BECTON DICKINSON & CO DEF 14A 2012
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant þ
Filed by a Party other than the Registrant ¨
Check the appropriate box:
Becton, Dickinson and Company
1 Becton Drive
Franklin Lakes, New Jersey 07417-1880
December 20, 2012
Dear Fellow Shareholders:
You are cordially invited to attend the 2013 Annual Meeting of Shareholders of Becton, Dickinson and Company (BD) to be held at 1:00 p.m. EST on Tuesday, January 29, 2013 at the Hilton Short Hills, 41 John F. Kennedy Parkway, Short Hills, New Jersey. You will find directions to the meeting on the back cover of the accompanying proxy statement.
The notice of meeting and proxy statement describe the matters to be acted upon at the meeting. We also will report on matters of interest to BD shareholders.
Your vote is important. Whether or not you plan to attend the Annual Meeting in person, we encourage you to vote so that your shares will be represented and voted at the meeting. You may vote by proxy on the Internet or by telephone, or by completing and mailing the enclosed proxy card in the return envelope provided. You may also vote in person at the Annual Meeting.
Thank you for your continued support of BD.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Becton, Dickinson and Company
1 Becton Drive
Franklin Lakes, New Jersey 07417-1880
December 20, 2012
The 2013 Annual Meeting of Shareholders of Becton, Dickinson and Company (BD) will be held as follows:
Shares represented by properly executed proxies will be voted in accordance with the instructions specified therein. Shares represented by properly executed proxies that do not provide specific voting instructions will be voted in accordance with the recommendations of the Board of Directors set forth in this proxy statement.
Important Notice Regarding the Availability of Proxy Materials for the 2013 Annual Meeting of Shareholders to be held on January 29, 2013. BDs proxy statement and 2012 Annual Report, which includes BDs consolidated financial statements, are available at www.bd.com/investors/.
Shareholders of record at the close of business on December 7, 2012 will be entitled to attend and vote at the meeting.
Table of Contents
2013 ANNUAL MEETING OF SHAREHOLDERS
Tuesday, January 29, 2013
BECTON, DICKINSON AND COMPANY
1 Becton Drive
Franklin Lakes, New Jersey 07417-1880
These proxy materials are being mailed or otherwise sent to shareholders of Becton, Dickinson and Company (BD) on or about December 20, 2012 in connection with the solicitation of proxies by the Board of Directors for BDs 2013 Annual Meeting of Shareholders to be held at 1:00 p.m. EST on Tuesday, January 29, 2013 at the Hilton Short Hills, 41 John F. Kennedy Parkway, Short Hills, New Jersey. Important Notice Regarding the Availability of Proxy Materials for the 2013 Annual Meeting of Shareholders to be held on January 29, 2013. This proxy statement and BDs 2012 Annual Report to Shareholders are also available at www.bd.com/investors/.
Directors, officers and other BD associates also may solicit proxies by telephone or otherwise. Brokers and other nominees will be requested to solicit proxies or authorizations from beneficial owners and will be reimbursed for their reasonable expenses. BD has retained MacKenzie Partners, Inc. to assist in soliciting proxies for a fee not to exceed $25,000 plus expenses. The cost of soliciting proxies will be borne by BD.
Shareholders Entitled to Vote; Attendance at the Meeting
Shareholders of record at the close of business on December 7, 2012 are entitled to notice of, and to vote at, the meeting. As of such date, there were 195,850,121 shares of BD common stock outstanding, each entitled to one vote.
If your shares are held in the name of a bank, broker or other nominee (also known as shares held in street name) and you wish to attend the meeting, you must present proof of ownership as of the record date, such as a bank or brokerage account statement, to be admitted. BD also may request appropriate identification as a condition of admission.
Quorum; Required Vote
The holders of a majority of the shares entitled to vote at the meeting must be present in person or represented by proxy to constitute a quorum. Directors are elected by a majority of the votes cast at the meeting (Proposal 1). This means that a director nominee will be elected to the Board only if the number of votes cast for the nominee exceeds the number of votes cast against that nominee.
Approval of Proposals 2, 3 and 5 requires the affirmative vote of a majority of the votes cast at the meeting. Approval of Proposal 4 requires the affirmative vote of two-thirds of the votes cast at the meeting. Under New Jersey law, abstentions and shares that brokers do not have the authority to vote in the absence of timely instructions from the beneficial owners will not be counted as votes cast, and, accordingly, will have no effect on the outcome of the vote for any of the Proposals. Proposal 2 is a discretionary item, and New York Stock Exchange (NYSE) member brokers that do not receive instructions on how to vote from beneficial owners may cast those votes in their discretion.
How to Vote
Shareholders of record may cast their votes at the meeting. In addition, shareholders of record may cast their votes by proxy, and participants in the BD plans described below may submit their voting instructions, by:
(1) using the Internet and voting at the website listed on the enclosed proxy/voting instruction card (the proxy card);
(2) using the toll-free telephone number listed on the proxy card; or
(3) signing, completing and returning the proxy card in the enclosed postage-paid envelope.
Votes cast through the Internet and telephone votes are authenticated by use of a personal identification number. This procedure allows shareholders to appoint a proxy, and the various plan participants to provide voting instructions, and to confirm that their actions have been properly recorded. Specific instructions to be followed are set forth on the proxy card. If you vote through the Internet or by telephone, you do not need to return your proxy card. In order to be timely processed, voting instructions submitted by participants in BDs Global Share Investment Program (GSIP) must be received by 12:00 p.m. EST on January 23, 2013, and voting instructions submitted by participants in all other BD plans must be received by 12:00 p.m. EST on January 25, 2013. All proxies submitted by record holders through the Internet or by telephone must be received by 11:00 a.m. EST on January 29, 2013.
If you are the beneficial owner of shares held in street name, you have the right to direct your bank, broker or other nominee on how to vote your shares by using the voting instruction form provided to you by them, or by following their instructions for voting through the Internet or by telephone. In the alternative, you may vote in person at the meeting if you obtain a valid proxy from your bank, broker or other nominee and present it at the meeting.
Shares represented by properly executed proxies will be voted in accordance with the instructions specified therein. Shares represented by properly executed proxies that do not specify voting instructions will be voted in accordance with the recommendations of the Board of Directors set forth in this proxy statement.
Savings Incentive Plan (SIP)
Participants in SIP, BDs 401(k) plan, may instruct the SIP trustee how to vote all shares of BD common stock allocated to their SIP accounts. The SIP trustee will vote the SIP shares for which it does not receive instructions in the same proportion as the SIP shares for which it does receive instructions.
Participants in Other Plans
Participants in BDs Deferred Compensation and Retirement Benefit Restoration Plan (DCP), the 1996 Directors Deferral Plan (DDP), and GSIP (if so provided under the terms of the local country GSIP plan) may provide voting instructions for all shares of BD common stock allocated to their plan accounts. The trustees of these plans will vote the plan shares for which they do not receive instructions in the same proportion as the plan shares for which they do receive instructions.
Proxies representing shares of BD common stock held of record also will serve as proxies for shares held under the Direct Stock Purchase Plan sponsored and administered by Computershare Trust Company, N.A. and any shares of BD common stock allocated to participants accounts under the plans mentioned above, if the registrations are the same. Separate mailings will be made for shares not held under the same registrations.
Revocation of Proxies or Change of Instructions
A proxy given by a shareholder of record may be revoked at any time before it is voted by sending written notice of revocation to the Corporate Secretary of BD at the address set forth above or delivering such notice at
the meeting, by delivering a proxy (by one of the methods described above under the heading How to Vote) bearing a later date, or by voting in person at the meeting. Participants in the plans described above may change their voting instructions by delivering new voting instructions by one of the methods described above under the heading How to Vote.
If you are the beneficial owner of shares held in street name, you may submit new voting instructions in the manner provided by your bank, broker or other nominee, or you may vote in person at the meeting in the manner described above under the heading How to Vote.
The Board of Directors is not aware of any matters to be presented at the meeting other than those set forth in the accompanying notice. If any other matters properly come before the meeting, the persons named in the proxy card will vote on such matters in accordance with their best judgment.
Securities Owned by Certain Beneficial Owners
The following table sets forth as of September 30, 2012, information concerning those persons known to BD to be the beneficial owner of more than 5% of BDs outstanding common stock. This information is as reported by such persons in their filings with the Securities and Exchange Commission (SEC).
Securities Owned by Directors and Management
The following table sets forth as of December 1, 2012 information concerning the beneficial ownership of BD common stock by (i) each director, (ii) the executive officers named in the Summary Compensation Table on page 39, and (iii) all nominees for director and executive officers as a group (except that the holdings of Mr. Elkins, who resigned from BD effective November 9, 2012, are shown as of that date). In general, beneficial ownership includes those shares that a director or executive officer has the sole or shared power to vote or transfer, including shares that may be acquired under outstanding equity compensation awards or otherwise within 60 days.
Except as indicated in the footnotes to the table, each person has the sole power to vote and transfer the shares he or she beneficially owns. None of the shares listed below have been pledged as security.
BD COMMON STOCK
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires BDs directors and executive officers to file initial reports of their ownership of BDs equity securities and reports of changes in such ownership with the SEC and the NYSE. Directors and executive officers are required by SEC regulations to furnish BD with copies of all Section 16(a) forms they file with respect to BD securities. Based solely on a review of copies of such forms and written representations from BDs directors and executive officers, BD believes that, for the period from October 1, 2011 through September 30, 2012, all of its directors and executive officers were in compliance with the reporting requirements of Section 16(a), except that one report with respect to the November 2011 equity compensation grant made to Gary M. Cohen was inadvertently filed late.
Members of our Board of Directors are elected to serve a term of one year and until their successors have been elected and qualified. All of the nominees for director have consented to being named in this proxy statement and to serve if elected. Presented below is biographical information for each of the nominees. Each of the nominees is a current member of BDs Board, except for Ms. Burzik. It is anticipated that the Board will appoint Ms. Burzik as a director prior to the Annual Meeting. Ms. Burzik was identified as a candidate for nomination to the Board by Edward J. Ludwig while he was serving as BDs Chairman.
BD directors have a variety of backgrounds, which reflects the Boards continuing efforts to achieve a diversity of viewpoint, experience, knowledge, ethnicity and gender. As more fully discussed below, director nominees are considered on the basis of a range of criteria, including their business knowledge and background, prominence and reputation in their fields, global business perspective and commitment to strong corporate citizenship. They must also have experience and ability that is relevant to the Boards oversight role with respect to BDs business and affairs. Each nominees biography includes the particular experience and qualifications that led the Board to conclude that the nominee should serve on the Board.
NOMINEES FOR DIRECTOR
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES FOR DIRECTOR.
