify as outside directors
within the meaning of Section 162(m). The Committee has authority to interpret
the STI Plan and maintain administrative guidelines relating to the STI Plan.
The Committee may delegate to the Company responsibility for the day-to-day
administration of the STI Plan.
Eligibility and
Participation
All full-time or
part-time executive, administrative, and professional employees who are actively
employed by Deere or its subsidiaries during any fiscal year will be eligible to
participate in the STI Plan for that fiscal year. Each year, the Committee will
determine those eligible employees who will participate in the STI Plan. Based
on current eligibility levels, approximately 30,300 executive, administrative,
and professional employees will be eligible to participate in the STI Plan on
the date of the Annual Meeting.
To meet the requirements of Section 162(m), certain more restrictive provisions of the STI Plan apply only to executive officers. For purposes of the STI Plan, executive officers are those employees whom the Committee designates from year to year for purposes of qualifying payouts under the STI Plan for exemption under Section 162(m). The Committee designated ten executives as executive officers under the STI Plan for the fiscal year ended October 31, 2014.
Award Determina