The Board and Committees of the Board
BD is governed by a Board of Directors that currently consists of 14 members, 13 of whom have been determined by the Board to be independent. The Board has established four operating committees (the Committees): the Audit Committee; the Compensation and Benefits Committee (the Compensation Committee); the Corporate Governance and Nominating Committee (the Governance Committee); and the Science, Innovation and Technology Committee. These Committees meet regularly. The Board has also established an Executive Committee that meets only as needed. Committee meetings may be called by the Committee chair, the Chairman of the Board or a majority of Committee members. The Board has adopted written charters for each of the Committees that are posted on BDs website at www.bd.com/investors/corporate_governance/. Printed copies of these charters, BDs 2012 Annual Report on Form 10-K, and BDs reports and statements filed with or furnished to the SEC, may be obtained, without charge, by contacting the Corporate Secretary, BD, 1 Becton Drive, Franklin Lakes, New Jersey 07417-1880, telephone 201-847-6800.
Set forth below is a summary description of each of the Committees.
The Board has determined that the members of the Audit Committee meet the independence and financial literacy requirements of the NYSE for audit committee members. The Board also has determined that each of Messrs. Anderson, Larsen, Orr and Scott qualifies as an audit committee financial expert under the rules of the SEC. The Audit Committee regularly meets separately with BDs internal auditors and the independent auditors to ensure full and frank communications with the Audit Committee.
COMPENSATION AND BENEFITS COMMITTEE
The Board has determined that each member of the Compensation Committee meets the independence requirements of the NYSE.
Procedure for Determining Executive Compensation
The Compensation Committee oversees the compensation program for the named executive officers listed in the Summary Compensation Table on page 39 and for BDs other executive officers. The Compensation Committee recommends compensation actions regarding the Chief Executive Officer to the full Board and is delegated the authority to take compensation actions with respect to BDs other executive officers. The Compensation Committee may not delegate these responsibilities to another Committee, an individual director or members of management.
Role of Management
The Compensation Committees meetings are typically attended by BDs Chief Executive Officer, Senior Vice PresidentHuman Resources and others who support the Compensation Committee in fulfilling its responsibilities. The Compensation Committee considers managements views relating to compensation matters, including the performance metrics and targets for BDs performance-based compensation. Management also provides information (which is reviewed by our Internal Audit Department) to assist the Committee in determining the extent to which performance targets have been achieved. This includes any recommended adjustments to BDs operating results when assessing BDs performance. The Chief Executive Officer and Senior Vice PresidentHuman Resources also work with the Compensation Committee chair in establishing meeting agendas.
The Compensation Committee meets in executive session with no members of management present for part of each of its regular meetings. The Compensation Committee also meets in executive session when considering compensation decisions regarding our executive officers.
Role of the Independent Consultant
The Compensation Committee is also assisted in fulfilling its responsibilities by its independent consultant, Pay Governance LLC (Pay Governance). Pay Governance is engaged by, and reports directly to, the Compensation Committee. The Compensation Committee is not aware of any conflict of interest on the part of Pay Governance relating to the services performed by Pay Governance for the Compensation Committee. During fiscal year 2012, Pay Governance was not engaged to perform any services for BD or BDs management. The Compensation Committee has adopted a policy prohibiting Pay Governance from providing any services to BD
or BDs management without the Compensation Committees prior approval, and has expressed its intention that such approval will be given only in exceptional cases. No other consultant was used by the Compensation Committee or management with respect to the 2012 compensation of BDs executive officers.
Pay Governance reviews all materials prepared for the Compensation Committee by management, prepares additional materials as may be requested by the Compensation Committee, and attends Compensation Committee meetings. In its advisory role, Pay Governance assists the Compensation Committee in the design and implementation of BDs compensation program. This includes assisting the Compensation Committee in selecting the key elements to include in the program, the targeted payments for each element, and the establishment of performance targets. Pay Governance also provides market comparison data, which is one of the factors considered by the Compensation Committee in making compensation decisions, and makes recommendations to the Compensation Committee regarding the compensation of BDs Chief Executive Officer.
Pay Governance also conducts an annual review of the compensation practices of select peer companies. Based on this review, Pay Governance advises the Compensation Committee with respect to the competitiveness of BDs compensation program in comparison to industry practices, and identifies any trends in executive compensation.
At the end of each fiscal year, the Board conducts a review of the Chief Executive Officers performance. At the following Board meeting, the Board sets the compensation of the Chief Executive Officer after considering the results of the review, market comparison data and the recommendations of the Compensation Committee. Neither the Chief Executive Officer nor any other members of management are present during this session. The Chief Executive Officer does not play a role in determining or recommending his own compensation.
The Compensation Committee is responsible for determining the compensation of BDs other executive officers. The Chief Executive Officer, in consultation with the Senior Vice PresidentHuman Resources, reviews the performance of the other executive officers with the Compensation Committee and makes compensation recommendations for its consideration. The Compensation Committee determines the compensation for these executives, in consultation with Pay Governance, after considering the Chief Executive Officers recommendations, market comparison data regarding compensation levels among peer companies and the views of Pay Governance. All decisions regarding the compensation of BDs other executive officers are made in executive session.
The Board has delegated responsibility for formulating recommendations regarding non-management director compensation to the Governance Committee, which is discussed below.
SCIENCE, INNOVATION AND TECHNOLOGY COMMITTEE
CORPORATE GOVERNANCE AND NOMINATING COMMITTEE
The Board has determined that each member of the Governance Committee meets the independence requirements of the NYSE. As stated above, the Governance Committee reviews the compensation program for the non-management directors and makes recommendations to the Board regarding their compensation, and may not delegate these responsibilities to another Committee, an individual director or members of management. The Governance Committee has retained Pay Governance as an independent consultant for this purpose. Pay Governances responsibilities include providing market comparison data on non-management director compensation at peer companies, tracking trends in non-management director compensation practices, and advising the Governance Committee regarding the components and levels of non-management director compensation. The Governance Committee is not aware of any conflict of interest on the part of Pay Governance arising from these services. Executive officers do not play any role in either determining or recommending non-management director compensation.
Board, Committee and Annual Meeting Attendance
The Board and its Committees held the following number of meetings during fiscal year 2012:
The Executive Committee did not meet during fiscal year 2012.
Each director attended 75% or more of the total number of the meetings of the Board and the Committees on which he or she served during fiscal year 2012. BDs non-management directors met in executive session at each of the Board meetings held during fiscal year 2012.
The Board has adopted a policy pursuant to which directors are expected to attend the Annual Meeting of Shareholders in the absence of a scheduling conflict or other valid reason. All but one of the fifteen directors then serving attended BDs 2012 Annual Meeting of Shareholders.
Non-Management Directors Compensation
The Board believes that providing competitive compensation is necessary to attract and retain qualified non-management directors. The key elements of BDs non-management director compensation are a cash retainer, equity compensation, Committee chair fees and Lead Director fees. Of the base compensation paid to the non-management directors (which does not include Committee chair and Lead Director fees), approximately two-thirds currently is equity compensation that directors are required to retain until they complete their service on the Board. See Corporate GovernanceSignificant Governance PracticesEquity Ownership by Directors on page 20. This retention feature serves to better align the interests of the directors and BD shareholders and ensure compliance with the director share ownership guidelines. Mr. Forlenza does not receive compensation related to his service as a director.
Each non-management director currently receives an annual cash retainer of $81,000 for services as a director. Directors do not receive meeting attendance fees.
Each non-management director elected at an Annual Meeting of Shareholders is granted restricted stock units then valued at $162,000 (using the same methodology used to value awards made to executive officers). Directors newly elected to the Board receive a restricted stock unit grant that is pro-rated from the effective date of their election to the next Annual Meeting. The shares of BD common stock underlying the restricted stock units are not issuable until a directors separation from the Board.
Committee Chair/Lead Director Fees
An annual fee of $10,000 is paid to each Committee chair, except that the fee for the Audit Committee chair is $15,000 in recognition of the Audit Committees responsibilities. An annual fee of $25,000 is paid to the Lead Director. No fee is paid to the Chair of the Executive Committee.
BD reimburses non-management directors for travel and other business expenses incurred in the performance of their services for BD. Directors may travel on BD aircraft in connection with such activities, and, on limited occasions, spouses of directors have joined them on such flights. No compensation is attributed to the director for these flights in the table below, since the aggregate incremental costs of spousal travel were minimal. Directors are also reimbursed for attending director education courses. BD occasionally invites spouses of directors to Board-related business events, for which they are reimbursed their travel expenses.
Directors are eligible, on the same basis as BD associates, to participate in BDs Matching Gift Program, pursuant to which BD matches contributions made to qualifying nonprofit organizations. The aggregate annual limit per participant is $5,000.
The following table sets forth the compensation received by BDs non-management directors during fiscal year 2012.
Fiscal Year 2012 Non-Management Directors Compensation
Listed below are the aggregate outstanding restricted stock unit awards and option awards held by each non-management director at the end of fiscal year 2012. Stock options have not been issued to non-management directors since 2005.
Directors Deferral Plan
Directors may defer receipt of all or part of their annual cash retainer and other cash fees pursuant to the provisions of the 1996 Directors Deferral Plan. Directors may also defer receipt of shares issuable to them under their restricted stock unit awards upon leaving the Board. A general description of the 1996 Directors Deferral Plan appears on page 62.
Communication with Directors
Shareholders or other interested parties wishing to communicate with the Board, the non-management directors or any individual director (including complaints or concerns regarding accounting, internal accounting controls or audit matters) may do so by contacting the Lead Director either:
All communications will be kept confidential and promptly forwarded to the Lead Director, who shall, in turn, forward them promptly to the appropriate director(s). Such items that are unrelated to a directors duties and responsibilities as a Board member may be excluded by our corporate security department, including, without limitation, solicitations and advertisements, junk mail, product-related communications, job referral materials and resumes, surveys, and material that is determined to be illegal or otherwise inappropriate.
Corporate Governance Principles
BDs commitment to good corporate governance is embodied in our Corporate Governance Principles (the Principles). The Principles set forth the Boards views and practices regarding a number of governance topics, and the Governance Committee assesses the Principles on an ongoing basis in light of current practices. The Principles cover a wide range of topics, including voting for directors; board leadership structure; the selection of director nominees; director independence; annual self-evaluations of the Board and its Committees; conflicts of interest; charitable contributions to entities with which BDs executive officers and directors are affiliated, and other significant governance practices. The Principles are available on BDs website at www.bd.com/investors/corporate_governance/. Printed copies of the Principles may be obtained, without charge, by contacting the Corporate Secretary, BD, 1 Becton Drive, Franklin Lakes, New Jersey 07417-1880, phone 1-201-847-6800.
Board Leadership Structure
The Boards goal is to achieve the best board leadership structure for effective oversight and management of BDs affairs. The Board believes that there is no single, generally accepted approach to providing board leadership, and that each possible leadership structure must be considered in the context of the individuals involved and the specific circumstances facing a company. Accordingly, what the Board believes is the right board leadership structure may vary as circumstances warrant.
In connection with Vince A. Forlenzas appointment as Chief Executive Officer in October 2011, succeeding Edward J. Ludwig, Mr. Ludwig continued to serve as the Chairman of the Board during Mr. Forlenzas transition to his new role. Upon Mr. Ludwigs departure from the Board in June of this year, the Board appointed Mr. Forlenza to the additional role of Chairman. The Board believes it is in BDs best interests to have Mr. Forlenza also serve as Chairman, as this arrangement permits a clear, unified strategic vision for BD that ensures alignment between the Board and management, provides clear leadership for BD and helps ensure accountability for BDs performance. As the individual with primary responsibility for managing BDs day-to-day operations and with in-depth knowledge and understanding of BD, Mr. Forlenza is best positioned to lead the Board through reviews of key business and strategic issues.
At the same time, the role of Lead Director, currently being served by Henry P. Becton, Jr., allows the non-management directors to provide independent Board leadership and oversight of management. The Principles provide for the appointment of a Lead Director from among the independent directors whenever the Chairman is not independent. The responsibilities of the Lead Director include:
The Board believes having an independent Lead Director provides independent oversight of management, including risk oversight, while avoiding the risk of confusion regarding the Boards oversight responsibilities and the day-to-day management of the business. As such, this structure provides independent Board leadership and engagement, while deriving the benefit of having the Chief Executive Officer also serve as Chairman.
Boards Oversight of Risk
BDs management engages in a process referred to as enterprise risk management (ERM) to identify, assess, manage and mitigate a broad range of risks across BDs businesses, regions and functions and to ensure alignment of our risk assessment and mitigation efforts with BDs corporate strategy. The Audit Committee, through the authority delegated to it by the Board of Directors, is primarily responsible for overseeing BDs ERM activities to determine whether the process is functioning effectively and is consistent with BDs business strategy. At least twice a year, senior management reviews the results of its ERM activities with the Audit Committee, including the process used within the organization to identify risks, managements assessment of the significant categories of risk faced by BD (including any changes in such assessment since the last review), and managements plans to mitigate the potential exposures. On at least an annual basis, the significant risks identified through BDs ERM activities and the related mitigation plans are reviewed with the full Board. Often, particular risks are reviewed in-depth with the Audit Committee or the full Board at subsequent meetings.
In addition, the full Board reviews the risks associated with BDs strategic plan and discusses the appropriate levels of risk in light of BDs objectives. This is done through an annual strategy review process, periodically throughout the year as part of its ongoing review of corporate strategy, and otherwise as necessary. The full Board also regularly oversees other areas of potential risk, including BDs capital structure, acquisitions and divestitures, and succession planning for BDs Chief Executive Officer and other members of senior management.
The various Committees of BDs Board are also responsible for monitoring and reporting on risks associated with their respective areas of oversight. The Audit Committee oversees BDs accounting and financial reporting processes and the integrity of BDs financial statements, BDs processes to ensure compliance with laws, and its hedging activities and insurance coverages. The Compensation Committee oversees risks associated with BDs compensation practices and programs, and the Governance Committee oversees risks relating to BDs corporate governance practices, including director independence, related person transactions and conflicts of interest. In connection with its oversight responsibilities, each Committee often meets with members of management who are primarily responsible for the management of risk in their respective areas, including BDs Chief Financial Officer, Senior Vice PresidentHuman Resources, General Counsel, Senior Vice PresidentRegulatory Affairs, Chief Ethics and Compliance Officer and other members of senior management.
Risk Assessment of Compensation Programs
With respect to our compensation policies and practices, BDs management reviewed our policies and practices to determine whether they create risks that are reasonably likely to have a material adverse effect on BD. In connection with this risk assessment, management reviewed the design of BDs compensation and benefits programs (in particular our performance-based compensation programs) and related policies, potential risks that could be created by the programs, and features of our programs and corporate governance generally that help to mitigate risk. Among the factors considered were the mix of cash and equity compensation, and of fixed and variable compensation, paid to our associates; the balance between short- and long-term objectives in our incentive compensation; the performance targets, mix of performance metrics, vesting periods, threshold performance requirements and funding formulas related to our incentive compensation; the degree to which programs are formulaic or provide discretion to determine payout amounts; caps on payouts; our clawback and share ownership policies; and our general governance structure. Management reviewed and discussed the results of this assessment with the Compensation Committee. Based on this review, we believe that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on BD.
Director Nomination Process
The Governance Committee reviews potential director candidates and recommends nominees for director to the full Board for approval. In making its recommendations, the Committee assesses the overall composition of the Board, including diversity, age, skills, international background, and experience and prominence in areas of
importance to BD. The Board seeks to achieve among its directors a diversity of viewpoint, experience, knowledge, ethnicity and gender that fits the needs of the Board at that particular time.
When considering individual director candidates, the Governance Committee will seek individuals with backgrounds and qualities that, when combined with those of BDs other directors, provide a blend of skills and experience that will further enhance the Boards effectiveness. From time-to-time, the Governance Committee has retained an executive search firm to assist it in its efforts to identify and evaluate potential director candidates.
The Governance Committee believes that any nominee for director must meet the following minimum qualifications:
The Governance Committee assesses the characteristics and performance of incumbent director nominees against the above criteria as well, and, to the extent applicable, considers the impact of any change in the principal occupations of such directors during the last year. Upon completion of the individual director evaluation process, the Governance Committee reports its conclusions and recommendations for nominations to the full Board.
It is the Governance Committees policy to consider referrals of prospective nominees for the Board from other Board members and management, as well as shareholders and other external sources, such as retained executive search firms. The Governance Committee utilizes the same criteria for evaluating candidates irrespective of their source.
To recommend a candidate for consideration, a shareholder should submit a written statement of the qualifications of the proposed nominee, including full name and address, to the Corporate Secretary, BD, 1 Becton Drive, Franklin Lakes, New Jersey 07417-1880.
Significant Governance Practices
Described below are some of the significant corporate governance practices that have been instituted by the BD Board.
Annual Election of Directors
BDs directors are elected annually. The Board believes that annual elections of directors reflect a corporate governance best practice, as it provides shareholders the opportunity to express their views on the performance of the entire Board each year.
Voting for Directors
Under our By-Laws, in uncontested elections (where the number of nominees does not exceed the number of directors to be elected), nominees for director must receive the affirmative vote of a majority of the votes cast in order to be elected to the Board of Directors. Any incumbent director who fails to receive the requisite
affirmative vote is required to offer to submit his or her resignation to the Board following the shareholder vote. The Governance Committee will consider and recommend to the Board whether to accept the resignation offer. The Board will act on such recommendation and publicly disclose its decision within 90 days following the shareholder vote. This structure allows the Board the opportunity to identify and assess the reasons for the vote, including whether the vote is attributable to dissatisfaction with a directors overall performance or is the result of shareholder views on a particular issue, and enables it to avoid undesirable and disruptive governance consequences.
Each year the Board conducts a self-evaluation of its performance and effectiveness. As part of this process, each director completes an evaluation form on specific aspects of the Boards role, organization and meetings. The collective comments are then presented by the Chair of the Governance Committee to the full Board. As part of the evaluation, the Board assesses the progress in the areas targeted for improvement a year earlier, and develops actions to be taken to enhance the Boards effectiveness over the next year. The Boards evaluation covers many areas (a complete list is available on BDs website at www.bd.com/investors/corporate_governance). Additionally, each Committee conducts an annual self-evaluation of its performance through a similar process.
Equity Ownership by Directors
The Board believes that directors should hold meaningful equity ownership positions in BD. To that end, a significant portion of non-management director compensation is in the form of restricted stock units that are not distributable until a director completes his or her service on the Board. The Board believes these equity interests help to better align the interests of the non-management directors with shareholders. Under the Boards share ownership guidelines, each non-management director is required to own shares of common stock (which includes restricted stock units) valued at five times the annual cash retainer and must comply with the guidelines within three years of joining the Board.
Annual Report of Charitable Contributions
In furtherance of BDs commitment to good governance and disclosure practices, the Principles require that BDs charitable contributions or pledges in an aggregate amount of $50,000 or more (not including contributions under BDs Matching Gift Program) to entities with which BDs directors and their families are affiliated must be approved by the Governance Committee. In addition, BD is required by the Principles to post on its website, at www.bd.com/investors/corporate_governance/, an Annual Report of Charitable Contributions (the Contributions Report) listing all contributions and pledges made by BD to organizations affiliated with any director or executive officer during the preceding fiscal year in an amount of $10,000 or more. The Contributions Report, which BD has voluntarily issued since 2002, includes a discussion of BDs contributions philosophy and the alignment of BDs philanthropic activities with its philosophy, together with additional information about each contribution or pledge.
Under the oversight of the Audit Committee, BDs enterprise compliance function seeks to ensure that BD has policies and procedures designed to prevent and detect violations of the many laws, regulations and policies affecting its business, and that BD continuously encourages lawful and ethical conduct. Launched in 2005, BDs enterprise compliance function supplements the various compliance and ethics functions that are also in place at BD, and seeks to ensure better coordination and effectiveness through program design, prevention, and promotion of an organizational culture of compliance. A Compliance Committee comprised of members of senior management oversees the activities of the Chief Ethics and Compliance Officer. Another key element of this program is training. Courses offered include a global on-line compliance training program focused on BDs Code of Conduct, as well as other courses covering various compliance topics such as antitrust, anti-bribery, conflicts of interest, financial integrity, industry marketing codes and information security.
We have a policy that prohibits the expenditure of company assets for political campaigns without the express authorization of the Chief Executive Officer or Chief Financial Officer, compliance with company policies and all applicable laws, and clearance from BDs internal law department. Contributions outside the United States must also be approved by the relevant country leaders. In 2012, no corporate funds were used to support political campaigns. BDs general prohibition on the use of corporate funds for political campaigns extends to super PACs. We have also advised the major industry associations in which BD has membership that we do not authorize them to use any portion of our dues or other funds for super PACs or any other political campaign purpose.
Director Independence; Policy Regarding Related Person Transactions
Under the NYSE rules and our Principles, a director is deemed not to be independent if the director has a direct or indirect material relationship with BD (other than his or her relationship as a director). The Governance Committee annually reviews the independence of all directors and nominees for director and reports its findings to the full Board. To assist in this review, the Board has adopted director independence guidelines (Independence Guidelines) that are contained in the Principles. The Independence Guidelines set forth certain categories of relationships (and related dollar thresholds) between BD and directors and their immediate family members, or entities with which they are affiliated, that the Board, in its judgment, has deemed to be either material or immaterial for purposes of assessing a directors independence. In the event a director has any relationship with BD that is not addressed in the Independence Guidelines, the independent members of the Board review the facts and circumstances to determine whether such relationship is material. The Principles are available on BDs website at www.bd.com/investors/corporate-governance/. The Independence Guidelines are contained in Principle No. 7.
The Board has determined that the following nominees for director are independent under the NYSE rules and our Independence Guidelines: Basil L. Anderson, Henry P. Becton, Jr., Catherine M. Burzik, Edward F. DeGraan, Claire M. Fraser, Christopher Jones, Marshall O. Larsen, Adel A.F. Mahmoud, Gary A. Mecklenburg, James F. Orr, Willard J. Overlock, Jr., Rebecca W. Rimel, Bertram L. Scott and Alfred Sommer. The Board had also previously determined that Cathy E. Minehan, who had served on the Board up to last years annual meeting, was independent under the NYSE rules and the Principles. Vincent A. Forlenza is an employee of BD and, therefore, is not independent under the NYSE rules and the Principles.
In determining that each of the nominees is independent, the Board reviewed BDs transactions or other dealings with organizations with which a director may be affiliated. Such affiliations included service by the director or an immediate family member as an officer, employee, or member of a governing or advisory board. In conducting its review, the Board determined that, in each instance, the nature of the relationship, the degree of the directors involvement with the organization and the amount involved would not impair the directors independence under the Independence Guidelines. In addition, in most instances, the director played no active role in the organizations relationship with BD, and, in some instances, the relationship involved a unit of such organization other than the one with which the director is involved. Accordingly, the Board determined that none of these relationships was material or impaired the directors independence or judgment.
The types of transactions with director-affiliated organizations considered by the Board consisted of payments related to the purchase or sale of products and/or services (in the cases of Anderson, Becton, Burzik, Fraser, Jones, Larsen, Mecklenburg, Minehan, Orr, Overlock, Scott, and Sommer), the licensing of intellectual property rights (in the cases of Fraser, Mahmoud and Sommer) and charitable contributions (in the cases of Jones, Overlock and Sommer).
The Board has also established a written policy (the Policy) requiring Board approval or ratification of transactions involving more than $120,000 per year in which a director, executive officer or shareholder owning more
than 5% of BDs stock (excluding certain passive investors) or their immediate family members has, or will have, a material interest. The Policy is available on BDs website at www.bd.com/investors/corporate_governance/. The Policy excludes certain specified transactions, including certain charitable contributions, transactions available to associates generally, and indemnification and advancement of certain expenses. The Governance Committee is responsible for the review and approval or ratification of transactions subject to the Policy. The Governance Committee will approve or ratify only those transactions that it determines in its business judgment are fair and reasonable to BD and in (or not inconsistent with) the best interests of BD and its shareholders, and that do not impact the directors independence.
During fiscal year 2012, BD paid affiliates of State Street Corporation (State Street), a holder of more than 5% of BD common stock, $870,000 for banking services and investment management of various 401(k) funds. These transactions were not required to be approved under the Policy, since State Street is considered a passive investor in BD.
Code of Conduct
BD maintains a Code of Conduct (the Code) that is applicable to all directors, officers and associates of BD, including its Chief Executive Officer, Chief Financial Officer, principal accounting officer and other senior financial officers. It sets forth BDs policies and expectations on a number of topics, including conflicts of interest, confidentiality, compliance with laws (including insider trading laws), preservation and use of BDs assets, and business ethics. The Code also sets forth procedures for the communicating and handling of any potential conflict of interest (or the appearance of any conflict of interest) involving directors or executive officers, and for the confidential communication and handling of issues regarding accounting, internal controls and auditing matters.
BD also maintains an Ethics Help Line telephone number (the Help Line) for BD associates as a means of raising concerns or seeking advice. The Help Line is serviced by an independent contractor and is available to all associates worldwide. Associates using the Help Line may choose to remain anonymous and all inquiries are kept confidential to the extent practicable in connection with investigation of an inquiry. All Help Line inquiries are forwarded to BDs Chief Ethics and Compliance Officer for investigation. The Audit Committee is informed of any matters reported to the Chief Ethics and Compliance Officer, whether through the Help Line or otherwise, involving accounting, internal control or auditing matters, or any fraud involving management or persons who have a significant role in BDs internal controls.
The Chief Ethics and Compliance Officer leads the BD Ethics Office, which administers BDs ethics program. In addition to the Help Line, the ethics program provides for broad communication of BDs Core Values, associate education regarding the Code and its requirements, and ethics training sessions.
Any waivers from any provisions of the Code for executive officers and directors will be promptly disclosed to shareholders. In addition, certain amendments to the Code, as well as any waivers from certain provisions of the Code given to BDs Chief Executive Officer, Chief Financial Officer or principal accounting officer, will be posted at the website address set forth below.
The Code is available on BDs website at www.bd.com/investors/corporate_governance/. Printed copies of the Code may be obtained, without charge, by contacting the Corporate Secretary, BD, 1 Becton Drive, Franklin Lakes, New Jersey 07417-1880, phone 1-201-847-6800.
REPORT OF THE COMPENSATION AND BENEFITS COMMITTEE
The primary objective of the BD compensation program is to fully support the strategic business goal of delivering superior long-term shareholder returns through sustained revenue growth, EPS growth, return on capital and other metrics. As such, we intend to ensure a high degree of alignment between pay and the long-term value and financial soundness of BD. The Compensation and Benefits Committee of the Board of Directors (the Committee) has established the following compensation principles to meet this objective:
The Committee has reviewed and discussed the Compensation Discussion and Analysis with management, and, based on such review and discussions, has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in BDs Annual Report on Form 10-K for the year ended September 30, 2012 and in this proxy statement.
COMPENSATION AND BENEFITS COMMITTEE
Edward F. DeGraanChair
Basil L. Anderson
Marshall O. Larsen
James F. Orr
Willard J. Overlock, Jr.
Bertram L. Scott
COMPENSATION DISCUSSION AND ANALYSIS
This section discusses our executive compensation program and the compensation actions taken with respect to the executive officers named in the Summary Compensation Table on page 39. We sometimes refer to these individuals as the named executive officers or NEOs. Mr. Elkins, who served as BDs Executive Vice President and Chief Financial Officer during fiscal year 2012, resigned from BD effective November 9, 2012.
All references in this section to years are references to our fiscal year, which ends on September 30, unless otherwise noted.
This section includes a discussion of performance targets in the limited context of our executive compensation program. These targets are not statements of managements expectations of our future results or other guidance. Investors should not use or evaluate these targets in any other context or for any other purpose.
Overview of our compensation program
Our goal is to provide an executive compensation program that best serves the long-term interests of our shareholders. We believe that attracting and retaining superior talent is a key to delivering long-term shareholder returns, and that a competitive compensation plan is critical to that end. Therefore, we intend to provide a competitive compensation package to our executives that ties a significant portion of pay to performance and utilizes components that align the interests of our executives with those of BDs shareholders.
The following is a summary of important aspects of our executive compensation program discussed later in this section.
Overview of 2012 operating performance and executive compensation
BD delivered solid results in 2012, driven by strong growth in safety-engineered device sales and in emerging markets. Similar to 2011, the medical device industry continued to face difficult macroeconomic conditions that adversely affected our underlying growth and profitability during the year. These conditions
continued to put downward pressure on healthcare utilization in Western Europe and the U.S. and increased pricing pressure for certain products in our Medical segment. Our Biosciences segment was also unfavorably impacted in developed markets by an uncertain academic research spending environment for high-end instruments and increased competitiveness in research reagents.
Despite these ongoing challenges, management continued to execute on BDs strategy and delivered solid results for the year. Highlights of our performance include:
Based on BDs performance, BDs revenues were slightly above the revenue target and its EPS was at 98% of the EPS target for the year under the PIP, which resulted in available funding for PIP awards at 97% of target. The PIP awards made to our named executive officers, as a percentage of their target awards, were generally in line with this funding factor. In addition, the lower revenue growth BD experienced during the 2010-2012 fiscal years relative to the Performance Unit targets for that period resulted in there being no payout of the Performance Units covering the 2010-2012 performance cycle, continuing a trend over the last four performance cycles of below-target payouts for these awards. Consistent with our past practice, equity compensation represented a significant component of compensation in 2012. The increase in the equity compensation for Mr. Forlenza from 2011 was due to his election as Chief Executive Officer at the beginning of the fiscal year. The other increases in equity compensation paid to NEOs were based on performance, increased responsibilities assumed during the year and/or to align award values with market practices.
Objectives of Our Executive Compensation Program
The objectives of our executive compensation program include:
Offering competitive compensation. We seek to offer a competitive compensation package that helps us attract and retain our executives.
Linking compensation to performance. We seek to implement a pay-for-performance philosophy by tying a significant portion of pay to financial and other goals that support long-term shareholder value.
Aligning executives with our shareholders. We seek to align the interests of our executives with those of our shareholders through equity compensation and share ownership guidelines.
The Process for Setting Executive Compensation
The role of the Compensation Committee, its consultant and management
The Compensation Committee oversees the compensation program for the named executive officers and our other executive officers. The Compensation Committee is assisted in fulfilling its responsibilities by its independent consultant, Pay Governance LLC (Pay Governance), and BDs senior management. Additional information about our process for setting executive compensation, including the role of Pay Governance and management, may be found on pages 11-12. In order to maintain the independence of its outside consultant, the Compensation Committee has established a policy that prohibits its consultant from performing any services for BD or BDs management without the Compensation Committees prior approval. In accordance with this policy, Pay Governance did not perform services for BD or its management in 2012.
Approximately 95% of the shares voted last year were cast in support of BDs advisory vote on executive compensation. The Compensation Committee viewed the results of this vote as general broad shareholder support for our executive compensation program. Based on this result and our ongoing review of our compensation policies and decisions, we believe that our existing compensation program effectively aligns the interests of our named executive officers with the long-term goals of BD.
The use of market comparison data
The Compensation Committee considers a number of factors in structuring our program and making compensation decisions. This includes the compensation practices of select peer companies in the healthcare industry, which we refer to as the Comparison Group. These companies were chosen by the Compensation Committee after considering the recommendations of Pay Governance and management, and were selected because they have significant lines of business that are similar to BDs. The Compensation Committee believes that reference to the Comparison Group is appropriate when reviewing BDs compensation program because it believes we compete with these companies for executive talent. The Compensation Committee reviews the composition of the Comparison Group at least annually. The companies in the Comparison Group for 2012 were:
Abbott Laboratories, Johnson & Johnson and Roche Diagnostics are included in the Comparison Group in order to increase the number of comparable positions for which compensation data is gathered when reviewing the compensation of Messrs. Kozy and Cohen. Compensation data from these three companies was not considered by the Compensation Committee when reviewing the compensation of Messrs. Forlenza, Elkins and Sherman.
The table below sets forth revenue and market capitalization information regarding the Comparison Group:
The Compensation Committee attempts to set the compensation of our executive officers at levels that are competitive with the companies listed above, and uses market comparison data regarding these companies as a guide. The Compensation Committee estimates the median salary, annual cash incentive and long-term equity compensation (and the combined total of these elements) of persons holding the same or similar positions at the companies listed above, based on the most recent market data available. The Compensation Committee then generally seeks to set the compensation of our executive officers for each of these elements within a competitive range of the median, assuming payout of performance-based compensation at target. An executives actual compensation may vary from the target amount set by the Compensation Committee based on the individuals and BDs performance and changes in our stock price. The use of market comparison data, however, is just one of the tools the Compensation Committee uses to determine executive compensation, and the Compensation Committee retains the flexibility to set target compensation at levels it deems appropriate for an individual or for a specific element of compensation. The Compensation Committee believes that the target compensation set for the named executive officers in 2012 was competitive with median levels, except that Mr. Forlenzas salary and equity compensation were set towards the lower end of the range for CEOs at the Comparison Group companies used for comparison purposes, due to the fact that he was new to the position in 2012.
Because the Compensation Committee reviews each compensation element individually, compensation decisions made with respect to one element of compensation generally do not affect decisions made with respect to other elements. It is also for this reason that no specific formula is used to determine the allocation between cash and equity compensation, although it is the Compensation Committees intent that equity compensation represent the largest percentage in terms of target value of total target compensation. In addition, because an executives compensation target is set by reference to persons with similar duties at the Comparison Group companies, the Compensation Committee does not establish any fixed relationship between the compensation of our CEO and that of the other named executive officers.
The use of tally sheets
The Compensation Committee is from time-to-time provided a tally sheet report prepared by management for each named executive officer. The tally sheet includes, among other things, total annual compensation, the value of unexercised or unvested equity compensation awards, and amounts payable upon termination of employment under various circumstances, including retirement or following a change of control. The Compensation Committee uses tally sheets to provide perspective on the wealth the executives have accumulated from prior equity awards and plan accruals and their retentive value, consider any changes to our program that may be appropriate (including the mix of compensation elements), and provide additional context for their compensation decisions.
Our emphasis on pay-for-performance
While we do not use a specific formula to determine the mix of performance-based and fixed compensation, PIP awards and performance-based long-term equity compensation represent a significant portion of the compensation paid to our named executive officers. (We view PIP awards, Performance Units and SARs as performance-based pay for this purpose.) In 2012, 73% of Mr. Forlenzas target compensation and an average of 68% of the target compensation of the other named executive officers was performance-based and not guaranteed.
2012 Total Target Compensation
The above charts are based on the target values of performance-based compensation. Actual amounts received (and the percentage of total compensation coming from performance-based compensation) may differ based on actual performance and BDs stock price.
How BD measured performance in 2012
The goal of our compensation program is to provide incentives for management to deliver near-term and long-term performance. The vehicle for rewarding near-term performance is the PIP. For 2012, the Compensation Committee evaluated performance under this plan based primarily on BDs EPS for the year. The Compensation Committee used EPS because it is the primary basis on which BD sets performance expectations for the year and it is a widely-used measure of overall company performance. However, because the Compensation Committee believes sustained revenue growth is necessary to create long-term shareholder value, it also set a revenue target for the year, although not weighted as heavily as EPS.
The vehicle for rewarding long-term performance is equity compensation, including Performance Units. The Compensation Committee evaluates long-term performance based on how well BD is executing on its strategy for profitable growth. For the Performance Units granted in 2012, the two metrics the Compensation Committee used to measure performance were long-term revenue growth and return on invested capital (ROIC), which measures profitability and how effectively company assets are being used. These two metrics require the named executive officers to effectively manage a number of different aspects of the business, including new product introductions, productivity improvements and expansion into geographic markets.
The other way equity compensation is tied to our long-term performance is its linkage to the BD stock price. We believe that sustained performance should, over time, result in the creation of long-term shareholder value and be reflected in our stock price. If the named executive officers are not successful in creating this shareholder value, the value of their equity compensation will be reduced.
When setting performance targets for the PIP and Performance Units, the Compensation Committee considers the environment in which BD is operating. As discussed before, the global economy generally, and the healthcare industry specifically, has been facing very challenging conditions over the last several years. The Compensation Committee seeks to reward what it deems to be superior performance by management in light of the economic conditions and growth trends in the markets BD serves, and sets what it believes are reasonably achievable performance targets for BD at the time. The Compensation Committee also structures these plans so that payouts are aligned with BDs performance against these targets. For instance, as discussed further below, a 1% shortfall in performance against a PIP performance measure target would result in a 2.5% decrease in funding with respect to that measure. Likewise, a 1% shortfall in performance against the revenue growth target set under the Performance Units we issued in 2012 would reduce the payout of the awards by 12%.
Changes to performance-based compensation for 2013
Previously, BDs compensation programs have been focused on key financial indicators of operating success, including revenue growth, EPS and ROIC. Over the past few years, our industry has changed and become more challenging based on a variety of factors. Looking ahead, we believe the strategic objectives for BD will include not only revenue growth, EPS and ROIC, but also operational efficiency, which frees up funds that BD can use to invest in its future. Therefore, it will be important that going forward, our compensation program reinforce and reward behaviors that support a balance of growth, profitability and operating efficiency. In addition, given the current market conditions, we believe it is important to incorporate a measure of BDs performance that relates BDs performance to peer companies facing these same market conditions.
With this in mind, during 2012, the Compensation Committee, with input and recommendations from Pay Governance and management, conducted a review of BDs annual and long-term incentive compensation to identify ways to improve the overall design of our executive compensation program. Based on this evaluation, the Compensation Committee approved the following changes for 2013.
PIP. Free cash flow as a percentage of sales will be added as a third performance metric, in addition to the existing revenue and EPS metrics. EPS will be weighted 50%, and the revenue and free cash flow metrics will each be weighted 25%. Free cash flow means cash flow from our operating activities, less capital expenditures and capitalized software. The free cash flow as a percentage of sales metric was added because efficient use of cash is an important driver of our ability to fund ongoing product development and innovation, a key strategic priority for BD. Adding this free cash flow metric also provides for a more balanced set of performance targets that focus on both profitability and operating efficiency.
Equity Compensation. The Compensation Committee changed the performance metrics for the Performance Units issued in 2013, replacing revenue growth with relative total shareholder return (TSR). Relative TSR measures BDs stock performance (assuming reinvestment of dividends) during the performance period against that of peer companies. Relative TSR and ROIC will both be weighted 50% in determining Performance Unit payouts. The Compensation Committee chose relative TSR as a new performance metric because it allows payouts to be based on how BDs performance, as reflected in our stock price over time, compares to peer companies facing similar business conditions, and it is directly tied to shareholder outcomes. A majority of Comparison Group companies that include performance-based stock units in their equity compensation use relative TSR as a performance metric.
Our risk analysis of performance-based compensation
While a significant portion of executive compensation is performance-based, we do not believe that our program encourages excessive or unnecessary risk-taking. While risk-taking is a necessary part of operating and growing a business, the Compensation Committee focuses on aligning BDs compensation policies with our long-term strategy and attempts to avoid short-term rewards for management decisions that could pose long-term risks to BD. This includes:
The Key Elements of Our Compensation Program
The key elements of our executive compensation program are summarized in the table below.
The Compensation Committee believes this combination of cash and equity compensation furthers the objectives of our executive compensation program. Based on prevailing market practices, the Compensation Committee believes this mix of salary, annual cash incentive and equity compensation offers a competitive compensation package to our executives. This structure also promotes our pay-for-performance philosophy by linking pay levels to both our near-term performance (through PIP awards) and long-term performance (through equity compensation). A significant portion of compensation is also provided through equity compensation awards, which align the interests of the executives with our shareholders, promote executive retention and reward the creation of shareholder value.
How PIP Payments and Equity Compensation Are Awarded
The PIP provides our executives an opportunity to receive a cash award for BDs performance for the fiscal year and their contribution to that performance, as part of our pay-for-performance philosophy.
Target awards. Target PIP awards for the named executive officers are expressed as a percentage of base salary earned during the year. The Grants of Plan-Based Awards in Fiscal Year 2012 table on page 41 shows the range of possible awards under the PIP, based on certain assumptions.
The factors the Compensation Committee considers when setting PIP awards include BDs overall performance for the year compared to the performance targets and the level of available funding (discussed below), as well as the executives target award and performance. CEO performance is measured against the performance goals for the year established by the Board. For the other named executive officers, the CEO provides an assessment to the Compensation Committee of how those executive officers performed against the performance objectives set for the businesses or functions they oversee. In each case, the performance objectives for a named executive officer involve a combination of quantitative and qualitative goals. However, no specific formula or weighting of individual performance objectives is used to determine a named executive officers PIP award, nor is the achievement of any particular individual performance objective a condition to receiving an award. Instead, the Compensation Committee uses its business judgment to determine the appropriate PIP award to recognize BDs performance and the executives contribution.
Performance targets. Available funding for PIP awards is based on how BD performs during the year against the performance targets set by the Compensation Committee. For 2012, these included EPS and revenue targets, with EPS performance weighted 75% and revenue performance weighted 25%. The EPS and revenue targets were based on BDs business plan for the fiscal year. Revenues for the year are measured after eliminating the estimated effects of foreign currency translation so that only BDs underlying performance is considered.
As previously discussed, we use EPS as a performance target because it is the primary basis on which we set our performance expectations for the year and EPS is a widely-used measure of overall company performance. For this reason, EPS is more heavily weighted than revenues. The revenue target was added to increase managements focus on achieving strong top-line growth, consistent with our business strategy. We believe that consistent EPS and revenue growth will result in the creation of long-term shareholder value. We also use these targets because they are clear, measurable and easy for our associates to understand.
Funding for PIP awards is determined by a formula. For both EPS and revenues, the Compensation Committee measures how BD performed against the target goal to arrive at a funding factor. For every 1% of performance above target for one of the measures, funding increased 5%, and for every 1% below target, funding decreased 2.5%. Performance below 90% of target would have resulted in no funding for that particular performance measure. The performance factors for both measures are then weighted, as described above, to arrive at a final funding amount. In the Compensation Committees discretion, actual awards, as a percentage of a named executive officers target, may be more or less than the overall funding factor.
When comparing BDs operating results against the performance targets, the Compensation Committee has the discretion to adjust BDs results to account for acquisitions and divestitures, and for items that are not considered part of our ordinary operations. This ensures that management makes decisions based on the best interests of BD, rather than the possible effects on compensation. This discretion is also used to make sure our executives are not unfairly penalized or benefitted by these types of events.
Long-term equity compensation
The equity compensation awards made to the named executive officers in 2012 consisted of SARs, Performance Units and TVUs. A description of each type of award is on page 42. TVUs were added in 2012 to reduce the volatility in amounts realized from equity compensation that can arise when purely performance-based equity compensation is used. The Compensation Committee uses this mix of equity vehicles to promote the objectives of our program. SARs are intended to reward the executives for the creation of shareholder value over the term of the award. Performance Units are intended to reward the named executive officers for sustained long-term performance, regardless of movements in our stock price. All three types of awards align the interests of our executives with our shareholders and help promote executive retention.
How equity awards are determined. The Compensation Committee determines the grant date dollar value of the award to be made to each named executive officer based on market compensation comparison data and individual performance. SARs, Performance Unit and TVU awards are then made, with SARs and Performance Units each making up approximately 40% of the total award value, and TVUs the remaining 20%. Performance Units and TVUs are valued at grant based on a 20-day average stock price, while SARs are valued using an option valuation model that uses certain assumptions, such as stock volatility, dividend yield and the expected life of the SARs. The values given to equity compensation awards by the Compensation Committee are only estimates and are not intended to be predictive of the actual value that will be realized from the awards.
Performance Unit targets. The performance measures used for the Performance Units granted in 2012 were average annual revenue growth and average annual ROIC, with each weighted 50%. In setting revenue growth and ROIC targets, the Compensation Committee considered BDs business plan at the time of the grant and what the Compensation Committee believed was a reasonable range of performance over the performance period, as well as economic trends in the segments in which we operate. The Compensation Committees goal is to set challenging but achievable targets. As we discussed earlier, revenue growth and ROIC were used as performance metrics because they are directly tied to our long-term growth strategy. As with the PIP, revenues are measured after eliminating the estimated effect of foreign currency translation so that only underlying performance is counted.
Performance Unit awards are given a share target. The actual number of shares issued is determined by a grid, and can range anywhere from zero (if BD fails to meet the minimum performance threshold for both revenue growth and ROIC) to 200% of the share target (if BD meets or exceeds the maximum performance threshold for both revenue growth and ROIC). In determining payouts, the Compensation Committee has the discretion to adjust BDs operating results to account for events that occur during the performance period, similar to its discretion under the PIP.
Below is a discussion of compensation actions taken with respect to the named executive officers.
The base salaries of the named executive officers are reviewed each November, and any adjustments go into effect on January 1 of the following calendar year. In connection with Mr. Forlenzas election as Chief Executive Officer, his salary was increased from $750,000 to $900,000, effective October 1, 2011. Mr. Kozy received an approximate 11% increase in salary to account for additional duties he assumed in his role as Executive Vice President, including oversight of our three business segments. Mr. Kozy received the additional title of Chief Operating Officer in November 2012. The salary increases of the other named executive officers were in-line with salary increases at BD generally.
The threshold performance, target performance and maximum performance under the PIP for 2012, along with BDs performance during the year (adjusted as described below), were as follows:
Reported EPS for the year was $5.30. In reviewing BDs EPS performance against the performance target, the Compensation Committee used its discretion to eliminate the $0.04 per share dilution from our Kiestra and Sirigen acquisitions (which were not budgeted for the year) and the $0.06 per share charge BD took during the year relating to pension settlements, since it did not relate to BDs underlying performance. This resulted in adjusted EPS of $5.41 (adjusted for rounding). Revenues from those acquisitions were also excluded from the revenues for the year. Under the PIP funding formula, this performance resulted in funding for awards at 97% of target.
The following table shows the PIP awards granted for 2012. These awards are also set forth in the Summary Compensation Table on page 39 under the heading Non-Equity Incentive Plan Compensation.
The PIP awards made to the named executive officers, as a percentage of their target awards, were generally in-line with the PIP funding factor, and where they did exceed the factor, did not do so by more than 5%. In making these awards, the Compensation Committee considered a number of factors, including individual contributions to BDs performance for the year. Despite the continuing industry challenges in the medical device industry, BD exceeded its revenue goal and substantially met its EPS goal under the PIP, while still maintaining its level of investment in research and development and emerging markets. BDs performance also reflected managements continued progress on growth initiatives intended to position BD for long-term success, including a number of new product launches during the year and expanding our presence in emerging markets. In addition, BD executed on its strategy to supplement internal growth with strategic acquisitions by completing the Kiestra and Sirigen transactions. Management also completed the initial rollout of BDs enterprise resource planning system upgrade and took other steps toward improving operating efficiency, including the opening of new shared service centers to reduce overhead expense.
Equity compensation awards
The Compensation Committee made the equity compensation awards to the named executive officers shown on page 41. The increase in equity compensation for Mr. Forlenza compared to 2011 was in connection with his election as BDs Chief Executive Officer at the beginning of 2012. The other changes in equity-based compensation paid to NEOs were based on performance and to align award values with market practices, and, in the case of Mr. Kozy, to reflect an increase in responsibilities.
The Performance Units included in these awards cover the 2012-2014 performance period. The target revenue growth for these awards is 4.3% and target ROIC is 24%. The Compensation Committee believes the revenue growth target for these awards represents a challenging goal for management given the economic climate BD continues to operate in and its expected impact on BDs operating results.
Payout of prior Performance Unit awards
2009-2011 performance period
In November 2011, Performance Units covering the 2009-2011 performance period vested. These awards had performance targets of 8.5% currency-neutral revenue growth and 31% ROIC. Our adjusted revenue growth and ROIC over the performance period were 4.5% and 29%, respectively. This resulted in a payout of these awards at 20% of the share target. In determining the payout, the Compensation Committee used its discretion to
eliminate the effects of acquisitions and divestitures, and a charge relating to the pending settlement of certain antitrust cases, since this settlement did not relate to BDs underlying performance. These adjustments increased the payout from 15% to 20%.
2010-2012 performance period
In November 2012 (fiscal year 2013), Performance Units covering the 2010-2012 performance period vested. These awards had performance targets of 7% currency-neutral revenue growth and 32% ROIC. Our revenue growth and ROIC over the performance period were 3.9% and 27.2%, respectively. Based on our results over the performance period, there was no payout for these awards.
Performance Unit payout trend
As was stated earlier, BD has been operating in a challenging economic environment the last several years. The impact of global economic conditions on BDs revenue growth and ROIC has been reflected in Performance Unit payouts over this period, with the last four payouts being 77%, 44% and 20% of target for the 2007-2009, 2008-2010 and 2009-2011 performance cycles, respectively, and no payout for 2010-2012. We believe BDs revenue growth over this time reflects slower growth in the medical technology industry generally as a result of these macroeconomic conditions, rather than weaker growth of BD relative to industry trends. However, we believe these payouts demonstrate a high degree of alignment between pay and BDs performance against the preset targets, as shown in the table below.
These reduced Performance Unit payouts have resulted in significant differences between the original grant date value of these awards and the amounts actually realized by the named executive officers, as shown below for the last three payouts.
Note: Realized values are determined based on the closing BD stock price on the vesting date and include deemed dividend reinvestment during the vesting period. Mr. Elkins first Performance Unit award was made in 2010 for the 2010-2012 period.
Other Benefits Under Our Executive Compensation Program
Mr. Forlenza is encouraged to use BD aircraft for his personal and business travel in order to make more efficient use of his travel time, for personal security and to reduce business continuity risk. Mr. Forlenza entered into a time-sharing arrangement with BD under which he makes payments to BD for his personal use of BD aircraft. Mr. Forlenza did not take any personal flights on BD aircraft in 2012.
Our Deferred Compensation and Retirement Benefit Restoration Plan is an unfunded, nonqualified plan that, among other things, allows eligible associates to defer receipt of cash compensation and shares issuable under certain equity compensation awards. The plan is offered to our eligible associates as part of a competitive compensation program. It gives eligible associates the opportunity to defer compensation on a pre-tax basis in addition to what is allowed under our tax-qualified 401(k) plan. We do not provide any guaranteed earnings on amounts deferred by the named executive officers. Earnings on these accounts are based on their individual investment elections. BD provides matching contributions on cash amounts deferred under the plan, subject to certain limits. A more complete description of the deferred compensation provisions of the plan begins on page 47.
We offer retirement benefits for all of our U.S. associates. Because the Internal Revenue Code limits the maximum annual benefit that may be paid to an individual under our qualified Retirement Plan, we provide additional retirement benefits through our nonqualified Deferred Compensation and Retirement Benefit Restoration Plan. Together, these plans are designed to provide a market-competitive level of income replacement for our retirement-eligible associates, reduce associate turnover and contribute towards a competitive compensation package. The named executive officers participate in these plans on the same basis as all eligible associates. We do not include the value of equity compensation in calculating pension benefits. A more complete description of our pension benefits begins on page 45.
Change of control agreements
We have entered into agreements with our named executive officers relating to their employment following a change of control. This agreement provides the executive with continued employment for a period of two years following a change of control of BD, and provides certain benefits to the executive in the event his employment is terminated without cause or he leaves his employment for good reason (also known as a constructive termination) during this period. Generally, these benefits include a severance payment equal to a multiple of the executives salary and PIP award, and certain other benefits. A more complete description of the terms and potential payouts of our change of control agreements begins on page 50.
General purpose. Our change of control agreements are intended to retain the executives and provide continuity of management in the event of an actual or potential change of control of BD. These change of control benefits are reviewed from time-to-time by the Compensation Committee to ensure that they are consistent with our compensation objectives and market practices. Based on information provided by Pay Governance, change of control arrangements are used by a substantial majority of the companies in the Comparison Group, and the terms of our agreements, including the severance multiple, are consistent with the prevailing practices at those companies. The Compensation Committee believes the benefits provided under these agreements are appropriate and are consistent with our objective of attracting and retaining highly qualified executives.
Triggering events. Our agreements contain a double triggerthat is, there must be a change of control of BD and a termination of the executives employment in order for any payments to be made. We opted for a double-trigger, rather than a single trigger that provides for severance payments solely on the basis of a change of control, since a double trigger is consistent with the purpose of encouraging the continued employment of the executive following a change of control.
Tax reimbursement payments. In certain instances, payments made to a named executive officer on account of his termination may be subject to a 20% excise tax. To offset the effect of the excise tax, we will reimburse the named executive officer for the excise tax. We provide for these payments because they allow an executive to recognize the full intended economic benefit of his agreement and eliminate unintended disparities between executives that the excise tax can arbitrarily impose, owing to the particular structure of this tax
provision. However, while we believe these tax reimbursement provisions serve a valid purpose, in light of trends in executive compensation practices, any new change of control agreements that we enter into with our executive officers will not contain these provisions.
Other change of control provisions
Upon a change of control, all outstanding equity compensation awards granted to our associates, including the named executive officers, immediately vest. Unlike the double trigger discussed above, no termination of employment is required for the accelerated vesting of the awards. This single-trigger vesting provides our associates with the same opportunity as our shareholders to realize the value created by the transaction.
Significant Policies and Additional Information Regarding Executive Compensation
Recovery of prior compensation
We have a policy that gives the Board the discretion to require a member of the BD Leadership Team to reimburse BD for any PIP award or Performance Unit payout that was based on financial results that were subsequently restated as a result of that persons misconduct. The Board also has the discretion to cancel any equity compensation awards (or recover payouts under such awards) that were granted to such person with respect to the restated period, and require the person to reimburse BD for any profits realized on any sale of BD stock occurring after the public issuance of the financial statements that were subsequently restated. The BD Leadership Team consists of 57 members of senior management, and includes the named executive officers.
The policy also gives the Board the authority to require those members of the BD Leadership Team who were not involved in the misconduct to reimburse BD for the amount by which their PIP award or Performance Unit payouts exceeded the amount they would have received based on the restated results.
Share retention and ownership guidelines
In order to increase executive share ownership and promote a long-term perspective when managing our business, our share retention and ownership guidelines require the named executive officers and other members of the BD Leadership Team to retain, in shares of BD stock, 75% of the net after-tax proceeds from any equity compensation awards until the person achieves the required ownership level. The required ownership levels are as follows:
Shares held directly, shares held indirectly through our 401(k) plan and deferred compensation plan, and time-vested restricted stock units are included in determining a persons share ownership. Messrs. Forlenza, Kozy, Cohen and Sherman each have holdings in excess of his ownership requirement. We have a policy that prohibits our associates from pledging BD shares or engaging in options, puts, calls or other transactions that are intended to hedge against the economic risk of owning BD shares.
Timing of equity award grants
The Compensation Committee has adopted a policy that prohibits the backdating of any equity compensation award and requires our annual equity compensation awards and any off-cycle awards approved by our CEO to be made on fixed dates. The policy also prohibits manipulating the timing of either the public release of information or the grant of an award in order to increase the value of the award. Under the policy, the exercise price of any stock option or SAR award will be the closing price of BD stock on the grant date.
Section 162(m) of the Internal Revenue Code precludes BD from taking a federal income tax deduction for compensation paid in excess of $1 million to a named executive officer. This limitation does not apply, however, to performance-based compensation. While the Compensation Committee generally attempts to preserve the deductibility of compensation paid to the named executive officers, the Compensation Committee believes the primary purpose of our compensation program is to support BDs business strategy and the long-term interests of our shareholders. Therefore, the Compensation Committee maintains the flexibility to award compensation that may be subject to the limits of Section 162(m) if doing so furthers the objectives of our executive compensation program.
COMPENSATION OF NAMED EXECUTIVE OFFICERS
The following table shows the compensation provided by BD to each of the named executive officers.
2012 SUMMARY COMPENSATION TABLE
PensionAmounts shown are the aggregate changes in the actuarial present value of accumulated benefits under our defined benefit pension plans (including our restoration plan). These amounts represent the difference between the present value of accumulated pension benefits at normal retirement age (or, in the case of Messrs. Forlenza and Kozy, the earliest date they can retire without any reduction in benefits) at the beginning and end of the fiscal year. Information regarding our pension plans begins on page 45. BDs pension plans allow for early retirement without any reduction in benefits if a participants combined age and years of service reach a certain amount.
Deferred CompensationEarnings on nonqualified deferred compensation are not included in this column, since no named executive officer earned above-market or preferential earnings on nonqualified deferred compensation during the fiscal years shown. Information on the named executive officers nonqualified deferred compensation accounts is on page 48.
The following is a description of these benefits:
INFORMATION REGARDING PLAN AWARDS IN FISCAL YEAR 2012
Set forth below is information regarding awards granted to the named executive officers in fiscal year 2012. The non-equity incentive awards were made under the BD Performance Incentive Plan. The equity awards were made under BDs 2004 Employee and Director Equity-Based Compensation Plan.
Grants of Plan-Based Awards in Fiscal Year 2012
PIP = Performance Incentive Plan
TVU = Time-Vested Unit
PU = Performance Unit
SAR = Stock Appreciation Right
Description of Awards
Performance Incentive Plan
The BD Performance Incentive Plan (PIP) provides an opportunity for annual cash incentive payments to eligible associates. A more detailed discussion of the PIP and the performance targets established under the PIP for fiscal year 2012 appears in the Compensation Discussion and Analysis section of this proxy statement. Total awards to BDs executive officers may not, in the absence of special circumstances, exceed 3% of our reported after-tax net income for the fiscal year.
Equity Compensation Awards
Performance Units. Performance Units are performance-based restricted stock units that vest three years after grant. The potential payouts under these awards range from zero to 200% of the awards share target. The actual payout will be based on BDs performance against the performance targets over the three-year performance period covering fiscal years 2012-2014. The performance goals are established at the beginning of the performance period and include an average annual revenue growth target of 4.3% (after excluding the effects of foreign currency translation) and an average return on invested capital target of 24%. Performance Units were issued in tandem with dividend equivalent rights (see below). Performance Units are not transferable, and holders may not vote shares underlying the award until the shares have been distributed.
Time-Vested Units. A Time-Vested Unit (TVU) is a restricted stock unit that represents the right to receive one share of BD common stock upon vesting. TVUs vest three years after grant. TVUs were issued in tandem with dividend equivalent rights (see below). TVUs are not transferable, and holders may not vote shares underlying the award until the shares have been distributed.
Stock-Settled Stock Appreciation Rights. A stock appreciation right (SAR) represents the right to receive, upon exercise, shares of BD common stock equal in value to the difference between the market price of BD common stock at the time of exercise and the exercise price. SARs have a ten-year term, and become exercisable in four equal annual installments, beginning one year following the grant date.
Dividend Equivalent Rights. Performance Units and TVUs are issued in tandem with dividend equivalent rights. Under these rights, the awards accrue dividend equivalents each time BD pays a dividend, which are deemed to be reinvested in BD shares. Dividend equivalents accrue on these awards at the same rate as dividends are paid on outstanding shares of BD stock. The accrued dividend equivalents are paid, in the form of shares, only if the underlying award vests. The value of the dividend equivalent rights is included in the amounts shown in the above table and the Stock Awards column of the Summary Compensation Table.
Change of Control. Performance Units, TVUs and SARs fully vest upon a change of control (see Accelerated Vesting of Equity Compensation Awards Upon a Change of Control on page 51).
OUTSTANDING EQUITY AWARDS
The following table sets forth the outstanding equity awards held by the named executive officers at the end of fiscal year 2012.
Outstanding Equity Awards at 2012 Fiscal Year-End
Set forth below is the value of the exercisable options and SARs held by named executive officers at the end of fiscal year 2012. The value represents the difference between $78.56, the closing price of BD common stock on September 30, 2012, and the exercise price of each exercisable option or SAR held by the named executive officer. These values may not reflect the value actually realized by the named executive officers upon exercise.
STOCK OPTION EXERCISES AND VESTING OF STOCK UNITS
The following table contains information relating to the exercise of stock options and the vesting of Performance Units and TVUs during fiscal year 2012.
Option Exercises and Stock Vested in Fiscal Year 2012
General. BDs Retirement Plan is a non-contributory defined benefit plan that provides for normal retirement at age 65 and permits earlier retirement in certain cases. The Retirement Plan is generally available to all active full-time and part-time U.S. BD associates.
The Retirement Plan provides benefits on either a final average pay basis or on a cash balance basis. Under the final average pay provisions, benefits are based upon an associates years of service and compensation for the five consecutive calendar years that produce the highest average annual compensation. The covered compensation includes salary, commissions and PIP awards. Under the cash balance provisions, an associate has an account that is increased by pay credits based on compensation, age and service, and interest credits based on the rate prescribed by the plan. The benefits for all associates joining BD after April 1, 2007 are calculated in accordance with the cash balance provisions of the Retirement Plan. Equity compensation is not included in calculating benefits under the plan. Messrs. Forlenza, Kozy, Cohen and Sherman participate under the final average pay provisions of the plan, while Mr. Elkins participated under the cash balance provisions. Beginning January 1, 2013, future benefit accruals for BD associates, including the named executive officers, will be calculated under the cash balance provisions of the Retirement Plan.
Under the final average pay provisions, the Retirement Plan is integrated with Social Security, which means that BD provides a higher pension benefit with respect to an associates compensation that exceeds the Social Security wage base than on compensation that is subject to the Social Security tax. This feature of the Retirement Plan accounts for the fact that Social Security benefits will not be paid to the associate with respect to compensation that exceeds the Social Security wage base.
Deferred Compensation and Retirement Benefit Restoration Plan. The Internal Revenue Code limits the maximum annual benefit that may be paid to an individual under the Retirement Plan and the amount of compensation that may be recognized in calculating these benefits. BD makes supplemental payments to its Deferred Compensation and Retirement Benefit Restoration Plan to offset any reductions in benefits that result from these limitations. BDs obligations to pay retirement benefits under the Deferred Compensation and Retirement Benefit Restoration Plan are funded through a trust. The trust is currently secured by a letter of credit. The trustee is required to draw on the letter of credit, up to specified limits, following a change of control of BD (as defined in the trust agreement).
Estimated Benefits. The following table shows the lump sum actuarial present value on September 30, 2012 of accumulated retirement benefits payable under our plans at the earliest date on which the named executive officer can retire without any reduction in retirement benefits, assuming benefits payable as a single life annuity (see discussion of early retirement benefits below). For a description of the other assumptions used in calculating the present value of these benefits, see Note 8 to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended September 30, 2012.
PENSION BENEFITS AT 2012 FISCAL YEAR-END
Amounts shown are not subject to any further deduction for Social Security benefits or other offsets. Associates may elect to receive a lifetime pension or the actuarial value of their retirement benefits in a lump sum, as described below.
Calculation of Benefits.
Final Average Pay Provisions. The monthly pension benefit payable in cases of retirement at normal retirement age under the final average pay provisions of the Retirement Plan is calculated using the following formula:
(1% of average final covered compensation, plus 1.5% of average final excess compensation)
multiplied by years and months of credited service
For purposes of the formula, average final covered compensation is generally the portion of an associates covered compensation subject to Social Security tax, and average final excess compensation is the portion that is not subject to such tax.
Cash Balance Provisions. Each month, an associates cash balance account is credited with an amount equal to a percentage of the associates total compensation for the month (generally, salary and other forms of regular compensation, including commissions and PIP awards). Such percentage is calculated as follows:
In addition, each month the associates account is credited with interest. The rate used during the year is determined based on the 30-year U.S. Treasury rates in effect during the prior September.
Early Retirement. Early retirement is available for an associate who has reached age 55 and has at least 10 years of vesting service. Messrs. Forlenza and Kozy are currently eligible for early retirement under the plans.
Under the final average pay provisions of the Retirement Plan, an associates pension benefit is reduced by 4/10 of 1% (0.004) for each month that the associate receives benefits before the earlier of (i) age 65 or (ii) the date the associates age plus years of credited service would have equaled 85 had his or her employment continued. For example, if an associate were to retire at age 63 with 22 years of service, the associates benefit would not be reduced, because the sum of the associates age and service equals 85.
Under the cash balance provisions, the amount of the associates benefit will be the associates account balance on the early retirement date. The associate may elect to begin payment of the account balance on the early retirement date or delay payment until the normal retirement date.
Form of Benefit. Participants may elect to receive their benefits in various forms. Participants may select a single life annuity, in which pension payments will be payable only during the associates lifetime. Associates may also elect to receive their benefits in a single lump sum payment. Under the final average pay provisions, this lump sum is actuarially equivalent to the benefit payable under the single life annuity option. Under the cash balance provisions, the lump sum is equal to the associates account balance.
Married participants may select a joint and survivor annuity option. Under this option, the associate receives a reduced benefit during his or her lifetime, and, upon death, the associates spouse will receive monthly payments for the remainder of the spouses lifetime. The associate can choose a continuation benefit of 50%, 75% or 100% of the amount that was paid to the associate. The degree to which the pension benefit is reduced depends upon the age difference of the associate and the spouse, and on the percentage of the continuation benefit that is selected.
Associates may also select a guaranteed payment option. The associate chooses a designated number of guaranteed monthly payments (either a 60-month minimum guarantee or a 120-month minimum guarantee). If the associate dies before receiving all of the minimum payments, the associates beneficiary will receive the balance of the payments. If this option is selected, the single life annuity otherwise payable is reduced to cover the cost of the guarantee. The amount of the reduction is 3% if the 60-month option is chosen, and 7% if the 120-month option is chosen.
Cash Deferrals. The BD Deferred Compensation and Retirement Benefit Restoration Plan is a nonqualified plan that allows an eligible BD associate to defer receipt of up to 75% of salary and/or up to 100% of a PIP award until the date or dates elected by the associate. The amounts deferred are invested in shares of BD common stock or in cash accounts that mirror the gains and/or losses of several different publicly available
investment funds, based on the investment selections of the participants. The investment risk is borne solely by the participant. Participants are entitled to change their investment elections at any time with respect to prior deferrals, future deferrals or both. The plan does not offer any above-market or preferential rates of return to the named executive officers. The investment options available to participants may be changed by BD at any time.
Deferral of Equity Awards. The plan also allows associates to defer receipt of up to 100% of the shares issuable under their Performance Units and TVUs. These deferred shares are allocated to the participants BD stock account and must stay in such account until they are distributed.
Withdrawals and Distributions. Participants may elect to receive deferred amounts either while they are still employed at BD or following termination of employment. Participants may elect to receive distributions in installments or in a lump sum. Except in the case of an unforeseen emergency, participants may not withdraw deferred funds prior to their scheduled distribution date.
Matching Contributions. BD provides matching contributions on cash amounts deferred under the plan. These contributions are made in the first calendar quarter following the calendar year in which the compensation was deferred. BD matches 75% of the first 6% of salary and PIP award deferred by a participant under the plan and our 401(k) plan combined. Matching contributions are made to the extent the total cash compensation from which a participant makes contributions to these plans does not exceed three times the limit for qualified plans.
Unfunded Liability. BD is not required to make any contributions to the plan with respect to its obligations to pay deferred compensation. BD has unrestricted use of any amounts deferred by participants. Participants have an unsecured contractual commitment from BD to pay the amounts due under the plan. When such payments are due, the cash and/or stock will be distributed from BDs general assets. BD has purchased corporate-owned life insurance that mirrors the returns on amounts deferred under the plan to substantially offset this liability.
Account Information. The following table sets forth information regarding activity during fiscal year 2012 in the plan accounts maintained by the named executive officers.
NONQUALIFIED DEFERRED COMPENSATION IN FISCAL YEAR 2012
Payments Upon Termination of Employment
The table below shows the estimated payments and benefits that would be paid by BD to each named executive officer as a result of his termination of employment under various scenarios. The amounts shown assume termination of employment on September 30, 2012. However, the actual amounts that would be paid to these named executive officers under each scenario can only be determined at the actual time of termination.
The amounts shown in the above table do not include vested deferred compensation that would be paid upon termination, which is shown on page 48. The amounts shown also do not include the value of vested stock options and SARs held by the named executive officers as of September 30, 2012. The value of these vested options and SARs appears on page 44.
Payments Upon Termination Following a Change of Control
BD has entered into agreements with each of the named executive officers that provide for the continued employment of the executive for a period of two years following a change of control of BD. These agreements are designed to retain key executives and provide continuity of management in the event of an actual or threatened change of control of BD. The following is a summary of the key terms of the agreements.
The agreement provides that BD will continue to employ the executive for two years following a change of control, and that, during this period, the executives position and responsibilities at BD will be materially the same as those prior to the change of control. The agreement also provides for minimum salary, PIP award and other benefits during this two-year period. Change of control is defined under the agreement generally as:
The agreement also provides that, in the event the executive is terminated without cause or the executive terminates his employment for good reason during the two years following a change of control, the executive would receive:
Cause is generally defined as the willful and continued failure of the executive to substantially perform his duties, or illegal conduct or gross misconduct that is materially injurious to BD. Good reason is generally defined to include (i) any significant adverse change in the executives position or responsibilities, (ii) the failure of BD to pay any compensation called for by the agreement, or (iii) certain relocations of the executive.
Under the agreement, if any payments or distributions made by BD to the executive as a result of a change of control would be subject to an excise tax imposed by the Internal Revenue Code, BD will make an additional tax reimbursement payment to the executive. As a result of this payment, the executive would retain the same amount, net of all taxes, that he would have retained had the excise tax not been triggered. This provision applies to any payments or distributions resulting from the change of control, including the accelerated vesting of equity awards discussed below. However, if such payments and distributions do not exceed 110% of the level that triggers the excise tax, they will be reduced to the extent necessary to avoid the excise tax.
The following table sets forth the estimated benefits each named executive officer would receive under his agreement in the event he was terminated without cause or terminated his employment for good reason following a change of control. The table assumes a termination date of September 30, 2012. These estimates are based on salary rates in effect as of September 30, 2012, and use the 2012 target PIP awards of the named executive officers as the Highest Incentive Payment.
Accelerated Vesting of Equity Compensation Awards Upon a Change of Control
Upon a change of control, as defined in our equity compensation plans, all unvested options and SARs become fully vested and exercisable, and all time-vested restricted stock units and Performance Units become fully vested and payable (with Performance Units being payable at their target amount). This accelerated vesting occurs with respect to all equity compensation awards granted by BD, not just those granted to executive officers. No termination of employment is required to trigger this acceleration.
The following table sets forth the value to the named executive officers of the accelerated vesting of the unvested equity compensation awards they held at the end of fiscal year 2012, assuming a change of control of BD occurred on September 30, 2012. The BD common stock closing price of $78.56 on September 30, 2012 is used for purposes of these calculations.
The value of unvested restricted stock units is calculated by multiplying the shares distributable by $78.56. The value of unvested options and SARs is calculated using the difference between the exercise price of each option or SAR and $78.56.
Equity Compensation Upon Termination of Employment
Upon a named executive officers termination due to retirement:
Upon a named executive officers termination due to involuntary termination without cause:
Upon a named executive officers termination due to death or disability:
Ernst & Young LLP (E&Y) has been selected by the Audit Committee of the Board to audit the accounts of BD and its subsidiaries for the fiscal year ending September 30, 2013. A representative of E&Y is expected to attend the meeting to respond to appropriate questions and will have the opportunity to make a statement.
Listed below are the fees billed to BD by E&Y for services rendered during fiscal years 2012 and 2011:
Pre-Approval of Audit and Non-Audit Services
The Audit Committee is responsible for appointing BDs independent registered public accounting firm (the independent auditors) and approving the terms of the independent auditors services. The Audit Committee has established a policy for the pre-approval of all audit and permissible non-audit services to be provided by the independent auditors, as described below. All of the services listed in the above table were approved pursuant to this policy.
Audit Services. Under the policy, the Audit Committee will appoint BDs independent auditors each fiscal year and pre-approve the engagement of the independent auditors for the audit services to be provided.
Non-Audit Services. In accordance with the policy, the Audit Committee has established detailed pre-approved categories of non-audit services that may be performed by the independent auditors during the fiscal year, subject to the dollar limitations set by the Audit Committee. The Audit Committee has also delegated to the Chair of the Audit Committee the authority to approve additional non-audit services to be performed by the independent auditors, subject to certain dollar limitations, and provided that the full Audit Committee is informed of each service. All other non-audit services are required to be pre-approved by the entire Audit Committee.
The Audit Committee believes that the provision of the non-audit services described above by E&Y is consistent with maintaining the independence of E&Y.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2. IF RATIFICATION IS WITHHELD, THE AUDIT COMMITTEE WILL RECONSIDER ITS SELECTION.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee reviews BDs financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process, including the system of internal controls. The independent auditors are responsible for performing an independent audit of the Companys consolidated financial statements in accordance with generally accepted auditing standards and to issue a report thereon. The Committee monitors these processes.
In this context, the Committee met and held discussions with management and the independent auditors. Management represented to the Committee that the Companys consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States, and the Committee reviewed and discussed the consolidated financial statements with management and the independent auditors. The Committee also discussed with the independent auditors the matters required to be discussed by the statement on Auditing Standards No. 61 (Codification of Statements on Auditing Standards, AU 380), as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T.
In addition, the Committee discussed with the independent auditors the auditors independence from BD and its management, and the independent auditors provided to the Committee the written disclosures and the letter pursuant to the applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditors communications with the Committee concerning independence. The Committee discussed with BDs internal and independent auditors the overall scope and plans for their respective audits. The Committee met with the internal and independent auditors, with and without management present, to discuss the results of their examinations, their evaluations of BDs internal controls, and the overall quality of BDs financial reporting. Management has also reviewed with the Audit Committee its report on the effectiveness of BDs internal control over financial reporting. The Audit Committee also received the report from the independent auditors on BDs internal control over financial reporting.
Based on the reviews and discussions referred to above, the Committee recommended to the Board of Directors, and the Board has approved, that the audited financial statements be included in the Companys Annual Report on Form 10-K for the fiscal year ended September 30, 2012, for filing with the Securities and Exchange Commission.
Basil L. Anderson, Chair
Marshall O. Larsen
Gary A. Mecklenburg
James F. Orr
Rebecca W. Rimel
Bertram L. Scott
The Compensation Discussion and Analysis beginning on page 25 of this proxy statement describes BDs executive compensation program and the compensation decisions made by the Compensation and Benefits Committee and the Board of Directors in 2012 with respect to our Chief Executive Officer and the other officers named in the Summary Compensation Table on page 39 (who we refer to as the named executive officers). The Board of Directors is asking shareholders to cast a non-binding advisory vote on the following resolution:
RESOLVED, that the shareholders of Becton, Dickinson and Company (BD) approve the compensation of the BD executive officers named in the Summary Compensation Table, as disclosed in this proxy statement pursuant to the compensation disclosure rules of the Securities and Exchange Commission (which disclosure includes the Compensation Discussion and Analysis, the executive compensation tables and the related footnotes and narrative accompanying the tables).
As we describe in the Compensation Discussion and Analysis, our executive compensation program embodies a pay-for-performance philosophy that supports BDs business strategy and aligns the interests of our executives with our shareholders. At the same time, our program does not encourage excessive risk-taking by management. We believe that the compensation actions taken for 2012 appropriately reflected the performance of our named executive officers and BD during the year under challenging economic conditions, and that payouts under our long-term incentive compensation demonstrate a high degree of alignment with BDs performance against the targets set by our Compensation and Benefits Committee.
For these reasons, the Board is asking shareholders to support this proposal. While the advisory vote we are asking you to cast is non-binding, the Compensation and Benefits Committee and the Board value the views of our shareholders and will take into account the outcome of the vote when considering future compensation decisions for our named executive officers. BD holds an advisory vote to approve named executive officer compensation on an annual basis.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 3.
The Board of Directors is unanimously recommending approval of an amendment to BDs Restated Certificate of Incorporation (the Restated Certificate) that would eliminate Article VI of the Restated Certificate. The text of Article VI is attached to this